SEC Company Response from HASBRO, INC. (HAS) (CIK 0000046080) (HAS) — Dec 1, 2006
HASBRO, INC. (HAS) (CIK 0000046080)
Date: Dec. 1, 2006 · CIK: 0000046080 · Accession: 0000046080-06-000102
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-06682
Referenced dates: November 6, 2006
Letter
United States Securities and Exchange Commission Hasbro, Inc. Form 10-Q for the quarterly period ended April 2, 2006 Filed May 5, 2006 File No. 001-06682
Re:
Dear Mr. Humphrey:
This letter responds to the comments contained in your letter dated November 6, 2006 related to Hasbro, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 25, 2005 and the Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2006. The numbered items below correspond to the numbered comments in your letter with the bold text representing the SEC staff’s original comment or request.
Form 10-K for the fiscal year ended December 25, 2005
Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies and Significant Estimates, page 33
1.
Your disclosures indicate that you have certain promotional sales programs that require significant estimates. In this regard, it not clear from your disclosures whether any of these programs contain minimum purchase guarantees and, if so, how revenue is recognized under these programs. Specifically, explain how predetermined price concessions are recognized on the related program.
Hasbro Response
As stated in the disclosure, the Company's promotional sales allowance programs are primarily fixed programs. Although the Company does have programs that contain minimum purchase guarantees, these rebate programs do not constitute a material part of the Company's promotional sales allowance programs. In the limited instances where this type of program is used, our policy is to record the rebate over the period that the related revenue is recognized.
David R. Humphrey, Branch Chief-Accountant
United States Securities and Exchange Commission
December 1, 2006
Page 2 of 9
2.
Please provide us, supplementally, with a detailed analysis of your major promotional sales programs, rebate programs and return programs throughout the year as well as at year end, and how you account for these programs.
Hasbro Response
The Company's promotional sales programs are generally fixed in nature whereby the amounts of the allowances are based on an agreed upon fixed percentage of the invoiced sales price to the customer. These amounts are recorded as a reduction of revenue at the time the sale is made based on this fixed percentage. The Company also has certain allowances that require the use of estimates. At the time the sale is made, an estimate of the allowance is recorded based on historical experience and current market data. These estimates are reviewed on a periodic basis and adjustments to actual experience, if necessary, are recorded at that time as an increase or decrease to net revenues. We view these programs as an essential component of revenue and we measure and report our results related to revenues net of these programs. The Company's main programs consist of the following:
1.
Co-operative Advertising and Promotional Rebates – These rebates consist of a fixed percentage of sales to support the customer's advertising initiatives. These allowances are given as a percentage of sales and not as reimbursement for specific advertising expense. In accordance with EITF No. 01-9 paragraph 9, these amounts are recorded as a reduction of sales rather than advertising expense. These amounts are recorded at the time of sale based on the rate agreed upon with the customer.
2.
Markdowns – These allowances are given to customers, in lieu of returns, to support price reductions at retail for slow-moving products. An estimate of these allowances is accrued at the time of sale and recorded as a reduction of sales. This estimate is based upon the historical experience of the Company. The Company believes that, in accordance with EITF No. 01-9 paragraph 23, its estimate is reasonable and reliable as there is (1) a relatively short period in which the markdown may be claimed; (2) significant historical experience with similar programs and products; and (3) a large volume of relatively homogeneous transactions. The Company monitors its markdowns on a periodic basis and, if necessary, adjusts its estimates throughout the year to reflect changes in estimates or actual experience as an increase or decrease to net revenues.
3.
Retail Marketing Rebates – These rebates are given to customers to support in-store promotion of the Company's products. An estimate of the costs related to these promotions, based on historical experience and current expectations, is recorded at the time of the sale as a reduction in sales. The Company monitors these costs throughout the year and, if necessary, adjusts its estimates to actual experience as an increase or decrease to net revenues.
4.
Defective Allowance – These allowances are extended to customers in compensation for defective products. For most customers, in lieu of returns, these allowances are a fixed percentage of sales as agreed upon with the customer. For those customers, these allowances are recorded at the time the sale is recorded based upon the fixed percentage.
David R. Humphrey, Branch Chief-Accountant
United States Securities and Exchange Commission
December 1, 2006
Page 3 of 9
We also have instances in which this allowance is based on actual defective product that is identified upon field audit. The allowances with respect to these instances are estimated based on historical experience and current expectations and recorded at the time the related sale is recorded. Based on the results of our field audits, adjustments to actual experience are recorded as an increase or decrease to net revenues.
5.
Returns – In general, on a global basis, it is the Company's policy to not accept returns. In certain limited international countries, it is normal industry practice to accept returns and the Company follows this practice. In the United States, the Company will only rarely accept returns and only in extraordinary circumstances. Based on historical experience and market conditions in each geographic market, returns are estimated and accrued at the time of sale. The Company believes that this estimate is reasonable and reliable based on the fact that, pursuant to SFAS 48, there is (1) a relatively short period in which the returns can be made; (2) significant historical experience with similar programs and products; and (3) a large volume of relatively homogeneous transactions. The Company records the provision for returns as a reduction of sales at the time that the related sale is recorded.
3.
Please revise your MD&A to provide a detailed discussion of how you track and estimate returns and allowances. Also, provide information with respect to how your estimates for discounts, rebates, and returns have generally compared with your actual results.
Hasbro Response
Based on the fact that most of the Company's sales allowances are fixed in nature, the Company’s actual experience has approximated its’ estimates and adjustments have not been material.
We will revise our critical accounting policies in MD&A in future filings to include disclosure substantially as follows:
"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 2006, there have been no material adjustments to the Company's estimates."
4.
Please consider revising your MD&A to include a more detailed discussion of seasonal trends and variations in sales. See question 1 in Topic 13(B) of the Staff Accounting Bulletins.
Hasbro Response
The Company has historically provided a description of its seasonal trends and variations in sales in several sections of the 10-K, including page 10 (Item 1A – Risk Factors) and on page 36 of MD&A under the caption The Economy and Inflation. However, we agree with the Staff’s comment on enhancing this discussion.
David R. Humphrey, Branch Chief-Accountant
United States Securities and Exchange Commission
December 1, 2006
Page 4 of 9
Hasbro will revise the executive summary section of MD&A to include the following type of disclosure: "The Company's business is highly seasonal with a significant amount of the Company's revenues occurring in the second half of the year and within that half, the fourth quarter. In 2006, 2005 and 2004, XX%, 67% and 67%, respectively, of the Company's revenues were generated in the second half of the year and XX%, 35%, and 35%, respectively, of the Company's revenues were generated in the fourth quarter of the year.
Contractual Obligations and Commercial Commitments, page 35
5.
When presenting contractual obligations, please ensure that all obligations are shown in the table, including interest payments on your indebtedness. See FR-72 for guidance.
Hasbro Response
We will ensure that all obligations, including interest payments on long-term debt, are included in the table in future filings.
Item 8-Financial Statements and Supplementary Data
Note 1- Summary of Significant Accounting Policies, page 43
6.
The customer service information on your website indicates that there have been several product recalls in prior years. As such, please expand your note to include a discussion of your accounting policy for costs associated with product recalls. If such costs have not been material, consider the need for additional disclosure as a Risk Factor in Item 1A of your report.
Hasbro Response
The Company is periodically subject to product recalls. Such recalls may be voluntary or imposed by a governmental body or agency. Costs related to past recalls, as listed on our company website, which generally are comprised of product returns, replacement costs, and advertising and communication costs, have not been material on an individual basis or in the aggregate in any of the fiscal years 2004 through 2006. Accordingly we have not disclosed our accounting policy with respect to costs related to product recalls.
In future filings we plan to provide a further description within our risk factors of the risk that costs related to voluntary or involuntary product recalls could be material. We intend to modify one of our existing risk factors to include additional disclosure regarding product recalls. The risk factor is as follows, and the proposed additional disclosure is underlined.
As a manufacturer of consumer products and a large multinational corporation, we are subject to various government regulations, violation of which could subject us to sanctions. In addition, we could be the subject of future product liability suits or product recalls, which could harm our business.
David R. Humphrey, Branch Chief-Accountant
United States Securities and Exchange Commission
December 1, 2006
Page 5 of 9
As a manufacturer of consumer products, we are subject to significant government regulations under The Consumer Products Safety Act, The Federal Hazardous Substances Act, and The Flammable Fabrics Act. In addition, certain of our products are subject to regulation by the Food and Drug Administration. While we take all the steps we believe are necessary to comply with these acts, there can be no assurance that we will be in compliance in the future. Failure to comply could result in sanctions which could have a negative impact on our business, financial condition and results of operations. We also may be subject to involuntary product recalls or may voluntarily conduct a product recall. While costs associated with product recalls have generally not been material to our business, the costs associated with future product recalls, individually and in the aggregate in any given fiscal year, could be significant. In addition, any product recall, regardless of direct costs of the recall, may harm consumer perceptions of our products and have a negative impact on our future sales and results of operations.
In addition to government regulation, products that have been or may be developed by us may expose us to potential liability from personal injury or property damage claims by the users of such products. There can be no assurance that a claim will not be brought against us in the future. While we currently maintain product liability insurance coverage in amounts we believe sufficient for our business risks, we may not be able to maintain such coverage or such coverage may not be adequate to cover all potential claims. Moreover, even if we maintain sufficient insurance coverage, any successful claim could significantly harm our business, financial condition and results of operations.
As a large, multinational corporation, we are subject to a host of governmental regulations throughout the world, including antitrust, customs and tax requirements, anti-boycott regulations and the Foreign Corrupt Practices Act. Our failure to successfully comply with any such legal requirements could subject us to monetary liabilities and other sanctions that could harm our business and financial condition.
7.
It appears that you operate an online store. As such, please tell us and disclose your accounting methodology for any significant software costs or web-site development costs pursuant to the relevant accounting literature, if applicable. Refer to SFAS No. 86, EITF No. 00-2, and/or SOP No. 98-1.
Hasbro Response
Our policy with respect to significant software or web-site developments costs is to follow the applicable accounting standards as referenced above. In instances in which costs are not determined to be recoverable, our policy is to expense such costs as incurred. The costs related to the development of the website were not significant and were expensed as incurred, primarily during 2004 and 2005.
To the extent that we incur significant software or web-site development costs in the future, we confirm to the Staff that we would add disclosure of our accounting policies in the notes to our financial statements.
David R. Humphrey, Branch Chief-Accountant
United States Securities and Exchange Commission
December 1, 2006
Page 6 of 9
8.
In addition to the aforementioned disclosures, if applicable, please expand your note to address how you account for revenues derived from online store sales. Further, please tell us what consideration was given to reporting the results of your online store as an operating segment pursuant to SFAS 131.
Hasbro Response
The accounting policy we follow for revenues derived from our online store is the same as the revenue recognition accounting policy we disclose on page 45 of the 10-K. That disclosure states that revenue from product sales is recognized upon the passing of the title to the customer, generally at the time of shipment. We advise the staff that, specifically for online sales, revenue related to product sales is recognized upon shipment to the customer from our fulfillment warehouse. In addition we also advise that revenues from the on-line store have not been material.
We further advise the Staff that the on-line store was managed and included in the results of the U.S. Toys segment during 2005 and the North American Segment during 2006. We do not regularly maintain discrete financial reports for the online store separate from the overall segment results. Based on the operating and management structure, we concluded the online store did not meet the definition of an operating segment under SFAS 131.
Long-Lived Assets, page 44
9.
As noted on page 22, your business strategy includes licensing rights to products based on movie, televisi
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CORRESP 1 filename1.htm November ___, 2006 December 1, 2006 David R. Humphrey Branch Chief-Accountant United States Securities and Exchange Commission 100 F Street NE Washington, D.C. 20549-0402 Re: Hasbro, Inc. Form 10-K for the year ended December 25, 2005 Filed February 22, 2006 File No. 001-06682 Hasbro, Inc. Form 10-Q for the quarterly period ended April 2, 2006 Filed May 5, 2006 File No. 001-06682 Dear Mr. Humphrey: This letter responds to the comments contained in your letter dated November 6, 2006 related to Hasbro, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 25, 2005 and the Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2006. The numbered items below correspond to the numbered comments in your letter with the bold text representing the SEC staff’s original comment or request. Form 10-K for the fiscal year ended December 25, 2005 Item 7 – Management Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Significant Estimates, page 33 1. Your disclosures indicate that you have certain promotional sales programs that require significant estimates. In this regard, it not clear from your disclosures whether any of these programs contain minimum purchase guarantees and, if so, how revenue is recognized under these programs. Specifically, explain how predetermined price concessions are recognized on the related program. Hasbro Response As stated in the disclosure, the Company's promotional sales allowance programs are primarily fixed programs. Although the Company does have programs that contain minimum purchase guarantees, these rebate programs do not constitute a material part of the Company's promotional sales allowance programs. In the limited instances where this type of program is used, our policy is to record the rebate over the period that the related revenue is recognized. David R. Humphrey, Branch Chief-Accountant United States Securities and Exchange Commission December 1, 2006 Page 2 of 9 2. Please provide us, supplementally, with a detailed analysis of your major promotional sales programs, rebate programs and return programs throughout the year as well as at year end, and how you account for these programs. Hasbro Response The Company's promotional sales programs are generally fixed in nature whereby the amounts of the allowances are based on an agreed upon fixed percentage of the invoiced sales price to the customer. These amounts are recorded as a reduction of revenue at the time the sale is made based on this fixed percentage. The Company also has certain allowances that require the use of estimates. At the time the sale is made, an estimate of the allowance is recorded based on historical experience and current market data. These estimates are reviewed on a periodic basis and adjustments to actual experience, if necessary, are recorded at that time as an increase or decrease to net revenues. We view these programs as an essential component of revenue and we measure and report our results related to revenues net of these programs. The Company's main programs consist of the following: 1. Co-operative Advertising and Promotional Rebates – These rebates consist of a fixed percentage of sales to support the customer's advertising initiatives. These allowances are given as a percentage of sales and not as reimbursement for specific advertising expense. In accordance with EITF No. 01-9 paragraph 9, these amounts are recorded as a reduction of sales rather than advertising expense. These amounts are recorded at the time of sale based on the rate agreed upon with the customer. 2. Markdowns – These allowances are given to customers, in lieu of returns, to support price reductions at retail for slow-moving products. An estimate of these allowances is accrued at the time of sale and recorded as a reduction of sales. This estimate is based upon the historical experience of the Company. The Company believes that, in accordance with EITF No. 01-9 paragraph 23, its estimate is reasonable and reliable as there is (1) a relatively short period in which the markdown may be claimed; (2) significant historical experience with similar programs and products; and (3) a large volume of relatively homogeneous transactions. The Company monitors its markdowns on a periodic basis and, if necessary, adjusts its estimates throughout the year to reflect changes in estimates or actual experience as an increase or decrease to net revenues. 3. Retail Marketing Rebates – These rebates are given to customers to support in-store promotion of the Company's products. An estimate of the costs related to these promotions, based on historical experience and current expectations, is recorded at the time of the sale as a reduction in sales. The Company monitors these costs throughout the year and, if necessary, adjusts its estimates to actual experience as an increase or decrease to net revenues. 4. Defective Allowance – These allowances are extended to customers in compensation for defective products. For most customers, in lieu of returns, these allowances are a fixed percentage of sales as agreed upon with the customer. For those customers, these allowances are recorded at the time the sale is recorded based upon the fixed percentage. David R. Humphrey, Branch Chief-Accountant United States Securities and Exchange Commission December 1, 2006 Page 3 of 9 We also have instances in which this allowance is based on actual defective product that is identified upon field audit. The allowances with respect to these instances are estimated based on historical experience and current expectations and recorded at the time the related sale is recorded. Based on the results of our field audits, adjustments to actual experience are recorded as an increase or decrease to net revenues. 5. Returns – In general, on a global basis, it is the Company's policy to not accept returns. In certain limited international countries, it is normal industry practice to accept returns and the Company follows this practice. In the United States, the Company will only rarely accept returns and only in extraordinary circumstances. Based on historical experience and market conditions in each geographic market, returns are estimated and accrued at the time of sale. The Company believes that this estimate is reasonable and reliable based on the fact that, pursuant to SFAS 48, there is (1) a relatively short period in which the returns can be made; (2) significant historical experience with similar programs and products; and (3) a large volume of relatively homogeneous transactions. The Company records the provision for returns as a reduction of sales at the time that the related sale is recorded. 3. Please revise your MD&A to provide a detailed discussion of how you track and estimate returns and allowances. Also, provide information with respect to how your estimates for discounts, rebates, and returns have generally compared with your actual results. Hasbro Response Based on the fact that most of the Company's sales allowances are fixed in nature, the Company’s actual experience has approximated its’ estimates and adjustments have not been material. We will revise our critical accounting policies in MD&A in future filings to include disclosure substantially as follows: "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 2006, there have been no material adjustments to the Company's estimates." 4. Please consider revising your MD&A to include a more detailed discussion of seasonal trends and variations in sales. See question 1 in Topic 13(B) of the Staff Accounting Bulletins. Hasbro Response The Company has historically provided a description of its seasonal trends and variations in sales in several sections of the 10-K, including page 10 (Item 1A – Risk Factors) and on page 36 of MD&A under the caption The Economy and Inflation. However, we agree with the Staff’s comment on enhancing this discussion. David R. Humphrey, Branch Chief-Accountant United States Securities and Exchange Commission December 1, 2006 Page 4 of 9 Hasbro will revise the executive summary section of MD&A to include the following type of disclosure: "The Company's business is highly seasonal with a significant amount of the Company's revenues occurring in the second half of the year and within that half, the fourth quarter. In 2006, 2005 and 2004, XX%, 67% and 67%, respectively, of the Company's revenues were generated in the second half of the year and XX%, 35%, and 35%, respectively, of the Company's revenues were generated in the fourth quarter of the year. Contractual Obligations and Commercial Commitments, page 35 5. When presenting contractual obligations, please ensure that all obligations are shown in the table, including interest payments on your indebtedness. See FR-72 for guidance. Hasbro Response We will ensure that all obligations, including interest payments on long-term debt, are included in the table in future filings. Item 8-Financial Statements and Supplementary Data Note 1- Summary of Significant Accounting Policies, page 43 6. The customer service information on your website indicates that there have been several product recalls in prior years. As such, please expand your note to include a discussion of your accounting policy for costs associated with product recalls. If such costs have not been material, consider the need for additional disclosure as a Risk Factor in Item 1A of your report. Hasbro Response The Company is periodically subject to product recalls. Such recalls may be voluntary or imposed by a governmental body or agency. Costs related to past recalls, as listed on our company website, which generally are comprised of product returns, replacement costs, and advertising and communication costs, have not been material on an individual basis or in the aggregate in any of the fiscal years 2004 through 2006. Accordingly we have not disclosed our accounting policy with respect to costs related to product recalls. In future filings we plan to provide a further description within our risk factors of the risk that costs related to voluntary or involuntary product recalls could be material. We intend to modify one of our existing risk factors to include additional disclosure regarding product recalls. The risk factor is as follows, and the proposed additional disclosure is underlined. As a manufacturer of consumer products and a large multinational corporation, we are subject to various government regulations, violation of which could subject us to sanctions. In addition, we could be the subject of future product liability suits or product recalls, which could harm our business. David R. Humphrey, Branch Chief-Accountant United States Securities and Exchange Commission December 1, 2006 Page 5 of 9 As a manufacturer of consumer products, we are subject to significant government regulations under The Consumer Products Safety Act, The Federal Hazardous Substances Act, and The Flammable Fabrics Act. In addition, certain of our products are subject to regulation by the Food and Drug Administration. While we take all the steps we believe are necessary to comply with these acts, there can be no assurance that we will be in compliance in the future. Failure to comply could result in sanctions which could have a negative impact on our business, financial condition and results of operations. We also may be subject to involuntary product recalls or may voluntarily conduct a product recall. While costs associated with product recalls have generally not been material to our business, the costs associated with future product recalls, individually and in the aggregate in any given fiscal year, could be significant. In addition, any product recall, regardless of direct costs of the recall, may harm consumer perceptions of our products and have a negative impact on our future sales and results of operations. In addition to government regulation, products that have been or may be developed by us may expose us to potential liability from personal injury or property damage claims by the users of such products. There can be no assurance that a claim will not be brought against us in the future. While we currently maintain product liability insurance coverage in amounts we believe sufficient for our business risks, we may not be able to maintain such coverage or such coverage may not be adequate to cover all potential claims. Moreover, even if we maintain sufficient insurance coverage, any successful claim could significantly harm our business, financial condition and results of operations. As a large, multinational corporation, we are subject to a host of governmental regulations throughout the world, including antitrust, customs and tax requirements, anti-boycott regulations and the Foreign Corrupt Practices Act. Our failure to successfully comply with any such legal requirements could subject us to monetary liabilities and other sanctions that could harm our business and financial condition. 7. It appears that you operate an online store. As such, please tell us and disclose your accounting methodology for any significant software costs or web-site development costs pursuant to the relevant accounting literature, if applicable. Refer to SFAS No. 86, EITF No. 00-2, and/or SOP No. 98-1. Hasbro Response Our policy with respect to significant software or web-site developments costs is to follow the applicable accounting standards as referenced above. In instances in which costs are not determined to be recoverable, our policy is to expense such costs as incurred. The costs related to the development of the website were not significant and were expensed as incurred, primarily during 2004 and 2005. To the extent that we incur significant software or web-site development costs in the future, we confirm to the Staff that we would add disclosure of our accounting policies in the notes to our financial statements. David R. Humphrey, Branch Chief-Accountant United States Securities and Exchange Commission December 1, 2006 Page 6 of 9 8. In addition to the aforementioned disclosures, if applicable, please expand your note to address how you account for revenues derived from online store sales. Further, please tell us what consideration was given to reporting the results of your online store as an operating segment pursuant to SFAS 131. Hasbro Response The accounting policy we follow for revenues derived from our online store is the same as the revenue recognition accounting policy we disclose on page 45 of the 10-K. That disclosure states that revenue from product sales is recognized upon the passing of the title to the customer, generally at the time of shipment. We advise the staff that, specifically for online sales, revenue related to product sales is recognized upon shipment to the customer from our fulfillment warehouse. In addition we also advise that revenues from the on-line store have not been material. We further advise the Staff that the on-line store was managed and included in the results of the U.S. Toys segment during 2005 and the North American Segment during 2006. We do not regularly maintain discrete financial reports for the online store separate from the overall segment results. Based on the operating and management structure, we concluded the online store did not meet the definition of an operating segment under SFAS 131. Long-Lived Assets, page 44 9. As noted on page 22, your business strategy includes licensing rights to products based on movie, televisi