Hasbro 2011 Annual Report Download - page 68

HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)
(5) Equity Method Investment
In 2009, the Company acquired a 50% interest in a joint venture, Hub Television Networks, LLC (“THE
HUB”), with Discovery Communications, Inc. (“Discovery”). THE HUB, formerly known as the Discovery Kids
Network, was established to create a television network in the United States dedicated to high-quality children’s
and family entertainment and educational programming. The Company purchased its 50% share in THE HUB for
a payment of $300,000 and certain future payments based on the value of certain tax benefits expected to be
received by the Company. The present value of the expected future payments at the acquisition date totaled
approximately $67,900 and was recorded as a component of the Company’s investment in the joint venture. The
balance of the associated liability, including imputed interest, was $71,999 and $72,665 at December 25, 2011
and December 26, 2010, respectively, and is included as a component of other liabilities in the accompanying
balance sheets.
Voting control of THE HUB is shared 50/50 between the Company and Discovery. The Company has
determined that it does not meet the control requirements to consolidate THE HUB, and accounts for the
investment using the equity method of accounting. The Company’s share in the loss (earnings) of THE HUB for
the years ended December 25, 2011, December 26, 2010 and December 27, 2009 totaled $7,290, $9,323 and
$(3,856), respectively, and is included as a component of other (income) expense, net in the accompanying
consolidated statements of operations.
The Company has entered into a license agreement with THE HUB that requires the payment of royalties by
the Company to THE HUB based on a percentage of revenue derived from products related to television shows
broadcast by the joint venture. The license agreement includes a minimum royalty guarantee of $125,000,
payable in 5 annual installments of $25,000 per year, commencing in 2009, which can be earned out over
approximately a 10-year period. During 2011, 2010 and 2009, the Company paid the first three annual
installments of $25,000 each which are included in other, including long-term advances in the consolidated
statements of cash flows. As of December 25, 2011, the Company had $72,916 of prepaid royalties related to this
agreement, $4,974 of which are included in prepaid expenses and other current assets and $67,942 of which are
included in other assets. The Company and THE HUB are also parties to an agreement under which the Company
will provide THE HUB with an exclusive first look in the U.S. to license certain types of programming
developed by the Company based on its intellectual property. In the event THE HUB licenses the programming
from the Company to air on the network, it is required to pay the Company a license fee.
As of December 25, 2011 and December 26, 2010, the Company’s interest in THE HUB totaled $343,835
and $354,612, respectively, and is a component of other assets. The Company also enters into certain other
transactions with THE HUB including the licensing of television programming and the purchase of advertising.
During 2011, 2010 and 2009, these transactions were not material.
(6) Program Production Costs
Program production costs are included in other assets and consist of the following at December 25, 2011
and December 26, 2010:
2011 2010
Released, less amortization ........................................... $44,091 12,852
In production ...................................................... 33,583 19,319
Pre-production ..................................................... 2,161 1,417
Acquired libraries .................................................. 765 1,827
Total program production costs ....................................... $80,600 35,415
59