Hasbro 2013 Annual Report Download - page 18

Certain of our products are licensed to other companies for sale in selected countries where we do not
otherwise have a direct business presence.
Each of our four product categories, namely boys, games, girls and preschool, generate greater than 10% of
our net revenues. For more information, including the amount of net revenues attributable to each of our four
product categories, see note 19 to our consolidated financial statements, which are included in Item 8 of this
Form 10-K.
Working Capital Requirements
Our working capital needs are financed primarily through cash generated from operations and, when
necessary, proceeds from short-term borrowings. Our borrowings generally reach peak levels during the third or
fourth quarter of each year. This corresponds to the time of year when our receivables also generally reach peak
levels as part of the production and shipment of product in preparation for the holiday season. The strategy of
retailers has generally been to make a higher percentage of their purchases of toy and game products within or
close to the fourth quarter holiday consumer buying season, which includes Christmas. We expect that retailers
will continue to follow this strategy. Our historical revenue pattern is one in which the second half of the year is
more significant to our overall business than the first half. In 2013, the second half of the year accounted for
approximately 65% of full year revenues with the third and fourth quarters accounting for 34% and 31% of full
year net revenues, respectively.
The toy and game business is also characterized by customer order patterns which vary from year to year
largely because of differences each year in the degree of consumer acceptance of product lines, product
availability, marketing strategies and inventory policies of retailers, the dates of theatrical releases of major
motion pictures for which we offer products, and changes in overall economic conditions. As a result,
comparisons of our unshipped orders on any date with those at the same date in a prior year are not necessarily
indicative of our sales for that year. Moreover, quick response inventory management practices result in fewer
orders being placed significantly in advance of shipment and more orders being placed for immediate delivery.
Retailers generally time their orders so that they are being filled by suppliers, such as us, closer to the time of
purchase by consumers. Although the Company may receive orders from customers in advance, it is a general
industry practice that these orders are subject to amendment or cancellation by customers prior to shipment and,
as such, the Company does not believe that these unshipped orders, at any given date, are indicative of future
sales. The types of programs that we plan to employ to promote sales in 2014 are substantially the same as those
we employed in 2013 and in prior years.
Historically, we commit to the majority of our inventory production and advertising and marketing
expenditures for a given year prior to the peak fourth quarter retail selling season. Our accounts receivable
increase during the third and fourth quarter as customers increase their purchases to meet expected consumer
demand in the holiday season. Due to the concentrated timeframe of this selling period, payments for these
accounts receivable are generally not due until later in the fourth quarter or early in the first quarter of the
subsequent year. The timing difference between expenses paid and revenues collected sometimes makes it
necessary for us to borrow varying amounts during the year. During 2013, we utilized cash from our operations
and borrowings under our commercial paper program and uncommitted lines of credit to meet our cash flow
requirements.
Royalties and Product Development
Our success is dependent on continuous innovation in our entertainment offerings, including both the
continuing development of new brands and products and the redesign of existing products to drive consumer
interest and market acceptance. Our toy and game products are developed by a global development group and the
costs of this group are allocated to the selling entities which comprise our principal operating segments. In 2013,
2012 and 2011, we incurred expenses of $207,591, $201,197 and $197,638, respectively, on activities relating to
the development, design and engineering of new products and their packaging (including products brought to us
by independent designers) and on the improvement or modification of ongoing products. Much of this work is
performed by our internal staff of designers, artists, model makers and engineers.
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