Hasbro 2015 Annual Report Download - page 36

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the users of products that have been or may be developed by us as well as claims by third parties that our
products infringe upon or misuse such third parties’ property or rights. Because the outcome of litigation,
arbitration and regulatory investigations is inherently difficult to predict, it is possible that the outcome of any of
these matters could entail significant cost for us and harm our business. The fact that we operate in a significant
number of international markets also increases the risk that we may face legal and regulatory exposures as we
attempt to comply with a large number of varying legal and regulatory requirements. Any successful claim
against us could significantly harm our business, financial condition and results of operations.
Changes in, or differing interpretations of, income tax laws and rules, and changes in our geographic
operating results, may impact our effective tax rate.
We are subject to income taxes in the United States and in various international tax jurisdictions. We also
conduct business activities between our operating units in various jurisdictions and we are subject to transfer
pricing rules in the countries in which we operate. There is some degree of uncertainty and subjectivity in
complying with transfer pricing rules. Our effective tax rate could be impacted by changes in, or the
interpretation of, tax laws or by changes in the amount of revenue and earnings we derive, or are determined to
derive by tax authorities, from jurisdictions with differing tax rates. Unanticipated changes in our tax rate could
impact our results of operations. In addition, we may be subject to tax examinations by federal, state, and
international jurisdictions, and these examinations can result in significant tax findings if the tax authorities
interpret the application of laws and rules differently than we do or disagree with the intercompany rates we are
applying. We assess the likelihood of outcomes resulting from tax uncertainties. At December 27, 2015 we have
a liability for uncertain tax benefits of $68.3 million. While we believe our estimates are reasonable, the ultimate
outcome of these uncertain tax benefits, or results of possible current or future tax examinations, may differ from
our estimates and may have a significant adverse impact on our business and operating results.
We have a material amount of goodwill which, if it becomes impaired, would result in a reduction in our net
earnings.
Goodwill is the amount by which the cost of an acquisition exceeds the fair value of the net assets we
acquire. Goodwill is not amortized and is required to be periodically evaluated for impairment. At December 27,
2015, $592.7 million, or 12.5%, of our total assets represented goodwill. Declines in our profitability may impact
the fair value of our reporting units, which could result in a write-down of our goodwill and consequently harm
our results of operations. Included in goodwill is $119.1 million related to Backflip. Should Backflip not achieve
its profitability and growth targets, including anticipated game releases in 2016, the carrying value may become
impaired.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Hasbro owns its corporate headquarters in Pawtucket, Rhode Island consisting of approximately 343,000
square feet, which is used by corporate functions as well as the Global Operations and Entertainment and Licensing
segments. The Company also owns an adjacent building consisting of approximately 23,000 square feet and leases a
building in East Providence, Rhode Island consisting of approximately 120,000 square feet, both of which are used
by corporate functions. The Company leases a facility in Providence, Rhode Island consisting of approximately
136,000 square feet which is used primarily by the U.S. and Canada segment, as well as the Entertainment and
Licensing and Global Operations segments. In addition to the above facilities, the Company also leases office space
consisting of approximately 111,300 square feet in Renton, Washington as well as warehouse space aggregating
approximately 2,238,000 square feet in Georgia, California, Texas and Quebec that are also used by the U.S. and
Canada segment. The Company leases approximately 51,000 square feet in Burbank, California and 24,000 square
feet in Boulder, Colorado that are used by the Entertainment and Licensing segment. The Global Operations
segment also leases an aggregate of 98,000 square feet of office and warehouse space in Hong Kong as well as
82,000 square feet of office space leased in the People’s Republic of China.
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