孩之寶 (HAS) 2009 Q1 法說會逐字稿

Good morning and welcome to the Hasbro's first quarter 2009 earnings conference call.

At this time all parties will be in a listen only mode.

(Operator Instructions) Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

With us today from the Company is Karen Warren, Senior Vice President of Investor Relations.

Ms.

Warren, please go ahead.

Thank you, and good morning, everyone.

Joining me today are Brian Goldner, President and Chief Executive Officer; David Hargreaves, Chief Operating Officer and Chief Financial Officer; and Deb Thomas, Senior Vice President and Head of Corporate Finance.

To better understand our results it would be helpful to have the press release and financial tables available that we issued earlier today.

The press release includes information regarding non-GAAP financial measures discussed on today's call and it is available on our website at Hasbro.com.

We would also like to point out that on this call whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

During the call this morning Brian will discuss key factors impacting our results and David will review the financials.

We will then open the call to your questions.

Before we begin, let me note that during this call, and the question and answer session that follows, members of Hasbro management may make forward-looking statements concerning managements expectations, goals, objectives and similar matters.

These forward-looking statements may include comments concerning our product plans, anticipated product performance, business opportunities and strategies, financial goals, and expectations for achieving our objectives.

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

Some of those factors are set fourth in our annual report on Form 10-K in today's press release and in our other public disclosures.

We undertake no obligation to update any forward-looking statements made today to reflect events or circumstances occurring after the date of this call.

Now I would like to introduce Brian Goldner.

Brian?

Thank you, Karen, and good morning, everyone.

For the quarter Hasbro's underlying business performance was consistent with our expectations.

As we anticipated and shared with you on our last conference call, the first quarter was extremely challenging, given the economic environment, later Easter, the impact of foreign currency and the rebalancing of inventory at our retailers.

Given the challenges we knew we would face this year, the Hasbro team globally stepped up in the quarter, remaining focused on our long term strategy, making smart and tough decisions around investments and spending, working with our retailers and positioning Hasbro not only for 2009 but for the years to come.

These efforts are clear in our first quarter results where despite the decline in revenues, our profitability and our underlying business was solid.

We said in February when we reported our full year results we expected revenues to decline in the first quarter.

Today, we reported revenues of $621 million compared to $704 million a year ago, with foreign exchange negatively impacting revenues by $40 million which was about half the decline.

In constant dollars, revenues were down 6%.

As expected, retailers rebalanced their inventories in the quarter to lower levels which contributed to the year-over-year decline.

Net earnings were $19.7 million or $0.14 per share compared to $37.5 million or $0.25 per share.

Despite the decline in revenue, our profitability is good as we have continued to focus on managing expenses.

With a 12% decline in revenues for the quarter our global major product categories performance was mixed.

Preschool was flat, boys was down 14%, girls was down 26% and the games and puzzles category was up 2%.

We don't believe these results are a reflection of the underlying strength of our brands.

Instead, this is more a by-product of inventory being work down from year-end levels and retailers reducing overall inventory levels in the quarter given the challenging economic environment.

We had a number of brands that performed well in the quarter including PlaySkool, Nerf, Play-Do, Easy Bake, Tonka, Star Wars, GI Joe, and a number of board games including Scrabble, Sorry, Connect Four, Guess Who and Operation.

The Transformers brand continues to perform well, although below last years levels which reflected continued demand from the Fall 2007 DVD release.

In the first quarter, we shipped a relatively small amount of movie related product for Transformers, Revenge of the Fallen.

Given the theatrical release date of June 24, we will be shipping product in the second quarter in time for the retail launch on May 30.

During the quarter, we were very pleased to announce the extension of our agreement with Marvel through 2017.

This is a great partnership that has and is expected to continue to contribute to our success in the boys, preschool and games categories.

With the scheduled movie release of X-Men Origins, Wolverine on May 1, movie related products shipped in the first quarter.

As I mentioned, the games and puzzle category was up 2%.

Over the coming months and remainder of this year, we have a number of Marketing initiatives planned at retail as part of our family game night program.

With the difficult economy, many families will be staying closer to home this Summer and we want to be sure their plans include playing Hasbro's great games.

Looking to the remainder of the year and this Summer we will continue to deliver entertainment and immersive brand experiences with the live action theatrical releases of Transformers Revenge of the Fallen on June 24, and GI Joe The Rise of Cobra on the August 7.

Movie related products for GI Joe are expected to be on shelf July 11.

The digital games arena is an integral component of our creating immersive brand experiences.

In 2009 there will be a full slate of games on all major platforms supporting both of our Summer theatrical releases.

Activision will be launching games for Transformers and EA will be launching games for GI Joe.

Additionally EA will be releasing several console games and over two dozen games for mobile and online, based on many of our brands including Scrabble, Cranium and Trivial Pursuit.

In 2009, we expect to continue growing our digital gaming revenue.

Throughout the year, we will continue to invest in our business while closely managing our costs and operating cash flow.

We recognize the challenges of 2009 but the Hasbro team remains committed to our strategy and to delivering innovative experiences to our consumers.

This committment is clearly differentiating Hasbro as we develop our brands in new immersive formats and new geographies and create long term value for our shareholders.

With that, let me turn the call over to David Hargreaves.

David?

Thank you, Brian and good morning, everyone.

During the first quarter, our business performed in line with our expectations.

We had anticipated the revenue headwinds during the quarter including foreign exchange, retail and inventory rebalancing and related Easter.

Accordingly, we initiated a number of programs to control costs, including a salary freeze, hiring only for critical positions, and a school efficiency program.

All of these efforts mitigated the impact of the revenue reduction on profitability.

Now let's review the quarter results in more detail.

Worldwide net revenues were $621.3 million compared to $704.2 million last year, a decrease of 12% or $82.9 million.

There was a negative impact from foreign exchange of $40.2 million which was about half of the decline.

In constant dollars, revenues were down 6%.

US and Canada net segment revenues were $404.5 million compared with $428.5 million last year, a decrease of 6%.

US and Canada operating profit for the quarter was $41.6 million or 10.3% of revenues compared to $37.3 million or 8.7% of revenues in 2008.

The year-over-year improvement is primarily due to declines in royalty, advertising, and SG&A expenses.

Net revenues in the international segment were $189.2 million compared to $248.3 million a year ago.

The segment was down 24% in US dollars and 9% in local currencies.

The international segment reported an operating loss of $14.5 million compared to an operating profit of $13 million last year.

Operating profit declined primarily as a result of higher US dollar denominated costs, particularly in Mexico.

In addition, last years results included a one-time favorable gain on a pension plan in the UK.

Now let's take a look at earnings.

We reported net earnings of $19.7 million or $0.14 per share.

This compares to $37.5 million or $0.25 per share in 2008.

Earnings before interest, taxes, depreciation and amortization were $73.4 million compared to $100.8 million a year ago.

Gross margin for the quarter was 60.6% compared to 61.5% a year ago.

When we look at expenses, we can see royalties declined $3.9 million to $54.5 million.

Research and product development expense declined $4.6 million to $37.1 million but was consistent as a percent of revenue compared to a year ago.

Advertising expense declined $14.7 million to $62.3 million primarily due to lower sales and the impact of foreign exchange, and SG&A expenses at $161.6 million or 26% of revenue compared to $176.2 million or 25% of revenue.

In constant dollars, SG&A was down approximately 1% compared to a year ago.

Other expense net of $2.9 million compared to income of $5.8 million a year ago.

Investment income declined in 2009 due to both lower interest rates and lower average cash balances.

Our tax rate was 31%.

Excluding certain discrete items, our underlying tax rate for the quarter was 29.1%.

This compares to our full year 2008 underlying tax rate of 32.8%.

Turning to the balance sheet.

At quarter end, cash totaled $590.4 million compared to $832.2 million a year ago.

In the past 12 months, we spent $135 million to pay down maturing debt, $80 million to acquire the Trivial Pursuit Brand, $50 million to extend our agreement with Marvel and we returned $320 million to shareholders while our dividend and stock buyback program.

Our receivables of $365 million declined by $23.7 million compared to $388.7 million last year.

DSOs at 53 days were up three days compared to a year ago primarily as a result of sales occurring later in the quarter partially offset by favorable translation.

Inventories increased marginally to $295.2 million compared to $291.2 million a year ago.

We have worked down the over inventory position significantly since we reported our year-end 2008 results when inventory was up year on year by $41.4 million.

In summary as we look at the year ahead, we believe the environment will continue to be challenging.

That said, based on the strength of our product line, we believe that the two most recent quarters will prove to have been the most challenging for Hasbro in this economic cycle.

Our balance sheet is strong and we remain focused on investing in our global business for the long term.

With that, Brian, Deb, and I will be happy to take your questions.

Thank you.

(Operator Instructions) We'll go first to Felicia Hendrix with Barclays Capital.

Hi, good morning guys.

Good morning.

Brian, first question is for you.

I'm just wondering if the magnitude of Transformer shipments in the quarter was expected.

I know you said it was small, the last quarter you didn't really quantify it so I just want to make sure nothing has changed there.

No, when we saw it was small it was small for the movie related product.

Overall it was down versus year ago but a good size.

Okay but for the movie that's what I was talking about the movie related product nothing has changed?

No, no, this is as planned.

Okay, great.

And then David, on the inventory side, I was wondering just the inventory that we're looking at on your balance sheet right now how much of that is Transformer product that just hasn't shipped yet?

Well, we're not going to give you a precise detail of our inventory, but clearly some of it, because we're going into a pretty big shipment quarter for Transformers.

Shelf date is--.

May 30.

May 30, so clearly we're going to be shipping quite a bit of Transformers over the next few months.

Okay, so just that kind of follows on to my next question.

I know you said and the numbers will speak for themselves that you've worked down a lot but I'm wondering if you're as lean as you would like or can you do more there?

I think we're very happy with the level of our inventory at the moment.

I've said on the last two conference calls, especially in the third quarter and then at year-end I said I thought our inventories were too high.

If you remember at the end of last year they were up $41.4 million year on year.

We're down to basically flat to a year ago.

We get a little bit of benefit from exchange rate in there but we also recognize that we're coming into a Transformers shipping period, so we're pretty happy with the quality and quantity of our inventory at the moment.

Also in the first quarter, Felicia, there were a number of new initiatives.

Our cards game business is a new initiative shipping in and is performing very well as is a whole new segment for Nerf and Sword so we do have some good Spring initiatives as well that are part of that inventory.

Great, and then David, if you just adjusted the inventory for FX, would it still be down for the end of the year on a percentage basis?

Relative to year-end, you would see a decline, yes, during the quarter.

Okay, great and then just SG&A reported an 8% decline year-over-year.

I'm wondering if we can take that percentage change as a run rate for the rest of the year?

We don't want to give that much guidance on individual expense lines.

I mean, I think what was said is that we've clearly got a salary freeze on.

We've got a headcount hiring freeze on apart from the critical positions.

Within SG&A, you've got the costs of shipping and clearly, with the price of oil where it is today, we expect our shipping outcosts to be more than they were a year ago so I think we can look at savings in SG&A throughout the year.

I'm not going to say that they will be 8%, no.

Okay and then just last question, just on advertising, you came in a lot lower than what we were looking for and typically you've tracked between about 11 and 12% of revenues.

I'm wondering if we can expect that to be down year-over-year?

I think on advertising, we tend to be lower in years where we have a lot of entertainment so this is a year where we've got Transformers and we got GI Joe and Wolverine and we think the movies will do a lot to drive the product through and we'll have to advertise less than in our non-movie year, so really, what you're seeing in the first quarter is always we look to our full year, advertising as a percent of our full year revenue and we tend to accrue in line with that percentage.

So I think full year, because it's a strong movie driven year, that we'll probably be down a bit.

Okay, great.

Thanks so much.

Thank you.

Our next question will come from Robert Carroll of UBS.

Hi, guys, how you doing?

Good morning.

Good.

I just wanted to touch on the point-of-sale data.

Do you guys have any color on that to try and help us figure out how much of the segment sale declines were caused by the inventory rebalancing?

Yes, I'm happy to provide it.

I think last first quarter in terms of shipments if you look for example, at the US business we were shipping several million dollars worth of Tooth Tunes so within that $24 million decline that you see in the US business, that's part of what you're seeing in the shipment decline year on year.

If you look at POS, our boys business through week 15 which is Easter was up.

Our preschool business was up double digits, Star Wars performed very well in that period, Nerf performed very well in that period, our Marvel Heros business did as well, our PlaySkool core business was up double digits over that same time period in POS, our Play-Doh business was up double digits and again, as you go across in our core games business, if you look at that it was up for that period.

Family games were up slightly more significantly.

So overall, a lot of positives in terms of POS, significantly so in our preschool and games business and several initiatives within boys.

I think what you're seeing overall is just the difference in a non-Transformers quarter last year, Transformers in the first quarter was benefiting from the DVD that had just been released in the fourth quarter of '07.

Great.

And then actually, I guess staying on the boys, just for the entertainment properties, for the orders that have come in post-toy fair, have they been in line with expectations or were the bulk of those already on the books before going into the toy fair you mentioned?

I think everybody, as our retailers have seen more materials on Transformers and GI Joe, the more they see the more excited they get, having said that they did have plans in place and we're feeling very good about Transformers around the world.

It's a significant business around the world and had a significant box office the first time, a great DVD business and of course, a first year of sales that we reported at $480 million, so I think people have a frame of reference for that and GI Joe people are excited about what they're seeing, given that it's based on the 80's comics and the GI Joe versus Cobra story it's very -- it lends itself very well to toys and games business.

Okay, great.

Thanks guys.

Our next question will come from Gerrick Johnson from BMO Capital Markets.

Good morning.

I was wondering if you could talk about your guidance.

Do you still expect to grow revenues and earnings this year?

Where we are, we don't feel that there's anything that has happened thus far that would change that.

We talked about the challenges we saw in the market back at the end of the third quarter, at the end of the year.

We talked about the fact that first quarter would be down and that even with it down in revenues we still expected given, barring some kind of a significant change in consumer spending or FX, we wouldn't change from that position right now.

Okay, so you're still on target to grow revenues and earnings absent any of those sort of events?

Yes.

And want to know why the royalty rate in the quarter was up.

What in your mix caused an increase there in the rate?

Yes, I think one of the product lines which is really doing well for us at the moment is Star Wars.

Since the Clone Wars television started earlier in the US but it's being rolled out around the world and it's driving some very good Star Wars revenues around the globe and I think everyone appreciates that Star Wars is one of our highest royalty rate items.

So there's a lot of Star Wars royalties during the quarter.

Specifically on Star Wars since you bring that up, are you still shipping Clone Wars product or is it all legacy collection at this point?

No.

It's more Clone Wars but also Classic product as well.

Okay and finally last question I had was about the girls business.

You didn't mention that one on the POS breakdown for the quarter.

I wonder what that was and how you feel about your girls business right now going into 2009?

Thank you.

Thanks.

The girls business was down a bit in POS overall, through Week 15.

There's a timing difference with Littlest Pet Shop.

A year ago if you remember Littlest Pet Shop in February we were doing all the new launches of all the product.

As you know or may remember in the third quarter this year we will have the major Littlest Pet Shop launch in time for the Littlest Pet Shop, the LPSO from Electronic Arts so more of our initiatives time out with that.

If you look at Baby Alive the POS was actually up through the first quarter and through Week 15.

Easy Bake was up, but Littlest Pet Shop was down in the, through Week 15.

Thank you very much.

We'll go next to Margaret Whitfield with Sterne Agee.

I was wondering if you could comment on retailer destocking.

Do you think we're at the end both here in the US and overseas?

That's my first question.

I think it's probably, we have to let other retailers speak for themselves how they feel about their inventory.

I suspect it's probably a bit of a mixed bag but what we do know is that in most of our major markets, our year-over-year sell out was better than our sell in, which certainly indicates that retailer inventories of Hasbro product at least are relatively lower than at year-end.

In terms of are we true to worth, I think we probably are.

I think retailers are going to display a fairly cautious buying pattern throughout the year, with that said, we are probably through the worst.

There are shipments that were significantly down in January and February and then actually, we were up in March year-over-year.

Okay.

You mentioned, David, in terms of international last year you had a one-time UK pension gain.

Could you quantify that and also what would be a good tax rate for the year?

I think the pension gain was about $6 million US

Okay.

And I'll let Deb talk about the tax rate for the year.

As David mentioned earlier underlying tax rate for the quarter was 29.1% and we would expect our full year rate to approximate this amount.

And the currency impact on the bottom line for Q1?

It's difficult to get exactly to the currency impact because you really get the impact of translation and you've also got the impact of transactions.

Clearly, whilst we hedge most of our transaction exposure, we weren't 100% hedged and I think one of the things we said in talking about international profitability is that it had been hurt by significantly higher underhedged unhedged, so some unhedged particularly in Mexico where the exchange rate is very weak compared to a year ago.

So I think I don't have a precise number but I would suspect it's in the region of $10 million.

Okay, $10 million net?

Yes.

And finally for Brian, any news on the Universal when we could expect that first movie and the title, please?

The good news is we continue a number of developments on all the movie slate we mentioned in February, I would say we have no news except we continue to know that either 2010 or 2011 will have our first movie from our relationship with Universal.

Okay, thank you.

Thank you.

We'll go next to Tim Conder with Wells Fargo.

Thank you and good morning.

Good morning.

A couple of things to circle back to the inventory issue, David, I think you commented that you feel that most major markets, the inventories are down versus 12/31.

What about year-over-year?

Yes, so what I said is they are relatively down because the first quarter tends to be a quarter when retailers historically do build a bit of inventory as Hasbro.

So it tends to be the inventory trough, tends to be at year-end.

So what I look to say that it's better is that our year on year, POS in most major markets was up, where as our year on year shipments, even in local currencies, were down, so clearly compared to a year ago, inventories at the retailer level have come down.

In terms of what they are, we get pretty good data in the US from our major accounts but if you look at it totally around the globe, we don't get real good visibility as to what inventories at the retail trade but our fear is that it's lower than it was a year ago.

Okay, and then geographically, if you kind of looked at Europe, Latin America, Asia, where do you think that it's the most problematic and where it's performing the best?

I think Latin America is actually performing well for us.

As you know, it was a small business.

There's an established market in markets like Brazil, we invested, we went into Brazil last year and we got a lot of catch up to do in that market compared to other people, so I think Brazil, Chile, and our Latin American distributor markets were all up.

Some of our emerging markets were also up year on year, but maybe not up quite as much as we would have liked.

I mean these we consider to be very high growth markets for us over the next year and I think given the economic situation, that growth is not quite as robust as we would have liked during the first quarter but it's clearly up in places like Malaysia, Singapore, those types of markets.

Okay.

And then two more.

The majority of Wolverine, did that ship in the first quarter or is there still going to be a significant piece here shipping basically in the month of April?

We shipped Wolverine in the first quarter but our expectation would be to ship throughout the year as the movie is released so I don't know exactly how much we'll ship for the full year because of course it will depend on the take away, retail take away, but we shipped in the first quarter and we're looking forward to the movie and early indications are good.

Early indications that, Brian, meaning on your initial sell-through there of what's been shipped in?

That's right, yes.

I think we have to remember that this time last year also we were shipping in Iron Man and we also started ship (inaudible) then about this time as well, so whilst Wolverine's good, Iron Man was certainly good last year as well.

Okay, and then finally, maybe just give us a little update on your foreign exchange sensitivity that you've disclosed before?

Yes, I think, well I'll let Deb talk to that.

We had talked about that.

We expected foreign exchange to be down and if I recall in our February meeting, we talked about it being 6% in the quarter and indeed it was about 6% in the quarter.

And on a go forward basis?

Yes, I think what we said at that time was 6% in the second quarter as well, it reduced in the third and by the fourth quarter it was only about 1%.

Okay so basically no major changes from what you outlined at the Analyst meeting?

No.

Rates are pretty much where we expected them to be.

Okay, great.

Thank you all.

Thank you.

We'll go next to Drew Crum with Stifel Nicolaus.

Thanks, good morning everyone.

Brian, I think you and I have talked about this in the past, the fact that in 2007 you guys were chasing demand with Transformers, most retailers underestimated the popularity of the property.

As you see retailers managing down inventory in 2009, do you sense that you're going to again be chasing demand or by design will you be chasing demand, not just with Transformers but all the film properties?

We are certainly planning Transformers as a major initiative.

We're very excited about our prospects, I think our retailers are very excited and I've certainly seen the plans come together around the world, that indicate that Transformers and GI Joe are major for our retailers.

I think we are careful across-the-board about inventories at Hasbro and we're going to continue to manage that.

It's not a bad thing to chase inventory to some extent but we have robust plans in place so I don't think we would miss a lot of sales but I also feel that going out and making sure we have the consumer take away and the retail inventories in place or demand in place before we would go out and make all of the final amounts of inventory is a good idea as well.

Okay, guys, can you give us an update as to what you're doing with your cash?

Did you buy any stock back during the quarter?

No.

We haven't bought any stock back during the quarter.

We're waiting for the capital markets to sort of get more stability before we start spending our cash to buy stock back again.

I think the other thing is we are watching a lot of cash on hand at the end of the quarter.

You have to remember that we are close to our working capital trough and our trough to peak working capital requirements are somewhere between 500 million and $600 million, so we're going to be using a lot of that for working capital.

David, the amortization was up 8% in the quarter.

Can you just remind us what's been added and what's rolling off?

Yes.

There's a couple of things that are being added.

Clearly, Cranium and Trivial Pursuit were acquisitions during the first part of last year.

The other thing is we're still amortizing our property rights on Star Wars in line with our sales curve.

So in a quarter or year where Star Wars does particularly well, that drives amortization up and as I said earlier Star Wars is doing pretty good at the moment.

Great, and just one last question.

You mentioned plans for EA in the back half of the year.

What can you say about the performance in the first quarter with that initiative?

The EA business continues to perform well for us.

We have a number of games coming out and will come out throughout the year.

We feel very good about the relationship.

We said in the notes that we expect our digital games revenue to increase this year.

The plans go throughout the year, we'll start with Activision games on Transformers and then GI Joe games will follow shortly thereafter, so if everything is tied to our major entertainment initiatives, the Littlest Pet Shop then begins in the third quarter, the Littlest Pet Shop online game, so overall very good and feel very good about the casual gaming space and Activision games as well as the A's games.

Okay, thanks guys.

Thanks.

We'll go next to Sean McGowan with Needham & Company.

Good morning, how are you?

Good morning.

A couple of things.

One, would you say that the effect of the inventory destocking by retailers was in line with what you expected in the quarter or was it a little more severe?

I think, Sean, it was very severe during January and beginning of February.

It was tough to get orders particularly ahead of retailer year-end.

I think since then as I said, our experience at least is it sort of got a bit better.

Our shipments in, certainly in the US were up in March and I think in the US we're probably through the worst of it.

I'm not sure that we are in some of the international markets.

Places like Australia, where our POS is running way ahead of a year ago, but our shipments in just aren't happening in a way we would like so clearly in some of the markets internationally, I think the destocking is probably continuing but I think in the US we're probably through the worst of it and clearly, with the strength of our product line and Transformers movie coming, we're not concerned we're going to be taking in our product at least during the second quarter.

Right.

That's very helpful color, thanks.

I wanted to ask a question about your statement in the release as well as that you repeated on the call here that you basically think the most challenging quarters were the fourth quarter and the first quarter.

Can we infer from that and the fact that you made a comment about the first quarter going into the first quarter and have not made a comment about the second quarter, should we infer from all that that basically, you expect the remaining quarters to be up in sales?

I think exchange rates are going to continue to be a challenge through both the second and the third quarter, but as Brian said, we affirmed that we do expect our revenues to be up for the year, so I think absent exchange rates, we clearly see our revenues being up in each of the next three quarters.

Sean, our underlying business and the initiatives that we've lined up for 2009 are very significant.

We all know that the motion picture business year-to-date even absent taking out the accounting for the ticket prices, just attendance is up over 15.5% year-to-date.

We feel great about going into a Transformers and GI Joe initiative.

Wolverine, the initiatives and the sell-through on our preschool business was very robust through week 15.

We feel good about our core initiatives in PlaySkool, Play-Doh, Tonka, and our girls business, a lot of new initiatives coming for the back half.

So again, that's why we feel the way we do is because of the strong innovation and the strength in the underlying business and our plans.

Got it.

Okay, thank you.

A couple of other quick things whoever wants to take them.

Could you go over what the Marvel slate now looks like for the next couple of years as far as you know?

I mean there's been some changes recently and can you just update us on what your current expectations are?

I know you don't control it but what's your expectations for what that slate looks like in 2010 and '11 as far as you know it?

Yes.

We can go through them.

There's a number of changes.

Go ahead.

So I think we're looking for Iron Man 2 in May of 2010.

I think that Spiderman is in May of 2011.

I think Thor is also in 2011 and I think the First Avenger, Captain America is 2011 and I believe that the Avengers is now scheduled for 2012.

Again, that's the information that we have at this time and I'm sure the studios will reserve a right to change them up if they so desire, but that's the information that we have.

Right.

Well, it's such a rich slate at some point they risk competing with themselves so they spread it out.

Right and we've got our Universal and Transformers and GI Joe movies as well.

What was CapEx in the quarter and what are your expectations for the year?

I think it was $27 million during the quarter.

CapEx was about, it was about $25 million in the quarter and I think as we said, in February, our expectations for the year were between 90 million and $100 million.

Okay, and final question, regarding the cash balance, can you give us a sense of how much of that is in the US and how much is outside the US?

Yes.

The majority of our cash balances at quarter end were overseas.

Okay, thank you.

Thank you.

We'll go next to Greg Badishkanian with Citigroup.

Great.

Thank you.

Just if you could give us some quick color on the cost environment, commodities and labor in China, et cetera?

Yes.

So really, I mean we spoke about this at length at our Analyst meeting in February and I think that I said that while oil was way high and resins were trending down at that time that most other input costs, so like paperboard and print and then labor and social costs associated with labor, Chinese currency, the cost of regulatory compliance and safety testing and the cost of working capital financing, all of those were higher than they had been a year ago.

So overall, although resins were down a bit, our costs were up higher year-over-year.

Since that time, oil is sort of back up by about a third since the end of the year and actually, resins, ABS and polypropylene were up 20% during the first quarter, so if this trend continues, I think any overall cost reductions that we get from our Chinese vendors are going to be marginal at best.

One place that we are seeing cost savings is on inbound and outbound freight, which are much closely aligned with the price of oil and while that's up a little bit in the first quarter it's still well below the peak last year so we are seeing freight savings.

Is the labor rates in China, is that abating?

No.

Not materially.

I mean, they aren't increasing.

The Chinese authorities aren't increasing minimum wage rates but they aren't reducing them either, and last year, there were new social costs introduced and whilst I don't think there's going to be any new social costs this year which further increase the cost of labor in China, I don't think they are going to repair or abate the legislation that they introduced last year.

And most of the labor that works either for you or through contract manufacturing is minimum wage or is it above that?

Well, I mean, there's a bit of a mix.

I mean depending on the skill set involved, so I think normal assembly tends to be closer to minimum but obviously more skilled tends to be a significant premium to that.

Okay, all right good.

Thank you very much.

Thank you.

John Taylor of Arcadia has our next question.

Good morning.

Hi, I've got a couple as well.

So last year you outlined for us a number of sort of strategic initiatives and outlined the cost impact on that.

I wonder if you could give us an update on what that delta looked like in Q1 for buildout of the offices in developing markets and the Hollywood effort and digital and all that stuff?

So those costs haven't really gone away, although we would characterize them differently.

I think last year, the fact that we had a office in Brazil and a start in Brazil but we actually hadn't started shipping any product or invoicing out of that Company, you had the cost but no revenue to go with it so we called it an investment.

This year, the cost is still there but I don't think we'd characterize it as an investment.

Similarly, for EA, last year, we had Mark Blackham and his team at obviously our EA business here probably about 14, 15 people, and they were all in place but there was no revenue, so this time last year we were talking about that as an investment spending.

Now, we're getting the revenue to go with the cost, so the cost is still here but we wouldn't characterize it as an investment, so I think the cost that we had last year is still here, even cost to get digital Dungeons and Dragons into active our.

Some of those costs are still here.

Although there's now revenues that go with D&D inside.

So have the run rates changed very much year on year then?

The cost run rate as oppose to the, yes you're booking revenue but the budget amounts and whatnot?

If you look at our cost savings verse you a year ago, it's not because those investment spending categories have come down.

I think the spending is pretty similar to year ago, but we wouldn't characterize it as investment spending this year.

Okay, and then Brian, I wonder if you could maybe go up to 30,000 feet and try to characterize what's been driving demand at retail and I guess the question here is really sort of if you break your anticipated revenues into the property related lines that have Hollywood connections and whatnot, huge demand drivers from other sort of core, that sort of thing, I mean I think there was a lot of value pricing going on that was helping retailers destock and so on so I guess the question is if you look at the non-hollywood stuff, let's assume at all that goes according to plan, what do you think drives reorders for core product and how are retailers thinking about that?

If we focus first on the preschool business, I think it's good to see a brand like PlaySkool through week 15 was up 15.5% in POS and you're seeing strength across a number of the categories in PlaySkool.

Our Tonka preschool business was up through Week 15.

Our Play-Doh business was up 20% plus through that same period.

So, you know, you are seeing those core initiatives really working.

In our games business we're planning a big year in games through the Family Game Night program as well as through a lot of new initiatives there.

In fact, if you look at the categories of games whether it's family games or our children's games or adult games, again good POS growth in POS through week 15 on those key categories in the core business, and if we go to look at the kinds of initiatives that are going to grow our business it's great that in Australia for example, they already voted on Toys of the Year and that's a good indication, an early indication of where things may go and Monopoly City which is a major new initiative for us in the back half in the US has already been named Game of the Year and overall Toy of the Year at the Melbourne Toy Fair so we do see a lot of opportunity in our core business.

Littlest Pet Shop really takes off around the Littlest Pet Shop online experience and which is in the third quarter and then our Nerf initiative, we're rolling out Nerf around the world and we've seen great growth there.

So I think overall, a lot of focus on innovation and focus on Hasbro's core brands continues and so while we talk a lot about our major entertainment initiatives, the core underlying business and the great portfolio brands is still performing really well and I think consumers in this environment do gravitate more to brands, as have retailers.

We think about a lot of our retailers, their plans certainly include more of our branded initiatives and we have the wherewithal to provide great innovations and focus on that as well as great marketing.

Okay, great.

And then I don't know if Marvel has announced this or not but obviously, Activision's connection with Transformers goes back many years and it looks like EA is going to play a greater role.

Do the interactive rights of the movie slate you talked about in Marvel, are those sort of automatically go to EA or is EA sort of the default?

I guess I'm interested in whether you can start working on things together well in advance whether you know that or not?

I couldn't really comment on that.

I think you'd have to ask EA or Marvel.

Okay, thank you.

Thank you.

We'll go next to Hayley Wolff with Rochdale Securities.

Good morning.

Good morning.

Just a couple questions.

On the SG&A side, is all of the shipping and transportation costs embedded in that number or is some of it in cost of goods?

No, freight in.

So ocean freight getting it from China to our warehouses in the US is in cost of goods, but freight out, guesting it from our warehouse to our retailers is in SG&A.

Okay, great.

And then the $20 million year-over-year savings that you saw in the first quarter, is that, order of magnitude what we could expect quarter to quarter or year-over-year?

We would clearly hope to get some reductions in SG&A throughout the whole year, but we got what we believe is going to be a growing business.

We haven't had any layoffs and we've got a sort of skew reduction program that we're still developing a lot of product, so I think that with our salary freeze and our restricted hiring plus the lower freight costs, we should be able to get SG&A down a bit, but to talk about a run rate of a $20 million quarter is not going to happen.

Okay, thank you for clarifying that.

You talked about just your cash needs, your peak to trough, your working capital, you finance a lot of the accounts receivable using a securitization, so in light of that, what are you looking for in the capital markets before you become more comfortable resuming share repurchase activity?

Clearly securitization is an option that we have.

I think we had about $100 million at the end of the first quarter which is fully consistent with the end of the first quarter last year, $98 million.

We have the ability to go up to $300 million at peak, but again, it's -- there's a cost associated with that, the cost of securitization today are higher than they were a little while ago and there was a time last year and that's not so far ago where people were worried that securitization facilities were just going to dry up.

Now, I think we're past that but that wasn't that long ago and we believe that the credit markets are still relatively fragile.

We'll see, as things go on but I think given that we're heading into our working capital peak, given that a matter of a few months ago people wonder if the credit markets were going to be open for business and given that things are still pretty fragile, we're just taking a cautious approach at the moment.

We tend to be financially cautious guys.

All right and last question in the first quarter, on the first quarter conference call you talked about taking game production rates down at Longmeadow into the Ireland facility.

Is that behind you at this point?

No.

Go ahead.

No, it's not totally behind us.

In fact, during this month, I think we had about 111 people we hadn't bought back our game section in East Longmeadow, I think we've furloughed an additional 70 people so I think we're up to about 180 of our permanent workforce that we aren't using at the moment.

They've sort of been furloughed and in Ireland we've also got shorter working going on.

So I think that obviously, we'll be in good shape on games inventory as we get through that and so will our retailers.

Great.

Thank you.

Thank you.

We'll go next to Linda Bolton Weiser with Caris.

Hi.

Can you just remind us what your toy pricing activities were in '08 and did you have any toy price increases in January '09 and are there plans for things for the Fall?

Yes.

We had two increases in 2008.

We had a low single digit increase in the first quarter and then we had a further low single digit increase about 3% in September and then we had a low single digit increase in February the 1st, of this year.

Internationally they might have been a bit higher than low single digits because they had to contend with our currency movements as well.

As we go through the year, we are certainly, at this stage not planning any increases.

We were sort of optimistic as we price our Fall line that we may see some reductions coming through, although as I said, resin prices have now started trending up again.

ABS and polypro are up 20% in the first quarter so any reductions we see from our China vendors I think are going to be marginal at best but I'm certainly not anticipating a second round of price increases this year.

Okay, thanks, that's all I had.

Thank you.

We'll go next to Jeff Blazer with Morgan Joseph.

Good morning.

Good morning.

Can you tell us how the international response has been to the GI Joe line and do you expect that to translate overseas?

The response has been terrific since the beginning.

We were over I guess about a year ago in Prague early on presenting GI Joe to national retailers.

Again it's based on the 80's comic so we're talking about GI Joe versus Cobra and a great cast of characters.

We did a world tour and we were down in South America and Brazil, were were in Mexico, we were over in Asia, and around the world, people are enthusiastic about the story and also about the product line.

Great, and then shifting over to Transformers, I'm guessing what kind of impact in the first quarter do you think the movie, the anticipated movie release would be and the delay in purchasing and waiting for the movie specific product would come out of?

Well, we had mentioned that in the first quarter we shipped a relatively small amount of Transformers Revenge of the Fallen movie product.

Our shipments will be in the second quarter in time for the May 30, or thereabouts retail date, in time for the movie and then we have plans for the third and fourth quarter but of course, depending on exactly how the movie does, we certainly have capacity in the Far East to go above our current plan, and we'll wait and see just how it all unfolds.

And where do sales trend towards 2007 levels with the first movie?

Well, sales happened just prior to the movie.

It happened significantly after the movie.

The DVD came out.

You saw the results in the fourth quarter as well in the first quarter of 2008 as the DVD went into homes and that's what we were commenting on is that Transformers a year ago was very hot, white hot because of the DVD that had been out in, late in the Fall of 2007 so we're up against those numbers in the first quarter.

We again have shipped Transformers animated product or the classic or core product and are really now beginning to ship the bulk of the Transformers Revenge of the Fallen product in time for the May 30, retail date.

I think one of the things we want to remember about Transformers is that the second quarter is still a relatively low quarter for the Hasbro and for the toy industry.

Still most of the toy industry sales happen in the third and fourth quarter, so whilst Transformers will be a very important part of our sales during the second quarter, if you look to '07, where we have a Transformers movie, the second quarter isn't necessarily the biggest shipment quarter for Transformers.

The third and fourth have the potential to be as big in terms of absolute dollars, overall in terms of relative waiting, the second quarter is clearly the best.

Thank you.

We'll go next to Felicia Hendrix with Barclays Capital.

Oh, hi guys, I'm fine, thanks.

Okay.

Thank you.

We'll take our last question at this time from Gerrick Johnson with BMO Capital Markets.

Hi, good morning again.

I was wondering if you could talk about your debt to EBITDA and EBITDA to interest target ratios where you stand on those right now?

Well, we're within on both of them, is the answer.

I've got the exact numbers here somewhere.

Actually, David, I have those in front of me.

Our debt to EBITDA was 1.21 for the quarter and as we mentioned our target was 1.5 and our EBITDA to interest was 13.8 and our target is 12.1 -- 12 or more so we are within our target.

Okay, great.

And it was about a year ago you bought Cranium and the rights to Trivial Pursuit.

How are those brands performing and are they performing as expected when you purchased them?

Thanks.

Well, we are continuing to work on and developing Cranium.

We like the brand a lot and we knew even when we bought it that we would want to apply our kind of innovation so that's now ongoing in developing new innovative products using kind of the Cranium brand positioning which was complementary for us to the brands that we had within the games portfolio.

In Trivial Pursuit similarly, I think you'll see some new things on the brand for this year and as we go forward long term we've got a lot of great plans in store for Trivial Pursuit.

So again, the innovation across-the-board but like any acquisition there's always work to be done and the teams are busy kind of getting that up and going.

Great.

Thank you.

Okay.

I would like to now turn the conference back over to our speakers for any closing remarks.

Thank you.

I'd like to thank everyone for joining our call today.

The replay of the call will be available on our website in approximately two hours.

Thank you so much.

This does conclude our call.

We would like to thank everyone for their participation.

Have a great day.