Hasbro 2013 Annual Report Download - page 49

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Eliminations operating loss during the year ended December 29, 2013 also included charges of $46,050 related to
the settlement of an adverse arbitration award and $40,587 in other product-related charges. Lastly, the 2013
operating loss also includes a charge related to the write-off of early film development costs associated with
films that had not yet moved to production.
Operating Expenses
The Company’s operating expenses, stated as percentages of net revenues, are illustrated below for the three
fiscal years ended December 29, 2013:
2013 2012 2011
Cost of sales ..................................................... 41.0% 40.9% 42.8%
Royalties ........................................................ 8.3 7.4 7.9
Product development .............................................. 5.1 4.9 4.6
Advertising ...................................................... 9.8 10.3 9.7
Amortization of intangibles ......................................... 1.9 1.3 1.1
Program production cost amortization ................................. 1.2 1.0 0.8
Selling, distribution and administration ................................ 21.3 20.7 19.2
Operating expenses for 2013, 2012 and 2011 include expenses related to the following events:
• In February 2014, the Company settled outstanding disputes with an inventor related to the contractual
interpretation of which products are subject to payment of royalties under two license agreements between
the inventor and the Company relating to the Company’s NERF and SUPER SOAKER product lines. As a
result, the Company has recorded a total charge of $61,140, of which $42,950 and $3,100 were recorded
to royalties and selling, distribution and administration expense, respectively, for the year ended
December 29, 2013. A portion of this total charge was also recorded to interest expense which is
discussed below.
• During the fourth quarter of 2012, the Company announced a multi-year cost savings initiative which
targets $100,000 in annual savings by the end of 2015, prior to other costs which have or are anticipated
to increase in 2014 as well as in future years. This initiative included an approximate 10% workforce
reduction, facility consolidations and process improvements. The Company recognized charges totaling
$36,710 and $36,046 for the years ended December 29, 2013 and December 30, 2012, respectively,
primarily related to employee severance charges, which impacted cost of sales, product development and
selling, distribution and administration expenses. Furthermore, the Company also recognized pension
curtailment and settlement charges in the amount of $6,993 in selling, distribution and administration
expense during the year ended December 29, 2013.
• During the fourth quarter of 2013, the Company decided to exit certain brands which were non-core to its
franchise brand strategy. Certain of these brands related to prior acquisitions and had intangible assets,
resulting in a write-off of these intangibles of $19,736, which have been recorded to amortization of
intangibles for the year ended December 29, 2013.
• During the fourth quarter of 2013 the Company amended its license agreement with Zynga which resulted
in additional royalty expense of $20,851.
• In the first quarter of 2012 the Company incurred employee severance charges of $11,130 associated with
measures to right size certain businesses and functions. These charges impacted cost of sales, product
development and selling, distribution and administration expense for the year ended December 30, 2012.
• In 2011, the Company incurred costs of $14,385 associated with establishing Hasbro’s Gaming Center of
Excellence. These charges impacted product development and selling, distribution and administration
charges for the year ended December 25, 2011.
37