Hasbro 2006 Annual Report Download - page 36

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translation had a positive impact of approximately $1,900 on the operating profit of the North American
segment in 2005.
International
International segment net revenues for the year ended December 31, 2006 decreased by 3% to $959,319
from $988,591 in 2005. In 2006 net revenues were positively impacted by currency translation by approx-
imately $24,300 as a result of a weaker U.S. dollar. The decrease in net revenues was primarily the result of
decreased sales of STAR WARS products in 2006 as well as decreased sales of FURBY and DUEL MASTERS
products. These decreases were partially offset by increased revenues from LITTLEST PET SHOP, PLAY-
SKOOL and MONOPOLY products. To a lesser extent, 2006 net revenues were also positively impacted by
increased sales of MY LITTLE PONY, TRANSFORMERS, and PLAY-DOH products as well as the
reintroduction of the BABY ALIVE doll.
International segment operating profit decreased 15% to $90,893 in 2006 from $106,435 in 2005.
Operating profit in 2006 was positively impacted by approximately $4,900 due to the translation of foreign
currencies to the U.S. dollar. The decrease in operating profit is the result of decreased gross profit primarily
as the result of the decrease in net revenues, partially offset by decreases in royalties and amortization expense
as a result of the decrease in sales of STAR WARS products.
International segment net revenues for the year ended December 25, 2005 increased by 1% to $988,591
from $977,128 in 2004. In 2005, net revenues were negatively impacted by approximately $10,000 as a result
of the stronger U.S. dollar. The increase in revenues was primarily the result of increased sales of STAR
WARS products in 2005 and, to a lesser extent, the successful reintroduction of LITTLEST PET SHOP and
FURBY products and the introduction of B-DAMAN products. These increases were partly offset by decreased
sales of BEYBLADE and ACTION MAN products as well as decreased sales of FURREAL FRIENDS and
VIDEONOW products. Revenues for board games grew internationally in 2005, while the Company
experienced decreased revenues in its trading card games, primarily DUEL MASTERS and MAGIC: THE
GATHERING.
International operating profit increased 13% to $106,435 in 2005 from $94,487 in 2004. Increased gross
profit as a result of increased revenues was partially offset by higher amortization and royalty expenses as a
result of the higher sales of licensed products, primarily STAR WARS products, in 2005. International
operating profit was negatively impacted by approximately $4,500 due to the translation of foreign currencies
to the U.S. dollar.
Gross Profit
The Company’s gross profit margin increased to 58.6% for the year ended December 31, 2006 from
58.3% in 2005. This increase is due to increased revenues from certain core brand products that have higher
gross margins, such as LITTLEST PET SHOP products and traditional board games, such as MONOPOLY.
Gross profit in 2006 was negatively impacted by a charge of approximately $10,300 related to the Company’s
decision to transfer certain manufacturing activities from its Ireland manufacturing facility to its suppliers in
China. Gross margin in 2005 was also negatively impacted by inventory obsolescence and customer allowances
on plug and play games.
The Company’s gross profit margin increased slightly to 58.3% for the year ended December 25, 2005
from 58.2% in 2004. This increase was primarily due to increased sales of STAR WARS products. Gross profit
margin in 2005 was also impacted by decreased sales of VIDEONOW products that have lower gross margins.
These increases were largely offset by inventory obsolescence and customer allowances on plug and play
games as well as lower sales of trading card games that carry a higher gross margin.
The Company aggressively monitors its levels of inventory, attempting to avoid unnecessary expenditures
of cash and potential charges related to obsolescence. The Company’s failure to accurately predict and respond
to consumer demand could result in overproduction of less popular items, which could result in higher
obsolescence costs, causing a reduction in gross profit.
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