JAKKS Pacific Inc (JAKK) 2004 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the JAKKS Pacific third-quarter 2004 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) I would now like to introduce Mr. Jack Friedman, Chief Executive Officer of JAKKS Pacific. Thank you. Mr. Friedman, you may begin your conference.

Good morning, ladies and gentlemen. I'm Jack Friedman, Chairman and CEO of JAKKS Pacific. Thank you for joining us to review our results for our third quarter and 9 months ended September 30, 2004. With me today on the call are Stephen Berman, President and COO, and Joel Bennett, Executive VP and CFO.

I will provide an overview of the quarter and our operational results; and then Joe will provide the detailed comments regarding the financial results. I will then conclude the prepared portion of the call with highlights of our product lines and current business trends before we open the call to questions.

Before I begin, I would like to point out that any comments made about future performance, events, or circumstances, including estimates of sales and earnings per share for 2004, and forward-looking statements subject to Safe Harbor protection under the federal security laws. Such statements reflect our best judgment today based on current market trends and conditions, and are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected in forward-looking statements.

For the details concerning these and other risks and uncertainties you should consult our most recent Form 10-K and 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.

We are extremely pleased with our third-quarter results. We achieved our 34th consecutive quarter of positive earnings with a 128 percent increase in revenue to 206.1 million, and a 148 percent increase in reported net income to 23.8 million from the same period last year.

Our successful strategy of building an extensive portfolio of innovative license and non-licensed products, while improving operating efficiencies, is reflected in the strength of our record revenue and net income for the third quarter and first 9 months of 2004. We also increased our operating cash flow to a record $86.4 million for the first 9 months of this year.

We continue to expand shelf space for our product offerings in numerous categories; and we believe that even in the face of a challenging retail environment, our innovative product lines at competitive prices, coupled with our effective marketing and advertising efforts, are fueling sales at retailers nationwide.

The extraordinary year-over-year growth was due partly in part to significant growth in our traditional toy lines. We had several major contributions in this area, including strong sales from our hugely successful TV Games line of plug it in and play video games and from our newly acquired Play Along division.

JAKKS is continually evolving as trends in the toy industry cycle in and out. We believe we are good at identifying and quickly capitalizing on new opportunities; and we are committed to advertising, and marketing, and product development to support our products in the marketplace.

We look for companies other -- (technical difficulty) -- excuse me just one moment. We look for innovative ways to expand our distribution channels, often targeting such nontraditional retailers such as Best Buy, QVC, Bed, Bath & Beyond, Family Dollar stores, GameStop, and many others.

A significant portion of our business is now generated outside of traditional toy retail channels. At the same time, we continue to strengthen our relationships at all retail channels. We develop and maintain our products and are always on the lookout for new acquisition candidates, evergreen products, and licenses. Play Along's licensed-brand portfolio is an example of a perfect fit.

Traditional toys dominate our sales mix this quarter, representing over 50 percent of revenue. While TV Games are our strongest performers, our acquisition of Play Along has immediately further boosted our category offerings and shelf space at major retailers.

Due to our strong cash flow, we ended the quarter with 151.9 million in cash and equivalents and marketable securities, and 218.5 million in working capital. We will continue to prudently use our financial strength to increase shareholder value through investment in our core business, pursuing key long-term licensing partners, and making additional acquisitions.

Before I get into more details about our products and growth opportunities, I will turn the call over to Joel for a review of our financials for the third quarter.

Thank you, Jack. Third-quarter net sales increased 128.2 percent to $206.1 million in 2004, which includes 80.1 million from Play Along. This compares to 90.3 million for the same period last year. Excluding the impact of non-cash stock-based compensation and restricted stock charges, and also a onetime gain in 2003, net income increased 195.8 percent to 25.7 million, or 95 cents per diluted share. This compares very favorably to $8.7 million or 35 cents per diluted share for the third quarter of last year.

Reported net income for the third quarter of 2004 including the pretax non-cash charges of 2.2 million was $23.8 million or 88 cents per diluted share in 2004. This is compared to 9.6 million or 39 cents per diluted share for the same period last year after a onetime pretax gain of $700,000 relating to a factory recovery on a recall of one of our products.

Net sales for the first 9 months of 2004 increased 68.3 percent to $389.5 million including $89 million from Play Along. This is up from $231.4 million during the same period in 2003. Excluding the impact of non-cash stock-based charges, and onetime net product recall charges, net income for the 9-month period was $41.3 million or $1.57 per diluted share, compared to $20 million or 81 cents per diluted share in the comparable period last year. This represents an increase of 106.7 percent.

Including pretax non-cash charges of 8.2 million in 2004, and net charges of $2 million for the voluntary recall in 2003, net income was $34.7 million or $1.32 per diluted share, compared to the first 9 months of 2003 at $18.7 million or 76 cents per diluted share.

Sales of traditional toys which includes wheels, action figures, TV Games, plush dolls and promotional products, were $158.3 million for the third quarter and $261.4 million for the first 9 months of 2004, compared to 36.2 million for the third quarter and 65.7 million for the first 9 months of 2003. This represents 75.1 percent and 66.2 percent of overall sales, respectively, for 2004 and compares to approximately 40 percent and 28.4 percent of overall sales for 2003.

The 9-month figure for 2004 includes $80.7 million in sales from Play Along. Our TV Games continue to gain momentum as we launched new plug it in and play TV Games products; and we are experiencing solid sales from our Care Bears and Cabbage Patch Kids, as well as our WWE action figures.

In our seasonal product category, which includes Go Fly a Kite, Funnoodle, and Storm Water Toys, and junior sports items, sales were $1.2 million for the third quarter and 19.2 million for the first 9 months of 2004. This compares to $2.6 million for the third quarter, and $36.1 million for the first 9 y months of 2003. This represents 0.6 percent and 4.9 percent of overall sales, respectively, for 2004, as compared to 2.8 percent and 15.6 percent of overall sales for 2003. As you may recall, we pulled Storm water guns and foam balls from the market with plans to relaunch the line for Spring 2005.

Art activities and writing instruments, which consist primarily of our Flying Colors and Pentech division, had sales of $21.6 million for the third quarter and $62.9 million for the first 9 months of 2004. This compares to 34.4 million for the quarter and 94.9 million for the first 9 months of 2003. These represent approximately 10.5 percent and 16.2 percent of overall sales for 2004, and 38.1 percent and 41 percent of overall sales for 2003. In this category decreases in sales of Tongue Tape compounds (ph) and several of our licensed and unlicensed products were offset in part by increasing sales of our Vivid Velvet lines.

Finally, international sales were $28.5 million for the quarter and 49.4 million for the first 9 months of 2004, as compared to 17.2 million for the quarter and 34.7 million for the first 9 months of 2003. This represents approximately 13.8 percent and 12.7 percent of overall sales for 2004, and 19 percent and 15 percent of overall sales for 2003. Play Along added 7.5 million to the quarter and $8.3 million for the first 9 months in the international category.

Since last year our international sales team has been diligently working to penetrate new international territories and add new distribution channels. In response to our TV Games, Vivid Velvet, and WWE figures has been very strong, and we expect to see additional traction in the international markets in the coming quarters.

Gross margins for the third quarter and first 9 months of 2004 decreased modestly by 40 basis points and 20 basis points, respectively, from 2003. For the quarter, the cost of goods and royalty expenses associated with TV Games and other licensed products increased but were offset in part by lower amortization of tools and molds. For the 9 months, lower cost of goods and amortization were offset by higher royalties.

SG&A expenses for the quarter increased to $51 million from $24.3 million in 2003. While on a dollar basis this was a significant increase, it represents 24.7 percent of net sales, compared to 27 percent in the same period last year. This was a 230 basis point improvement.

The dollar increase was primarily due to our increase in advertising, marketing, and product development spending, as well as the addition of overhead and operating costs associated with the operations of Play Along. In addition, this includes $2.5 million in stock-based compensation, which excluding this charge SG&A was 23.5 percent of net sales.

For the first 9 months of 2004 SG&A expenses increased 42.4 million to 107.8 million or 27.7 percent of net sales. This is down from 28.3 percent in the first 9 months of 2003. The dollar increase is due primarily to higher advertising, marketing, and product development expenditures and, again, the costs associated with Play Along. The 2004 period includes 8.2 million in stock-based compensation, which excluding this charge SG&A was 25.5 percent of net sales for the first 9 months of 2004.

Our operating margins for the third quarter of 2004 increased 270 basis points and for the 9 months 380 basis points, compared to the same periods last year, excluding the recall and non-cash charges.

During the quarter, we posted $911,000 in profit from the WWE video game joint venture with THQ, which compares to profit of 936,000 for the prior year. For the 9-monoth periods for 2003 and 2004, the JV profit was approximately $1.3 million. Several new titles will be launched before the end of the year, and we expect to see the JV contribution to accelerate in the fourth quarter compared to the first 9 months of the year.

Cash flow from operations for 2004 was $48.2 million for the quarter and 86.4 million for the first 9 months. This compares to $7.8 million and $15.6 million for the respective periods in 2003. Our financial position remains very strong, and we ended the quarter with $159.9 million in cash and marketable securities and 218.5 million in net working capital.

Accounts receivable increased sequentially $129 million from $92.1 million at June 30 due to the significant increase in sales. This resulted in DSOs of 56 days, down from 75.8 days in the previous quarter.

Inventory decreased to $49.3 million from June 30, at $56.7 million, with DSIs decreasing to 44 days down from 89.3 days. As we move into the holiday season, we expect to see levels return to seasonal norms, which include lower balances and moderately higher DSOs and DSIs. Now I will return the call back to Jack.

Thank you, Joel. As you said, we're excited about our quarter and our business in general. We believe that despite the cyclical nature of toys throughout the years, JAKKS Pacific has repeatedly delivered excellent products (inaudible) by a diverse portfolio of brands.

For example, in 1999 and 2000 we reinvented wrestling toys and sold record numbers of WWE action figures. In 2001 we jumped on a trend and created a category with Extreme Sports finger fights and figures which now has become an evergreen product line for JAKKS. By 2002 our Nickelodeon Goooze line of reusable compounds redefined Slime for a generation of Nick Kids, with new versions still enjoying shelf space today. Our Funnoodle pool toys are top sellers in this seasonal category.

And today our TV line of plug and play video games is the latest success story. In 2003, we laid the groundwork to create a franchise based on TV Games. We quietly went about and signed the key licenses for classic videogame titles and for the top entertainment lifestyle brands around today. We secured premier shelf space at over 200 different retailers for TV Games. We brought to market top games housed in unique joysticks at a price point of 20 to $25; and now in 2004, JAKKS Pacific has placed a new toy category on the map with our award-winning TV Games line.

We look to the remainder of this year and into 2005. We are truly excited about the opportunities that we see ahead. Initial customer response for our holiday sell-in has been strong across a number of categories. In addition, we continue to focus on the areas where there is room for improvement and are optimistic about our progress to date in these particular areas.

TV Games has been an outstanding contributor this year, and recently we have topped several hot holiday toy lists, including the Toys R Us Joy List, the KB Toys Hot Toy List, the Toy Wishes Hot Dozen and All-Star lists. Our Cabbage Patch Kids were also on the Toy Wish's Hot Dozen; and Care Bears has been recognized with several awards including Parents Magazine's recent announcement that Cabbage Patch Kids are being inducted into the Toy Hall of Fame.

At the end of 2004, we will have 12 TV Game titles on shelf, up from 4 at the end of 2003 including EA Sports TV Games, World Poker Tour TV Games, and Spider-Man TV Games, all of which we're shipping in time for the holiday season.

We're working with Atari, Namco for Pac-Man and Ms. Pac-Man, Electronic Arts, Lucas Arts for Star Wars, Midway Capcom, Activision, Nickelodeon, Disney, Warner Bros., and Marvel; and have alliances with top videogame developers worldwide.

We have doubled the number of doors that feature our products and have begun to expand our focus and distribution of these marvelous games to international markets including Europe, Australia, and New Zealand. We expect TV Games to become a staple for our product offering for many years to come.

Cabbage Patch Kids from our Play Along division launched during the quarter, and the line has been extremely well received. Cabbage Patch Kids were the first real must-have-to toy ever. Our Play Along division is following the successful marketing model that Coleco used back in 1983 by focusing on the special feature of Cabbage Patch Kids -- no 2 Kids are the same.

Cabbage Patch has been on shelf for 7 weeks, and we are more confident than ever that our approach is working. We have been able to achieve a line that is popular for our retail partners, that contributes strong margins for the Company as well. We have great confidence that a whole new generation of children will connect with their grandparents and parents who loved Cabbage Patch Kids 20 years ago.

Also part of our Play Along acquisition is the Care Bears line, which continues to be number 1 in the plush category according to shelf space at retail. Care Bears dominates the preschool toy aisles at retailers like Wal-Mart and Target. Last quarter we began to ship our new feature plush Fit N Fun Care Bears that sing songs and exercise with kids, prompting them to get in shape with a fun aerobic workout.

Retail support and sales of Care Bears remain extremely strong this year; and we have a number of new product introductions for 2005 as we transition product line from a growth brand to an evergreen franchise.

In boys action, sales of our WWE action figures continue to grow; and we are planning a major launch of our Dragon Booster line for Spring 2005. Dragon Booster is a new animated television show from Alliance Atlantis, the company that co-owns and coproduces the CSI franchise. We believe their new kids' endeavor will be a strong contributor to our boys action area in 2005.

The Shell (ph) launches nationwide on ABC's JETIX Kids Block this Saturday at 9:30 AM. Our MXS motocross line from our Road Champs vehicle brand continues to do very well, and we are increasing our shelf space at major retailers such as Toys U Us and Kmart in 2005.

Our development teams have several new vehicle concepts that we're excited about for 2005 including a brand-new concept which capitalizes on a hot new vehicle trend. And so far the response from our major customers has been excellent.

In Flying Colors we have developed new licensed activity lines based on the Marvel universe of superheroes, My Little Pony, and Care Bears. For the Care Bears in particular, we had a limited distribution last year for Target only, and now we have the rights for retailers nationwide. With the plush items and preschool toys from our Play Along division and now these activities, retailers can get all their Care Bears toys from JAKKS Pacific.

We also continue to work on categories that have faced some challenges. Some of our art activities and writing instruments did not perform up to our expectations, but we are now launching a new reusable compound called Splish Splat, based on Nickelodeon's new live TV show, and have expanded our Vivid Velvet activities lines and expect this carry (ph) to pick up significantly in 2005. We will also reintroduce our Storm water gun products in 2005.

As we look into 2005, we believe that things look quite promising for our TV Games. We have a full roster of TV Games slated to launch at strategic times throughout the year. Highlighting these TV Games we have Mortal Kombat, Star Wars, Batman, Care Bears, Disney Princesses, Fantastic Four, and Bass Fishing all slated for the first half of the year 2005. These are just a few examples of the opportunities we expect to capitalize on in 2005.

In closing, we are pleased with the Company we have worked tirelessly to build. In the nearly 10 years since JAKKS Pacific was founded, we steadily added to our portfolio of brands through our organic expansion and acquisitions. We have grown our revenue and earnings, having more than doubled our third-quarter revenue and net income year-over-year from the same period last year.

We believe that one of JAKKS true strengths is our ability to anticipate and adapt to demand in the kids consumer product industry. We strive to reinvent and expand our core lines through innovation and strategic acquisitions.

We leverage our top brands and licenses to increase shelf space with our existing retailers and expand or distribution channels both internationally and domestically. We have established JAKKS as one of the leading go-to companies for the top entertainment and development studios around.

Turning to guidance. The current pace of our business is robust as we head into the holiday season, and due to this continuing strength we are raising our 2004 guidance. We now anticipate revenue for 2004 to be approximately 500 million and earnings to be in the range of $1.85 to $1.90 per diluted share, up from $440 million in sales and earnings of $1.75 to $1.80 per diluted share, before non-cash stock-based compensation charges.

Overall, we are quite excited about the opportunities available to JAKKS Pacific in the coming years, and we expect to continue to deliver both sales and earnings expansion through 2004 and beyond. With that, I would like to open this meeting to questions and answers. Thank you all very much for your attention.

(OPERATOR INSTRUCTIONS) Arvind Bhatia with SouthWest Securities.

Congratulations on a great quarter. First question relates to the issue of the World Wrestling Entertainment dispute that you talk about in your press release. First of all, how big of a deal is it? I've already gotten a lot of questions on that this morning.

Is that something which -- do you have answers on that, to the extent that it is clear to you where this is headed? What sort of impacts on toys sales, margins, video game sales, etc. could this have? That is my first question.

Until our discussions are completed, we cannot comment about this subject at all.

Okay, but you're not changing anything for this year in terms of sales or margins for --?

No.

My second question is on your guidance. It went up by 10 cents, but at least from our model you beat the numbers by 16 cents. Is there any -- how should we think about that? Is that because maybe some of the sales and earnings were pulled in from the fourth quarter? For example the TV Games were stronger than you expected and some of the sales happened earlier than expected?

How much of this is related to what seems to be even tougher than what we expected -- the retail environment is tougher than expected? If you can help us out with the guidance there.

We think that our guidance for Q4 and for the remainder of the year is conservative and prudent. We possibly could have been even more optimistic, but we do need to continually look at ships are coming into ports a bit slower; there are some price increases.

Business is looking great. We are trying to once again be conservative and prudent in our forecasting model.

What is your assessment? We have seen Mattel, Hasbro, LeapFrog, all of them have had a weak -- they talk about a weak sales environment. You've obviously have done much better. You have gained market share, it looks like to us.

What is your assessment of the trends at retail? Where do you see that in the next 3 to 6 months? Are there big structural changes going on? You have obviously seen what has happened at Toys R Us. But I would like to hear your thoughts on the toyland.

I think our thoughts are -- we have said it in many of our conference calls -- we have good partners and good products, which really is what the business is all about. We think that the pie for the toy industry over the last few years is basically stagnant.

It has been JAKKS' goal, and we have been successful, at getting a bigger share of the pie and at the same time increasing our shelf space at nontraditional toy accounts. We have said this before. Accounts like Walgreens, Best Busy, OfficeMax, Staples, GameStop, CVS, Sam's, QVC, Family Dollar Stores, etc. etc. etc.

We have worked diligently, as well as increasing our international presence at the same time. So I guess I would say I think we're doing a good job on all fronts. If we (multiple speakers) agree from an overall point of view, the toy industry is a pretty flat industry. We are getting a bigger -- we are not growing with the industry growing. We are growing by having good products that we make money and the retailers make money.

What about the nontraditional toy channels? What is that as a percentage of your sales now?

The second-tier account historically has been in the high teens, low 20s. It is now between 25 and 30 percent.

Got it. Just a quick question on the TV Games category. Obviously that seems to be a big driver. You talked about I think 20 new SKUs next year. How many of those are -- I don't how you define new SKUs. If you have an extension of something like Pac-Man, but it is a variation, would that be counted as a new SKU or would that be still -- that is not part of the 20?

Of the second (inaudible), that would be considered a new SKU, but we are planning on 20 brand-new title SKUs for next year.

So in other words, 20 includes (multiple speakers)?

(multiple speakers) Pac-Man, that would make it 21.

I got you. Are some of these based on licenses that you have not announced?

Yes. We cannot announce until we have a signed contract.

Got it. All right. I think that's all I have. I will come back later. Thanks.

Derek Winger, Jefferies & Co.

If you could just tell me what capital expenditures were for the third quarter? What the outlook is for this full year and next year, if you have it?

For the quarter it was $128 million; and brings the total to 4.8 million for the year. We expect to be between 6 and 6.5 million for the total of 2004, and for '05 between 7 and $8 million.

Thank you. Very good quarter. Thank you.

Tony Gikas, Piper Jaffray.

Great job on the quarter. A couple of follow-ups for you. Could you maybe provide a little visibility on what the growth rate in sales could be on the TV Video Games for next year? Maybe just talk a little bit about the competition. It seems like there are a handful of competitors that are putting a few products out of similar type.

Maybe also give us an update on the integration of Play Along? And then the third question, is it possible we could get a little bit of preliminary guidance on the outlook for calendar '05? At least some growth rates for top and bottom line?

I will try to remember all your questions; I didn't write them down, Tony. Our TV Games are growing stronger and stronger at retail. There is always competition in any category of product you're in. We believe that we totally dominate the category, and have better than a 90 percent market share of the category.

As we previously said, we are expanding the category dramatically into next year. The retailers that we have worked with so far are delighted with our new offerings. In some cases they are almost shocked at the enormous, wonderful -- they think and we believe -- are wonderful offerings.

Overall, we would say that we are not even close to the peak. We think we have created a new category that we will continue to do innovative things, not only with licenses, but technologically as well. We expect to come out with further developments.

Have there been any recent product shortages? (multiple speakers) Are you able to produce the product in quantity?

And International is just really starting to kick in now.

How about preliminary growth rates on next year?

I don't think we are prepared to do that until we see the holidays, what happens in the holiday season. The toy industry is very -- a good part of the business is very condensed between Thanksgiving and Christmas. And we don't want to take any risk of misleading anybody or trying to outguess ourselves.

Any sort of long-term guidance that you could help us with?

We have said on a number of occasions we expect over the next few years to grow to a $1 billion Company. We still have those aspirations. We have the capital in terms of money, people, and the access to capital when we find (inaudible).

We are spending a great deal of money developing organic products, and we are continually looking at potential acquisitions. Acquisitions are not easy to find. We look very diligently and sometimes we invest as long as 2 years in developing an acquisition. We think we have a good strategy. We don't mean to sound arrogant or cocky about it. We do think we will get to $1 billion over the next couple or 3 years.

The final part was the integration of Play Along. How is that progressing?

Play Along has been a wonderful seamless mesh. They are pretty well operating their business the way that they have been. We look at their budgets of course. When we can work together with certain of the major retailers on overall programs and mingling the 2, we have done that. We could not be happier with the acquisition.

(multiple speakers) Thanks guys.

They are wonderful people, wonderful team.

Garrett Edson, Whitaker Securities.

Congratulations on the great quarter. Just a few questions. Looking at the California port problem, seeing the articles in the Wall Street Journal regarding Los Angeles and Long Beach, do you see this having any effect on fourth-quarter revenues or gross margins?

We don't think so, but that was part of -- in our thoughts about increasing our forecast for Q4 and keeping it modest. There are delays. Most things the press does exaggerate and take it to a higher level than reality, but there are some delays.

Our best understanding of it is Wal-Mart decided to ship lots of containers, as many as 50, 60,000 containers a month through California. And California wasn't prepared for it.

We do have good relationships with our shippers. There have been some delays. But we don't think that will have a major impact. But of course we are being cautious about the situation.

Next question. Originally you said Play Along was expecting about $100 million in revenues. That was upon acquiring the company. Do you have a new number for Play Along?

We spoke about Play Along $100 million under our ownership.

Great.

Not for their full-year sales. For the sales that are inclusive. No, we are not ready to change that.

Not ready to change that; okay. Just a question about Michael Bianco. I was just curious about the consulting agreement. Could you just discuss that more in general?

Yes. Michael Bianco will continue to work as a consultant for the next few years with JAKKS. We think it was best for the Company and for him for personal reasons of his.

Okay. That is all I have for right now. Thank you very much.

Marcello DeSio (ph), Triato (ph) Capital.

I wanted to see, when did you change to stock-based comp and excluding that from your operations, from your operating income? Does that have anything to do with your own compensation going forward?

The restricted stock plan that was put in place when we changed the executive officer compensation from a percentage of pre-tax -- just going back a little bit of history -- that started in 2003.

The other part of the non-cash stock-based compensation was the variable method of accounting on the stock options that were reset back in 2000. It wasn't until the stock price had gone up significantly that resulted in a rather large number that we started to call those numbers out.

So both are relatively new in terms of the separate disclosure. We break it out because they are non-cash and people analyze things differently whether earnings or cash flow. So that is basically the purpose of that.

Is your comp based on EPS now, as compared to something else a year ago?

Yes, the cash compensation is based on earnings per share growth.

Before, it was what?

Percentage of pretax profit, subject to limitation.

Just going back to the 8-K you filed with Michael Bianco. Was he let go? It looked like you are still going to be paying him like $1 million a year to go to the toy conference.

No, the $1 million was over the next -- actually it is through September 2007. So it wasn't per year. It was for that period.

What will be his duties?

Consulting regarding Toy Fair, and it is pretty much all spelled out in those agreements.

So what was the reason? Was he let go?

No. As Jack said, it was a good thing for the Company and for him for personal reasons. He is not being replaced. We have quite a team of designers and sales and marketing people in all the different product categories that we have. So as far as any further -- or any impact, rather -- to our development cycle and sales and marketing plans, there are none expected.

Can you just give us a little more color on this WWE dispute? For us to make any kind of investment decision, we probably need to know what is the worst-case scenario from this?

As Jack indicated, we cannot make any further comments. That is all we can say at this time.

Can you give us what the current revs and operating margin or operating profits are from that business?

We break the JV out. But the toy line as a line is contained within the traditional toy category. Because of the growth in general and in particular the traditional category, the wrestling has become a smaller part of our business; though it is still an important contributor.

Can you comment at all on what the relationship was with this consultant to WWE that they have an issue over?

Not at this time. But as it is a fluid situation, we would certainly expect to provide updates as we are able.

Okay, thanks.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. Mr. Friedman, are there any closing remarks?

Yes. Thank you all. With our strong balance sheet we are continuing to aggressively look for strong acquisitions. Our organic growth will continue to expand. Our TV Games are booming, and we will continue to expand it, again, both technologically and with the proper licenses and great games.

We have a brand-new line of Pentech products where excited about. Our Go Fly a Kite and Funnoodle divisions are doing well. In Activities, our stationery continue -- we are continuing to build with additional licenses and with our continuing partners. New entries into 2005; there will be a whole new redeveloped Pentech line of stationery writing instruments and paper products.

We have a very exciting new line of our Road Champs division led by something that is creating quite a bit of excitement around the toy building this week called Flywheels. We are extremely excited about that.

In our Play Along division they are bringing back a product line of years past called Sky Dancers, which looks extremely promising. They are also bringing out an old line, bringing it back as a new line called Doodle Bears (ph), which we have had an excellent reaction to.

Q4 going into 2005, once again our expansion of TV Games is tremendous. We're growing our international business. Cabbage Patch (inaudible) at North America is growing and looks like it has a great chance of being explosive. Care Bears continues to exceed our expectations, and we are going into a strong 2005 with our Care Bears line.

So business is really looking great. We're proud of ourselves. We are delighted with our luck as well. Lastly, I would like to once again comment that we have a great customer base which is really important to us, and our large customers like Wal-Mart, Toys R Us, Target, Kmart, KB, etc. All the customers that have been with us through these years and growing with us, we have a wonderful relationship with.

We're delighted, and thank you and our shareholders for your support. Thank you all very much.

Thank you. This concludes the JAKKS Pacific third-quarter 2004 financial results conference call. You may now disconnect.