Hasbro 2015 Annual Report Download - page 59

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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 2015, there were 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 and films based
primarily on the Company’s toy and game brands. 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
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 film or television program and include toy, game and other consumer product
licensing fees; first run program distribution fees; and other revenue sources, such as DVD and digital
distribution. Our ultimate revenue estimates for each film or 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 film or 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 films and television programs in the U.S. which are primarily
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 27, 2015 we have $75.5 million of program production and film costs
included in other assets in the consolidated balance sheets. We currently expect that a significant portion of
capitalized program production costs will be amortized over the 3-year period 2016 through 2018. Future
program production cost amortization is subject to change based on actual costs incurred and management’s then
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