Hasbro Inc. - Analyst/Investor Day

| About: Hasbro, Inc. (HAS)

Hasbro, Inc. (NASDAQ:HAS)

November 09, 2011 10:00 am ET


Brian D. Goldner - Chief Executive Officer, President, Director and Member of Executive Committee

Deborah Thomas - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

John Frascotti - Global Chief Marketing Officer

Debbie Hancock - VP, IR

Mark Hoijtink -

Unknown Executive -

David D. R. Hargreaves - Chief Operating Officer

Eric Nyman -

Wiebe Tinga -


James Hardiman - Longbow Research LLC

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Andrew E. Crum - Stifel, Nicolaus & Co., Inc., Research Division

Gerrick L. Johnson - BMO Capital Markets U.S.

Sean P. McGowan - Needham & Company, LLC, Research Division

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Michael Kelter - Goldman Sachs Group Inc., Research Division

Eric O. Handler - MKM Partners LLC, Research Division

Michael M. Tang - Barclays Capital, Research Division

Unknown Analyst -

Debbie Hancock

Good morning. Good morning. My name is Debbie Hancock, and I am Vice President of Investor Relations here at Hasbro. We're very happy to welcome you to Hasbro today for what we believe will be a very informative day with a tremendous group of presenters. This morning, there will be a series of executive presentations until just before noon. We will then break for lunch. We plan to reconvene at approximately 12:40 for our final presentation followed by a question-and-answer session. Following the Q&A session, you'll be split into 3 groups to view some of our 2012 product line.

Your group is the brand on your badge: Battleship, My Little Pony or Chuck. Finally, following the product tours, we've arranged for an informal gathering, which will last until approximately 5:00, during which you will be able to speak further with today's presenters as well as other members of Hasbro's management team.

Before we begin the presentations, I would like to remind you that during the formal presentations 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 the company's future products and financial performance, including expectations for revenues and earnings per share performance in 2011 and 2012, entertainment plans, anticipated product performance, business opportunities and strategies, costs, financial goals and expectations for our future financial performance in achieving our objectives. There are many factors that could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in these forward-looking statements, including consumer and retail interest in and acceptance of our product and product lines, changes in marketing and business strategies and future global economic conditions. Some of those factors are set forth in our annual report on Form 10-K and quarterly Form 10-Q and today's meeting and in our other public disclosures.

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

Additionally, we ask you to please turn off the sound in your BlackBerry phone or any other electronic device you have with you today, and we remind you that photography is not allowed at any time. During the course of the day today, we will share with you footage from several future feature films. We ask that you do not write or speak about the footage you have seen. If you have any questions or need assistance during the course of today, please see myself or Alexia Taxiarchos. Now I am pleased to turn the stage over to Brian Goldner. Brian?

Brian D. Goldner

Good morning. Thank you, Debbie, and good morning, everyone. Welcome to our annual analyst day here in Rhode Island at our headquarters on a beautiful fall day. We've been looking forward to having this day for quite sometime. I'm really happy to have you all here. I'd also like to welcome those of you who have joined us on the webcast. Our mission today is to clearly define Hasbro's branded play strategy for today and the future and to show how it is creating long-term shareholder value.

Now some of you may be familiar with our brand blueprint, how we drive Hasbro's branded play strategy and some may be less familiar. So let's begin today talking about this brand blueprint. We're going to take you through the building blocks of our strategy, talk about how we're innovating across all elements of the brand blueprint. It's a relentlessly repeatable model for global growth, and we're creating brand value as we go out and around the world.

To do this, I'm going to give you a strategic overview touching on all the different points of that brand blueprint, then Eric Nyman will come up and talk about our games reinvention. David Hargreaves will give you a television update, then Wiebe Tinga and Mark Hoijtink who is going to give you an update on our international business, and we'll have a lunch break. Then we'll talk about our 2012 outlook. We'll do 2012 revenue drivers. John Frascotti, our Chief Marketing Officer, will come up on stage and talk to you about that, and then we'll have Deb Thomas come up and talk about the financial overview as well as a 2012 outlook and then, of course, we'll open things up to your questions.

So with no further ado, let's talk about our branded play strategy, and it all begins with our brands. We put our brands at the center of everything we do. It's all about reimagining, reinventing and reigniting those brands. And a few years ago, we began to create an organization that was all about global brand leadership. We have become great brand builders as you will see today. We continue to explore and develop consumer insights about our brands that drive the brands' story, and it drives our strategic brand plan. And again, you will see today that we're just beginning to unlock the full potential of our brands globally.

From that, we go on to brand blueprint to toys and games innovation. Obviously, it's the most important category for this company, and it's inspired by global consumer insights. So several years ago in the early 2000s, Nerf was a small domestic brand, about a $30-million business. And we said, could we grow this brand out and around the world? So we took it on ourselves to go out around the world to do research with moms and with kids in several territories around the world. And what we found out was that moms around the world were not that dissimilar. They all believe there were certain high energy activities that you couldn't around the house, and Nerf was the brand that gave you permission to do those activities. So mom says you can't, and Nerf says you can became the mantra for the brand, and that's how we began to grow the brand. Monopoly, while we might all believe that owning it all is a U.S. concept, in fact, around the world as we did the research, we found that Monopoly really resonates in the consumer insight of owning it all really resonates around the world including emerging markets, and so we connected those insights to product innovation. In the case of Nerf, the latest innovation is in Vortex, which takes blaster play to the next level. For Monopoly, it's all about electronic banking this year but several different iterations of Monopoly. And then we surround those brands in immersive experiences whenever and wherever the consumer wants anytime or anywhere. So for Nerf, it's all about an online community, a content like community of Nerf users generating their own content and connecting with one another. In the case of McDonald's, and McDonald's and Monopoly are a partnership that continues to grow, and we'll talk more about that in a few moments. And then, we execute this in partnership with our global retailers. There are more than 2 billion retail trips a week by consumers in over 500,000 retail destinations and, of course, we're also growing in our online business.

And how have we done thus far? Over the last decade, we've grown our revenues on average of 4%. And we've grown our earnings on average by 27%, going from $0.33 a share in 2001 to $2.74 in 2010. And our operating profit margin has nearly doubled to 14.7% from 7.4% in 2001, so yes, it is 10 straight years of earnings per share growth.

For 2011, we continue to expect to deliver meaningful growth in both revenues and EPS for the full year 2011 versus our 2010 reported full year results. However, in order to accomplish this, we have to recognize that we still have a lot of business to do. We're in the height of the season in 2011, and it is a challenging macroeconomic environment. Now what I thought we'd do now is break down our revenues by different categories to really get into the branded play strategy and understand how each one of these categories of brands are performing.

So this chart is about Hasbro brands. These are our owned and operated brands of the company. And if we look over this period, what we see is that we generated revenues growth of 6% from 2006 to 2010, and doubled that in terms of operating profit growth, 12% growth over the period. We've also improved our operating profit margin from 12% to 15.2%. Again, these are Hasbro-owned and operated brands.

Now let's look at the brands of our strategic partners. So strategic license relationships that include all licenses, including great partnerships with Star Wars, Marvel and most recently with Beyblade, and what we see is that revenues over this period have grown by 9%, and the 9% is really driven by some recent increases, of course, in the Beyblade business.

If we look at our operating profit growth, we see it's grown by 11% over the period. And our operating profit margin has gone from 11.5% to 12.3%, so not as good as our owned and operated brands, but it provides a part of our very important brand portfolio as we take this blueprint out around the world.

So now let's look at it all together. In some ways, this chart to me is the summary of our branded play strategy. So first, let's look at entertainment-based sales of our toys and games. These are all entertainment-based sales, so anything supported by a movie or television, be it a Hasbro brand or a partner brand. And we see that over the period from '06 to '10, those brands grew by 16%. And yet the rest of our business, representing more than 3 quarters of our business, grew by 4% over that same period. So while we talk a lot about entertainment, it is not the bulk of our business. The bulk of our business, more than 75% of our business, is our owned and operated brands and partners' brands that are not entertainment supported. We are driving those brands around the world, and yet we're driving our entertainment-based brands more quickly because we have entertainment behind them, and we're driving them around the world. And if you look at the bottom of the chart, what you see is that entertainment-based brands have grown from 15% of the portfolio to 22% of the portfolio or have grown by 81% over the period. And our non-entertainment-based brands have grown by 17% over the period, so both growing, but it's really the blending of the operating profit margins of each of those constituent parts bringing it all together and then looking at that as the total very balanced brand portfolio for the company.

And our mantra for our brands are really just 6 words: reimagine, reinvent, reignite, imagine and invent and ignite new brands. So you may not know this, but nearly 10 years ago, we created FurReal Friends that was not a brand in our vault. We created that brand. We doubled the size of that brand in 2010, and that brand is now available in 74 countries.

For the Nerf business, again, I mentioned early in the 2000s, it was about a $30-million business, and then we began to grow it using insights. Over the last 5 years, we've tripled the size of that brand, and we're driving with new innovations like this year's Vortex line but new innovations all the time as well as Super Soaker, and that brand is now available in 75 countries. My Little Pony was in our vault, and we launched that brand first in 2003. We brought it back to the market after being off the market for several years. We then completely reimagined that brand just this past year behind our new television initiatives across every element of that brand, and sales were up significantly since we reimagined that brand, and all the program elements are really starting to work. That the brand is sold in over -- in 71 countries, but our television thus far has been placed in over 100 countries. So you'll imagine the prospects for growth for My Little Pony as we begin to get the shows on the air around the world, and then we drive our sales behind that.

And finally, with Sesame Street, we are creating a global year-round business featuring all of Sesame Street's characters and, of course, that includes Let's Rock Elmo, one of the top toys of the year.

Now let's talk for a moment about games. As I've met with many of you, as we've chatted, we've always heard and I've been asked about whether our games business is in some kind of secular decline. So I thought one chart would certainly answer that. Over the last decade, our games business has grown. Games have grown by 1.9%. When you look at the very small puzzle business, it is down. But in total, games have grown by 1.7% over this decade because that's not good enough for us. We want to accelerate the pace of innovation. We want to accelerate the pace of growth, more like the rest of the company and more like our medium-term objectives. That's why we created the Gaming Center of Excellence to accelerate the pace of innovation of growth, and you'll hear a lot more about that from Eric Nyman, and you'll see a lot of evidence of that throughout the day with us today.

Now over this last period, we have invented a lot of new games and new ways to play our games, whether that's Scrabble, Flash or Scrabble for the iPod, our whole segment of card games, including new brands like RATUKI or Monopoly in so many different forms and formats. In fact, today, 6.3 million Facebook fans play Monopoly on Facebook. But as I look out across the company, I really like to highlight what Wizards of the Coast has done as an example of how we intend to reinvent our games business.

In 2007, the business was certainly challenged, and we appointed new leadership. New strategies were put into place where we integrated digital and analog products and marketing plans. We then focused on face-to-face gaming experiences. We increased innovation, creativity and storytelling, and a new leadership combined with new talent and key existing specialists in our business drove that business.

In fact, we've almost doubled the revenues of Magic: the Gathering over the '08 to '10 period. So this is very emblematic of what we intend to do in our games business. And why is that important? Well, the estimates are now as of 2011, there are 1 billion global gamers. It's growing dramatically with all the different formats of gaming that are available. Everyone is playing games, just different kinds of games. And so while this may be a bit of a picture of our past, where we're going is on a mission. We're on a mission to change from just games to gaming, not looking at games as just a benefit to the family but also consumers of all ages, from singular play experiences to adding multiplay experiences from often on the board to both on and off the board, looking at a single purchase in the past to multiple purchases in the future, and from a benefit of connecting his family members certainly connecting remains important, but now we're adding elements of intense competition.

Now let's talk about digital media and lifestyle licensing, significant parts of our branded play blueprint. So first how we've done? Over this period 2006 to '10, we've grown this business by 23% on average, and the operating profit margins have improved to 55% from 32%, but we do continue to invest here, and I'll talk more about that in just a moment.

What's interesting is thus far those results are really based primarily on U.S. results. In fact, almost 70% of the licensing revenues in 2010 came from the U.S. business, while we all know that our international business in toys and games is approaching 50%. So there's a great opportunity for growth by just taking advantage of the underleveraged territories where we have these great properties and driving them by digital gaming and licensing.

Let's talk about licensing, how big a business is it. $147 billion at retail, and our estimate is that we have about $3.7 billion at retail in the licensing business. So clearly, we're underrepresented in market share, and it represents a significant opportunity for Hasbro. Just this year, we put 30 new people into 10 markets outside the U.S., including new hires in China and Russia, Poland and Mexico to bring to bear our licensing in those geographies. We are focused on some very big and growing categories around the world, including apparel, home and publishing and, of course, the global distribution of our television shows will be core to continuing to grow our licensing revenues globally.

Now let's talk about digital media. It's a $41-billion retail business, and the industry recognizes and rewards brands in this category. And our brands are playing across a number of different programs, a number of different formats: console gaming, mobile gaming, social gaming, you name it, the iPad and the Kindle, certainly. In 2012, we had 2 big entertainment initiatives: Battleship as well as Transformers: Fall of Cybertron from Activision, and you'll hear more about that in a little while. And then in 2012 and beyond, we have 2 MMOGs launching massively multiplayer online games: one in China with our partners, NetDragon, and one for the Western World is Jagex.

Now let's talk and touch on immersive entertainment experiences. In a little while, David Hargraves will come up and talk about our television business, but first I want to talk about the other key elements of immersive entertainment. Our goal is to put Hasbro brands everywhere at any time consumers want in any form or format. We want to connect with audiences and consumers around the world, and you'll hear more about this, this afternoon from John Frascotti. But on the top line, we are creating online relationships with consumers whether it's beybladebattles.com or in our KRE-O business or many other brands in the online world. We're creating apps behind both entertainment as well as just great playing apps, like Lite-Brite. We're creating great promotions, like the recently announced Carnival Cruise promotion to play game shows on Carnival Cruise Lines. We also have our McDonald's Monopoly promotion in 2010. The McDonald's promotion was in 11 countries. In 2011, it's moved to 13 countries. And for 2012, we are targeting to gather 20 countries.

We're also launching 2 theme park rides around Transformers with Universal, who's doing the rides, one in Singapore and one in Hollywood that will launch over the next year.

Now let's talk about Television. In our international markets, we're ahead of our plan. We currently have over 40 deals in place that represent our shows going on the air in 142 countries. Europe, Latin America and Asia Pacific, we have 95% of our European sales territories, 100% of our Latin American sales territories and 74% of Asian Pacific all being covered. And what's great to see is that the majority of these markets' broadcasters have signed up for 3 or more of our TV series, it's not just one show but several shows. And that's just out of the first season, and you'll hear more about this in a bit from David.

If we look at the international performance, while we're in the early weeks and months, we're still off to a great start. In the U.K., Transformers Prime that went on the air just a few weeks ago is the #1 show for boys on Cartoon Network. In Canada, My Little Pony is the #1 show where it's airing on Treehouse. And in Germany, The Adventures of Chuck & Friends has a very strong market share on Super RTL in that country.

Now let's talk about The Hub. Again, you'll hear a lot more about this a little later today. But at the top line, one year ago, we launched The Hub. In October 2011, just this past month, was the best month ever in total day ratings among kids 2 to 11. The Hub has improved its kids total day ratings delivery versus where we were with Discovery Kids one year ago by 211% or 3 times, again, very exciting as we get traction for The Hub.

Now let's talk about immersive entertainment experiences in the form of motion pictures. A little later today, John Frascotti will show you some great footage or just the highlight for 2012. In April, Battleship goes out around the world from our great partners at Universal. In May, it comes to U.S. theaters. G.I. Joe: Retaliation comes to theaters at the end of June. From our partners, in February, we have Star Wars in 3D from Lucasfilm. In May, we have The Avengers. And in July, with Sony and Marvel, we have Spider-Man, The Amazing Spider-Man, again, very exciting, and you'll see more of this in just a little while.

As we look at 2013 and beyond, we are in active conversations and working with writers across each one of these movie titles: Stretch Armstrong, Risk, Candy Land, CLUE, Monopoly, Ouija and Micronauts. It's a very exciting time. We're making a lot of progress both with studios and writers, directors and producers. And again, we'll have continuous news on this as we have it but, again, lots of progress here, and we can talk more about this as we go on. And our partners from Marvel and from Sony and Marvel are also working on sequels. Iron Man 4 and The Amazing Spider-Man are all slated as sequels in the coming years. And why is movie box office so important? We talk about movies, well in fact, let's talk about the fact that movies are growing fastest around the world in emerging markets, which lines up perfectly with our branded play strategy and our opportunity to grow our emerging market business. If we look at the overall global box office, it has grown over the period '06 to '10 by 23%. In the U.S., it has grown by 13% but in China by nearly 350%, in Russia by 167% and in Brazil by 83%.

Now let's look at Transformers. How has our performance grown over these 3 movies? In fact, in China, it has grown by nearly 4 times for 2011's $145 million box office, in Russia by 3 times from $15 million to $45 million, in Brazil by almost 3 times from $7.8 million to $22 million.

It's also interesting to note that if you look at the entire box office from Transformers 1 at $709 million, it is not as big as our international box office for Transformers 3, which was $766 million. So the impact that we are having around the world with motion pictures, the opportunity for growth that lines up with our branded play strategy is tremendous.

Now let's talk about our global markets as we go out around the world to mature, developing and emerging markets. First, we're taking our brand out around the world. Today, we operate in 123 countries. Since 2006, we've opened 8 new major markets. We've opened Peru, Colombia and Brazil, Russia, the Czech Republic and Romania, Korea and China. We've added around the world 230 people since 2006 to sell and market our brands all around the world, but 177 of those people were in these new markets. And today, Hasbro now has half of its employees outside of the U.S.

Now let's talk about how you should think about as we talk about our medium-term guidance of revenues growth about 5% on average. So as we look at our mature markets, we'll probably see average revenue growth in the 3% to 5% range. But as we look at emerging markets, we will see revenues growth of more than 10% or better, which again is above that medium-term objective of 5%. As we look at operating margins being better than 15% over time, we'll continue to see strong operating profit margins in our mature business, in our mature markets, but we expect those to deliver in excess of our 15% medium-term goal in operating profit margin.

Today, our emerging markets are moderately profitable when taken in total. But our major emerging markets are still closer to breakeven, and we will achieve those breakeven numbers by 2013, which will enable us to hit high single-digit operating profit margins by 2014.

Now let's look at the industry overall. The industry this year is projected to be $85.4 billion at a growth rate of 3.6% over the last few years. But the pace of growth is much faster in Latin America and Asia Pacific than in U.S., Canada or Europe.

If you look at our market share, we had a 13.2% market share in the U.S. as of 2010, and yet our market shares around the world are much smaller. So again, a reason why we reiterate that we are in the early stages of unlocking the potential of our brands globally is why we've invested, and it's why we're continuing to drive our progress out and around the world. We're going to get our fair share, and we have plenty of room for growth.

And now you may ask, well, how are you doing year-to-date? Around the world, we have momentum. In fact, if you look at our market share growth this year around the world, you see that Hasbro has gained at least one full share point in 8 of 13 markets, including some major markets. In Germany, which is really an underdeveloped market, not so much an emerging market, we have really grown that business. In France and in Australia, these are mature markets where we're really growing our business, where the branded play strategy is coming to the core and the teams are really being successful.

Now to create long-term shareholder value, we've been investing in our branded play strategy to powerfully grow our business around the world, and let's look at that. So again, if you look from 2006 to 2010, our revenues grew by 6% on average. Product development grew by 4% so, again, we're investing in the business, but we're also seeing leverage from growing our brands out and around the world. But roughly half of the product development cost increase from 2006 represents investments in the emerging markets and entertainment and licensing. It's about getting us to be a strong global competitor. The remaining half of the increase was all about driving product innovation globally.

Now let's look at SD&A. If you look at our SD&A, it grew by 3% on average over the period but, again, nearly 2/3 of that growth was focused on and due to investments in emerging markets and entertainment and licensing. So you see that, in fact, we continue to invest in our business and yet, our results are very, very strong. Our net revenues grew by 6% on average over this period. While operating profit grew by 12%, net earnings have grown by 15%, and earnings per share have grown by 21%.

So despite this continued investment in emerging markets and entertainment and licensing, we're delivering strong growth in operating profit, net revenues and earnings per share from 2006 levels. So again, as those investments begin to generate growth, we'd expect even stronger bottom line performance because 2011 has marked the apex, the height of our incremental spending. As you'll hear later, the Hasbro team is now fully staffed at Hasbro Studios. The Hub network is up and running. Our global licensing team is staffed. We may add a person or 2 but fundamentally staffed, and our emerging market expansion investment is now able to slow. We have teams in place. We're able to compete in these new and emerging markets.

So that brings us to our medium-term objectives. We expect to get revenues growth of 5% or better over time, operating profit, margin improvement to better than 15%, and we will generate operating cash in the amount of $500 million on average. I would hope at this point, you would understand more clearly the building blocks of how we're bringing this branded play strategy to life and how we arrive at these medium-term objectives.

So there's the total brand blueprint, now rebuilt and in completeness. Our strategy does remain strong and focused. Our brands do resonate globally as we're seeing, and you'll hear more about that throughout the day. The investments we made will be leveraged to deliver strong results in the future, and we are creating long-term shareholder value.

And with that, I'd like to turn things over to Eric Nyman, who will take you through our games reinvention. Eric?

Eric Nyman

Thank you, Brian. Good morning. For those of you who I haven't met before, my name is Eric Nyman. I'm the global brand leader for the boys and gaming business here at Hasbro. Today, I will walk you through our new team's vision for reinventing our gaming business. Our 10-point game plan, if you will, to grow in a more robust manner. As we crafted the game plan, we needed to understand if gaming was still relevant to consumers of today. As Brian mentioned, there's a lot of good news here. And that good news is that more people are playing games today than ever before, again up from 200 million 6 years ago to over 1 billion today. Also from our research, both parents and kids love to play games, but they love to play games for different reasons. For those of you with families, this will likely resonate. Parents love gaming because it allows them to connect with their kids. In fact, 89% of parents believe that playing and playing games is great for their children. Kids love gaming for a different reason because they can compete and win. For kids, it's one of the very few opportunities to get the upper hand on their parents, and that's highlighted by the fact that 73% of kids would rather play games than watch television.

So we're making a powerful pivot, and we're embarking on a new mission as a team, embracing the past and moving to a mission from games to gaming. Our new team is going to be very focused and will be focused on creating great gaming experiences for a broader, wider consumer base with a new focus on boys, girls and teens, our multiplay experience, so that we can hit multiple consumers off the board play because we know consumers today like quick, snack-size gaming experiences, whether that's for 20 seconds or 20 minutes, again, focus on the interconnectedness that we've seen drive success for our Wizards of the Coast unit with Magic: The Gathering and lastly, from our research to make sure their gaming experiences are focused on intense competition and connection.

Our first point plan of our 10-point plan is to organize the business around consumer groups, more akin to how we operate our toy business today. We have a great and successful history here. As a company, we built a strong foundation in a good preschool business with leading brands, like PLAYSKOOL, Tonka Chuck & Friends and Sesame Street. Now in gaming, we have a great foundation with Elefun and Hungry Hippos to build from. We've created the leading boys branded business with Transformers and many other great boys brands. We now have to take those learnings and that expertise and apply it to boys gaming. With Battleship and the Battleship movie, we have that chance right at the get-go to help us connect with boys through entertainment and bring the first major motion picture to a gaming brand, which will help us drive sales year-round, both at the major motion picture movie release, the DVD and, of course, quarter 4 shopping season.

On the girls side, we've created and launched a successful girls business behind great brands, like My Little Pony, Littlest Pet Shop and FurReal Friends. Now we have that opportunity in gaming. Interestingly from our research, over 51% of digital game purchases today are made by girls. But under 10% of our games business is directed there today. It's a great opportunity.

We also know teens. We've built a very successful Nerf business here as a company, and we're going to make sure that we focus gaming experiences for those teens going forward, and we're going to continue to reinvent and reignite the great brands in our gaming business for families. Driving more focus against these consumer segments will help us to deliver upside in our gaming business over the next 3 to 5 years, as many of these consumers simply aren't shopping in the traditional gaming isle today, especially boys, girls and teens.

Secondly, our team's focus on these consumer groups will drive what we have deemed our mega brands, brands we feel have significant upside potential and that will apply Hasbro's brand blueprint too. Driving more focus on these brands will help provide a lot more focus for us as a company and deliver better consumer and retail experiences to our customers and consumers to drive revenue and growth.

The good news, and there is good news here, is we've executed this strategy before. In our toy business today, our top 10 brands represent 84% of our business. So right now, if you look at the game side of the ledger, our top 10 brands only represent 53% of our business. So going forward, and as I mentioned, the added focus on these top 10 brands or mega brands in gaming could drive significant upside revenue for Hasbro.

In addition to this focus on the mega brands, we will seek to reinvent and reignite our business to focus on our 25 classic brands, what we call our core 25. These brands continue to resonate globally with our consumers and our customers. This core 25 business today represents over 35% of our business, and we want to ensure that we maintain this business as we seek to grow our selection of mega brands. Lastly, we will continue to selectively pursue license opportunities with partners and great branded entertainment content around the world.

Our third objective speaks to how consumers game today. As I mentioned in my upfront, consumers are looking for fast, competitive gaming experiences that fit into their lives. We're pleased with launches in this area this year with launches like Connect 4 Launchers and Bop It! XT, which are doing well at retail right now. Our focus in this area will be considerably sharper as we hit 2012. We have several intense off-the-board games coming for our consumers. For preschoolers, we have a whole new Elefun gaming experience. For girls, we have a whole new way to combine music and movement with Twister, bringing current top 40 music and breakthrough dance routines to our Twister brand. For boys, we have a new way to make Connect 4 more competitive with a unique solo or head-to-head option to create a great connective Connect 4 experience. For teens, we have an amazing new Bop It! experience, which will help us extend our successful Bop It! franchise. And for Scrabble fans, we'll build on the success of Scrabble Flash.

Our fourth objective is to continue to drive digital integration into our thinking and into the consumer experience. First, we'll deepen our activation on console games, social gaming and mobile apps with our great partners, EA and Activision.

Secondly, we're going to aggressively partner with additional third-party developers to create social gaming opportunities for our great brands, like Transformers. Thirdly, we're going to develop our own digital experiences that are complementary to our digital partners with significant new launches, Zapped and Laser Tag, that I'm excited and I will be excited to share with you as we go to Toy Fair next year.

To dive a little deeper here into our digital space, with EA and Activision, we've made great strides. In 2011, we have Transformers: Dark of the Moon, which is tracking as one of the top movie console games for 2011. We have an all-new Family Game Night 4, based on the popular Hasbro Studio show. And for the first time, an all-new Twister game for the Xbox Kinect, which just launched on November 1.

We also have immersive social and mobile experiences, such as Monopoly Millionaires and Risk, which are both risk gaming experiences for Facebook. And we continue to expand aggressively on tablet gaming with Life, Scrabble, Boggle and more. In 2012, we will continue to innovate in this area with big launches, like Transformers: Fall of Cybertron, which was recently featured in the cover of Game Informer Magazine with even more to come.

As Brian mentioned as well, with our external partners, Jagex and NetDragon, we're also working on 2 big MMOG-type launches in 2012 and 2013. And we look forward to sharing more information with you on these watches as we get closer to their actual launch dates. By increasing our focus here on digital gaming, we can extend our brands seamlessly and connect with more consumers going forward to supply great gaming opportunities for our consumers.

Our fifth objective is one of the biggest opportunities for us globally with our retail partners, and that's the reinvention of the games aisle at retail. I've now met with over 50 retailers over the last several months from Asia, Australia, New Zealand, Latin America, North America and most recently, Europe.

Globally, all retailers agree that this aisle has been more focused on operational efficiency versus emotional engagement, and there is certainly room for improvement. As a leader in gaming, we must show leadership here. And we have already received feedback from many of our retailers that they will make this a priority with us, starting in fall 2012 and as we move forward into 2013.

Our primary goal working in partnership with our retailers will be simple. We're going to focus on 3 things. The first is make it easier to shop for consumers, especially as we bring new consumers into this aisle, like boys, girls and teens. We need to make it easy for them to find the products that we're making for them. Secondly, we're going to highlight new and reinvented classic gaming opportunities, featuring things like Game of the Month, so that consumers can find new launches and new innovation more simply in this aisle. And thirdly, we're going to continue to create retail entertainment now that we have movies and TV programming for many of our great brands, and we need to bring these to the retail aisle, similar to what we've done with Nerf, Littlest Petshop, My Little Pony and Transformers.

Objective 6 is to continue to create branded entertainment, leveraging our gaming brands. On the theatrical front, we have a very strong movie slate for our gaming brands. Our first gaming brand movie launch is Battleship in 2012, and we expect that to truly transform people's perception of that brand. You'll see more of Battleship later today from John Frascotti, our Chief Marketing Officer. In addition, we are working on movie projects for both Candy Land, Risk, CLUE, Ouija and Monopoly. On the TV programming front, The Hub has allowed us to bring powerful content and Hasbro Family Game Night and new shows, such as Scrabble Showdown and THE GAME OF LIFE. These shows are now beginning to go global as in Spain, they just began airing Family Game Night.

On the casino gaming front, Hasbro brands continue to be among the most popular and successful brands at casino gaming. Through partnerships with industry leaders, such as WMS and Slots and scientific games and lotteries, millions of people are playing with our brand every day around the world. Monopoly is a good example of our success in this area. Our Monopoly branded slot machines are now on casino floors in 29 states in the U.S. Monopoly, in fact, is the second largest brand in the entire industry, and we continue to be the #1 brand of lottery instant ticket around the world.

Lastly, we just announced our cruise line partnership with Carnival, a strategic partnership that launches on June of 2012 with their first ship, bringing our Hasbro game show format to their cruise line with more ships to follow over the next several years. So we're going to continue to build our entertainment around gaming through our consumers.

Our vision for gaming has also led to the establishment of our 7th objective, which is a new gaming communication strategy. This new strategy is designed to create more connective marketing to kids to reach kids where they are and on their terms. And we're focusing on 2 things, very simple. Music partnerships because for kids, we know music is social currency. That means music gives us the opportunity to connect with kids with our brands. This fall, we're partnering with Swizz Beatz for flash and using a remix of the top 40 song, Price Tag, for a MONOPOLY Electronic Banking commercial. And in 2012, we will continue this trend. Secondly on the TV front, we're going to make television commercials specifically geared to the consumer groups I outlined in objective 1, focus on communicating with those consumers in their terms and in their language. I will show you 3 commercials right now, which I hope really emphasizes that shift in focus for both Simon Flash, Bop It! XT and the MONOPOLY Electronic Banking.

[Video Presentation]

So I see some smiles out there. There's definitely some Price Tag fans, I guess. If you're anything like me and my kids, you'll be humming that song now for the next couple of hours. The good news is we're very pleased with how consumers have responded so far to this new creative direction. In fact, last week, those 3 products for the 3 TV commercials I just showed were the top 3 games in POS in the United States.

Our eighth objective is to readjust the gaming value proposition, selling branded collections versus items. Going forward, we will look to drive our mega brands for the multi-price point line designed to avoid price degradation and offer new experiences to our consumers. This will allow us to expand our brands, maximize productivity and address regional needs for lower price points in emerging markets. Monopoly is a great example of this. Monopoly Express at under $10 retail launched this spring. It has become an overnight success in Latin America. This game was positioned as a 30-minute snack-size Monopoly experience. It has protected our classic Monopoly and also driven a lot of trial and therefore, a lot of growth for our Monopoly brand.

Our ninth objective is to make our games cooler through licensing. Battleship is a great opportunity here to leverage our entertainment to make cool, more modern statements with our brands and position them for future success and line extensions. Here behind me, you can see how our teams have modernized the look of Battleship and took a classic gaming brand and made it relevant for new expressions for today.

Lastly, we're building a new team focused on bringing this vision that I just shared to life. We opened our global Gaming Center of Excellence in Providence, Rhode Island in September this year, and we continue to hire top-flight talent to extend our leadership in gaming.

So in summary, we're pleased with the progress we have made already, acknowledging there's much more to come on our 10-point game plan. Organizing our business around consumer groups and driving 10 mega brands has certainly helped us to improve our focus.

Our branded entertainment and new marketing creative has improved our connection with consumers. And the new the Gaming Center of Excellence is teaming with great talent and a lot of passion for growing Hasbro's gaming business going forward.

Thank you very much for the time. And now, I'd like to introduce our Chief Operating Officer, David Hargreaves.

David D. R. Hargreaves

Thank you, Eric, and good morning, everyone. Today, I'm going to update you on Hasbro's television initiatives. There are 4 components to Hasbro's overall television strategy: firstly, Hasbro Studios, which produced Hasbro branded television shows; secondly, The Hub network, which airs Hasbro shows and other programming in the United States; thirdly, the international distribution of Hasbro shows to leading kids networks around the globe; and finally, the merchandising of product related to the shows at leading retailers worldwide.

I'm going to talk about each of these components in more detail. It is important to remember that while The Hub is only one part of our television strategy, our investment in The Hub was key to unlocking and enabling our whole television strategy.

Without the guaranteed distribution of programming and the associated revenues in the U.S., it would not have been a viable proposition for Hasbro Studios to produce so much great programming.

So firstly, let's focus on Hasbro Studios, which is the center of our television initiatives. Hasbro Studios produces programs based on Hasbro toy and game brands. For Season 1, 335 original half-hour shows were produced based on 7 Hasbro brands, including Transformers, My Little Pony and G.I. Joe. For Season 2, 255 original half-hour shows are being produced, including new programming based on Littlest Pet Shop, Scrabble and GAME OF LIFE.

The quality of our programming is high. Season 1 shows were nominated for 8 and won 2 Daytime Emmy Awards and also picked up nominations and awards from kidscreen and Parents' Choice.

We believe that to have produced such a large quantity of high-quality shows is a great accomplishment when you look at the timeline. Stephen Davis joined Hasbro as President of Hasbro Studios in September 2009. And while we immediately started developing concepts and scripts for shows, we did not begin animation for the first episode of our first show until the first quarter of 2010. By the time The Hub launched on the 10th of October, Hasbro Studios had only delivered 5 episodes of My Little Pony, 1 episode of Pound Puppies, then 5 episodes of Transformers were delivered for Thanksgiving 2010 and 9 episodes of G.I. Joe: Renegades were delivered in December. All other animated shows have been delivered in 2011. In fact, only now are we completing delivery of the final Season 1 shows.

Another milestone to note on this schedule is that Finn Arnesen, our Head of International Programming Sales, did not join us until April 2010. Bear that in mind later, when I talk about the number of international deals he has completed.

Okay, so what is all this high-quality programming costing Hasbro and its shareholders? Well, back in 2009, we told you cash spend on programming could ramp up to $80 million to $100 million annually. In fact, over the last 12 months, we have spent $82 million. We reached this levels of spending earlier than originally planned because we produced more shows than we originally thought would be possible. That said, we now believe that going forward, our spending on shows will be a little bit lower, in the range of $70 million to $80 million annually, as we have now got through the hectic startup phase and are settling down to a more efficient and cost-focused methods of production.

As previously stated and in line with accounting rules, we do not expense show production costs through the P&L as incurred. We initially capitalize them on the balance sheet and then amortize them through the P&L based on the curve of expected revenues, revenues from both TV sales and associated television-based merchandise. We estimate that program amortization expense will be in a range of $30 million to $40 million for 2011, $60 million to $70 million for 2012 and will then stabilize between $70 million and $80 million thereafter.

So how does Hasbro recover these program production costs? Firstly, we sell the rights to air our programming in the U.S.A. through The Hub network. We sell international airing rights to leading kids networks around the globe, and we also sell our programming via DVD at major retailers and digitally through iTunes. Obviously, we also get the benefit of incremental merchandise sales. However, in 2012, we expect to cover 70% of the program production cost amortization through programming revenue sources. That's before any merchandise revenue contribution.

In addition to investing in programming, we've had to invest in people, offices, systems and infrastructure to get Hasbro Studios up and running. As of the fourth quarter of 2011, we are fully staffed with 30-plus people in Burbank, California and our international programming sales team in London, and spending has now reached our go-forward run rate.

Now let's focus on The Hub and the questions of why own a cable television network and how is it performing against our expectations. We see 4 very compelling reasons for co-owning a television network in the U.S. Firstly, it guarantees distribution for Hasbro-branded TV shows. And while we may have been able to sell 1 or 2 shows to the leading kids cable networks or we could have bought a Saturday morning block on a broadcast network, both of these options would have been limited in scope. Because we co-own The Hub, we have now reached a point where 50% of the hours between 6:00 a.m. and 8:00 p.m. feature Hasbro Studios programming. That's 53 hours a week.

Secondly, and as already mentioned, having guaranteed distribution and revenues from The Hub was the key that enabled Hasbro Studios to produce the shows that it now sells around the globe and for home entertainment.

Thirdly, cable networks can be good businesses over the longer term. In general, the cable network business generates high EBITDA and cash flows. More specifically, The Hub network has been cash flow and EBITDA positive in 2011, our first full year of operating, even though we have been booking small operating losses.

Finally, we believe that over time, we will build a valuable asset for our shareholders. We paid $300 million for our 50% share of Discovery Kids. The leading kids networks have been valued by independent experts from between $3.5 billion and $17 billion. If over time, we could get a valuation at half of the third-rated network, we will have created significant value for our shareholders.

This chart shows the kids television landscape immediately prior to The Hub launch. Clearly, Nickelodeon, Disney and Cartoon Network dominate, and Discovery Kids barely registered. And while in the longer term, The Hub hopes to compete with the big 3 networks, in the shorter term, they have their sights set on Disney XD and Nicktoons.

So one year post-launch, how are they doing? The trend is clearly up, and they tripled the average number of kids 2 to 11 that are watching The Hub at any given time between 6:00 a.m. and 8:00 p.m. And while this is positive, we have to admit that this was towards the lower end of our range of expectations.

It should also be noted that the average number of viewers probably won't grow each and every week, month or quarter as other factors come into play. Clearly, during school vacations and holidays, kids are at home and watch more television. Similarly, viewership will spike if a major cable operator or satellite service provider puts The Hub on promotion and allows people who don't subscribe to view it for free for a limited period of time. These events spike viewership, which naturally may drop back in the next period, but that does not mean that the underlying trend is not growth.

Throughout the last year, shows from Hasbro Studios have significantly outperformed non-Hasbro Studio shows. However, if you think back to the timeline I showed you earlier, when we launched The Hub, less than 20% of the airtime was devoted to Hasbro shows because we hadn't produced them. This has increased as we delivered Season 1 episodes, and as we now start to deliver Season 2 episodes, we also have a library of Season 1 shows that we can repeat. This will enable The Hub to devote more than 50% of its Kids Day to Hasbro shows, which should significantly increase the average viewership by kids 2 to 11.

One year post The Hub launch, they are also starting to beat the competition in head-to-head time slots. On the weekend of October 7 and 8, our first anniversary, 2 Hasbro shows, Transformers: Prime and Family Game Night beat Nicktoons, and 2 other shows that Margaret Loesch had purchased for The Hub, Goosebumps and R.L. Stine's Haunting Hour, beat both Disney XD and Nicktoons programming head-to-head.

This chart is tracking The Hub's performance for the first 20 quarters or 5 years of operation and comparing it to the first 20 quarters for Nicktoons and Disney XD. Unfortunately, a direct comparison for the first 8 quarters is not possible as Nicktoons and Disney XD chose not to have a Nielsen rating during this early period. However, the data would indicate that The Hub is on track to have a similar average day viewership number for kids 2 to 11 by the second anniversary of the network.

Moving onto the financials for The Hub. The Hub has 3 sources of revenue: advertising, affiliate fees and merchandise royalties. For 2011, The Hub had more than 120 advertisers, doubling the number from 2010. And of course, as ratings and viewership numbers increase, so does the revenue from the inventory of advertising spots. Income from affiliate sales is also growing, although at a more modest rate, as they increase the number of homes in which The Hub is distributed. The Hub is currently in 61 million homes, up from 56 million in 2009.

Before moving onto merchandising, it is worth noting there are 23 million kids in the 61 million homes that subscribe to The Hub and that 85% of those kids, or 19 million, have watched The Hub at some time over the last 13 months.

The Hub is guaranteed an average of $12.5 million a year in merchandise royalties from Hasbro for a 10-year period following the launch of the network. This $125 million will be paid in 5 annual payments of $25 million from 2009 to 2013. Hasbro has 10 years to earn out these guarantees, and Hasbro is expensing these royalty payments through its P&L based on the U.S. portion of TV-based merchandise revenue. And remember, half of these payments come back to Hasbro as we own 50% of The Hub.

In addition to the investment The Hub has made in acquiring programming, it has also invested heavily in marketing and people over the last 18 months. However, as we approach the end of 2011, launch costs are complete and they are fully staffed.

Hasbro has also funded the development and launch of hubworld.com, a $13 million investment. In the short term, hubworld.com is a promotional site for The Hub. Over time, it could become a revenue-generating site as we are building in the capability to advertise and charge for premium games or video streaming. At this stage, the initial investment is behind us, and spending is anticipated to decline going forward.

So what do we want you to remember about The Hub? Our investment in The Hub provided the opportunity for Hasbro to invest in multiple television programs. We want you to remember that it takes time to build a network, that ratings are improving, that advertising is increasing, that distribution is expanding and that merchandise revenues are growing, that the launch costs are behind us, and while ratings started a little slower, we believe we can still achieve our 4- to 5-year plan for television in the U.S.

Turning now to international distribution of our programming. As Brian said earlier, we have now done over 40 deals, which cover 142 markets and include more than 95% of the markets in which we sell toys and games. Our deals are with leading kids networks, including Cartoon Network and Nickelodeon. In Canada, we are with Corus; France, Lagardère; Italy, Mediaset; Russia, Karousel; and in China, we are with Toonmax. In most markets, our deals cover 3 or more Hasbro Studios programs, and, except for Canada, where we've been on the air very successfully since the first quarter of 2011, our programming has either only just started to air or will start airing within the next few months.

The benefits of having Hasbro-branded programming distributed so broadly are multifold. Firstly, revenues from international programming sales cover 15% to 30% of our program production costs, with live action shows being at the top end of this range. Secondly, history tells us that television has a bigger impact on merchandise sales outside of the U.S. than in the U.S. And finally, in some of these new, emerging markets where Hasbro is just starting to sell toys and games, television may be the consumer's first introduction to our brands, helping us build a strategic footprint and early brand awareness.

And as previously noted by Brian, our shows are having a lot of early success in Canada, the U.K., Italy, Germany and Spain, which are all major markets for our toy business. In fact, The Hub and Hasbro Studios are making an impact in some other markets which aren't major for us. This picture shows a Hamleys toy store in the Dubai Mall. You will notice that the lead is Hasbro Studios, with a reference to Cartoon Network, who are airing the programming in the United Arab Emirates, and it features 3 of our programs: Chuck, My Little Pony and Transformers Prime. It's not a very good picture. I think someone took it with a cell phone, but you get the message.

Moving on. Finally, let's talk about our expectations for the sale of merchandise related to Hasbro-branded television shows. It is an undisputable fact that television and film entertainment drives merchandise revenues globally. Disney worked that one out and has been following that model for years. We expect 90% of our TV-related merchandise revenue will be from sales of toys and games. However, we also expect significant royalty revenue from our licensees who will sell bedding, apparel, back-to-school supplies and books related to our television shows.

Back in 2009, when we invested $300 million of our shareholders' money to buy 50% of Discovery Kids, we said that we believe there exists the potential to add hundreds of millions of dollars annually to Hasbro's top line within a 4- to 5-year time frame. Indeed, at our November 2009 analyst event, I indicated that $300 million in incremental revenues would not be unreasonable. I'm pleased to say that we are on plan to deliver $300 million of TV-related merchandise in 2012, although not all of this will be incremental. Measuring incrementality is challenging.

Shown here are 3 versions of Optimus Prime. The classic Optimus Prime is on the left, the Optimus from our movies with Paramount is in the center, and the Optimus based on our Transformers Prime television show is on the right. In 2011, our Optimus sales were predominantly the movie-based Optimus. In 2012, our Optimus sales will be predominantly the television Optimus. However, we appreciate that in any given year, our Transformers sales will be due to the fact, in part, that Transformers is a classic toy brand with a 30-year heritage, in part because it's been 3 major movies based on the brand and in part due to the fact that Transformers Prime is on television around the globe. Exactly how much each is contributing is virtually impossible to precisely determine. However, we do believe that of the expected $300 million of TV-related merchandise sales across multiple platforms in 2012, which includes Transformers, My Little Pony, Littlest Pet Shop, Chuck, Pound Puppies, we believe that at least 50% of that is incremental. So it's $150 million. And furthermore, we believe we're on track to deliver $300 million of incremental revenue annually within 24 months from now.

Given Hasbro's overall variable cost structure for 2010, the $300 million of incremental revenue equates to $108 million of incremental contribution margin. This is more than sufficient to cover any program production cost deficit from -- that is not covered by programming sales.

So in conclusion, Hasbro Studios ramped up quicker than planned and are now producing episodes for global distribution at lower costs than expected. The Hub network is building over the longer term. Early ratings may have been to the lower end of our expectations, but we can still achieve our initial 4- to 5-year plan. International distribution is ahead of expectations. We are in more markets with more shows and better networks than we expected at this point in time. We are still in the early stages of driving incremental merchandising as programming is only just starting to air in most of our major markets. However, we expect $150 million of incremental sales due to our television shows in 2012.

If we look at the financial trends, they're all good. Revenues from advertising, affiliate fees, program sales and merchandise are all expected to increase. Program amortization cost will increase through 2013 and then level off, while costs for studio and network overheads, channel launch costs and the development of hubworld.com are either stabilizing or reducing.

So how do we define success? Several hundred million of dollars of incremental television-related merchandise revenues, global distribution of our brands through programming, The Hub becoming a top 5 kids network in the United States, and as we've said from the beginning, and a lot of you will remember me saying it, if The Hub network could be half the size of Cartoon Network 4 to 5 years from launch, that would be a success. We believe we remain on track against all of this criteria.

Thank you. And now I'd like to turn it over to Wiebe Tinga.

Wiebe Tinga

Thank you, David, and good morning. My name is Wiebe Tinga, and I'd like to talk you through our international progress this morning.

We'll show you this morning that our international track records of net revenues and operating profit is solid. We have excellent momentum and are growing ahead of the market and of competition. The strategic investments we made from 2007 onwards are paying back. The strategic brand blueprint is coming to life in all of our territories. Therefore, we believe we have a bright future ahead of us.

Our international net revenues have been growing from 2005 onwards in each of our 3 regions. If we compare the first 9 months of 2010 with those of 2011, we see a growth of 27%. Our year-to-date growth is an impressive 25% in Europe, 30% in Latin America and 29% in Asia-Pacific and each surpassing industry growth and that of most of our competitors.

At Hasbro, we report Entertainment and Licensing globally, Wizards of the Coast distributor markets and Canada are reported into North America. But if we would include all those fees into International, it would represent approximately 46% of Hasbro's 2010 global revenues.

Looking at operating profit. Solid growth over time into 2010, 2011 year-to-date compared to year-to-date 2010 shows an increase of 66% to $133 million. Besides revenue growth, key profit drivers are the fact that we have one global brand organization driving best practices and avoiding duplication. We talked in earlier updates about our global SAP upgrade and the move into shared service centers globally, which is driving efficiencies. We have done North America and Europe. Latin America and Asia-Pacific are next. By doing this, our teams on the ground can fully focus on top and bottom line growth and executing our branded play strategy.

Our emerging markets investments, which started in 2007, will slow down in 2012. By 2013, we expect a few remaining unprofitable markets to break even and drive profitability. Our mix of toy, licensing and digital revenues will drive our operating margins. What is driving our growth is POS, our over-the-counter sales, and boy, is that strong. In Europe, our POS by the end of August is up 13% in U.K. France, Germany and Italy are each up over 25% according to NPD. In Latin America, we're up 21% in Mexico and over 25% in Brazil. In the Pacific, we're up 18% according to NPD.

Markets where you see a double plus on this chart, like Russia, Turkey, Peru, Colombia, Chile, China, India and Korea, are all up in the same range as Brazil. In these markets, we have our own customer data but no official publishable data. In each of these strategic markets, we outperformed the markets and our competition.

A key part of our strategic blueprint is expanding our footprint. We have offices in over 40 countries, and we are selling our products in more than 120 countries worldwide. By expanding into these new markets, we primarily increase our sales, marketing, customer strategic marketing and licensing headcount. Our overall international headcount has been growing from around 1,100 in 2006 to over 1,300 by 2011, and these numbers exclude manufacturing.

Let's take a look where we have been expanding. At this chart -- as this chart builds, we start with our existing markets in 2005 in blue. We've added offices in Brazil, Peru, Colombia, Czech Republic and Slovakia, Russia, Romania, Korea, and last but not least, China. In most markets indicated, we have opened third-party warehouses as well to serve our customers optimally with short lead times. In purple, you see our main distributor markets, and the stars on this map indicate potential new markets. If import restrictions would be lifted, Argentina is a candidate. South Africa, with a major Walmart investment now, becomes an option. And in Asia, major clusters of population like Thailand, Philippines and Indonesia are future candidates. The combination of an expanding middle class and existing representation of a top international accounts make these markets candidates in the 3- to 5-year time frame.

By expanding in these new markets, we are significantly increasing our distribution points. If you add these 3 regions, we are looking at a total opportunity of $90,000 by 2015, which is an increase of almost 60% compared to 2005. The increase in strategic markets like Russia, Brazil and China is even sixfold.

In addition to previous, in our local markets, twice a year, we have over 300 customers here in our headquarters in Rhode Island. They come from Chile to China, from Brazil to Belgium into the U.S. to have interaction with Hasbro's leadership team, see products, review branded play and go-to-market strategies and solidify our strategic partnerships. In return, our senior management team, including Brian and David, visit customers and markets across the globe. For example, for the last 3 years each, Brian, David and I traveled to Mexico, Brazil, Chile, Colombia and Peru and met with key retailers, with license source and with media partners. These top-to-top meetings really make sure we have the best strategic execution in place to gain market share.

Here, you see some of the top customers. They operate multi-country and multi-continent. Walmart operates in North, Central, Latin America, the U.K., South Africa and leading Asian markets like China and Japan. Toys "R" Us operates everywhere, except Latin America, and [indiscernible], on the other hand, is everywhere except North America. The toy business is global, and we have global retail partnerships. We have customer marketing teams on the ground in all of our top markets to align the marketing goals of Hasbro with those of each of our customers. With these global partnerships, we are able to share best practices and drive excellence in execution region by region and on a global basis.

Here, you see some great examples of our execution end markets. Nerf and Littlest Pet Shop in mainland Europe, games in China and Mexico, Transformers in Hong Kong and Sesame Street in the U.K.

John Frascotti always reminds us the consumer is in the center of everything we do, and this chart is a key proof of that. We communicate with consumers across the globe via social media. We have interaction via proprietary online communities. Primary research with over 70,000 kids and parents, and in our own fun labs, which we have in the U.S., the U.K, and our fun lab on tour which travels the globe. These are some examples of end market studies we do, ranging from learning how parents and kids experience family gaming in Korea to studying shopping behavior in Brazil between moms and boys in the toy aisle.

Brian talked this morning about the global industry CAGR and the fact that Europe is outpacing North American growth and that Latin America and Asia-Pacific are currently the strongest growth markets. So let's look now at a projection of which markets will fuel growth from 2011 into 2015.

As you can see on the left, all crucial emerging markets drive a CAGR of 9% and above. And on the right side, there are 4 markets which make the so-called billion-dollar growth club: China, India, Brazil and Mexico. Hasbro is well positioned to take its share out of this $9 billion growth in these 4 markets alone.

Let's have a look at a bill about Hasbro's International business in 2010 versus 2005. Preschool Boys and Girls are growing. Both boardgames are declining as a percentage but growing single digit in dollar terms. Our Boys portfolio is well balanced with mega-brands like Transformers and Nerf complemented by stellar partner brands from Marvel and Star Wars. Beyblades drives momentum, and KRE-O will be a phenomenal driver brand for 2011 and beyond as the construction market is very significant internationally. Play-Doh is a beachhead brand at almost all markets, still going very strong. Playskool is driving high growth rates and is one of the highest dollar opportunities. Sesame Street is, for 2011 and onwards, a major Preschool license opportunity, with stellar programming in most major markets.

Finally, Girls. With My Little Pony and Littlest Pet Shop, we cover a wide age range, both supported with great TV programming from Hasbro Studios for the future. Baby Alive is already the leading doll brand in Latin America and certain Asian markets. The future expansion of this brand combined with a great surreal [ph] growth dollars rounds out a healthy Girls portfolio.

On this chart, there's another way to look at it. At Hasbro, we drive global brands, from Transformers on top of the charts to KRE-O, third way. They are all top revenue drivers for all these strategic growth markets. And then you have examples like Magic, which is building fast both in trading card and digital in China and Korea, or Baby Alive, which is one of our leading brands in both Mexico and Brazil, expanding fast into other key growth markets like China. Both Marvel and Lucas brands are strong in Europe and Latin America and are building their base with new TV programming and movie rollouts in Asia.

As both Brian and David indicated this morning, entertainment is driving our growth. We have our own end partner TV shows playing in each key market and network. On top of that, we are developing local opportunities, like Play-Doh in China. In Latin America, where television is so important, we are in a very good position with leading networks like Discovery Kids and Cartoon Network.

Looking at box office now. On this chart, you see growth in each of the international regions through 2015. Asia is taking the lead, growth over $16 billion by 2015. The Asia box office successes we had with Transformers and G.I. Joe bodes well for our future.

Finally, digital. Strong plans across the board ranging from solid Monopoly execution of EA, Activision going strong on Battleship, and finally, Transformers MMOGs, with both Jagex and Net Dragon. With the size of the Transformers franchise in China, that partnership will drive significant results for us.

So we looked at footprint, we looked at stores, we looked at brands. Let's look at team Hasbro now. The combination of our branded play strategy, Hasbro's 59th ranking in the Fortune 100 List of Best Companies to Work For and our training and development programs make Hasbro a company of choice for global talent. As I have headed up our emerging markets expansion, I can truly state that talent likes to join Hasbro.

This, combined with our existing global talent pool, makes a strong team, which is driving momentum. The international leadership has over 85 years of experience at Hasbro, with new blocks from companies like Reebok and Sony Ericsson. Each team member has worked in multiple countries, and half of us has worked on 3 or more continents, a passionate leadership group, with strong teams on the ground in country and regions.

Moving to the final piece of my presentation today, Brian talked to you earlier about mature, developing and emerging markets. I think there is no confusion of what mature is, so I want to give you some color on what we define per region as developing or emerging. In Europe, Germany, Italy and Turkey are developing. We have still significant room to grow in each of these markets. Emerging Europe is Russia, Czech Republic, Slovakia and Romania, solid performance in double-digit operating profit percentages, except Romania, which is only in its first year of operation. Mark will update you on Russia in a few minutes.

In Asia, Malaysia and Taiwan are developing. We've been on the ground there for more than 10 years and are still growing. Emerging Asia is also Korea, a 2010 startup, a top 15 world economy driving huge box office for Hasbro's movies, which, in turn, fuels our toy, licensing and digital revenue. We have a solid outlook there. I will cover China in a few minutes with some more detail. And then India, as you may know, is a joint venture market for us since 1986. Our business performance is ahead of market and in line with our major competitors looking from a toy and game perspective.

This brings me to Latin America, the fastest-growing toy market, 9% growth in 2011, with middle-class families expanding. We look at Mexico and Chile, markets where we've been for a while as developing. We've added offices in Brazil, Colombia and Peru, which we label as emerging, and we have support on the ground in a number of other markets.

Our customers are expanding with significant investment in new malls and retail outlets, and our retail partnerships are strong. The mix of our core and challenger brands, toys and games, together with our key partners, Marvel, Lucas and Sesame Street, make us the company which can operate in every segment of this market.

With movies and television from us and our partners, our entertainment strategy is very solid . Our year-to-date growth and POS momentum outperforms the competition. We have a good track record of profitability in the markets where we have been longer, so in Latin America, we at Hasbro are catching up quickly. Looking at the size of the market and the growth perspectives, our performance and momentum, a fantastic opportunity.

Before I hand over to Mark to talk about Russia, there are 2 markets which I want to draw your attention to, Brazil and China. In Brazil, we moved from our distributor model to a full subsidiary with a third-party distribution center. We have a very strong team on the ground of about 60 people led by Carla Kamensek, who joined us from Levi's and Kellogg's [ph].

Net revenue growth from around $10 million in 2007 to $60 million in 2010, and we have robust growth continuing in 2011. We are looking at a CAGR of 15% for the next 5 years and see a revenue potential of $200 million before 2020. Our product portfolio is a perfect fit for this market as games and feature dolls are big categories.

Our branded play strategy is in place, and we have strong momentum. We are expecting to be breakeven in 2013 after 5 years of investment, so we are excited about the opportunity for Hasbro in Brazil.

And then finally, China. Consumption expected to match U.S. by 2025. China alone contributed to 19% of global growth in 2010. We have a talented team in Shanghai executing our branded play strategy, and we have also resources focused on China product development and consumer insights. Some of our brands are not new to the China consumer. Transformers is a heritage brand, which started with TV animation in the '80s. Our first 2 movies were a huge success, and in 2011, we organized Cybertron Com [ph], A 3-day event for 37,000 Transformers fans. And then in 2011, the biggest box office of all time in China, Transformers: Dark of the Moon.

We continue in 2012 with more online content and our highly expected Transformers MMOG, together with a leading developer, NetDragon, combine in China as 50% over the global online gaming market, together with our Transformers franchise, gives us high expectations.

Another brand with heritage is Play-Doh. For 2012, we will air 52 TV episodes which are now in production with Toonmax. And on top of that, we have Sesame Street on the state CCTV network, reaching 360 million children and families. Toonmax will be added to their distribution in 2012.

As our brands become meaningful now, we are changing into a multi-distributor, multi-retail operator model, which will show a strong acceleration of our distribution points. We expect to be breakeven in 2013 and foresee a revenue CAGR of 20% for the years to come.

Toy, licensing and digital will drive our bottom line, so our profit outlook looks promising for the future. Finally, we have formed a China Executive Committee, which consists of most members of our senior management team here today. This team meets regularly also in China, with our team, our key stakeholders and prioritizes China as our biggest growth engine for many years to come.

So concluding, a strong 2011 momentum is driven by our innovation in core and licensed brands. The investment strategy is paying back. Our branded play strategy is deaccelerating. Key relationships with trade, media and licensing partners are Hasbro's strength. We are confident for a bright future.

So with that, I'd like to hand over to Mark Hoijtink, General Manager of Northern Europe and my partner. Mark?

Mark Hoijtink

Thank you, Wiebe, and good morning. It is my pleasure to walk you through a very exciting project we have in our hands called Russia. And Russia is the focus for many companies nowadays, and the market is really booming. If you compare St. Petersburg and Moscow just 10 years ago and go back to the moment now, you will see that the markets and cities are extremely changing. They have become real cosmopolitan cities, where consumers are willing to buy and pay for brands. The change is very noticeable.

As a matter fact, I was there last week, and you can feel the vibrations in the market. Russia is booming.

Now it's a big country. It's a very big country. It's about twice the size of the U.S. It's the biggest in the world and has 9 time zones. Just to get a feel for this, transporting from the east to the west takes 2 weeks of continuous train travel. The main concentration of the consumers are based in the 2 cities on the west, which is Moscow and St. Petersburg. The other 60% is based on the [indiscernible] territories, making distribution a critical component of success. Although its territory is the biggest, the GDP is still the smallest of the BRICs mainly because of its population size. This becomes clear when we look at the capita GDP, where it's the biggest of the BRIC markets, almost 2x -- 2.5x the Chinese GDP. In terms of wealth creation, it's expected to leave its BRIC neighbors behind in the longer term. The per capita GDP is expected to be roughly half the size of the U.K. or France by 2025, and Russia, an interesting data, is ranked #3 in the globe and the highest in per capita millionaires.

Now let's take a look at it by market. As indicated on this chart, the Russian toy market is roughly again 60% the size of the U.K. and the French market. On the other hand, it has twice the number of children, making the consumption per capita low, and this is exactly where the opportunity hides. Hasbro expect the market to grow 15% annually, reaching $4 billion by 2015. Exact market data is a challenge, so we use various sources to extrapolate the market. This chart shows the estimations between -- to the Russian Toy Association called Amico in this chart. However, retail believes -- or Detsky Mir, the main toy retailer at the least. The 50% average market growth, we believe, is a very solid estimation.

Although currently, the market is based on non-branded product, a rapid increase in wealth will automatically and normally drive a strong demand for brands. We expect the branded part of toy market to reach 50% in 2015. Now if we add the average market growth of 15% on one side, the shift from non-branded to branded, it becomes evident we're looking at a very strong opportunity for Hasbro.

I'll talk about brands. This is our major brand development expectation chart. Major brands are Play-Doh, My Little Pony, Transformers, FurReal Friends, Nerf, Monopoly, and those are the main drivers and will be the main drivers in the future growth. The worldwide Transformers 3 premiere in Moscow this year drove our sales far above expectations. Monopoly has a 93% brand awareness. Nerf is off to a very, very strong start, following the best practices in other global territories. And as part of our branded play strategy, we're happy that we have secured programming for My Little Pony and Transformers Prime with our media partner in Russia, Karousel. My Little Pony will be live on air by the end of this month.

To give you a flavor on how the Russian advertising environment works, I want to show you a FurReal TV commercial adapted for the Russian audience to maintain its brand essence. Now FurReal is a huge success in Russia, and this has to do because the FurReal Friends for the Russian audience is a status symbol. The highest-priced items are the ones that sell best. So let's take a look.


I'll be needing translation after this show. Let's look at retail because without our retail partners, it's impossible to execute our group end strategy. So we look at the retail, we'll see that the traditional piece is still very, very strong. But the growth of this is coming from the hybrid markets and the toy specialists. Those are the ones that are putting serious pressure on the overall street shops. We estimate the hybrid markets to grow over 300% through 2015 and toy specialists to grow over 200% in the same period of time basically due to its geographic expansion and new store openings. Russia, for example, is a leading market for Auchan, a French retailer. Some of the top markets are in Moscow, and they are looking at aggressive expansion plans. X5, the biggest supermarket chain, over 1,200 stores, keep expanding and acquiring new outlets. This rapid growth helps Hasbro to establish its brands, so it's here where the traffic comes and it's here where we can build strong brand theatrical opportunities. Furthermore, a bigger concentration of the modern retail also helps us to optimize our resources and drive less complex distribution strategies mainly due to centralized trade negotiation and warehouse deliveries.

This chart shows market shares, and we estimate that by the end of this year, we will double our market share and become #2 in the market. Construction is a key category in Russia. With our 3-year launch, we expect to have strategic growth for next years. Global players are not active yet in the way we approach the market, and therefore, we have a strong competitive advantage both to capture the consumer as well as to build strong trade relationships. Building market share now is key to long-term success.

Now the creation of wealth and on-site, the growing demand for brands and the concentration of retail has made us move one step up. We are on track to start direct deliveries and invoicing in the first half of 2012 through a fully owned subsidiary in Moscow. As shown here, we are currently supplying our customers through a centralized warehouse in Soest, Germany. Simply stated, our retail partners and wholesalers pick up the goods in Germany and take full responsibility and handle importation and distribution of the goods themselves. Not an ideal situation at all. Furthermore, the average time needed from Soest warehouse to [indiscernible] in Russia is roughly 45 days, and that makes it very difficult for us to react.

On our new setup, however, we will deliver direct to 20 retailers and wholesalers through a third-party warehouse physically based in the Moscow area that will dramatically improve our service levels by cutting 40 days out of the supply chain. Furthermore, we expect to increase our direct shipment base from 500 to 2,000 stores, a major shift.

Marketing, sales, planning, controlling and logistics will all be managed by our centralized offices in Moscow, and we expect to double headcount to 40 people by the end of 2012.

So in summary, we want to become the #1 branded play company. We aspire to be hitting the 10% market share by 2015, $200 million turnover before 2020 and obviously, deliver the company efforts operating profit. We have advanced. We have new relationships, and we have momentum going. Russia is the opportunity, and we are there and ready to capture it. Thank you very much. With that, I want to introduce John Frascotti. John?


Brian D. Goldner

Could I get everybody's attention in the room here? If we could all take a moment, wrap up conversations, grab our seats.

I want to thank the kind folks who are running this meeting for giving me a new battery for my microphone, and we're off and running.

We're going to talk about 2012. And with all the progress that we have made and the new initiatives that you will see in just a few moments from John Frascotti, I don't think anyone would be surprised to hear that we expect to grow revenues and earnings per share for the full year 2012. The investments that we have made through 2011 will begin to give us additional leverage and global growth. And so I want to back that up with a macroeconomic perspective.

In the U.S., we certainly have the opportunity to continue to gain momentum. You will hear about and know that we have some really good POS momentum right now in the market, and we feel we can continue to grow market share. However, it's backdropped by the low economic growth and high unemployment as remaining concerns. In International, as you heard from Wiebe and Mark, our business remains strong. European growth by market is mixed but overall strong. And we should continue to post good growth and market share gains over time. In our emerging markets, we're seeing rapid growth. Our brands really work the emerging middle classes there, and it continues to grow and come out for Hasbro brands. And our branded play strategy is really being fully activated. This past summer, as Mark mentioned, the team, the management team went to Russia, and we spent time there at the world premiere of the third Transformers movie, Dark of the Moon. We also had an opportunity to spend time with retailers, and we spent time with Karousel, the national TV network that has purchased 2 of our shows that will go on the air. What is so heartening to see is how our branded play strategy is coming to life in these emerging markets in such a powerful way that really rivals that of our mature markets or developing markets.

Now let me just give you directionally where we're going for 2012 by category. In core brand, growth is certainly Preschool. We have a first full year of Sesame Street and innovation from Playskool and Play-Doh, and we expect that business to be up. In Girls, we expect continued momentum with My Little Pony with the show going on the air in over 100 markets and the momentum in the product line and licensed products, as well as FurReal Friends. We have a lot of new categories in Littlest Pet Shop and Baby Alive, and Baby Alive is a great global growth story. In Boys, as we've done in prior years, where we talk about new initiatives offsetting current initiatives, we believe that the new initiatives we have for 2012 will offset the great success we've seen in Boys in 2011. So it'd be roughly flat year-on-year. We have global distribution of the KRE-O Transformers line in 25 markets. That's up from just 7 markets this year. We also have a brand-new initiative in KRE-O that will launch in 7 markets, and John Frascotti will cover that in just a moment. We have Star Wars movie in 3-D, obviously, 2 movies from Marvel, G.I. Joe movie, as well as the continuation of Beyblade, with a lot of new initiatives. In games, we expect our games business to grow next year, not only behind the Battleship movie initiative but, of course, the first full year of our Gaming Center of Excellence coming to the fore, bringing great innovations, new marketing and a global approach.

So 2012 is a key entertainment year, with 5 major movies, Hasbro Studios programming on the air around the world, as David Hargreaves told you about, and we will have the rollout of TV-related merchandise.

So let me just remind you that in 2011, with the height of our incremental spending in these categories, the Hasbro team is fully staffed at Hasbro Studios. The Hub network is up and running. We have our global licensing team fully staffed. That doesn't mean we won't hire a person or 2, but we're up and running now. We hired 30 people this year in 10 countries around the world, including a lot of emerging markets in 2011. And our emerging market expansion investment will slow. Mark talked to you about the kinds of investments we're making to distribute products in Russia, but the bulk of our investments have really been made in getting those markets up and running. And there'll be some incremental investments, but certainly not at the levels you've seen this year. And you'll hear more about that in SG&A spending as we get into Deb's part of the presentation.

So let me just tell you next is John Frascotti, who'll outline the major revenue drivers of 2012. And then you will hear from Deb Thomas, our CFO. She'll provide the financial outlook. We'll then open things up for our Q&A, then product tours, and then we'll get a chance to get together and close up the day.

So with that, let me turn things over to our CMO, John Frascotti. John?

John Frascotti

Thank you, Brian, and good afternoon. So as Brian mentioned, what I'd like to do now is take you through our big revenue drivers for 2012 and talk about them in 3 main categories. Eric covered games this morning, so I'm not going to cover games. But I am going to talk about Preschool, Girls and Boys and how we're commercializing these great brands globally to drive that top line growth that Brian just talked about.

So let's start right away with Preschool. With Preschool, we have these great brands from Sesame Street, Playskool Heroes, Chuck, Playskool and Play-Doh. And what we're going to do is drive these brands forward in 2012 with innovative product, innovative marketing, digitally engage our consumers and bring to market great experiences for our consumers.

So let's start with Sesame Street. When we acquired the Sesame Street license last year, we told you that we would deliver more innovation and interactivity in the toys. We said that we'd deliver more education in our products. We said that we would develop more characters than just Elmo because, after all, there is much more to Sesame Street than just Elmo. And we said that we would ramp up our marketing and become much more aggressive and market the Sesame Street brand to consumers, and I'm happy to report that we're well on our way to achieving all of these objectives. And the POS for Sesame Street this year has been excellent. We launched Let's Rock Elmo at an event in New York City featuring Randy Jackson in September and garnered 140 million impressions from this event alone. That same week, Elmo himself appeared on Jimmy Fallon and appeared on Good Morning America. And since that time, this product, Let's Rock Elmo, has been performing extraordinarily well at retail. It's been on almost every top toy list. And what's interesting is that the attachment rates for the musical instrument that we sell along with Elmo have been terrific.

And to really prove out our strategy, we've also seen the POS on other Sesame Street character products, like Cookie Monster, has been strong as well. So as we look ahead to 2012, what's in store for Sesame Street? Well, first and foremost, we're going to offer a broader selection of products that are going to give preschoolers around the world new ways to play with their favorite characters. We'll continue with Elmo, but we'll also offer products from Cookie from Grover and from Abby. And of course, when we approach holiday of next year, we will have a new feature item that we will debut next year. And as Wiebe mentioned in his presentation, we see significant growth through this approach in markets outside the United States, really throughout the world. So Sesame Street is a major growth platform for us in 2012. We only had about half a year with it this year, and you're going to see us continue to expand that product offering.

The next Preschool priority for us is what we call Playskool Heroes, which consists of great IP, and also Chuck & Friends from our Tonka brand. And what's interesting here is the strategic approach we've taken, which is all about taking these big boy brands, like Transformers and Marvel and Star Wars and Chuck and bringing them down to preschoolers with age-appropriate themes and age-appropriate products. We like to call it big boy brands for little boy hands. And today, at retail, we launched this segment this year. At retail, it's doing extraordinarily well, really proving out that little boys and their moms have a big appetite for this IP brought down to preschool level. And one of the brands in particular is distinguishing itself, and that is Transformers Rescue Bots. In fact, next month, on The Hub, we'll be debuting a brand-new television series called Transformers Rescue Bots, and then we'll take that program into our global distribution network in 2012. Now Transformers Rescue Bots will give us an incredible opportunity on screen to feature our key products and our key themes. This show is right in production right now. It launches next week, but I just wanted to share with you a short clip that will give you a sense of the flavor and tone of Transformers Rescue Bots.


John Frascotti

So that's taking Transformers down to our young boy consumer. In the Preschool category, another key brand for us is Chuck & Friends, where we're delivering a variety of immersive experiences to our consumer. We have our TV show, The Adventures of Chuck & Friends, it's rating very well in terms of co-viewing on the Hub. As was mentioned earlier today, it has a dominant market share on Super RTL in Germany. And it's actually outperforming Thomas on Treehouse in Canada. And what's interesting is that this show is in fact driving POS for us. It's a great platform, just like Transformers Rescue Bots, for us to feature marquee product and cross category themes that we can bring to life at retail. And we're really developing this IP through a number of vehicles including publishing, including DVDs and apps as well.

Our third major preschool priorities is PLAYSKOOL where we have a new product this year called the Elefun Busy Ball Popper, it's been featured on several holiday top toy lists and it's selling well at retail. And in designing this product and putting together the strategy for this product, we took a popular Hasbro IP, Elefun & Friends, from the popular Elefun game and made it the central element of this product. So as we look forward to PLAYSKOOL in 2012 you're going to see us taking this same approach utilizing proprietary Hasbro IP, Elefun & Friends, to launch an entirely new segment that's going to be based on popular music and activity, and we'll be debuting that at Toy Fair in February.

And now let's talk about Play-Doh. Play-Doh was mentioned earlier today as a big growth opportunity for us in many markets around the world. We're going to continue to grow Play-Doh again in 2012 in 3 main segments. We have our food role-play segment where we've had a lot of success in the past. So we'll be developing a new product there that we'll bring to market. In fact, this new product, which will debut next year, we feel can be our biggest selling Play-Doh item ever. More to come on that.

And then in vehicles, we have our digging rigs and in Play-Doh's, we have girls and doll play with Sparkle-Doh. Now what's interesting about Play-Doh is really the astounding growth it's had over the last 3 years, where it's grown 88% in the last 3 years, and the way that we've driven that growth is by focusing on these playsets, innovative playsets. We've delivered product to emerging markets at attractive price points. For emerging markets, $1 to $5 and we've broadened our international distribution of Play-Doh. So Play-Doh will continue to be a big growth opportunity for us.

Now let's turn to Girls. We have a diverse range of brands from Baby Alive, for our youngest consumer, to My Little Pony, Littlest Pet Shop, and FurReal. All of these represent growth opportunities for us and they'll be focal points for us as we head into 2012.

Let's start with Baby Alive. Baby Alive has experienced significant growth over the last few years and we'll continue to grow that in '12. It's become one of the world's largest special feature nurturing doll brands. And the way we've done that, is we've gone from a single feature doll to a full line of dolls with unique features. And what's interesting, in the last year alone, we doubled Baby Alive's market share in Brazil and in France and we've tripled Baby Alive's market share in the U.K. So as we look to 2012, we'll continue to focus using the same strategy, which is we're going to continue to drive product innovation with feature base dolls, that capture the imagination of our youngest girls. We're going to aggressively market the Alive, feature these dolls and then as we've done in Latin America and Asia, we're going to develop a distinctive and strong brand statement for Baby Alive at retail.

Let's turn next to My Little Pony. My Little Pony right now as we sit here today, is demonstrating that with great storytelling, you can truly reignite a brand and engage consumers globally. Last year at this time, we told you that we were going to use storytelling to reignite My Little Pony and I'm happy to say that it is working quite well. Our My Little Pony television series is capturing strong viewership. In the United States alone, in the last quarter, over 8.5 million unique viewers watched the My Little Pony television show. In the U.K., where we launched on Boomerang in August, our sales of My Little Pony were up 200% and we had a sell-out situation at several of our key retailers. And our research shows, we've looked at NPD data and other data, is that as a result of this show, we are driving a broader demographic of growth to this brand and we've seen the girls are spending more money on the brand.

So we've already started to use our My Little Pony television show to develop unique franchise programs that we can take the My Little Pony brand across several categories. The first of these was the Canterlot program, which we launched at Target this year, as well as Tesco. It was a unique theme that we developed, Canterlot, we integrated it into our TV show and what it did is it drove incremental out-of-aisle placement for My Little Pony and it delivered My Little Pony across a raft of new categories for the brand, and the result, when you look at the PLS is that My Little Pony sales were up, in terms of the mainline sales, but also the specific Canterlot products added on top of that.

So as we look ahead to 2012, what you'll see from us with My Little Pony, is an entirely new theme, executed very similar to this, executed across category at retail, to drive new autobio placement in cross category sales.

Now let's talk about the Littlest Pet Shop. Before I talk about 2012 for Littlest Pet Shop, I wanted to give you a few big beats for what's happening with Littlest Pet Shop right now at retail. In the last 90 days, we've introduced entirely new segments for My Little Pet Shop with Walkables, Sparkle Pets and Teensies. And I'm happy to report that our Littlest Pet Shop girls are responding very well to these new introductions. So as we look ahead to 2012, one thing we know for sure, the success of Littlest Pet Shop over the last 8 years has been dependent on our ability to bring newness and freshness and to stay on trend. So we look ahead to 2012, we're introducing an entirely new look for My Little Pet Shop -- for Littlest Pet Shop, excuse me. And that new look will come to life in an entirely new episodic television program being produced by Hasbro Studios. This new program will launch in the fall of 2012, on the Hub and in international distribution in the back half of '12 and going into '13. It's an animated adventure comedy TV show, and it's going to create an ownable personality for Littlest Pet Shop and what it's going to focus on is really the unique personalities of the pets within Littlest Pet Shop. So we'll be debuting that next year. It'll be a great new television show and we're really looking forward to what that's going to do in terms of creating a new voice, a new look and a new energy for Littlest Pet Shop around the world. And what's interesting is, we'll use that show as a catalyst for activating Littlest Pet Shop around our entire strategic blueprint. And when we come to you next year, you'll see that we will have ignited Littlest Pet Shop with this episodic programming and across our strategic blueprint the same way that we ignited My Little Pony this year.

And then the final growth brand that I wanted to share with you this morning, as a key emphasis for us, is FurReal Friends. As Brian mentioned earlier, we doubled the size of FurReal Friends in 2010, and I'm happy to report that 2011 is our biggest year ever for FurReal Friends.

So as we look ahead to 2012, we are going to drive growth in several segments. First of all, we're going to continue to develop innovation and we're going to debut at Toy Fair, our most realistic pet ever. Secondly, we're going to lean into digital marketing and make sure that we're engaging our girl digitally online where she lives. And then third, this spring, we are launching an entirely new segment for, FurReal called Dizzy Dancers. It gives girls a whole new way to play and we feel that it can do for girls and ignite a craze amongst girls the same way that Beyblade has ignited a craze amongst boys. Allow me to share with you Dizzy Dancers.


So that's Dizzy Dancers from FurReal. So those are our priorities in Preschool and in Girls, now let's turn to Boys. There's 4 main segments that I wanted to talk about today with respect to boys: New entertainment, new play patterns, construction and sports action. So let's take each one of them. Let's start with our new entertainment, as you just heard from Brian, we have a great selection of new movies and television shows coming in 2012. It's really a big year for entertainment and after all, we all know that the Boys business is driven by entertainment.

Let's start with Battleship. Battleship will premiere in international markets in April and then on May 18th, in North America. This is Universal's tent-pole motion picture for 2012, and our partnership with Universal and Director Pete Berg has been fantastic, great collaboration on this movie, which has been in development now. And it's actually -- we're just about concluding principal photography. The movie has an incredible cast, it has a great storyline, great character development and it also has great action that we know boys will love. So with that, allow me to share with you Battleship.


We are to a person extraordinarily excited about what this movie is going to be. Great characters, Taylor Kitsch, Brooklyn Decker, Liam Neeson, great story, great action. And in terms of merchandising, we're going to activate Battleship across our entire strategic blueprint. First and foremost, as Brian alluded to earlier, we'll be launching an entirely new Kre-O Battleship collection allowing kids to battle on air, sea and land just as the battles take place in the movie. We also have a great selection of Battleship games across a range of price points. We have an extensive licensing program around Battleship with footwear and apparel and all types of lifestyle products there and then also in 2012, we have a brand-new Battleship video game coming from Activision. It's going to be one of Activision's biggest launches of 2012.

And then, as we move into June next year, we have our second G.I. Joe movie. G.I. Joe: Retaliation, which we are producing in partnership with Paramount. Following on the success of the first G.I. Joe movie, which did over $300 million at the box-office globally, and also was very successful from a DVD point of view, G.I.: Joe Retaliation will feature a strong ninja theme. When we did our testing of the first movie, we found that boys in particular, loved this ninja theme. So we are carrying that through in a big way in G.I. Joe: Retaliation. In addition, we're very excited with the cast. We have Dwayne "The Rock" Johnson; great superstar, 4-quadrant appeal; also, we have Bruce Willis, playing the role of Joe Colton, the founder of the Joe's and what I'd like to share with you now is not exactly a trailer, but it's a compilation of footage from the film that will give you a sense of the tone and character and action of the film.


So that's G.I. Joe: Retaliation, that along with Battleship, 2 marquee movies. Let's switch for a moment now to television, where our Transformers: Prime television shows has been extremely well-received. As David mentioned earlier, it was nominated and won several Emmy awards. In the U.S. alone, just to give you a feel for it, Transformers: Prime in the last quarter, was viewed by over 9 million unique viewers and as was mentioned earlier, it's the #1 show on Cartoon Network in the U.K. So as we look forward to 2012, with our Transformers brand, Transformers: Prime will be our central focus. We're going to deliver new product in marketing, new digital gaming, new promotions and retail executions and a complete licensing program wrapped around Transformers: Prime.

We have 2 new MMO's coming, in terms of Jagex and NetDragon. We also have a great new video game coming from Activision, called Transformers: The Fall of Cybertron. This is a sequel to the very successful War for Cybertron video game. This game has been in development now for over 2 years and what we will do on the merchandising side is a complete line of Cybertron products that match up and sync up with the video game.

And while we're on TV shows, we should also talk about Beyblade, which will continue into 2012 and broadcast around the world. It's no secret that Beyblade has been a big success for us. Not only in the toy aisle where we've sold over 72 million tops since we've launched Beyblades but also online as well. We hosted over 6.5 million kids who have played over 20 million battles and the average visit is 26 minutes. So clearly, we have a deep digital engagement with our Beyblade consumer online. As we look to 2012, we know that the key to success for Beyblade in 2012 is to continue to deliver innovative, new ways to play Beyblade. And so that's just what we've done. We have a new top system, called our XTS stealth battler tops that have hidden weapons that pop out during the battle. We have a whole new battle arena and we have a whole new expression of Beyblade that you'll be seeing at Toy Fair in February.

And then from our partners in terms of Lucas and Marvel and how we're going to use this great entertainment coming from our partners to drive our merchandise forward. As was mentioned, 2012 is the first year ever that we'll be able to see a Star Wars movie: The Phantom Menace in February, in 3D. So what we've done is we've developed 2 entirely new incremental segments. One called amped and one called fighter pod, that will give kids who are now going to be reengaged with this brand in a very robust level, entire new ways to play with Star Wars. And then as we saw just before lunch, this great Avengers movie coming in May, we know that this is a top priority for the Disney corporation in 2012, and we know that we're going to put together this great line of products that bring to life these characters on the retail shelf.

And then as we mentioned, in July, we have Spider-Man. Now what's interesting about Spider-Man is this is the first Spider-Man movie in 5 years. So it's going to introduce a whole new generation through the film, and through our merchandise to Spider-Man. And as you can see on the screen, there's a whole new look to Spider-Man. He has a new suit, it has darker colors to it, a new texture and a new spider icon. So we'll be leveraging all of that with new product at retail. This is going to be a big movie and a big merchandise opportunity for us.

So that's our entertainment. The second category I wanted to talk about in Boys is action battling. We've developed new for 2012, several new action battling concepts for boys across our major brands. So in Transformers, we have bot shots; in Star Wars, we have fighter pods; and in Marvel, we have bunker busters [ph] . And all 3 of these action battling segments are built upon the insight that boys love to create, they love to customize, they love to compete and they like to combine battling speed and stunts. What we also know is that this type of action battling enables boys to stay with our brands as they get older.

And the third thing we know is that digital engagement is a great way of keeping boys engaged with these brands. So each of these initiatives in 2012 will have a robust online digital component to them.

The third major category of Boys that I wanted to talk about is Construction where this year, we launched Kre-O Transformers and the response has been very strong from consumers in the 7 markets that we launched in. So as we look ahead to 2012, we'll expand that into global distribution with a broader product selection featuring our most heroic Transformers, Autobots and Decepticons, and then we will also launch, as was mentioned, Battleship Kre-O, a whole new way to play.

Now when we launched Battleship this year, we took a unique approach to that which is that we really focused quite heavily on a high level of digital engagement with our consumer because it gave us the opportunity to tell the Kre-O story and it gave us the opportunity to convey the new Kre-O attitude, the new kid on the block. So as we look ahead to 2012, you're going to see us continuing to engage our Kre-O consumer digitally. On our YouTube Kre-O channel, we've had a great number of views. On Kre-O Nation, which is our online community and overall drive a deeper digital engagement. And, of course, we're going to continue to support Kre-O at retail, with impactful retail displays in all markets. And our retailers have really given us great support to date.

And the fourth major category of Boys that I wanted to talk about today is sports action, where simply put, our NERF brand continues on a daily basis to inspire boys of all ages around the world to play with NERF. And as Brian mentioned earlier, it has emerged as one of our largest and most successful and fastest-growing brands. Now the big news for NERF this year was the introduction of the Vortex. We launched it in 8 markets on 9/10/11 and now we will launch Vortex in 2012 globally. It's a great play pattern. We have NERF Vortex blasters across a variety of price points and we have a strong media plan in place to drive Vortex through the end of this year and then into 2012.

But what's important for us is not only that we grow our Vortex business next year, but that we'd continue to grow our N-STRIKE dart business next year. So to do that, in the third quarter of next year, we'll be launching an entirely new segment for N-STRIKE called Elite. It'll have sleeker designs, an entirely new color palette and improved performance to continue to drive our N-STRIKE business. Now in addition to our traditional TV advertising, we're also continuing to lean into digital engagement and building NERF Nation online. And what we've found over the last 12 months is this is an effective strategy, and we found that in all of our major social media platforms, Facebook, YouTube and Twitter, we are growing NERF Nation at a healthy pace. Now the great thing about our NERF business is that we have been able, over the years, to add complementary segments to NERF that have earned us incremental shelf space at retail.

So as we look ahead to 2012, we're going to further broaden the consumer base for NERF and we've done this by using our consumer insight understanding what younger consumers want and what moms find acceptable for those younger consumers and we'll be launching an entirely new segment next year for NERF called Koosh, that will sit alongside our NERF product in a complementary way and we'll be debuting that at Toy Fair. Wrong button.

The last brand I wanted to talk very briefly about this afternoon is Magic. You've heard it referred to a few times today and it really is a unique brand for us. Let's start with the consumer. The Magic consumer is a bit different. He's a little order. The typical Magic consumer is a high school or college student and for the over 12 million players that play Magic around the world, it's more than just a product and more than just a game. It's really an entire lifestyle. In fact, what we've found is that the average tenure of the Magic consumer is over 8 years. And fortunately for us, the more engaged that the Magic consumer becomes in the brand, the more value they are to us as a business as we migrate them towards successively deeper levels of engagement with complementary analogue and digital experiences. So what we've done here is we've grown this brand by delivering fully immersive experience with trading cards, innovative play events taking place at hobby shops, digital gaming and online communities that are all integrated across all of the platforms. And the result is that we have doubled our Magic business and they are really in the last 3 years and there's really no sign of that slowing down. Since 2008, we've grown our player base by 80% and per player spending is up 16%. And we've done this by establishing a steady acquisition funnel to bring new players into the brand, but also providing product and play experiences that deepen the engagement and spending of our existing fan base.

So thank you for your attention. Those are our key priorities for 2012, in Preschool, in Girls and in Boys. What you'll see is that we have these great brands we're activating around our strategic blueprint in markets globally, and what we're doing with that across-the-board is bringing a deeper level of digital engagement to our consumers because that's, after all, where our consumer is spending more and more of the time.

So with that, it gives me pleasure to introduce our Chief Financial Officer, Ms. Deb Thomas.

Deborah Thomas

Well, thank you, John, and good afternoon, everybody. Earlier today, Eric spoke with you about our games efforts including products for 2012. Just now, John took us through the product drivers for Boys, Girls and Preschool categories but I'm going to continue where John has left off with a focus on our financial outlook for the upcoming year.

Before we look ahead, let's start by looking back at the past 5 years. During this time, Hasbro has delivered strong revenue and earnings growth. Over the last 5 years, our revenues have grown at a compound annual growth rate of 5%, much of this growth happening during very challenging economic times here in the U.S. The investments Brian spoke of, in innovation, our merging market expansion and entertainment, allowed us to deliver this revenue compound annual growth rate in line with our medium-term objective. These investments also enabled us to begin the creation of bigger, more global brands and ultimately, better leverage our investments and fixed costs across a broader revenue range. As a result, our profitability has grown and EPS over this timeframe has more than doubled. As we've expanded revenues, both of our major segments have been part of this growth. We spent a lot of time today explaining the investments we're making in our international and emerging markets. What we haven't talked about but should not lose sight of, is that while the international segment has achieved a 7% compound annual growth rate, the U.S. has also delivered 4% compound annual growth rate over this period on a much larger base. The 15% compound annual growth rate in operating profit in the U.S. and Canada segment, has helped to fund this global revenue expansion while allowing us to deliver solid earnings growth during the period in which we've been investing for the long term.

But today's event is not about past, it's about what lies ahead. You've heard a great deal today about the aspects of our business, which we've been investing in. In our brands, driving innovation across our lines, in globalizing our business with a focus on the emerging markets and an immersive entertainment, as well as the licensing of our brands. These investments have positioned us to unlock the full potential of our brands globally, something we were not able to do just a few years ago. In the near-term, for 2012 specifically, our investments in innovation position us with an extremely robust and broad portfolio for the coming year. We will have some challenging comparisons given the strength in both Transformers and Beyblade this year. But we believe our core brand innovation, as well as incremental entertainment support position us for growth in 2012.

If we look at our categories, Preschool has the first full year of Sesame Street and our core PLAYSKOOL line continues to be rebuilt through innovation. In the Boys category, we'll have another year supported by strong entertainment helping to offset the revenue decline expected following the strong growth in Transformers and Beyblade this year. Our gaming efforts are bolstered by a new team, a new strategic direction, as well as major motion picture support in Battleship. We're committed to accelerating the pace of innovation in this important category for Hasbro and also look forward to continuing the progress that Magic: The Gathering has been making the past several years.

Finally, in Girls, we have a number of brands with positive momentum this year. The small doll category is very competitive but new initiatives including entertainment for both My Little Pony and Littlest Pet Shop will provide additional support to the continued innovation in our lines. If we look at our region, several presenters today have spoken to you about our investments and the progress we're making in international and emerging markets. We've also spoken to you in recent months about the shift in the proportion of our business arising in the U.S. versus international markets. We've been investing in our international and emerging markets because they provide tremendous growth opportunities but this year, they're also providing an offset to a U.S. economy, which continues to be challenged. As we're building a portfolio of brands for different consumer types, we're also building a bigger, more globally diverse business that provides above average growth opportunities in emerging and select developing international markets and a balanced portfolio of consumers and retailers.

As we look ahead, we expect that revenue outside of the U.S. could be greater than our U.S. revenue in the coming years. Looking more closely at our international revenue breakdown, currency is important to understand given we do not hedge translational currency exposure. As you might expect, after the U.S. dollar, the euro is our largest currency, representing 17% to 18% of total revenue. This is followed by the British pound at 4% to 5% of revenues. All remaining currencies we have listed here are 4% or less of revenues on average. Foreign exchange rates are always challenging to forecast and as we have seen over the past few years and even the past few months, they can fluctuate greatly from period-to-period.

As we think about 2012, we are planning for rates close to the current spot rates for the euro, the British pound and the Mexican peso. The Canadian dollar is expected to be closer to the 2010 rate and our current view of the Australian dollar is between the current spot and last year's rates. While currency is difficult to predict, the timing of our revenue shows a distinct pattern to being back half weighted to the third and fourth quarters. This chart illustrates our 5-year average of revenues by quarter. During 2011, we talked about our retailers moving even more toward adjustment time inventory model. For 2012, we expect the shift to continue, with the total percentage of full-year revenues recorded in the second half of the year, as much as 3% to 5% higher than these averages. Keep in mind, the timing of consumer purchases at the retailers is extremely back end weighted. With as much as 40% to 50% of the year's purchases in the U.S. alone, coming in the last 6 weeks of the fourth quarter.

In addition to this back end weighting driven by consumers, the first quarter can be heavily impacted by how we exit the prior year including inventory remaining at retail. It's very challenging to predict this until the year is complete. Holidays and entertainment also have an impact. Easter, sometimes falls on the first quarter, and in 2010 (sic) [ 2012], Easter is April 8, 2 weeks earlier than in 2011 and at the early part of our second quarter. Additionally, in 2012, Lucasfilm will release the first episode of Star Wars in 3D in February, an early movie release for the year.

In the second quarter, we'll be facing difficult comparisons with 2011 given the heavy shipments of Transformers in Q2 for Dark of the Moon movie-related products. We do, however, have on shelf date in late Q1, as well as during Q2 for both Marvel films, as well as in Q2 for both Battleship and G.I. Joe. As usual, the third quarter will begin shipments of our holiday 2012 products and Q4 will be heavily impacted by consumer buying patterns. Finally, given our financial calendar ends on the last Sunday of the year, 2012 will be a 53-week year for us, with the December 30th year end versus the 52-week year and the December 25th year end in 2011.

Shifting from our revenues to cost of sales. Typically, our cost of sales is around 42% and our gross margin is 58.-something. This is the range we again anticipate for 2011. Overall, input costs, which make up our cost of sales have not changed much as a percentage of total revenues. Resin, labor and freight increased slightly as a percentage of the total reflecting increased cost. Tooling was up reflecting the higher mix of entertainment-based revenue in 2011 and the associated amortization.

For 2012, we have hedged about 45% of our total expected product purchases at present. We've hedged more than this average in our major currencies and less in currencies where we have lower exposure. Overall, we anticipate our input costs at approximately 42% of revenue to increase on average 11.5% in 2012, down slightly from the 12.5% increase in 2011. Input costs have been on the rise in recent years and we price our products to offset anticipated higher costs and maintain our gross margin. In 2011, we raised prices on average 6% in February and have held prices the remainder of the year. For 2012, we have planned price increases in the mid- to high-single digits globally. For 2012, board, paper and print costs are anticipated to grow an approximate 5% as demand in China reaccelerates fiber costs in that market. Resin costs are up 12% year-to-date in 2011. They are predicted to grow about 5% next year as previously underutilized capacity becomes available.

Labor rates in China continue to rise on average 20% in 2011. 2012 will continue this trend and we expect labor cost increases from the mid-teens to 20%. The won has appreciated 3.5% since the beginning of the year and is expected to appreciate by 4.5% to 5.5% by year-end. The currency is expected to remain strong in 2012 and appreciate in value by an additional 5%. Based on the mix of input costs of our products manufactured in China, this results in the appreciation of the won accounting for 3% of this overall expected cost increase next year.

Freight costs are expected to be flat for the remainder of '11, and in 2012 given available capacity. And as we stated in the past, we manufacture approximately 85% of our product in China through third parties. We enter into 12- to 15-month agreements with these vendors, thereby providing us with predictability in our cost over this period. This is allowing us to enter 2012 with good visibility to our anticipated product costs for the year. Additionally, we price our products to maintain our overall operating margin. And in years with higher entertainment and royalty payment, we tend to have a higher overall gross margin.

As you can see, year-to-date 2011, cost of sales and royalties are running right around 50% of sales. For 2012, we anticipate the combined cost of sales and royalties percentage to be closer to full year 2010 levels than the 9 months of 2011. As we think about our expense transfer 2012, it's helpful to understand where our costs have been over recent years and how they fluctuate with revenue for the full year and by quarter. Product development represents important investments in our brands and innovation. We generally spend 4.5% to 5% of full year revenues and don't anticipate that changing. Dollar amounts are largely fixed and don't vary widely over our quarters. On the other hand, royalties do fluctuate based on the revenue mix.

Next year's line has a number of entertainment and partner driven brands from Lucas, Marvel and Sesame Street. Based on current expectations, we would anticipate 2012 royalty as a percentage of revenues to be in line with our 5-year average. Advertising also fluctuates depending on the mix of revenue. Over the last 5 years, as a percentage of revenue, advertising has fluctuated between 10.1% and 11.7% with the average at 11%. In a year with many movie and entertainment initiatives, advertising is on the lower end of the range. We've stated we expect to be at this lower end of the range for 2011, and with the entertainment-driven properties we have lined up for 2012, we, again, expect to see advertising at the lower end of this range.

SG&A is another area where dollar amounts are largely fixed. We target SG&A at less than 20% of revenue and in 2012, we would not expect to be higher than this, our 5-year average. Given the fixed nature of these dollars, like product development, this percentage can fluctuate more dramatically amongst the quarter. We've already looked at an expectations for 2012, that a greater portion of our full year revenue will be coming later in the year. Given the historical distribution of revenue by quarter, you can see that early in the year, our expenses run higher as a percentage of revenue. On average, SG&A sees a notable decline as the percent of revenue from second to third quarters, as revenues ramp for the holidays. The fourth quarter generally increases slightly with year end incremental expenses and marketing programs, and adjustments up or down for incentive compensation programs as we see how the year has ended. There is also a component of variable expense in SG&A, which impacts the phasing later in the year. In fact, approximately 20% of SG&A costs are variable and fluctuate with revenue. These include freight out to customers and warehousing costs. However, the majority of SG&A is fixed. From a dollar standpoint, the investments we are making have resulted in approximately $100 million of incremental SG&A dollars in 2011 versus 2010.

Despite the higher level of spending, our full year target remains for SG&A to be less than 20% of revenue, excluding the impact of the gaming center of excellence, Eric spoke to earlier today. Through the third quarter, we've incurred $9 million of expense related to this new center, which is included in our SG&A line.

Another expense which is largely fixed for the full year is the amortization of intangibles. We anticipate an intangible amortization this year to be approximately $45 million. In 2012, it's expected to be $48 million. The amortization reflects the revenue curve of acquired properties and movie release dates. The uptick in the next few years reflects the beginning of the amortization on some smaller acquisitions of intellectual property. In 2016, the anticipated decline is primarily related to the rolling off of the amortization associated with our 2005 repurchase of our digital rights from Infogrames. Program production costs amortization began in the third quarter of 2010, with our first delivery of programs to the Hub. As David spoke to earlier, in 2011, we anticipate program production costs amortization of $30 million to $40 million.

In 2012, this will ramp to $60 million to $70 million as we'll be amortizing Season 1 and Season 2 programs. Ultimately, our annual amortization expense will be in line with our anticipated $70 million to $80 million cash spending on programming. On a quarterly basis, amortization occurs over the revenue curve and will ramp in the second half with revenues.

As we've discussed, our revenues are back half weighted. This is traditionally been the case in international markets where revenues have historically come later in the year. As our U.S. revenues trends this way as well, and many of our expenses are fixed and incurred earlier in the year, this is going to result in our operating profit also being more back half weighted. In fact, in some years, the first quarter has been a loss for us. We would expect operating profit to be slightly more back half weighted in 2012, similar to the comments we've made around revenues.

So one thing we get asked frequently is what makes up our non-operating expense line. As you can see from this chart, there are a number of components to this line item. By far, the 2 greatest components of this area on our income statement relate to interest. Interest expense is somewhat predictable and for 2011 and 2012, it should be in the $88 million to $90 million range. Interest income will fluctuate with our available cash, as well as interest rates. It's ranged from $3 million to $30 million over the past 5 years with the higher end of that range reached in periods where there were much higher returns available on cash balances. Also within this item is our 50% share of the Hub's earnings. Year-to-date, this has been an expense of $3.3 million. Since acquiring our 50% share of the network in May 2009, the net expense from the Hub has totaled $8.7 million. This net amount includes $3.9 million of income in 2009 as the network was profitable prior to relaunch.

As David spoke to today, we're in the early stages of building a competitive kid's network. This takes time, and in the near term, we would expect the results from The Hub to remain in investments, although at levels lower than this year.

Another item, which is somewhat difficult to model for with a non-op is foreign exchange gains and losses. While we hedge a significant amount of our transactional exposure, some remains unhedged. Our objective is to keep this impact minimal, but in volatile years, it can be challenging. In the first 9 months of 2011, this has been an expense of $7.8 million. Now, our tax rate expectations for 2011 have decreased as our mix of expected process driven by international growth has grown as well. We have hit a new level for our tax rate. In 2011, we currently expect our underlying tax rate to be approximately 25%. Given the strength of our International business, our current expected tax rate range for 2012 is 25% to 27%. If trends continue as they have been, we would expect to be at the lower end of that range. These tax rate assumptions include no cash repatriation back to the U.S.

If you note on this chart, our rates in 2007 and 2008 were a bit higher than other years as they included cash repatriation, and this added 3% to 5% versus our underlying rate. At the end of the third quarter, to remind everyone, our cash outside the U.S. made up 78% of our total cash balance. As Brian mentioned earlier, we maintain a medium-term target of generating $500 million of operating cash flow on average per year. As illustrated in this chart, some years this will be higher, and some years this will be lower. Currently, our 5-year average is running below the $500 million target. In 2009, our cash flow was impacted by approximately $250 million when we made the decision to no longer securitize receivables. This was a onetime impact to our cash flows. In 2010 and 2011, we've been investing in our business through the development of television programming for global markets. Our trailing 12-month cash investment for television programming is $82 million. These investments are incurred ahead on the revenues which they'll drive, primarily from merchandised sales, but also from the sales of programming.

So we've spoken a good deal today about the opportunities for Hasbro outside the U.S. They're compelling and we're very excited with the success we're seeing so far, but they do however, come with some different financial terms, and the growth in our International business is having an impact on our DSOs. As you can see, from 2006 through today, we've seen an uptick in DSOs tied with the growth of our business internationally and in emerging markets, which were termed, are generally longer than in more mature markets. This has peaked in the 82- to 83-day range seen in both the second and third quarter time periods. Going forward, we would expect to be in the current higher ranges as more of our revenue comes from these markets with longer collection periods. We continue to believe that some debt is good debt, and we manage our debt portfolio to our stated goal of a debt to EBITDA ratio of 1.75 or less, and EBITDA to interest of approximately 8x. Our next series of notes are not due until 2014, and we currently do not anticipate paying down any of our debt early. In addition to our long-term debt, we have a $500 million credit facility, which extends through December of 2014. We also have a program to allow us to issue commercial paper as a source of short-term liquidity, if needed, at very good rates. The facility, which supports our commercial paper program, replaced our securitization facility which we didn't renew and have not used since the second quarter of 2009. As we've discussed today, our uses of cash are focused on investments in our business such as television programming and emerging market expansion. Given we have healthy cash flow, we're also in a position to return cash to shareholders which is something we firmly believe in. Through our dividend and share repurchase program, we've returned $3.3 billion to our shareholders since 2005 when we reinstituted our buyback program. Currently, we pay a quarterly dividend of $0.30 per share, which increased 20% in February of this year. Our quarterly dividend has grown nearly 3.5x from the $0.09 per share we started in 2005.

At the end of the third quarter, $263.5 million remains available in our stock buyback authorization, having bought back 9.4 million shares at a total cost of $386.7 million during the first 3 quarters of this year. We will remain opportunistic with our share repurchases and anticipate our current authorization should last through the end of 2012.

As we turn to depreciation, amortization and capital spending, our estimate for 2011 depreciation remains at $120 million. This number is up versus 2010 as we began to depreciate our upgraded FAP system, which we're implementing globally. As we said earlier, amortization is expected to be $45 million in '11 and $48 million in 2012.

Tooling of product is approximately 2/3 of our capital additions in any given year, and ramps with our business. This will grow as our business grows, and our current year investment is being made for the next few years. In 2011, our capital spending is estimated at a $125 million to $135 million, but we will most likely be at the low end of this range. For 2012, we would anticipate a similar range of spending, with the expectation of trending to the higher end of the range as we have 2 required office moves outside of the U.S., and the opening of a new office in the U.S. to support our space requirements.

We remain on track to deliver on our medium-term objective. We currently have a 5-year track record, which is in line with our revenue compound annual growth target of 5% or better. Some years will be greater and some years will be less, but our investments in innovation, international expansion and immersive entertainment and licensing are enabling us to forecast a greater-than-average industry growth rate over time.

Second, our objective is to deliver operating margins in excess of 15%. We're extremely close to that level, and had we not made the decision to invest in the long-term growth initiative we've talked about today, we'd be in a position to achieve that level now. If you recall, Hasbro's operating margin in 2001 was 7% after reporting a loss in 2000. Through the development of our core brand strategy, and ultimately, our global brand blueprint, along with strong financial discipline, the company has dramatically improved operating margins over the past 10 years, and is in a position to deliver all-time high levels of operating margin in the near future.

Finally, as we discussed, our business generates healthy amounts of cash. And while our investments in television programming have reduced our cash flows in recent years, we continue to believe that $500 million of operating cash flow on average is an achievable target for our business.

So that concludes our presentation for today, and Brian and David will now join me back on stage and we, along with today's presenters, will be happy to take your questions.

Question-and-Answer Session

Unknown Executive

All right do we have any questions? Down here in the middle, Margaret.

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Margaret Whitfield. Given the situation in the Boys area next year, where do you see the greatest opportunity in the other segments for revenue growth, and what's the outlook for another Transformer movie, and could you give us an update on what's going on with Beyblade since difficult comparisons were mentioned next year?

Brian D. Goldner

So overall, in Boys, what we're talking about is, the number of initiatives that we have next year will probably be about equal to the initiatives that we have this year in terms of overall revenue growth. Obviously, Preschool, we believe grows with a full year of Sesame Street, as well as many new initiatives in Preschool including our whole Playskool Heroes line, which is off to a great start. In our Girls business, a number of new initiatives, as well as the continuation of My Little Pony success and FurReal Friends success with Littlest Pet Shop and Baby Alive. And then in Games, we've talked about, and believe our Games business will grow behind the Center of Excellence and the initiatives that the team has undertaken, as well as some entertainment-led growth around Battleship, as well as the game side in Battleship and the KRE-O side, of course, is a new initiative for us, but -- so overall, the other 3 categories we're really seeing that there should be growth internationally. In terms of the movie side, what I said on the conference call, just to reiterate, we've had a discussion. It would be silly for us to not talk about having another Transformers movie given the success of this last Transformers movie, given $1.1 billion at the box office, given that it's the fourth highest box office in the history of the movie business, one would have to ask are we talking about one, and the answer is, of course, we would talk about a next Transformers movie, but I have no new news to report at this point. I would hope that over the next quarter, I'd have some news to report. And on Beyblade, John mentioned that there's a lot of new initiatives in Beyblade. So we learned a lot from the first time around in Beyblade. And one of the keys was, that we needed to add some new reinventions and new segments, and put that into the entertainment and drive that around the world. And so this time around, you'll see new segments, new reinventions, new categories and new segments, as well as that integrated in the programming and then distributed globally. So I think we're in a good place. I'm not going to sort of set the size the opportunity for next year, but I think I've given you, broadly, some good that our Boys business could be roughly equal, year-on-year.

Margaret B. Whitfield - Sterne Agee & Leach Inc., Research Division

Putting it all together, do you think '12 will be a year where you can make your goal of 5% growth in revenues, or might be year of more margin expansion?

Brian D. Goldner

Maybe you misunderstood that chart. It says a medium-term objective of 5% revenues growth over time. So again, Deb also mentioned that some years will be below and some years would be above. But I think we've given you pretty good guidance at this point. Tim?

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Tim Conder, Wells Fargo. You talked in multiple slides about license and growing that apparel and so forth, and last -- this time last year, you mentioned roughly 4 percentage or so of revenues going to '10 over time. Can you update us where we are along that and the timeline?

Brian D. Goldner

Yes, if you looked at one of Deb's charts, it's roughly equal year-on-year in terms of licensing. We've really put a team in place this year for future growth. So I guess the good rule of thumb in my mind's eye and for the management team, you heard from Wiebe earlier today how our International business is 46%, 47%, and the Domestic business about 53%. So that would be a great guidepost to move from today what is roughly almost 70% of our licensing revenues coming from the U.S. business and the rest being outside, over time growing that, so that not only growing the total pool or total pie, but that you were able to sort of those percentages between domestic and international licensing revenue.

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

And were we talking still that 5-year type of timeframe?

Brian D. Goldner

That's right, a couple year timeframe, a medium-term timeframe, and that obviously contributes to our objective of getting the 15% or better operating profit margins, when licensing and digital comes in at a 55% as of 2010 operating profit margin.

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Okay. And then secondly, a little bit about your distribution partners. Give us any commentary on, specifically online Amazon relative to Wal-Mart, Target, Toys"R"Us, dotcom, who's gaining, losing share there, if you can give us any general color. And then Amazon, as far as importance in your customer base broadly, your top 10 or however you want to draw the line there?

David D. R. Hargreaves

Okay. I think the dotcom, as of the moment, probably represents that 10% of our sales in the U.S. so it's not as significant as it is in some other industries. I think within that -- all of them are growing a business, whether it's Amazon, Target, Wal-Mart or Toys"R"Us, so I don't want to get too specific about who's winning, who's losing. But I think they're all growing a business. And I think over time, this is clearly, although it's a relatively small percentage of our business in the U.S. today, it's one that will grow in percentage terms.

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Okay. That 10% data, is that Wal-Mart, Target, Toys "R" Us, all dotcoms, collectively, of the major retailers?

David D. R. Hargreaves

That's in the aggregate, in the dotcoms.

Timothy A. Conder - Wells Fargo Securities, LLC, Research Division

Any comments as to where Amazon's has moved up or down in the relative top 10 ranking?

David D. R. Hargreaves

No, I don't think so.

Brian D. Goldner

Please, down here, Michael. Can you get the mic over there?

Michael Kelter - Goldman Sachs Group Inc., Research Division

I wanted to follow-up on board games -- Michael Kelter, Goldman Sachs. I guess to start off, you laid out 10 different things that you're planning to do to fix that business. Could you maybe just fill it down to the most important 2 or 3, and which ones are going to move the needle, and kind of related, could you get the Board Games business up to the corporate average in terms of revenue growth target or even with the success of the plan, that's still going to, kind of, be a drag for you?

Brian D. Goldner

No. I think we can certainly get the growth up to corporate average, and certainly, drive it over time. And I would cite 2 specific examples. One, within, kind of the -- as we call it today the classic board game definition. A brand like Scrabble, we've talked about, how when we created Scrabble Flash and new iterations of the board game Scrabble, even though we were driving significantly more digital downloads of Scrabble for your iPad or for your smartphone, we grew the Scrabble business year-on-year, because we had great innovations and we grew it significantly, certainly above the kind of company average. What we need to do is to do that more significantly. If you look at Wizards of the Coast, a new direction marrying up digital and analog, looking at new marketing, going back out after new users and bringing them back to the fold, increasing their participation in the brand, they doubled that business over the last 3 years from 2008 to 2010. So it's about new leadership, new direction, innovation, our investment in that category, and thinking about it not so much as how do you build board games, but really, how do you look at the consumer -- put the consumer in the center of everything we do with our brands and then really give the consumer the opportunity to spend money with us and ours brands, brand they really love, and they've grown up with, brands they're sharing among generations, and brands that they're enjoying around the world where Monopoly has such high penetration and awareness literally globally, and even in markets like Russia. So we can do all those things. We need to put a dedicated effort behind it. I think if I were to summarize, it's about innovation, it's about the creativity that's very consistent with that, and a focus on making the biggest brands of our Games business work like the biggest brands on the other side of our business, the Toy business where the top brands of the company that represents such a great proportion of our total revenues and it gives us the opportunity to not only grow those brands, but to reinvest behind those brands, and then of course, to leverage those brands for operating return.

Michael Kelter - Goldman Sachs Group Inc., Research Division

And then a follow up also on that same segment, can you talk of the profitability of that business today versus where it used to be, how it compares versus your current portfolio outside of Games. And then in the past, come up kind of the implications of moving from board games to digital versions of those games? Now, do you have a specific plan in place? What do you expect the margin, kind of, progression to be from here?

Brian D. Goldner

Yes. In fact, if you look at our Games business, it's not that dissimilar to where it's been historically. It's typically high teens. Some of the Game's brands can be more than high teens, in the 20-plus percent range. Some are slightly lower, more like some of the classic toy brands in mid-teens, 15%, 16%, 17%. But that's not dissimilar to some of our biggest toy brands these days. If you look at Littlest Pet Shop, if you look at My Little Pony, if you look at a number of our toy brands, Play Doh and others, you can get those same high teen operating profits out of those brands, operating profit margins, so 17%, 18% can be in all those different categories. And you see that if the total company and Hasbro brands is over 15.2%. And we know that toys makes up a greater proportion of our volume than games. We know there has to be have kind of operating return within our business. I don't think there's anything necessarily that handicaps the company by moving to more off the the board and on the board games as we grow those bands globally. In terms of the digital downloads, if we do it right, as I described for Scrabble, that should be additive and it's coming in at an accretive operating profit margin. So when you add those digital downloads, you're getting higher operating profit margins on a mobile download or an online download as a percent than we do in our Games business. So it has to be accretive, we have to continue the innovation in that core Games business, and then as accretive as an operating profit percent. Obviously, the dollars are different because of the price points. So you're selling a $20 game and you're making 20% versus a $5 game and making a higher percentage, then, of course, you're not getting the same dollars. But if you keep the innovation going in the core Games business and you add that because you're after that other share of mind and share of wallet of those consumers who are wanting to play those games in more formats than ever before, then you achieve what we've done on things like Scrabble or Wizards of the Coast, and you can create those new brands.

Michael Kelter - Goldman Sachs Group Inc., Research Division

And lastly, how big is that Digital Downloads business for you today and what's the general growth rate?

Brian D. Goldner

Well, we talked about -- we put digital media and licensing together, and we showed you that CAGR in the 20-plus percent range growth and operating profit margins for that segment, if you will, of 55% operating profit margins. The Digital Games business has grown. What we're really seeing in the projections are, that the dollars that we had historically in console gaming, meaning those games you played on an Xbox or a PlayStation, that overall for an industry by 2015, the projections are, that industry growth in mobile and digital downloads as revenue, will outstrip the console games revenue by 2015. So that's the inflection point where you get the digital dimes go beyond analog dollars or the retail dollars, or the box dollars for box console games. And so I think our path is very similar, and I think that over time, we can grow in a very similar manner and our brands perform as well, if not better than other brands because brands really work in the digital download space.

Unknown Analyst -

I have 2 questions. One about advertising spending and the other about Transformer. So, you're indicating you got about 10% to 11% kind of range on an annual basis. Could you talk about how that gets allocated between the U.S. and international developing markets, and particularly kind of how it follows The Hub around the world, kind of, the allocation there. And then Transformers, you mentioned -- the last couple of movies we've had like $500 million, $600 million, kind of in that range in revenue, and you talked about the 2 segments, I think it was Rescue and then the other 1 is around The Hub and that forming sort of a new segment. Go out 3, 4 years once The Hub's programming or Hasbro Studios programming has had a chance to get some roots out there, how big a kind of baseline business might that recurring TV business related Transformer specifically be, could it be maybe couple of hundred million dollars kind of thing which would provide yet another base to build on for future Transformers.

Brian D. Goldner

Okay. You want to take the first part around advertising?

Unknown Executive

I think advertising you talked about -- David mentioned sort of 11%, which should be the corporate average. I think to answer your question, the U.S. is probably lower than the corporate average by a point or 2, that's because we've got another entertainment-driven and we've also got a big homogenous market, so it's more effective. I think if you go to Europe, we're probably a bit above the corporate average. Again, we're dealing with lots of different markets, lots different television networks, different head-buying agencies, so it's sort of less efficient in Europe. And then I think if you look at the emerging markets, in some of those emerging markets, the advertising rates can be 17%, 20% or even higher because we're new into the market and we're trying to build the brands. So when we talk about investments in emerging markets, it's not just people, buildings and warehouses, it's also investment in advertising to build the brand. And when we talk about emerging markets such as China and Brazil being less than a breakeven at the moment, and hoping to get to breakeven by 2013, one of the big things that changes there is that, today because we're introducing our brands, we're probably spending 20% or so in those markets. And if that comes down to corporate average, as you start to grow some critical mass, that's when you start to see the leverage and the improvement in the operating margins.

David D. R. Hargreaves

Right now, as we told you, The Hub is only just -- of the programming around the world is only just starting to air. And in the U.S. whilst we're making good progress against Discovery Kids, it's clearly not as impactful as Nickelodeon or a Cartoon Network or Disney. So I think right now, it's tough to say that there's any meaningful impact of The Hub in our television programming, on our advertising rate. Logically, and I think this will come over time, as we start to get those programmings airing on a regular basis around the globe, and as we start to build those agents in the U.S., we should be able to ramp back on traditional advertising because our programming is creating this much broader brand awareness.

Brian D. Goldner

I think JC just talked a little bit what David was saying. There's really only been one brand on the air on The Hub that it had a product line that has been out there throughout the year, and that was My Little Pony. And so where we have My Little Pony out there this year, it is accelerating. And we clearly attribute some of that acceleration this year as we've reimagined the brand around the television to be related to the TV running on The Hub. And John mentioned some really strong numbers where millions of girls have now viewed My Little Pony in the last quarter on The Hub. So that's the only place where we have a direct relationship today. We're just now beginning to really shift the Transformer's prime product line and other product lines related to the TV that has been on The Hub in the U.S. So now let's go to the other question related to the Transformers. I think the best way to answer that question is to look back a bit historically. If you remember, when we came off the 2007 Transformers movie into 2008, what we had told you was, because television was on the air and it was called Transformers Animated, and it was on the air on Cartoon Network at that time, we have said that we have had smallest decline in a recent history for that brand. And so it mitigated that decline that we typically see the year after a motion picture. then we did not have the animation on the air in 2010 because we want -- most of the year 2010 because we wanted to wait until The Hub had launched and then put Transformers Prime on the air late in 2010, which we just had done. So that was the difference and why we saw Transformers decline more precipitously in 2010 off of the 2009 movie year. So I would say, as we go forward in 2012, you certainly will have the programming that will mitigate that decline, clearly. And then Rescue Bots and others are already off to a really good start. It's a very natural play pattern, this whole Rescue Bots idea. The programming, as you see, is really cute and very fun and really resonates. So I'm not going to be able to guide you specifically about how big that could be. But I think the thought process around these brands like Transformers and other evergreens is to continue to reimagine and reinvent. It doesn't just mean making really new cool robots within that core play pattern. It's Rescue Bots, it's KRE-O, it's a lot of different ways to play, and so we continue to expand that brand over time because still, Transformers today is not as nearly as big as we think we can make it over time. Great. Please, Sean?

Sean P. McGowan - Needham & Company, LLC, Research Division

I also have a couple of questions, and I'll start with one, I think for David. Regarding the TV networks, you talked about when you started The Hub, or your involvement in the network, you're maybe targeting some of the smaller networks that were closer in share size down to the lower levels? But since then, some of the larger networks have responded competitively. So can you talk a little bit more about what the competitive response has been from Disney or Nickelodeon, and how much impact that may have had on the actual performance of The Hub ratings?

Brian D. Goldner

Let me answer one part of that, because I think it actually -- I'm not going to speak of the competition per se, but actually ratings. If you look at this fall, ratings for some of the biggest networks, 1 in particular is down double digits this fall, for 1 of the bigger kids networks in terms of their absolute ratings. So that -- clearly that networks, when we launched, recognized that we launched and they were very competitive. And so did that make our progress a little more challenging early on? Probably. But I think with the brands that we have, we've broken out. Our brands really resonate, people are starting to find the network. We're starting to gain traction. But as our partner David Zaslav and Discovery say all the time it takes several years to for a network to find its voice. All of the -- or many of the very famous networks that we all talk about as being obvious strong networks today took many years to build that following, and it was based on great shows over a period of time. So I would say, sure, the networks have been competitive, but I wouldn't say necessarily that they're surging ahead in this moment, but they have had a competitive response. But we have great brands, and our brands in particular, as David said, when we put more Hasbro brands on the schedule, just by the nature of the fact that they're performing 43% better on average than the other shows, and you put a greater proportion of those on the air over a period of time, if you do the math, your average ratings would go up.

David D. R. Hargreaves

And maybe the one network that had sort of changed as we think about it competitively since we did the acquisition was the -- Disney XD. I think clearly, they have been more aggressive, and when we did the acquisition, they didn't -- Disney didn't own Marvel, and a lot of people were speculating where the Marvel programming would be on The Hub. I think clearly, with Disney acquiring Marvel, and a lot of their programming -- Marvel programming wasn't XD to start with, but I think clearly, that's a key to that programming it's very boy orientated, and I think they're probably a stronger competitor you'd say today when we first opened The Hub. I don't think Disney, Nicktoons, Nickelodeon or Cartoon Network have materially changed.

Brian D. Goldner

And of course -- I was just going to say we're beneficiaries on all the Marvel product being on Disney XD because obviously it benefits us as the movies come off and we have the television.

Sean P. McGowan - Needham & Company, LLC, Research Division

Second question in the games area. I'll throw out the observation that forms the basis of the question, and if you disagree with the observation, then do so. And that is, when you walk down the games aisle, you see a lot of Hasbro Games that have licenses that you're -- have associated with other toys. You'll see Shrek Operation, Buzz Lightyear Operation, and then Monopoly with Transformers licenses. And at the same time, you see a lot of games coming up from companies that never were able never able to get games placed in a big way -- in retail, which suggests that maybe investors are finding more receptive reaction at other companies than perhaps they had historically found. Is that the case? And do we expect to see that change going forward as part of the reignition of the Games business?

Brian D. Goldner

No. So, I guess you're right, I would disagree with your hypothesis. But having said that, I would also say that Duncan Billing, who's our Chief Development Officer in Design and Development for the company. And we have to do a better job and have tried to continuously do a better job more recently in reaching out to a lot of different constituents. As we continue to grow, we've got to remember who got us here, great inventors and great ideas have certainly gotten us here, whether it's the Game of Life that came from a wonderful inventor or other brands overtime. So we've got to just always do a better job, so never resting on our laurels. But that's not a new issue, but for us, it's really a recurring issue that we have to go out to the people that have great inventions, and you're going to see a raft of great new games next year, Eric just highlighted a few. Obviously, for competitive reasons this early on, we're not going to give chapter and verse on every game, but I think at Toy Fair, you'll get even a clearer picture of the number of new games, the amount and pace of innovation and creativity, it's not just about those licenses, because actually, our Games business is really not being driven per se about those licenses, that's really a much smaller proportion of the total. It's really about starting to focus in, rather than just focus in on 40 brands, getting down to 12 brands that really matter, 10 brands that really matter, and then others, so it's like that organization we got around the core brand strategy back in the early days, which were the mega brands, if you will, and the challenger brands, and so again, getting that right, getting that pyramid right and the focus, that's what it's about.

Sean P. McGowan - Needham & Company, LLC, Research Division

Last quick question, with Episode I-3D coming up and given your long-standing, close relationship with Lucas, and frankly, given the experience of Episode I the first time around, is there any way you can convince Lucas to eliminate Jar Jar Binks?

Brian D. Goldner

Well, your appeal that was heard on the webcast is as good as mine. That's right exactly -- I really can't comment. All right. Other questions. I think we saw one. Gerrick?

Gerrick L. Johnson - BMO Capital Markets U.S.

Deb, on Slide 4, Page 4, the bottom chart, looks like revenue you generated in U.S. dollars is bigger than the sales that you generated in U.S. dollars. Is that an optical illusion? Or if not, what creates -- what dynamic creates that?

Deborah Thomas

Well, our revenue in U.S. dollars -- part of revenue that we derive internationally, some of our international units sells through direct import and those are in U.S. dollars as well, so that's why it's not an optical illusion. We actually do have the U.S. dollar as our predominant currency even with the split of our global business.

Gerrick L. Johnson - BMO Capital Markets U.S.

Okay, great. And Brian, acquisitions have been a big story in the Toy business in 2011. You guys did not mention acquisition at all. Is this something that you are or are not looking at for use of your cash?

Brian D. Goldner

Yes. I would say that our company, certainly, through the '90s -- in '80s and '90s were beneficiary of having made a lot of acquisitions, and I think for us in this era, it is about what we do with these wonderful brands that we own and control, and Hasbro has over 1,500 brands. Today, we're just touching 150 of those. Every year, the team comes up with amazing innovations and ideas of ways to bring out brands to the market. So next year, John mentioned Koosh, a brand-new brand that's coming to the market that will sit in a complementary way near our Nerf business and Sports Action, that's just one brand among many that's in the vault as we go forward, and we're working on motion pictures and Stretch Armstrong, another brand in the vault that has 0 impact today on our revenues. So for every brand that's in the market, we probably have 3 or 4 brands that are in the vault that we could bring out. We have to be very focused about how we do that, so to ensure that when we bring them out, that they're successful, and that we back them by the multimedia approach the consumers are now accustomed to and respond to. So we don't really look at acquisitions today. We remain skeptical about acquisitions, and we have great brands. We just need to drive them and make them bigger globally.

Michael M. Tang - Barclays Capital, Research Division

Michael Tang, Barclays Capital. You guys put up a slide before where you showed that you made pretty good strides in your market share in the emerging markets. But as we look domestically, you talked about a lot of initiatives today. How do you think you can grow your market share domestically? Do you see yourselves growing, sort of, in line with the market or do you think you can continue to take share and could you break that down between the different segments for example, in Boys where you're obviously very strong versus, maybe something like Girls or Preschool?

Brian D. Goldner

Yes. I would say, overall, if you were to divide it up, I think the persistent issue in our U.S. business had been the carryover issues and lack of momentum coming into the air around our Games business. That is how they had a significant impact on our business, and quarter-by-quarter, we've worked to clear that issue, but there were 2 parts. One was the lack of execution in the additional inventory that came out during the fourth quarter. But the other part, the corollary, is that when we didn't have that merchandising in place after the holidays, normally, games are great beneficiaries of having that merchandising still up through the first and second quarter. So you're clearing through whatever inventory in those classic games in the early parts of the year. We didn't really have that. So really, if you I look at it, there's a bit of a bifurcation that our Toy business is really performing exceedingly well, and our Games business is beginning to recover. And we're starting to see that, just that. That our Games business begins to recover, and that because our Games business sells so late in the year with nearly half of our sales happening in the last 6 weeks of the year, we're not able to get all the way through, toward that full on year-on-year recovery that we need to have and to achieve, and then move on to 2012. So long term, if you look year-to-date through September, our U.S. business market share had grown just a bit, but overall, it's really about games and getting games right. If you look at the other segments of our business, we have lots of new innovation and lots of things going on early in the year. The retailers really took advantage of a lot of our entertainment-driven properties to drive the business, and you'll start to see more of the traditional nonentertainment-led toys and games and new initiatives which we're launching in this quarter really come to the fore. So I think for the long term, growing our market share in the U.S. is about getting our games business turned around, and then growing those other segments. And I mentioned that we expect growth in Preschool and Girls and Games next year, and that would certainly be true in the U.S.

Michael M. Tang - Barclays Capital, Research Division

Okay. And one other question, you have $268 million remaining on the repurchase authorization, I don't know if I misheard this earlier, but you said you expect that to last until the end of next year?

Brian D. Goldner

Well, I think what we're doing is -- Deb can comment on this. We're buying opportunistically, so we have to go back to our board for another authorization and we're buying opportunistically. So I'm not sure that we have a plan in place not to consume that money or to consume that money.

Michael M. Tang - Barclays Capital, Research Division

So that's not a comment on a slowdown in repurchases versus what you've been doing recently?

Deborah Thomas

No. I think what we did say in the third quarter on our earnings call is, we did take advantage of some opportunistic prices in the market -- in the open market to accelerate some of our repurchasing. So overall, it's not a slow down as long as you look at the balance period as opposed to a quarter-to-quarter.

Brian D. Goldner

Please, in the back. Can we get a mic up there?

Eric O. Handler - MKM Partners LLC, Research Division

Eric Handler, MKM Partners. A couple of quick questions on accounting for the Battleship movie. Since your rev is going to be coming through Universal -- we've seeing in the past with Marvel, Pixar, DreamWorks, they tend to recognize the revenues or their contributions in arrears rather than on accrual basis, are you going to have to do that as well, just as a thing about timing on a quarterly basis. And then secondly, with regards to revenue, do you get paid from that first ticket sold or does Universal have the right to recoup their P&A spending first?

Brian D. Goldner

Okay. You want to take the first part?

Deborah Thomas

Sure. From an accounting standpoint, when we get the report from Universal showing how much the box office is, that's when we'll record our share of the box office revenue. So I guess you could say it's bit in arrears, because until we know what the number is -- we can guess what the number is based on industry reports that are out there -- but when we get the official reporting from them, that's when we would record it.

Brian D. Goldner

All right. And the way that money is divided up is, obviously, you have the exhibitors and the studios that split the proceeds, and it's split differently in different markets, but we are a participant at first dollar gross on the the Battleship movie, so we would participate along once you go to the studio share of the box office, then we participate. Other questions?

Andrew E. Crum - Stifel, Nicolaus & Co., Inc., Research Division

Drew Crum at Stifel, Nicolaus. So I wanted to go back to the Boys business. I think 2007 was a record year for Marvel. Would you expect 2012 to eclipse '07. Marvel pushed $350 million that year? Secondly, can you address the -- I'm inferring that Beyblade is going to be down in 2012? Can you address that? I guess that's all I have.

Brian D. Goldner

Yes. I would say for Beyblade, certainly, given the success of Beyblade, because remember, Beyblade launched in certain territories in 2010. So when John was citing some of those numbers about sales of tops, it began in 2010. So just being prudent, we don't want to come out and talk about that we might grow and -- or as the believe we will grow in 2012 and then make that related to just Beyblade numbers. So we've been prudent to recognize the last time around, Beyblade did begin to taper off. We do have plans in place to mitigate that decline by adding new initiatives both in product as well as in entertainment which we didn't have the first time around, but that's just a prudent way to look at our business, so that we're not reliant on Beyblade for 2010 -- or '12 revenues growth in the Boys arena. As far as Marvel goes, we are super excited about these movies. I mean, I will tell you saw some of The Avengers stuff, it looks extraordinary, it's really spectacular. The work that Sony has done with Marvel on Spiderman, I mean, it really to me, it's being a fan of Marvel overall, I think they've done a great job, but I'm not going to be able to speak to the overall size. Obviously, as we work more with not only Marvel, but with the Walt Disney Co. who has such great global scope and scale, our hope would be, that we continue to build Marvel as now a global brand even more so than ever before. And I think over the history, Marvel had been much more oriented toward the U.S. sales and a little less oriented internationally as we start introduce some of these characters internationally. I think it bodes well for us. And certainly, having a great partnership with the Walt Disney Company, we are very up for the challenge of seeing how big we can make the Marvel business around the world.

Unknown Analyst -

Are you shipping Star Wars product in the fourth quarter? Would that detract from 2012 numbers?

Brian D. Goldner

No, we need to ship in time for the February film. Exactly how much goes out the door, December versus January, I'm not -- don't really want to speak to that because the supply chains are different all around the world, that is a global initiative. But I don't think that there is anything in there per se that mitigates our feelings about Star Wars for 2012. Certainly, when we report at the end of the year, we may say that we shipped some Star Wars in order to make all the dates around the world, but again, I don't think I can guide you one way or there.

Okay. We've got time for another question, maybe a question or 2 quickly.

James Hardiman - Longbow Research LLC

James Hardiman, Longbow Research. As I think about -- a little bit more about the transition away from packaged good games towards some of the digital games -- or at least the mix shift, I don't what to say the transition, away from. One of the things that occurs to me is that a lot of the biggest digital brands of today may have not existed 10 years ago, 15 years ago whereas a lot of the best toy brands of today were around 20, 30, 40 years ago. We've heard a lot today about investments made into expanding the distribution of your existing brands internationally on different forms of media. I guess the question is, you talked about innovation. It seems more around your existing brands. Are you ultimately or -- I guess what's the thought process in maybe creating some new brands not only on the Game side of the business as we ponder the Center of Excellence, but also throughout the rest of your portfolio. What are sort of the puts and takes of your thought process as you think about expanding existing brands or building from the ground up.

Brian D. Goldner

Yes. So, we try to give you a bit of that color around that earlier today. In fact, I remember we presented -- we talked about how FurReal Friends was a brand-new brand that we invented, it didn't exist in the vault. We invented that, and now it's a significant global business for us in 70-plus countries. Similarly, we acquired

for a nonmaterial amount of money, a brand called Micronauts, and we're now working with J.J. Abrams to turn that into a great enterprise and a partnership with Paramount so that might be launched by Motion Picture, but certainly, it builds to a great enterprise. For a nonmaterial amount of money, we bought a brand call Pound Puppies a few years ago, which has got a sort of a perennial in the industry, and yet we've launched that as television, and then we'll roll out product lines around that. But we've also taken things that have not been on the market for many, many years like Stretch Armstrong, and we're reimagining those brands. So I don't think that there's anything bad, wrong about, or in fact, I think it's quite positive to do things that -- to work on things that have some latent brand awareness. Although, we will always have opportunities for brand-new brands like for FurReal Friends and we've got a couple of others in the works that I'm not going to talk about just today in a couple of different categories. Certainly, in our games arena, we've got a number of things going on there, but one of the things about games that really resonates, and it's really important to understand, and it's why EA continues to really fundamentally believe in our games titles on all these different platforms is, when you're working on a smartphone or an iPad and you see the name Monopoly, you immediately have some idea of how to play it or what it might be about. And that's a big leg up versus not knowing what it's about. Now clearly, there are brands out there that are going to sell a lot more products in certain instances, as an iPad, or an app download because they may have a free trial. So you're sort of a free-mium. So you're trying a lot and therefore, they get the scores way up high, but they're basically giving the game away. What we've done is, if you look at the chart I like a lot, and we certainly participated on this chart a lot is top grossing games. Because to me, that's really what it's about. People willing to pay money, real money for the opportunity to play our games on these other formats, recognizing that while the operating profit margins are stronger that the overall profit dollars are not yet there. I like our brands, and I think we have a long way to go in growing our brands, and we will also pepper that with vault -- new initiatives within our vault, as well as brand-new brands. And I think we've demonstrated the ability over time to do all of those things. I think the branded play strategy -- the ability to put things in TV, movies or just have a great brand that's just driven by a multimedia mix like Nerf. It's not reliant on any kind of entertainment and represents 78% of our revenues as a company, those nonentertainment brands as of 2010. They still will be 2/3 of our revenues in 2011 or '12 and beyond. We may grow that entertainment segment to be 1/3 of our revenues. But I don't ever see entertainment being all of our revenues, because, again, we can be such a strong and powerful classic toy and game company recognizing that the branded play strategy makes our brands really perform in the market and resonate with consumers. So I know that's a long answer maybe to a short question, but it's a very important element as we think about how we sort of play out the portfolio of Hasbro brand.

Okay one more question, then I think we're going to break. Are we good?

Okay, so I just want to remind you as we wrap up here today, clearly, our mission was to define our branded play strategy and how we're creating long-term shareholder value. And just to remind you that this is all about our brand blueprint. And as you've seen today and heard from all of our speakers, I, personally would like to thank all of our speakers and members of management. You'll have an opportunity to spend time with them as you go through product tours and our reception later on today. I hopefully, or hopefully, you have now a better understanding of how it is we put our branded play strategy together, and what are the building blocks of the strategy so you can better understand our prospects for growth for the long term in creating value for our shareholders. And with that, I'm going to wrap things up, and I think Debbie's going to come up and send you on some product tours. Thank you.

Debbie Hancock

Okay. So, we've concluded all the presentations and the Q&A for today, so we're going to move on to the product tours. As we mentioned earlier, each of you has either a Battleship, My Little Pony or Chuck on your badge, and that designates what group you're in. So when you exit the room through the door over here, just look for the sign that matches your icon to find your group leader. And you're going to have 3 different stops, and if you're delayed leaving the room, which we ask that you try to keep things moving because we're running a little behind our schedule. There will be people to help you find your tour group. The tours are scheduled to end around 4:00, and we invite you to stay for a reception with our management for about an hour to just talk further and you can ask some more questions that you didn't get answered during the course of today. And your tour guide will take you to the reception at the end of the product tour. Two other things. You're going to receive a survey from us about your day today. We just really like to get your feedback so that we can make things better for the other events that we do going forward. And if you send us your feedback, you can win one of the great gifts that you see outside the door. And then most importantly, before you leave, don't forget your gift bag in the lobby on your way out. Thank you.

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