Hasbro 2009 Annual Report Download - page 21

Other economic and public health conditions in the markets in which we operate, including rising
commodity and fuel prices, higher labor costs, increased transportation costs, outbreaks of public health
pandemics or other diseases, or third party conduct could negatively impact our ability to produce and
ship our products, and lower our revenues, margins and profitability.
Various economic and public health conditions can impact our ability to manufacture and deliver products
in a timely and cost-effective manner, or can otherwise have a significant negative impact on our business.
Significant increases in the costs of other products which are required by consumers, such as gasoline,
home heating fuels, or groceries, may reduce household spending on the discretionary entertainment products
we offer. As we discussed above, weakened economic conditions, lowered employment levels or recessions in
any of our major markets may significantly reduce consumer purchases of our products. Economic conditions
may also be negatively impacted by terrorist attacks, wars and other conflicts, increases in critical commodity
prices, or the prospect of such events. Such a weakened economic and business climate, as well as consumer
uncertainty created by such a climate, could harm our revenues and profitability.
Our success and profitability not only depend on consumer demand for our products, but also on our
ability to produce and sell those products at costs which allow for us to make a profit. Rising fuel and raw
material prices, for paperboard and other components such as resin used in plastics, increased transportation
costs, and increased labor costs in the markets in which our products are manufactured all may increase the
costs we incur to produce and transport our products, which in turn may reduce our margins, reduce our
profitability and harm our business.
Other conditions, such as the unavailability of electrical components, may impede our ability to
manufacture, source and ship new and continuing products on a timely basis. Additional factors outside of our
control could further delay our products or increase the cost we pay to produce such products. For example,
work stoppages, slowdowns or strikes, an outbreak of a severe public health pandemic, or the occurrence or
threat of wars or other conflicts, all could impact our ability to manufacture or deliver product. Any of these
factors could result in product delays, increased costs and/or lost sales for our products.
We may not realize the full benefit of our licenses if the licensed material has less market appeal than
expected or if revenue from the licensed products is not sufficient to earn out the minimum guaranteed
royalties.
In addition to designing and developing products based on our own brands, we seek to fulfill consumer
preferences and interests by producing products based on popular entertainment properties developed by other
parties and licensed to us. The success of entertainment properties for which we have a license, such as
MARVEL or STAR WARS related products, can significantly affect our revenues and profitability. If we
produce a line of products based on a movie or television series, the success of the movie or series has a
critical impact on the level of consumer interest in the associated products we are offering. In addition,
competition in our industry for access to entertainment properties can lessen our ability to secure, maintain,
and renew popular licenses to entertainment products on beneficial terms, if at all, and to attract and retain the
talented employees necessary to design, develop and market successful products based on these properties.
The loss of rights granted pursuant to any of our licensing agreements could harm our business and
competitive position.
The license agreements we enter to obtain these rights usually require us to pay minimum royalty
guarantees that may be substantial, and in some cases may be greater than what we are ultimately able to
recoup from actual sales, which could result in write-offs of significant amounts which in turn would harm our
results of operations. At December 27, 2009, we had $120,115 of prepaid royalties, $43,115 of which are
included in prepaid expenses and other current assets and $77,000 of which are included in other assets. Under
the terms of existing contracts as of December 27, 2009, we may be required to pay future minimum
guaranteed royalties and other licensing fees totaling approximately $331,491. Acquiring or renewing licenses
may require the payment of minimum guaranteed royalties that we consider to be too high to be profitable,
which may result in losing licenses we currently hold when they become available for renewal, or missing
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