Hasbro 2009 Annual Report Download - page 22

business opportunities for new licenses. Additionally, as a licensee of entertainment based properties we have
no guaranty that a particular property or brand will translate into successful toy or game products.
We anticipate that the shorter theatrical duration for movie releases may make it increasingly difficult for
us to profitably sell licensed products based on entertainment properties and may lead our customers to reduce
their demand for these products in order to minimize their inventory risk. Furthermore, there can be no
assurance that a successful brand will continue to be successful or maintain a high level of sales in the future,
as new entertainment properties and competitive products are continually being introduced to the market. In
the event that we are not able to acquire or maintain successful entertainment licenses on advantageous terms,
our revenues and profits may be harmed.
Our business is seasonal and therefore our annual operating results will depend, in large part, on our
sales during the relatively brief holiday shopping season. This seasonality is exacerbated by retailers’
quick response inventory management techniques.
Sales of our family entertainment products at retail are extremely seasonal, with a majority of retail sales
occurring during the period from September through December in anticipation of the holiday season, including
Christmas. This seasonality has increased over time, as retailers become more efficient in their control of
inventory levels through quick response inventory management techniques. Customers are timing their orders
so that they are being filled by suppliers, such as us, closer to the time of purchase by consumers. For toys,
games and other family entertainment products which we produce, a majority of retail sales for the entire year
occur in the fourth quarter, close to the holiday season. As a consequence, the majority of our sales to our
customers occur in the period from September through December, as our customers do not want to maintain
large on-hand inventories throughout the year ahead of consumer demand. While these techniques reduce a
retailer’s investment in inventory, they increase pressure on suppliers like us to fill orders promptly and
thereby shift a significant portion of inventory risk and carrying costs to the supplier.
The limited inventory carried by retailers may also reduce or delay retail sales, resulting in lower
revenues for us. If we or our customers determine that one of our products is more popular at retail than was
originally anticipated, we may not have sufficient time to produce and ship enough additional product to fully
capture consumer interest in the product. Additionally, the logistics of supplying more and more product
within shorter time periods increases the risk that we will fail to achieve tight and compressed shipping
schedules, which also may reduce our sales and harm our financial performance. This seasonal pattern requires
significant use of working capital, mainly to manufacture or acquire inventory during the portion of the year
prior to the holiday season, and requires accurate forecasting of demand for products during the holiday season
in order to avoid losing potential sales of popular products or producing excess inventory of products that are
less popular with consumers. Our failure to accurately predict and respond to consumer demand, resulting in
our underproducing popular items and/or overproducing less popular items, would reduce our total sales and
harm our results of operations. In addition, as a result of the seasonal nature of our business, we would be
significantly and adversely affected, in a manner disproportionate to the impact on a company with sales
spread more evenly throughout the year, by unforeseen events, such as a terrorist attack or economic shock,
that harm the retail environment or consumer buying patterns during our key selling season, or by events, such
as strikes or port delays, that interfere with the shipment of goods, particularly from the Far East, during the
critical months leading up to the holiday purchasing season.
Our substantial sales and manufacturing operations outside the United States subject us to risks
associated with international operations. Among these risks is the fact that fluctuations in foreign
exchange rates can significantly impact our financial performance.
We operate facilities and sell products in numerous countries outside the United States. For the year
ended December 27, 2009, our net revenues from international customers comprised approximately 42% of
our total consolidated net revenues. We expect our sales to international customers to continue to account for a
significant portion of our revenues. In fact, over time, we expect our international sales and operations to grow
both in absolute terms and as a percentage of our overall business as one of our key business strategies is to
increase our presence in emerging and underserved markets. Additionally, as we discuss below, we utilize
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