Hasbro 2013 Annual Report Download - page 26

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An increasing portion of our business is expected to come from emerging markets, and growing business in
emerging markets presents additional challenges.
We expect an increasing portion of our net revenues to come from emerging markets, including Eastern
Europe, Latin America and Asia. In 2013 revenues in emerging markets constituted approximately 14% of our
net revenues, up from only 6% of our net revenues in 2010. Over time, we expect our emerging market net
revenues to continue 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 international markets. Operating in
an increasing number of markets, each with its own unique consumer preferences and business climates, presents
additional challenges that we must meet. In addition to the need to successfully anticipate and serve different
global consumer preferences and interests, sales and operations in emerging markets that we have entered, may
enter, or may increase our presence in, are subject to other risks associated with international operations,
including:
• Complications in complying with different laws in varying jurisdictions and in dealing with changes in
governmental policies and the evolution of laws and regulations that impact our product offerings and
related enforcement;
• Potential challenges to our transfer pricing determinations and other aspects of our cross border
transactions which may impact our income tax expense;
• Difficulties understanding the retail climate, consumer trends, local customs and competitive conditions
in foreign markets which may be quite different from the United States;
• Difficulties in moving materials and products from one country to another, including port congestion,
strikes and other transportation delays and interruptions; and
• The imposition of tariffs, quotas, or other protectionist measures.
Because of the importance of our emerging market net revenues, our financial condition and results of
operations could be harmed if any of the risks described above were to occur or if we are otherwise unsuccessful
in managing our emerging market business.
Our business depends in large part on the success of our key partner brands and on our ability to maintain
and extend solid relationships with our key partners.
As part of our strategy, in addition to developing and marketing products based on properties we own or
control, we also seek to obtain licenses enabling us to develop and market products based on popular
entertainment properties owned by third parties.
We currently have in-licenses to several successful entertainment properties, including MARVEL and
STAR WARS, owned by Disney as well as SESAME STREET and ROVIO. These licenses typically have multi-
year terms and provide us with the right to market and sell designated classes of products. In recent years our
sales of products under the MARVEL, STAR WARS, SESAME STREET and ROVIO licenses have been highly
significant to our business. If we fail to meet our contractual commitments and/or any of these licenses were to
terminate and not be renewed, or the popularity of any of these licensed properties was to significantly decline,
our business would be damaged and we would need to successfully develop and market other products to replace
the products previously offered under license.
Our license to the MARVEL property is granted from Marvel Entertainment, LLC and Marvel Characters
B.V. (together “Marvel”). Our license to the STAR WARS property is granted by Lucas Licensing Ltd. and
Lucasfilm Ltd. (together “Lucas”). Both Marvel and Lucas are owned by The Walt Disney Company.
Entertainment is an increasingly important success factor for our brand awareness and brand building.
Entertainment media, in forms such as television, motion pictures, digital products, DVD releases and other
media, have become increasingly important platforms for consumers to experience our owned and partner brands
and the success, or lack of success, of such media efforts can significantly impact the demand for our products
and our financial success. We spend considerable resources in designing and developing products in conjunction
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