Hasbro 2007 Annual Report Download - page 40

requires the selection of an appropriate discount rate. The use of different assumptions would increase or
decrease estimated discounted cash flows and could increase or decrease the related impairment charge.
Intangible assets covered under this policy were $410,494 at December 30, 2007. During 2007, there were no
impairment charges related to these intangible assets.
Recoverability of Royalty Advances and Commitments
The recoverability of royalty advances and contractual obligations with respect to minimum guaranteed
royalties is assessed by comparing the remaining minimum guaranty to the estimated future sales forecasts and
related cash flow projections to be derived from the related product. If sales forecasts and related cash flows
from the particular product do not support the recoverability of the remaining minimum guaranty or, if the
Company decides to discontinue a product line with royalty advances or commitments, a charge to royalty
expense to write-off the remaining minimum guaranty is required. The preparation of revenue forecasts and
related cash flows for these products requires judgments and estimates. Actual revenues and related cash flows
or changes in the assessment of anticipated revenues and cash flows related to these products could result in a
change to the assessment of recoverability of remaining minimum guaranteed royalties. At December 30,
2007, the Company had $137,959 of prepaid royalties, $94,616 of which are included in prepaid expenses and
other current assets and $43,343 which are included in other assets.
Pension Costs and Obligations
The Company, except for certain international subsidiaries, has pension plans covering substantially all of
its full-time employees. Pension expense is based on actuarial computations of current and future benefits
using estimates for expected return on assets, expected compensation increases, and applicable discount rates.
The estimates for the Company’s U.S. plans are established at the Company’s measurement date. Prior to
2007, the Company used September 30 as its measurement date to measure the liabilities and assets of the
plans and to establish the expense for the upcoming year. In accordance with the provisions of Statement of
Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans”, (“SFAS No. 158”) which the Company adopted in December of 2006, the Company
changed its measurement date in 2007 to its fiscal year-end date. In accordance with this, the liabilities and
assets of the plans were remeasured as of December 31, 2006. See note 11 to the consolidated financial
statements for the impact of this remeasurement.
The Company estimates expected return on assets using a weighted average rate based on historical
market data for the investment classes of assets held by the plan, the allocation of plan assets among those
investment classes, and the current economic environment. Based on this information, the Company’s estimate
of expected return on U.S. plan assets was 8.75% in 2007, 2006 and 2005. A decrease in the estimate used for
expected return on plan assets would increase pension expense, while an increase in this estimate would
decrease pension expense. A decrease of 0.25% in the estimate of expected return on plan assets would have
increased 2007 pension expense for U.S. plans by approximately $660.
Expected compensation increases are estimated using a combination of historical and expected compen-
sation increases. Based on this analysis, the Company’s estimate of expected long-term compensation increases
for its U.S. plans was 4.0% in 2007, 2006 and 2005. Increases in estimated compensation increases would
result in higher pension expense while decreases would lower pension expense.
Discount rates are selected based upon rates of return at the measurement date on high quality corporate
bond investments currently available and expected to be available during the period to maturity of the pension
benefits. Based on this long-term corporate bond yield at December 30, 2007, the Company’s measurement
date for its pension assets and liabilities, the Company’s discount rate for its U.S. plans used for the
calculation of 2007 pension expense averaged 5.83% compared to a rate of 5.50% used in the calculation of
2006 pension expense and 5.75% used in the calculation of 2005 pension expense. A decrease in the discount
rate would result in greater pension expense while an increase in the discount rate would decrease pension
expense. A decrease of 0.25% in the Company’s discount rate would have increased 2007 pension expense and
the 2007 projected benefit obligation by approximately $744 and $7,779, respectively.
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