Hasbro 2007 Annual Report Download - page 28

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the audited consolidated financial statements
of the Company included in Part II Item 8 of this document.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements concerning the Company’s expectations and beliefs. See Item 1A “Forward-
Looking Information and Risk Factors That May Affect Future Results” for a discussion of other uncertainties,
risks and assumptions associated with these statements.
(Thousands of Dollars and Shares Except Per Share Data)
Executive Summary
The Company earns revenue and generates cash through the sale of a variety of toy and game products,
as well as through the out-licensing of its properties for use in connection with non-competing products
offered by third parties. The Company sells its products both within the United States and in a number of
international markets. The Company’s business is highly seasonal with a significant amount of revenues
occurring in the second half of the year and within that half, the fourth quarter. In 2007, 66% of the
Company’s net revenues were generated in the second half of the year with 34% of annual net revenues
generated in the fourth quarter. In 2006 and 2005, percentages were 68% and 67% for the second half,
respectively, and comparable at 35% for the fourth quarter. While many of the Company’s products are based
on brands the Company owns or controls, the Company also offers products which are licensed from outside
inventors. In addition, the Company licenses rights to produce products based on movie, television, music and
other entertainment properties, such as MARVEL and STAR WARS properties.
The Company’s business is primarily separated into two business segments, North America and Interna-
tional. The North American segment develops, markets and sells both toy and game products in the U.S.,
Mexico and Canada. The International segment consists of the Company’s European, Asia Pacific and Latin
America marketing operations. In addition to these two primary segments, the Company’s world-wide
manufacturing and product sourcing operations are managed through its Global Operations segment. The
Hasbro Products Group is responsible for the worldwide out-licensing of the Company’s intellectual properties
and works closely with the North American and International segments on the development and out-licensing
of the Company’s brands.
The Company’s focus remains on growing core owned and controlled brands, developing new and
innovative products which respond to market insights and optimizing efficiencies within the Company to
reduce costs, increase operating profits and strengthen its balance sheet. While the Company believes it has
achieved a more sustainable revenue base by developing and maintaining its core brands and avoiding reliance
on licensed entertainment properties, it continues to opportunistically enter into or leverage existing strategic
licenses which complement its brands and key strengths. In 2007, the Company had significant sales of
products related to the Company’s license with Marvel Entertainment, Inc. and Marvel Characters, Inc.
(collectively “Marvel”), primarily due to the theatrical release of SPIDERMAN-3 in May of 2007. Given the
strength of its core brands, the Company may also seek to drive product-related revenues by increasing the
visibility of its core brands through entertainment-based theatrical venues. As an example of this, in July of
2007, the TRANSFORMERS motion picture was released and the Company developed and marketed products
based on the motion picture. As a result of pairing this core brand with this type of entertainment, both the
movie and the product line benefited. Net revenues during 2007 related to the TRANSFORMERS line of
products totaled approximately $482,000, or 12.6% of consolidated net revenues.
The Company’s core brands represent Company-owned or Company–controlled brands, such as TRANS-
FORMERS, MY LITTLE PONY, MONOPOLY, MAGIC: THE GATHERING, PLAYSKOOL, G.I. JOE and
TONKA, which have been successful over the long term. The Company has a large portfolio of owned and
controlled brands, which can be introduced in new formats and platforms over time. These brands may also be
further extended by pairing a licensed concept with a core brand. By focusing on core brands, the Company is
working to build a more consistent revenue stream and basis for future growth. In 2007 the Company had
strong sales of core brand products, namely TRANSFORMERS, LITTLEST PET SHOP, MY LITTLE PONY,
PLAYSKOOL, MONOPOLY, NERF, and PLAY-DOH.
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