Note 3—Business Segments, Geographic Data, Sales by Product Group and Major Customers

The Company is a worldwide producer and marketer of children’s toys and other consumer products, principally engaged in the design, development, production, marketing and distribution of its diverse portfolio of products. The Company has aligned its operating segments into three segments that reflect the management and operation of the business. The Company’s segments are (i) U.S. and Canada, (ii) International and (iii) Halloween.

The U.S. and Canada segment includes action figures, vehicles, play sets, plush products, dolls, electronic products, construction toys, infant and pre-school toys, role play and everyday costume play, foot to floor ride-on vehicles, wagons, novelty toys, seasonal and outdoor products, and kids’ indoor and outdoor furniture, primarily within the United States and Canada.

Within the International segment, the Company markets and sells its toy products in markets outside of the U.S. and Canada, primarily in the European, Asia Pacific, and Latin and South American regions.

Within the Halloween segment, the Company markets and sells Halloween costumes and accessories and everyday costume play products, primarily in the U.S. and Canada.

Segment performance is measured at the operating income level. All sales are made to external customers and general corporate expenses have been attributed to the various segments based upon relative sales volumes. Segment assets are primarily comprised of accounts receivable and inventories, net of applicable reserves and allowances, goodwill and other assets. Certain assets which are not tracked by operating segment and/or that benefit multiple operating segments have been allocated on the same basis.

Results are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. Information by segment and a reconciliation to reported amounts as of December 31, 2016 and 2017 and for the three years in the period ended December 31, 2017 are as follows (in thousands):

	Years Ended December 31,
	2015		2016		2017
Net Sales
U.S. and Canada	$	478,728	$	478,595	$	406,411
International		169,826		131,229		107,231
Halloween		97,187		96,779		99,469
	$	745,741	$	706,603	$	613,111

	Years Ended December 31,
	2015			2016			2017
Income (Loss) from Operations
U.S. and Canada	$	17,562		$	17,434		$	(35,720	)
International		16,249			4,360			(13,184	)
Halloween		(3,281	)		(4,688	)		(15,254	)
	$	30,530		$	17,106		$	(64,158	)

	Years Ended December 31,
	2015		2016		2017
Depreciation and Amortization Expense
U.S. and Canada	$	13,023	$	16,817	$	15,286
International		4,439		4,549		4,079
Halloween		1,398		1,578		1,638
	$	18,860	$	22,944	$	21,003

	December 31,
	2016		2017
Assets
U.S. and Canada	$	306,895	$	229,505
International		119,560		106,255
Halloween		37,848		34,589
	$	464,303	$	370,349

Information regarding the Company’s operations in different geographical areas is presented below on the basis the Company uses to manage its business. Net revenues are categorized based upon location of the customer, while long-lived assets are categorized based upon the location of the Company’s assets. Tools, dies and molds represent a substantial portion of the long-lived assets included in the United States with a net book value of $15.7 million in 2016 and $17.0 million in 2017 and substantially all of these assets are located in China. The following tables present information about the Company by geographic area as of December 31, 2016 and 2017 and for each of the three years in the period ended December 31, 2017 (in thousands):

	December 31,
	2016		2017
Long-lived Assets
China	$	15,710	$	17,194
United States		6,587		5,755
Hong Kong		544		278
	$	22,841	$	23,227

	Years Ended December 31,
	2015		2016		2017
Net Sales by Customer Area
United States	$	542,101	$	544,096	$	479,133
Europe		117,313		92,811		71,094
Canada		32,587		26,947		21,882
Hong Kong		1,675		2,012		1,064
Other		52,065		40,737		39,938
	$	745,741	$	706,603	$	613,111

Major Customers

Net sales to major customers were as follows (in thousands, except for percentages):

	2015					2016					2017
			Percentage of					Percentage of					Percentage of
	Amount		Net Sales			Amount		Net Sales			Amount		Net Sales
Wal-Mart	$	180,758		24.3	%	$	186,894		26.5	%	$	156,436		25.5	%
Target		96,850		13.0			110,233		15.6			108,799		17.8
Toys 'R' Us		96,446		12.9			90,568		12.8			69,508		11.3
	$	374,054		50.2	%	$	387,695		54.9	%	$	334,743		54.6	%

No other customer accounted for more than 10% of the Company’s total net sales.

As of December 31, 2016 and 2017, the Toys “R” Us, Inc. (“TRU”) consolidated accounts receivable balance represented 23.5% and 26.4%, respectively, of the Company’s gross accounts receivable. When combined with Wal-Mart and Target, the Company’s other two most significant customers, these customers represent 59.6% and 60.6%, respectively, of gross accounts receivable at December 31, 2016 and 2017.

On September 18, 2017, TRU and certain of its U.S. subsidiaries and its Canadian subsidiary voluntarily filed for relief under Chapter 11 of the Bankruptcy Code in the U.S. The Canadian subsidiary also began parallel proceedings under the Companies’ Creditors Arrangement Act (“CCAA”) in Canada. As a result, the Company has reserved $8.9 million of the TRU pre-petition consolidated accounts receivable balance of $22.8 million resulting in a net pre-petition consolidated accounts receivable balance of $13.9 million as of December 31, 2017. The unreserved amount includes $2.9 million and the Company can assert a priority claim under section 503(b)(9) of the Bankruptcy Code for this amount. The balance of the unreserved amount has been submitted to the Company’s insurance carrier and is expected to be recovered.

On September 20, 2017, TRU received interim approval to access up to $2.2 billion in debtor-in-possession financing and on September 22, 2017 TRU closed on $3.1 billion of debtor-in-possession financing to support its ongoing liquidity needs. Accordingly, the Company resumed shipping to TRU for the 2017 holiday season resulting in post-petition consolidated accounts receivable balance with TRU at December 31, 2017 of $18.6 million, with no related amount reserved. Subsequent to the year ended December 31, 2017, the Company has collected $14.1 million (unaudited) of the TRU post-petition consolidated accounts receivable balance outstanding as of December 31, 2017 resulting in a remaining balance of $4.5 million (unaudited) as of March 15, 2018.

The concentration of the Company’s business with a relatively small number of customers may expose the Company to material adverse effects if one or more of its large customers were to experience financial difficulty. The Company performs ongoing credit evaluations of its top customers and maintains an allowance for potential credit losses (see Note 22).