Hasbro 2006 Annual Report Download - page 72

The Company uses the Black-Scholes valuation model in determining fair value of stock-based awards.
The weighted average fair value of options granted in fiscal 2006, 2005 and 2004 were $4.26, $5.41 and
$6.32, respectively. The fair value of each option grant is estimated on the date of grant using the Black-
Scholes option pricing model with the following weighted average assumptions used for grants in the fiscal
years 2006, 2005, and 2004:
2006 2005 2004
Risk-free interest rate .................................... 4.98% 3.84% 3.85%
Expected dividend yield .................................. 2.55% 1.75% 1.29%
Expected volatility ...................................... 24% 29% 40%
Expected option life ..................................... 5years 5 years 5 years
The intrinsic values, which represent the difference between the fair market value on the date of exercise
and the exercise price of the option, of the options exercised in fiscal 2006, 2005 and 2004 were $46,684,
$16,898 and $11,113, respectively.
In addition to the above, the Company currently has 17,450 warrants outstanding and exercisable at
December 31, 2006, which have a weighted average exercise price, weighted average remaining life and
intrinsic value at December 31, 2006 of $20.11, 11.46 years, and $124,624, respectively.
At December 31, 2006, the amount of total unrecognized compensation cost related to stock options is
$20,008 and the weighted average period over which this will be expensed is 21.9 months.
In May 2006, the Company granted 52 shares of common stock to its non-employee members of its
Board of Directors, of which the receipt of 43 shares have been deferred to the date upon which the respective
director ceases to be a member of the Company’s Board of Directors. This award was valued at the market
value at the date of grant and vested upon grant. Compensation cost of $990 was recorded in connection with
this grant.
(11) Pension, Postretirement and Postemployment Benefits
Pension and Postretirement Benefits
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, “Employer’s
Accounting for Defined Benefit Pension and Other Postretirement Plans”, (“SFAS No. 158”) which amends
Statements of Financial Accounting Standards No. 87, 88, 106 and 132R. Under SFAS No. 158, the Company
is required to recognize on its balance sheet actuarial gains and losses and prior service costs that have not yet
been included in income as an adjustment of equity through other comprehensive earnings with a correspond-
ing adjustment to prepaid pension expense or the accrued pension liability. In addition, within two years of
adoption, the measurement date for plan assets and liabilities would be required to be the Company’s fiscal
year end. SFAS No. 158 was effective for the Company in the fourth quarter of 2006. The effect of this
statement on the Company’s defined benefit pension and postretirement plans was an increase in accrued
pension liability of $36,287, a decrease in intangible assets of $3,108, an increase in deferred tax assets of
$12,645 and a decrease in accumulated other comprehensive earnings, net of tax, of $26,750.
Expense related to the Company’s defined benefit and defined contribution plans for 2006, 2005 and
2004 were approximately $31,100, $28,800, and $26,300, respectively. Of these amounts, $15,400, $13,900
and $12,100 related to defined contribution plans in the United States and certain international affiliates. The
remainder of the expense relates to defined benefit plans discussed below.
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)