Hasbro 2006 Annual Report Download - page 59

Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which amends Statement of
Financial Accounting Standards No. 123, as amended by No. 148, and Statement of Financial Accounting
Standards No. 95, “Statement of Cash Flows”. The Company adopted SFAS 123R under the modified
prospective basis as defined in the statement. In 2006, the Company recorded stock option expense based on
all unvested stock options as of the adoption date as well as all stock-based compensation awards granted
subsequent to the adoption date. See footnote 10 for further information related to the adoption of this
statement. Prior to 2006, as permitted by Statement of Financial Accounting Standards No. 123, as amended
by No. 148, “Accounting for Stock-Based Compensation”, (collectively “SFAS 123”), Hasbro accounted for
those plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees”, and related interpretations. As required by the Company’s
existing stock plans, stock options are granted at or above the fair market value of the Company’s stock and,
accordingly, no compensation expense was recognized for these grants in the consolidated statements of
operations in 2005 and 2004.
Had compensation expense been recorded under the fair value method as set forth in the provisions of
SFAS 123 for stock options awarded, the impact on the Company’s net earnings and earnings per share for
2005 and 2004 would have been:
2005 2004
Reported net earnings .......................................... $212,075 195,977
Add:
Stock-based employee compensation expense included in reported net
earnings, net of related tax effects............................ 46 103
Deduct:
Total stock-based employee compensation expense determined under fair
value based method for all awards, net of related tax effects ........ (15,124) (13,844)
Pro forma net earnings ......................................... $196,997 182,236
Reported net earnings per share
Basic .................................................... $ 1.19 1.11
Diluted ................................................... $ 1.09 .96
Pro forma net earnings per share
Basic .................................................... $ 1.10 1.03
Diluted ................................................... $ 1.01 .89
Earnings Per Common Share
Basic earnings per share is computed by dividing net earnings by the weighted average number of shares
outstanding for the year. Diluted earnings per share is similar except that the weighted average number of
shares outstanding is increased by dilutive securities, and net earnings are adjusted for certain amounts related
to dilutive securities. Dilutive securities include shares issuable under convertible debt, as well as shares
issuable upon exercise of stock options and warrants for which market price exceeds exercise price, less shares
which could have been purchased by the Company with the related proceeds. Dilutive securities may also
include shares potentially issuable to settle liabilities. Options and warrants totaling 5,148, 6,018 and 10,207
for 2006, 2005 and 2004, respectively, were excluded from the calculation of diluted earnings per share
because to include them would have been antidilutive.
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)