Hasbro 2012 Annual Report Download - page 72

HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
(Thousands of Dollars and Shares Except Per Share Data)
(5) Equity Method Investment
The Company owns a 50% interest in a joint venture, Hub Television Networks, LLC (“THE HUB”), with
Discovery Communications, Inc. (“Discovery”). THE HUB was established to create a television network in the
United States dedicated to high-quality children’s and family entertainment and educational programming. The
Company purchased its 50% share in THE HUB for a payment of $300,000 and certain future payments based on
the value of certain tax benefits expected to be received by the Company. The present value of the expected
future payments at the acquisition date totaled approximately $67,900 and was recorded as a component of the
Company’s investment in the joint venture. The balance of the associated liability, including imputed interest,
was $71,072 and $71,999 at December 30, 2012 and December 25, 2011, respectively, and is included as a
component of other liabilities in the accompanying balance sheets.
Voting control of THE HUB is shared 50/50 between the Company and Discovery. The Company has
determined that it does not meet the control requirements to consolidate THE HUB, and accounts for the
investment using the equity method of accounting. The Company’s share in the loss of THE HUB for the years
ended December 30, 2012, December 25, 2011 and December 26, 2010 totaled $6,015, $7,290 and $9,323,
respectively, and is included as a component of other (income) expense, net in the accompanying consolidated
statements of operations.
The Company has entered into a license agreement with THE HUB that requires the payment of royalties by
the Company to THE HUB based on a percentage of revenue derived from products related to television shows
broadcast by the joint venture. The license agreement includes a minimum royalty guarantee of $125,000,
payable in 5 annual installments of $25,000 per year, commencing in 2009, which can be earned out over
approximately a 10-year period. During 2012, 2011 and 2010, the Company paid annual installments of $25,000
each which are included in other, including long-term advances in the consolidated statements of cash flows. As
of December 30, 2012 and December 25, 2011, the Company had $89,914 and $72,916 of prepaid royalties,
respectively, related to this agreement, $12,400 and $4,974, respectively, of which are included in prepaid
expenses and other current assets and $77,514 and $67,942, respectively, of which are included in other assets.
The Company and THE HUB are also parties to an agreement under which the Company will provide THE HUB
with an exclusive first look in the U.S. to license certain types of programming developed by the Company based
on its intellectual property. In the event THE HUB licenses the programming from the Company to air on the
network, it is required to pay the Company a license fee.
As of December 30, 2012 and December 25, 2011, the Company’s interest in THE HUB totaled $330,746
and $343,835, respectively, and is a component of other assets. The Company also enters into certain other
transactions with THE HUB including the licensing of television programming and the purchase of advertising.
During 2012, 2011 and 2010, these transactions were not material.
(6) Program Production Costs
Program production costs are included in other assets and consist of the following at December 30, 2012
and December 25, 2011:
2012 2011
Released, less amortization ........................................... $65,201 44,091
In production ...................................................... 22,909 33,583
Pre-production ..................................................... 3,865 2,161
Acquired libraries .................................................. — 765
Total program production costs ....................................... $91,975 80,600
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