Hasbro 2015 Annual Report Download - page 61

estimation of future cash flows requires significant judgments and estimates with respect to future revenues
related to the respective assets and the future cash outlays related to those revenues. Actual revenues and related
cash flows or changes in anticipated revenues and related cash flows could result in a change in this assessment
and result in an impairment charge. The estimation of discounted cash flows also requires the selection of an
appropriate discount rate. The use of different assumptions would increase or decrease estimated discounted cash
flows and could increase or decrease the related impairment charge. Intangible assets covered under this policy
were $205.1 million at December 27, 2015. During 2015, there were no impairment charges related to these
intangible assets.
Recoverability of Royalty Advances and Commitments
The Company’s ability to earn-out royalty advances and contractual obligations with respect to minimum
guaranteed royalties is assessed by comparing the remaining minimum guaranty to the estimated future sales
forecasts and related cash flow projections to be derived from the related product. If sales forecasts and related
cash flows from the particular product do not support the recoverability of the remaining minimum guaranty or,
if the Company decides to discontinue a product line with royalty advances or commitments, a charge to royalty
expense to write-off the non-recoverable minimum guaranty is required. The preparation of revenue forecasts
and related cash flows for these products requires judgments and estimates. Actual revenues and related cash
flows or changes in the assessment of anticipated revenues and cash flows related to these products could result
in a change to the assessment of recoverability of remaining minimum guaranteed royalties. At December 27,
2015, the Company had $124.3 million of prepaid royalties, $47.5 million of which are included in prepaid
expenses and other current assets and $76.8 million of which are included in other assets. During 2015 there were
no significant charges related to this policy.
Pension Costs and Obligations
Pension expense is based on actuarial computations of current and future benefits using estimates for
expected return on assets and applicable discount rates. At the end of 2007 the Company froze benefits under its
two largest pension plans in the U.S., with no future benefits accruing to employees. During 2015 the Company
froze benefits under its other funded U.S. pension plan. The Company will continue to pay benefits under the
plans consistent with the provisions existing at the date of the plan benefit freeze. The Company uses its fiscal
year-end date as its measurement date to measure the liabilities and assets of the plans and to establish the
expense for the upcoming year.
The Company estimates expected return on assets using a weighted average rate based on historical market
data for the investment classes of assets held by the plan, the allocation of plan assets among those investment
classes, and the current economic environment. Based on this information, the Company’s estimate of expected
return on plan assets used in the calculation of 2015 pension expense for the U.S. plans was 7.00%. A decrease in
the estimate used for expected return on plan assets would increase pension expense, while an increase in this
estimate would decrease pension expense. A decrease of 0.25% in the estimate of expected return on plan assets
would have increased 2015 pension expense for U.S. plans by approximately $0.7 million.
Discount rates are selected based upon rates of return at the measurement date on high quality corporate
bond investments currently available and expected to be available during the period to maturity of the pension
benefits. The Company’s weighted average discount rate for its U.S. plans used for the calculation of 2015
pension expense was 4.19%. A decrease in the discount rate would result in greater pension expense while an
increase in the discount rate would decrease pension expense. A decrease of 0.25% in the Company’s discount
rate would have increased 2015 pension expense by approximately $0.5 million.
Actual results that differ from the actuarial assumptions are accumulated and, if outside a certain corridor,
amortized over future periods and, therefore affect recognized expense in future periods. At December 27, 2015,
the Company’s U.S. plans had unrecognized actuarial losses of $120.5 million included in accumulated other
comprehensive loss related to its defined benefit pension plans compared to $124.0 million at December 28,
2014. The discount rate used to calculate the projected benefit obligation at December 27, 2015 increased to
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