Hasbro 2006 Annual Report Download - page 60

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A reconciliation of net earnings and average number of shares for the three fiscal years ended
December 31, 2006 is as follows:
Basic Diluted Basic Diluted Basic Diluted
2006 2005 2004
Net earnings .............. $230,055 230,055 212,075 212,075 195,977 195,977
Change in fair value of
liabilities potentially
settleable in common
stock ................ — — — (2,080) — (12,710)
Interest expense on
contingent convertible
debentures due 2021, net
oftax................ — 4,262 — 4,263 — 4,263
$230,055 234,317 212,075 214,258 195,977 187,530
Average shares outstanding.... 167,100 167,100 178,303 178,303 176,540 176,540
Effect of dilutive securities:
Liabilities potentially
settleable in common
stock ................ — — — 5,339 — 5,629
Contingent convertible
debentures due 2021 ..... — 11,574 — 11,574 — 11,574
Options and warrants ...... — 2,369 — 2,220 — 2,305
Equivalent shares ........... 167,100 181,043 178,303 197,436 176,540 196,048
Net earnings per share ....... $ 1.38 1.29 1.19 1.09 1.11 .96
In December 2004, the Company adopted Emerging Issues Task Force (“EITF”) Issue 04-8, “The Effect
of Contingently Convertible Instruments on Diluted Earnings per Share”, which states that the dilutive effect
of contingent convertible debt instruments must be included in dilutive earnings per share regardless of
whether the triggering contingency has been satisfied. The earnings per share calculations for the three years
ended December 31, 2006 include adjustments to add back to earnings the interest expense, net of tax,
incurred on the Company’s Senior Convertible Debentures due 2021, as well as add back to outstanding shares
the amount of shares potentially issuable as if the contingent conversion features were met.
Pursuant to Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial
Instruments with Characteristics of Liabilities and Equity” (note 6), certain warrants containing a put feature
that may be settled in cash or common stock are required to be accounted for as a liability at fair value. The
Company is required to assess if these warrants, classified as a liability, have a more dilutive impact on
earnings per share when treated as an equity contract. As of December 31, 2006, the warrants had a more
dilutive impact on earnings per share assuming they were treated as a liability and no adjustments to net
earnings or equivalent shares was required. As of December 25, 2005 and December 26, 2004, the warrants
had a more dilutive impact on earnings per share assuming they were treated as an equity contract.
Accordingly for those years, the numerator includes an adjustment to earnings for the income included therein
related to the fair market value adjustment and the denominator includes an adjustment for the shares issuable
as of those dates.
49
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)