孩之寶 (HAS) 2009 Q2 法說會逐字稿

Good morning and welcome to the Hasbro second quarter 2009 earnings conference call.

At this time, all parties are 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.

Please go ahead.

Thank you.

Good morning everyone.

Joining me today are Brian Goldner, President and Chief Executive Officer; David Hargreaves, Chief Operating Officer; and Deb Thomas, Chief Financial Officer.

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 Deb will review the financials.

We will then open the call to your questions.

Before we begin, let me note that during the 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 future financial performance and 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 forth 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.

Good morning everyone and thank you for joining us.

Our Company has performed well in what continues to be a very challenging global environment.

Our ability to deliver growth in revenues and earnings per share including the dilution from the joint venture with Discovery Communications was due to broad based strength across our core brand portfolio and strong execution by the Hasbro team globally.

Revenues were up 1% or $7.9 million to $792.2 million in the quarter.

In constant dollars, revenues grew 7% to $836.7 million.

We experienced growth in a number of brands including Transformers, Littlest Pet Shop, G.I.

Joe, Nerf, Tonka and Play-Doh.

Net earnings for the quarter were $39.3 million compared to $37.5 million in 2008 with earnings per share of $0.26 compared to $0.25 a year ago.

Excluding the joint venture investment, and financing of the joint venture, earnings per share for the quarter would have grown 28% to $0.32 per share.

In looking at our major global product categories, the boys business was up 19% with Transformers, G.I.

Joe and Nerf driving the growth in the category.

In the quarter the theatrical release of the Transformers Revenge of the Fallen was a record breaking global success.

After just 26 days it's reached $762 million globally at the box office.

To put this in context the first film's total box office receipts were $707 million.

The film continues to perform exceptionally well in all 63 territories in which it has opened.

In China, it became the highest grossing film ever in just 19 screening days.

One of the Main reasons for the phenomenal ticket sales in China is the solid fan base for the Transformers animated television series, that dates back to the 1980s.

We couldn't be more pleased with the performance both at the box office and at retail.

Retailers around the world recognize that certain brands like Transformers bring to life the entire store for consumers, which translates into premium placement and representation across multiple departments for those brands.

Along with our line of toys and games, Transformers has more than 250 licensees that gives us a presence in many aisles at retail.

There is no question that motion pictures play a major role in shaping the store wide promotional plans of retailers.

In looking at Transformers sales in 2007, the stronger revenue contributions from the brand occurred in the third and fourth quarters.

After a very strong second quarter, we expect to see similar results this year.

Product went on shelf about a week ago for the August 7, release of G.I.

Joe, The Rise of the Cobra.

We have great product placement at retail.

We also have over 100 licensees offering G.I.

Joe branded lifestyle products with more than half of these outside North America.

As we've said, one of our strategic tent poles is to grow our brands globally.

Nerf is a great example with sales up a strong 33% in the quarter due to continued strength in the U.S.

and our expansion into all major markets around the world.

On 9-9-09 we'll be launching the Nerf Raider rapid fire blaster with some great events planned at retail and promotional programs going into the Fall to drive sales in the all-important fourth quarter.

The preschool business declined 3% primarily due to our decision not to carry forward the Rose Petal Cottage line.

In the quarter, Play-do and Tonka had good growth year-over-year.

Additionally the Playskool core line performed well, with domestic retail POS with our top four customers up a strong 13% in the quarter due to increases in infant, Potato Head and play box essentials.

The girls category grew 4% with Littlest Pet Shop continuing to do very well, up a solid 16% in the quarter.

Easy Bake was also up year-over-year.

My Little Pony and Fur Real Friends were down globally compared to a year ago although I would note that Fur Real Friends performed very real in North America where it was up a solid 26%.

Primarily due to the timing of shipments for promotional programs we are executing over the coming months, games and puzzles were down 17%; however, we are seeing good indications that our efforts are gaining traction at retail with domestic POS up a strong 23% with each major game category up significantly.

Beginning in August we have a number of global marketing initiatives planned at retail as part of our family game night program, with a difficult economy, many families are staying closer to home this year and we want to be sure their plans include playing Hasbro's great games.

Earlier this year, we launched a new line of card games including Monopoly Deal, and Scrabble Slam.

We're very pleased with the results this far, year-to-date we've sold over 1 million games.

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

This year we have a full slate of Hasbro branded games planned for all major platforms through our partnership with Electronic Arts, Activision and GLU Mobile.

The new wave of video games builds on the momentum achieved by Electronic Arts in the past 18 months with its release of nearly 40 Hasbro inspired titles across 16 brands and 13 platforms, several of which have held tops rankings by platform.

For board game fans in June, EA released Battleship, Yahtzee, Connect Four, Scrabble, Boggle and Sorry on X-Box Live Arcade.

In conjunction with the movie release, Activision released Transformers Revenge of the Fallen for X-Box 360, Playstation 2 and 3, the Wii, Windows PC and Nintendo DS.

GLU Mobile had the biggest launch in its history with the release of Transformers games for a variety of mobile devices as well as a mini application for the iPhone.

At launch, Glue Mobile published over 35,000 skews of the game in 7 languages across 150 carriers in 70 different countries.

EA has a couple of releases coming up next month including G.I.

Joe, The Rise of the Cobra on X-Box 360, Playstation 2 and 3, Nintendo DS and mobile devices.

This fall they are launching Littlest Pet Shop online in the U.S.

Along with family game night two for the Wii and Nintendo DS.

In 2009 we expect to continue to grow our digital gaming revenue.

As we discuss immersive brand experiences let me shift gears a bit and talk about the joint venture we announced in the second quarter with Discovery Communications.

As we look to broaden our any time, anywhere strategy through television, Hasbro's partnership with Discovery provides our core brands with yet another powerful entertainment tent pole through this television network.

Experience and industry data has also shown us that brands linked to entertainment enjoy a price premium to basic products or private labels.

In addition to investing in our strategy to grow our core brands globally, we've invested time, money, and resources and beginning to turn our brands into powerhouses in the motion picture arena and in digital gaming.

To support our television strategy, we'll be making the necessary investments in providing consumers with great programming that will enlighten, empower, educate and entertain.

We have a committment to work with great creative stewards on a number of classic brands such as Romper Room, Trivial Pursuit, Scrabble, Cranium, My Little Pony, G.I.

Joe, Game of Life, Tonka and Transformers to name just a few.

Last week, Hasbro and Discovery Communications announced the appointment of Margaret Loesch an award winning industry veteran to the position of President of CEO of the network.

We believe Margaret is one of the best leaders in the industry.

She has a consistent track record of creating groundbreaking children's programming and unparalleled success in children's and family entertainment.

The management teams at both Hasbro and Discovery really look forward to working with Margaret and the team she assembles to build a powerful and immersive new destination for family entertainment that engages both children and parents alike.

Once we hire a Hasbro studio head, we'll be assembling a creative team charged with developing and producing programming for the network.

In addition we're reaching out to our partners and other third parties who are already developing great programming.

We have signed our first new program for the network, [Wat-Wats] from Weta Workshops, a popular preschool program that is airing in New Zealand, Australia, and the UK.

It is also important to note that original programming developed for this joint venture will be available not only on the network but also for viewing online at our networks new website, which is also within Hasbro.com and other digital and mobile platforms, including other popular TV viewing sites.

Our brands have proven to have resonance with consumers and a host of entertainment medium's outside of toys and games and we believe the time is right for Hasbro to bring our innovation into television, to complement our successful partnerships in both the motion picture, online and digital gaming arenas.

As we look ahead, we feel good about our business both this year and in 2010.

Many of you are beginning to think about our 2010 line up.

Let me highlight some of the initiatives we have planned to provide consumers with immersive brand experiences in any former format they want any time or anywhere.

First, in motion picture supported initiatives, we have two product lines for two major films.

Iron Man 2 from Marvel and Toy Story 3 from Disney.

In 2008, Iron Man exceeded everyone's expectations and we expect it to be a very strong line for Hasbro next year.

For disney's June release of Toy Story 3, we have a great new line of co-branded games and puzzles along with our new line of movie related Mr.

And Mrs.

Potato Head.

After coming off the strong box office results this year, we expect our Transformers and G.I.

Joe business to continue to do very well next year.

No different than Transformers in 2008, our experience has shown that the momentum continues into the year following the movie.

In television, we expect support for Transformers and G.I.

Joe and new episodes of the animated Clone War series from Star Wars.

From Marvel this year they have television support for Spiderman, Iron Man and Wolverine with Superhero Squad coming this fall to Cartoon Network.

We would expect to see continued television support from Marvel in 2010.

We also know movie related DVD releases provide another level of support for our brands.

This fall we are expecting DVD releases for both the Transformers and G.I.

Joe movies.

Recently, our licensee, Shout Factory released season 1 of G.I.

Joe, A Real American Hero and rereleased the original Transformers animated TV series from 1984 on DVD.

We had exceptional results, with Transformers selling over 100,000 units of the first 3 DVD box set in four weeks in North America.

The power of rereleasing these series is that it introduces the next generation to the origins in Transformers and G.I.

Joe and gives them a better understanding of where these brands are today.

Being able to experience our brands in the online world is critical as the category is growing by about 19% a year and is expected to be a $2.5 billion category in 2011.

This includes Virtual World's and online gaming for both kids and adults.

Through our relationship with EA, today we have a number of our brands available online including Monopoly and Boggle through Club Pogo.

In the fall we'll be launching Littlest Pet Shop online in the U.S.

With many different ways for girls to join such as a plush purchase with a secret code and through various subscription offerings.

A global rollout is planned beginning in the spring of 2010 with next year being the first full year Littlest Pet Shop online will be available globally.

To complement all of the entertainment support, we have great innovation, products and marketing campaigns planned for next year.

The core cast of Ponies is returning to the My Little Pony line.

It is the first full year of Strawberry Shortcake.

We are also reintroducing Care Bears, and as we all know, great brands have birthdays, from our core brand portfolio, we have two next year.

Monopoly will be celebrating its 75th anniversary and the game of Life, it's 50th.

This is just a sampling of what's coming in 2010.

We have much more planned that we will share with you later this year at our analyst day.

For the remainder of 2009, we'll continue to invest in our business while closely managing our cost.

While there are challenges in 2009, we believe we have the potential to grow revenue and earnings per share including the impact of the joint venture.

We remain committed to our long term strategy, a strategy that has been successful and one we believe will drive growth, continue to differentiate Hasbro and create long term value for our shareholders.

With that, let me now turn the call over to Deb Thomas.

Deb?

Thank you, Brian, and good morning, everyone.

I'm delighted to be discussing our results with you on the call this morning.

Before I review our performance for the quarter, I'd like to provide an overview of the presentation of the joint venture with Discovery Communications in our results.

As we shared with you when we announced the joint venture on April 30, we plan to consolidate the joint venture results and Hasbro's financials.

Based on recent changes in the Financial Accounting Standards Board accounting rules, we will be using the equity method to account for the joint venture and will not be consolidating the JV into our results.

This means that Hasbro's 50% share of the earnings for the JV for this quarter and going forward will be included in the other income and expense line of our statement of operations below operating profit.

Revenues and operating expenses of the JV will not be included in Hasbro's revenue and operating expense line items.

I also want to point out the impact on our reported net earnings and earnings per share is no different under the equity method than if we had consolidated the JV into our results.

The only change is in the presentation.

Hasbro did, however, have expenses associated with our investment.

As we go through the P&L, I will identify these expenses which include deal costs and advisory fees, in selling, distribution and administration, and financing costs and interest expense.

Now, let's review our second quarter performance.

We said earlier this year 2009 would be a challenging year due to the global economy.

We also said that we expected to see improvement in our business in the second quarter which we did.

I am very pleased to report that we grew revenues and earnings per share despite both the adverse impact of foreign exchange and the impact of our investment in the joint venture.

For the quarter, we delivered worldwide net revenues of $792.2 million compared to $784.3 million last year, an increase of 1% or $7.9 million.

Excluding the unfavorable $44.5 million impact of foreign exchange, revenues were up 7% or $52.4 million.

We delivered record operating profit for second quarter with operating profit of $73.1 million or 9.2% of revenue compared to $65.5 million or 8.4% of revenue last year.

Operating profit was impacted by $7.2 million of expenses in the SG&A line related to our investment in the joint venture.

Absent these expenses, operating profit would have been $80.3 million or 10.1% of revenue.

Moving on to our segment results.

Beginning with the U.S.

and Canada segment, net revenues were $490.9 million compared with $467.7 million last year, an increase of $23.2 million or 5%.

U.S.

and Canada operating profit for the quarter was $56.3 million or 11.5% of revenue compared to $43.7 million or 9.3% of revenue last year, an improvement of 29%.

The increase in the operating margin is primarily due to the increase in volume.

Net revenues in the international segment were $276.2 million compared to $293.7 million a year ago.

The segment was down 6% in U.S.

dollars but up 9% excluding the impact of foreign exchange.

As it relates to the economy, we have found that the emerging markets overall continue to grow but not at the rates we expected.

In a number of areas the economy has been particularly difficult with retailer closings and credit issues impacting some of our customers.

The international segment reported operating profit of $16.5 million compared to $14 million last year, an improvement of 18%.

As we indicated in April when we announced the joint venture, beginning this quarter, we would be reporting the renamed entertainment and licensing segment.

This segment includes our lifestyle licensing, digital gaming, movie, online entertainment, and television, which includes the joint venture and our virtual studio cost.

Since we are not consolidating the joint venture into Hasbro's financials, the results of the JV are included in other income expense and are not part of the segments operating profit.

Previously, the entertainment and licensing segment was included in our SEC filings as our other segment.

Net revenues in the entertainment and licensing segment were $24.2 million compared to $21.3 million a year ago.

The entertainment and licensing segment reported operating profit of $2.9 million compared to $8 million last year.

The decrease is due to one-time advisory fees and deal costs associated with our investment in the joint venture.

Now let's take a look at earnings.

For the second quarter, we reported net earnings of $39.3 million or $0.26 per share.

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

Excluding the after-tax $8.8 million impact of our investment in the joint venture and financing costs, earnings would have been $48.1 million or $0.32 per share.

Earnings before interest, taxes, depreciation and amortization were $118.4 million compared to $109.3 million a year ago.

Gross margin for the second quarter was 59.7% compared to 60.7% a year ago, declines primarily due to a change in product mix.

Now let's take a look at expenses.

Royalty expense increased for the quarter to $73.8 million or 9.3% of revenue compared to $68.2 million or 8.7% a year ago as entertainment driven brands which include our own core brands continue to play a major role in our growth.

Research and product development expense totaled $43.5 million and was relatively flat on a percentage basis compared to a year ago.

Advertising expense for the quarter declined to $81.7 million or 10.3% of revenue compared to $86.2 million or 11% of revenue last year.

The decline is primarily due to a change in product mix as we have more entertainment based business this quarter compared to a year ago.

SG&A expense declined in dollars and as a percent of revenue to $181.9 million or 23% of revenue in 2009 compared to $190.1 million or 24.2% last year.

Included in SG&A were one-time expenses associated with the joint venture.

Specifically, $7.2 million in advisory fees and deal costs.

Interest expense increased by $4.6 million to $17.5 million.

The 2009 second quarter includes approximately $7 million associated with the new long term debt issuance and costs related to a short-term bank facility committment.

Both expenses were part of our investment in the joint venture.

Other income net totaled $1.3 million compared to income of $2.7 million a year ago.

The decline in other income is primarily due to a decrease in interest income resulting from lower interest rates and cash balances.

Our 50% share of the joint venture results are included in this line on the P&L.

This quarter, our share of the earnings in the joint venture inclusive of amortization expense totaled $1 million.

Our underlying 2009 tax rate was 29.5% compared to our 2008 full year underlying tax rate of 32.8%.

As we finalized our investment in the joint venture, we have updated the related dilution guidance for 2009 and 2010.

When we announced the joint venture with Discovery Communications, we anticipated dilution of $0.25 to $0.30 per share in 2009.

We are revising our guidance and we now expect dilution of $0.15 to $0.20 per share in 2009.

The non-recurring one-time costs including advisory fees have not changed.

What has changed is the cost of financing and the amount of joint venture amortization expense, both of which are lower than we initially anticipated.

In May, we issued five year notes with an interest rate of 6.125%.

Due to very favorable credit markets, we were able to secure the debt at a rate that was significantly lower than we originally estimated.

With respect to amortization, we had initially assumed that the joint venture would have intangible assets which would all need to be amortized over a relatively short 10 year period.

As final valuations were performed, the actual amount of amortizable assets are less than what we estimated and the amortization period is longer.

This results in a lower annual amortization expense of joint venture intangibles.

These factors also positively impact our expected dilution in 2010.

We now expect dilution in the range of $0.25 to $0.30 per share.

Now let's turn to the balance sheet.

At quarter end cash totaled $392 million compared to $594.6 million a year ago.

We generated significant cash from operations during the last 12 months and we raised $425 million through a debt offering; however in the second quarter, we spent $300 million for our 50% investment in the joint venture with Discovery.

Additionally in the last 12 months we've spent $135 million to pay down maturing debt and $95 million to extend our agreements with Marvel and Lucas.

Finally we did not repurchase any shares in the quarter.

Our receivables at 652.6 million were up 90.1 million compared to 562.5 million last year.

The increase is primarily due to the timing of shipments, many of which occurred at the very end of the first quarter and as such were not collected until early July.

DSOs were 74 days compared to 65 days last year.

This increase is also due to the timing of shipments.

Inventories decreased to $346.8 million compared to $375 million a year ago and were flat at constant dollars.

In closing, we are pleased with the results we reported today.

As we look to the remainder of the year, the environment is expected to remain challenging.

That said, we believe that the underlying strength of our brands and our committment to our strategy should enable Hasbro to grow revenue and earnings per share in 2009, including the expected dilution from our television investment and absent a material deterioration in economic conditions or the value of foreign currencies.

With that, Brian, David and I would be happy to take your questions.

(Operator Instructions) We'll have our first question from Margaret Whitfield with Sterne Agee.

Good morning, everyone.

I guess first for Deb could you give us more information on the amortization which you said would be less and for a greater period of time.

That's my first question and then I had a few others for Brian.

Certainly, Margaret, good morning.

The amortization in the joint venture is expected to be left in the joint venture itself because as we had our final valuations done for the assets, not all of the assets that were in the joint venture are amortizable.

There was some goodwill that arose in the joint venture.

In addition to that we found as we got deeper into industry practices that the lives associated with these assets were longer than what we had estimated when we calculated our original models, and that made us have a longer life over a lower asset base which in turn reduced the amortization expense.

So what period are we talking about now?

Not the 10 years that you discussed?

Something longer?

Yes.

15 years, 20 years, can you give us some ballpark number on both the dollar amount and the time frame?

I think what we have found is that on average, when we did the valuations, that some of the intangible assets per this industry are amortized over a 20 to 30 year period.

Okay.

And the amount involved in total is?

The amount I don't think we've -- because that's part of the joint venture.

That's not part of Hasbro's results.

Okay, and for Brian, I wonder if you could break out the contribution of Transformers and G.I.

Joe to sales in Q2?

We're not going to give, -- good morning, Margaret.

We're not going to give specific numbers on that.

They're pretty consistent in percentage terms to 2007 on Transformers and again we said that our biggest quarters in Transformers were Q3 and Q4, so we're really on track for our expectations in Transformers.

On G.I.

Joe we began shipping in time for the July 11, on shelf date so there were some shipments of G.I.

Joe but certainly again for both G.I.

Joe and Transformers, not the kinds of total year numbers that we would expect.

Okay, and how about the Electronic Arts situation?

Could you tell us if there was any earnings contribution in Q2?

Certainly, they're paying royalties each of the quarters we talked about a number of platforms.

Our full year expectation for royalties associated with the digital gaming business is to increase in 2009 versus 2008 and we feel very good about the progress that they've made.

We're also equally excited about Activision and the Transformers launch, as well GLU Mobile had a great success in launching the Transformers and mobile platforms.

EA returns in the next month with the G.I.

Joe, The Rise of the Cobra as a video game plus Littlest Pet Shop online begins this fall in the U.S.

And then will roll out globally, so a number of initiatives that are 40 in total over the last 18 months over a number of different platforms and they aren't only great for business but also have been widely regarded by the users.

And you mentioned you were talking to some of your partners about the JV, would that include Marvel and Lucas?

We're not going to talk specifically but I would say that the interest in the network is incredible.

The number of great creative stewards out there who would like to participate in television, the number of people creating programming that are both what we've been calling friends of the family as well as third party programmers, people who have made wonderful shows throughout the years, it's all -- the interest is out there and pretty significant and we're very pleased to have Margaret Loesch on board and heading the network.

We are working ahead of Hasbro Studios and making a lot of progress across-the-board.

We've brought in our first program for the networks which is Wat-Wats from Weta Workshop.

Okay thanks and good luck.

Thanks.

We'll go next to Robert Carroll with UBS.

Hi guys.

Hi good morning.

Just a couple of quick questions just on the JV for the changes in the dilution estimates have there been any change to the cost that Hasbro expects to incur in terms of development?

Is it still on track for that 80 million to $100 million number?

Again, Robert, it's Brian.

The 80 million to $100 million is a number we put out there to explain to people to commit to people based on programming based on rating success over time, so our expectations for the number of shows we will make is the same.

Our expected costs are very similar, so this is just about amort and some other things that have changed as the way we look to account for it so we are equally aggressive about our plans but recognize that we don't need to produce $100 million worth of the programming a year.

We're just trying to give people a sense for the scale of what we could produce over time given the rating success and the growth in the network.

Okay, and this may be a little bit more granular than you're willing to get into but when looking at the first partnership contract that you guys signed with the JV, is there a participation component in that in terms of any product sales where Hasbro would receive a royalty from?

You're right.

It's a little granular from where I'd like to go.

Figured it was worth a shot.

But suffice it to say we want to create a win-win situation between programmers and ourselves and the network and again, I think that the amount of interest that's out there from programmers sort of speaks to the opportunity for the network.

Okay.

And then separately just on the international strength that we've seen on constant currency number, is there a way to break out how much of that is as a result of the investment you guys have made over the past couple years and to expanding the international sales channel?

Well, we certainly are seeing good results coming out of Brazil and great traction out of Eastern Europe, not quite as Deb noted, not quite the rate that we would have liked out of certain territories related to credit issues, some other issues related to some retailers that are out there.

David, do you want to talk to the global retail situation?

I think the global retail situation is very mixed at the moment.

Clearly some markets like France, the economy's still doing very well.

The toughest markets are the UK, Spain, and Mexico, and as Brian said, Eastern Europe is challenging because of some of the cash flow issues that our distributors have in some of our distributer markets, but again, as Brian said Brazil, China, the economies still growing, albeit as not a high rate as previously and we're still increasing our business in both of those markets.

Great.

Thanks guys.

Thanks.

We'll go next to Jake Hindelong with Monness, Crespi, Hardt.

Good morning guys.

First a couple questions on revenue.

Just when you look at the second quarter can you talk a bit about the split between U.S.

and international on Transformers?

Transformers is a product line that has done very well internationally.

It's well developed as our total business, so overall we're about 60/40, that's probably closer to 50/50 on Transformers but that has to do with the fact that markets like China where the Transformers are really significant and popular as well as through Asia and Latin America.

So overall, the business is about 60/40 and Transformers is a little more developed internationally.

Okay and then just on G.I.

Joe, on the initial shipment can you talk a bit about how much went out in the second quarter versus what you expect in the Q3?

Well, we began shipping G.I.

Joe in the second quarter and we had made retail trips around the world over the last year ourselves as well as the producers of the film, a lot of excitement around the world from retailers, not just here in the U.S.

In fact over half of our licensees are outside of North America, so we're seeing a great placement globally at retail and just beginning to see the early results.

I'm not going to go into order of magnitude Q2 versus remainder but suffice it to say we only had a few weeks to ship in the quarter in time for the July 11, Street day for the product line.

Great thanks.

And then on margins, can you talk about looking into the back half if you've gotten many concessions on product costs from vendors?

Oh, really, the situation with Hasbro over the years is that our vendors give us prices at the beginning of the year and that's basically how it is for the year.

The only real time that that is broken down is really in the second half of '07 and throughout '08 when commodity prices were moving so erratically that we had to sort of break from past practices.

Given the much more stable commodity movements this year, we're really back to the previous situation where our vendors have given us costs at the beginning of the year and basically they're locked in and they're holding.

We did get some reductions from where we first costed product at the back half of last year, we got some reductions to reflect where resins came down and we did take some selective price roll backs with our vendors accordingly, with our customers accordingly.

It's nothing, it's not nearly as dramatic as it's been over the last two years.

It's very sort of stable at the present.

Okay great.

And then just one other question relating to the impact of the joint venture.

Now you've got Margaret on board, can you talk a little bit about the pace that you'll build the studio division and the potential impact in second half versus 2010 expenses?

Well, we are now presently looking for our studio head and recruiting as we did for Margaret and the network side.

We will make a number of shows for late fall 2010 as we rebrand the network and relaunch the network and then we'll continue to produce as we go forward.

Again, there's a number of sources of programming that we intend to have for the network that would be Hasbro branded shows, there might be friends of the family shows, there will be third party shows as well as using some of the Discovery library so again we're not out to create 24 hours of programming off of Hasbro properties so I would say, safe to say at launch or perhaps six or eight Hasbro shows some time during the launch, the first six months of the launch period.

Great.

That's very helpful, thanks.

We'll go next to Tony Gikas with Piper Jaffray.

Hi, good morning.

I have a couple questions for Deb and then a couple about the business so I'll start off with Deb.

What month do you expect the inflection point for lower cost of goods sold as we move through the back half of the year and also as it relates to foreign currency impact if the dollar stays flat today where is that impact eliminated?

Is it Q3 or Q4 and then I have two follow-ups.

I think that with respect to margin, we see that our gross margin as we stated earlier we expect to get back to the 58% range.

Historically, I think if you look back over the last 10 years that's typically what our gross margins run at.

We had product mix impacts that this quarter but historically, we've kind of fluctuated between the 57 to 60% over the various quarters, so our expectation is still that we would get back to 58% gross margin by year end and go somewhere within that range during the year.

And I'm sorry could you just repeat your second question, I apologize.

Foreign currency, if the dollar stays flat today when would foreign currency impact be eliminated?

Well, I think where the dollar is sitting today, it's still lower than where we sat last year at this time.

We expected that in the fourth quarter we kind of level out, so if the dollar stays where it is today, I think we'll still have some impact as we go into the fourth quarter; however, it will be somewhat mitigated because of where the euro and the pound, where they're trading today and the peso.

Okay, thanks, and then a couple follow-ups.

On Transformers brand, you indicated that Transformers is a similar percentage of revenue in the quarter as it was in 2007.

Is that the type of increase you expect to see in that brand this year versus 2007 on a full year basis?

And then the last question, just an update on the movie properties, any update that you could provide on 2010 and '11?

I notice you didn't include, did Thor slip out of the schedule for 2010 and any update on Universal?

Sure.

The Transformers is performing very well.

We feel very very good about the brand and we're feeling that way around the world.

The retail execution has been tremendous, retailers have been very supportive.

We've activated not only the toy and game departments at retail but through our licensees, many other departments including the video game department and lifestyle products, so we feel very good about the prospects for Transformers.

Clearly the box office is helpful, the DVD release which we expect later this year equally helpful so we feel very good, again about Transformers and the prospects for the franchise going on for very very long time as well.

So we're building this as a long term franchise, a tremendous immersive experience and I won't get into sort of forecasting exactly what we expect but suffice it to say we all know what we reported in 2007 at $484 million and we also talked about how robust the brand remained in 2008 the year following the movie, so again, we're building this brand to be one of our global mega brands as we go forward.

Thor, as I understand it, is planned for 2011.

You have Thor in 2011 and Spiderman planned for 2011 as well as Captain America the First Avenger Captain America is in expectation that we have for 2011 based on what we're hearing from Marvel.

In 2010, the two major motion picture supported initiatives is Iron Man 2 and also Toy Story 3, our major line of co-branded games as well as Mr.

And Mrs.

Potato Head is all part of our 2010 line up.

In 2011 in April, we expect Stretch Armstrong, April 15, and then it would be Spiderman in that May window, then Thor, and then Captain America for 2011.

And any update on the deal with Universal?

Well, we're busy working with a number of writers, I think we talked a lot about the writers and some of our directors they are all making great progress for Candyland, for Monopoly, for Battleship, for Clue, many of the announcements that have been made.

I would say there's nothing that changes our belief in our strong relationship with Universal and the development slate that we're putting together with some wonderful titles that are beloved globally.

So 2011 a likely launch period for the first one?

Yes, and that's Stretch Armstrong.

We've talked about that Universal already dated the movie for April 15, 2011.

Steve Oedekerk is writing away, and we will then work on a director and casting in the short-term, in the near term and produce the movie over the next year and then have it for April 15, 2011.

Okay, thank you, guys, good luck.

Thanks very much.

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

Hi guys, thank you.

A couple of questions, most of them are pretty quick.

Brian, on board games, I think you mentioned, I think you said games and puzzles, point-of-sale up 23%.

Was that year-to-date?

That was in the second quarter but actually for the second quarter, our POS as a Company was up and our games POS was up overall in the second quarter, yes.

So that 23% number was not games and puzzles specifically?

No, it is.

Yes, sorry, the games business was up in the second quarter as was the toy business up in POS.

Okay.

Deb, what other reasons would there be for amortization as an expense category to be down in the quarter other than, well you're not consolidated so what would those reasons be?

With respect to our amortization expense the biggest reason that it's down in the quarter is really just due to the timing of shipments on products such as Star Wars where we amortize along the sales curve, I think we would see that we had more Star Wars sales last year in the same time period than we did this year.

Okay, thanks.

So just to be clear then on your classification of things that are in the segment break out, so entertainment and licensing will not be in there, that includes the Electronic Arts piece?

In entertainment and licensing are the royalties from Electronic Arts.

Right, okay.

And the reduction in dilution now expected from the joint venture, could you give us some kind of order of magnitude how much of that say if it's $0.10 a share this year in reduction and dilution how much of that is from lower interest rates and how much is from amortization being lower?

Sure.

I think this year really the primary reason is interest rates and as you go to 2010, when we did initially, had initially looked at the credit markets I think rates were about 3% higher than what we were actually able to issue our bonds at, so our $425 million is a fairly substantial movement in a good way and we are very pleased about the rate we were able to obtain so if you look at that order of magnitude this year that's probably the biggest item.

As we move to next year that becomes, it remains significant but the second largest impact would be the lower amortization expense in the JV itself.

Okay, so in effect you had announced the financing and we knew the rates but you didn't update the dilution so it's just sort of catching everything up then?

We actually when we announced we didn't update the dilution until now but when we had originally estimated our dilution, we were using then current market-rates.

Okay, and the last question just conceptually in terms of this friends and family idea on the network, can you say at this point whether you would consider a property for that, for the network that might be tied to someone else's toys, toys that would be manufactured by a different toy company?

Sure, we would be happy to look at any programming that we believe would add to the success and the prospects of the network so certainly if they were, if the toy rights were with another toy company that's fine.

Okay.

Very good.

Thank you very much.

We'll go next to Gerrick Johnson with BMO Capital Markets.

Good morning.

Thank you.

On the royalties I was wondering if there was any expense there from the Lucas audit and catch up in that?

Not in the second quarter.

That was just a first quarter item?

Yes.

We just have our normal royalty expense associated with our product sales for the quarter.

Okay, great and on Transformers, the ship into retail looks great.

It looks bigger than it was in 2007.

I was wondering how you would characterize take away at this point a couple weeks in?

Well, take away has been really tremendous.

The POS certainly is up as you would expect and again, it's doing and following a template that our teams are really expert at following, working with our retailers, the kinds of promotional partnerships out there, the programs throughout the year and around the world are really significant and sort of a model for how we see some of these motion picture franchises coming to life and we're excited about G.I.

Joe and its prospects both in the U.S.

and North America as well as around the world and again, lots of retail partnerships and promotions will happen there as well, but there's also a number of other initiatives that like Littlest Pet Shop online for the U.S.

that has a lot of promotional and retail support as well as well as the family game night business and the games category and with games performing in POS, all significant and strong so a lot of contributors to the sales results we're seeing.

Now just to clarify on Transformers that POS being up is that compared to 2007 or is that compared to 2008?

That is compared to 2008.

And how is the take-away--?

Sorry, and seven.

Okay, so POS is up versus '07 at this point?

Yes.

And finally just wanted to ask about the games business why the lumpiness there, what's going on with just the numbers reported in the games business?

As we were getting organized if you think about first quarter we were up a bit and second quarter we're down a bit in shipments but the sell-through is significant, so we're getting ready and planning for third and fourth quarter, the sell-throughs are really again very significantly up and across all the major categories are up.

So whether it's preschool games or family games or children's games, so we feel very good again about what we plan to do for the full year and our games business so I wouldn't read too much into just the second quarter results.

And just lastly, your inventory position at retail, how do you feel about that and what's that look like say exclusive of some of the special items like Transformers and G.I.

Joe shipping and how does the inventory look for the rest of the line?

I think our retail inventory is up a bit compared to the year ago, we're certainly not worried about that.

Our business was up during the second quarter.

We believe it's going to be up in the second part of the year, so obviously, there is quite a bit of retail there associated with Transformers which is selling very well and we're just starting to ship in joe but we've also as Brian just mentioned we've got family games night, we're still doing very well in Littlest Pet Shop, we've got a number of things that are working well for us and we're quite happy that retailers inventories are up a bit, as compared to this time last year.

One of the biggest changes year on year as brands go has been Nerf, as we've taken a brand that was primarily a U.S.

brand and are rolling it out around the world you can see the brand was up 33% and certainly need to ship those additional inventories around the world, those promotional programs and getting lined up for our launch on September the 9th, so as we have more of our brands in more geographies around the world certainly that will drive inventories in total on the macro up.

Okay, thank you very much.

Thanks very much.

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

Hi, good morning guys.

Good morning, how you doing?

Hi.

Good.

Thanks.

You broke out at the beginning of the call, Brian, the business lines, boys, girls, preschool, games.

I was just wondering in that other line which is where your digital games are, if you can give us what that came in as an absolute basis because I think talking percentage, well, we know what it was last year so just either way give us some indication of what that was?

You talking about digital games as in--?

Well, don't you report that when you break it out in your Q as other?

No, other, okay so other has been, other was reclassified as the entertainment and licensing segment, so that go forward will comprise all of our realty income.

It does include the royalties from digital gaming, it would include royalties from lifestyle licensing, any box office participation for motion pictures.

So can you give us what that was?

Well, we talked about--.

Well, you gave us everything else.

We reported that number.

Certainly you want to reiterate that?

No, I've got it.

Okay, so just looking at the JV, are you guys planning to when this is eventually up and running are you guys planning to break that out at all?

Well, we'll certainly explain to you what we're doing there, I think a couple of things that people would be very interested in is what are the brands, the Hasbro brands that have been produced and are on the network, what third party brands or friends of the family brands that are on the network, how is the network performing in general I think would give you perspective on that but there will be a separate delineation in the JV.

I think one of the things you have to understand is that Hasbro, the JV is one component of this effort.

We also have the studio which we'll be making programming and we also will have some incremental merchandising associated with the programs that are on air, so we will not be identifying the JV separately when we announce our quarterly results.

We will be talking about the entertainment and licensing segment which includes all of the things that Brian has just spoken about.

Okay.

And just moving actually back to your operations, you talked about the other business lines.

I'm just wondering on the girl side, so far it might be a little bit early but so far how is retail interest for Strawberry Shortcake?

Retail interest has been great.

We're very excited about Strawberry Shortcake.

Clearly there's been entertainment produced so again people are happy to see the line, they feel like there's nice innovation in the line and widespread retail support.

Great.

And then Deb, what was the interest expense or what rate are you paying on this short-term debt?

Our short-term debt, we have a market-rate that fluctuates based, on just based on our agreement that that's been out there but we actually, are you talking about the debt we just issued, Felicia?

No, no, just the short-term.

I know it's hard to model but--?

We actually didn't have any outstanding on our short-term borrowings domestically at the end of the quarter, so and we just have some international borrowings that are out there at local market-rates.

Okay, so is there a way you could give us kind of an idea of what that was on a blended basis?

Yes, they are just local market-rates and, you know, with respect to I think it's probably on average about 3.4%.

Okay.

I have a bunch of other questions but I'll ask offline because they are on the JV.

Thanks.

Sure.

Thanks.

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

Great.

Good morning everyone.

If you could talk about your plans for advertising spend in the second half, it's been down year to year obviously, wonder if you could spend a moment on that?

Sure, Drew, it's Brian.

We are looking at advertisers being down a bit year-over-year really for two reasons.

One are the actual CPMs and then of course as we have these big entertainment initiatives, the advertising shifts a bit and so we get great support from the motion pictures or TV series and the related DVD marketing and the DVD releases so it's been down, it's down a little bit in mix for this quarter but I would also say that we still plan to significantly support in marketing our brands and products around the world.

There's a lot of innovation in our core brands for the third and fourth quarter so we're not changing our plans significantly or considerably but it is probably down a couple of -- a little bit for the year.

Okay.

And Brian, what are you seeing in terms of planned shelf space for the holidays relative to last year?

Well, I'll let David talk about this around the world as well but I think overall, our retailers are supporting these brands that are selling.

They want to place bets with great brands and Hasbro has a raft of great brands and that's true around the world.

They want more of a sure thing like the rest of us, we all want a sure thing these days so brands represent a great organizing principle for consumers and brands with great innovation, great value that are well supported and marketed that may be associated with entertainment, that's what they're lining up for and we support our retailers accordingly as well.

Yes, really nothing to add.

I do think that we probably are going to have more shelf space.

There are some retailers that have been, clearly have said that they're cutting back in their overall toy departments.

That doesn't mean that that would impact us.

I think it sort of disproportionately impacts people who are perhaps smaller and don't have such well known brands and don't have entertainment supporting their brand.

I think for a company like Hasbro, we were not going to be materially impacted by any retailers that are cutting back the overall size of their toy department.

Okay and just looking out over the next say 12 months, any plans for pricing increases or is it too early to say?

I think that it's too early to say at the moment, as we just said, the volatility of commodities has certainly reduced at the moment.

We're certainly not planning anything else this year.

Last year remember we had a second increase during the September time frame.

We're certainly not planning that.

I'm sure we'll be considering something early next year but probably small.

And I apologize if I missed this but did you give a cash flow from operating activities number for the six months or can you offer that?

We didn't but our cash that we utilized by operations was $179 million.

Okay.

And just one last question.

Somewhat related to that you guys paid $45 million in the quarter to extend the Lucas license.

Just discuss the rationale behind that.

It was in the quarter, the $45 million was an extension of the license for two years plus it was also to clean up anything related to a long term audit that had gone on the brand, so we got a two year extension as well.

Okay.

Thanks guys.

We'll go next to Thomas Russo with Gardner, Russo, and Gardner.

Hi.

Good morning.

Good morning, Brian.

Earlier, Deb, mentioned that in the royalty area that the mix changed a little bit.

I think you said in part because some of the royalties were being paid to you already.

I was just curious by that comment if I heard her correctly?

No, I don't think that -- I think what we were saying is that in the royalty line that we should delineate or make clear that royalties don't necessarily pre suppose that it's other peoples properties.

In fact our own brands, when other people are paying to produce motion pictures we do carry a royalty mode in our own brands related to motion picture product that we pay to the studios in return for their paying to produce motion pictures and market motion pictures around the world.

Oh, that's interesting.

The other question had to do with the, hold on a second, I apologize.

I'm caught between a meeting.

The retail, when Deb spoke about the slightly higher receivables, to what extent are they investments in support of your retailers during this credit starved time and the related question is are you seeing from retailers who are hard pressed any increased allocation of property real estate to private label or to store brands?

Is it harder in this environment among their offerings?

Tom, the DSOs in that was really just related to timing.

That's all it was and Deb can outline that.

Sure, Tom.

We had actually based on the timing of our shipments we shipped quite a bit at the end of March and we actually have already collected that in July.

It was just timing and it was just outstanding during the quarter so that really was timing and Brian, you want to take the retailer question?

Or David?

Yes, David, you should start with that.

I think in terms of the retailers, I think if anything what we're seeing is a flight to quality, so I'm actually seeing more demand for branded goods, more demand for brands that are supported by entertainment so I think at the moment there's more sort of a flight to quality as opposed to more private label or more generic type goods.

I think in terms of you were saying retailers coming through and requesting longer terms or something I'm sure around the world people are but we're certainly not participating in that.

We're relying on the strength of our product line to ensure what we get the shelf space.

We'll go next to John Taylor with Arcadia Investment.

Good morning.

Good morning.

I've got a couple of questions.

So on the license segment the way you're reporting it now, how should we think about the cost structure of that?

Are the folks running that pretty much set at this point?

What's the fixed component and are you going to run programming?

Where is the programming cost going to run through?

I assume it's going to run through before you get to that number.

Could you talk at all about how we should think about whether this is leveragable or how leveragable it is?

There's a lot of stuff going into entertainment and licensing.

Already, we're sort of in script development for some of the movies at the moment to the extent where the movie gets greenlit, that becomes sort of a first line of production budget for the movie so it comes off of our books so there are a lot of things that will go on in this segment and it's going to be difficult for you to sort of be able to look at it and say, in any given quarter, you can expect this amount of operating margin.

Clearly, the licensing income and any movie box office participation that we get and any money coming in from theme park ratings is all high margin business, but within there, there's going to be some costs which are fairly fixed which as you said that is also going to be quite a bit which is variable on a quarterly basis.

Okay, all right, good.

And then if Transformers is closer to a 50/50 mix domestic versus elsewhere, I wonder how you're thinking about G.I.

Joe.

Is it going to look more like the corporate average?

I think it probably will be a little closer just in my sense to the corporate average but I'm also very impressed I don't know exactly and I'm very impressed with retail execution we've had outside the U.S.

The team right now is making its way around the world in launching and organizing and launching the movie.

They are in Australia, they're on their way to Europe and retailers around the world have provided really significant support for that brand as well, so again, we feel very good about our prospects as we've told this big story.

Yes, okay, good.

And then with Transformers performing at retail pretty much as people expected, I wonder if that has had any impact on their confidence level and Joe, is there any positive spillover effect from that?

I think there are a number of things for Joe that have certainly contributed.

We've done a number of screenings as you do when you get ready for these movies, the feedback from the screenings from audiences has been tremendous.

Retailers response has been great.

Peoples response to the trailer that was on the front of the Transformers movie as well as the advertising has been really terrific.

The early tracking is really very very strong on the movie itself, so again, a lot of positive indications but again, we'll wait and see how it all is borne out in the next couple of weeks.

Okay, and then last question, in terms of the distribution of Transformers I guess, could you give us a sense of kind of how that 484 broke down between Q2, 3, & 4 in '07 as a basis?

That's maybe percentages?

Hang on, maybe let's keep going and we'll come back to that percentages and give you that in a second.

While you're looking for that so when you look at sell-through Transformers, nobody needs to name names here but different retailers made different bets in '07 on Spiderman and Transformers and I'm wondering if all major retailers in the U.S.

are seeing similar increases or whether the total over-the-counter is being driven by one sort of stepping up bigger this time?

Clearly every retailer certainly has identified Transformers as one of the major properties because of its ability to not only sell significant toys and games but to impact multiple departments at retail.

Clearly, there's some folks performing a bit better and some folks a little bit below but overall the POS for Transformers is up significantly versus the '07 movie as well as in '08, so I'm not going to comment specifically on retailers.

John, to go back to your earlier question, Q3 was 34% in Q3, the last time in '07 and 35% in Q4.

Okay, great.

And then last question on the board games, so was there anything in the base last year, Monopoly, and I don't remember what but in the base that might contribute to part of the minus shipment?

I think that if you look at games business overall, there's certain new initiatives that are going in that are performing very well, the SpongeBob initiative on Operation is doing really well, Sorry is doing really well, there's a number of brands performing really well.

Some of this, as I said, it was a little bit like Littlest Pet Shop back a quarter ago where people were asking about Littlest Pet Shop, we talked about timing and I do believe that overall for the year this is about timing.

Okay, great.

Thank you.

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

Good morning.

Thanks for taking my question.

Good morning.

I may be reading a little bit too much into this but it seems like your expectations for the year have gone up with the caveat that earnings and sales expected to grow including the JV dilution.

If that's true is there any particular area, FX, cost cutting that's, sales expectations that's driving that potential growth?

I'll call it a couple of things.

First we said the last two quarters, Q4 and Q1 were probably the most significant challenges in terms of the current economic cycle and we said that early on.

With results in Q2, again, I don't think we have change per se early on, we said that we believe that we could grow revenues and EPS, now with the mitigation and dilution, we're including the dilution but also you're starting to be able to really get some sight toward Q3 and Q4.

We're seeing the sell-through in our brands so a bit more optimistic that our business is responding in this environment and that our initiatives are working, so it's really just more of the surety of the execution of our plans that's leading us to reiterate our guidance but to include the dilution at this point both because of the size of the dilution as well as the way our brands performing around the world.

Great.

And also, can you give us some color on retail purchasing pattern, lead times, assuming those are shrinking outside of the Transformers, G.I.

Joe, and could that have an impact on sales Q3 moving to Q4 or vice versa?

Are you talking about like just in time deliveries?

Yes, I am.

David?

I think our major retailers certainly in the U.S.

have been moving to just in time over a number of years but there's not much later they can actually get without risking where they are going to be in short supply or that the pipeline to put the product in during the end of the year is broad enough, so we're not thinking that in the U.S.

we're going to see any shift later in terms of the buying.

Some of the markets in Europe have never been quite as sophisticated in their supply chain as big U.S.

retailers and maybe in Europe you're still seeing some markets, not the UK, where they're very sophisticated but some markets where they're pushing a bit later.

Thank you very much.

Great.

Thanks.

We'll have our final question from Tim Conder with Wells Fargo.

Thank you.

Just a couple of clarifications on the sell-through inventory direction.

You said again your sell-through is up very nicely with Transformers and the channel inventories are also up.

Can you kind of give us a little bit of directional magnitude to compare and contrast the two both U.S.

and internationally?

You're talking about for the quarter?

Yes, yes, quarter, year-to-date Brian, whichever way you want to comment?

Yes, so on the quarter, toy and game POS, if you take the total total, at the top, are both up for the quarter, and again, you see an acceleration in POS, a number of product lines performing well in our POS in the second quarter has performed well across a number of product lines.

We mentioned that in the preschool business as our Transformers business, our Nerf business, our Littlest Pet Shop business, a good broad based increases in POS in the quarter.

I guess another way to ask it, are you seeing an acceleration in POS throughout the quarter running at a faster rate than your retail, than in your channel inventory?

Just looking at that spread between the growth.

Well, you are clearly seeing in certain categories you're going to clearly see that it will be selling through inventories but what of course we also have plans more significant plans in Q3 and Q4 for shipments, so it's a bit of gap where POS is growing ahead of the fall initiatives and yet we'll be shipping a lot of fall innovation around the world, so I wouldn't read that as a long term, but certainly in the short-term you are seeing the sell down in some inventories as POS is higher than shipments.

Okay.

Okay.

And then in, as it relates to the licensing on Transformers 2 versus the toy products, your out-licensing so to speak, what percent was that back in '07 licensing versus the toys and what are you expecting it now, higher or lower percent or do you want to give some specific numbers that would be great also.

Yes, I think back in a meeting or two ago, David had mentioned a number of the 480 or 440 or thereabouts was toy and the remainder was royalties associated with a number of different categories including digital gaming, so I'm not going to try to go forward but we've mentioned that prior so just to remind you that was what we had said for the 2007 results.

Okay, and would you anticipate higher, lower, just on a relative basis?

I would tell you that the video game is performing, the license products are performing, the toys are performing so I don't have any way or I'm not going to try to guess at what the percentages might look like at the end of this year, but certainly feel very good about the overall Transformers enterprise.

Okay.

And then you had talked about in your initial comments other TV viewing sites.

Can you elaborate on that a little bit and then finally, again, the way trends are going right now and I know you commented on this for '09 including the dilution, but any early thoughts about whether you can have up revenue or EPS in '10?

So let me go back to the TV question.

Obviously our strategy is to provide the consumer an opportunity to enjoy our brands in any form or format they want anywhere and at any time so in order to do that, the television strategy always presuppose that as we were making this content we would make it available in all of the formats that consumers are interested and certainly consumers are now time shifting and are watching different forms of television online, on mobile devices, what have you.

Now they may not all be the same long term episodes, 22 minute or 55 minute episodes but they are certainly watching TV in different forms and formats.

We would want to make sure that our branded content sits alongside of other branded content on a lot of the sites where people are going these days to watch content, so in addition to our own new website that we're working on now for the network, which will reside at Hasbro.com, we would also make sure that bites of our content and whatever format would be the prevailing format at the time would be available for users, viewers to see and also we're going to be distributing our content globally because again, our content goes to the network domestically but will go to any number of networks or terrestrial broadcasters around the world as we distribute that and receive revenues for the distribution of those episodes around the world.

Okay, that's what I thought you meant.

Yes, that's what I'm talking about there.

Okay.

And then on the '10 question?

Well, I think at this point, what we've tried to do is give you a real sense because I know so many people are beginning to think about all of the different initiatives that folks have for 2010, to give you a sense for what we have for 2010 and I think there were a number of initiatives in '10 that people may have been missing a bit, and not understanding that we do have two major motion picture associated product lines and that a number of TV series for the brand between Marvel and Lucas and our own, and so again, we feel very good about our long term prospects.

We haven't changed our long term guidance, but I'm not going to comment today on our 2010 guidance.

I think we've given you good clarity and additional clarity for 2009 and when we get together at our analyst day perhaps we'll have more clarity for 2010.

The direction seems positive though.

We clearly feel like our brands are performing, I want to, again, we feel like our brands are performing, our teams have done an incredible job around the world.

We continue to put innovation into our product line so we feel very good about our long term prospects for growth and we'll talk with more specificity about 2010 when we get together later this fall.

I think also, there's a danger if people focus on one or two initiatives and I think after '03 when (inaudible) did very well, people were concerned that we wouldn't grow our business or we would fall off a cliff in '04 and after Star Wars did very well in '05 people thought we would be down in '06 and we weren't and after Transformers I and Spiderman 3 in '07 people clearly thought we would be down in '08 and we weren't so I think people have to understand that our business is much broader than just the entertainment initiatives.

We've been growing our girls business, we've been growing our preschool business and we're expanding geographically and we're growing our income from people sources like EA and other licensees so I think people shouldn't just focus on the entertainment area.

Okay.

Thank you gentlemen.

Thanks very much.

At this time, I'll turn the conference back over to Mr.

Karen Warren.

Thank you.

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

Our recall of the call will be available on our website in approximately two hours.

Thanks so much.