孩之寶 (HAS) 2013 Q4 法說會逐字稿

Greetings.

Good morning and welcome to the Hasbro fourth-quarter and full-year 2013 earnings conference call.

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

Today's conference is being recorded.

If you have any objections, you may disconnect.

At this time, I would like to turn the call over to Ms. Debbie Hancock, Vice President of Investor Relations.

Please go ahead.

Thank you and good morning, everyone.

Our fourth-quarter and full-year 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 such 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.

I would now like to introduce Brian Goldner.

Brian?

Good morning, everyone.

Thank you for joining us today.

2013 represented an important inflection point for our Company as we heightened our focus and execution around our most important global initiatives, our franchise brands and partner brands across the brand blueprint.

Our franchise brands grew double digits globally and grew in both the US and Canada and International segments.

Our girls business reached a record level, topping $1 billion in revenue for the first time.

Our global entertainment strategy delivered more than $400 million in television backed merchandise revenues.

We introduced several new brand initiatives across product categories and demographics that gained strong consumer adoption globally.

We furthered partnerships, including extending our relationship with Disney for the Marvel and Lucasfilm franchises.

We continued to post double-digit growth in our emerging markets and we continued to invest in our business, including investments in our digital capabilities in both digital gaming and Magic: The Gathering, and in Backflip Studios as well as in consumer engagement.

However, as we've previously discussed, 2013 presented difficult comparisons within our boys category given the entertainment calendar in 2013 versus 2012 and continued challenges in developed economies such as the US and Australia.

We also have been actively implementing our cost-saving initiative, which from a strategic perspective focuses us on fewer brand initiatives while we tactically streamline the organization, exit on unprofitable brands, license out select brands and build Hasbro's global team orientation.

It is a time of global transformation and challenge for Hasbro, but we are a stronger company today and in a position of financial strength to continue driving our brand innovation as we enter 2014.

For 2013 we posted revenue of $4.08 billion and, excluding charges, an operating profit margin of 14.6%, both essentially flat with 2012.

Net earnings for the Company, excluding charges and a tax adjustment, were also essentially flat with 2012, and EPS increased slightly.

We incurred a number of restructuring and other charges mostly associated with the transformation I referred to earlier, and Deb will speak to these expenses in more detail shortly.

As a result, we are better positioned today to align our business toward delivering long-term profitable growth.

Importantly, we are seeing positive momentum in the areas of our heightened focus, our franchise brands.

In 2013 franchise brands grew 15%, increasing double digits in the US and Canada and internationally.

Overall six of the seven franchise brands delivered revenue growth in the year, specifically Magic: The Gathering, Monopoly, My Little Pony, Nerf, Play-Doh and Transformers increased versus 2012.

In total, our franchise brands represented 44% of 2013 revenues, up from 38% in 2008.

My Little Pony reached a record revenue level.

Transformers grew in a non-movie year, supported by our successful global television strategy.

Nerf revenues grew in the boys category as well as through the tremendous launch of Nerf Rebelle within the Girls category.

And Magic: The Gathering revenues increased again, supported by our further investments.

The emerging markets, another area of high priority for Hasbro, grew 25% in 2013 to reach $575 million in revenues and represent 14% of total Company revenues.

The emerging market growth contributed to increased revenue in all regions across the International segment, with strong performances from many countries including China, Brazil, Poland and Russia.

Profitability in these markets also increased, growing more than 40% to 10.1% of emerging market revenues versus 8.9% of revenues in 2012.

This improvement is the result of strong top line growth driven by the execution of our brand blueprint, thereby enabling us to begin to leverage our investments in these higher-growth markets.

While operating profit did increase significantly within the emerging markets, operating profit margin still remains below overall Company averages.

As the emerging markets represented a larger percentage of our overall business in 2013, this negatively impacted our overall profit margin for the year despite the growth in operating profit margin within the International segment.

Over time we continue to target double-digit revenue growth in the emerging markets and operating profit margin improvement approaching levels consistent with our Company average, which should contribute to expanded profit margins over time.

The Girls, Games and Preschool categories all grew revenues in 2013.

Girls led all categories with 26% growth in the year and reached $1 billion in revenue for the first time in Hasbro's history.

Considering the girls category as defined today was $300 million in revenue 10 years ago, this milestone is extremely significant.

We have built th girls portfolio of strong brands with global appeal and we are seeing the results of new innovation and insights with six consecutive quarters of growth.

Behind a successful global entertainment, licensing and retail strategy which relaunched the brand in 2010, My Little Pony has grown to represent approximately $650 million at retail across the blueprint.

In 2013 we grew both the core My Little Pony products, as well as successfully launched My Little Pony Equestria Girls.

According to NPD, for the week of Christmas, December 22 through December 28, Hasbro's Equestria Girls was the number one selling fashion-themed doll in the United States, taking the top spot from veteran players in this toy category.

The combination of strong consumer insights, global digital content and engaging storytelling, innovative products and comprehensive retail execution, enabled My Little Pony to post three years of revenue growth, expand its geographic and demographic reach and to be well-positioned entering 2014.

Also contributing to the strong girls performance in 2013, the introduction of Nerf Rebelle offered an entirely new play pattern for girls around the world.

According to NPD, across five markets Nerf Rebelle was the number one new brand in the sports, activities and games category for 2013.

Importantly, our core Nerf business grew overall in both the US and Canada segment, as well as internationally, excluding Nerf Rebelle.

In its second year since relaunch, Furby continued to contribute to the girls category year-over-year gains.

Furby launched in non-English-speaking markets in 2013 and had a very strong performance internationally, with more than 70% of revenues outside the US and Canada.

In its second year Furby was the number one toy in the top five European markets according to NPD.

Leveraging the success of our global television content Littlest Pet Shop, our seventh franchise brand, is poised for relaunch in 2014 with new product and a integrated entertainment, social media and digital campaign.

We hope you can join us this Friday in New York at our annual Toy Fair investor event to hear more about our plans.

The Games category also posted another year of growth, marking two consecutive years of increases.

In 2011 we made the decision to dramatically change our approach to gaming and to invest more heavily in fewer initiatives.

We are now seeing the positive results of this decision.

We have the capability and are committed to providing the growing population of global game players the opportunity to play our tremendous Hasbro game brands and new brands across every gaming format any time and anywhere.

Magic: The Gathering is the premier trading card game, offering integrated digital and analog play and in 2013 again posted strong growth, contributing to the overall category performance.

We continue to invest in Magic: The Gathering to grow this brand globally from a digital and analog perspective.

Digital gaming continues to expand across consumer groups and our digital gaming presence is extensive, with industry-leading partnerships across gaming platforms.

In 2013 we added new resources and talent to Hasbro with the addition of Backflip studios to our gaming portfolio.

In 2014 we'll have a full year of contribution from Backflip.

The Backflip team is focused in three areas: driving their already successful brands, like DragonVale; launching new game brands, like Dwarven Den and several others; and launching games based on Hasbro brands that connect across digital and analog play.

You'll hear more about these efforts at our upcoming investor event at Toy Fair on Friday.

At the core of our Games business are the Hasbro Games brands and new initiatives that constitute the majority of the category.

These brand initiatives had a number of successes, including growth in Monopoly and several of our Games mega brands, such as Elefun and Friends, Jenga and Twister, well as the launch of Telepods featuring Angry Birds and the introduction of our value gaming line.

Excluding both Games franchise brands, Magic: The Gathering and Monopoly, our Games category grew in 2013, reflecting the strength and innovation within the category and the positive results of the investments we have made in Hasbro gaming.

Additionally, our preschool category grew revenues in 2013, with growth in our franchise brands Play-Doh and Transformers Rescue Bots, as well as growth in Sesame Street, highlighted by Big Hugs Elmo.

It's worth noting that 2013 was the largest revenue year for Play-Doh in the brand's history.

As I mentioned earlier, the boys category had difficult comparisons with 2012 and did not grow in 2013.

Despite growth in Nerf in the boys category and in Transformers during a non-movie year, the declines in entertainment backed properties, Beyblade and Marvel, were not offset by growth in our two franchise brands.

Within the boys category we continue to develop innovative, multi-tiered immersive experiences while also leveraging film and television entertainment.

2014 is the first of a robust multi-year entertainment slate for our boys brands.

The fourth feature film in the Transformers franchise, Transformers Age of Extinction, is scheduled for release and will feature all new characters and storylines.

Marvel Studios is releasing two new feature films including Captain America: The Winter Soldier and an all-new franchise in the making, Guardians of the Galaxy.

Sony pictures is releasing The Amazing Spider-Man 2. Finally Lucasfilm is unveiling all new Star Wars Rebels television programming late in 2014.

Therefore, in addition to the momentum and innovation we are creating in our franchise brands, 2014 is just the first year of an unprecedented era of new boys' entertainment, which builds over the next several year period with major theatrical releases scheduled for 2015 and beyond.

In addition to major theatrical films, our global television strategy is delivering content to consumers around the world.

In 2013 we achieved more than $400 million of television backed merchandise revenues fueled by the successful execution of our branded content strategy globally.

Our key series are seen on an average of 180 territories and carried by fully distributed cable networks as well as major broadcast networks and digital platforms in every region.

Hasbro shows continue to be among the highest-rated shows in the majority of markets where they air.

This branded content is helping drive our emerging market success, where Transformers and My Little Pony are consistently top-rated programs in these markets.

In the US, the Hub network had its best ever year in total day ratings.

On January 13 the Hub network refreshed its on-air look and unveiled a new marketing strategy based on making family fun.

Since its launch four years ago, the Hub network has been the most co-viewed children's network in percentage terms versus all kids cable networks.

The Hub network has a plan to achieve pretax profitability in 2014.

In closing, 2013 was a challenging year in many ways.

According to NPD the toy industry declined slightly in several developed markets, including the US, UK and Australia.

Shoppers came later than ever and there were fewer shopping days in the critical holiday season.

Our entertainment comparisons in boys were difficult and we are working aggressively to eliminate activities and areas of our business which do not contribute to our long-term positive top and bottom line.

Despite these factors we had many successes executing our brand blueprint globally.

This includes Hasbro's successfully launching new IP and brand innovations enhancing our global and digital consumer engagement, delivering engaging global content and focusing on profitably growing over the long run.

As a result, we are well-positioned to build on these efforts this year and beyond.

I'd like to now turn the call over to Deb.

Deb?

Thank you, Brian, and good morning, everyone.

In 2013, we took important steps, both strategically and operationally, toward executing our brand blueprint globally while heightening our focus on our franchise brands.

As Brian discussed, this resulted in growth for six of our seven franchise brands, continued double-digit revenue and profit increases in the emerging markets and a solid financial position for Hasbro upon which we will build in 2014 and beyond to deliver long-term profitable growth in our business.

In 2013 our revenues were flat with 2012, as growth in the girls, games and preschool categories offset the $339 million decrease in our Boys category, which came primarily from declines following a strong 2012 entertainment year.

Operating profit -- operating profit margin, net earnings, and earnings per share also remained essentially flat with 2012, excluding charges and the favorable tax adjustment in the year.

Our balance sheet is strong and we ended the year with $682.4 million of cash, and we are strategically investing in the long-term growth of Hasbro while returning cash to our shareholders both in dividends and share repurchases.

Our strategy also meant undertaking a number of operational and tactical decisions which resulted in incremental expenses and charges in the short term.

These steps are enabling us to better execute our strategy, lower our underlying cost base and focus on our more profitable initiatives over the long term.

In summary, in 2013 restructuring expenses were in the anticipated range, which we previously communicated.

For the year they totaled $36.7 million pretax, and related pension charges were also as anticipated at $7 million pretax for the year.

In the fourth quarter we incurred charges associated with the decision to exit certain non-strategic brands which we are no longer focusing on.

Many of these were primarily tied to what we have referred to in the past as the tail of the games business.

This relates to games brands and initiatives we're no longer investing in and frequently are below our profit target.

Additionally, we amended our agreement with Zenga to reflect their change in direction and Hasbro's increased focused on our largest games brands.

Taken together, these actions resulted in an incremental charge of $40.6 million.

Approximately $30 million of these charges were non-cash.

While this has resulted in higher expenses in the fourth quarter 2013, it will help improve our profitability and lower expenses in future periods.

Other costs incurred in 2013 include $61.1 million associated with the settlement of a previously announced adverse arbitration award.

And finally, partially offsetting these charges we had a favorable tax adjustment in 2013 of $23.6 million.

In my discussion of our business I'll exclude these charges and tax adjustments, as well as the $47.2 million in restructuring charges we incurred in 2012, as they do not speak to the underlying performance of Hasbro.

Looking at our segments, in the US and Canada segment full-year revenues were down 5% on a decline in the boys and preschool categories, partially offset by growth in the girls and games categories.

Operating profit dollars declined 2%, while operating profit margin increased to 15.6% versus 15.2% last year, as improvements from product mix and lower advertising were partially offset by higher expense levels primarily due to investments made in our Magic: The Gathering brand.

In the International segment, full-year revenues grew 5% with growth in all regions.

Europe increased 3%, Asia-Pacific 4% and Latin America 12%.

Underlying these strong regional performances was 25% growth in our emerging markets.

Girls, games and preschool category revenues all increased in the International segment in 2013 and more than offset the decline in the boys category.

Operating profits for the segments grew faster than revenues, increasing 8%, resulting in a higher operating profit margin of 12.6% of revenues versus 12.2% in 2012, as we gain further operating cost leverage.

As Brian spoke to, emerging market profitability grew, but remains below overall Company averages.

As we continue to leverage our investments, we're targeting further improvement in the margin of these higher growth territories.

Finally, entertainment and licensing revenues also grew 5% in 2013 on higher digital gaming revenues, including the six-month contribution of Backflip Studios and growth in lifestyle licensing.

Overall, entertainment revenues were down in the year primarily due to lower television streaming revenues in 2013 versus 2012.

Operating profit declined $6.5 million primarily due to the impact of our acquisition of Backflip Studios.

Overall Backflip's contribution to Hasbro in 2013 was modestly diluted versus our expectation of neutral.

However, Backflip's contribution was accretive prior to amortization and, as Brian said, the team, their brands and their talent are important new assets to our business, which we will leverage for the full year 2014 and beyond.

Looking at our overall expenses, we continue to make progress and we remain on track toward our goal of achieving $100 million in cost savings by 2015 and our underlying costs have declined.

At the same time we have seen increases in various expense items, reflecting the larger geographical base of our business and ongoing investments into our business to both grow revenue and decrease ongoing costs.

For the full year, cost of sales as a percentage of revenue declined slightly, and continued to benefit from improved inventory management and product mix.

These gains were partially offset by higher promotional activity in the fourth quarter of 2013 versus 2012.

Royalty expense was down in dollars and as a percentage of sales in the year due to lower revenues from entertainment-based properties.

As a reminder, as Brian spoke to, 2014 begins a period of strong entertainment which builds over the next several years from both Hasbro and our partners.

Product development was higher in the year due to the addition of Backflip Studios, incremental investments in Magic: The Gathering and film development write-offs incurred during the year.

Advertising declined in absolute dollars, but remained close to the low end of the 10% to 11% of revenues range that we typically target.

Underlying intangible amortization increased in 2013 due to an incremental $8.1 million of expense associated with Backflip Studios.

As we've seen the continued benefits of focusing the Company's efforts on our franchise brands and our larger mega games brands, such as Twister, Jenga and Elefun and Friends, we have further reduced our expectations on many of the games that are smaller in nature.

Under accounting rules these reduced expectations on revenue resulted in an intangible impairment.

Therefore on and as reported basis, including charges, intangible amortization was up significantly, as $19.7 million of the product-related expense we incurred resulted from the write-off of intangible assets related to these non-core brands.

SG&A increased in 2013 to 20.6% of revenue, compared to 19.9% of revenue in 2012.

Higher compensation-related costs, as well as investments we've made in certain brands, the acquisition of Backflip Studios, higher depreciation and costs related to our global implementation of SAP, more than offset cost reductions which were primarily due to lower headcount.

Turning to our results below operating profit for the year, total non-operating expense increased versus 2012.

Our 50% share in the Hub Network improved from a loss of $6 million in 2012 to a loss of $2.4 million in 2013.

For 2014 the Hub Network has a plan to achieve pretax profitability.

This improvement was offset by a number of factors, including lower investment earnings and higher foreign exchange losses.

The 2013 underlying tax rates declined to 25.8% versus 27% in 2012.

This improvement was a result of a higher mix of profits in lower tax rate geographies.

Looking forward to 2014, we would expect our tax rate to be in the range of 26% to 27%.

For the year, average diluted shares were 131.8 million shares, compared to 131.9 million in 2012.

Diluted earnings-per-share, absent charges in the favorable tax adjustment, were $2.83 in 2013 versus $2.81 in 2012.

Hasbro also continues to generate strong cash flow.

Operating cash flow was $401 million in the year.

This includes $125 million in long-term royalty advances paid to Disney over the 12-month period.

At year end cash totaled $682.4 million.

Approximately 28% of this balance was held in the US.

Additionally, 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.

Today we announced an increase in our quarterly dividend of $0.03 per share, or 8%, to $0.43 per share.

This is the tenth increase in 11 years and fifth consecutive year with an increase in our dividend.

In fact, over the last decade our quarterly dividend has grown from $0.06 per share to now $0.43 per share.

In August of 2013 the board authorized the Company to repurchase an additional $500 million of our common stock and $524.8 million remained available at year-end in current share repurchase authorizations.

Given our current US cash levels, we are planning for an accelerated share repurchase program in 2014 compared to the $102.5 million we spent in 2013.

Receivables at year end increased 6% versus 2012.

DSOs were 77 days versus 72 days in 2012 and reflect the strong revenue growth in emerging markets that have longer terms than developed economies.

Inventories increased $32.7 million versus last year in support of our growing emerging markets business.

Our inventory at US retail was down double digits at year end.

International retail inventory is healthy and overall retail and Hasbro-owned inventory is of good quality.

In closing, 2013's results reflect the positive momentum behind strategic investments in our franchise brands, emerging markets and the long-term profitable growth of Hasbro.

Over the coming years we will continue to focus on these important initiatives while leveraging the robust entertainment slate of major motion pictures.

Our strong financial position allows us to continue investing in our business and return cash to our shareholders, both in terms of our dividend and our share repurchase.

Brian and I are now happy to take your questions.

(Operator Instructions)

Drew Crum, Stifel.

Brian and Deb, I wanted to ask first about the net savings forecast from the restructuring, your plan for in 2014.

And then product-related, as far as Girls business is concerned can you talk about the puts and takes for this year?

Are you planning for growth with that business?

Thanks.

Let me take the cost savings piece of the question first.

As we discussed previously, and we'll talk a little bit more about on Friday, we do remain on track to achieve our $100 million of cost savings by 2015.

In 2013 we achieved approximately $50 million of cost savings and we do remain on track to achieve the $100 million by 2015.

Drew, if we look at the Girls business, obviously we had contribution from a number of brands.

Certainly My Little Pony, both the core My Little Pony as well as Equestria Girls grew in the year.

And we saw obvious contribution from Furby.

It's our first year -- was in 2013, our first year in non-English-speaking markets.

We also saw growth in brands like Easy Bake.

And as we go through 2014, we are restaging and relaunching Littlest Pet Shop in the fourth quarter, the entertainment is already out and is already on-air in more than 130 markets around the world.

We're seeing great results with our content strategy.

It's also out there on digital gaming platforms.

And we'll relaunch the product in the third and fourth quarter this year.

I'm not going to give you overall guidance for any category this morning, but suffice it to say we have great momentum in our Girls business between the brands I mentioned and if you include new launches like Nerf Rebelle, you are really seeing great momentum and obviously a great milestone for us to achieve, going beyond $1 billion in sales in our Girls business for the first time in our history.

Great.

Thanks, guys.

Felicia Hendrix, Barclays.

Brian, at the end of your prepared remarks you said that you're looking to eliminate some activities that don't contribute to your top and bottom line.

I was wondering if you could elaborate on that, please?

Sure.

Deb mentioned in 2013 the amortization that we had in some of the tail of the Games business.

In fact if you look at our Games business, for example, it grew across several of the categories we've talked to you about historically.

The one area that showed significant decline was the tail of the Games business where we aren't putting the effort in.

We don't believe those are brands that lead us into the future and so we took some charges there.

So it's those kinds of decisions that we are taking as we focus more on our franchise brands, our partner brands, our challenger brands and our Game business that make up most of our revenues and where we see our declines, it's really looking at those brands and making strategic decisions about discontinuing activity around those.

Or in some instances strategically licensing out brands like Tonka, where we've licensed out that brand at this point and obviously that has an impact year-on-year on our revenues in the Preschool category, losing those revenues but we are getting the royalty income from licensing.

Okay.

Actually that brings me to a question on Games, because you gave us some good full-year color.

In the quarter, if you x-out Magic did Games grow?

Yes.

If we look at in the quarter, yes, in fact Games grew.

Yes.

It grew.

Yes.

If you take Games -- if you take out Magic and you look at the rest of the Games business, it grew.

Okay.

And then Brian, with the Hasbro inventories that you have, can you just talk a little further about the quality of those and how you plan to work through those through the year?

The inventory at retail in the US is down 12.5% in the US and down as well where we saw some challenges in our business.

Inventory's really up around the emerging markets and other markets where we saw growth, so we feel like our inventory position is very well covered and well-positioned.

Great quality inventory as we go into the year with a number of big initiatives that had been working toward the end of the fourth quarter and going into the first and second quarters this year.

Obviously we also begin in the first quarter this year to start to set the table for a lot of new entertainment initiatives.

So we feel like our inventories are in a very good position and in line with -- in fact inventories are down slightly more than the sales decline we saw in the US business in the fourth quarter.

Okay.

All right.

So just to rephrase that, the inventory that's on your books, some of it is just positioning you for your new initiatives and the other stuff that's there is more attributable to the emerging markets?

Correct.

Everything that we have in inventory -- in fact inventories, as you know on our books are up a bit year-on-year and that's really focused.

If you look at where those pockets of inventory are, it's all around areas of significant growth for us in the past year, particularly lines up really well if you look at the increases we saw.

Most inventory increases were in Latin America where we saw the biggest growth.

Next would be in Europe particularly in emerging markets like Russia, then next in Asia.

So it lines up pretty well around the world with inventories being down in the US.

Okay.

All right.

Thank you.

Steph Wissink, Piper Jaffray.

Brian, just a follow-up question on your comments regarding the [payments] that Disney has to the Marvel and the Lucas properties.

I'm just curious if you could talk about how they are thinking about the properties in non-movie years?

Is there an evergreen nature versus what you've seen previously with those studios independently?

And then Deb, just a follow-up question for you on Europe, I think you mentioned some stability there.

If you could just talk about some of the key markets where you had been seeing some pressure that maybe are starting to stabilize?

That would be great.

Thank you.

What we're seeing overall around the Disney brands, Marvel and Lucasfilm, particularly if we look last year while Marvel wasn't up overall, Marvel brands were up in Latin America and in Asia-Pacific.

And that has a lot to do with the fact that we're expanding the footprint for brands like Marvel as we go out around the world.

And some of the innovations that we're putting into those brands, like the Titan Hero Series, that enable us to get after the emerging market consumer in a more significant way.

And we feel that, that really is expanding the footprint of the Marvel business.

As we get into late 2014, around the launch of the Star Wars TV series, and then into late 2015 as we get into the launch of the Star Wars movie, obviously we would expect that Star Wars would follow a similar pattern.

Obviously the strength of the brand combined with the strength and scope and scale of the Walt Disney company.

And Steph, with respect to Europe, we did see a 3% growth in Europe over the period within our International segment.

And we saw some mixed results in the markets.

Markets that had been down previously, like Spain, are now turning around a bit and some of the more established markets had that slower growth, like the UK and France, or no growth that you might expect for some of those markets.

But our emerging markets continue to grow well, in particular Russia.

And we also had good growth in Poland over the period.

I know Brian specifically called those out, but as we see that revenue growth we're also seeing an expanding operating profit margin in those European emerging markets.

Thank you both.

Best of luck.

Sean McGowan, Needham & Company.

A couple of questions relatively quick.

Could you talk about what it was in Preschool that resulted in a decline in the quarter considering I would think Big Hugs Elmo would have been a really nice contributer.

Second, is the pace of growth at Magic slowing and if so is it still like double-digits?

And finally, can you talk about the currency impact that you saw on revenue in both the quarter and the year?

Yes.

Sean, good morning.

Start with Preschool business.

If you look at the Preschool business, I know I don't like exceptions, but in this case we did make the decision to license out the Tonka business and that does have an impact in the quarter on the Preschool business.

Several of our brands grew within Preschool and overall for the year we were up 1%.

And that did have an impact.

If you look at the overall Preschool business and you look at Play-Doh and Playskool Heroes really driving that particularly, the Transformers Rescue Bots and Sesame Street up a bit.

Again, it does have a lot to do with the fact that Tonka year-on-year moves from revenues to royalties.

I would think something like Elmo is vastly larger than Tonka.

Is that not right?

Well again, if you look at Sesame Street we had a good year in Sesame Street in 2012.

So again, the comps on Sesame Street per se, while it was -- I will tell you it was up, it was up against a good year in 2012 as well.

Okay.

If you talk about Magic: The Gathering it was up double-digits in the year.

In fact, up more than 20% in the year and -- but we've all talked about the fact over several years the fact that Magic doesn't operate like a lot of the rest of the Toy or the Game business.

That in fact it flows more about product releases and tends to be more flat across quarters in terms of revenues.

And that has a lot to do with the way the brand's storytelling goes and the way that the content is unveiled and new card releases are handled, as well as the way that we're seeing digital consumption and digital game playing online.

Okay.

Thanks.

And the currency?

And with respect to currency, in the quarter we had a approximate $2 million impact.

And about $3.7 million on the full-year positive impact on FX, both were less than 1%.

But within that it was mixed.

So for the quarter we had a positive impact from FX in Europe, but a negative impact from Asia-Pac and Latin America and that was pretty much married for the year as well.

So not a big impact, but mixed in the regions.

Okay.

I guess that's why it wasn't really called out that big because it just wasn't big?

Yes.

Thank you very much.

Jaime Katz, Morningstar.

Can you guys talk about how you're thinking about the cadence of advertising spend in the year ahead as traffic at brick and mortar has slowed?

Sure.

We continue to target between 10% and 11% A to S, or advertising to sales ratio globally.

You see more of that in some of the markets that are growing more quickly.

Also you'll see more spending around new initiatives as we launch those.

As we look at some of our entertainment brands we do believe that content, and we've seen the content film, TV, all screens content does drive the marketing for those brands.

So our pure advertising may be adjusted a bit to reflect that because again, we think all of those things contribute to marketing those brands.

And then as we move more to digital marketing and social media marketing and so many other elements of marketing, that old, pure comparison of dollars-to-dollars becomes less and less relevant over time because the out-of-pocket cost for a lot of social media or digital efforts is very different and the impact, particularly around niche audiences, demographics and psychographics can be very impactful.

So again, I target 10% to 11% A to S overall and then you'd see lots of variability depending on the market, the brands we're launching and the amount of content and entertainment around those brands.

And then I think you guys have a piece of debt coming due later this year.

Are you planning on refinancing that or undetermined yet?

Well, as we have said earlier, Jamie, we really first and foremost remain committed to maintaining our investment-grade status.

That being said, and framing the context of it, given where interest rates sit today it's currently our expectation that we would refinance all -- part if not all of that debt.

Thank you.

Tim Conder, Wells Fargo.

Deb, just a quick clarification on the restructuring savings housekeeping item here.

You're saying that you had $50 million gross in 2013, you expect the full $100 million by 2015.

You'd commented previously in some presentations that on a net basis the total by 2015 would be $55 million.

Can you give us any update on that or is that still intact?

I guess is the first housekeeping question.

And then more broadly, just a little more color, if you could, on royalties.

You talked about the $125 million for advanced royalty payments to Disney.

Can you talk about where those minimum payments are collectively?

Disney and everyone together for 2014, 2015?

Well, first Tim, we remain fully on track to the net cost savings we talked about.

And we will talk more about that on Friday.

So you'll get a bit more color on that on Friday.

And with respect to the guarantees we paid, some we've used.

And I'll remind you in 2012 we were in a position that we were actually paying currently.

So we've just guaranteed amounts we expect to pay anyway.

So you would have seen an accrued liability as accrued royalties last year, certainly to Disney and Marvel and Lucas as well.

So while we've prepaid, we do expect to earn those out over the period.

And there was a portion in our prepaid current assets and was good a bit in long-term assets since we have until 2020 to earn those out.

Okay.

And then lastly, the $19.7 million that you called out related to some product portions there, what line item was that reflected in?

That was reflected in amortization of intangibles.

Great.

Thank you.

Greg Badishkanian, Citigroup.

First, you mentioned shoppers buying more online, the fewer shopping days and shopping closer to the holidays as having an impact on sales, Mattel mentioned those factors.

Do you think that led to a shift in share between manufacturers or do you think that sales were just a little bit lower this year than they otherwise would have been because of those factors?

Clearly, we're seeing the consumer shopping on a number of different platforms.

It's not just shopping online, it's actually shopping mobily and we'll talk more about those dynamics on Friday.

We think it's an important element of our business.

And we are putting out best-in-class online opportunities for shoppers to understand our products, to work with our retailers.

And in fact if you look at POS just for our top four accounts where we have POS data for online, we were up more than 20% in POS in online.

So obviously fairly significant growth there.

And more with some online retailers than others, but if you look at all the retailers taken together you are seeing that shift.

And we are creating those digital assets that enable us to take advantage of that change in purchasing patterns.

Okay.

And then when you look at the Boys segment, you faced obviously tough comparisons from a movie lineup.

What would your growth have been if you exclude movie-related products?

Just because 2014 you're actually going to have a nice benefit from movies.

Well, what we said in our prepared remarks were that our two franchise brands had grown in the year.

Transformers and Nerf had grown.

And if you look at -- the fact is Transformers in our Boys business grew in every region around the world.

Nerf grew in core Boys, not just with the end, with the addition of Nerf Rebelle.

And brand like Iron Man performed well in the year.

But overall we cited the two brands that contributed to the decline in Boys were Beyblade, which had more to do with TV support and the cycle around that brand and then the Marvel business.

Although I did mention that Marvel had grown in Latin America and Asia.

So again, that has a lot to do with the fact that (technical difficulty) historically movies have even more of an impact on the North American business and secondarily on our European business.

And we certainly saw that in 2013.

Okay.

Thank you.

I want to just -- one clarifying point to Felicia's earlier comment.

I just want to make sure we're clear.

I just went back and looked at some of the numbers.

We are down in the fourth quarter in Games very slightly if you exclude WOTC and entertainment and licensing.

And that has to do with the decline we saw in the tail of the games business that we talked about on the call.

The other categories of Games, in Wizards of the Coast, Monopoly, our Games mega brands, digital gaming and our action battling games were all up in the quarter and in the year.

Michael Kelter, Goldman Sachs.

First off, I know you don't like to get into numbers on individual brands, but could you give us a directional idea of how much Beyblades was down so we can get an idea of underlying trends?

What I'll tell you is it was the largest decline in the year.

And obviously the largest decline therefore in our Boys business.

Maybe another way to say it is a typical -- you've talked about a typical non-movie year decline, a year or two decline after a movie of being around 50%.

Is it in that ballpark or above or below?

Maybe that would be a good way to approach it.

It was above.

Okay.

And then Wizards, which the growth rate was maybe a little bit less in the fourth quarter, which you mentioned was related to the timing of product releases.

When is the next significant product release for Wizards?

And then can you also talk about your future plans for a movie on that brand?

Sure.

Just want to be clear on the Wizards piece.

Wizards does tend to be more flattish across quarters.

The revenue does come in more flattish.

And you're right, it does have to do with different releases.

We'll walk you through some more of that on Friday as we update and show you some of the new ideas that we have for Wizards and how we're handling that business in 2014.

We'll get into some of the specifics there.

But suffice it to say that, that's why you see that it's more flattish throughout the year and flatter in the fourth quarter.

But remember it was up more than 20%, 23% in the year for 2013.

And do you have the plans for a movie?

We've just begun those efforts.

We're very excited in working with Simon Kinberg and the folks at Fox in developing a movie around Magic: The Gathering.

There's a lot of storytelling across the Magic mythology, much like Transformers for many, many years.

And we're excited about that.

It's going to be a few years off.

We have to make sure we get a great script with great characters and great story first and foremost.

And maybe one last one, you talked about, I don't know, a year ago reducing some trade support to retailers by quite a bit of money so you could reinvest that into consumer facing ad spend.

And I'm hoping you could reconcile that strategy with the numbers, because ad spend for the year was down 6% this year and the absolute dollar amount spent was the lowest in many years.

And I understand your comment earlier about social media and digital, but whether it's spent on digital or TV why are you reducing the ad investment in the brands so much?

In fact it has a lot to do with spending more around our franchise brands and eliminating spending around some of the tertiary brands of the Company, first and foremost.

So if you actually were to look at spending across franchise partners and Games brands in the categories we talked about, excepting the Games -- tails of the Games business, you'd actually see for the most part increases.

Particularly around a lot of the new initiatives, whether its Nerf Rebelle, My Little Pony, Transformers and you saw growth there.

Six of the seven franchise brands grew, our Games business grew.

So that's all about increased advertising spending.

And then secondarily, we are seeing great impact from moving to digital marketing.

So the out-of-pocket costs may go down.

In fact we may be spending 2X in that area, but the out-of-pocket cost is different because we're going after niche audiences.

And again, that does have an impact on what the absolute out-of-pocket looks like, but yet the impact of that is very significant.

And then the final piece, recognize that we are investing in programming and programming has an impact as marketing.

We talked about the fact that $400 million worth of TV-related merchandise was sold globally this past year.

And so we are keeping a very clear track on the fact that our TV strategy, an all screen strategy in fact, executed globally is having an impact, a very strong impact on marketing and selling those products around the world.

Thank you.

Again, a last piece is as we go forward I would expect on average 10% to 11% of advertising-to-sales spent, that's a good range and I think that's what you should look at as we go forward.

Mike Swartz, SunTrust Robinson.

Just wanted to touch on gross margin.

I know you don't necessarily like to look at this on a quarter-to-quarter basis, but could you give us a sense for some of the puts and takes in the quarter, why it was down about 160 basis points?

Sure.

As we mentioned earlier on the call, we did have some impacts from promotional activity at retail.

And we talked a lot about how the consumer was coming later into retail and we incurred more promotional activity in the fourth quarter.

So you see a bit of an impact on that on a quarter-to-quarter basis.

Also we have an impact from entertainment and licensing, where at last year we talked about our streaming revenue.

That revenue has a very high gross margin so when it's down quarter-on-quarter it has more of an impact.

So that's really what you're seeing.

On a full-year basis, our gross margin was consistent with the prior year, if you exclude the severance charges.

Okay.

That's perfect.

And then just some of the -- maybe some more color on emerging markets and understanding you think you can get margins to a more corporate average longer term.

How do you look at that in terms of timing?

And then just maybe discuss the scalability of those businesses and where that stands right now?

Over the last number of years we began opening markets around the world in 2008, so from that time forward to today we've grown those businesses to $575 million.

And you see now that we're operating profit north of 10%.

And we do believe we can continue to scale those businesses at double-digit growth.

We've talked about double-digit growth in revenues and we're growing operating profit faster than revenues in those years and we'll approach the Company average operating profit.

I imagine a year in the not so distant future where emerging markets could represent $1 billion worth of Hasbro's revenues.

And we'll talk more about that on Friday as we continue to see those markets grow.

And those economies still are robust for Hasbro for the Toy and Game business.

And for the branded play strategy that we're seeing come to life in those markets where we have our content on the air, digital gaming, licensed relationships across consumer products and great retail relationships.

And in terms of the $1 billion in revenue a couple years out, is that really the level where you would start to see the emerging markets margins dovetail into the greater corporate EBIT margins?

You saw while revenues grew 25%, operating profit grew 40% in the year.

So you are seeing a faster pace on operating profit as we get by the initial costs of starting up those markets, new personnel, we have hundreds of new people in those markets, although our overall headcount is down a bit.

So we're really applying what we said, which is to invest in markets where we're going to get the fastest growth.

And I would imagine that operating profit margin should approach the Company average operating profit margin over the next few years.

We'll call it medium-term and we won't specify a specific year.

But again, we continue to see great improvements and growth in those markets and we're executing that brand blueprint very effectively.

Our teams there are doing a fantastic job.

Great.

Thank you.

Eric Handler, MKM Partners.

Just want to focus on Transformers for a second.

And in your emerging markets how big of a brand was that when the last movie came out versus where it is now?

And should we assume that this is where your biggest incremental revenue contribution's going to be for the film?

Well, I think what you're going to see overall, obviously the film performed well globally over the last three films, doing $3 billion at the box office.

And we performed well globally over the last three films in the movie years, doing about $1.6 billion in sales over the three films in those movie years.

So what we expect is that we should perform well in developed economies.

I mentioned earlier that the movies in particular have a bigger impact in North America and Europe.

Those sales of those products, North America still is more impacted by movie product than even TV product on average over time.

But having said that, we have a bigger global footprint today than we've had before.

We have more markets open and performing better around the world than we ever have.

Transformers is one of our most global brands with a bit more than 50% of revenues coming from outside the US.

Very strong performance in Asia.

It's a brand that has a great history in markets like China and a great adult collector base in those markets.

So you've got multi-generational appeal of the brand and obviously movies do a lot to foster the interest both among kids and collectors globally.

So I think that portends good things for us in 2014 and hopefully you saw the Super Bowl commercial over this past week or so because it starts to talk about what I've said, which is that we have all kinds of new characters.

We have great new human story and new Transformers characters that are straight from the mythology that we'll be executing.

We'll see in the film and then executing across products and categories at retail.

Great.

Thank you.

Thank you.

I'll turn the floor back to Debbie Hancock for closing comments.

Thank you, Robin.

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.

We look forward to seeing many of you on Friday at our Toy Fair event.

If you can't join us in person the webcast of the event will begin at 8 AM on our Investor website and the replay will be available several hours after the live webcast concludes.

Thank you very much and have a good day.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.