Hasbro 2010 Annual Report Download - page 60

The Company enters into arrangements licensing its brand names on specifically approved products. The
licensees pay the Company royalties as products are sold, in some cases subject to minimum guaranteed
amounts. Royalty revenues are recognized as they are reported as earned and payment becomes assured, over
the life of the agreement.
The Company produces television programming for license to third parties. Revenues from the licensing
of television programming are recorded when the content is available for telecast by the licensee and when
certain other conditions are met.
Revenue from product sales less related provisions for discounts, rebates and returns, as well as royalty
revenues and television programming revenues comprise net revenues in the consolidated statements of
operations.
Costs of Sales
Cost of sales primarily consists of purchased materials, labor, manufacturing overheads and other
inventory-related costs such as obsolescence. In addition, cost of sales during 2010 also includes amortization
of program production costs.
Royalties
The Company enters into license agreements with inventors, designers and others for the use of
intellectual properties in its products. These agreements may call for payment in advance or future payment of
minimum guaranteed amounts. Amounts paid in advance are recorded as an asset and charged to expense as
revenue from the related products is recognized. If all or a portion of the minimum guaranteed amounts appear
not to be recoverable through future use of the rights obtained under license, the non-recoverable portion of
the guaranty is charged to expense at that time.
Advertising
Production costs of commercials are charged to operations in the fiscal year during which the production
is first aired. The costs of other advertising, promotion and marketing programs are charged to operations in
the fiscal year incurred.
Program Production Costs
The Company incurs certain costs in connection with the production of television programming. These
costs are capitalized by the Company as they are incurred and amortized using the individual-film-forecast
method, whereby these costs are amortized in the proportion that the current year’s revenues bear to
management’s estimate of total ultimate revenues as of the beginning of such period related to the program.
These capitalized costs are reported at the lower of cost, less accumulated amortization, or fair value, and
reviewed for impairment when an event or change in circumstances occurs that indicates that impairment may
exist. The fair value is determined using a discounted cash flow model which is primarily based on
management’s future revenue and cost estimates.
Shipping and Handling
Hasbro expenses costs related to the shipment and handling of goods to customers as incurred. For 2010,
2009 and 2008, these costs were $154,604, $155,496 and $178,738, respectively, and are included in selling,
distribution and administration expenses.
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HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)