Hasbro 2014 Annual Report Download - page 61

Download and view the complete annual report

Please find page 61 of the 2014 Hasbro annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 127

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127

statements and the reported amounts of revenues and expenses for the periods presented. The significant
accounting policies which management believes are the most critical to aid in fully understanding and evaluating
the Company’s reported financial results include sales allowances, program production costs, recoverability of
goodwill and intangible assets, recoverability of royalty advances and commitments, pension costs and
obligations and income taxes.
Sales Allowances
Sales allowances for customer promotions, discounts and returns are recorded as a reduction of revenue
when the related revenue is recognized. Revenue from product sales is recognized upon passing of title to the
customer, generally at the time of shipment. Revenue from product sales, less related sales allowances along with
license fees and royalty revenue comprise net revenues in the consolidated statements of operations. The
Company routinely commits to promotional sales allowance programs with customers. These allowances
primarily relate to fixed programs, which the customer earns based on purchases of Company products during the
year. Discounts and allowances are recorded as a reduction of related revenue at the time of sale. While many of
the allowances are based on fixed amounts, certain of the allowances, such as the returns allowance, are based on
market data, historical trends and information from customers and are therefore subject to estimation.
For its allowance programs that are not fixed, such as returns, the Company estimates these amounts using a
combination of historical experience and current market conditions. These estimates are reviewed periodically
against actual results and any adjustments are recorded at that time as an increase or decrease to net revenues.
During 2014, there have been no material adjustments to the Company’s estimates made in prior years.
Program Production Costs
The Company incurs certain costs in connection with the production of television programs based primarily
on the Company’s toy and game brands, including animated and live-action programs and game shows. These
costs are capitalized 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 each fiscal year 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 an 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.
The most significant estimates are those used in the determination of ultimate revenue in the individual-
film-forecast method. Ultimate revenue estimates impact the timing of program production cost amortization in
the consolidated statements of operations. Ultimate revenue includes revenue from all sources that are estimated
to be earned related to the television program and include toy, game and other merchandise licensing fees; first
run program distribution fees; and other revenue sources, such as DVD and digital distribution. Our ultimate
revenue estimates for each television program are developed based on our estimates of expected future
results. We review and revise these estimates at each reporting date to reflect the most current available
information. When estimates for a television program are revised, the difference between the program production
cost amortization determined using the revised estimate and any amounts previously expensed during that fiscal
year, are included as an adjustment to program production cost amortization in the consolidated statements of
operations in the quarter in which the estimates are revised. Prior period amounts are not adjusted for subsequent
changes in estimates. Factors that can impact our revenue estimates include the success and popularity of our
television programs in the U.S. which are distributed on Discovery Family Channel, globally to other
broadcasters and available on Netflix and iTunes, and success of our program-related toy, game and other
merchandise.
For the year ended December 28, 2014 we have $68,190 of program production costs included in other
assets in the consolidated balance sheets. We currently expect that substantially all capitalized program
production costs will be amortized over the 3-year period 2015 through 2017. Future program production cost
47