Hasbro 2006 Annual Report Download - page 34

Summary
The relationship between various components of the results of operations, stated as a percent of net
revenues, is illustrated below for each of the three fiscal years ended December 31, 2006.
2006 2005 2004
Net revenues .............................................. 100.0% 100.0% 100.0%
Cost of sales .............................................. 41.4 41.7 41.8
Gross profit ............................................... 58.6 58.3 58.2
Amortization .............................................. 2.5 3.3 2.4
Royalties ................................................. 5.4 8.0 7.4
Research and product development .............................. 5.4 4.9 5.2
Advertising ............................................... 11.7 11.8 12.9
Selling, distribution and administration ........................... 21.7 20.2 20.5
Operating profit ............................................ 11.9 10.1 9.8
Interest expense ............................................ 0.9 1.0 1.1
Interest income............................................. (0.9) (0.8) (0.3)
Other (income) expense, net ................................... 1.1 (0.2) 0.3
Earnings before income taxes .................................. 10.8 10.1 8.7
Income taxes .............................................. 3.5 3.2 2.2
Net earnings ............................................... 7.3% 6.9% 6.5%
Results of Operations
The fiscal year ended December 31, 2006 was a fifty-three week year while the fiscal years ended
December 25, 2005 and December 26, 2004 were fifty-two week years.
Net earnings for the fiscal year ended December 31, 2006 were $230,055, or $1.29 per diluted share. This
compares to net earnings for fiscal 2005 and 2004 of $212,075 and $195,977, or $1.09 and $.96 per diluted
share, respectively.
On December 26, 2005, the first day of fiscal 2006, the Company adopted Statement of Financial
Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which required that
the Company measure all stock-based compensation awards using a fair value method and record such expense
in its financial statements. The Company adopted this statement using the modified prospective method. Under
this adoption method, the Company is recording expense related to stock option awards that were unvested as
of the date of adoption as well as all awards made after the date of adoption. The adoption of this statement
resulted in total expense, net of tax, of $14,285 in 2006.
Net earnings and basic and diluted earnings per share for 2005 include income tax expense of
approximately $25,800 related to the Company’s repatriation of approximately $547,000 of foreign earnings in
the fourth quarter of 2005 pursuant to the special incentive provided by the American Jobs Creation Act of
2004.
Consolidated net revenues for the year ended December 31, 2006 were $3,151,481 compared to
$3,087,627 in 2005 and $2,997,510 in 2004. Most of the Company’s revenues and operating profits were
derived from its two principal segments: North America and International, which are discussed in detail below.
Consolidated net revenues were positively impacted by foreign currency translation in the amount of $27,800
in 2006 and $1,029 in 2005 as the result of the overall weaker U.S. dollar in each of those years. The
following table presents net revenues and operating profit data for the Company’s two principal segments for
2006, 2005 and 2004. Both 2005 and 2004 results have been reclassified to conform to the Company’s new
operating segment structure. The operating profit for 2005 and 2004 for each of these segments have been
adjusted to include the impact of expense related to stock options as disclosed under SFAS 123, consistent
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