Exhibit 99.1
JAKKS Pacific Reports Preliminary Fourth Quarter and Year-End Results
for 2004; Record Revenue and Net Income Anticipated for the Fourth
Quarter and Fiscal 2004; Company Provides Guidance of Continued
Growth in Fiscal 2005
MALIBU, Calif.--(BUSINESS WIRE)--Feb. 22, 2005--JAKKS Pacific,
Inc. (Nasdaq:JAKK), a leading multi-brand company that designs and
markets a broad range of toys, writing instruments and other consumer
products, today announced preliminary results for the fourth quarter
and year-ended December 31, 2004.
The Company's fourth quarter net sales increased 119% to $184.8
million, compared to $84.4 million in the same period last year.
Consistent with the basis of its previous guidance, net income for the
fourth quarter of 2004 is expected to be $20.2 million, or $0.75 per
diluted share, which excludes the assumed conversion of its
convertible notes payable and the non-cash charges relating to
stock-based compensation and amortization from the Play Along(R)
acquisition. Reported net income for the fourth quarter of 2004 is
expected to be $11.1 million, or $0.37 per diluted share, including
pre-tax non-cash stock-based compensation charges of $5.1 million and
amortization charges of $8.6 million related to limited life
intangible assets other than goodwill acquired in the Play Along
acquisition, and after giving effect to the recent accounting
pronouncement requiring the presentation of contingently convertible
notes on an as-converted basis beginning in the fourth quarter of 2004
(which increased the shares outstanding by 4.9 million shares). The
final allocation of the Play Along acquisition price among various
assets, including intangible assets other than goodwill, is based on
the valuation prepared by a third party consultant, and this valuation
updates the estimated allocation presented in prior quarters. As a
result of certain non-cash adjustments to 2003 and 2002 earnings to be
made for the reasons discussed below under the caption "Non-cash
Accounting Adjustments to Goodwill and Intangible Assets from Prior
Acquisitions," comparisons to 2003 results are limited to net sales,
and complete comparisons will be provided at a subsequent date. In
addition, the estimates of net income for the fourth quarter of 2004
and the year do not include any adjustments that may result from such
non-cash adjustments.
The Company's net sales for the year ended December 31, 2004
increased 82% to $574.3 million from $315.8 million in 2003.
Consistent with the basis of its previous guidance, net income for the
year is expected to be $62.3 million, or $2.35 per diluted share,
which excludes the assumed conversion of the convertible notes payable
and pre-tax non-cash charges of stock-based compensation and
amortization related to its Play Along acquisition. Reported net
income for the year-ended December 31, 2004, including pre-tax charges
of $13.6 million for non-cash stock-based compensation and the
aforementioned convertible notes and amortization charges, is expected
to be $45.9 million, or $1.57 per diluted share.
As noted above, the foregoing results are preliminary due to
non-cash adjustments to such results to be made for the reasons
discussed below under the caption "Non-cash Accounting Adjustments to
Goodwill and Intangible Assets from Prior Acquisitions."
"We are pleased with our results for the fourth quarter and the
full year 2004," said Jack Friedman, Chairman and Chief Executive
Officer, JAKKS Pacific. "We achieved record sales and anticipate
record earnings, and increased our shelf space at the mass merchants
and other retail outlets, in part, by strategically expanding our
marketing and advertising efforts for our diverse portfolio of
innovative licensed and non-licensed products. In addition, we
completed the acquisition of Play Along in 2004, which further
diversified our product offerings and immediately positioned JAKKS as
one of the leaders in the plush toy and soft body doll category, with
brands including the recently launched Cabbage Patch Kids(R) dolls,
Care Bears(R) plush and preschool learning toys."
Stephen Berman, President and Chief Operating Officer, stated, "In
2004, we increased our investment in product innovation and
advertising, and expanded our product offerings. Our Plug-It-In & Play
TV Games(TM) brand has been a huge hit, and our product line
established a new category for our industry, which we continue to
expand with new innovations and new licensed content. For 2005 we have
more than 20 new exciting titles for our TV Games brand, plus our
continuing titles from 2004. Additionally, we launched new technology,
such as wireless TV Games(TM) units and our GAMEKEY(TM) expansion
packs. We expect to see further growth both domestically and
internationally in this area."
Mr. Berman continued, "TV Games and our acquisition of Play Along
led the way for our domestic increases in 2004. We look forward to
continued success from our Care Bears plush and preschool lines, and
the expanded release of Cabbage Patch Kids dolls, both of which will
have new key line extensions for 2005. We are also excited that we
have already secured prime placement at retailers for our new Sky
Dancers(R) small action doll line.
"We are building upon our recent successes by further expanding
our product offerings and reinventing existing product lines. We
continue to expand and make innovations in our Go Fly A Kite(R) and
Funnoodle(R) branded lines, resulting in new product offerings and new
distribution for this category. Also in the seasonal category, we have
reintroduced our line of Storm(TM) water guns. Similarly, we're
working to realize the potential of our Flying Colors(R) and
Pentech(R) lines with new internally developed products in both the
Stationery and Writing Instrument businesses, as well as new licenses,
including Care Bears(R), My Little Pony(R) and Marvel(R) superheroes,
a new Nickelodeon(R) compound called Splish Splat(TM), new activity
play patterns for our existing licenses, such as Nickelodeon
properties and Hello Kitty(R), and new non-licensed products based on
current trends, such as our line of activities based on sewing. In
addition, we believe many of our existing lines, such as our Vivid
Velvet(R) activity products, will continue to experience solid
sell-through in 2005. Lastly, we have developed internally Fly
Wheels(TM), which we think is a wonderful line of innovative products
under our Road Champs(R) brand, and which has been well placed at our
top accounts and many others."
Mr. Berman concluded, "We believe our product lines are properly
positioned for continued growth in 2005 and beyond, and our financial
position remains very strong with excellent cash flow from operations
in 2004 of approximately $131 million. As of December 31, 2004, our
working capital was approximately $225.4 million, including cash and
equivalents and marketable securities of $195.6 million. We are well
positioned to grow our business by actively pursuing accretive and
complementary acquisitions and executing on internal growth
initiatives, including creating new products and securing new
licenses, to provide continued growth for JAKKS Pacific."
The Company anticipates growth in net sales of 15% for 2005 to
approximately $660 million, with net income of approximately $70
million, or $2.28 per diluted share. This guidance gives effect to the
assumed conversion of our convertible notes, and includes non-cash
charges of $4.7 million for stock-based compensation (including the
expensing of stock options pursuant to Statement of Financial
Accounting Standards (SFAS) 123 (R), which will be effective for the
Company beginning in the third quarter of 2005) and $5.5 million for
amortization related to the Play Along acquisition.
NON-CASH ACCOUNTING ADJUSTMENTS TO GOODWILL AND INTANGIBLE ASSETS
FROM PRIOR ACQUISITIONS
On February 17, 2004, the Office of the Chief Accountant of the
Securities and Exchange Commission (the "Commission"), as part of its
review of a registration statement filed by the Company to register
shares of its common stock issued in connection with its acquisition
of Play Along, instructed the Company to restate the financial
statements included in its Annual Report on Form 10-K for the fiscal
year ended December 31, 2003 (which includes the Company's financial
statements for 2003 and 2002), to account for the acquisition of
Toymax, Trendmasters and P&M Products in accordance with paragraph 39
of SFAS 141. Specifically, the Commission stated that a portion of the
purchase price for each of these transactions should be allocated to
acquired product rights, and possibly other intangible assets other
than goodwill.
The restatement requested by the Commission would have the effect
of reclassifying certain assets acquired as part of these
acquisitions, previously treated as additions to the Company's
goodwill, as intangible assets other than goodwill, and as to those
intangible assets with limited lives, causing a non-cash adjustment
for amortization or impairment of those intangible assets other than
goodwill.
As a result of the review conducted by management of the Company
in considering the Commission's comments and the requirements of SFAS
141, on February 21, 2004, the Audit Committee of the Board of
Directors of the Company (the "Audit Committee") determined that the
Company should review its previously issued audited consolidated
financial statements for fiscal 2003 and 2002 filed on Form 10-K for
the year ended December 31, 2003 (which includes the Company's
financial statements for 2003 and 2002), and the Company's quarterly
reports on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 2004, and restate its 2003 and 2002 audited consolidated
financial statements through the filing of a Form 10-K/A and file its
Annual Report on Form 10K for the fiscal year ended December 31, 2004,
all as consistent with SFAS 141 and the Commission's comments, in
consultation with PKF, the Company's independent auditors.
The restatement would reduce the Company's net income for the 2003
and 2002 periods, but would not affect the Company's revenue. Based on
its preliminary review of the effects of the reclassification of
portions of goodwill to intangible assets other than goodwill with
respect to the acquisitions concluded in 2003 and 2002, the Company
anticipates that any impact on the 2004 results described in this
release is not likely to be material, but such estimate is preliminary
and the amount, if any, of such adjustment will be finally determined
upon the conclusion of the review described above of the 2002 and 2003
financials.
As a result of the Company's restatement of its consolidated
financial statements as discussed above, the financial statements
included in the Company's 2003 and 2002 Annual Report on Form 10-K and
the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, June 30, and September 30, 2004 should no longer be relied
upon. The Company intends to file a Form 10-K/A with restated
consolidated financial statements with respect to such years as soon
as practical, but will not file amendments to its Quarterly Reports on
Forms 10-Q for the 2004 periods in view of its intention to file its
Form 10-K/A for the year ended December 31, 2004 simultaneous with its
filing of the previously-mentioned Form 10-K/A.
Anyone interested will be able to listen to the teleconference,
scheduled to begin at 9 a.m. EST (6 a.m. PST) on February 22nd, via
the Internet at www.jakkspacific.com, www.CompanyBoardroom.com or
www.StreetEvents.com. These websites will also host an archive of the
teleconference for 30 days.
A telephonic playback will be available from 10 a.m. EST on
February 22nd through 12 a.m. EST on March 8th. Calling 800-642-1687
or 706-645-9291 for international callers, password "3685959," can
access the playback.
About JAKKS Pacific, Inc.:
JAKKS Pacific, Inc. is a multi-brand company that designs and
markets a broad range of toys and consumer products. The product
categories include: Action Figures, Art Activity Kits, Stationery,
Writing Instruments, Performance Kites, Water Toys, Sports Activity
Toys, Vehicles, Infant/Pre-School, Plush, Construction Toys,
Electronics and Dolls. The products are sold under various brand names
including JAKKS Pacific(R), Play Along(R), Flying Colors(R), Road
Champs(R), Child Guidance(R), Pentech(R), Trendmasters(R), Toymax(R),
Funnoodle(R), Go Fly a Kite(R), Color Workshop(R) and TV Games(TM).
The Company also participates in a joint venture with THQ Inc. that
has exclusive worldwide rights to publish and market World Wrestling
Entertainment(R) video games. For further information, visit
www.jakkspacific.com or www.jakkstvgames.com.
This press release contains 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 Subsidiaries
Condensed Consolidated Balance Sheets
December December
31, 31,
2004 2003
-------- --------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $176,544 $118,182
Marketable Securities 19,047 19,345
Accounts receivable, net 102,266 86,119
Inventory, net 49,999 44,400
Prepaid expenses and other current assets 22,971 16,762
-------- --------
Total current assets 370,827 284,808
-------- --------
Property and equipment 38,213 43,473
Less accumulated depreciation and amortization 27,273 31,751
-------- --------
Property and equipment, net 10,940 11,722
-------- --------
Goodwill, net 274,556 206,952
Trademarks & other assets, net 39,806 24,785
Investment in joint venture 9,816 9,097
-------- --------
Total assets $705,945 $537,364
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $132,800 $50,168
Current portion of long term debt - 19
Income taxes payable 12,582 2,021
-------- --------
Total current liabilities 145,382 52,208
-------- --------
Long term debt, net of current portion 98,000 98,042
Deferred income taxes 1,469 1,164
-------- --------
99,469 99,206
-------- --------
Total liabilities 244,851 151,414
Stockholders' equity:
Common stock, $.001 par value 26 25
Additional paid-in capital 275,902 246,002
Retained earnings 186,913 141,055
Deferred compensation from restricted stock
grants - (783)
Accumulated other comprehensive income (loss) (1,747) (349)
-------- --------
461,094 385,950
-------- --------
Total liabilities and stockholders' equity $705,945 $537,364
======== ========
JAKKS Pacific, Inc. and Subsidiaries
Fourth Quarter Earnings Announcement, 2004
Condensed Statements of Operations (Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2004 2003 2004 2003
------- ------- ------- -------
(In thousands, except per share
data)
Net sales $184,802 $84,418 $574,266 $315,776
Less cost of sales
Cost of goods 92,835 42,349 286,954 160,518
Royalty expense 18,478 5,578 56,491 22,529
Amortization of tools and molds 1,030 1,431 4,813 6,095
------- ------- ------- -------
Cost of sales 112,343 49,358 348,258 189,142
------- ------- ------- -------
Gross profit 72,459 35,060 226,008 126,634
Direct selling expenses 22,153 14,496 61,731 42,396
Selling, general and
administrative expenses 29,966 25,382 96,132 61,291
Acquisition shut-down and
recall costs - - - 2,000
Depreciation and amortization 9,505 466 11,542 2,084
------- ------- ------- -------
Income from operations 10,835 (5,284) 56,603 18,863
Other (income) expense:
Profit from Joint Venture (6,590) (6,048) (7,865) (7,351)
Interest, net 544 611 2,498 1,405
------- ------- ------- -------
Income before provision for
income taxes 16,881 153 61,970 24,809
Provision for income taxes 5,742 (1,713) 16,112 4,205
------- ------- ------- -------
Net income $11,139 $1,866 $45,858 $20,604
======= ======= ======= =======
Earnings per share -- diluted $0.37 $0.08 $1.57 $0.83
Shares used in earnings per
share -- diluted 31,856 24,642 31,406 27,437
CONTACT: JAKKS Pacific, Inc.
Genna Goldberg, 310-455-6235
or
Integrated Corporate Relations
John Mills, 310-395-2215