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Press release from Business Wire

JAKKS Pacific® Reports Fourth Quarter and Year-End Results for 2010

Tuesday, February 15, 2011

JAKKS Pacific® Reports Fourth Quarter and Year-End Results for 201005:50 EST Tuesday, February 15, 2011 MALIBU, Calif. (Business Wire) -- JAKKS Pacific, Inc. (NASDAQ: JAKK) reported results for the Company's fourth quarter and full year ended December 31, 2010. Net sales for the fourth quarter of 2010 were $198.0 million compared to $198.8 million reported in the comparable period last year; and net sales for the full year of 2010 were $747.3 million compared to $803.7 million in 2009. Reported net income for the fourth quarter was $8.9 million, or $0.30 per diluted share, compared to a loss of $1.9 million, or $0.07 per share, in the fourth quarter of 2009. Reported net income for the full year of 2010 was $47.0 million, or $1.52 per diluted share, which includes a one-time pre-tax 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 one-time tax benefits of $10.8 million, or $0.31 per diluted share, compared to a loss of $385.5 million, or $14.02 per share, reported in 2009. On a non-GAAP basis, net sales for the fourth quarter of 2010 were $198.0 million compared to $198.8 million, and $747.3 million for the full year of 2010 compared to $804.3 million reported in the full year of 2009. On a non-GAAP basis, net income for the fourth quarter of 2010 was $8.9 million, or $0.30 per diluted share, compared to $6.4 million, or $0.22 per diluted share, in the fourth quarter of 2009. Non-GAAP earnings for the full year of 2010 were $47.0 million, or $1.52 per diluted share including the one-time charge and tax benefits noted above, compared to $30.2 million, or $1.03 per diluted share, reported in 2009. Fourth quarter and full year GAAP results include the following, which were excluded in the non-GAAP results above for 2009: 2010 There were no adjustments to the 2010 GAAP results. 2009 Pre-tax charge to cost of goods of $23.3 million was taken in the second quarter and $2.9 million in the third quarter related to the impairment of inventory. Pre-tax charge to royalty expense of $33.2 million was taken in the second quarter and $0.2 million in the third quarter related to abandoned or underperforming licenses. Pre-tax non-cash goodwill and other intangible asset impairment charges of $415.3 million taken in the second quarter. Pre-tax non-cash charge of $2.3 million related to the write-off of obsolete tools and molds taken in the second quarter. Pre-tax charge of $1.3 million related to a product recall taken in the second quarter. Pre-tax non-cash charge of $23.5 million related to the reduction of our preferred return from our video game joint venture with THQ as a result of the arbitration decision, of which $22.5 million was taken in the second quarter and $1.0 million was taken in the third quarter. Pre-tax charge of $13.0 million taken in the fourth quarter related to the reorganization of the Company's operations, including termination of lease obligations, severance, fixed asset write-offs and other contract terminations. “We finished 2010 with robust sales that were ahead of plan,” commented Stephen Berman, President and CEO, JAKKS Pacific. “We are pleased that we also achieved the top end of our earnings guidance, despite continuing cost pressures and product mix shift that affected margin on those sales. We continue to closely manage our supply chain and maintain momentum on the development and placement of our product lines for 2011, giving us cautious optimism for this year. “Our 2011 portfolio has been well-received and is broadly placed in virtually all retail channels. We are expecting to achieve growth this year, with the contributions coming from across all JAKKS divisions, including role play toys, action figures, Halloween costumes, electronics, kids furniture, dolls and more.” “While we successfully reduced operating costs in 2010, we continue to be challenged with increases in labor, raw materials and transportation,” commented Joel Bennett, Executive Vice President and CFO. “However, barring any further substantial increases, we believe we will be able to keep these pressures in line with our expectations for the year.” Operations provided cash of $67.5 million for the full year of 2010, and as of December 31, 2010, the Company's working capital was $389.8 million, including cash and equivalents and marketable securities of $278.6 million. Bennett continued, “We continue to actively evaluate potential acquisition targets and apply our disciplined approach to obtain the best deal for JAKKS Pacific and our Stockholders. In addition, we purchased 291 thousand shares of our common stock during the quarter at a cost of $5.6 million pursuant to our previously announced stock buy-back program of up to $30.0 million of the Company's common stock.” Berman concluded, “For our initial 2011 guidance we are anticipating an increase in net sales of 3% to 4% to approximately $770 to $775 million, with diluted EPS in the range of $1.32 to $1.35, an increase of 4% to 6% excluding the one-time tax benefits and benefit payment in 2010. This guidance anticipates first quarter 2011 net sales in the range of $60 to $65 million, with a loss per share in the range of $0.39 to $0.45 versus net sales of $77.3 million and a loss per share of $0.19 in the first quarter of 2009, which included a one-time tax benefit of $4.9 million, or $0.18 per share.” Use of Non-GAAP Financial information In addition to the preliminary results reported in accordance with U.S. GAAP included in this release, the Company has provided certain non-GAAP financial information, including net sales information that excludes recall items, and expense information that excludes intangible asset impairment charges and license and inventory impairment charges, among others. Management believes that the presentation of these non-GAAP financial measures provides useful information to investors because this information may allow investors to better evaluate ongoing business performance and certain components of the Company's results. In addition, the Company believes that the presentation of these non-GAAP financial measures enhances an investor's ability to make period-to-period comparisons of the Company's operation results. This information should be considered in addition to the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. The company has reconciled the non-GAAP financial information included in this release to the nearest GAAP measure. See the attached “Reconciliation of Non-GAAP Financial Information.” Conference Call JAKKS Pacific will webcast its fourth quarter earnings conference call today at 8:30a.m. ET (5:30a.m. PT) today. To listen to the live webcast, go to investors.jakks.com, and click on the earnings webcast link under Events and Presentations at least 10 minutes prior to register, download and install any necessary audio software. A telephonic playback will be available from approximately one hour after the call concludes through March 15, 2011. The playback can be accessed by calling 888-203-1112, or 719-457-0820 for international callers, pass code “9068258” About JAKKS Pacific, Inc. JAKKS Pacific, Inc. (NASDAQ: JAKK) is a leading designer and marketer of toys and consumer products, with a wide range of products that feature some of the most popular brands and children's toy licenses in the world. JAKKS' diverse portfolio includes Action Figures, Electronics, Dolls, Dress-Up, Role Play, Halloween Costumes, Kids Furniture, Vehicles, Plush, Art Activity Kits, Seasonal Products, Infant/Pre-School, Construction Toys and Pet Toys sold under various proprietary brands including JAKKS Pacific®, Creative Designs International™, Road Champs®, Funnoodle®, JAKKS Pets™, Plug It In & Play TV Games™, Kids Only!™, Tollytots® and Disguise™. JAKKS is an award-winning licensee of several hundred nationally and internationally known trademarks including Disney®, Nickelodeon®, Pokémon®, Warner Bros.®, Ultimate Fighting Championship®, Hello Kitty®, Graco® and Cabbage Patch Kids®. www.jakks.com This press release may contain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates and projections about JAKKS Pacific's business based partly on assumptions made by its management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such statements due to numerous factors, including, but not limited to, those described above, changes in demand for JAKKS' products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, and difficulties with integrating acquired businesses. The forward-looking statements contained herein speak only as of the date on which they are made, and JAKKS undertakes no obligation to update any of them to reflect events or circumstances after the date of this release.   JAKKS Pacific, Inc. and SubsidiariesCondensed Consolidated Balance Sheets                             December 31,December 31,20102009(In thousands)   ASSETS   Current assets: Cash and cash equivalents $ 278,346 $ 254,837 Marketable securities 207 202 Accounts receivable, net 122,476 129,930 Inventory, net 43,230 34,457 Income taxes receivable 19,052 35,015 Deferred income taxes 26,168 19,467 Prepaid expenses and other current assets   25,275     34,259   Total current assets   514,754     508,167     Property and equipment 76,150 73,812 Less accumulated depreciation and amortization   59,204     52,598   Property and equipment, net   16,946     21,214     Goodwill, net 6,988 1,571 Trademarks & other assets, net 38,388 42,912 Deferred income taxes 56,256 53,502 Investment in video game joint venture   74     6,727   Total assets $ 633,406   $ 634,093       LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Accounts payable and accrued expenses $ 90,389 $ 101,819 Reserve for sales returns and allowances 28,378 33,897 Income taxes payable 6,143 - Short-term debt   -     20,262   Total current liabilities   124,910     155,978     Long term debt 89,458 86,728 Other liabilities 1,625 2,490 Income taxes payable   5,005     16,788   Total liabilities   220,998     261,984     Stockholders' equity: Common stock, $.001 par value 28 28 Additional paid-in capital 302,425 303,474 Treasury Stock (5,641 ) - Retained earnings 119,884 72,835 Accumulated other comprehensive income (loss)   (4,288 )   (4,228 )   412,408     372,109   Total liabilities and stockholders' equity $ 633,406   $ 634,093                                   JAKKS Pacific, Inc. and SubsidiariesFourth Quarter Earnings Announcement, 2010Condensed Statements of Income (Unaudited)     Three Months Ended December 31,Twelve Months Ended December 31,2010200920102009(In thousands, except per share data)(In thousands, except per share data)   Net sales $ 197,991 $ 198,772 $ 747,268 $ 803,704 Less cost of sales Cost of goods 108,310 116,092 412,104 470,166 Royalty expense 21,492 21,483 77,544 112,078 Amortization of tools and molds   2,658     4,883     12,670     18,532   Cost of sales   132,460     142,458     502,318     600,776   Gross profit 65,531 56,314 244,950 202,928 Direct selling expenses 24,606 24,822 58,549 67,586 Selling, general and administrative expenses 27,630 27,068 123,683 143,082 Depreciation and amortization 2,323 3,473 12,521 16,368 Write-down of other intangible assets - - - 8,221 Write-down of goodwill - - - 407,125 Reorganization charges   -     12,994     -     12,994   Income (loss) from operations 10,972 (12,043 ) 50,197 (452,448 ) Other income (expense): Profit (loss) from video game joint venture - 5,796 6,000 (16,128 ) Other (56 ) - (56 ) - Interest income 82 41 333 318 Interest expense, net of benefit   (981 )   (4,130 )   (6,732 )   (7,930 ) Income (loss) before provision (benefit) for income taxes 10,017 (10,336 ) 49,742 (476,188 ) Provision (benefit) for income taxes   1,146     (8,478 )   2,693     (90,678 ) Net income (loss) $ 8,871   $ (1,858 ) $ 47,049   $ (385,510 ) Earnings (loss) per share - diluted (basic) $ 0.30 $ (0.07 ) $ 1.52 $ (14.02 ) Shares used in earnings (loss) per share 33,880 27,491 34,513 27,502                         Reconciliation of GAAP to non-GAAP ResultsCondensed Statements of Income (Unaudited)       Three Months EndedDecember 31,Twelve Months EndedDecember 31,20092009(In thousands, except per share data)   Net sales $ 198,772 $ 803,704 Change in net sales - recall   -     610   Non-GAAP net sales $ 198,772   $ 804,314     Income (loss) from operations as reported $ (1,857 ) $ (385,510 )   Non-GAAP adjustments: Change in net sales - recall - 610 Impairment of inventory - 23,021 Impairment of inventory - recall - 979 Write-down of abandoned/underperforming licenses - 33,224 Write-down of Other Intangible Assets - 8,221 Write-down of Joint Venture receivable - 23,544 Write-down of Goodwill - 407,125 Write-off of obsolete tools and molds - 2,316 Reorganization charges 12,994 12,994 Tax adjustments and tax impact of above items   (4,740 )   (96,283 )   Total non-GAAP adjustments   8,255     415,752     Non-GAAP income from continuing operations $ 6,398   $ 30,242     Non-GAAP earnings per share - diluted: $ 0.22   $ 1.03   Shares used in earnings per share diluted 33,738 32,739 © 2011 JAKKS Pacific, Inc. All rights reserved. JAKKS Pacific, Inc.Genna Rosenberg, (310) 455-6235Joel Bennett, (310) 455-6210