Hasbro 2010 Annual Report Download - page 46

estimated to be earned related to the television program and include toy, game and other merchandise licensing
fees; first run program distribution fees; and other revenue sources, such as DVD distribution. Our ultimate
revenue estimates for each television program are developed based on our estimates of expected future results.
We review and revise these estimates at each reporting date to reflect the most current available information.
If estimates for a television program are revised, the difference between the program production cost
amortization determined using the revised estimate and any amounts previously expensed during that fiscal
year, are included as an adjustment to program production cost amortization in the consolidated statement of
operations in the quarter in which the estimates are revised. Prior period amounts are not adjusted for
subsequent changes in estimates. Factors that can impact our revenue estimates include the success and
popularity of our television programs in the U.S. which are distributed on THE HUB, our ability to achieve
broad distribution and viewer acceptance in international markets, and success of our program-related toy,
game and other merchandise.
For the year ended December 26, 2010 we have $35,415 of program production costs included in other
assets in the consolidated balance sheet. Program production cost amortization of $22,069 is included in cost
of sales in the consolidated statement of operations for the year ended December 26, 2010. We currently
expect that over 90% of capitalized program production costs will be amortized over a 4 year period including
the year of the programs’ initial broadcast distribution. The Company estimates program production cost
amortization in 2011 to be in the range of $35,000 to $45,000, which includes amortization related to amounts
capitalized during 2010 as well as amortization of amounts expected to be incurred for programs to be
completed and released in 2011. Future program production cost amortization is subject to change based on
actual costs incurred and management’s then current estimates of ultimate revenues. During 2010 the Company
did not incur any impairment charges related to its program production costs.
Recoverability of Goodwill and Intangible Assets
Goodwill and other intangible assets deemed to have indefinite lives are tested for impairment at least
annually. If an event occurs or circumstances change that indicate that the carrying value may not be
recoverable, the Company will perform an interim test at that time. The impairment test begins by allocating
goodwill and intangible assets to applicable reporting units. Goodwill is then tested using a two step process
that begins with an estimation of the fair value of the reporting unit using an income approach, which looks to
the present value of expected future cash flows.
The first step is a screen for potential impairment while the second step measures the amount of
impairment if there is an indication from the first step that one exists. Intangible assets with indefinite lives
are tested for impairment by comparing their carrying value to their estimated fair value which is also
calculated using an income approach. The Company’s annual goodwill impairment test was performed in the
fourth quarter of 2010 and the estimated fair value of the Company’s reporting units with allocated goodwill
were substantially in excess of their carrying value. No reporting units were considered to be at risk of failing
the first step of the impairment test. Accordingly, no impairment was indicated. The Company’s annual
impairment tests related to intangible assets with indefinite lives were also performed in the fourth quarter of
2010 and no impairments were indicated. The estimation of future cash flows requires significant judgments
and estimates with respect to future revenues related to the respective asset and the future cash outlays related
to those revenues. Actual revenues and related cash flows or changes in anticipated revenues and related cash
flows could result in a change in this assessment and result in an impairment charge. The estimation of
discounted cash flows also 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. At December 26, 2010, the Company has goodwill and intangible assets with
indefinite lives of $550,551 recorded on the balance sheet.
Intangible assets, other than those with indefinite lives, are amortized over their estimated useful lives and
are reviewed for indications of impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable. Recoverability of the value of these intangible assets is measured by a
comparison of the assets’ carrying value to the estimated future undiscounted cash flows expected to be
generated by the asset. If such assets were considered to be impaired, the impairment would be measured by
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