Hasbro 2013 Annual Report Download - page 37

The Company believes that its facilities are adequate for its needs. The Company believes that, should it not
be able to renew any of the leases related to its leased facilities, it could secure similar substitute properties
without a material adverse impact on its operations.
Item 3. Legal Proceedings.
The Company has outstanding tax assessments in Mexico relating to the years 2000 through 2007. These tax
assessments, which total approximately $249 million in aggregate (at year-end 2013 exchange rates including
interest, penalties, and inflation updates), are based on transfer pricing issues between the Company’s
subsidiaries with respect to the Company’s operations in Mexico. The Company has filed suit in the Federal
Tribunal of Fiscal and Administrative Justice in Mexico challenging the 2000 through 2004 assessments. The
Company filed the suit related to the 2000 and 2001 assessments in May 2009; the 2002 assessment in June
2008; the 2003 assessment in March 2009; and the 2004 assessment in July 2011. The Company is challenging
assessments for 2005 through 2007 through administrative appeals. The Company expects to be successful in
sustaining its positions for all of these years. However, in order to challenge the outstanding tax assessments
related to 2000 through 2004 in court, as is usual and customary in Mexico in these matters, the Company was
required to either make a deposit or post a bond in the full amount of the assessments. The Company elected to
post bonds and accordingly, as of December 29, 2013, bonds totaling approximately $187 million (at year-end
2013 exchange rates) have been posted related to the assessments for the years 2000 through 2004. These bonds
guarantee the full amounts of the related outstanding tax assessments in the event the Company is not successful
in its challenge to them. The Company does not currently expect that it will be required to make a deposit or post
a bond related to the 2005 through 2007 assessments as the Company is challenging these through administrative
appeals.
In 2013, an inventor brought claims against the Company based on two license agreements between the
parties. One license agreement related to certain products included in the Company’s SUPER SOAKER product
line. The other agreement related to certain products included in Hasbro’s NERF product line. The inventor
licensor, Johnson Research (“Johnson”), claimed that the license agreements required the payment of royalties by
the Company on a significantly greater number of products in each of those respective product lines than the
Company believed was the case. The claims related to the NERF products were pursued by the licensor in
binding arbitration in Atlanta, Georgia, as was required by the license. The licensor made a demand for
arbitration in February of 2013, seeking damages related to claimed non-payment of royalties on certain NERF
products for the years 2007 through 2012. The licensor’s claims related to the SUPER SOAKER products were
not subject to binding arbitration and were the subject of a separate complaint filed by the licensor in February of
2013 in the United States District Court for the Northern District of Georgia.
The arbitration hearing with respect to the NERF claims took place in August of 2013 before a single
arbitrator. On October 29, 2013, the arbitrator issued the ruling in the NERF arbitration. The arbitrator awarded a
total of $70.0 million, including damages, interest, fees and expenses, to the licensor. The Company disagreed
with the arbitrator’s ruling and filed a motion to vacate the arbitrator’s decision in U.S. District Court for the
District of Rhode Island based on several legal grounds. Prior to a decision, on February 7, 2014, the Company
entered into a Settlement Agreement (the “Settlement Agreement”) with Johnson with respect to all outstanding
litigation and arbitration proceedings between the parties relating to two license agreements involving the
Company’s NERF and SUPER SOAKER product lines (the “License Agreements”). Under the terms of the
Settlement Agreement, the Company has agreed to pay Johnson a reduced amount of $58.04 million and Johnson
agreed to release any and all claims arising from or relating to the License Agreements.
We are currently party to certain other legal proceedings, none of which we believe to be material to our
business or financial condition.
Item 4. Mine Safety Disclosures.
None.
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