Hasbro 2015 Annual Report Download - page 50

Operating expenses for 2015, 2014 and 2013 include benefits and expenses related to the following events:
• In August 2015, the Company finalized the sale of its manufacturing operations in East Longmeadow,
MA and Waterford, Ireland. This transaction resulted in a benefit to selling, distribution and
administration expenses of $3.1 million.
• In September 2014, the Company and Discovery amended their relationship with respect to Discovery
Family Channel (the “Network”). Prior to the amendment, the Company had a license agreement with the
Network that required payment of royalties by the Company to the Network based on a percentage of
revenue derived from products related to television shows broadcast on the Network. This agreement
included a minimum royalty guarantee of $125.0 million, which has been paid in full. As part of the
amended relationship, this earn-out period was extended to 2021 resulting in a benefit of $2.3 million to
royalties for the year ended December 28, 2014. Furthermore, this amended relationship resulted in an
amendment to the Company’s tax sharing agreement with Discovery which resulted in a net expense of
$0.9 million recorded to selling, distribution and administration expense for the year ended December 28,
2014.
• In February 2014, the Company settled outstanding disputes with an inventor related to the contractual
interpretation of which products were subject to payment of royalties under two license agreements
between the inventor and the Company relating to the Company’s NERF and SUPER SOAKER product
lines. As a result, the Company recorded a total charge of $61.1 million, of which $43.0 million and $3.1
million were recorded to royalties and selling, distribution and administration expense, respectively, for
the year ended December 29, 2013. A portion of this total charge was also recorded to interest expense
which is discussed below.
• During the fourth quarter of 2012, the Company announced a multi-year cost savings initiative. This
initiative included an approximate 10% workforce reduction, facility consolidations and process
improvements. The Company recognized charges totaling $5.2 million and $36.7 million for the years
ended December 28, 2014 and December 29, 2013, respectively, primarily related to employee severance
charges, which impacted cost of sales, product development and selling, distribution and administration
expenses. Furthermore, the Company also recognized pension curtailment and settlement charges in the
amount of $7.0 million in selling, distribution and administration expense during the year ended
December 29, 2013.
• During the fourth quarter of 2013, the Company decided to exit certain brands which were non-core to its
franchise brand strategy. Certain of these brands related to prior acquisitions and had intangible assets,
resulting in a write-off of these intangibles of $19.7 million, which were recorded to amortization of
intangibles for the year ended December 29, 2013.
• During the fourth quarter of 2013 the Company amended its license agreement with Zynga which resulted
in additional royalty expense of $20.9 million.
In total, these (benefits) expenses were recorded to the consolidated statements of operations as follows:
2015 2014 2013
Cost of sales .................................................... $ — — 10.2
Royalties ...................................................... (2.3) 63.8
Product development ............................................. — — 4.1
Amortization of intangibles ........................................ — — 19.7
Selling, distribution and administration .............................. (3.1) 6.1 32.5
Total .......................................................... $(3.1) 3.8 130.3
Cost of Sales
Cost of sales primarily consists of purchased materials, labor, manufacturing overheads and other inventory-
related costs such as obsolescence. Cost of sales decreased 1% to $1,677.0 million, or 37.7% of net revenues, for
39