JAKKS Pacific Inc (JAKK) 2003 Q3 法說會逐字稿

Good morning. My name is Kimberly, and I will be your conference facilitator. At this time, I would like to welcome everyone to the JAKKS Pacific 2003 third-quarter financial results conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to Mr. Jack Friedman, Chairman and CEO. Sir, you may begin.

Good morning ladies and gentlemen. This is Jack Friedman, Chairman and CEO of JAKKS Pacific. Thank you for joining us to review our results for the third quarter and nine months ending September 30, 2003. Joining me on the call are Stephen Berman, President and COO; and Joel Bennett, Executive VP and CFO.

I will again by providing an overview of our operational results for the third quarter ending September 30th, 2003. Joel will then provide detailed comments regarding financial results for the third quarter and the first nine months of this year. I will then wrap up this section of the call with comments concerning current business trends and by discussing some of our product lines in more detail. We will then open the call for your questions.

Before we begin, I would like to point out that any comments made about future performances, events or circumstances, including estimates of sales and earnings per share, information for 2003 and forward-looking statements are subject to Safe Harbor protection under the federal securities laws. Such statements reflect our best judgment today, based on current market trends and conditions, and are subject to certain risks and uncertainties, which can cause actual results to differ materially from those projected in forward-looking statements. For details concerning these and other risks and uncertainties, you should consult our most recent Form 10-Q filed with the SEC, as well as the company's other reports subsequently filed with the SEC from time to time.

With that, I will begin. Our net sales for the quarter were $90.3 million for the third quarter, and 231.4 million for the nine months ending September 30th, 2003. Our results reflect some of the challenges that we have faced this year in a few of our segments.

In this quarter, we experienced the continuing trend of retail as just-in-time ordering and the loss of a few high-priced drivers in this year's line, which we had last year -- particularly our karaoke machine. We do have some of the top licenses and brands in the industry, and are planning and preparing for 2004 with great confidence. By stepping up our marketing and promotional efforts, we plan to take advantage of these opportunities in order to grow our internal brands and the business, overall.

We will continue to focus on the evergreen products and licenses we have across JAKKS Pacific's various product lines and brands. For example, we will expand our NASCAR line into multiple new product categories, such as Tongue Tape, kites, and additional action figures and vehicles.

Further, throughout 2003 we have been laying groundwork for future growth and profitability by securing seven new master toy licenses -- many of the developments with introductions beginning in 2004. We do expect these licenses to strengthen our product offerings and contribute dramatically to top and bottom line growth in 2004 and beyond.

The contribution from our WWE video game joint venture with THQ was modestly up during the third quarter compared to last year. And recently, (technical difficulty) joint venture announced the release of three new WWE games for Q4. Two games were released at the end of the third quarter, and the other will be released during the fourth quarter of this year. We believe these new releases will generate joint venture profits comparable to that during the fourth quarter of 2002. We continue to be greatly excited about our WWE video game joint venture.

With our solid financial position of $229.6 million of working capital, including cash and cash equivalents and marketable securities of 151.2 million, we are using our resources to execute internal growth initiatives, and to make additional acquisitions.

With that, I will turn the call over to Joel for more details regarding our financial results for the quarter and the nine months.

Thank you. Third quarter sales this year were $90.3 million, compared to 102.6 million in the third quarter of last year. Net income for the period was $9.6 million, or 39 cents per diluted share, compared to $14 million, or 58 cents per diluted share for the third quarter of last year. Excluding a onetime credit of $700,000 in the third quarter, relating to recoveries on a recall of one of our products, net income would have been $9 million, or 37 cents per diluted share, in 2003.

There were 24.7 million shares outstanding in the third quarter of '03, compared to 24.1 million in the same period last year.

Net sales for the nine months ended September 30th, 2003 were $231,400,000, compared to 241,500,000 during the same period in 2002. Excluding onetime net charges, net income during the period was $20.3 million, or 82 cents per diluted share. This compares to $29.9 million, or $1.35 per diluted share, for the comparable period last year. Including onetime net charges of $2 million for the product recall in 2003, and the restructuring and recall charges of $8.1 million in 2002, net income for the nine months of 2003 was 18.7 million, or 76 cents per diluted share, compared to 23.9 million, or $1.09 per diluted share, for the same period in 2002.

We disclose sales by category to give better insight as to how our business is doing and where we face challenges. We comment on four broad categories, which are traditional toys, seasonal products, craft activities and writing instruments, and international. For competitive reasons, we do not disclose detailed sales of specific products or licensed lines.

Sales of traditional toys, which include wheels products, action figures, dolls, electronics and promotional products, were 36.2 million for the quarter, and 65.7 million for the nine months -- first nine months of 2003. These represent 40.2 percent and 28.4 percent of overall sales for each period.

Sales for the third quarter nine months of 2002 were 43 million, and 75.6 million, representing 41.9 percent, and 34 percent of overall sales for each period. We attribute the change to a few factors, including the loss of two key items from our 2002 lineup -- our high-priced karaoke machine and equalizer radio control vehicle.

In our seasonal product category, we include Go Fly A Kite, Funnoodle, storm (ph) (indiscernible) toys, and various sports items. For this category, sales were 2.6 million for the third quarter, and 36.1 million for the first nine months of 2003. This represents 29 percent, and 15.6 percent, of our overall sales for these periods.

Sales for the third quarter nine months of 2002 were 3.7 million, and 23.2 million, representing 3.6 percent and 9.6 percent of overall sales for each period.

In the craft activities and writing instrument category, which is primarily made up of our Flying Colors and Pentech division, sales were 34.4 million for the third quarter, and 94.9 million for the first nine months of 2003. These represent 38.1 percent, and 41 percent, of overall sales for these periods.

Sales for the third quarter and nine months of 2002 were 35.3 million, and 103 million, representing 34.4 percent and 42.6 percent of overall sales for these periods. The change is mainly due to a decrease in the sales of compounds for the three and nine months periods of 2003. However, looking to the future, we are encouraged by a number of products in this category, including the Blow Pen (ph) products, which were part of our recent asset acquisition of PNM (ph) Color Workshop, which closed in June of this year.

Lastly, international sales were $17.2 million for the quarter, and $34.7 million for the first nine months of 2003, representing 19 percent, and 15 percent, of overall sales for each period. Sales for the third quarter and nine months -- first nine months of 2002 were 20.6 million, and $39.7 million, representing 20.1 and 16.4 percent of overall sales.

The decline in this area was primarily due to the decrease in sales of our Singing Stars karaoke machine. Recently, we announced the addition of a new senior vice president of international sales, who will continue to oversee the expansion of international business through various initiatives that we have undertaken.

For the operating results, gross profit for the third quarter and the first nine months of 2003 decreased as a result of lower sales volume in the current year. This, in addition to lower gross margins for the first nine months -- which resulted from shifts in our product mix during the first half of the year. We expect gross margins to improve in the fourth quarter as the product mix changes.

Operating margins decreased as a result of higher SG&A expenses for the quarter. Excluding items associated with the recall, SG&A increased 1.4 million to 24.3 million, (technical difficulty) compared to 22.9 million, or 12.6 percent for the same period in 2002.

2003 included one point (indiscernible) million dollars more in option compensation expense in the third quarter, compared to third quarter last year. And this relates to the re-set of options back in 2000. For the nine months, excluding the restructuring and recall charges, SG&A increased nominally by $300,000 to 65.4 million, or 28.2 percent of net sales, from 65.1 million, or 26.9 percent of net sales for the same period in 2002.

The contribution from our joint venture with THQ for video games was up modestly from last year, increasing to $900,000 from 600,000 -- although for the first nine months of 2003, the JV (ph) profit decreased to 1.3 million from 2.6 million in the prior year. This is due to fewer new releases in 2003.

As we announced last quarter, we expected the launch of three new titles, WWE Raw II for Xbox; WWE WrestleMania XIX for Nintendo Game Cube; and Smackdown, Here Comes the Pain for PlayStation II -- will generate joint venture profits for the fourth quarter of 2003, comparable to those during the fourth quarter of 2002.

Lastly, we incurred interest expense of 1.1 million in the third quarter of 2003, and 1.4 million for the nine months ended September 30th, relating to the convertible notes we issued in June 2003.

Excluding changes in marketable securities, cash flow from operations in 2003 was 5.2 million for the quarter, and 13 million for the first nine months, as compared with cash flow from operations in 2002 of 21.4 million for the quarter, and 22 million for the first nine months of the year. Capital expenditures in 2003 were $700,000 for the third quarter, and 3.2 million for the nine months.

There were no additional shares repurchased in the third quarter as part of the previously-announced share buyback program. Total repurchase to date are 412,000 shares at an average per-share price of $10.24.

The continued strong cash flow and successful completion of the $98 million in convertible senior notes equates to a very solid balance sheet. We have approximately $230 million in working capital, including 152 million in cash and cash equivalents and marketable securities.

Accounts receivable increased sequentially to $86.6 million September 30th, 2003 from 72.8 million, due to higher sales in last quarter -- with modestly lower DSOs at 86.3 days, down from 89.4 days as of June 30th, 2003.

Inventory increased sequentially this quarter to 43.5 million, from 38 million last quarter. With modestly higher DSIs of 91 days, compared to 87.3 days as of June 30th, 2003. This is due to having inventory required for our expected increase in fourth quarter sales over the previous year quarter, as well as inventory that we had acquired in the asset acquisition of PNM Color Workshop.

Now, I will turn the call back to Jack.

In my opening remarks, the third quarter was a challenging one for JAKKS Pacific. However, we believe we are well-positioned for the fourth quarter of 2003, and for the upcoming year. We will continue to leverage the strength of our operating cash flow and balance sheet and utilize our pool of seasoned and talented employees to take advantage of market opportunities. We are a committed to growing our business.

We began shipping our NASCAR vehicles and figures this quarter, which are being featured as part of a NASCAR boutique at Toys R Us stores nationwide, and is also well-placed in our other top retailers. The line has been well-received and we expect this to be a long-term evergreen line for JAKKS. We are also quite enthusiastic with our line of Plug-and-Play TV games. Our Atari TV games unit, which is in full distribution, and sales for the fourth quarter look very, very promising.

With a retro appeal and great value, making it appealing to both young adults and children initial sell-throughs from our major customers are extremely strong. The latest launch for the line, Namco TV games, which features Packman, Dig Dug, and Galaxian recently won Family Fun Magazine's toy of the year award for best electronics toy. And the product is just hitting shelves and initial results at retail are extremely strong.

Some of the retailers carrying this line are Wal-Mart, Target, Musicland, Urban Outfitters, Best Buy, and Toys R Us. This line has the potential to be long-term and evergreen, and we expect to introduce at least six new TV game units in 2004, including follow-up Atari and Namco units and versions based on popular electronic arts, sports video game titles, Nickelodeon's Sponge Bob, and Dragon Ball franchise.

Earlier this year, we announced that JAKKS is the master toy licenses for Fairly Odd Parents, one of Nickelodeon's top new shows. We have begun to ship a full line of plush figures and other items, and are pleased with the initial place before the fourth quarter. Mucha Lucha is a master toy license we announced this month. We developed -- we have developed a wide range of products, including action figures, playsets, role-play, jumping beans, plush and more, based on Warner Bros. animated hit TV series on Kids WB. The show is currently ranked number three show for boys 6 to 11 this season (technical difficulty).

Additionally, JAKKS is a master toy licensee for Van Helsing, the new universal action adventure theatrical release slated for May, 2004. We have created a full range of products, capitalizing on Van Helsing, as well as Universal Studios classic monster (ph) characters, which have become a part of American popular culture.

We're pleased with sales of our Tongue Tape candy line of flavored Tongue Tape strips and expect to ship two new varieties in 2004 to our customer base, increasing our presence and offering in the candy category. Our goal here has been to create a line of candy for Jakks -- not just one product -- as we believe this is key to truly maximizing potential for this area.

JAKKS is also a master toy licensee for the DragonBall Z franchise and Yu Yu Hakusho, two popular Japanese animated (ph) properties. We have seen an increase of sale-through for the DragonBall line since our new products began hitting shelves earlier this year. In fact, several retailers are so pleased with the response that we expect to increase substantially shelf space at retail in 2004 for this line.

We are confident that we have created innovative products across our varied divisions in 2003, and will continue to introduce many, many new products. Our products are sold at a broad range of retail outlets, including Wal-Mart, Toys R Us, KB, Kohl's, Walgreen's, Office Depot, Best Buy, Bed Bath and Beyond, Target and Myers, to name a few. And we are working every day to expand our distribution, domestically and worldwide.

From Blockbuster movie properties and top-rated children's TV programs, to sports entertainment licenses and evergreen girls brands, JAKKS Pacific upcoming product offerings encompass brands that children love. In 2004, we will work diligently to build those brands -- reinvigorating our lines, our customers and consumers -- positioning JAKKS Pacific as a lifestyle brand. From toy chest to the pool, to the playground and even office supply rooms, JAKKS makes products people use every day. We will substantially increase our marketing dollars to help increase brand recognition and are committed to staying focused on growing JAKKS Pacific.

Our results during the third quarter reflected some of the challenges that JAKKS Pacific has faced this year in a few of our segments. However, we are encouraged by the fact that, as of today, our fourth quarter book sales are more than 20 percent ahead of fourth quarter 2002 sales at this time last year. Therefore, we expect full-year net sales for 2003 to be in the range of 300 to 310 million, and fully diluted earnings per share, excluding onetime charges, to be in the range of $1.00 to -- $1.20 to $1.30 per share.

While in the past some of our brands have had some deterioration of growth, we have recognized this and have taken initiatives to focus on our building of our internal brands.

With many new items and licenses in each of our areas, and newly-developed items and brand extension, in addition to the total focus of brand marketing, we are poised for future growth of existing organic brands. In addition, we have extremely healthy balance sheet, and are seeking out acquisitions as part of our growth strategy. And are continuing our main focus on the organic product lines that existing in our lines.

In closing, we remain focused on incorporating innovation and adopting technologies to make our diverse products more compelling for children and adults, and more profitable for JAKKS and our retail partners. We plan to reinvest in JAKKS by increasing the resources devoted to design and marketing throughout the company, and have dedicated people in each of the brands responsible for strategically focusing on their lines to generate new organic growth. We have the vision necessary to further build and expand our business and drive shareholder value. With our financial position and continued solid operating cash flow, we are well-positioned for internal growth initiatives, as well as acquisitions. Overall, we are quite excited about the potential opportunities available to us, and we expect to deliver both sales and earnings growth over the long-term.

With that, we will now open the call to your questions.

(OPERATOR INSTRUCTIONS). Arvind Bhatia, SouthWest Securities.

Just a few questions here -- this one is for Joel -- On the income from joint ventures, the numbers are a little bit confusing to me. As I noticed in the past, the difference between what THQ reports and what you guys report, has ranged from a $250,000 difference to an $800,000 difference. I noticed this time it's about a $1.2 million difference. My question is -- why such a big difference? Is there that much fluctuation in the costs associated with the joint venture? And, I would imagine the expenses would not change that much. And then, going forward, what sort of differential should we think about between what you report and what THQ reports? That is my first question.

And then a couple of questions outside of that. One is -- how much of your business today is FOV (ph) Hong Kong? And another question is on the international opportunity that you see going forward.

Okay. With regard to the JV, at a minimum, the cost that we incur on a quarterly basis is about $370,000. There are some timing differences between what THQ reports as payments to JV partner, and what we reflect as -- what I will call the gross preferred return -- from which those costs are deducted.

In addition, we are amortizing the capitalized cost of the JV over the balance of the life of the initial license term, which is another, I believe, 75,000 per quarter. So, part of it is timing. And I guess if you do aggregate the amortization on the JV costs and the SG&A, that is about 440,000. So, that should be the expected difference before any timing differences. So, is not unusual to have fluctuations from that from quarter-to-quarter.

So last quarter was only 250,000, I think.

Yes. Like I said, there are some timing differences between what we report and what they report. So, (multiple speakers) aggregate is not that significant.

Got it. My second question was on how much business is being done FOV Hong Kong?

More recently, there has been a shift to more domestic businesses. The buying patterns of the retailers have changed. And, we are running at about 65 F.O.B. 35 -- no, I'm sorry -- we are running -- actually at the half, we were at 70 percent domestic, 30 percent F.O.B. In the back half, it will shift more to 55/45. So, we expect at the end of the year probably 60 percent domestic, 40 percent F.O.B.

Can you put that in perspective? What does not compare to last year -- the 60/40 --?

Actually, we were at 55/45 for the whole year.

Okay. And you expect that shift to continue in the changing ordering patterns from retailers?

That is pretty much leveled off. It is really what certain customers become as a percentage of our overall business. Certain specific -- Wal-Mart is a big user of goods domestically. So, as their business increases, the domestic flow will increase accordingly.

Because I wonder what the -- about the forecasting -- (inaudible) what the consensus numbers were. And I just wonder about -- is this the difference between what you reported in the consensus numbers and -- is that because you have less visibility because of increasing percentage of business done domestically, compared to what you did historically?

We never gave specific quarterly guidance. Although, you are correct in that, with more domestic business, we have less visibility into the future in terms of booked orders on-hand. Orders -- we might get the paper is much as 90 or 120 days before the actual ship date. But, nonetheless, through our constant contact with retailers and management of the point-of-sales information, we have good indication. So, we are not flying blind in that sense.

As Jack mentioned earlier in the call, our bookings to date for the fourth quarter -- and what is important here is that in the back half, where there is more toy sales as opposed to back-to-school, which are more domestic focused in terms of distribution -- we have some pretty good visibility there. We are comfortable with the guidance.

What Jack had mentioned was that we are about 20 percent -- it's actually more than 20 percent -- ahead of this time last year in fourth quarter booked sales. So, what more F.O.B., we have, certainly, more visibility. But again, with our constant contact with the customers, and managing the point of sale information, we have a good comfort level.

So what would to say was the contribution from the various acquisitions this quarter? And again, I'm trying to get a sense of the base business and the growth there.

Well, the two big items that we had lost from last year -- obviously, we are down from last year. So, even with acquisitions, there was no organic growth.

(multiple speakers) Do you have the number?

In the aggregate, no organic growth. But we certainly had some new initiatives contributing this quarter.

(multiple speakers)

We don't comment specifically on licensed lines or our product lines. But, we are down year-over-year, so you can imply that overall organic growth is down. But, you know, over the last three quarters, we have announced new product lines, as it certainly contributed, including Tongue Tape, DragonBall Z and other organic items.

I guess what I am trying to understand is are you able to segregate your acquisitions and what those are bringing to you? And then look at the rest of the business to see where -- how much down are you in terms of your base business if you include those acquisitions?

The only new ones were Trendmaster and Color Workshop. Those have not been anniversaried yet, and they were not big deals So they did contribute modestly to the quarter.

Okay. What about the fourth quarter now, with Atari games and you talked about NASCAR? What will be the contribution from those two lines in this quarter?

They are a big part of the line. We've got great acceptance on the TV games. And Nascar is still popular. We've got a nice range of products. Again, without commenting specifically on what a particular item will do, they are certainly going to be important contributors to the fourth quarter.

At least half, do you think? Those two?

I cannot go there.

Okay. And just a last question on this and I will let someone else jump in -- 2004 -- I mean, how are you looking at it now with everything that is going on with retail? How are you able to project sales for next year? Are you looking at flat sales next year? Growth of 10 percent? Any sort of indication for next year?

This as Jack speaking, Arvind. We are not ready to forecast sales for next year. I would say that we are feeling extremely confident about next year. We have substantially increased our offerings for next year, which we mentioned earlier in the call -- the various new licenses that we have acquired. And have added a number of people to our R&D and marketing team to substantially -- to the point that we're trying to drive home to you guys -- is that we have recognized that we are dealing in a tough environment. We need more products, more sellable products, more marketing, more promotion in our lines to drive the business and the retail environment that we are dealing in -- and have put on some significant people and efforts and new product initiatives to substantially, or hopefully re-grow our organic business in 2004, in addition to potential acquisitions for 2004 and beyond. We're trying to say that point rather dramatically.

Okay. Thanks, and good luck with the toy fair.

Bret Jordan, Advest Inc.

A couple of quick questions here -- And one, just housekeeping. What happened to karaoke? I guess that was a reasonably high-profile product last year?

This has Jack answering. Karaoke -- the market has totally gone to CD-based karaoke-type machines. Ours was cartridge-based. And it slowed down dramatically. It did not sell through at Christmastime. And other than internationally, we have dropped the line and closed out the modest amount of inventory that we had on hand. So it is totally discontinued, Bret.

All right. And I guess you were focusing on this substantial increase in marketing spend. What is your projected impact on EBIT or what percent of sales (technical difficulty)?

We are talking about 2004 here, Bret. And in our new product offerings, there will be proper gross margins to offset the additional marketing expenses of those product lines.

So you don't see an impact, materially, on EBIT margins?

They should not be any.

To clarify marketing, incorporate how we work with the product. It may not necessarily translate into television advertising. And, some of the costs will be covered by the elimination, next year, of certain operating expenses we incurred in connection with the PNM acquisition. So, when we refer to marketing, we will have devoted people to set up programs with the retailers. Some things may not cost -- and probably will not cost as much as a TV campaign, which we don't expect to be(indiscernible) either.

But, we do expect to substantially increase our marketing in terms of marketing as TV, in-store promotions, etc., for 2004. In retrospect, we think that we have been a little bit too sluggish in that area, and we are stepping that up, with accommodating margins to offset that.

Okay. And it seems -- I'm just trying to reconcile the evergreens toys with a number of licenses that are hard to pronounce. Do those licenses that you are now involved in require additional media spend? Or, is it just a shift of strategy across the product line?

I think overall, Bret, that we have been a -- as you said, a low spender of marketing to the consumer or product brand. And we are increasing, recognizing that, and recognizing that we are a bigger supplier to the industry than we have been in the past. And that we need to continue to build our brands and licenses and get that point across to the consumer, both through TV, in-store promotions, co-op advertising, etc. -- and are addressing that, and have built an internal staff to handle the marketing of those products in whatever the necessary fashions are.

Okay. And Joel, one question. You mentioned on the comparison something about an options repricing historically. What was the impact on the comparison?

Year-over-year, there was a million two more expense in '03 than last year. Basically, options -- or those options whose price was reset, are accounted for on the variable method, where, for each dollar change in the stock price, measured at the end of the quarter, we record expense. And, there was a swing of $1.2 million, year-over-year.

Okay. Thank you.

Derek Wingar (ph), Jefferies & Co.

Two questions. One has to do with gross interest expense and the other with capital expenditures. Did you have the gross interest expense for the third quarter and for the trailing 12 months, if not for the year-to-date. And then the capital expenditure outlook?

Interest expense for the quarter was 1.1 million; for the year it was 1.4. We historically have not carried any debt. This is all related to the convertible notes we issued in June.

Okay. What is the short-term portion of debt, then, on the balance sheet?

Let's see -- hold on -- falls at 17,000 -- it is nominal, but it is a (multiple speakers)

Yes, $18,000 is the car loan.

Okay.

For a company vehicle.

Okay, everything else is a convert? Okay, and then capital expenditure guidance for the year?

We invest heavily, starting in the fourth quarter, for the following year. We were running about 3.2 for the first nine months. We will probably be at the low end of the range at 5 or 6 million, instead of previously we were at 6 to 8 million.

And next year, what do you think?

We will probably be in the $8 million range with all the new products that we have.

Okay. Okay, thank you very much.

(OPERATOR INSTRUCTIONS). David Cowen (ph), Value Line.

In reference to the 155 million in cash and marketable securities and your comments about leveraging that -- two areas. One, what are the acquisition opportunities? And how close are you to possibly consummating?

And secondly, what is the potential for reactivating the share repurchase program?

The easy one -- the share acquisition program is still in place. From time to time, we do have to stop purchasing based on activities, including M&A. Regarding M&A, we have a pretty broad view of the world, with a broad product lines. We're looking in areas related to our writing instrument business -- it could be stationery and the like. In addition, we have the total toy business to look at. At this point, we don't have anything teed up. We do review a lot of opportunities and we usually wind up on the short list of many people that are selling.

One of the criteria is that we will not over-pay. So, as much as we would like invest the money and increase our return on equity, we would certainly not be willing to over-pay. So, we have certain parameters in which we review opportunities. And, again, we -- quite a few during the course of the year.

This as Jack -- on your comment if we are for close to one. This is not a hint of anything, but if we were close to one, we could not comment on that. A deal is not a deal until the deal. And lots of deals crater at the last moment. So, we would not give guidance if we were in the midst of a negotiation, unless the negotiation was a point that it was in writing and announceable. But, that is not a -- please don't take that as a hint or anything.

Okay. But forwardly speaking, there seems to be that there are ample opportunities.

Yes.

Okay. A second question -- based upon your overall positive comments about product introductions, etc. -- what would your outlook for earnings be for the first half of the year? I noticed in '02, the first half was -- excluding (indiscernible) charges were 76 cents. And then it dropped to 45 cents in the current year. So, I was just wondering -- do you have any guidance, whatsoever, for the coming first half of next year?

I would say we're looking comfortably at the first half. But, we're not ready to comment on a specific number of revenue or earnings per share.

Just so you'll know, Toy Fair, or the new mall toy fair, just started today as a matter of fact. And this is one of our first opportunities to get feedback on the overall line, which some of you who are in the New York area today, are welcome to come. We do have a large number of people coming out today at 11 for that purpose. But, this is really the first time. And from the indications that we get from here, that is where we develop our plan for next year.

We did have quite a few retailers coming through yesterday, even though it was an unofficial start of the toy fair. And the response to our line, we think, was quite favorable.

Okay. Thanks. I'm looking forward to seeing you there this morning.

Tony Gikas, Piper Jaffray.

A couple of questions -- what really gives you confidence in the fourth quarter here coming off a quarter where you missed the mark a little bit? And the 20 percent that you are ahead in your current bookings -- ahead of the prior year -- what percentage of sales does that represents? And then I have a couple follow-ups.

We did say that it represented about a 20 percent plus increase over last year-to-date. What gives us the confidence is the sell-through at retail, and the order flow coming through. And, we have stressed throughout each quarter, that there has been a trend from retailers to more just-in-time ordering. They certainly do not order products that are not selling, and our order flow is looking very, very good.

We did not comment about analysts forecasts, quarter-by-quarter; we chose to look at it more on an annual basis because of changing trends. And, based on those trends, from what we are seeing, and we are acting on, and have the inventory and production in place to accommodate those products which the retailers are re-ordering, based on the sell-throughs, we do have the management skills to look at sell-throughs on a daily basis and be able to forecast those out, as well as the retailers are able to do that. And, in conjunction --working with them, all indications are that we will reach the increase in fourth quarter that we were looking at to reach the conservative $1.20 to $1.30. We have stated in our last quarter, we are going now, and in the future, to conservatively forecast with the changing environment that we are dealing in, in fluctuations and various bankruptcies of certain retailers. We are afraid, as sometimes we have been in the past, to forecast on a more optimistic basis. There are too many changes in our environment. So, we are forecasting conservatively now, and in the future. And, within that, again, this is the outlook that we see on a conservative basis for Q4 and for full year, 2003.

My last comment on that, Tony, would be that in the marketplace that we are dealing in, and the circumstances that we are dealing in, and the drop-off -- practically of our karaoke -- internally, we are pretty satisfied with what we're looking at for 2003. And, if we had to criticize ourselves in anyway, we have commented that going forward, we are going to put more efforts into marketing and internal R&D of our product lines. And, we feel very confident that we have the skills, and certainly the money, to initiate enough activity to continue to grow our business more or organically than we have over the last couple of years.

Also, to put the 20 percent -- or being 20 percent ahead of last year's bookings in perspective -- we are at about 50 percent booked for where we need to be for the quarter. So, it is not that we are 20 percent ahead of 5 million last year, we (indiscernible) bookings for the fourth quarter.

Okay. How about the retail environment? Are you guys -- do you feel like you are gaining shelf space this year? Or, do you think you're losing a little shelf space at the retail level? And, then kind of a follow-up to someone else's question about how do you look at the business in '04? If you don't want to give guidance on '04, could you just give us some broad strokes in terms of what is your long-term outlook for revenue growth? What is your long-term outlook for earnings growth?

This as Jack, again. In terms of the second part of your question -- in terms of long-term, we are very confident that we have recognized what we have to do, putting the people in place to do what we have to do, and to substantially increase our marketing efforts, our product development efforts, organically, and not depend on acquisitions. And when -- and we are confident they will come along -- when acquisitions come along, they will be an overlay rather than a fill-in.

The first part of you question -- in terms of retail support, regarding our shelf space, it certainly does fluctuate with the major retailers. Our best estimate would be that we are substantially, from initial indications, increasing our shelf space in 2004 and 2003. We have certainly gotten on more shelves. I am not answering your question directly, but I will answer your question directly -- we are on more shelves -- people like OfficeMax, Staples, Walgreens, Kohls, Kroger -- what we would call alternative customers -- in terms of the people that we have been doing most of our business with -- the majors, Wal-Mart, Toys R Us, etc. -- I would say certainly at Wal-Mart we have more space than we have had in the past and some of the other retailers -- Target, Toys R Us -- certainly at least equal space to what we have had in the past.

Okay, guys. Thanks.

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