孩之寶 (HAS) 2013 Q3 法說會逐字稿

Good morning, and welcome to the Hasbro third-quarter 2013 earnings conference call.

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

A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

Today's conference is being recorded.

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

At this time, I'd like to turn the conference over to Ms. Debbie Hancock, Vice President of Investor Relations.

Please go ahead.

Thank you, and good morning, everyone.

Our third-quarter earnings release was issued this morning, and is available on our website.

Additionally, presentation slides containing information covered in today's earnings release and call are also available on our site.

The press release and presentation include information regarding non-GAAP financial measures included in today's call.

Please note that whenever we discuss earnings per share or EPS, we are referring to earnings per diluted share.

This morning, Brian Goldner, Hasbro's President and Chief Executive Officer, and Deb Thomas, Hasbro's Chief Financial Officer, will review our financial results, and discuss important factors impacting our performance.

Following their prepared remarks, Brian and Deb will be happy to take your questions.

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

These forward-looking statements may include comments concerning our product and entertainment plans, anticipated product performance, business opportunities, plans and strategies, costs and cost savings initiatives, financial goals and expectations for our future financial performance.

There are many factors that could cause actual results or events 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, our most recent 10-Q, in today's press release, and in our other public disclosures.

You should review these factors together with any forward-looking statements made on today's call.

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

With that said, now I would like to introduce Brian Goldner.

Brian?

Thank you, Debbie.

Good morning, everyone, and thank you for joining us today.

In the third quarter, we grew revenues, operating profit, and earnings per share.

Year-to-date, revenues are flat, but we've grown our operating profit and earnings per share, excluding charges.

We are entering the critical fourth quarter with innovative products, a full array of immersive brand experiences, and comprehensive marketing programs with our retail partners and for our consumers globally.

We have developed the capabilities and are executing our branded play blueprint to create shareholder value and to deliver growth in shareholder returns over the long term.

Our focus on innovation is driving our brands.

Many of our new initiatives are performing well.

Nerf Rebelle, My Little Pony Equestria Girls, Telepods, Furby, and Big Hugs Elmo are all off to a great start.

In total, our franchise brands grew 19% in the third quarter, with gains in My Little Pony, Magic - The Gathering, Nerf, Transformers and Play-Doh.

Geographically, our emerging markets continued to post double-digit revenue growth, increasing 22% in the quarter, with very strong gains in many countries, including Russia, Brazil and China.

Over the past several years, we've made significant investments in our global infrastructure, and Hasbro is delivering above average growth in the emerging markets.

In addition, revenues grew in several developed markets, including France, Spain, Italy, Germany and Mexico.

In total, Europe, Latin America, and Asia Pacific all posted revenue gains in the third quarter.

Our US and Canada segment revenues were down in the quarter, given the continued difficult comparisons with 2012 revenues for the boys category, which included two very strong Marvel Entertainment initiatives, The Avengers and The Amazing Spiderman, and higher sales of Beyblade.

Consistent with this trend, year-to-date POS was down overall in the US, driven by challenging boys comparisons, but POS grew in the girls, games and preschool categories.

Our top line revenue performance in the quarter was achieved against the backdrop of uncertainty among consumers and retailers in developed economies, which we expect to continue into the fourth quarter.

Retailers remain focused on tighter inventory management.

Over the past two years we've made significant improvements in our execution and inventory management in the US, and Hasbro inventory at our top four US retailers declined in the quarter.

This improved discipline, coupled with strong alignment with our retailers, is helping us to better manage our business in the important holiday season.

The US team has done great work in developing and implementing a new strategic direction for our US business.

Backed by the innovation in our brands across categories, and the entertainment coming in future years, we believe the US is poised for future growth.

On a category basis, overall for Hasbro, the boys category declined in the quarter given the difficult comparisons I mentioned earlier.

However, new innovations in key franchise and partners brands delivered growth in both Transformers and Star Wars products in the quarter.

Moving to girls, our brand initiatives continued to drive positive momentum in the third quarter, delivering girls category revenue growth of 29%.

The global rollout of Furby, continued growth in My Little Pony, and the successful launch of My Little Pony Equestria Girls, Nerf Rebelle, and growth in Easy Bake all contributed to the category's fifth consecutive quarter of growth.

Built from in-depth global consumer insights, immersive content and innovation, we are successfully expanding our girls brands globally.

My Little Pony Equestria Girls was developed from the core values and insights behind the global success of My Little Pony.

We launched this entertainment in theatres in the US, and it's now available across all screens globally, with strong viewership.

My Little Pony Equestria Girls products launched in major markets in August, and have been selling extremely well, with additional markets still to launch.

Also extending a growth streak, the Games category posted its fourth straight quarter of revenue growth, and increased 6% in the quarter.

Magic - The Gathering again delivered strong gains year-over-year, and several other gaming initiatives including Jenga, Elefun & Friends, and the launch of the all new Telepods gaming platform, featuring Angry Birds - Star Wars positively contributed to the third quarter 6% increase.

Additionally, Monopoly and Monopoly Empire continued to sell well.

Monopoly revenues were flat in the quarter, but have grown year-to-date.

The third quarter was also the first quarter of contribution from Backflip studios, in which we acquired a 70% ownership position in July of this year.

Backflip provided a small contribution to the Games category revenues in the quarter, and was slightly dilutive to Hasbro's overall earnings for the third quarter.

The Studio has a number of new game launches slated for the fourth quarter of 2013 and the first quarter of 2014.

Given the anticipated timing of revenues, and the associated Product Development cost, we anticipate Backflip to be neutral to our financials for the full year 2013.

Within preschool, revenues declined slightly in the quarter, but grew across the brand initiatives where we are focusing our greatest efforts.

Play-Doh revenues were up in the quarter, as were Transformers Rescue Bots within the Playskool Heroes line.

Additionally, as I mentioned earlier, Big Hugs Elmo is off to a strong start, and we are very pleased with the early consumer reaction to this highly interactive and engaging Elmo.

This great play experience has Big Hugs Elmo on nearly every hot toy list for the holidays.

Growth in these brands partially offset lower revenues in other Preschool initiatives, where we are creating new business models to develop and profitably grow our brands.

For example, we made the decision to license the Tonka brand to a partner, who can develop the products and positively support the brand over the long term.

Our Tonka revenue is now higher margin royalty revenue, but on a year-over-year basis, is lower dollars.

I spoke earlier about the difficult entertainment comparisons within boys.

As we look ahead, the next several years have unprecedented levels of entertainment from Hasbro and our partners' brands, both in film and in television.

In 2014, Transformers - Age of Extinction is slated for release on June 27th.

Marvel has several films planned for 2014, including Captain America - the Winter Soldier, The Amazing Spiderman II, and an all-new franchise, Guardians of the Galaxy.

In addition, Lucas Film is unveiling all new Star Wars Rebels television programming in 2014.

In 2015, Star Wars Episode VII is scheduled for release, as is Marvels' The Avengers - Age of Ultron.

From Hasbro, we continue to believe Stretch Armstrong is a tremendous property, and we are developing the brand for television and film in future years.

Additionally, the third GI Joe film is being developed with Paramount and Director Jon Chu.

In television, our global programming through Hasbro Studios, in combination with our partners' global television efforts is reaching viewers around the world, and establishing great characters and stories for brand development.

Since inception, Hasbro Studios has greenlit more than 900 half hours of original production behind Hasbro brands, including My Little Pony, Transformers, and Littlest Pet Shop.

As evidenced by the success of My Little Pony Equestria Girls in theatres, on television, via home entertainment and streaming platforms, activating our content across all screens is a critical component to our content strategy.

Our goal is to maximize the engagement between our branded entertainment initiatives and our audience, wherever they are consuming content.

In the US, The Hub Network continues to deliver year-to-year growth, most recently posting its eighth consecutive quarter of ratings growth in total day, while remaining the most co-viewed children's cable network in percentage terms.

In closing, we continue to execute our branded play strategy across our brand blueprint globally.

We are doing so with a heightened focus on our greatest opportunities, while leveraging the global resources in which we've invested, to drive profitable growth across toys and games, licensing, digital gaming and immersive entertainment.

We have finished three quarters of the year, and the critical fourth quarter is just getting started.

We have tremendous new innovation and brands in the marketplace this holiday season, supported by integrated retail and promotional campaigns globally.

Our teams are focused on superior execution and consumer engagement, to deliver a successful holiday season in what continues to be a challenging economic environment in many developed economies.

With that, I'd like to turn the call over to Deb.

Deb?

Good morning, everyone.

Through the first three quarters of the year, we continued to drive our business globally across the brand blueprint, while improving profitability, maintaining a strong balance sheet, and strategically deploying cash both into our business and returning it to shareholders.

In the third quarter, revenues grew 2%, led by continued strong growth in our emerging markets and overall growth in the International segment.

Excluding charges, operating profit increased 4% in the quarter and year-to-date.

Our balance sheet is strong and we continue to generate healthy cash flow, and we've taken and continued to take costs out of our business as our cost savings initiative and savings targets remain on track to deliver $100 million in savings by 2015.

In the quarter, we recorded additional charges of $4.1 million or $0.03 per share, associated with our cost savings initiatives.

Pretax restructuring charges in the quarter were $3 million, and partial pension settlement charges were $1.1 million.

Our expectation for gross savings in 2013 continues to be $45 million to $48 million, with associated expected net savings of $13 million to $15 million for the full year, prior to pension charges.

The following review excludes pension and restructuring charges.

A full break down of these charges by segment and by line item on the income statement was included in today's earnings release and slide presentation.

Looking at our segment results for the quarter, the US and Canada segment revenues and operating profit both declined 5%.

Revenues in the girls category increased, and the games category was flat, partially offsetting declines in the boys and preschool category revenues in the segment.

As Brian discussed, the boys category was the biggest factor driving year-over-year revenue declines.

Additionally, inventory levels at our top four retailers were also down in the US, as retail partners continue to focus on tightly managing inventory.

The US and Canada segment reported a 5% decline in operating profit, but a slight increase in operating profit margin to 20% versus 19.9% last year.

On a year-to-date basis, revenues in this segment are down 3%, but operating profit has increased 6% to 16.6% of revenues, from 15.4% in 2012.

The margin improvement is primarily due to the favorable mix of revenues, including continued growth in Magic - The Gathering, which we are also investing in for the long term growth of the business.

In the International segment, revenues increased 11% in the quarter.

Foreign exchange had a favorable $5 million or 1% impact on the quarter.

Emerging markets continued to post double digit growth, increasing 22% in the quarter and all three International regions were up, with Europe growing 9%, Latin America increasing 14%, and Asia Pacific up 17%.

Internationally, the girls, games and preschool categories posted year-over-year revenue growth.

International segment operating profit margin increased to 18.1%, compared to 16.3% in 2012.

As we discussed last quarter, overheads in this segment are generally incurred ratably throughout the year, and we gain leverage in the expense on the higher revenue base later in the year.

This expense leverage is the primary driver of the year-over-year gains.

The Entertainment and Licensing segment net revenues also grew in the quarter, increasing 13% behind growth in the entertainment revenues, as well as the addition of Backflip to the segment this quarter.

Operating profit in the Entertainment and Licensing segment declined, primarily from the addition of Backflip expenses to the segment.

Additionally, pro am production amortization, increased in the third quarter of 2013 versus last year, given the mix of programs delivered in the quarter.

Looking at our overall expenses, cost of sales as a percentage of revenue declined in the quarter, benefiting primarily from product mix, and to a lesser extent, lower costs and improved efficiencies at our manufacturing facilities.

Additionally, royalties declined on lower revenue from entertainment-based properties.

While we've begun to achieve some of our cost savings, we do have other factors which impacted our expense levels.

Product development grew year-over-year in dollars and as a percentage of revenues.

First, the addition of Backflip added to product development expenses in the quarter.

Second, as we shared with you in September, we're making incremental investments in our Magic -The Gathering brand.

Finally, we wrote off early film development expenses associated with films which have not yet moved to production.

As Brian mentioned, we continue to develop several film properties.

Intangible amortization also increased slightly in the quarter, due to Backflip.

In the third quarter, there was an incremental $1.6 million of expense, and based on our preliminary valuation, we anticipate this amortization to be $6 million to $7 million in the fourth quarter.

We are in the final stages of the evaluation process, but we anticipate amortizing approximately $35 million to $40 million over a four year time period, based on the related revenues.

Finally, SG&A increased in the quarter, consistent with the factors we outlined previously, including higher compensation expense, higher depreciation, and investments we're making in our Magic - The Gathering brand.

Turning to our quarterly results below operating profit for the third quarter, total non-operating expense decreased slightly from 2012.

For the third-quarter 2013, our 50% share in The Hub Network was a loss of $91,000, compared to a loss of $1.8 million a year ago.

As we stated last quarter, we expect the contribution from The Hub Network in 2013 to be similar to 2012, and the Hub Network has a plan to achieve pre-tax profitability in 2014.

In the quarter, we recorded a favorable tax adjustment of $23.6 million, or $0.18 per share, related to the settlement of a tax exam.

Excluding this adjustment, our underlying tax rate for the third quarter 2013 was 26.5%, compared to an underlying tax rate of 26.6% in the third quarter of 2012, and 27% for the full year 2012.

We expect our underlying tax rate for the full year 2013 to be approximately 26.5% to 27%.

For the quarter, average diluted shares were 131.8 million shares, compared to 132.5 million shares last year.

Diluted earnings per share, absent charges in the favorable tax adjustment, were $1.31, versus $1.24 in 2012.

Hasbro also continues to generate strong cash flow.

Operating cash flow was $47.3 million in the quarter, and $438.5 million for the trailing 12 months.

This includes $165 million in prepaid royalties to Disney over the trailing 12-month period.

At quarter end, cash totaled $588.7 million, versus $696.7 million in 2012.

During the third quarter, we paid $112 million for our investment in Backflip Studios.

We remain committed to strategically investing in our business and returning excess cash to our shareholders through our dividend and buyback programs.

Our next quarterly dividend payment of $0.40 per share is scheduled for November 15th.

During the third quarter 2013, we repurchased approximately 644,000 shares of common stock at a total cost of $30 million, and an average price of $46.62 per share.

At quarter end, the Company had repurchased a total of 1.93 million shares of common stock year-to-date.

In August, our Board of Directors authorized the Company to repurchase an additional $500 million of our common stock.

$542 million remained available for current share repurchase authorizations at quarter end.

Receivables at quarter end increased 2%, in line with growth in revenues, and DSOs were flat with last year at 80 days.

Inventories declined $16.3 million versus last year, driven by declines in the US and Canada segment.

This was partially offset by inventory increases in emerging markets, supporting the growing business in those regions.

As we mentioned earlier, our inventory at US retail is down in the quarter, and overall at retail and at Hasbro, inventories of good quality.

With the critical fourth quarter under way, Hasbro is well-positioned with innovative brand initiatives, compelling global marketing campaigns, disciplined execution, and a strong financial position.

Brian and I would now be happy to take your questions.

(Operator Instructions)

Our first question is from the line of Stephanie Wissink of Piper Jaffrey.

Please proceed with your question.

Congratulations on a nice quarter.

Deb, a question for you -- just to step back and talk a little bit about the margin structure of the Business.

As we look out into 2014, given that you have a heavier slate of partner brands, can you just help us understand the dynamics between maybe growth and operating margin?

Thank you.

Certainly.

You know, as we stated in the past, Steph, we get a higher gross margin, which we define as just net sales less cost of sales, as we look at it, when we're in a heavily entertainment-driven year.

With that, we also have a slightly higher royalty expense.

All that being said, we said earlier this year -- we expect to have margins this year similar to last year, on the gross margin standpoint.

So, net with the higher royalty expense next year and a higher gross margin next year, we expect to have operating profit margins in similar ranges.

In addition, Stephanie, if you look at the long term, over 2014, 2015 and beyond, obviously as we grow our entertainment and licensing business, that's categories of our Company that have high gross margins and high operating profit margin.

And of course, as we continue to grow our international business, and particularly our emerging-market business where we've made many investments, as we drive more revenues in those areas, we are able to spread the cost over far more revenue and driving up the operating profit over time.

Thank you, that's very helpful.

Best of luck for a great holiday.

Thank you.

Our next question is from the line of Jaime Katz of Morningstar.

Please proceed with your question.

Can you talk a little bit more about the games category, and how you feel you've been making progress, and where you think that could go over the next year or two?

Well, we are adding a lot of new initiatives to games.

We're very happy with several of the new initiatives that have launched in the second and third quarter this year, and continue to launch in the fourth quarter.

As you know, games are back-half and certainly fourth-quarter oriented.

The early launch of Telepods and that platform is quite strong, and we feel very good about the continued focus on Monopoly.

We have great new innovation across a number of consumer categories, including our girls' games business.

We've also done, and made some great strides in innovating around price points, and ensuring that we have classic games out at great price points that allow for very strong consumption around the holiday periods, as well.

And of course, we're also getting great growth from Magic - The Gathering, and continue to invest in the online component.

We've talked about marrying up the digital and analog experiences across brands.

You're seeing that in Magic; you're seeing that in Telepods.

And you're also seeing it across brands as classic as Monopoly and others, where you're getting both the online, smartphone, mobile opportunities to game, as well as playing face to face on a board game, or off-the-board games.

So, I think our team is really focused on looking at innovation across all of the different play spaces, and we feel very good about our long-term prospects in the game business.

Okay, and then, can you just comment on Latin America?

I know your competitor had a little bit slower growth than you had there.

Was there something in particular that you saw was really moving down there, or resonating with consumers?

Our team down there is doing a tremendous job, both across South America, as well as in Mexico.

We're seeing good gains in POS where we have the data.

We're seeing good gains in our own proprietary data around sell-in and sell-through.

Our brands are resonating down there -- lots of innovative promotion.

We also have our programming on the air throughout the region in several markets -- My Little Pony, Transformers, Rescue Bots, and Transformers Prime.

So, we are delivering the full blueprint to those regions, and the results are speaking for themselves.

Thank you.

Thank you.

Our next question comes from the line of Tim Conder with Wells Fargo.

Please proceed with your question.

A couple questions.

First of all, congratulations on another quarter of good execution.

On the POS, Brian, you're alluding to it here, but any additional color that you can give in the international markets?

I know, again, the data is not the best, like you have in Western Europe and North America, but any additional colors by geography?

And then, Brian or Deb, whoever wants to comment on it -- your channel inventories are down in the US, you said, and especially through big four retailers.

Can you give us a little bit of direction?

How much your POS was down, and are your channel inventories a little bit more or less in line with that?

Let me start with some of the markets around the world.

We're seeing very strong growth, as you know.

22% growth in emerging markets; that includes very strong growth, at that trend or above, in places like Russia, as well as in China and Brazil.

We're seeing very good growth in France, in Germany, Iberia, Norway, Italy, a number of European territories, as well as in Turkey.

So, we're getting very good growth in a number of places, and obviously our brands are taking hold in the third and the fourth quarter as we get into the holidays.

As we look at POS, really, Tim, it's a focus on the decline in boys.

We're seeing increases in games, girls and preschool year to date.

And again, I think that where we have that data -- we're particularly focused on giving you data from the US, where we have that data.

Our inventories in the US are down mid-teens overall in the US; inventory has grown in concert with growth that you're seeing in revenues.

So, our inventories are lined up very well around the world.

More inventory in Latin America and Asia Pacific to support the growth in those businesses, more inventory in Russia and Brazil and China versus a year ago, again, to support the growth in those businesses.

And the US business, appropriately, inventories are down.

We have a really good quality of inventory, with lots of our new initiatives shipping late in the third quarter and into this fourth quarter.

So, Brian, you said inventories in the US is down 15%, collectively?

We just -- mid-teens.

Oh, okay, and your comment on your POS there?

Yes, the comment on the POS is -- if you look at year to date, games, girls, and preschool, POS is up.

Boys is down, and that's really what's driving our overall POS decline.

Great, okay.

Thank you very much.

Thank you.

Our next question is from the line of Mike Swartz with SunTrust.

Please proceed with your question.

Just wanted to touch on gross margin; that came in much better than I think many had anticipated.

I just wanted to walk through that.

What were the major drivers?

Could you maybe give us some more qualitative commentary around that?

Well, certainly.

As we mentioned, we have planned to have gross margins similar to last year.

We talked about, at the end of 2012, we expected to be able to maintain gross margins, certainly at the level that they were at.

So, what you're seeing is actually a balance of pricing that we've taken on carryover goods, offsetting any increase in costs that we've occurred on those carryover goods.

Sufficient pricing on our new product, as well as getting the efficiencies of changing our US business structure to give less incentive to retailers to take goods early, and putting that more on the marketing and advertising line to our consumers.

But you're also seeing efficiencies coming from our manufacturing business.

So, as we started our cost-savings initiative, we said we would start to realize some of the benefits this year, but we wouldn't realize 100% of our $100-million cost savings until 2015.

But we're starting to see some of those manufacturing efficiencies come through in line, and you're starting to see some of the increased benefit of the growth in our Magic - The Gathering business, which is a higher margin business as well.

Great, thanks.

I guess just of the -- to maybe put it in easy terms, the 200-basis-point expansion year over year, was half of it kind of mix and the rest was kind of efficiencies and pricing?

Is that the way to look at it, or is there any way you can --?

I would say certainly less of it is pricing, more of it is mix.

And to a lesser extent, you're starting to see the efficiencies come through.

As we continue to pare back the number of SKUs, but focusing on the SKUs that matter the most, the franchise brands being up very strong in the teens, more of our business coming from our top 10 and top 15 brands, albeit with lots of new innovation and lots of SKUs and R&D around those brands, it allows us to focus in.

But also to reduce SKUs overall by focusing less on those tertiary SKUs we used to and, therefore, getting efficiencies in development, as well as manufacturing.

Okay, great.

Thanks for the color.

Our next question comes from the line of Sean McGowan with Needham.

Please proceed with your question.

A couple of questions related to product, if I can.

In preschool, I think with Elmo so strong, I was a little surprised to see that not doing better.

And you did flag the Tonka outsourcing.

Is there anything else that's declining in preschool that would account for that?

Actually, Sean, it's a good question.

If you were to take out the Tonka decline or the transfer of Tonka from being our brand with revenues to royalty income, preschool would have been up in the quarter.

Oh, that's very helpful.

Okay --

So, I think that that's a very simple way to look at it.

And that's particularly focused -- as you look at preschool, business has continued to perform well globally, obviously Tonka is a little more oriented towards the US historically and, therefore, has a bit more impact on the US and Canada segment than our overall business.

And when did Funrise take over the bigger Tonka stuff?

Well, there's a deal that was memorialized, I want to say, maybe around a year ago, but obviously takes several quarters to transition.

I think you're seeing this quarter really the first major impact as you get into the holidays, between royalty income versus revenue.

Okay, thanks.

And how much was Magic up in the quarter, year over year?

You've been talking -- well, the last several quarters, you've talked about it being up over 20% or 25%?

It's up over 30%.

Over 30%.

Okay, thanks.

And what's driving -- can you be more specific on what's driving that entertainment and licensing revenue in the quarter?

You continue to get obviously licensing income.

You're getting payments for entertainment as we place those shows around the world.

We have a bit of a contribution from Backflip in that category this quarter, for the first time.

Obviously, the cost of Backflip is a bit dilutive to the operating return, which you see is why, in part, the operating profit in that category declined in the quarter.

But overall, we are -- the long-term trend there is to grow entertainment and licensing through all of the different income streams that we have there, which include licensing income, digital gaming income, Backflip, and then the television, and as well as our film participation.

And remind us -- a couple housekeeping kind of things.

Remind us -- is that Backflip going to stay in the E&L category for the foreseeable future?

It's games, but --?

It will.

It will be counted in entertainment and licensing.

It will be in the entertainment and licensing segment, but you're correct, Sean, that the revenue will be in the games category.

Okay.

And then, just to clarify, you did say that Transformers and Star Wars revenue were up in the quarter?

Yes, Transformers was up very nicely in the quarter -- obviously very focused on our business around television support.

And the initiatives around TV have really done what we said they would do, which is to drive our business.

We also have a great Generations product that serves our collector audience.

But we are seeing the impact of TV, and TV support, globally -- content streamed for not only Transformers but also for, of course, My Little Pony and My Little Pony Equestria Girls.

So, again, really working for us.

And then in Star Wars, that has mostly to do with some really innovative products the team put together that -- particularly something like The Black Series, which I don't know if you've seen or are familiar with, but really serving our collector and fan base, and they've responded very strongly to those products.

Okay, thank you very much.

Our next question is coming from the line of Drew Crum with Stifel.

Please proceed with your question.

Brian, a couple questions on Magic - The Gathering.

Can you remind us what the retail strategy is here -- give us an update?

We're starting to see more product at the majors.

And remind us again what the seasonal nature of Magic is.

I think you mentioned earlier that games are very heavy in the fourth quarter.

Is the same true for Magic?

So, start with the quarters.

Magic is much more release-driven, so it's much more like immersive games in other categories.

If the team is introduced in new release, meaning a new array of cards around a new theme, and additional characters or spells, that really is what drives the brand.

The brand tends to be more flat by quarter.

Obviously, based on the success of a new release -- the team is just launching a release called Theros, and obviously off to a very good start relative to Ravnica, which was a year ago.

And that's the kind of thing that drives that business much more so than seasonality.

As the brand expands, you will see more of the brand at mass retail, but still, the vast preponderance of the brand is still where we don't count POS and we don't have NPD data.

Because, again, the hobby shop -- census of hobby shops and hobby-shop playing has increased as well during this period.

So, effectively, we're still roughly 80% of the business, not counted within any of our data, albeit on an expanding pie.

Got it, okay.

Very helpful.

And Brian, just want to go back to -- Tim asked a question on point of sale, and I think you suggested that games, girls, and preschool were up, year to date -- boys down year to date.

Is the same true in the quarter, and are you willing to quantify what that was in the quarter?

Yes, so, girls and preschool were up in the quarter, games was flat -- actually up very slightly in the quarter, and girls and preschool were up, boys was down, consistent with year to date.

And again, I think that what we're seeing is that's, for games particularly, non-magic games.

We know that they are more fourth-quarter loaded, and we can see the early takeaway for our new games initiatives.

We also had a new launch of Monopoly that happened a bit earlier, with Monopoly Empire happening early on.

So, again, I think for games in terms of POS, it's a matter of that typical timing, where you have new initiatives shipping in and POS that's in arrears.

But overall, what we're seeing is very heartening in our games, girls, and preschool business.

Okay.

One last question.

Deb, can you remind us what was paid in the third quarter in terms of royalties, and what remains in 2013 as far as what you're paying to Disney?

Well, we've paid all that we're going to pay so far this year.

And let me just pull that number out, Drew, and let you know what that one is.

Is the $25-million payment to the Hub -- does that flow in the fourth quarter, or has that already been paid?

That payment is scheduled in November.

Got it, okay.

So, over the trailing 12 months, we've paid $165 million to Disney, but that does include some of the payments that were scheduled for the -- under the older contract, existing for the release of Iron Man and Wolverine.

Okay, thanks.

The next question is coming from the line of Greg Badishkanian with Citigroup.

Please proceed with your question.

Great, thanks.

When you talk to your retail customers across the globe, are there other differences in terms of how they are approaching the holiday so far, in terms of the US versus international?

Well, I think the approach the retailers are taking to holiday has everything to do with the consumer perceptions of the market, consumer incomes, disposable income, economic growth.

And of course, the introduction of a lot of our new brands and new initiatives to markets also has a bearing.

So, I would say, consumer sentiment is somewhat in line with our results, in that, obviously in emerging markets, the emergence of the middle-class people enjoying brands, people enjoying brands now across multiple platforms.

And the fact that Hasbro is delivering our brands across all our different platforms, consistent with the blueprint strategy, is really working for us.

And then by region, we're seeing enthusiasm in Latin America, in major areas of Europe, particularly in Russia and Turkey and Eastern Europe, as well as in Asia Pacific.

The two toughest areas around the world, I would say, from a consumer-sentiment standpoint, continue to be Australia and the US, and we've worked through that with great new innovative product.

It's why we're seeing great growth in several of our categories, and great consumer takeaway and enthusiasm for several of our categories.

But we've also recognized that we are operating in a more challenging environment, and particularly in those two areas.

So, do you think inventory levels being down mid-teens is being appropriately positioned into the holiday in the US, or do you think that you're a little bit on the lower side?

And if you are, would you like to go into next year with a much lower inventory level, which will help your gross margins?

You need to discount less, promotions less, in first half of 2014, and it helps your sell-in as well?

If you look at the US business, this has really been a long-term strategy that we've activated.

And I won't go back through every detail, but we all know that we've -- and the team has adopted a great new strategy that was about more just-in-time inventory, reducing overall inventory levels, following those brands that we're selling the best, working with our retail partners to get more promotion and more impact at retail for the brands that mattered the most.

We're seeing that being borne out in the inventory levels declining on average over time.

We feel very strongly that we have the right inventory now going into the market, in the third and fourth quarter.

We have a lot of new initiatives that have begun to ship that we've highlighted, but also some additional new games that come in into the fourth quarter.

So, we feel very good that we have the opportunity to have a great holiday season, recognizing that the backdrop is a more challenging consumer environment.

But Hasbro will get more than its fair share of the holiday season because we have the innovation, the content, and the strategy that is resonating with consumers.

Great.

Thanks for the color.

Thank you.

Our next question is coming from the line of Michael Kelter with Goldman Sachs.

Please proceed with your question.

This is Ivan sitting in for Michael.

I was hoping that, given solid results in girls and international, you could give us a little bit of color on the order of magnitude that came from Furby?

Well, Furby is one of the drivers of the increase in our business year on year, as is My Little Pony, the Pony business itself -- call it the core Pony business.

The introduction of My Little Pony Equestria Girls is obviously contributing to our business.

Easy Bake has seen very strong gains year on year with the new Easy Bake Oven, as well as the black and silver Easy Bake Oven for Everyone.

So, we're seeing great growth and strength across our girls business -- across a number of known and new initiatives, and certainly that's all been helpful.

The other major launch there has been, of course, in the Nerf Rebelle line.

It's been very, very positive, and off to a very strong start.

So, those all contribute to the quarter's results.

Great, thank you.

With regards to Wizards, it seems that the growth continues at a strong clip, 30%-plus, but can you give us a little bit of color around visibility going into 2014?

What are the drivers here that specifically could help maintain that momentum into the year?

Well, a couple things that we've done throughout this year, and we have talked about it, we continue to invest to build the capability of Magic Online, and that's really about allowing for more simultaneous play experience.

As you know, we allow -- give players the opportunity to play at great distance from one another, and play in that virtual online space.

We want to be able to host more gaming sessions, and that's what the team is working on, to expand the ability to host more simultaneous gaming sessions.

That allows for people who have been more latent or lapsed users to get back into the brand.

And then, of course, the team is also working on the analog business globally, which allows for lots of play sessions face to face in peoples' hometowns around the world at hobby shops, tournaments that allow people to play more competitively.

So, there's an array of really hands-on, as well as virtual experiences, that we're developing for that brand.

In many ways, Magic was the early indication for us -- how we're going to execute our games business go forward, and allowing people to play Magic in any form or format they want, any time and anywhere, and we're really delivering that.

So, I think as you go into 2014, the ability to expand the simultaneous gaming sessions, plus the continuation of great gaming releases and other elements within the blueprint are all beneficial to that brand over time.

And we've seen that brand more than double in size over the last few years, and we feel the team still has great growth in its sights.

Great, thank you.

And maybe, Deb, one quick question on the cost side of things.

It looks like SG&A is still running at a high single-digit type of number despite all of the cost cutting and the layoffs earlier in the year.

We understand that the targets are $100 million for 2015, maybe closer to $50 million on a net basis.

But given these investments, is there maybe potential for a year where SG&A will be flat or down, or should we continue to expect it to grow at this pace?

Thank you.

Well, as we said, we always expected to have some level of inflation within those numbers.

And what you're seeing -- and we tried to point out in September, that you're seeing compensation expense increase in that line item, as well as depreciation.

You've got the acquisition of Backflip, so those expenses are going to go in as a dollar amount now.

And our cost savings are also spread throughout the P&L in cost of sales, product development, advertising area, as well as SD&A.

So, while we expect to, and are still on target to, hit our $100 million of cost savings by 2015, they're not all going to come in that line item.

And you do just have some offsetting expenses in that line item as well.

Thank you very much.

Thank you.

Our next question is from the line of Greg Hessler with Bank of America.

Please proceed with your question.

The question was on the balance sheet.

I think you have a note that's maturing in early 2014.

On the last earnings call, you indicated that you were looking at your plans for that.

Do you have any updated plans for that?

Just given the interest rate environment, do you think you'll come to market sooner rather than later to refinance that?

Well, our expectation -- we said on our last earnings call and at our Investor Day, and I'll say again, and you're right -- given the current environment, our expectation is that we'll refinance most, if not all, of that.

So, we are getting closer to that date, as we speak.

And as you think about refinancing that, are you looking at shorter-term debt or longer term?

How should we be thinking about the tenor of that refinancing?

Well, I think it's really a mix of -- as we look at our long-term capital deployment plans, what best fits into that plan.

Okay, thank you.

Thanks.

Our next question is from the line of Felicia Hendrix with Barclays.

Please proceed with your question.

Brian, just to understand a little bit more about the successes that you're seeing internationally, I know that there's not POS data for a lot of the international regions, but for the ones that you do have it, and can you give us some color there?

We've seen, again, great POS gains where we have it in the three categories where we've seen growth, that I'd indicated.

Obviously, the boys' business POS has been down.

Boys' POS is really not down as far internationally as it had been domestically.

And again, the two biggest brands driving the boys comps lower year on year have been two initiatives within Marvel and Beyblade.

Beyblade has had more of an impact, and does have more of an impact year over year on the international markets.

Marvel has had more of an impact year over year in the North American business, the US and Canada segment, just owing to its historical strengths.

And the fact that the international markets had some additional strength in Marvel more recently.

And again, we are seeing good -- very good growth within boys in things like Transformers and in Star Wars, and then across girls, games and preschool.

Okay.

And then, just to kind of move to the next question -- you had said in an earlier question -- I mean, you've given us several types of data, and just given the point-of-sales in girls, games and preschool.

And you said that -- I think in -- you were seeing early takeaways from games, even though the POS is in arrears to the ship-in.

Is that the same as girls and preschool?

Exactly -- same.

Okay, okay, great.

You have new initiatives.

As a good example, Equestria Girls is shipping into the -- in time for the fourth quarter, obviously you're not capturing all of the current POS data; we are not reporting that because it's outside of the quarter.

But obviously it was early days in the third quarter, but more significant in the fourth quarter for the ship-in versus the POS, is one example of many of those new initiatives.

But we're trying to give you some indication that the early days of those shipping -- those products shipping in, the takeaways is very good.

Actually that was a great segue, because my next question was on Equestria Girls, believe it or not.

And you said it seems like the early retail takeaway is positive.

Can you talk a little bit about maybe what your My Little Pony shelf space looks like, and if you think you're winning some share from other competing areas?

Well, I think, as you look overall at retail, what we're really seeing is that our retail shelf space is expanding behind several categories for the Company, both in aisle as well as out of aisle and promotional space.

So, for girls in Furby, Nerf Rebelle, My Little Pony -- in preschool with Play-Doh and Transformers Rescue Bots, obviously across Sesame Street, and across games.

I think our shelf space has expanded very commensurate with the new initiatives that we partnered with retailers to present to consumers.

That's true globally, in combination with license products for several of those brands, where we have great content and licensees providing products in several categories.

And they're doing that around the world as well.

And as you would imagine, boys, year on year, is down.

Okay, yes, thank you, very helpful.

Our final question is coming from the line of Gerrick Johnson with BMO Capital Markets.

Please proceed with your question.

First on program production amortization, you talked about it briefly, but can you give us a more detailed explanation why it's going up, and is this something we should expect going forward?

Gerrick, no, it really has to do with what was the programs that were delivered in the quarter.

As we said in the past, when we deliver certain types of programming, it makes the amortization a bit higher.

And we just happened to deliver more -- in particular, game shows this quarter, and that's what was really driving it.

Overall, we still expect our full-year program production amortization to be in line with the cash that we spent on a full-year basis, so that, like, $50 million to $60 million.

Okay, and one more question.

On the brand outsource or out-licensing program, Tonka and Tinkertoy, stuff like that -- can you just tell us what brands are outsourced or licensed now that weren't last year, because it does have a lot of impact on all different metrics like sales, gross margin, inventory, et cetera.

I think that both Lincoln Logs and Tinkertoys were outsourced last year, as well as this year.

The one new brand that's outsourced as of this year, and particularly hits in the third and fourth quarter this year as compared to a year ago, is Tonka.

So, I don't think that there is an exhaustive list.

I think go-forward we may have one or two other brands that we've identified, but they've not yet impacted our revenues.

But it's not an exhaustive list, but a focused, strategic list, where we think we have the right partners.

Okay, great, and maybe one more.

Magic -- one concern out there is the natural cycle of toys -- what goes up, comes back down.

But Magic is played by a different person, different player, slightly older.

Are there differences in how that cyclicality is in toys and games for an older player as compared to a younger one?

Do you have studies on that?

How long do you think we could see a growth trend in Magic perpetuating itself?

Look, I think our team at Wizards of the Coast has done a very good job of continuing to bring great new innovation, characters, and frankly, great storytelling to that brand.

And they've done that across multiple different platforms.

I think they are spending a lot of time listening to the player, listening to that audience.

You're right.

It is not a brand that's really in the toy space.

It's a brand that is played by an older audience, and I think the team has really reflected that in their thought process.

While we've invested in our online capabilities for more simultaneous play sessions globally, and the effort that we're making around the world to bring Magic - The Gathering face-to-face games to consumers in many areas is really just beginning.

And so, I think that it's more about the storytelling, the game play, the richness of the immersive content, which is emblematic of our overall blueprint strategy, and they've led the charge for the last couple of years, and you now see the rest of the games business catching up to what they began.

Great, thank you very much.

Thank you.

I would now like to turn the floor back over to Debbie Hancock for closing comments.

Thank you to everyone for joining the call today.

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

Additionally, management's prepared remarks will be posted on our website following this call.

Thank you, and have a good day.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.