Good morning. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the JAKKS Pacific Third Quarter Conference Call with the management. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I will now turn the call over to Ms. Rosenberg. You may begin your conference.

Thank you, operator. Good morning, ladies and gentlemen. This is Genna Rosenberg, Senior Vice President of Corporate Communications and Investor Relations for JAKKS Pacific. Thank you for joining our teleconference with JAKKS's management to review the results for our third quarter and first nine months of 2007, which ended on September 30. On the call today are Jack Friedman, the Chairman and Chief Executive Officer of JAKKS Pacific; Stephen Berman, our President and Chief Operating Officer; and Joel Bennett, our Vice President and Chief Financial Officer. Mr. Friedman will first provide an overview of the quarter and our operational results. Then Mr. Bennett will provide some comments regarding our financial results. Mr. Friedman will then conclude the prepared portion of the call with highlights of the current quarter. He will conclude with the current business trends prior to opening up the call for questions. Before we begin, I would like to point out that any comments made about our future performance, events or circumstances, including the estimates of sales and earnings per share for 2007, as well as any forward-looking statements, are subject to Safe Harbor protection under federal securities laws. These statements reflect our 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 our forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult our most recent 10-K and 10-Q filings with the SEC as well as additional reports subsequently filed with the SEC from time-to-time. With that, I'll turn the call over to Mr. Friedman.

Good morning, ladies and gentlemen. This is Jack Friedman. Thank you for joining us this morning to discuss our results for the third quarter and first nine months of 2007. We issued our earnings this morning. Net sales increased to $318.4 million, we earned $47.3 million, or $1.45 per fully diluted share for the quarter. We're extremely pleased with our results for the year so far. With just about two months to go until the holidays, we are confident that we will achieve at least the 2007 guidance we issued earlier this year of $800 million in sales and earnings of $75.8 million or $2.39 per diluted share. Third quarter performance was in line with our internal expectations, despite some challenges that our industry faced as a result of recalls by some of our peers. In the face of container shortages, port delays, labor issues and other issues in dealing with China, we still had an excellent third quarter and we expect to have excellent full year results when we announce them this coming February. We are very excited by the opportunities presented by several areas of our business for this year and in the future. We are especially excited about the Disney tween pop star Hannah Montana and our Hannah Montana product line. The star of the show is Miley Cyrus, a remarkable, hard-working young woman that has become America's dolly. And we are proud to be partnering with Disney consumer products for the Hannah Montana property. USA Today identified rock star theme merchandise as a major trend for this holiday season, featuring our Hannah Montana line as part of their findings. Toys "R" Us also put out a trend release, which included our Hannah Montana dolls and our Toys "R" Us exclusive Hannah Montana Tour Bus Playset, which…

Thank you, Jack, and good morning, everyone. Third quarter net sales for 2007 were $318.4 million, compared to $295.8 million in the same period last year. Net income for the third quarter was $47.3 million, or $1.45 per diluted share. This compares to net income of $40.5 million, or $1.26 per diluted share in the third quarter of 2006. Net sales for the first nine months of 2007 were $572 million, compared to $527.1 million for the first nine months of last year. Net income for the nine month period was $55.6 million, or $1.75 per diluted share. This compares to net income of $49.2 million, or $1.57 per diluted share in the first nine months of 2006. Now it’s time for me to discuss sales by product categories. As a reminder, our international sales are spread amongst these product categories and are broken apart separately. Sales of traditional toys, which include action figures, vehicles, electronics, plush, role play, dolls and promotional products were $286.4 million for the third quarter of 2007. This compares to $265.6 million in the third quarter of 2006. In the first nine months of 2007, sales of traditional toys represented $498.5 million. This compares with $448.2 million in the comparable period last year. Traditional toys represented approximately (technical difficulties) 87.2% of JAKKS' overall sales in the third quarter and the first nine months of 2007 respectively versus approximately 89.8%, and 85% of JAKKS' overall sales in the third quarter in the first nine months of 2006. Sales in the quarter were driven by our action figures, dolls and pretend-play products based on WWE, Pokemon, and Pop Disney licenses. Our current activity (technical difficulties) products consist primarily of our Pentech and Flying Colors product lines. Sales were reported at $12.2 million in the third quarter and…

Thank you, Joel. As we've mentioned, we are feeling great about our line-up for this holiday season. Next year is well underway as well. There are a number of products that are tracking at or ahead of expectations for this year. Many of our drivers have been topping the industry's hot holiday toy lists, keeping JAKKS Pacific and our products in the spotlight. Our EyeClops Bionic Eye extended the Plug & Play category for JAKKS and kids are discovering EyeClops, both at home and in the classroom. New York Times writer, Warren Buck recently said that EyeClops was his favorite 2007 educational toy. This product might be sold in toy stores, but don't be fooled; EyeClops is a powerful microscope that can transform a TV screen into a world of wonder. We are extremely pleased with our sales of EyeClops so far. We are working on line extensions for next year as well. Our PacMan Gold TV game, also featured in the New York Times recently, is the perfect stocking stuffer for nostalgic gamers. Our 1 vs. 100, Jeopardy, Deal or No Deal and other game shows, TV games, as well as kid-driven titles based on Dora, Sponge Bob, Star Wars, Hannah Montana, are also well placed for the fourth quarter. Next year we will bring our original Atari TV games back into the assortment, along with High School Musical and TV games. These feature new technology that we expect will again expand on our Plug & Play category. Puppy in My Pocket line of our Play Along division has been performing ahead of expectations so far this year, and we have new Puppy in My Pocket accessories and playsets at retail for the holidays. Kitties and ponies will be joining the line next year. Sweet Secrets, mini-dolls and our…

(Operator Instructions) Your first question will come from Arvind Bhatia. Arvind Bhatia - Sterne, Agee & Leach: Good quarter, guys.

Thank you, Arvind. Arvind Bhatia - Sterne, Agee & Leach: You touched on the toy recall aspect of the industry today. I would like to get your take on what you're hearing out there from retailers? And then second, if you could comment on the acquisition environment. Obviously, that's going to be one of the things you're going to consider with your cash situation. My third quick question is on licensing deals. What are you seeing out there in terms of royalties, etc.? Is there any change in what the licensors are asking for in terms of rates, etc.?

I'll take it, Arvind. I'll start with your third one and go backwards. We're finding royalty rates to be pretty constant. There are no dramatic increases. Everything is a case-by-case, but it's pretty consistent. I think licensors generally know that there is a limit to what you can add to the retail value of a toy with a license on it. It doesn't seem to be an impediment in moving forward with our business. Number two, in terms of acquisitions, we are always looking at acquisitions. We did find in the past year or so, with private equity jumping over stuff, that values were excessive to our valuations on companies. We're starting -- it might be a hopeful deal that valuations are coming down a bit and there aren't that many people jumping over opportunities. Our eyes are getting a bit bigger as we grow our working capital. As we grow the management team at JAKKS, we would be in a position to do larger deals than we've done in the past. In terms of recalls, we've all read the same thing from day-to-day in the newspapers. There have been a number of recalls. We do know that, for us and other companies, there are more and more careful inspections. And we hope that it slows down any recalls for the whole industry. Arvind Bhatia - Sterne, Agee & Leach: And in terms of how retailers are reacting to other toy companies outside of Mattel, I would just like to get your take on the reaction there.

Okay. I can't say it's a specific statement from any retailer, but I think that it's going to get more difficult for the small guy than to do business with the big retailers. If the small guy is selling particularly on a letter of credit basis to retailers and there is a recall, that small guy might not be able to stand behind, or wish to stand behind, and might just pull a bankruptcy and walk away and leave the retailer stuck. So, that might add to our acquisition strategy, there might be a number of smaller companies that wish to get out of the business and walk away before they get into trouble, not being able to do business with the big retailers. Arvind Bhatia - Sterne, Agee & Leach: You indicated that you expect to at least hit your guidance out there. From where we were in terms of our expectation, you certainly did better this quarter. Walk us through your thinking, in terms of not raising guidance out right. Is that just the environment, or is there anything else that’s making you take a look and hold back?

No, we're just taking a conservative approach. So far our deliveries are okay, we don't expect any slow down in that. Our sales at retail are right on schedule so far. It's just a conservative approach. Arvind Bhatia - Sterne, Agee & Leach: Great. I hope the fires out there are not affecting you guys?

No, they’re not. Arvind Bhatia - Sterne, Agee & Leach: Thanks.

And your next question will come from Jeff Blaeser. Jeff Blaeser - Morgan Joseph & Co.: Thanks for taking my question. On terms of profitability, specifically Hannah Montana and Pokemon, can you give us an idea where they fit in the larger scheme versus other products that you sell?

They're pretty consistent with our margins. Some of them are generic products like our Foam products are lower margin, but they're consistent with our margin criterias. Jeff Blaeser - Morgan Joseph & Co.: Okay. Do you receive any sales when Hannah Montana, the Cheetah Girls and the Wiggles go out on their concert tours? Is that an additional distribution channel for you? Is there any change in the matrix selling in those venues?

No, not at all. If they were viable -- and those (technical difficulties) it wouldn't mean very much business to us. It would be negligible sales. Jeff Blaeser - Morgan Joseph & Co.: Okay. Finally, looking at your '08 line, it certainly looks to be more expansive than those in the past. Any expense impacts in the third quarter or going forward with this more robust rollout expected?

I'm not 100% sure what you mean by that. Our product development is done primarily internally. And we haven't been adding headcounts in that area, supplementing where we need. So our cost structure hasn't changed from an internal perspective. Certainly, the volume increases, we do more samples, and we do have a bigger presence in Toys "R" Us, etc. However it's proportionate to the increase in sales. We're not expecting any out-of-the-ordinary increases of any consequence. Jeff Blaeser - Morgan Joseph & Co.: Okay, great. Thank you very much.

You're welcome.

And your next question will come from Gerrick Johnson.

Hi. Good morning. I have a question on the Pets business. Can you break that business out for us for the third quarter? Can you discuss any new channels of distribution for that business?

We don't break that out specifically, it's still a small division for us, but it’s consistently growing. It does offer us additional distribution to the big box pet retailers, as well as new sections in our major retailers.

Okay. You've seen nice growth in your traditional toys. How about addressing some of the other categories, specifically arts and crafts? What's holding that division back and how can you extract similar performance from that segment of the business?

We do expect better performance from it next year. We do have, for the most part, a new team in place to manage that division for us. We're delighted so far with the reaction from the Dallas Toy Fair towards some of the new initiatives actually within that division. Two of the most popular offerings came out of that division. It looks like a very bright future.

Okay. And finally, a comment was made at a recent competitor's conference about cash and use of cash and, perhaps, building up a cash cushion. Can you explain exactly what you guys meant by that comment?

We didn't make a comment.

A competitive…

No, a competitor to me. Joel, you made the comments, actually.

Oh. I'm sure it was (technical difficulties

It had to do with the lawsuits.

No. We are accumulating cash flow for acquisitions and funding our other initiatives, and to continue to get licenses. On the call this morning, we indicated there were at least two master licenses. We're investing in developments, but we're not retaining any cash for anything outside of our normal business at this point. There's a three point strategy in acquisitions, new (licensing and inventory) development. Some of the context of the comments, but that's basically what I would have (technical difficulties)

I would add to that, we do on a regular basis meet with our Board and discuss the possibility of a stock (technical difficulties).

The next question will come from Cheryl Cortez.

Hi. Congratulations on your quarter. I was just trying to figure out, just in seeing a lot of Hannah Montana toys fly off the shelves lately, have your retailers already fully placed their orders for the rest of the Christmas season? Is there still room to make more toys and have them delivered in time for Christmas? And how would that affect your margins, if at all?

Good question. The retailers continue to place orders or change their forecasts up or down, based on the west matrixes that they use, as well as the ones that we use. Hannah Montana products were less than 10% of our revenue in Q3. Going into Q4, we have ramped up production on it and are prepared to ship a bigger portion of Hannah Montana in Q4 and product for spring '08.

Thank you very much. I'm glad to know everyone in the JAKKS family is safe from the fires.

Thank you.

Your next question will come from Sean McGowan.

Hi, thank you. I have a couple of questions. First, could you talk a little bit about the performance of some of the brands that were strong last year? Which have continued to be strong and which have not? I don't mean individual items as much as the overall brand, like Care Bears, Cabbage Patch, Speed Stacks, etc.

I would say that it’s an anticipated disappointment. We saw a slowdown in Q4 last year of our Doodle Bears Line, which continued into this year. Our estimated sales on it are in line, but it has not made a turn on the upside. That would probably be our only downsized brand for this year. I can't think of any other.

Okay. I think Stephen might have made a comment at Dallas, that rather than spend money on an acquisition, money has been put into developing all these organic brands. Is that to say that you would not expect to see an acquisition in the next six months?

No, not at all. Maybe that was misinterpreted. What Steve meant, is that as we look for acquisitions and don't find the proper ones, we use our capital for internal development, but that wouldn't prevent us at all from going into an acquisition. I mentioned earlier that we're even looking at, potentially, doing larger deals than we've ever done before with our capital on hand, our access to credit and our internal management team.

Okay. Can you give us an update on the status of the arbitration proceeding with THQ? Why is that taking so long?

I can't -- any kind of legal process seems to take forever, like our WWE lawsuit. It's been over three years now since it's began. We’re, basically, nowhere in the process. There have been arbitrator's names put up. It hasn't worked out and it's gone to the court for choosing an arbitrator. As soon as that process is in place, it will get done. We look forward to it. We think that the marketplace for high powered videogames is extremely strong, maybe stronger than ever. And we look forward to the arbitration and getting it down behind us and look at it as a positive note for JAKKS.

So, there's no arbitrator named. Has there been any indication from the court as to when an arbitrator could be named?

Well, actually, one had been named, but he had some conflicts. So we sort of went back to square one. I guess it turns out it's a small world out there, with people expecting to have ongoing business in the industry. So there's a lot at stake, so they want to be careful about it, we want to be careful about how we proceed.

Yes, of course. Okay, Joel, but as far as your best guess, once the arbitrator is named and agreed on and in place, does that start another clock that could be very long? Or should that be a pretty quick process then?

I wouldn't expect it to be an extended period of time. I'm sure we're both preparing. But, identifying the arbitrator is the key at this time. I can't expect that it would be an extended process once he or she is identified.

Okay. And then back on WWE, has any kind of trial date or anything been set?

No, we're still waiting to hear the judge on the motion to dismiss. This was poorly argued back in September of 2006. In fact, it was recently the [three year anniversary] of the original filing of the suit.

I'm sure the lawyers are having a nice cake, if they get paid for this. Okay. Well, thank you very much.

Thank you.

And your next question will come from Steve Epstein.

Good morning. I have two questions. Is the 40% gross margin for the second half? Is that possible for the second half still? Can you discuss the drivers of the gross margin improvement that you mentioned for the fourth quarter in 2008?

The drivers are the product mix, the proportion of new products. In the third quarter, we didn't quite make it, in part because of the better than expected contribution, and part of that was timing of the [CDI fines] which have a number of lower margins for a generic private label product. So it was a benefit overall, but there was a little pressure on the margins, but it was more than (technical difficulties).

But, we sell a greater proportion of those generic products. This brings down our marketing expenses, because they don't require marketing.

Okay. Is the roughly 40% margin that you had previously referred to for the second half, is that possible?

Well, we hit 39% in third quarter and right now we would measure it individually. We believe we'll be there for fourth quarter, but we didn't get there for third. On average, we probably will be shy of the average of 40% for the second half, since we hit 39% in the third quarter. We'll probably be closer to the 40% in fourth quarter. And because of the relative volume, it will be somewhat less than the 40%.

Okay. I have a broader version of Cheryl's question. You have a number of large top sellers and the revenues are exceeding expectations on those products. Is there a risk of broader product shortages at retail during the holidays? How does that translate into pent-up demand for 2008?

Well, as we head to the holiday season, we believe that with our production capacities, we will be able to reasonably meet the demand of the most exciting products that are out there. By working with retailers, we tell them what we can make and what they can expect to get. We usually are able to come to a satisfied level with our retailers. And there is nothing right now to throw that off. That being said, could a Hannah Montana, if you will, take off even further when she starts her concert tour and when her new albums are out? Would we be able to meet that demand? Yes, that could happen. In a sense it would be a good problem, but we do like to supply our retailers with the product. But all of our plans and those hot issues look like they'll go very nicely into 2008. We expect the Hannah Montana show to continue to be a very important show on the Disney channel. Pokemon seems to be expanding. Wrestling is doing quite well. Our Disney Princess line is doing well. Our Black & Decker line is doing well. So, we expect to grow in almost all areas in 2008. Usually there are a few hiccups, something that doesn't go the way you anticipate it, but that's the industry that we're in. But overall, things are great. We're producing goods on a regular basis. I'd complement the operational team at JAKKS. I think they've done a great job over a labor shortage and shipping problems and everything else, to get the goods out there and hit a record quarter for us. We’re expecting a good fourth quarter.

Okay. Thank you.

You're welcome. Thanks. I thank you all very, very much for being on our call today. And we look forward to another great call in February. Thank you all very much.

This concludes today's conference call. You may now disconnect.