Hasbro 2011 Annual Report Download - page 16

customers, there has been significant consolidation at the retail level over the last several years in our industry.
As a result, the majority of our sales are to large chain stores, distributors and wholesalers. While the
consolidation of customers provides us with certain benefits, such as potentially more efficient product
distribution and other decreased costs of sales and distribution, this consolidation also creates additional risks to
our business associated with a major customer having financial difficulties or reducing its business with us. In
addition, customer concentration may decrease the prices we are able to obtain for some of our products and
reduce the number of products we would otherwise be able to bring to market. During 2011, net revenues from
our three largest customers, Wal-Mart Stores, Inc., Toys “R” Us, Inc. and Target Corporation represented 20%,
11% and 10%, respectively, of consolidated net revenues, and sales to our top five customers, including
Wal-Mart, Target and Toys “R” Us, Inc., accounted for approximately 45% of our consolidated net revenues. In
the U.S. and Canada segment, approximately 68% of our net revenues were derived from these top three
customers.
We advertise many of our toy and game products extensively on television. Generally our advertising
highlights selected items in our various product groups in a manner designed to promote the sale of not only the
selected item, but also other items we offer in those product groups as well. In addition, Hasbro Studios produces
television entertainment based primarily on our brands which appears on THE HUB in the U.S. and on other
major networks internationally. We introduce many of our new products to major customers during the year prior
to the year of introduction of such products for retail sale. In addition, we showcase certain of our new products
in New York City at the time of the American International Toy Fair in February, as well as at other international
toy shows. In 2011 we incurred $413,951 in expense related to advertising and promotion programs compared to
$420,651 in 2010 and $412,580 in 2009. Certain entertainment-based products, such as products based on major
motion pictures, do not require the same level of advertising that we spend on other products.
Manufacturing and Importing
During 2011 substantially all of our products were manufactured in third party facilities in the Far East,
primarily China, as well as in our two owned facilities located in East Longmeadow, Massachusetts and
Waterford, Ireland.
Most of our products are manufactured from basic raw materials such as plastic, paper and cardboard,
although certain products also make use of electronic components. All of these materials are readily available but
may be subject to significant fluctuations in price. There are certain chemicals (including phthalates and BPA)
that national, state and local governments have restricted or are seeking to restrict or limit the use of; however,
we do not believe these restrictions have or will materially impact our business. We generally enter into
agreements with suppliers at the beginning of a fiscal year that establish prices for that year. However, significant
volatility in the prices of any of these materials may require renegotiation with our suppliers during the year. Our
manufacturing processes and those of our vendors include injection molding, blow molding, spray painting,
printing, box making and assembly. The countries of the Far East, and particularly China, constitute the largest
manufacturing center of toys in the world and the substantial majority of our toy products are manufactured in
China. The 1996 implementation of the General Agreement on Tariffs and Trade reduced or eliminated customs
duties on many of the products imported by us. We purchase most of our raw materials and component parts used
in our owned manufacturing facilities from manufacturers in the United States and other certain countries.
We believe that the manufacturing capacity of our third party manufacturers, together with our own
facilities, as well as the supply of components, accessories and completed products which we purchase from
unaffiliated manufacturers, are adequate to meet the anticipated demand in 2012 for our products. Our reliance
on designated external sources of manufacturing could be shifted, over a period of time, to alternative sources of
supply for our products, should such changes be necessary or desirable. However, if we were to be prevented
from obtaining products from a substantial number of our current Far East suppliers due to political, labor or
other factors beyond our control, our operations and our ability to obtain products would be severely disrupted
while alternative sources of product were secured and production shifted to those new sources. The imposition of
trade sanctions by the United States or the European Union against a class of products imported by us from, or
the loss of “normal trade relations” status with, China, or other factors which increase the cost of manufacturing
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