Hasbro 2008 Annual Report Download - page 40

December 28, 2008, the Company had prepaid royalties related to the Marvel license in both current and non-
current assets. Each reporting period, the Company reflects as current prepaid expense the amount of royalties
it expects to reflect in the statement of operations in the upcoming twelve months. The decrease in prepaid
expenses and other current assets in 2008 was partially offset by an increase in the value of the Company’s
foreign currency contracts as a result of the strengthening of the U.S. dollar. Prepaid expenses and other
current assets decreased to $199,912 at December 30, 2007 from $243,291 at December 31, 2006. This
decrease was primarily due to utilization of Marvel and Lucas royalty advances, as well as a decrease in
deferred tax assets.
Accounts payable and accrued expenses increased to $792,306 at December 28, 2008 from $742,122 at
December 30, 2007. The increase was primarily the result of increased accrued royalties as a result of the
utilization of the remainder of the Lucas prepaid royalty advance in the third quarter of 2008 as well as
increased accrued pension primarily due to decreases in the Plans’ asset values in 2008. The December 28,
2008 accounts payable and accrued expenses balance includes a decrease of approximately $64,300 as a result
of the currency impact of the stronger U.S. dollar in 2008 compared to 2007. Accounts payable and accrued
expenses decreased to $742,122 at December 30, 2007 from $895,311 at December 31, 2006. The decrease
was primarily due to the Company’s exercise of its call option related to warrants required to be classified as a
liability and repurchasing these warrants for $200,000 in cash in the second quarter of 2007. At December 31,
2006, these warrants had a fair value of $155,630. The decrease was also a result of the reclassification to
non-current liabilities of the liabilities related to uncertain tax positions as a result of the adoption of FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” at the beginning of 2007. These
decreases were partially offset by increases in accrued royalties primarily due to the significant sales of
TRANSFORMERS movie-related products, accrued advertising due to higher levels of advertising expense in
the fourth quarter of 2007, as well as higher accounts payable due to higher levels of inventory and expenses
as of December 30, 2007.
Cash flows from investing activities were a net utilization of $271,920, $112,465 and $83,604 in 2008,
2007 and 2006, respectively. The 2008 utilization includes the Company’s purchase of the intellectual property
rights related to the TRIVIAL PURSUIT brand for a total cost of $80,800 as well as $65,153 in cash, net of
cash acquired, used to acquire Cranium, Inc. in January 2008. In July 2007, with the exception of rights to
DUNGEONS & DRAGONS, the Company reacquired the remaining digital gaming rights for its owned or
controlled properties held by Infogrames Entertainment SA (Infogrames). The acquisition price of $19,000
included $18,000 in cash and $1,000 of non-cash consideration in the form of the return of preferred stock
held by the Company in a subsidiary of Infogrames. The rights repurchased in 2007 were previously held by
Infogrames on an exclusive basis as a result of a licensing agreement entered into during 2000. The Company
made no acquisitions in 2006. During 2008, the Company expended approximately $117,000 on additions to
its property, plant and equipment compared to $92,000 during 2007 and $82,000 during 2006. Of these
amounts, 56% in 2008, 61% in 2007 and 63% in 2006 were for purchases of tools, dies and molds related to
the Company’s products. In 2009, the Company expects capital expenditures to decrease and be in the range
of $90,000 to $100,000. During the three years ended December 28, 2008, depreciation of plant and equipment
was $87,873, $88,804, and $67,773, respectively.
The Company commits to inventory production, advertising and marketing expenditures prior to the peak
third and fourth quarter retail selling season. Accounts receivable increase during the third and fourth quarter
as customers increase their purchases to meet expected consumer demand in the holiday season. Due to the
concentrated timeframe of this selling period, payments for these accounts receivable are generally not due
until the fourth quarter or early in the first quarter of the subsequent year. This timing difference between
expenditures and cash collections on accounts receivable made it necessary for the Company to borrow higher
amounts during the latter part of the year. During 2008, 2007 and 2006, the Company primarily utilized cash
from operations, borrowings under its available lines of credit and its accounts receivable securitization
program to fund its operations.
The Company is party to an accounts receivable securitization program whereby the Company sells, on
an ongoing basis, substantially all of its U.S. trade accounts receivable to a bankruptcy remote special purpose
entity, Hasbro Receivables Funding, LLC (“HRF”). HRF is consolidated with the Company for financial
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