JAKKS Pacific Inc (JAKK) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen. Thank you for joining the JAKKS Pacific fourth quarter and full year 2011 earnings call with Management. Today, JAKKS will review the fourth quarter and full year ended December 31, 2011 which the Company released earlier this morning. On the call today are Stephen Berman, President and Chief Executive Officer and Joel Bennett, Executive Vice President and Chief Financial Officer. Mr. Berman will first provide an overview of the quarter and operational results and then Mr. Bennett will provide detailed comments regarding JAKKS Pacific's financial results. Mr. Berman will then conclude the prepared portion of the call with highlights of product lines and current business trends prior to opening up the call for your questions. Your line will be placed to mute for the first portion of the call.

(Operator Instructions)

Before we begin, the Company would like to point out that any comments made about JAKKS Pacific's future performance, events or circumstances including the estimates of sales and earnings per share for 2011, as well as any other forward-looking statements concerning 2012 and beyond are subject to Safe Harbor protection under Federal Security Laws. These statements reflect the Company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward-looking statements. For details concerning these and other such risks and uncertainties you should consult JAKKS most recent form 10-K and 10-Q filings with the SEC as well as the Company's other reports subsequently filed with the SEC from time to time. With that, I will turn the call over to Mr. Berman.

Good morning, everyone and thank you for joining us today. The tough economic climate combined with several underperforming product lines in our portfolio contributed to lower than expected sales in 2011. However, there was some shining stars in the 2011 portfolio including our entertainment-based brands such as Disney Princess Toddler Dolls, Smurfs Plush and figures which performed above our expectations. Spy Net electronics, Disguise Halloween products, Kids Only line of evergreen activity tables and outdoor furniture, both licensed and unlicensed, and Creepy Crawler activities also did well for us. We are well into the first quarter of 2012 and so we far we are pleased with the reaction from buyers, licensors and other industry partners on our 2012 lineup.

We are also pleased with recent sell through data for the initial part of the quarter. We have some really terrific products in our portfolio and we are optimist for the year ahead with contributions coming from an extremely broad range of toys and toy-related products and electronics for all ages and for the entire family. Our action packed Monsuno line of figures and play sets are shipping now to virtually every major retailer in the US and will ship internationally later this year. We are excited for the one hour premier first episode this Thursday, February 23rd at 8.00 PM on Nicktoons and we hope you will all tune in and enjoy the show. We are particularly excited about our new high-tech offering such as the Action Cam mini sport action video cameras, Walking Dead Deluxe TV games, Baby Watch first ever wearable video baby monitors and more. We are working towards expanding beyond the toy aisle and into the consumer electronics aisle with these new items targeting people of all ages and demographic profiles.

We began showcasing and have had great response on our beautiful dolls and dress-ups and role-play for Disney Princess and Disney Fairies based on the upcoming Disney Entertainment and new and expanded preschool and early learning toys based on licenses in our Tollytots division. As well as our other gorgeous lines of the Winx fashion dolls and action dolls and dress-up. I'll shed much more light on our existing 2012 lines later on the call. Our international business continues to provide an opportunity for growth for JAKKS Pacific and we are extremely pleased to announce we have Monsuno placed in over 12 countries internationally. Other product lines currently thriving abroad include our Spy Net electronics, Real Construction, Club Penguin, Smurfs and Girls Gourmet, just to name a new.

During the quarter, we completed our acquisition of Moose Mountain Toymakers, a leader in the foot-to-floor ride-ons, wagons, tents, safe soft play environments, arcade pinball games, and sports arcade products with well-known characters and brand likenesses including Disney, Fisher-Price, Kawasaki, Sesame Street, Thomas the Tank Engine and Friends, just to name a few. We believe this strategic acquisition such as Moose Mountain combined with our continued focus on growing all of our JAKKS divisions will result in long-term growth for the Company. The Moose Mountain acquisition strengths our preschool product offering and further expands our shelf space within all major customers. I would now like it turn the call over to Mr. Joel Bennett to review our financial results for the fourth quarter and full year of 2011. And then I will give more of an update on our 2012 product portfolio line before opening the call to questions. Joel?

Thank you, Stephen and good morning, everyone. Net sales for the fourth quarter 2011 were $141.1 million compared to $198 million reported in the comparable period in 2010. The reported net loss for the fourth quarter was $20 million or a loss of $0.77 per diluted share which includes $1.9 million or $0.05 per diluted share related to legal and financial advising fees and expenses in conjunction with the unsolicited indication of interest to acquire the Company. This compares to net income of $8.9 million or $0.30 per diluted share which included a tax benefit of $5.9 million or $0.17 per diluted share reported in the comparable period in 2010. Excluding the legal and financial advising fees and expenses in 2011 and tax benefits in 2010, the fourth quarter net loss from 2011 would have been $18.8 million or $0.72 per diluted share compared to earnings of $3 million or $0.13 per diluted share in 2010.

Gross and operating margins declined year over year with lower overall sales volume as well as lower sell through at retail resulting in higher mark downs and higher royalty expenses related to license guarantee shortfalls along with the legal and financial advising fees and expenses incurred in 2011. Net sales for the full year of 2011 were $677.8 million compared to $747.3 million in 2010. Net income reported for the full year period was $8.5 million or $0.32 per diluted share which includes fees and expenses related to the unsolicited indication of interest of $3.8 million or $0.09 per diluted share. This compares to net income for the full year of 2010 of $47 million or $1.52 per diluted share which includes a one-time pretax charge relating to the benefit payment of $2.8 million or $0.06 per diluted share to the estate of Jack Friedman pursuant to his employment agreement and tax benefits totaling $10.8 million or $0.31 per diluted share. Excluding the legal and financial advising fees and expenses in 2011 and the tax benefits and one-time charge in 2010, the full year earnings in 2011 would have been $10.9 million or $0.41 per diluted share compared to $38.2 million or $1.27 per diluted share in 2010.

Turning to a more detailed discussion of our results, our product lines are aligned in two categories which reflect the makeup of our business. They are traditional toys and electronics and role-play, novelty and seasonal toys. Worldwide sales with products in our traditional toys and electronics segment which includes dolls, action figures, vehicles, electronics, plush and pet products, were $79.8 million for the fourth quarter of 2011 compared to $107.3 million for the fourth quarter of 2010. And sales for the full year of 2011 were $348.9 million versus $358.3 million for the full year of 2010. 2011 sales this quarter in this segment were led by our boys action figures with Pokemon, Smurf and Real Steel though offset by a decline in UFC and TNA. Interactive products though they contributed less this year with declines in TV games among others, and finally preschool, which increased with higher Disney Princess Doll sales in our Tollytots division.

Worldwide sales from our role-play novelty and seasonal toy segments which includes role-play products, novelty toys, Halloween costumes, indoor and outdoor kids furniture and pool toys were $61.3 million in the fourth quarter of 2011 compared to $90.7 million in the fourth quarter of 2010. And sales for role-play, novelty and seasonal toys were $328.9 million for the full year of 2011 versus $389 million for the full year of 2010. Role-play toys dominated sales in the category this quarter followed by Halloween costumes, although both segments were down overall versus last year. Included in the category numbers, our international sales were $16 million for the fourth quarter 2011 compared to $22.3 million for the fourth quarter of 2010. International sales for the full year of 2011 were $108.5 million compared to $113.9 million for the full year of 2010. Our international sales were enhanced by our JAKKS' staff selling direct to retail in local territories. We are pleased with the progress we've been making as we seek to maximize international opportunities for license and especially JAKKS' own content.

Gross margin for the fourth quarter of 2011 and 2010 were 13.4% and 33.1% of net sales respectively and gross margin for the full year of 2011 was 28.6% of net sales compared to 32.8% of net sales in the full year of last year. The decline in the 2011 period was primarily due to year-end mark downs at retail and increased royalty expenses due to license guarantee short falls on the lower overall sales volume. SG&A expenses in the fourth quarter of 2011 were $55 million or 39% of net sales as compared to $54.6 million or 27.6% of net sales in 2010. For the full year of 2011 SG&A expenses were $192.7 million or 28.4% of net sales compared to $194.8 million or 26.1% of net sales in the prior year. The increase as a percentage of net sales for the quarter and year is attributable to lower overall sales in addition to the legal and financial advisory expenses incurred in connection with the unsolicited indication of interest. Operations provided cash of $44.6 million for the full year of 2011 compared to $67.5 million in 2010. As of December 31, 2011 the Company's working capital of $374.7 million including cash and equivalents and marketable securities of approximately $257.5 million.

Our balance sheet remains very strong. We continue to evaluate various uses of our funds and untapped financing capacity. Using our disciplined approach we look for accretive acquisitions to complement the growth of our business and effectively deploy our capital. We completed our acquisition of Moose Mountain Toymakers in the fourth quarter of 2011 and during the third quarter we completed our previously-announced $30 million stock buyback program with the repurchase of 1.2 million shares for a total of $19.3 million. And the Company implemented a cash dividend program that currently pays an annual dividend of $0.40 per share payable quarterly to shareholders of record of the Company's common stock. The initial dividend was declared and paid in October. The new dividend policy is intended to allow for internally-generated cash flow to support our organic and acquisition growth strategies, maintain a strong balance sheet as well as provide sustainable quarterly dividends to our shareholders. Depreciation and amortization was approximately $5.3 million in the fourth quarter of 2011 compared to $5.9 million for the fourth quarter of 2010 and for the full year 2011 D&A was approximately $25.9 million compared to $28.7 million in 2010.

As for our tax rate our effective rate for 2011 is expected to be 25% before any 1048 or other adjustments. This may change if there's a shift in sales between the US and Hong Kong companies. Capital expenditures were $900,000 for the fourth quarter of 2011 compared to $2 million for the fourth quarter of 2010 and $12.5 million for the full year of 2011 compared to $11.6 million in 2010. This was in line with our expectations. Accounts receivable as of December 31, 2011 were $103.6 million compared to $122.5 million at the end of the fourth quarter of 2010. DSOs increased modestly to 65 days from the 56 days for 2010. Inventory as of December 31, 2011 was $47 million up from the December 31, 2010 level of $43.2 million. The increase year over year is due primarily to the placement of our new products including Monsuno. Inventory levels remain generally low with DSIs of 49 days compared to 36 days in the same period in 2010.

As for our guidance for 2012 we are anticipating net sales in the range of $720 million to $728 million with diluted earnings per share of the range of $1.01 to $1.07 per diluted share excluding costs in connection with the unsolicited indication of interest. We continue to have strong confidence in the future prospect of JAKKS Pacific and its shareholders. Lastly our Board of Directors has declared a regular quarterly cash dividend of $0.10 per common share. The dividend will be payable on April 2, 2012 to shareholders of record at the close of business on March 15, 2012. With that, I will return the call back over to Stephen Berman.

We had some challenges in the fourth quarter as I mentioned earlier. Sales were down on a number of our product lines and late Christmas rush and a challenging economy all contributing to our revised guidance. Lower than expected sales occurred in Pokemon, Golden Tee Golf TV games, I Am T-Pain Mic and some of our private label lines to name a few. Our Singing and Storytelling Belle dolls did not perform to the expectations due to a variety of reasons including its $80 price point in a tough economy. Tollytots Little Mommy product sales were also a disappointment in 2011. Despite some innovative new items our sales dropped commensurate with the decline of the Mattel doll line on which our products are based on.

We are looking forward to Mattel's relaunch of the line in 2012 with all new dolls, a refreshed positioning and a vibrant new packaging. However, there were several bright spots and we are optimistic on our outlook for the coming year with the overall positive response we have received on a number of our product lines at the recent Hong Kong and New York Toy Fairs. Let's start with our juvenile products. Tollytots had a very strong year in 2011 with My First Disney Princess toddler and baby dolls which continue to be a big success and have established itself as the number two large doll brand just behind Hasbro's Baby Alive. My First Disney Princess dolls were heavily promoted by all major retailers with the Rapunzel Toddler dolls as a key driver for 2011. With more beautiful dolls at a good value slated for 2012 and a continued content and marketing support from Disney, we expect increases in sales and market share for this evergreen brand. Disney will be releasing the animated feature Brave in 2012 which we will create yet another opportunity to add a new princess to the lineup.

In addition, Graco play sets and accessories continue to be a perennial best seller for our Tollytots division. Other big news for Tollytots in 2012 is the new introduction of the Safety First Baby Genius and Rubik Cube lines. We have received good response and anticipate good placement at all of the major retailers which will give JAKKS an even broader retail placement in the preschool category. We continue to see good sell through for you our Kids Only outdoor and furniture product lines, activity tables, puzzle furniture and more. We had several successful promotions with major retailers as well as with mid tier accounts in 2011 and had a terrific sell through in the drug, supermarket, home improvement and specialty channels. We are looking forward to expanding the business this year. Top items to look forward to in 2012 include our core activity tables, activity trays, step stools and patio furniture. We're also excited to announce that Kids Only Inc. will be bringing back the nostalgic and iconic original Big Wheel, the number one selling ride-on of all time, over 200 million Big Wheels have been sold in its 42 year history. We believe there is a huge void in the marketplace for a ride-on of this style and price point and we are looking forward to making big tracks for 2012. The reaction from the trade has been overwhelming positive for this line.

Moose Mountain, though acquired in the fourth quarter contributed only nominally to JAKKS for 2011 had a great success with its foot-to-floor ride-on in 2011, particularly with the Fisher-Price and Kawasaki licenses, Disney Cars 2, Disney Princess ball pits, dominated retail with programmed coverage at all major retailers with clean sell throughs and the innovative Disney Mater wagon was a Toys 'R Us exclusive in the US and sold out to the last piece. We are looking forward to increased penetration with our Moose Mountain wagon line with the introduction of the Disney Junior wagon line. We also anticipate increased market share in the play tent and ball tent categories with the introduction of Sesame Street and Thomas the Tank Engine and Friends licenses. We have several strong licenses that we are adding to our existing power house of brands, which include Disney, Dora the Explorer, and Spider-Man. We are expanding placement of our foot-to-floor ride-ons beyond the majors into additional channels along with spring placement of our Fisher-Price ride-ons at Toys 'R Us.

Existing license for 2012 include The Amazing Spider-Man movie for ball pits, pin ball games and ball shooting games and Minnie Mouse for ball pits and wagons as she emerges from the Mickey Mouse Club. We also will be expanding our Moose Mountain international presence as they have had limited sales overseas in the past. CDI for 2012 has a lot of excitement around new toys surrounding the number one favorite Disney Princess, Cinderella Diamond DVD release this fall, specifically Cinderella Enchanted Vanity, Deluxe Jewelry Box and Grand Waltz Piano, along with the beautiful Cinderella Deluxe Light-up dress and matching Cinderella Light-up Slippers. We are also extremely excited for our gorgeous line-up of Disney Fairies dress up and role-play, based on Disney Fairies, Secret of the Wings DVD release this fall which we believe looks like the best Disney Fairies movie yet. CDI will be launching beautiful dress-up and role-play items based on Nickelodeon's Winx Club in the fall of 2012 which I will touch on later on this call. We also are looking forward to the significant growth in our boys role-play with products based on top Marvel licenses such as The Amazing Spider-Man and The Avengers. And we're also creating a line of novelty and large scale figures and plush based on DC Comics super heroes and super villains such as Batman, Superman, Green Lantern, the Flash, the Joker and many more. The line will kickoff this summer to coincide with the release of one of the most anticipated films of 2012, The Dark knight Rises from the Batman trilogy.

In our Disguise Halloween division we are looking forward to celebrating the 25th year anniversary of Disguise with a hot lineup of licenses for the 2012 Halloween season. We recently announced an expansion of licensing agreements with Marvel and our 2012 superhero lineup will include The Avengers, Iron Man, Captain America, Thor, Hulk, Black Widow and many others. We also expect a large demand of our Cinderella costumes from infant to adults with the new Cinderella Diamond DVD release and new costumes and wings based on Disney's, Pixar the movie Brave.

In our pets division we launched the Kong premium treats fourth quarter of 2011, we shipped to the majority of the pet independent distributors and pet specialty retailers domestically and into Canada. We will continue to build on our success of the Kong premium treats into 2012 and beyond. We will also be expanding into Europe. In addition our American Classic pet toys are doing very well at retail.

Moving onto on our JAKKS girls brands. Our 2012 outlook for Disney Fairies both in dolls and dress-up is strong with the Secret of the Wings DVD release and we expect better retail licensor support going into 2012. The franchise continues to be strong among our target consumers with 86% brand awareness amongst girls and moms. According to MPD, Disney Fairies continues to be a top ten brand in fashion dolls, a top five brand in small dolls in 2011. We grew the Cabbage Patch Kids brand from the previous year, internationally Cabbage Patch Kids was the number one toy this Christmas in Mexico at an $80 price point. We have just signed on in the UK for a massive launch in fall 2012. This year we are introducing the babies, targeting two to four-year-olds, which will deliver the ultimate in nurturing while maintaining our kids product line for four to six-year-old girls focused on fashion and friendship. We expect to receive full retail support and anticipate the business to be strong in 2012.

Exciting new news for girls for 2012 is the Winx Club, which we are expecting to be a top five content driven must have fashion doll brand in 2012. It's a massive corporate initiative across JAKKS, CDI and Disguise. The core of the line is fashion dolls and we will also offer dress-up, role-play and Halloween costumes. CDI will be launching several fashion forward dress-up items including dresses, tutus and a variety of musical instruments that will allow girls to become their favorite Winx Club character from the show. Products will hit shelves in August at all major retailers. We are planning a strong launch and success and we will manage the long-term growth of this brand. The show is a huge hit. The Winx Club summer specials brought in more than 2.8 million viewers and it is the number one show for girls ages 2 to 11 in its time period.

Our Smurf products were a hit both domestically and internationally and exceeded our expectation and those at retail. We will be continuing with a great basic business of plush and figures in 2012. Our overall objective for 2012 in our innovative and electronic lines is to develop the latest consumer products beyond pure toys for kids. We are a consumer products company and target people of all ages and demographics and profiles, and as a result the target distribution channels go beyond just toy stores and the toy aisle. JAKKS Spy Net products selling was above expectations and looking into 2012 we continue to take a role-play to real play with even more technology in the Spy Net line. The new Spy Net Ultra-Vision features real working night vision, thermal vision, a daytime filter and also has the ability to take pictures and videos. We are excited to continue the push on the boundaries of technology with the Spy Net both in North America and internationally.

Our TV game line is expanding into touch pad gaming to replicate how kids play and interact with Smartphones and tablet games. We are incorporated hot licenses in top selling apps, Cut The Rope, SpongeBob, Spider-Man and Star Wars. Our Big Buck Hunter Pro and Big Buck Hunter Safari continue to do well especially in its third year. And this year we are introducing The Walking Dead Deluxe TV games based on AMC's top rated cable show which extended our proven peripheral platform of first person shooters into another hot license and theme. We are extremely excited with the reception on our Action Cam line, a new video recording system targeting a broad demographic from age five all the way up to teenagers and adults and at affordable prices. This is a JAKKS Pacific owned content and one that we are extremely excited about. The distribution opportunities extend just beyond toy and the toy aisles into sporting good stores, electronic stores, internet sites, warehouse clubs, QVC and much, much more.

Our new exciting line of trains, which we are introducing as an evergreen play pattern tagging today's boys from four to eight years old, trains today only exist as preschools such as Thomas the Tank and Chuggington or an expensive hobby version. We are taking the look of the hobby trains and bringing them to the masses at affordable, affordable price points. Again, this is another one of JAKKS Pacific own content and we feel it will have universal appeal both domestically and internationally with broad distribution. Our new Baby Monitor line is another great example of JAKKS Pacific's evolution as a consumer products Company, applying our proven technology to move beyond toys and extending our consumer targets to parents and grandparents. We are extremely excited for the Baby Monitor launch in 2012.

And finally, the response to Monsuno and the early animation and product lines at Toy Fair has been stellar. We are moving forward with an aggressive international expansion and Monsuno is now placed in over 12 countries. Again, we are extremely excited for the one hour premier for the first episode on Nicktoons this Thursday, February 23 at 8.00 PM with new episodes airing every Thursday thereafter in the 8.30 PM prime time slot. We hope you will tune in to see it. The toy line is launching in a couple of weeks in March and we have robust promotional plans in place including top market sampling campaigns to get Monsuno into the hands of boys.

We believe, amongst others, Monsuno will be a game changer for JAKKS Pacific and will elevate our business to the next level. Monsuno was built around a powerful action-based animation dynamic, relatable characters and a deeply woven original story. As you may know, we aligned with leading Japanese advertising and animation production company, Dentsu, global television distribution giant, Fremantle, and Topps as an investor and trading card partner. Nickelodeon as our partner for worldwide broadcast distribution. And with a terrific toy line by JAKKS Pacific, Monsuno is fast developing into a powerful force in the boys action arena for years to come. The opportunities are endless for outbound licensing for Monsuno. We already have Topps as our trading card partner and we are looking into licensings for apparel, electronics, video games, back to school supplies like backpacks and lunch boxes amongst others. We believe Monsuno has all of the ingredients to become a hugely successful boys entertainment property for many years to come.

Overall, we are extremely pleased with the progression into 2012. We have managed our inventory levels for 2011 and into 2012 and we feel we are well positioned for growth with a diverse portfolio of JAKKS-core brands, top licenses and consumer electronic offerings. With that we'll open the line up for any questions you may have. Thank you very much.

(Operator Instructions)

Scott Hamann, KeyBanc Capital Markets.

Good morning, guys. Just a couple of questions here. Number one, on inventory levels, can you kind of talk about where you stand in the channel right now as well as with your own inventory in terms of some of the carryover stuff and how that might be impacting your first quarter shipments?

Well, for the first quarter actually we're seeing sell throughs quite nice on our initial first say 45 days into the quarter and our inventories, our inventory levels for JAKKS are at a basically low level of inventory amongst the majority of our categories and brands. There may be a few small pockets here and there but overall as a Company, we're very proud of the inventory levels and that was due to heavily discounting in December, ensuring that we'd have dramatic sell through going into 2012.

Okay, Joel, just on the gross margin, can you kind of quantify the impact of some of these mark downs and how we should be thinking about your gross margin expectations and by then your guidance for 2012?

Sure. The effect on Q4 in an effort to cleanup inventory retail we have $15 million over and above what we would consider our normal mark down levels. In addition, for 2012 we're looking at margin expectations of just under 33%. So, we're back on track and we're looking to expand in the coming years as the JAKKS content becomes a bigger percentage of the overall business.

Okay. Thanks a lot.

Thank you, Scott.

(Operator Instructions)

Sean McGowan, Needham & Company.

Hi guys.

Good morning, Sean.

Good morning. How are you?

Actually I have pneumonia, but thank you for asking.

Oh, okay. Couple of questions. Could you be more specific about where the declines were in the role-playing, novelty and seasonal category?

As we went into the role-play, I would say a majority of that was on the Disney Fairies; it was a lower part of our forecasted number. It still did well for us but due to that there was not a new movie content or any new content and promotion on the Disney side, we actually had a higher expectation for Disney Fairies as we came off a great year in 2010. And then some of the private-label programs that we were working on with various customers in the role-play segment came in lower than expected due to lower sales from some of those retailers.

Okay. And following up on the earlier question. Can you be a little bit more specific on point of sale inventory year-over-year at year-end and how do you expect that to trend through the first half? Actually throughout the whole year. Do you expect that inventory level at retail to rise as the year goes on?

Well, I would say due to our heavy discounting that occurred in December on primarily of some Pokemon, some of our higher priced products, Real Steel, Golden Tee, various items, we did some, I think the probably largest in our history of cleaning up inventory for JAKKS. I can't speak amongst other toy manufacturers, but our retail levels since discounted heavily in December, the sell throughs have been terrific. So we came into the year very clean. And a lot of areas that were launching into, say, the first half of the year are new segments. For instance, we launched Pirates of the Caribbean last year at this time. We're launching Monsuno this time. We have quite a few new areas and segments going into Easter, so we really are pretty clean at retail, both in North America and internationally.

That's what I'm getting at. So you're clean going into the year but have a number of new launches planned. So should we expect to see that point of sale inventory level actually grow as these new lines get rolled out.

Yes, it would grow definitely at retail and it is growing in order for us to achieve the, call it the Easter, pre-Easter sales, gearing up for the Monsuno launch and just our general everyday core business. For example Kids Only, it's a very big part of their year is in Q1. Getting ready for the spring, our Funnoodles, the promotion or plans are all in place for Monsuno. So from the Moose Mountain, which is pretty much a nominal part of our business in Q1 but picks up much more in Q2, we're doing a lot of new shipping. So the inventory will increase, but at the same time sell throughs that we've seen to date with the inventory that's increased is selling through at a very nice pace.

All right. And then last question, could you just remind us kind of ballpark size how much is Moose Mountain? In terms of annual sales?

$35 million.

That's gross, so I would say it's less than that in net, so use your own --

I didn't hear the number, you were both speaking at the same time. What's the number?

About $34 million net.

Thank you.

You're welcome.

Drew Crum, Stifel Nicolaus.

Okay, thanks, good morning, everyone.

Good morning, drew.

Guys I wonder if you could size the opportunity or what's embedded in guidance with respect to Monsuno and Winx Club?

Well, as we've never done in the past more so due to competition and retailers to give the size of what each of these categories or some of the categories are, we never break it out because it's quite different to the penetration we have at all of our retailers, major and minor, but we are taking a very strong but cautious optimistic approach. It has all of the mixing for both Monsuno separately than to Winx that they could both be game changers for us but due to the fall occurrences really in November/December. Winx doesn't launch until August but the ratings, as we said earlier in the call, are the number one girls rating for Nickelodeon from 2 to, I think 11, I don't have the exact data. Monsuno is launching on Thursday and then stripping during fall, so as we -- I know you would like to have it broken out but we don't break out each of our segments and it's more for really licensors and retailer and competition knowing.

Okay, fair enough and --

I would tell you on an anecdotal bit, Beyblades and Bakugan which launched pretty much the same time periods that we have with Monsuno, and both of those segments are truly trending down. The opportunity for Monsuno not having that kind of competition is tremendous. Both Beyblades and Bakugan were great toys and that's why it drove sales more than just the content. And Monsuno, from the internal testing and external testing, from the support that we have at retail both worldwide, the support we've gotten from Nickelodeon, from our licensing partners, has all the mixings to be a game changer for JAKKS.

Okay and just shifting gears, guys, you gave some color on gross margin guidance for 2012. A number of your competitors have discussed increasing pricing in 2012. What are you seeing in terms of input costs for your business and what are your plans for pricing to offset some of those input costs?

I'm sorry, would you ask that again?

Sure, just wanted to get a sense as to what your plans are with respect to pricing increases for 2012.

I would say, we actually have that put in our mix already for 2012. We don't believe, besides labor issues that continue to be a concern, through all of manufacturing, that the commodity prices, resin, steel, won't change, they'll pretty much hold throughout the year. We've added in and already placed into our pricing any increases that we have foreseen. But remember because of the segmentation that we're in from cut and sew, which is Disguise, to CDI, which is injection molding and cut and sew, to JAKKS core, which is electronics and injection molding, to Kids Only being steel and primarily material, there's different fluctuations in labor costs and commodity costs, so it really has a dynamic by each division more than anything else.

Got. Okay. Thanks, guys.

Gerrick Johnson.

Good morning. Where do you guys stand in terms of reorganization? Are you still in the process of closing or moving offices, particularly CDI? Is that complete and is there any sort of expense for that in this quarter's SG&A?

We actually completed the move of CDI last year. We have the staff all in place in our Santa Monica design center and we were very fortunate an opportunity opened up which is in the Yahoo space and we were able to take it at the right time. So the staffing has been completed. All the nominal costs were included in 2011's number. We do have I think four months left on our lease at CDI, so we've picked up synergies amongst our packaging department and so on. So there won't be any added costs with regard to CDI. We are always looking at overhead and reduction of overhead or expenses, so that is an ongoing process of our Company since -- over the last ten years. So we've done some headcount reductions, some cost reductions in various areas of business. So that's always ongoing.

Okay. Switching gears to Monsuno, if this works out well and becomes something akin to Beyblade or Bakugan, would you have the ability to quickly ramp up production or would you be chasing demand? How would you be able to support that and would you be able to do Beyblade or Bakugan type numbers this year and next?

It's a great question. I am going to answer that question and then I also have Jeremy Padawer here, who is the Executive VP of JAKKS Marketing, as well as one of the co-creators of Monsuno. Assuming it takes off, we will be able to ramp up, but we will be ramping up. As we are the worldwide manufacturer of toys, we already have geared up for success, but assuming that it takes off to a Beyblades capability or Bakugan, I believe we will end up chasing some of it which we all believe internally, as Management, it is very healthy to leave some of the shelves or product not at total levels or not trying to over ship the product.

We want to get years out of the this line and the way we have a two/three year deal with Nickelodeon and the partnerships that we have from the bond guys in Japan to GP to Hunter -- we took the risk on tooling it already, so we are there. But we will have to chase it. We re not gearing up with inventory. That's not the way we run our business. Again, when you look at inventory year-over-year, we've ended up nominal to the following year in 2010 but we're expecting growth for this year and also growth for the first half. But with that I would like to hit some very important highlights just for three minutes and while Jeremy is here he can give some quick anecdotal highlights, more than I would be able to give color on. So, Jeremy, please?

Yes, absolutely. Just as Stephen mentioned, we've tooled this up for success. Our expectations -- we're cautiously optimistic. At the same time we're make sure that we can cover the upside. After three years of toy and story development, we're very excited to announce that on Thursday night at 8.00 PM, this is going to be on Nickelodeon's Nicktoons, 52 episodes guaranteed. Worldwide pay TV is signed up with Nick and that's very exciting. But we're also completing free TV deals all over the world to capture the viewers who aren't traditionally your cable TV viewers, and that includes Canada, the UK, Italy, Spain, Australia, Japan, the Nordic, South America, the Middle East, New Zealand and really all over the world. This is a worldwide global opportunity and we have not only the TV development, but the toy distribution and I think we've done an awesome job on the story telling. This is one of the bigger opportunities we've ever had.

Now, in terms of the story line -- excuse me for one second -- so, look, this was all based on a terrific toy idea. But the story line is also going to be great. I mean, in general, it's about kids that control the power of monsters and these kids are unsuspecting heroes. 65 million years ago the monster DNA basically crashed into our universe and slammed into our atmosphere. And now we have a battle over this incredible DNA which comes to life with our awesome toy line.

Okay, Gerrick, that was just Jeremy's part on that. Do you have additional questions?

No, that's it, thank you very much.

And ladies and gentlemen, we have no more questions in queue. This concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.