孩之寶 (HAS) 2002 Q4 法說會逐字稿

Good morning and welcome to Hasbro's fourth quarter earnings conference conference call.

We'd like to inform all parties at this time that this call is being recorded.

You will be in a listen-only mode until we open for questions and answers.

With us today from the company is the Senior Vice President of Investor Relations, Miss Karen Warren and at this time I'd like to turn the call over to Miss Warren and thank you, ma'am, you may begin.

Thank you, Cathy and good morning everyone.

Thank you for joining us.

With me this morning is Alan Hassenfeld, Chairman of the Board and Chief Executive Officer, Al Verrecchia, President and Chief Operating Officer, and David Hargreaves, Senior Vice President and Chief Financial Officer.

On today's call, we will be reviewing our financial results for the full year and the fourth quarter, and highlighting the performance of some of our key products and brands.

We will conclude by opening the call to your questions.

To better understand the earnings results, it would be helpful to have the press release and the financial tables available.

We have also added a table on major segments and provided additional information in the press release regarding the segments as well.

If you don't have a copy of the release, it is available on our website, hasbro.com, under corporate information, with the investor relations press releases.

In a departure from our usual conference call format, we will be saving our 2003 discussion for tomorrow when we will be webcasting from Toy Fair at 8:00 a.m.

That call, like this one, will be accessible to everyone via our website.

Before we begin our formal remarks, let me note that members of Hasbro's management may make forward-looking statements concerning management's expectations, goals, objectives, and similar matters which are inherently subject to risks and uncertainties.

There are many factors that could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in a forward-looking statement .

Some of those factors are set forth in the company's annual report on form 10-K, including under the headings forward-looking information and risk factors, and the company's quarterly reports on form 10-Q, including under the headings other information and forward-looking statements, and the company's current reports on form 8-K, and in today's press release.

All listeners should review such factors together with any forward-looking statements made in this conference call.

The company undertakes no obligation to make any revisions to the forward-looking statements contained in this conference call or to update them to reflect events or circumstances occuring after the date of this conference call.

Now I'd like to introduce Alan Hassenfeld.

Thank you Karen, and good morning everyone.

Thank you for joining us.

Let me start by saying how pleased I am with our earnings performance this year.

We accomplished a lot in a challenging economic and retail environment.

During 2002, we had the disruptions associated with the West Coast dock strike and a very weak retail environment.

For the year, excluding certain nonrecurring items, we delivered earnings at 62 cents per share, exceeding consensus estimates.

When you look at our top line performance, revenue was up 1% for the quarter, and down marginally for the year.

Given the environment and our conscious decision to reduce our dependence on licensed entertainment properties and focus on our core brands, we did well.

We enjoyed very strong results with a number of core brands.

Revenue in the U.S. toy segment was up 7% for the year with GI Joe, Transformers, Lite Brite, and Play-Doh all up significantly.

The game segment was up 6% in the fourth quarter with the adult game category up significantly driven by success of the new Trivial Pursuit 20th Anniversary Edition.

Al and I both will be talking more about the strength of our core brands later in the call.

Consistent with our achievements in 2001, we remain focused on our goals of reducing expenses, improving our balance sheet, and growing our core brands in 2002.

It was also a year we put a couple of issues behind us that had been a source of concern to both our shareholders and ourselves.

The first was Star Wars.

Two weeks ago, we announced that we had renegotiated both licensing and warrant agreements with Lucas to terms that are financially more favorable for Hasbro.

Based on the restructuring of these agreements, we do not expect any current or future impairment charge related to Star Wars.

I will tell you more about this exciting deal later on in the call.

Second, we announced yesterday some very positive news in the second OFT case, the retailer case, being reviewed by the Office of Fair Trading in the UK.

Although the OFT has not yet issued a final decision in the retailer case, they have advised us that because of our full cooperation in their investigation they will not be requiring Hasbro to pay any financial penalty.

We indicated back in November that we would have to take a total charge of up to $20.9 million in connection with the OFT matter, but, in fact, we have only had to take a charge of $7.6 million related to the wholesaler case, and no charge for the retailer case.

For those of you who want further information, more details are provided in the 8-K we filed on this subject this morning.

With that, I'd like to turn the call over to Al to review our earnings in more detail.

Al?

Thanks, Alan, and good morning everyone.

In looking back on the year, we remained focused on improving earnings, strengthening our balance sheet, investing in new product development and growing our core brands.

Let's take a look at our results.

Beginning with revenue.

For the year we had revenues of $2.8 billion, down marginally compared to a year ago.

Core brands performed well with many brands up significantly year-over-year.

Major entertainment licenses were flat compared to a year ago, primarily due to the decline in license trading card games.

Last week, robotic pets and remote control toys were down significantly year-over-year.

Let's talk about the specifics.

We had strong revenue growth for many of our core brands this year.

GI Joe was up 46%, Transformers up 64%, Playskool up 11%, and Play Doh up 15%.

The Trivial Pursuit brand was up 70%, driven by the tremendous response to our 20th Anniversary Edition.

We also had very strong performances from several other new product introductions.

BeyBlades, Zoids, FurReal Friends and our Operation Brain Surgery game.

BeyBlades, by the way, was the toy of the year in the UK in 2002 and continues to be a worldwide phenomenon.

Looking at our major entertainment licenses.

On a combined basis, Star Wars, Pokemon, Disney, Harry Potter, and Jurassic Park were flat year-over-year.

Even with the revenue contribution from Star Wars Episode 2.

The primary reason was licensed trading card games which were down $118.4 million for the year, due to declines in Harry Potter and Pokemon with most of the impact in the international markets.

It's worth noting that we continue to make progress in transitioning the business away from the dependence on major entertainment licenses and toward core brands and innovative new products.

In fact, major entertainment licenses as a percent of our total revenue have gone from the high teens in 2001 to less than 10% in our 2003 plan.

In addition, as mentioned in previous quarters, robotic pets and remote control toys, principally from our Tiger and Wow Wee businesses were down $127.5 million for the year.

For the fourth quarter, revenue was $997.4 million, up 1%.

We had a number of core brands that performed well in the quarter.

Transformers were up 46%, our Magic to Gathering trading card came was up 48%, Play Doh was up 30% and GI Joe was up a strong 63%, and of course the number one game of the year, Trivial Pursuit 20th Anniversary Edition.

As in our full year results, we had declines in licensed trading card games, robotic pets and remote control toys in the fourth quarter.

We would have liked better top line performance in 2002.

However, our performance should be considered in the context of the strategy we began executing in early 2001.

That is, to be a smaller, more profitable company as we made the shift to de-emphasize licenses in favor of investing more of our resources into our core brands and new product development.

And this strategy is working.

Let's take a look at earnings.

For the year, excluding certain nonrecurring items outlined in the press release today, net earnings were $106.8 million, or 62 cents per diluted share, compared to $72.1 million or 42 cents per diluted share in the prior year, exceeding consensus estimates.

On a GAAP basis, we reported a net loss of $170.7 million, or 98 cents per diluted share for the year, compared to net earnings of $59.7 million, or 35 cents per share in the prior year.

The loss is attributable to the adoption of FAS142, goodwill and other intangibles.

For the fourth quarter, excluding certain nonrecurring items that were outlined in our press release today, net earnings were $72.9 million, or 42 cents per diluted share, compared to net earnings of $63.8 million or 37 cents per diluted share last year.

On a GAAP basis, we reported net earnings of $62.2 million, or 36 cents per diluted share, compared to net earnings of $52.5 million, or 30 cents per diluted share last year.

Excluding nonrecurring items, the earnings per share we achieved for the quarter is significant because we were able to accomplish this on essentially flat sales and significantly higher royalty expenses primarily related to Star Wars.

Earnings before interest, taxes, depreciation and amortization, EBITDA, was $403 million, or $2.32 per diluted share for the year, compared with $435 million, or $2.52 per diluted share a year ago.

Gross margins for the year improved to 61%, compared to 57.2% last year.

Now, let's take a look at expenses for the full year.

We continue to be on track to achieve the goal we set a year ago to take a second $100 million in expenses out of the business by the end of 2004.

As we stated previously, we are targeting the SG&A line for these expense reductions.

In 2002, we didn't expect to show a significant decline in SG&A, since we have been absorbing the expenses associated with these reductions.

In fact, we had approximately $28 million in expenses related to our cost reduction initiatives.

We expect most of the benefit from the $100 million in savings to be fully reflected in our 2003 and 2004 results.

R&D increased for the year by $28.1 million to $153.8 million, compared to $125.6 million a year ago, reflecting our increased emphasis on new product development.

Royalties for the year increased by $86.4 million, to $296.2 million, or 10.5% of revenues.

As we have previously stated, we expected royalty expense to be higher in 2002, primarily due to the higher royalty rates associated with Star Wars.

We expect royalties to be lower in 2003 and 2004 reflecting the anticipated reduction of licensed entertainment properties.

Advertising expense was $296.5 million, or 10.5% of revenue for the year in line with expectations we set a year ago.

This compares with $290.8 million last year, which was 10.2% of revenues.

SG&A is down $18.8 million to $656 million or 23.3% of revenue.

As I mentioned previously, we are expensing the costs associated with our $100 million expense reduction program, and did not see as much benefit to the SG&A line in 2002.

Expense reductions will continue to be one of our highest priorities and David Hargreaves, our CFO will talk more about this tomorrow.

Amortization expense declined for the year by $27.1 million to $94.6 million.

Due primarily to the adoption of FAS141 and 142, partially offset by the amortization expense associated with the Lucas property rights.

Amortization of goodwill and intangible assets with indefinite lives in 2001 amounted to $53.7 million.

The elimination of this amortization net of its related tax effect, would have resulted in earnings of $104.7 million in 2001.

Interest expense for the year decreased by $26.2 million to $77.5 million, primarily due to the benefits of the debt refinancing we completed in the fourth quarter of 2001, the repurchasing of bonds and lower short-term debt.

Our tax rate for the full year was 27.9%, compared to 36.8% a year ago.

Now turning to the balance sheet.

Receivables declined $17.4 million year-over-year and day sales outstanding decreased by two days to 50.1 days.

Inventories decreased by approximately $27.3 million, or 12.6% from a year ago, to $190.1 million.

The balance sheet also shows that total debt net of cash decreased by $384.1 million, as compared to the fourth quarter of a year ago.

This reflects both our strategy to deleverage as well as a strong cash-generating ability of the underlying business.

At year-end, we had $495.4 million in cash, compared to $233.1 million in cash a year ago.

Even after buying back $124.6 million in bonds in 2002.

In addition, we purchased $16 million in bonds in the current quarter, reducing our March 2003 debt obligation to $184.3 million.

Our goal is to reduce our debt to total cap ratio to 25 to 30%.

In summary, we are pleased with the growth in both our core brands and new product innovations, but it has been masked by declines in other areas, such as licensed trading card games and robotic toys.

As we shift further away from licensing to core brands, we believe we are achieving greater predicability for our business in both earnings and revenue growth.

We have also reduced our cost base which has allowed us to substantially improve the quality of our earnings, as well as reduce debt and improve our cash flow.

We believe we are well positioned for the future and remain on track to achieve our stated financial goals.

With that, let me turn it back to Alan.

Alan?

Thank you, Al.

There are a number of issues and product areas I want to cover with you this morning before we open the call for your questions.

One of Hasbro's key strengths is our diverse and powerful portfolio of brands.

As a testament to the long history and strength of our brands and the recently published toy industry association book, "Celebrating A Century of Toys," I'm very pleased to report that Hasbro brands or toys made up 37 out of 100 toys.

This is double that of any other company in the industry.

Today, many of these brands continue to be an important part of our lineup.

In 2003 alone, some of the anniversaries we will be celebrating include 60 years for Chutes and Ladders. 40 years for Easy Bake Oven, 30 years for Sit and Spin and Boggle, 25 years for Simon, 20 years for Transformers and Magic the Gathering Trading Card Game celebrates its tenth anniversary this year.

As we talk about the strength of our core brands and the opportunities they represent for the future, it is very clear that we have many, many great brands that we can leverage to grow our business in 2003 and beyond.

Now, let me talk to you about Star Wars.

We were very pleased to announce that we renegotiated our agreements with Lucas Licensing.

The two most important changes to the licensing agreement include a 10-year extension to the year 2018, and a reduction in the minimum guarantee of $85 million.

Under this new structure, there is real economic benefit to Hasbro shareholders.

We have essentially prepaid all but $35 million of the total royalties that we owe Lucas on any future Star Wars product.

Remember that this brand has a tremendous following amongst boys and collectors alike, and has always been among our highest margin brands.

We expect Star Wars to continue to generate meaningful revenue and strong margins through 2018.

I would also add that there hasn't been any other license in the industry that has generated as much revenue as Star Wars over the long-term.

According to Tryst, it was the number one boy license in '02.

I would describe Star Wars as being in a league all by itself.

Coming up, we have the release of the last movie in 2005, and as far as other entertainment for Star Wars, stay tuned.

We believe the new deal is a win-win for both Hasbro and Lucas.

David Hargreaves will provide more details on the new agreements at our meeting tomorrow.

Let me speak briefly about the West Coast dock strike.

As one would expect, there was some impact on the normal flow of goods in late September and early October.

Our logistical team did a great job in planning for and minimizing the impact on our ability to service our customers.

Now our recap where Hasbro stands today.

Going back two years ago, we had some serious issues to deal with.

As a result, our focus has been primarily on reducing debt, increasing earnings, and emphasizing product development as part of growing our core brands.

We have worked hard and today we are in a much, much stronger position as a company.

We live in uncertain times and it's difficult to know what impact the economy will have on our business.

What we can do is stay focused on our strategy as we know it positions us well for the future.

For those of you that know me, you know how enthusiastic and excited I get about our brands and products.

I could list a whole bunch of products that I love, but I think all of you who have seen the 2003 lineup will agree that there has been a real change in focus at Hasbro.

We are living our strategy of growing the core brands and our wonderful portfolio of products.

As we mentioned at the beginning of the call, we would be discussing 2003 in more detail tomorrow.

I'd like to take a minute before we open the call to your questions to review some of our primary goals for this year.

First and foremost, we will continue to focus on growing our core brands and creating new and innovative products.

For the full year, we expect that our revenue decline in major entertainment licenses will be offset by growth in other categories.

However, this will not likely be in the first half of the year given the tough comps from Star Wars.

We are focused on turning around those areas of the business that have not performed up to expectations.

For example, the international segment.

We are on target to achieve the goal we articulated in early 2001, a 10% or better operating margin in 2003.

This will provide a better return to our shareholders.

We are on target to achieve our fixed cost reduction objectives, a second $100 million by the end of '04.

As part of this objective, supply chain management will continue to be an important part of our strategy.

Lastly, we will be focused on expanding our channels of distribution and we will continue to be more aggressive in the marketplace.

Tomorrow the senior management team, along with Al, David and I will give you a better sense of how we believe we can achieve these targets.

As I read the reports that analysts have written about Hasbro, many focus on consistency.

And consistent we have been.

Almost everything we said we were going to do since the fourth quarter of 2000 we have done.

Stay tuned for tomorrow when we will provide additional insight into 2002 results and talk about products that will be driving revenue in 2003 for U.S. toys, games, international, and our properties group.

With that, I'd like to open the call to questions about 2002, and the fourth quarter for Al, David and myself.

Once again, I want to mention that we will be webcasting from Toy Fair at 8:00 a.m. tomorrow and we ask that you save your questions about 2003 until that time.

And thank you.

Thank you.

And at this time, if you would like to ask a question, please press star and then 1 on your touch-tone phone.

At this time, please press star 1 on your touch-tone phone if you would like to ask a question.

Our first question comes from Jill Krutick, and your line is open.

Please state your company name.

Hi, this is actually Liz Ozur for Jill at Salomon Smith Barney.

I just had a couple of questions, guys.

I was hoping maybe you could comment on your inventory position at retail right now and how the holiday sell through went?

Second, I was wondering if you could identify the cost savings, how much you would expect to fall in 2003 versus 2004?

And then third, in terms of your comments on the entertainment licenses being -- those sales being down in the first half of the year, I was wondering if you could identify any other areas that you think will be down in '03?

Thanks.

First of all, Liz, let me take the portion on the inventory position at retail.

I would say that overall, our inventory position is in very, very good shape at retail.

It's probably in the toy sector, a tad bit higher than last year and in the game sector it's probably a tad bit lower than last year.

But we feel real good in the mix of inventory at retail is probably as good as it's been in the sense of products that are continuing forward year on year.

David, on cost savings?

Yes, with regard to our cost savings, as you know, we took the first $100 million of cost out primarily in '01 with regard to the second $100 million, we clearly have taken probably about $50 million out this year.

You can't see all that, because being about $28 million of costs that we've incurred in implementing these cost saving actions which were expensed through P&L this year.

But net those out, we're probably about $50 million in savings this year.

I think earlier we said that cumulatively, we expect to be to at least $80 million by next year, or by this year, '03, with the balance of the second $100 million coming in '04.

Liz, Al's going to answer your portion on the entertainment.

Yeah, Liz, I think in terms of 2003, the most significant decline will come from Star Wars, given that we had the movie this year, and there will be no movie next year.

That would be the most significant.

And I think anything else wouldn't be that significant.

Okay.

Great.

Thanks, guys.

Thanks, Liz.

Thank you.

And our next question comes from Tony Gikas and your line is open.

Please state your company name.

US Bancorp Piper Jaffrey, good morning, guys.

Good morning, Tony.

Great quarter and year-end.

A couple questions.

On the licensing side I know it's been a big focus of the company to reduce your dependency on external licensing.

Could you give us an update on your progress on that front?

And how much of that is due to doing less expensive licensing deals or how much of it is due to doing fewer licensing products?

This is Al.

Now, let me answer the question this way: What we've been saying to people is that we want to reduce our dependence.

So it's not that we have a specific target in sales that would be represented by major entertainment properties.

When we stated that goal and objective at the end of 2000, beginning of 2001, we certainly knew we had the Star Wars license for the remainder of the term.

We had recently signed a Disney license, and we still had a contract with Pokemon.

So we knew that those would gradually be coming down.

And it would be unlikely that we would be replacing those and we would be much more selective on a go-forward basis.

Since then, we've certainly signed some deals, but we have been very selective and the economics of the deals have been, you know, much more favorable, and much more modest than some of the deals in previous years.

So I think it's a combination.

We'll continue to do major entertainment licensing, we're just going to be much more selective and the economics have to work for us.

Would you say that in general these licensing deals are less expensive today or less rich than they were a few years ago?

Tony, I'm going take that one, and basically say very definitely.

And if they are too expensive and they don't make sense for our shareholders and ourselves, we're not playing.

And again, I think the most important thing that, you know, everybody, you know, the world is changing.

And I think Hollywood is beginning to understand that movies don't last in the theaters or at retail anywhere near as long as they did a number of years ago.

So very definitely we're looking at these, but our hurdle rate on these is a lot different than it was a couple of years ago.

Okay.

And then last question.

Could you put out a little bit more color on the decline to the international business during the quarter and the year?

Let me take that.

A couple points.

First, let's understand that what happens in the international arena oftentimes lags what happens in the U.S. market.

And by that, I mean, that oftentimes products that are introduced in the U.S. will follow in the international arena, you know, six to 12, sometimes 18 months later, depending upon when product is on television and when perhaps as movie is released.

More specifically, what we saw in the international markets is Pokemon, as a major license, follow the U.S. market.

So the decline in Pokemon that we saw last year and the year before in the U.S. market, you know, was about a year, year and a half later in the international market.

So that's where most of the decline in sales has come from.

When we said earlier in the call this morning, we had a decline in licensed trading card games of about $118 million, a good deal of that is in the international arena.

In addition to that, I'll have to tell you that the Action Man brand slowed during the last couple years and we've got a major effort to reinvigorate that brand in '03 and '04.

In addition to that, when we talk about the cost-reduction program that we have had at Hasbro, we had two $100 million traunches.

The first $100 million, a significant portion of that cost reduction came in the United States and primarily in the Hasbro Toy group.

The second $100 million cost reduction traunch, much of that, not all of that clearly, but a lot of that is coming on the international side.

So you will see significant improvement both in sales and earnings performance in the international market and that's primarily Europe where we had the difficulty.

I hope that answers the question for you.

That's great, thanks a lot, guys.

Thanks, Tony.

Next question, anyone?

Thank you, our next question comes from David Liebowitz and your line is open.

Please state your company.

David, I want you to know that with that long pause, did it take you that long to come up with the question?

Actually, I was -- I thought you just gave up on me and decided I wasn't worth speaking to at all today.

Happy new year, David.

And a healthy one to everyone.

A couple of brief unrelated questions.

First, Al, you mentioned you bought back a lot of bonds.

Did you buy them at a significant discount to face or retirement?

I'll let David take that one.

We mainly bought back '03 bonds which had a 7.95% coupon.

While we didn't buy at a discount, we did in fact buy at a small premium, net net paying a small premium but getting rid of debt at 7.95%, and replacing that, either we had the cash later in the quarter or it was bank borrowings at closer to 4% earlier in the quarter gave us a net gain obviously in doing that.

But it wasn't a discount.

Some of our longer term bonds may be trading at a small discount.

And given the current state of the balance sheet, is it still your objective to repurchase more debt?

Well, we have to repay the rest of the March '03s during the middle of March, and that now is down to about $184 million.

Thereafter, if we continue to generate cash like we have in the last two years, and I think we've been very successful in that regard, then we would be looking to continue to repurchase our bonds, yes.

Second of all, the extension of Star Wars through 2018 and the $35 million that you still have left to pay Lucas, do I have my numbers right so far?

So far.

Is that $35 million payable upon the release of Episode 3 in 2005?

Yes, it is, David.

And thereafter, you carry the cost of the product line at zero to you?

No, on a cash basis it would be zero.

Clearly, we still have royalty guarantees that we have prepaid, and some property rights sitting on our balance sheet which we will still have to amortize over the period 2003 to 2018.

But clearly, the reduction in the minimum guarantee in total has reduced what we're carrying, and with an extra 10 years, we're very confident that we will be able to earn it out.

So you have not had any impairment of asset value on the license taken at the end of 2002?

Absolutely not.

We said that, I think, in our earlier press release, that we would not be taking anything.

That's great.

And lastly, are you hedging currency at the moment?

Given the weakness in the dollar?

Yes, we always do some currency hedging.

To lock in our purchases and give some certainty around our budgets.

But we don't do 100%.

We do some on our [INAUDIBLE].

And how much is that costing you or how much did it cost you in 2002?

In terms of cost of buying forward or lost opportunity costs by hedging before the rates improved?

I would say in terms of your out of pocket expense, cash on cash.

It's minimum.

In terms of costing of providing forward coverages, maybe a couple million dollars.

And when you look at the benefits that we have achieved in the past, it's certainly more of an offset by the benefits.

The last question: Had you reserved adequately for markdown money or did you exceed your markdown money figure?

No, we were adequately reserved.

No problems there, David.

Great.

Thank you so much.

Thanks, David.

Thank you, our next question comes from Sean McGowan and your line is open.

Please state your company name.

Hi, from Gerard Klauer Mattison.

Hi, guys.

Hi, Sean.

Three questions, a couple of them are quickies.

Was most of the decline in the trading card volume internationally related to Pokemon or related to Harry Potter?

More towards Pokemon than Harry Potter but it was Pokemon and Harry Potter.

Okay.

Board games, I don't know if you said this earlier, but board games in the U.S. excluding -- that is, games excluding trading cards and electronics, that business was up, that's in the release?

I want to make sure I'm reading that right.

Yes.

I think the release talked about retail sales at the top five customers, but your shipments were up?

Absolutely.

Okay.

And finally, I think when you talked about the Star Wars renegotiation a couple of weeks ago, you said that on this call, we'd get some detail about how the warrants are going to be treated.

Can you talk about that, David?

Yes, I was really planning to talk in detail about that tomorrow at the analyst meeting and I've got some detailed schedules which will show both what we're carrying on our balance sheet and how we think we'll amortize it.

But your specific question, I think, is what is the value, the incremental value of the new extended warrant package with the put and call, versus the original warrant package.

And the incremental value is $67.9 million.

And -- the reason it's particularly relevant today, I think, is because we'd like to try to adjust earnings if necessary, so trying to track the earnings impact would be in 2003.

Can you give us some ballpark of what needs to happen to 2003 estimates?

We have amortized any property rights that we have had on our balance sheet in line with our sales curve.

So amortization associated with Star Wars property rights will go down in a nonmovie year.

Even though we have some incremental amortization to take in relation to the extension of the warrants in the put and call package.

In total, amortization of Star Wars-related property rights will go down.

But the change in the warrants, the put and call options, that doesn't give rise to additional incremental, you know, cash or noncash charges to EPS?

No.

No.

Great.

Thank you.

Okay, Sean.

Thank you, and our final question comes from Margo Murtaugh and your line is open.

Please state your company.

Schneider Capital Management.

A couple of brief questions.

What was D&A for this year and what will it be for next year and the same for capital spending for this year and next year?

And also, I wondered if you could talk a little bit about your products group.

You've talked about licensing some of your own products.

What has been the progress there and what goals do you have?

In terms of the SG&A expenses.

I think it's--

Depreciation and amortization is that what you were--

D&A, yeah, depreciation and amortization.

In terms of the 2002 full-year depreciation, $89 million in terms of amortization, in total, $94 million.

That amortization includes underlying amortization of intangibles plus the amortization of the Lucas warrants.

In terms of capital additions this year, I believe we came in at about $58 million, and our guidance for capital additions go forward is in the 70 to $90 million range.

That's long-term guidance, it's capital expenditure, which will sustain our business, 70 to $90 million a year.

Okay.

What about D&A for next year, for '03?

Depreciation obviously, as capital spending has trended down over the last couple of years, depreciation will trend down, so it will be less than 89 next year, and similarly, amortization will be less next year partly because of the answer that I just gave Sean, that there will be less amortization of Lucas property rights next year in a non-star Wars movie year.

Okay.

Margo what was your question as far as the properties group?

Just you know, what has been the progress, you know, what kind of contribution, what are your goals?

Any color you can add there.

Well, that group is doing very well.

We are out licensing, as you know, in the clothing area, and in the shoe area, wherever it makes sense.

But one of the things that I think the properties group, a real feather in their cap is a deal that we announced recently with Fat Rock Entertainment (phonetic), where on Saturday, and in some cases Sunday mornings, where many movie theaters are dark, we will be working with them on putting some of our properties, such as Super Soaker, My Little Pony, in the theaters on Saturday and Sunday mornings throughout the country.

That group is performing very well.

Its growth is good and Jane will actually be presenting tomorrow morning here to give an idea of her '03 plans.

Okay.

Great.

Thank you.

Thanks, Margo.

Thank you and our next question comes from Felicia Kantor, your line is open.

Please state your company.

Hi, guys, a very good quarter.

Hi Felicia.

I have a few questions, sometimes when I ask questions you can't answer them or won't, so these might be is some.

Okay.

Felicia, no comment.

I'm wondering if you could share with us what your market share was domestic and internationally?

And if you can't give specific numbers, if you can just give kind of directional change.

And then, also, if I've calculated this correctly, your international business was about 39% of total.

Wondering what your goals are there in terms of, you know, optimal kind of market or percentage of revenues.

And then also, finally, just on the tough comps or on the slowing trading card business internationally, I'm wondering when we're going to be done kind of cycling against those comps?

Felicia, let me try and answer first the slow in trading card business.

Personally, we believe that it's behind us and that we are looking for growth in that business very definitely in '03.

Those comps are done.

As far as international, I believe that the exact number for international is closer to 36% and not 39%.

I think it's actually 35.6.

And again, we're looking for growth in that area.

I think at one point in the past we were as high as 41%.

I want to at least get to that, you know, in the year future.

I want to put some pressure on people to get us back to that.

As Al reminds me, about 50% of the world's toy market is here in the U.S.

I think as we -- you know, as you go out, 15, 20 years, I think that will change drastically as the Asian economies come on more and more.

But again, my target right now is that we get that 35.6% up on a year by year basis.

And on market share, I try and turn to Al to answer questions that we won't answer.

I don't think we have specific numbers yet that we want to quote.

I think in general, our market share probably in Europe has remained about flat.

I think we gained market share in the U.S. and then the rest of the international markets we really don't have a lot of statistical information.

You know, but I would say probably internationally, we remained flat in the U.S. and Canada which I call that [INAUDIBLE] up.

Okay.

Just one quick follow-up to something that you said, Alan, with international.

I'm just just wondering what kind of efforts you're taking or what you're doing to gain share or to further grow your business internationally?

That, you know, thank you for that question, Felicia.

I think that.

Should I ask it again tomorrow?

Absolutely.

And they'll probably give you a different answer.

But anyway, Al has been chairing something called our global brands board.

One of the things that I, as we began to focus much more on our core brands, we're working harder and harder to make sure that what we basically bring to market is global.

In the past, we were not doing a great job.

There was more of a product differentiation between the United States and the international marketplaces.

And we have made a real concerted effort over the last two years to understand a lot more about pricing points.

You know, many times here in the United States, we come up with a price for a product but we forget as it goes international as there are BATs that are going to be get added on to it and things like that.

So I think what you're going to see comes from Hasbro is a much more unified global product range.

That's real key.

I think also, Felicia, if we look specifically at '03, in the international market, we'll be launching BeyBlades throughout Europe, where it's only been in the UK in '03.

FurReal Friends, which was a very strong product in '02 for the domestic side of the business, will be launched broad-based in Europe in '03.

The Trivial Pursuit 20th Anniversary Edition, it's the 20th anniversary in Europe, I believe it's being launched either late '03, early '04.

So some product ranges that were very strong for us in '03, in '02, are going to be coming on to the international scene in '03, in addition to what Alan is saying.

We're feeling pretty good about where we are in Europe and our ability to gain market share.

Early returns from our customers in terms of getting additional listings and more shelf space, clearly we're getting it.

Obviously the consumers better come in and buy the product, but we're certainly going to be in a better position in the marketplace in '03 than we have been in a long time.

Lastly, Felicia, I'm ecstatic that we're coming, you know, now that we're talking about product, that we're coming back this year on globally with one of my favorite categories, something called My Little Pony.

I remember that well.

Okay.

See you guys tomorrow.

Okay.

Thank you, our next question comes from Gary Cooper.

Your line is open.

Please state your company name.

Hi, Banc of America Securities.

Hi, Gary.

How you doing?

Great.

A couple questions I wanted to ask about the Disney, Pixar license, a lot of chatter about Pixar going to another studio.

And just wondered if your licenses with Pixar or if it stays with Disney what would happen?

And then two other quick ones.

The charges that you noted in the P&L, are they in the SG&A line or the other income line?

And then lastly, the renegotiated Star Wars license, was there any impact on the Q4 just reported results?

Thanks.

David, with regard to the charges, the OFT charge of 7-point something million dollars, is in our SG&A line, where as the infograms write-down of our investment there, is in the other expense line.

As far as Disney and Pixar are concerned, our contract is with Disney.

We have excellent relationships with both Disney and the Pixar group with John Lassiter and Steve Jobs.

And as you know, we've got one of their properties this year called, "Finding Nemo.".

Gary, if you don't mind, the last part of your question was what?

Any charge for Star Wars in the fourth quarter.

No we've had no charge for Star Wars in the fourth quarter, and as we said, both with our press release around Star Wars and sort of again today, you know, given the rebalanced economics of the deal, we do not expect to take any charge in the future either either.

Okay.

Thanks.

And then just last question: When do you think we will begin to see the Finding Nemo product, this year?

What time of the year?

I believe that the Finding Nemo product will begin to ship late April, beginning of May.

Thank you.

Yeah.

Thank you.

And our final question comes from John Taylor and your line is open, please state your company name.

Morning, I'm with Arcadia.

Good morning, John.

Good morning, looking forward to seeing you tomorrow.

The EBITDA number for this year, I think you said was 235 roughly, is that about right?

I'm wondering if you could give us a sense directionally or quantitatively, where you think that might kind of come in in '03?

David, you want to take that?

But the number was 403, John.

Yeah, EBITDA is 403.

Okay.

And no, I don't want to give any guidance for that next year.

Nothing at all?

Well, I think obviously there's an earnings component in that, and then there's depreciation amortization.

I've just given some guidance for both depreciation and amortization will be lower next year.

And the only thing we've said about operating profit, which is the third component, is that we expect to return to a 10% operating margin or we're on target to return to a 10% or better operating margin.

So if that's as far as we're prepared to go.

Okay.

That's what I was looking for.

Thank you.

See you tomorrow.

Okay, look forward to it.

Thank you, we do have one final question from Frank Alonzo and your line is open.

Please state your company name.

T. Rowe Price.

A quick question, I don't know if you addressed this early, I came on the call late, but Wizards of the Coast, how much of a drag was that on a pretax basis relative to last year?

Are you talking about the retail division?

Yes, the retail piece of it.

Okay.

Last year, we had an operating loss on Wizards retail of about $36 million, which was a $20 million result from operations, and then a $16 million write-down.

This year, we have certainly reduced that to less than $20 million, and we have put in place, we started a series of store closings and this is going to become, this will be a reducing drag on us over the net '03, and we would hope to be out of this by '04.

So for the most part, the leases as they're coming up, you're passing them.

We obviously try to renegotiate.

There's a number of things you have to do, but we're doing all of them, and we are living against, you know, a phased withdrawal from the Wizards retail business.

Okay, great.

Thank you.

Thanks, Frank.

Thank you everyone and hopefully we'll see most of you tomorrow.

Bye for now.