Hasbro 2014 Annual Report Download - page 30

Download and view the complete annual report

Please find page 30 of the 2014 Hasbro annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 127

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127

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;
• 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. In 2015 we anticipate offering products based on the
DISNEY DESCENDANTS brand as well and beginning in 2016, we anticipate offering products based on the
DISNEY PRINCESS and FROZEN brands.
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.
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 toys, games and other 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
16