孩之寶 (HAS) 2004 Q2 法說會逐字稿

Good morning and welcome to Hasbro's second quarter earnings conference call.

At this time I'd just like to inform all callers that your line is in a listen-only mode until we open for questions-and-answers.

This call is also being recorded.

And with us today from the company is the Senior Vice President of Investor Relations, Miss Karen Warren.

And thank you, ma'am, you may begin.

Thank you, Kathy, and good morning, everyone.

Thank you for joining us.

With me this morning are Al Verrecchia, President and Chief Executive Officer, and David Hargreaves, Senior Vice President and Chief Financial Officer.

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

The press release includes information regarding non-GAAP financial measures discussed on today's call.

If you don't have a copy of the release it is available on our Web site at Hasbro.com.

On the call this morning will you hear opening remarks from Al, followed by a review of the financial results by David who will then open the call to your questions.

Before we begin our formal remarks, let me note that members of Hasbro management may make forward-looking statements concerning managements expectations, goals, objectives and similar matters which are subject to risks and uncertainties.

These forward-looking statements include planned product launches, earnings, revenues and the retail environment.

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.

Some of those factors are set forth in our annual report on Form 10-K including under the heading,"Forward-looking Information and Risk Factors That May Affect Future Results" and our quarterly reports on Form 10-Q included under the heading, "Forward-looking Statements and Factors That May Affect Future Results" and our current reports on Form 8-K and in today's press release.

All listeners should review such factors together with any forward-looking statements made in this conference call.

We undertake no obligation to make any revisions to the forward-looking statements contained in this conference call or to update them to reflect events or circumstances occurring after the date of this call.

Now I would like to introduce Al Verrecchia.

Al?

Thank you, Karen.

Good morning, everyone.

Thank you for joining us.

Looking at the results we reported today, I realize some of you may be surprised by the decline in revenue for the quarter.

Frankly, it was not totally unexpected given the difficult comparisons we had with BeyBlade.

For those of you that were on the earnings call this last quarter or attended our event at Toy Fair in February, you'll recall we said we expect the growth to come in the back half of the year.

We continue to believe this will be the case.

And in fact, our results for the first two quarters do not change our expectations for this year.

Let's look at the BeyBlade comps more closely.

In 2003 we had revenue of $53 million in one quarter one, 105 million in quarter two, and the remaining 178 million was split almost evenly between the last two quarters of the year.

While we anticipated BeyBlade coming down this year, it is still doing pretty well as evidenced by the fact that we've shipped approximately 53 million of product year-to-date.

However, this represents a decline in revenue of $81 million in the second quarter and 105 million year-to-date which more than accounts for the decline in our revenue this year.

In addition, the closing of the Wizards of the Coast retail stores resulted in a $7.3 million decline in revenue in the second quarter and 15.5 million year-to-date.

If you look at the rest of the business, many of our core brand drivers performed well with My Little Pony leading the charge.

We also had year-over-year increases from Easy Bake, Tonka, Monopoly, Super Soaker and Nerf.

Year-to-date core brand drivers were up 8% globally.

In the domestic toy business, in addition to BeyBlade we experienced some softness in both G.I.

Joe and Transformers.

We believe this was due in part to the trade support for the Spiderman movie which absorbed much of the open to buy in the boys action figure category.

Going forward we would expect the boys business to be stronger in the back half of the year given our new product introductions including G.I.

Joe and Transformers.

Our boy game business continued to perform well with the majority of our categories showing solid year-over-year growth.

The adult game category was up this quarter due to the success of the Trivial Pursuit 1990s addition that we recently launched, and the continued momentum from our Trivial Pursuit DVD game, offsetting the anticipated decline in the Trivial Pursuit 20th anniversary edition.

When you look at our operating profit this quarter it's clear that our continuing cost reduction efforts are paying dividends.

Even with the decline in revenue we are profitable, our balance sheet is strong, and we continue to generate significant cash-flow.

Clearly we are a much different company than we were a number of years ago.

Going forward, there are two reasons why I continue to believe we will grow revenue and earnings for the year.

First and foremost we have significantly more new product launches and brand extensions planned for the all-important second half compared to a year ago.

And while it's not possible to share all of them with you today, I'd like to highlight a few of them.

New to our toy line this year are VideoNow Color, Laser Tag, Luv Cubs from Fur Real Friends, Play It Now, our new portable music player, Weebles and Boobah from the creator of Teletubbies.

Our product line extensions include additions to our Playskool Cool Crew Line, My Little Pony, G.I.

Joe, Transformers and a new Light Bright featuring a flat screen and easel.

BeyBlade should be a solid contributor in the second half given the great lineup of new products along with new programming airing in the fall both here and international.

If BeyBlade would have continued to decline at the rate it did in the first half, it would still be a $100 million brand for us this year.

Of course we have a very solid lineup from our games group including TV Mission Paintball, a new plug-n-play game, Trivial Pursuit Pop Culture, a Wheel of Fortune live play game, Sorry 70th Year, and the new preschool game, Whac-A-Mole.

Wizards of the Coast will continue to aggressively market Magic to Gathering which has performed very well globally up almost 15% year-to-date.

Couple this with the very successful launch of our new trading card game, Dual Masters, which is meeting our expectations both here and internationally, and you can see why Wizards should have a very solid year.

We have positioned Dual Masters to follow the magic model starting with hobby stores and building over time.

Therefore you should not expect to see a great deal of activity in the mass markets until later this fall.

Finally, we have a couple of entertainment properties in the back half of the year that we expect to do very well.

The Incredible's from Disney Pixar and Shock Tale from Dream Works.

Of course we'll be supporting our brands with strong advertising and promotional programs complementing the support we have from our retail partners.

We're going to be out there in an aggressive way much like we were last year.

Another reason we're confident about revenue growth in the back half of the year is our point of sale data.

POS in both the domestic toy and board game businesses from our top five customers through the end of the second quarter was pretty good.

Through the end of the second quarter, POS for our domestic board game business was up 3.4% including the decline in Trivial Pursuit 20th Anniversary Edition which as you know is in its third year in the U.S.

Excluding TP 20, POS in the board game business was up double digits.

For the end of the second quarter, POS in the domestic toy business was down slightly.

But that included the decline in BeyBlade which offset increases in a number of other product lines including Play-Doh, My Little Pony, Nerf and core Playskool.

Bottom line I think we're well-positioned for the all-important second half.

Let me close with some thoughts regarding retail.

Not much has changed since our first quarter conference call.

We continue to see a seasonal shift to the second half of the year as retail is focused on reducing inventory and managing the supply chain.

It's pretty clear that industry consolidation issues continue, creating uncertainty at retail which in the short-term has the potential to impact performance.

That said, over the longer term I believe these issues will resolve themselves so there will be more than enough doors to satisfy consumer demand.

What Hasbro needs to do is stay focused on its own strategy for growth.

This means delivering new and innovative products and supporting these products with aggressive marketing and promotional programs.

That's what will drive demand at retail.

As I shared with you earlier, we have a strong and diversified product line shipping in the second half.

It's through our new product offerings and the strength of our brands that we expect to achieve our full year goals and objectives.

Let me now turn the call over to David who will review the quarter in more detail and then we'll go direct to your questions.

David?

Thank you, Al, and good morning, everyone.

I am pleased that despite the significant reduction in revenue during the quarter we remained profitable and we delivered earnings per share consistent with last year's performance.

This is not a coincidence.

Over the last three and a half years we have diligently worked to build a more sustainable business, focused on core brand drivers, which were up year-to-date.

And to significantly reduce our expenses so that we can make money even in a quarter or year when we do not have a hot item.

Compared to the end of 2000, we have reduced our overhead expenses by 200 million, and we have reduced our worldwide staffing to from almost ten thousands to just over 6,000 employees.

This quarter we are seeing the benefit of these efforts including those from the fourth quarter of last year when we announced the closing of a Wizards retail which had been a drag on our profitability.

We ceased manufacturing at our Valencia facility and sourced production to the Orient to be more competitive and we repurchased some of our long-term debt to reduce our interest expense this year and beyond.

Taken together, all of these initiatives made a big difference in terms of enhancing our bottom line performance this quarter.

Now let's take a look at our second quarter results.

Worldwide net revenues were 516.4 million compared to 581.5 million last year.

These results include an 8 million positive impact from foreign exchange, and a 7.3 million decline in revenue related to the closing of the Wizards of the Coast retail stores.

As Al mentioned, we believe our most difficult BeyBlade comps occurred in the second quarter when the brand was down approximately 81 million.

Now let's review the performance of our three major segments, U.S.

Toys, Games and International.

In the U.S.

Toys segment, revenues were 167.2 million, a decrease of 20% compared with revenues of 208.4 million last year.

We had solid growth from a number of our core brands that was offset by weakness in the boys business, include a decline of 34 million from BeyBlade.

U.S.

Toys had an operating loss of 7 million, compared to an operating profit of 12.9 million last year, reflecting both the lower sales as well as the decline in gross margin.

In the Game segment, revenues were 161.6 million, an increase of 9% compared with revenues of 148.6 million last year.

We had significant growth in the electronic and preschool categories driven by strong performance from Elefun and Bulls-Eye Ball.

We also delivered strong performance from the Wizards of the Coast trading card game business.

The U.S. launch of a new Dual Masters trading card game contributed significantly to the quarterly growth year-on-year.

Operating profit in the Games segment was 28.7 million compared to an operating profit of 25.4 million last year.

International segment revenues were 179.2 million, compared with revenues of 203.8 million in the prior year.

This represents a decrease of 12% in U.S. dollars and 16% in local currency.

The revenue decline can be primarily attributed to BeyBlade which was down approximately 47 million compared to a year ago.

Partially offsetting this was strong performances from a number of our core brands including Magic: The Gathering, Playskool, Monopoly, Transformers, Dual Masters and My Little Pony.

International segment operating profit was 2.8 million for the quarter, compared to a loss of 4.8 million last year.

Those of you that have followed us for a long time know that the International business is not typically profitable in the second quarter.

In fact, while we have benefited across the company from our focus on reducing expenses, this was particularly true for the International segment.

Turning now to consolidated earnings.

For the quarter we reported net earnings of 18.8 million, or 6 cents per diluted share.

This compares to net earnings of 11.4 million, or 6 cents per diluted share a year ago.

I also want to clarify that the diluted earnings per share we are reporting is a difference from the amount you get when you calculate the EPS using the net income and share count from today's press release.

Accounting rules require that we calculate diluted earnings per share two different ways.

Treating [Inaudible] as well as a liability and treating the warrants as equity.

When you use the liability method, the mark-to-market of 8.5 million from the warrants is included in the net income number and the share count excludes the impact of the warrants.

This gives a diluted earnings per share of 11 cents for the quarter.

When you use the equity method, the mark-to-market is excluded from net income and the share count is increased to reflect the warrants being converted to stock.

This gives a diluted earnings per share of 6 cents for the quarter.

Accounting rules require us to report the more dilutive earnings per share amount which is why we reported diluted earnings per share of 6 cents.

This calculation is something that unfortunately is not easy to model.

The reason being that it changes every quarter due to factors such as changes in our stock price and interest rates.

We will be including a table in our 10-Q that details these calculations.

Earnings before interest, taxes, depreciation and amortization, was 63.7 million, compared to EBITDA of 66.8 million last year.

Moving on to margins.

Gross margin was 59.8% compared to 60.3% last year, primarily due to product mix including BeyBlade.

In looking at expenses for the quarter, all expense line items were down year-over-year except research and development reflecting our ongoing strategy to invest in core brands and new product innovation.

Research and product development expenditures increased 14%, or 4.6 million, to 37.7 million, compared to 33.1 million last year.

Advertising at 59 million, or 11.4% of revenue, is consistent with last year's percentage, and reflects our ongoing focus on core brand growth.

Royalty expense was down 35% to 34 million, compared to 52.7 million last year, primarily due to BeyBlade which is a relatively high royalty product line.

Selling, distribution and administration expense, at 139.9 million, was down 7% or 10.6 million as we continue to execute on our expense reduction initiatives.

Savings associated with cost reduction programs were partly offset by the impact of translating international costs at higher foreign currency exchange rates.

Absent the impact of foreign exchange rates, SG&A would have been down 13.5 million, or 9%.

The net of these line items is that our operating margin this past quarter was 4.4%, compared with 4.9% in the year ago quarter.

However, for the full year we expect operating margins to improve versus last year, and to make progress towards our goal of 12% or better by 2005.

Interest expense was down significantly to 7.9 million, reflecting the pay down and repurchase of 195.9 million of long-term debt during the last 12 months.

Now turning to the balance sheet.

Receivables were 307 million, down 178.1 million compared to 485.1 million last year.

Days sales outstanding reduced by 21 days to 54 days.

Absent our securitization program receivables would have been 404.4 million and DSOs would have been 71 days.

This compares to 75 days last year.

Inventories decreased by 36.7 million from a year ago to 237.1 million, reflecting our continued focus on supply chain management.

The balance sheet also shows total debt net of cash of 215.5 million, a decrease of 491.2 million compared to a year ago.

This is a result of both our strategy to deleverage as well as the strong cash generating ability of the underlying business.

Our debt to cap ratio declined to 33% compared to 40% last year.

And our long-term goal remains to reduce debt to cap ratio to 25 to 30%.

We were also pleased to receive an upgrade from Standard & Poor's to investment grade for our corporate credit rating.

Standards & Poor's acknowledged Hasbro's improved operating profit performance, extensive cost reductions, debt reduction, and our refocus on more stable, established brands.

In closing, we are launching a strong slate of products in the seconds half of the year and we continue to believe we are on track to grow revenue and earnings this year.

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

Thank you.

And at this time if you would like to ask a question please press star and then one on your touch-tone phone at this time and we'll take your questions.

Thank you.

Once again at this time, please press star one.

Thank you.

And our first question comes from Sean McGowan, your line is open, Please state your company name.

Hi, from Harris Nesbitt.

One is, David, can you clarify what is the base level earnings per share that you use when you make the comment that you expect the earnings to be higher this year than last year?

I just want to make sure we are all on the same page.

And, second, I know you don't know what Toys 'R Us plans are or any retailers plans are for store closing or other strategic changes but can you share with us how it is that you're planning, whether it's an atmosphere of uncertainty or how are you planning for whatever changes there might be in the retail environment?

Good morning, Sean, this is Al.

I will take the first one and will let David take the question on earnings per share.

I think to summarize it, a bit of it is the uncertainty.

There's been a lot of speculation in terms of whether or not they are going to spin-off babies are us, and we heard potential store closings anywhere from 100 to 300 stores.

We don't have any inside scoop as to suggest that we know anything more than what we read in the paper.

So that's why I've said, I think in the short run, depending upon what happens, that could impact performance.

I think in the longer term there are going to be enough doors out there that if you create demand in the marketplace people are going to get, will have the ability to get to your product.

There is some speculation, I'm not sure that trying to close stores to the back half of the year would be the right thing to do.

There's some speculation they are going to wait until next year.

We are sort of planning on the fact that there will be some store closing and some consolidation.

And then it's a question of, how many, and we try to evaluate internally, what have they close 100 stores, what have they close to hundred stores, when they do it, and what's the alternative scenarios would be.

To say that we know specifically which one it's going to be, we don't.

Would it be fair to say that you would be building inventory more cautiously, then?

Zero, yeah.

I think that we are going to continue to manage inventory, not only toiz are us but given K. B. and the focus that the mass merchants Wal-Mart has on [inaudible] good and managing intoars we are going to continue to watch it closely.

We are not going to get too far ahead of ourselves for sure.

Thank you.

And the earnings per share question.

We are talking about an improvement.

We are not saying how much improvement but we are saying that we will get an improvement against our as reported earnings per share last year.

And we are also talking about improving operating margin versus last year; which as you know was about 11%.

And we are talking about making progress towards 12% or better goals.

So clearly we do expect to improve operating margin and earnings from our as reported results last year.

Okay.

Thank you.

Thank you.

Our next question comes from Jill Crudick.

Your line is open.

Please stake your company name.

Smith Barney.

Thank you.

I have a few question, please.

Recruit tick.

The BeyBlade decline that you saw in the second quarter, was that a dramatic acceleration from the first quarter, the question of the one.

Secondly you mentioned point of sales including BeyBlade down for toyed, do you have a specific number excluding the BeyBlades, just for the toys?

And then finally looking out in the second half, should we assume that GMs could be higher in the second half as bay blades declines as the share of the overall total and similarly that royalty should be higher as well in the second half?

Thank you.

Krutick.

Good morning, Jill, it's Al.

Let me take the questions on BeyBlade and then I will let David talk about the gross margin.

Yes, BeyBlade declined more in the percentage wise, more in the second quarter than it did the first quarter.

YTD I think we are down about 67% compared to a year ago.

That's not totally unexpected.

There are two things that impact that.

One is the fact that it had a lot of [inaudible] last year and just naturally it comes down.

The other factor is when you ship any new product and when it's on television, BeyBlade is one of those products that is very, very sense at the end of the year to TV.

It was off television in a lot of countries during the second quarter, sensitive.

It goes back on air in the fall so we think it's going to be okay.

From a point of sales perspective, the point-of-sale on bay blades BeyBlade is not down as much as shipment to retailers and I think you would expect that.

As far as the toy operation, through the end of the second quarter our top five customers, point of sales without BeyBlade was up a couple percentage points in the toy group.

What was,al, the absolute BeyBlade sales number for the second quarter last year?

Worldwide I think BeyBlade was $105 million.

Okay.

Thank you.

And the gross margin in [inaudible], please?

Obviously BeyBlade is a pretty high gross margin item for us but you give a lot back in terms of royalty because it was relatively high there.

Without BeyBlade and everything else remains constant, yes, you would expect to see the reduction in cost of sales would be less significant and reduction in royalties be less significant in a quarter when the decline isn't as great.

That said, there's a tremendous amount of variation between gross margin, between different products.

We have some products in a trading card game business where we have an almost 70 to 80% gross margin and we have others maybe more in a preschool business where you can have 30 to 40%.

So it was a great variation and as we go through the year it's going to depend on all the various moving pieces.

An example, VideoNow Color, I think we talked about VideoNow Color, VideoNow black and white last year is having a relatively low gross margin but when you start to sell the software which goes with it you have a very high gross margin.

I think in the third quarter as we start to ship significant quantities of VideoNow that will put pressure a little bit on the margin.

Okay.

Thank you.

Our next question comes from Dean D. Your line is open.

Please state your company name.

Hi, [inaudible] [inaudible] I just have a couple of questions.

First on the VideoNow, can you talk about that product in context of the new M. Product for the GameBoy?

And also [inaudible] from retailers have a competing product if you could price point if you know about that and [inaudible], secondly, Dual Masters when you talk about getting sales goal at the retailers in the back half of the year, what exactly do you do to sell that product?

And the obvious cash, is it more like to the buy back stock or buy back the convert on that debt to cap?

Thanks.

Okay, Dean, I think I heard both questions on VideoNow and Dual Masters and then the one on cash I will give to David.

In terms of the competitive set with regard to VideoNow, yes, we are aware of M., Nintendo, and we are also aware that Mattel is coming with a product.

A couple of thing.

First of all, there is only one VideoNow.

I think we are the clear leaders in the category.

We established that category last year.

But the real key is content.

I don't think any of the competitors have the content that we have.

I mean yesterday we had a big launch at the toiz are us time square store with Hillary did you have and Tony hawk.

We have lots of content that other pie don't have in addition to Hillary and Tony hawk.

We have rage rave ven, Jimmy neutron, sponge Bob square pants, thing that no one else has.

I think as you know this stuff does dependent on the amount of software that you have.

In terms of Dual Masters, Dual Masters is going to follow the same model as magic and that is we start off, we ship everyone, we don't refuse to ship everyone but the real activity starts with the hobby stores in the organized play.

Those are the folks that run all the tournaments.

What we see now is more and more kids each week are playing in tournaments.

We are selling more and more booster packs.

In the television programming ratings are very high, very strong.

As that builds that will get people generally four, five, six months later, that's when the mass market begins to pick up.

That's what's happened with magic in the past.

We saw that happen with Pokemon, and we saw that has been with using.

When you look at the success of trading card games, there have been God knows how many trading card games introduced in Japan over the last several years.

Only three have been successful, Pokemon, Y., and Dual Masters.

So we are very, very confident that Dual Masters is going to translate and is translating very well outside of Japan.

And we are seeing very good reaction both here and in the International ararena.

But the mass markets targets, Wal-Mart and Toys "R" Us, that comes four to six months later just because you have a build a base of what's there with the kids.

With regard to the cash, Dean, you're right, we continued to generate a lot of cash.

And our stated goal which we have been reiterating for the last three years, is to get our debt down and to meet a debt to cap target of 25 to 30%.

We are almost there.

We announced 33% for the quarter down from 40% a year ago.

So we are almost there.

Once we have achieved that obviously it will be a board decision, but we would look at the opportunity to include further reduction of debt, or returning money to shareholders by either stock repurchase or dividends.

You have to sort of have a discussion at the time and take into consideration what the factors are at the time.

Obviously if it's stock, is it $30, that's one proposition, if it's at 18, that's another proper pig.

So we have to proposition.

So we have to take all those factors into consideration at the time.

In the short term just meat our debt to cap objectives it would be artic lating.

Thank you.

Our next question comes from John Taylor.

Your line is open.

Please state your company name.

I'm with arindicated yeah.

I have a couple of questions questions.

It looks like the tax rate was lower in the second quarter.

Could you talk about that and maybe what your expectations are for the full year?

Seconds, what's going on with Dual Masters in Japan year on year?

I think you mentioned that it was doing pretty well internationally.

So what's going on with the trend line there?

And if you could remind me, I don't remember when you closed the Wizards of the Coast retail stores but what's the revenue impact likely to be in the second half?

And then kind of give us an update if you would on what's going on with plastics pricing and so on, and how well protected you are for this year and when you might start to see that inplace kick in?

Thanks.

Good morning, J. T., Al Verrecchia.

In terms of the question on Dual Masters, dual Dual Masters continues to do very well in Japan.

As you know all of these trading card games will go up and down over a period of time depending upon when new releases are.

But it's consistently been over the last several months in the top 50 selling items in Japan and it gets as high as two or three and then dropping down lower depending on when there are releases.

But it is outselling all the other trading card games in Japan currently.

In terms of the wizards retail stores, we essentially closed them at the end of '03.

I will let David talk to you in a moment about the impact on revenue for the second half of the year.

You know, in terms of plastic and commodity pricing, clearly there has been pressure.

And anything that is based upon petroleum, whether it's gasoline, resins or some other commodities.

We try to take that into consideration when we built our standards this year.

And based upon what's happened in the marketplace thus far and where we see prices going the balance of the year, while, we have certainly inoccurred cost increases they are still within the standards in the planning parameters that we set at the beginning of this year.

And then we are going to have to see what happens thus far.

Plastic tends to be more immediately impacted by economic factors more so than just the price of oil.

Clearly the price of oil impacts it but it's the health of the economy around the world that will have an even greater impact on the price of resin.

Gasoline prize are impacted, the cost of transportation both getting goods from the orient as well as transportation here.

As I said we pretty well covered that in our planning for '04.

David, you want to make a comment in terms of revenue for the wizards stores?

Yeah, I think the second half impact will be [inaudible] about 20 million in terms of reduced revenue associated with closing the retail stores.

And the other questions you had was tax rate.

I think our underlying tax rate is still 28% which we are assuming this year.

I think it was distorted in the quarter by the fact that the mark-to-market is not tax impacted.

So that has to do with the warrant cost?

Yes, the mark-to-market to warrant cost which was $8.5 million cost.

There's no tax benefit or cost associated with that.

Okay.

Thank you.

Thank you.

Our next question comes from David Liebowitz.

Your line is open.

Please state your company name.

Burnham Securities.

Good morning.

Two questions if I may.

First, I didn't hear comment and if you made it I apologize for missing it, about currency impact.

And second of all, in looking to the second half where clearly Europe is going to be far more important how much of your growth for the full year do you expect will be from foreign currency translation?

David, you want to take those?

Yeah, we did talk about the foreign currency impact on revenue.

It was 8 million favorable impact within the 516 million of revenues that we report you'd but the bottom line?

In terms of a bottom line, it was really fairly neutral because in the same way that we are in38ing in38ing our revenue due to foreign currency translation we are also in38ing all of our foreign expenses as well.

So the bottom line there's not a significant amount amount.

The other thing I think about exchange rates is that it was a very significant reduction in evaluateed dollar versus the Euro between '02 and 03.

The reduction between '03 and '04 is much less significant.

We've been running most of the first half of this year about 120 and it's been fairly consistently around 120, up against probably about 130 in the second quarter of last year.

Whereas I think a year ago we were looking at 130 compared to something, 94 in the prior year.

The impact of exchange rates is clearly diminished in recent months.

And the full year?

For the full year, is we don't know where exchange rates are going to go in the second half of the year or where revenues are going to be in the second half of the year.

It's difficult to tell.

Obviously we would expect to get some favorable impact from FX for the full year '04 versus '03 on the top line and on the bottom line but it's not likely to be highly material.

And lastly following up on that, for the second half of the year do you anticipate International revenue to be a greater percentage of the total seconds half than domestic in terms of first half versus second half?

I don't think we usually are willing to give that detailed information.

I have to think about that.

Thank you very much.

Thank you.

Our next question comes from Connor McLaughlin.

Your line is open.

Please state your company name.

Hi, it's daily at F S. Management.

What is the reported PS last year for '03 again? 105. $1.05 was reported.

That's the number that correlates with your.

I think what a lot of people did last year is we announced some things in the fourth quarter last year, the closing, a charge associated with closing Valencia and a charge related to closing wizards retail stores.

And what we've always said is there are always thing going on in a business, some last year, some the year before and maybe some this year and when we report earnings per share and when we get objectives about improving margin, all that's included.

People really don't like it when we say kind of we hit our earnings objectives expect we did this or expect we did that, so we include everything.

So when I talk about improvement in operating margin this year and I talk about improvement in earnings per share this year, I'm talking about against our as reported number.

So that's against the book of five, the book of five correlates with the margin, about 11%.

Is that correct?

That's correct.

Thank you so much.

Our final question comes doctor Sean McGowan.

Your line is open.

The question was just answered.

Thank you.

Okay.

If there are no more questions, that's it.

Have a good weekend.

By buy.

You may now disconnect.

Thank you.

This ends today's conference call.

This conference call is now over.

This conference call is now over.

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This conference call is now over and you may now disconnect.

We thank you for joining us today and thank you for your interest and participation in this conference call.