Hasbro 2011 Annual Report Download - page 49

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
$391,555 at December 25, 2011. During 2011, there were no impairment charges related to these intangible assets.
Recoverability of Royalty Advances and Commitments
The Company’s ability to earn-out 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 non-recoverable 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 25,
2011, the Company had $134,730 of prepaid royalties, $16,788 of which are included in prepaid expenses and
other current assets and $117,942 of which are included in other assets.
Pension Costs and Obligations
Pension expense is based on actuarial computations of current and future benefits using estimates for
expected return on assets and applicable discount rates. At the end of 2007 the Company froze benefits under its
two largest pension plans in the U.S., with no future benefits accruing to employees. The Company will continue
to pay benefits under the plan consistent with the provisions existing at the date of the plan benefit freeze. The
estimates for the Company’s U.S. plans are established at the Company’s measurement date. The Company uses
its fiscal year-end date as its measurement date to measure the liabilities and assets of the plans and to establish
the expense for the upcoming year.
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 plan assets used in the calculation of 2011 pension expense for the U.S. plans was 7.25%. 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 2011 pension expense for U.S. plans by approximately $655.
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. The Company’s discount rate for its U.S. plans used for the calculation of 2011 pension expense
averaged 5.20%. 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 2011 pension expense and the 2011 projected benefit obligation by approximately $465 and $11,554,
respectively.
Actual results that differ from the actuarial assumptions are accumulated and, if outside a certain corridor,
amortized over future periods and, therefore affect recognized expense in future periods. At December 25, 2011,
the Company’s U.S. plans had unrecognized actuarial losses of $104,872 included in accumulated other
comprehensive earnings related to its defined benefit pension plans compared to $87,553 at December 26, 2010.
The increase primarily reflects additional unrecognized actuarial losses in 2011, primarily due to the reduction of
the discount rate used to value the liability at December 25, 2011 as well as differences between the Company’s
actual return on plan assets and the expected return assumed in the calculation of the 2011 expense. The discount
rate used to calculate the projected benefit obligation at December 25, 2011 decreased to 4.96% at December 25,
2011 from 5.20% used at December 26, 2010. Pension plan assets are valued on the basis of their fair market
value on the measurement date. These changes in the fair market value of plan assets impact the amount of future
pension expense due to amortization of the unrecognized actuarial losses or gains.
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