2009 Annual Report - Part 2
Four PRIMARY product categories:
1) boys' toys
2) games and puzzles
3) girls' toys
4) preschool toys
Games and Puzzles category includes several well known brands, including Milton Bradley, Parker Brothers, Trivial Pursuit, Cranium, Avalon Hill, and Wizards of the Coast. These brand portfolios consist of a broad assortment of games for children, tweens, families, and adults. Core brands include (a bunch of games not from WoTC - Monopoly, Battleship, Scrabble). Wizards of the Coast offers trading card and roleplaying games including M:TG, Duel Masters, and D&D. We seek to keep our game brands relevant through sustained marketing programs, such as Family Game Night, as well as offering consumers new ways to experience these brands.
Three principal segments:
1) US and Canada
2) International
3) Entertainment and Licensing
The US and Canada segment egnages in the marketing and saleo f our product categories in the US and Canada. This segment's streategy is based on promoting our brands through innovation and reinvention of toys and games. This is accomplished through introducing new initiatives driven by consumer and marketplace insights and leverageing opportunitistic toy and game lines and licenses. This strategy leverages off of efforts to increase consumer awareness of Hasbro's core brands through entertainment experiences such as motion pictures, television, and publishing. Major brands included Transformers, Littlest Pet Shop, Star Wars, Nerf, Monopoly, Playskool, Play-doh, Marvel, M:TG, GI JOe, My Litlle Pony, and Furreal Friends.
Our entertainment and licensing segment includes lifestyle licensing, movie, television, and online entertainment operations. This segment seeks to promote our brands through the out-licensing of our intellectual properties to third parties for promotional and merchandising usess in businesses which do not compete direclty wiht our own product offerings. Our digital licensing category encompasses applicatons on mobile phones, personal computers, and video game consoles. This is done primarily through long-term strategic alliance with Electronic Arts (EA) which provides worldwide rights to create digial games for most of our toy and game intellectual properties. Movie and television segments niclude a strategic relationship with Universal Pictures, and a 50% joint venture with Discovery Communications to form The Hub. Royalty revenues from licensing is included in this segment.
The toy and game business is characterized by order patterns which vary from year to year due to differences each year in the degree of consumer acceptance of product lines, product availability, marketing strategies, and inventory policies of retailers (timing of motion pictures, economic conditions overall). Retailers are timing their orders so that they are being filled by suppliers, such as us, closer to the time of purchase by consumers. 2010 strategies are substantially the same as those of 2009.
R&D
Our success is dependent on innovation, including both the continuing development of new products and the redesign of existing products for continued market acceptance. Our toy, game, and puzzle products are developed by a global development group and the costs of this group are allocated to our selling entities. In 2009, we spent $181,195, much of this work is performed by internal staff of designers, artists, model makers, and engineers.
Marketing and Sales
In 2009, net revenues from our three largest customers were:
1) Wal-Mart (25%)
2) Target (13%)
3) Toys R Us (12%)
In the US and Canada segment they accounted for 74% of our net revenues.
In 2009 spend on advertising, promotion, and marketing was $412,580, compared to $454,612 in 2008.
Manufacturing
In 2009 substantially all products were manufactured in the Far East, primarily China. Most products are manufactured from plastic, paper, and cardboard. Some require the use of electronic components.
Employees
In December 2009, Hasbro employed 5,800 persons worldwide, 3,100 of whom were located in the United States.
Competition
The volatility of ever-evolving consumer preferences, combined with the high level of competition and low barriers to entry in the family entertainment industry, make it difficult to maintain and build upon the success of existing products and product lines or successfully introduce new products. In addition, an inability to develop and introduce planned new prdoucts and product lines in a timely and cost-effective manner may damage our business.
There is significant competitive pressure from alternative products, particularly in the electronic games market segment. The challenge of developing and offering products that are sough after by children is compounded by the trend of children "getting older younger". They are exposed to and desire a wider array of entertainment products at younger ages, and as a result Hasbro products compete with offerings of video game suppliers, consumer electronics companies, and other businesses outside the traditional industry.
Risks
Part of our strategy for remaining relevant to children is to offer innovative children's toy and game electronic products. The margins on many of these products are lower than more traditional toys and games and such products may have a shorter lifespan than more traditional toys and games.
Debt
On Dec 1, 2011 and Dec 1, 2016 and holders of senior debt may require us to purchase their debt ($249k).
Corporate Headquarters in Pawtucket, Rhode Island. (owned)
Company LEASES office space of 95,400 in Renton, Washington.
Company owns manufacturing plants in East Longmeadow, MA, and Waterford, Ireland.
In contractual obligations, operating lease commitments diminish from $25 in 2010 to $6,728 in 2014.
Executives
All are based and operate in their HQ in the east. None of a tabletop or RPG, or TCG background.
Financial Performance
Over the last seven years Hasbro has improved operating margins from 7.8% in 2002 to 14.5% in 2009.
Components of sales in 2009:
Cost of Sales - 41%
Amort -2%
Royalties - 8.1%
R&D - 4.5%
Advertising - 10.1%
SDA - 19.5%
Interest - 1.5%
Income Tax - 3.8%
Net Revenues and Operating Profit by Segment:
US and Canada - $2,447mm (up 2%), $380mm (up 34%)
Entertainment and Licensing - $155mm (up 44%), $65mm (up 28%)
Net revenues in the games and puzzles category decreased slightly in 2009, primarily due to the decreased sales of traditional board games, partially offset by increased revenues from M:TG. Operating profit was positively impacted by the impact of foreign currency, increased sales of entertainment-based products, decreased SDA(selling, distribution, and administrative expense), lower shipping and distribution costs, decreased sales and marketing expenses.
In 2007 the company reacquired the remaining digital gaming rights for its owned or controlled properties held by Ingogrames Entertainment, with the exception of Dungeons and Dragons ($19k).
Games and Puzzles is $1,340,886,000 of $4,067,947,000 revenues.
