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Press release from Business Wire

JAKKS Pacific® Reports Third Quarter Results for 2011

Tuesday, October 18, 2011

JAKKS Pacific® Reports Third Quarter Results for 201106:30 EDT Tuesday, October 18, 2011 MALIBU, Calif. (Business Wire) -- JAKKS Pacific, Inc. (NASDAQ: JAKK) reported results for the Company's third quarter and first nine months ended September 30, 2011. Net sales for the third quarter of 2011 were $332.4 million, compared to $348.7 million reported in the comparable period in 2010. Net income for the third quarter was $34.8 million, or $1.10 per diluted share, which includes $0.7 million, or $0.01 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 $40.4 million, or $1.23 per 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 in 2011 and tax benefit in 2010, third quarter earnings in 2011 would have been $35.3 million, or $1.11 per diluted share, compared to $34.5 million, or $1.06 per diluted share, in 2010. Gross margins held steady year over year and operating margins expanded 30 basis points with decreases in operating costs though offset in part by the legal and financial advising fees incurred in 2011. Net sales for the nine months were $536.7 million, compared to $549.3 million in 2010. Net income reported for the nine month period was $28.5 million, or $0.97 per diluted share, which includes fees and expenses related to the unsolicited indication of interest of $1.8 million, or $0.04 per diluted share. This compares to net income for the first nine months of 2010 of $38.2 million, or $1.22 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 tax benefits of $10.8 million, or $0.31 per diluted share. Excluding the legal and financial advising fees in 2011 and the tax benefit and one-time charge in 2010, the nine month earnings would have been $29.9 million, or $1.01 per diluted share, compared to $29.3 million, or $0.97 per diluted share in 2010. “I am pleased to report that sales in the third quarter were in line with our expectations and several new toys from our portfolio are already garnering industry and retailer accolades,” remarked Stephen Berman, CEO and President of JAKKS Pacific. “Our Spy Net electronics, I Am T-Pain Mic, Cabbage Patch Kids, Singing and Storytelling Belle, Disney Princess Dress-Up and Role Play, to name just a few, have earned coveted positions on many retailer and media Hot Holiday Toy Lists both in the U.S. and abroad. We are also excited to expand our portfolio with our recently completed acquisition of Moose Mountain Toymakers.” “In addition, we are wrapping up Fall Toy Fair meetings with retailers, licensors and other industry partners and are pleased with the enthusiastic response to our 2012 lines including Monsuno, Winx Club, Spy Net and others,” Mr. Berman added. “We remain committed to delivering value to our stockholders,” said Joel Bennett, Executive Vice President and CFO, JAKKS Pacific. “During the quarter, we declared the Company's first ever cash dividend and we completed our previously announced $30.0 million stock buy-back program with the repurchase of 1,206,000 shares of our common stock for a total of $19.3 million.” Consistent with the seasonality of our business, operations used cash of $2.6 million for the first nine months of 2011 with inventory and accounts receivable at seasonal highs, and as of September 30, 2011, the Company's working capital was $401.4 million, including cash and equivalents and marketable securities of $232.5 million, compared to working capital of $407.8 million including cash and equivalents and marketable securities of $218.8 million, as of September 30, 2010. The Company today reaffirmed that it expects to report for the full year 2011 net sales of between $770 to $775 million and earnings per share in the range of $1.32 to $1.35 per diluted share. Conference Call JAKKS Pacific will webcast its second quarter earnings conference call at 9:00 a.m. ET (6:00 a.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 can be accessed by calling (888) 286-8010, or (617) 801-6888 for international callers, pass code “98313273,” and will be available from approximately three hours after the call concludes, through November 18, 2011. 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 Nickelodeon®, Warner Bros.®, Ultimate Fighting Championship®, Hello Kitty®, Graco®, Cabbage Patch Kids® and Pokémon®. 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. Continued payment of the quarterly cash dividend will depend on depend on many factors, including, but not limited to, JAKKS' earnings, financial condition, business development needs, and is at the discretion of the Board of Directors. 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. © 2011 JAKKS Pacific, Inc. All rights reserved. JAKKS Pacific, Inc. and SubsidiariesCondensed Consolidated Balance Sheets                             September 30,December 31,   2011     2010   (In thousands)   ASSETS   Current assets: Cash and cash equivalents $ 232,244 $ 278,346 Marketable securities 212 207 Accounts receivable, net 239,680 122,476 Inventory, net 55,836 43,230 Income taxes receivable 23,963 19,052 Deferred income taxes 16,475 23,576 Prepaid expenses and other current assets   27,063     25,275   Total current assets   595,473     512,162     Property and equipment 82,123 76,150 Less accumulated depreciation and amortization   64,543     59,204   Property and equipment, net   17,580     16,946     Goodwill 6,988 6,988 Trademarks & other assets, net 26,911 38,388 Deferred income taxes 58,839 58,848 Investment in joint venture   1,820     74   Total assets $ 707,611   $ 633,406       LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Accounts payable and accrued expenses $ 145,993 $ 90,389 Reserve for sales returns and allowances 26,398 28,378 Income taxes payable   21,716     6,143   Total current liabilities   194,107     124,910     Long term debt 91,505 89,458 Other liabilities 1,571 1,625 Income taxes payable   4,712     5,005   Total liabilities   291,895     220,998     Stockholders' equity: Common stock, $.001 par value 26 28 Additional paid-in capital 274,066 302,425 Treasury Stock - (5,641 ) Retained earnings 145,783 119,884 Accumulated other comprehensive income (loss)   (4,159 )   (4,288 )   415,716     412,408   Total liabilities and stockholders' equity $ 707,611   $ 633,406     Working Capital $ 401,366 $ 387,252   JAKKS PACIFIC, INC. AND SUBSIDIARIESThird Quarter Earnings Announcement, 2011Earnings Per Share Calculation                                               Current YearPrior Year Three Months Ended September 30, 2011 Three Months Ended September 30, 2010 WTD. AVE. PER WTD. AVE. PER INCOME SHARES SHARE INCOME SHARES SHARE   WEIGHTED COMMON SHARES OUTSTANDING 26,948 27,746 LESS: REPURCHASES 262 LESS: WEIGHTED UNVESTED RESTRICTED SHARES O/S 210   367 EARNINGS PER SHARE - BASIC NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 34,825 26,476 $ 1.32 $ 40,360 27,379 $ 1.47   EFFECT OF DILUTIVE SECURITIES CONVERTIBLE SENIOR NOTES PAYABLE 1,289 6,321   1,289 6,321 OPTIONS AND WARRANTS - 11 - 31 UNVESTED RESTRICTED STOCK GRANTS   -       106   -       243 EARNINGS PER SHARE - DILUTED INCOME AVAILABLE TO COMMON STOCKHOLDERS PLUS ASSUMED EXERCISES $ 36,114       32,914       $ 1.10 $ 41,649       33,974       $ 1.23       Nine Months Ended September 30, 2011 Nine Months Ended September 30, 2010 WTD. AVE. PER WTD. AVE. PER INCOME SHARES SHARE INCOME SHARES SHARE   WEIGHTED COMMON SHARES OUTSTANDING 27,207 27,903 LESS: REPURCHASES 149 LESS: WEIGHTED UNVESTED RESTRICTED SHARES O/S 200   515 EARNINGS PER SHARE - BASIC NET INCOME $ 28,490 26,858 $ 1.06 $ 38,178 27,388 $ 1.39   EFFECT OF DILUTIVE SECURITIES CONVERTIBLE SENIOR NOTES PAYABLE 3,867 6,321 4,145 6,940 OPTIONS AND WARRANTS - 26 - 25 UNVESTED RESTRICTED STOCK GRANTS   -       98   -       238 EARNINGS PER SHARE - DILUTED INCOME AVAILABLE TO COMMON STOCKHOLDERS PLUS ASSUMED EXERCISES $ 32,357       33,303       $ 0.97 $ 42,323       34,591       $ 1.22   JAKKS Pacific, Inc. and SubsidiariesThird Quarter Earnings Announcement, 2011Condensed Statements of Income (Unaudited)                                         Three Months Ended September 30,Nine Months Ended September 30,     2011     2010     2011     2010   (In thousands, expect per share data)(In thousands, expect per share data)   Net sales $ 332,419 $ 348,677 $ 536,672 $ 549,277 Less cost of sales Cost of goods 182,324 194,908 292,695 303,794 Royalty expense 38,974 36,644 59,910 56,052 Amortization of tools and molds   5,451     6,168     9,034     10,012   Cost of sales   226,749     237,720     361,639     369,858   Gross profit 105,670 110,957 175,033 179,419 Direct selling expenses 14,628 17,293 32,439 33,943 Selling, general and administrative expenses 36,495 37,102 96,336 96,053 Depreciation and amortization   4,479     4,983     8,982     10,198   Income from operations 50,068 51,579 37,276 39,225 Other income (expense): Income from video game joint venture - - 6,000 6,000 Equity in net loss of joint venture (26 ) - (25 ) Interest income 102 99 329 251 Interest expense, net of benefit   (2,063 )   (1,547 )   (6,128 )   (5,751 ) Income before provision for income taxes 48,081 50,131 37,452 39,725 Provision for income taxes   13,256     9,771     8,962     1,547   Net income $ 34,825   $ 40,360   $ 28,490   $ 38,178   Earnings per share $ 1.10 $ 1.23 $ 0.97 $ 1.22 Shares used in earnings per share 32,914 33,974 33,303 34,591 JAKKS Pacific, Inc.Joel Bennett, 310-455-6210orAnne-Marie Feliciano, 310-455-6245