| INVESTOR CONTACTS: | MEDIA CONTACT: |
| Todd Fromer / Garth Russell | Barry Stagg |
| KCSA Strategic Communications | 4Kids Entertainment |
| (212) 896-1215 / (212) 896-1250 | (646) 822-4257 |
| tfromer@kcsa.com / grussell@kcsa.com | bstagg@4kidsent.com |
4Kids Entertainment Reports 2008 Fourth Quarter
and Year End Results
NEW YORK, March 16, 2009 – 4Kids Entertainment, Inc. (NYSE: KDE), the global children’s entertainment and merchandise licensing company, today announced financial results for the quarter and year ended December 31, 2008.
Net revenues for the three months ended December 31, 2008 totaled $14.3 million, compared to $16.5 million for the same period in 2007. The Company’s net loss for the three months ended December 31, 2008 was $(19.6) million, or $(1.48) per diluted share, as compared to a net loss of $(16.8) million, or $(1.26) per diluted share, for the same period in 2007.
For the year ended December 31, 2008, net revenues totaled $63.7 million, compared to $55.6 million for the same period in 2007. Revenue for the year ended December 31, 2008 included approximately $15.3 million from the sale of Chaotic® trading cards. The Company’s net loss for the year ended December 31, 2008 was $(36.8) million, or $(2.79) per diluted share, as compared to $(23.3) million, or $(1.77) per diluted share, for the same period in 2007.
“The sharp economic downturn and associated severe deterioration of consumer confidence starting in September 2008 deeply impacted our licensing revenue and trading card game sales in the fourth quarter. Our results were also impacted by declining licensing revenue throughout the year from some of our more established properties. While we are extremely disappointed by our results for 2008, we implemented significant cost cutting initiatives in the fourth quarter of 2008 and the first quarter of 2009 that we expect to reduce our operating costs by $25 million in 2009 as compared with 2008,” stated Alfred R. Kahn, Chairman and Chief Executive Officer, 4Kids Entertainment.
“While Chaotic trading card sales for the first nine months of 2008 were in line with our expectations, sales for fourth quarter fell well below our expectations at $0.5 million. This decline in sales is primarily due to retailers and distributors reducing, canceling or returning orders in an effort to reduce their inventory as they respond to the rapid, steep economic decline. In addition to impacting sales, it also triggered an increase in our reserve for returns and allowances and a $3 million write-down of our trading card inventory. Despite the fourth quarter sales numbers, Chaotic finished the year as the number three selling trading card game in the U.S. behind Pokémon and Yu-Gi-Oh!,” said Kahn.
“Looking forward, we believe Chaotic still offers a tremendous opportunity for 4Kids in the future as we roll out the Chaotic trading cards in the UK, France and Germany during
the first half of 2009. Chaotic will also be bolstered by the revised and improved Chaoticgame.com website that went live on March 3 and is now available in English, French, German, Spanish and Italian. We also expect additional Chaotic licensed products to be available from our master toy licensee, Spin Master, and our videogame partner, Activision Publishing, which is scheduled to release a Chaotic video game on the Wii™, Nintendo DS™, Xbox 360®, and PLAYSTATION®3 platforms in fall 2009.”
Bruce Foster, Chief Financial Officer of 4Kids, stated, “During the fourth quarter, we experienced a measurable decrease in our cash and investments of $32.6 million. This decrease was attributable to multiple factors, including declining revenue, as described above and continued investment spending in our trading card game and website subsidiaries, TC Digital Games and TC Websites. The decrease in cash also resulted from fourth quarter payments to Fox and The CW network of approximately $15 million and costs associated with the build up of Chaotic trading card inventory.
“During 2008, we recorded a temporary impairment of approximately $13.5 million, in addition to the $4 million temporary impairment recorded in 2007, due to a decline in value of our auction rate securities. In the fourth quarter, we also recorded a $7.8 million charge to operations resulting from the reclassification of certain auction rate securities as permanently impaired. This permanent impairment increased our fourth quarter loss to ($19.6) million,” said Foster.
About 4Kids Entertainment, Inc.
With U.S. headquarters in New York City, regional offices for its trading card business in San Diego, California and international offices in London, 4Kids Entertainment, Inc. (NYSE: KDE) is a global organization devoted to the creation, development, production, broadcasting, distribution, licensing and manufacturing of children’s entertainment products.
Through its subsidiaries, 4Kids produces animated television series and films, distributes 4Kids’ produced or licensed animated television series for the domestic and international television and home video markets, licenses merchandising rights worldwide to 4Kids’ owned or represented properties, operates Websites to support 4Kids’ owned or represented properties, and produces and markets collectible trading card games. Additionally, the Company programs and sells the national advertising time in “TheCW4Kids” five-hour Saturday morning block on The CW television network.
Additional information is available on the www.4KidsEntertainment.com corporate Website and at the www.4Kids.tv game station site.
The information contained in this press release, other than historical information, consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors beyond the Company's control, including general economic conditions, consumer spending levels, competition from toy companies, motion picture studios and other licensing companies, the uncertainty of public response to the Company's properties and other factors could cause actual results to differ materially from the Company's expectations.
(Tables follow)
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2008 AND 2007
(In thousands of dollars, except share data)
ASSETS: | | 2008 | | 2007 | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 13,503 | | $ | 24,872 | |
Investments | | | — | | | 36,106 | |
Total cash, cash equivalents and investments | | | 13,503 | | | 60,978 | |
| | | | | | | |
Accounts receivable - net | | | 22,818 | | | 21,403 | |
Inventories - net | | | 4,241 | | | 611 | |
Prepaid income taxes | | | 137 | | | 1,159 | |
Prepaid expenses and other current assets | | | 1,425 | | | 2,985 | |
Current assets from discontinued operations | | | 451 | | | 372 | |
Deferred income taxes | | | 127 | | | — | |
Total current assets | | | 42,702 | | | 87,508 | |
| | | | | | | |
Property and equipment - net | | | 4,287 | | | 4,255 | |
Long term investments | | | 21,617 | | | 31,806 | |
Accounts receivable - noncurrent, net | | | 180 | | | 208 | |
Film and television costs - net | | | 16,661 | | | 14,352 | |
Non-current assets from discontinued operations | | | 475 | | | 926 | |
Other assets - net (includes related party amounts of $6,638 and $4,265, respectively) | | | 14,652 | | | 12,024 | |
Total assets | | $ | 100,574 | | $ | 151,079 | |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | | | | | | | |
Current liabilities: | | | | | | | |
Due to licensors | | $ | 5,651 | | $ | 4,420 | |
Accounts payable and accrued expenses | | | 16,202 | | | 14,969 | |
Deferred revenue | | | 3,270 | | | 2,984 | |
Total current liabilities | | | 25,123 | | | 22,373 | |
| | | | | | | |
Deferred rent | | | 460 | | | 618 | |
Total liabilities | | | 25,583 | | | 22,991 | |
| | | | | | | |
Commitments and contingencies | | | | | | | |
Stockholders’ equity | | | | | | | |
Preferred stock, $.01 par value - authorized, 3,000,000 shares; none issued | | | — | | | — | |
Common stock, $.01 par value - authorized, 40,000,000 shares; issued, 15,246,579 and 15,099,812 shares; outstanding 13,227,019 and 13,332,207 shares in 2008 and 2007, respectively | | | 152 | | | 151 | |
Additional paid-in capital | | | 65,107 | | | 63,679 | |
Accumulated other comprehensive loss | | | (17,396) | | | (2,562) | |
Retained earnings | | | 63,504 | | | 100,323 | |
| | | 111,367 | | | 161,591 | |
Less cost of 2,019,560 and 1,767,605 treasury shares in 2008 and 2007, respectively | | | 36,376 | | | 33,503 | |
| | | 74,991 | | | 128,088 | |
Total liabilities and stockholders’ equity | | $ | 100,574 | | $ | 151,079 | |
| | | | | | | | | |
4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
(In thousands of dollars, except share data)
| | 2008 | | | 2007 | | | 2006 | |
Net revenues: | | | | | | | | | |
Service revenue | $ | 48,393 | | $ | 54,833 | | $ | 71,781 | |
Product revenue | | 15,276 | | | 776 | | | — | |
Total net revenues | | 63,669 | | | 55,609 | | | 71,781 | |
| | | | | | | | | |
Costs and expenses: | | | | | | | | | |
Selling, general and administrative | | 54,280 | | | 44,180 | | | 39,155 | |
Production service costs | | 6,752 | | | 7,195 | | | 11,259 | |
Cost of sales of trading cards | | 10,625 | | | 352 | | | — | |
Amortization of television and film costs | | 7,707 | | | 8,179 | | | 8,041 | |
Amortization of 4Kids TV broadcast fee | | 16,022 | | | 21,472 | | | 22,462 | |
Total costs and expenses | | 95,386 | | | 81,378 | | | 80,917 | |
| | | | | | | | | |
Loss from operations | | (31,717 | ) | | (25,769 | ) | | (9,136 | ) |
| | | | | | | | | |
Interest income | | 2,722 | | | 5,281 | | | 4,143 | |
Impairment on investment securities | | (7,834 | ) | | — | | | — | |
Total other (expense) income | | (5,112 | ) | | 5,281 | | | 4,143 | |
| | | | | | | | | |
Loss before income taxes | | (36,829 | ) | | (20,488 | ) | | (4,993 | ) |
| | | | | | | | | |
(Provision for) benefit from income taxes | | (300 | ) | | (2,436 | ) | | 3,506 | |
| | | | | | | | | |
Loss from unconsolidated operations – | | | | | | | | | |
net of a tax benefit | | — | | | — | | | (280 | ) |
Loss on previously unconsolidated affiliate | | — | | | (498 | ) | | — | |
Minority interest | | 310 | | | 96 | | | 39 | |
| | | | | | | | | |
Loss from continuing operations | | (36,819 | ) | | (23,326 | ) | | (1,728 | ) |
Income from discontinued operations | | — | | | — | | | 722 | |
| | | | | | | | | |
Net loss | $ | (36,819 | ) | $ | (23,326 | ) | $ | (1,006 | ) |
Per share amounts: | | | | | | | | | |
Basic (loss) earnings per common share | | | | | | | | | |
Continuing operations | $ | (2.79 | ) | $ | (1.77 | ) | $ | (0.13 | ) |
Discontinued operations | | — | | | — | | | 0.05 | |
Basic loss per common share | $ | (2.79 | ) | $ | (1.77 | ) | $ | (0.08 | ) |
| | | | | | | | | |
Diluted (loss) earnings per common share | | | | | | | | | |
Continuing operations | $ | (2.79 | ) | $ | (1.77 | ) | $ | (0.13 | ) |
Discontinued operations | | — | | | — | | | 0.05 | |
Diluted loss per common share | $ | (2.79 | ) | $ | (1.77 | ) | $ | (0.08 | ) |
| | | | | | | | | |
Weighted average common shares | | | | | | | | | |
outstanding - basic | | 13,181,549 | | | 13,209,495 | | | 13,104,051 | |
Weighted average common shares | | | | | | | | | |
outstanding - diluted | | 13,181,549 | | | 13,209,495 | | | 13,104,051 | |
| | | | | | | | | |
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