Hasbro 2009 Annual Report Download - page 38

preschool category. Net revenues in the games and puzzles category decreased primarily as a result of
decreased revenues from MAGIC: THE GATHERING products, TRIVIAL PURSUIT products and MONOP-
OLY products. Net revenues in the boys’ toys category decreased primarily as a result of decreased sales of
MARVEL and TRANSFORMERS products, however, both product lines continued to be significant contribu-
tors to International segment net revenues in 2008. Decreased net revenues in the boys’ toys category were
partially offset by increased sales of STAR WARS and NERF products and sales of INDIANA JONES
products. International segment net revenues in 2008 were also negatively impacted by decreased sales of
POWER TOUR GUITAR, which was no longer in the Company’s product line.
International segment operating profit decreased 13% to $165,186 in 2008 from $189,783 in 2007.
Operating profit for the International segment in 2008 was negatively impacted by approximately $4,400 due
to the translation of foreign currencies to the U.S. dollar. The decrease in International segment operating
profit also reflects promotional programs implemented by the Company in the fourth quarter of 2008 in
response to weakened retail conditions; increased advertising expense; and increased investments in emerging
markets; partially offset by lower royalty expense as a result of lower sales of entertainment-based products. In
addition, International segment operating profit in 2008 was positively impacted by the recognition of a
pension surplus in the United Kingdom.
Entertainment and Licensing
During the second quarter of 2009, the Company changed the name of its Other segment to the
Entertainment and Licensing segment. This segment includes the Company’s lifestyle licensing, digital gaming,
movie, television and online entertainment operations. The Entertainment and Licensing segment’s net
revenues for the year ended December 27, 2009 increased 44% to $155,013 from $107,929 for the year ended
December 28, 2008. The increase was primarily due to higher lifestyle and digital gaming licensing revenues,
primarily relating to TRANSFORMERS and G.I. JOE licensed products.
Entertainment and Licensing segment operating profit increased 28% to $65,572 in 2009 from $51,035 in
2008. Operating profit increased as a result of the higher revenues discussed above, partially offset by
increased selling, distribution and administrative expenses which included approximately $7,200 in transaction
costs related to the Company’s investment in the joint venture with Discovery, start-up costs associated with
the Company’s television studio, as well as increased intangible amortization and royalty expense. While the
Discovery joint venture is a component of our television operations, the Company’s 50% share in the earnings
from the joint venture are included in other (income) expense and therefore are not a component of operating
profit of the segment.
The Entertainment and Licensing segment’s net revenues for the year ended December 28, 2008 increased
24% to $107,929 from $87,245 for the year ended December 30, 2007. The increase reflects licensing
revenues related to the Company’s partnership with EA to develop digital games based on the Company’s
intellectual property. EA began introducing products based on the Company’s intellectual property in 2008.
The increase in revenues from the introduction of these products offset decreases in lifestyle licensing revenues
as a result of the significant licensing revenues in 2007 related to the TRANSFORMERS motion picture.
Entertainment and Licensing segment operating profit increased 31% to $51,035 in 2008 from $38,881 in
2007. Operating profit for 2008 increased as a result of the higher revenues discussed above, partially offset
by increased selling, distribution and administrative expenses.
Gross Profit
The Company’s gross profit margin increased to 58.8% for the year ended December 27, 2009 from
57.9% in 2008. The increase was partially due to a change in the mix of revenues reflecting higher licensing
revenues in 2009. In addition, the increased gross profit reflects a change in product mix primarily due to
increased sales of entertainment-based products in 2009 as compared to 2008. While gross profits of theatrical
entertainment-based products are generally higher than many of the Company’s other products, sales from
these products, including Company owned or controlled brands based on a movie release, also incur royalty
expense. Such royalties reduce the benefit of these higher gross margins. Gross profits in 2009 were also
28