Delaware
|
95-4527222
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer Identification No.)
|
22619 Pacific Coast Highway
Malibu, California
|
90265
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
Large accelerated filer
o
|
Accelerated filer
x
|
Non-accelerated filer
o
(Do not check if a smaller reporting company)
|
Smaller reporting company
o
|
Page
|
||
Part I
|
FINANCIAL INFORMATION
|
|
Item 1.
|
Financial Statements
|
|
3
|
||
4
|
||
5
|
||
6
|
||
18
|
||
27
|
||
27
|
||
Part II
|
OTHER INFORMATION
|
|
28
|
||
29
|
||
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
None
|
Item 3.
|
Defaults Upon Senior Securities
|
None
|
Item 4.
|
Reserved
|
|
Item 5.
|
Other Information
|
None
|
36
|
||
37
|
||
Exhibit 31.1
|
||
Exhibit 31.2
|
||
Exhibit 32.1
|
||
Exhibit 32.2
|
Assets
|
December 31,
2010
(*)
|
June 30,
2011
(Unaudited)
|
||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$ | 278,346 | $ | 246,846 | ||||
Marketable securities
|
207 | 210 | ||||||
Accounts receivable, net of allowance for uncollectible accounts of $2,778 and $3,314, respectively
|
122,476 | 109,327 | ||||||
Inventory
|
43,230 | 55,257 | ||||||
Income tax receivable
|
19,052 | 18,871 | ||||||
Deferred income taxes
|
23,576 | 23,882 | ||||||
Prepaid expenses and other
|
25,275 | 34,109 | ||||||
Total current assets
|
512,162 | 488,502 | ||||||
Property and equipment
|
||||||||
Office furniture and equipment
|
12,127 | 12,306 | ||||||
Molds and tooling
|
57,103 | 60,373 | ||||||
Leasehold improvements
|
6,920 | 6,483 | ||||||
Total
|
76,150 | 79,162 | ||||||
Less accumulated depreciation and amortization
|
59,204 | 58,506 | ||||||
Property and equipment, net
|
16,946 | 20,656 | ||||||
Deferred income taxes
|
58,848 | 58,856 | ||||||
Intangibles
|
23,437 | 20,231 | ||||||
Other long term assets
|
12,643 | 15,505 | ||||||
Investment in joint venture
|
74 | 1,846 | ||||||
Goodwill, net
|
6,988 | 6,988 | ||||||
Trademarks, net
|
2,308 | 2,308 | ||||||
Total assets
|
$ | 633,406 | $ | 614,892 | ||||
Liabilities and Stockholders’ Equity
|
||||||||
Current liabilities
|
||||||||
Accounts payable
|
$ | 35,886 | $ | 51,537 | ||||
Accrued expenses
|
54,476 | 37,853 | ||||||
Reserve for sales returns and allowances
|
28,378 | 16,888 | ||||||
Capital lease obligations
|
27 | - | ||||||
Income taxes payable
|
6,143 | 9,382 | ||||||
Total current liabilities
|
124,910 | 115,660 | ||||||
Convertible senior notes, net
|
89,458 | 90,823 | ||||||
Other liabilities
|
1,625 | 1,579 | ||||||
Income taxes payable
|
5,005 | 4,497 | ||||||
Total liabilities
|
220,998 | 212,559 | ||||||
Commitments and Contingencies
|
||||||||
Stockholders’ equity
|
||||||||
Preferred shares, $.001 par value; 5,000,000 shares authorized; nil outstanding
|
— | — | ||||||
Common stock, $.001 par value; 100,000,000 shares authorized; 27,610,952 | ||||||||
and 27,198,671 shares issued respectively; 27,319,624 and | ||||||||
27,198,671shares outstanding, respectively
|
28 | 27 | ||||||
Additional paid-in capital
|
302,425 | 293,082 | ||||||
Treasury Stock at cost; 291,328 and nil shares, respectively
|
(5,641 | ) | - | |||||
Retained earnings
|
119,884 | 113,549 | ||||||
Accumulated other comprehensive loss
|
(4,288 | ) | (4,325 | ) | ||||
Total stockholders’ equity
|
412,408 | 402,333 | ||||||
Total liabilities and stockholders’ equity
|
$ | 633,406 | $ | 614,892 |
Three Months Ended
June 30,
(Unaudited)
|
Six Months Ended
June 30,
(Unaudited)
|
|||||||||||||||
2010
|
2011
|
2010
|
2011
|
|||||||||||||
Net sales
|
$ | 123,255 | $ | 131,930 | $ | 200,600 | $ | 204,253 | ||||||||
Cost of sales
|
80,026 | 86,838 | 132,138 | 134,890 | ||||||||||||
Gross profit
|
43,229 | 45,092 | 68,462 | 69,363 | ||||||||||||
Selling, general and administrative expenses
|
41,955 | 43,094 | 80,816 | 82,155 | ||||||||||||
Income (Loss) from operations
|
1,274 | 1,998 | (12,354 | ) | (12,792 | ) | ||||||||||
Profit from video game joint venture
|
6,000 | 6,000 | 6,000 | 6,000 | ||||||||||||
Equity in net income (loss) of joint venture
|
–
|
(8 | ) |
–
|
1 | |||||||||||
Interest income
|
95 | 122 | 152 | 227 | ||||||||||||
Interest expense, net of benefit
|
(3,007 | ) | (2,025 | ) | (4,204 | ) | (4,065 | ) | ||||||||
Income (Loss) before provision (benefit) for income taxes
|
4,362 | 6,087 | (10,406 | ) | (10,629 | ) | ||||||||||
Provision (Benefit) for income taxes
|
1,387 | 1,847 | (8,224 | ) | (4,294 | ) | ||||||||||
Net income (loss)
|
2,975 | 4,240 | (2,182 | ) | (6,335 | ) | ||||||||||
Income (Loss) per share – basic
|
$ | 0.11 | $ | 0.16 | $ | (0.08 | ) | $ | (0.23 | ) | ||||||
Income (Loss) per share – diluted
|
$ | 0.11 | $ | 0.16 | $ | (0.08 | ) | $ | (0.23 | ) |
Six Months Ended
June 30,
(Unaudited)
|
||||||||
2010
|
2011
|
|||||||
CASH FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net Loss
|
$
|
(2,182)
|
$
|
(6,335)
|
||||
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
|
||||||||
Depreciation and amortization
|
10,792
|
9,819
|
||||||
Share-based compensation expense
|
2,090
|
1,118
|
||||||
Loss (gain) on disposal of property and equipment
|
(35)
|
17
|
||||||
Deferred income taxes
|
(6,130)
|
(314)
|
||||||
Writedown of deferred offering cost | 495 | — | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
27,074
|
13,149
|
||||||
Inventory
|
(12,927)
|
(12,027)
|
||||||
Prepaid expenses and other current assets
|
(1,648)
|
(12,177)
|
||||||
Investment in joint venture
|
6,727
|
(1,772)
|
||||||
Income tax receivable
|
12,443
|
181
|
||||||
Accounts payable
|
16,271
|
19,193
|
||||||
Accrued expenses
|
(16,322)
|
(16,623)
|
||||||
Income taxes payable
|
502
|
2,731
|
||||||
Reserve for sales returns and allowances
|
(13,511)
|
(11,490)
|
||||||
Other liabilities
|
375
|
(46)
|
||||||
Total adjustments
|
26,196
|
(8,241)
|
||||||
Net cash provided (used) by operating activities
|
24,014
|
(14,576)
|
||||||
CASH FLOWS FROM INVESTING ACTIVITIES
|
||||||||
Purchase of property and equipment
|
(6,570)
|
(8,633)
|
||||||
Change in other assets
|
(1,348)
|
76
|
||||||
Proceeds from sale of property and equipment
|
67
|
26
|
||||||
Cash paid for net assets of business acquired
|
(1,875)
|
(3,542)
|
||||||
Net purchase of marketable securities
|
(2)
|
(3)
|
||||||
Net cash used in investing activities
|
(9,728)
|
(12,076)
|
||||||
CASH FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Retirement of convertible notes | (20,257) | — | ||||||
Proceeds from stock options exercised
|
— |
134
|
||||||
Proceeds from warrants exercised
|
— |
1,135
|
||||||
Common stock surrendered
|
—
|
(1,041)
|
||||||
Common stock repurchased
|
— |
(5,049)
|
||||||
Decrease in capital lease obligations
|
(114)
|
(27)
|
||||||
Net cash used in financing activities
|
(20,371)
|
(4,848)
|
||||||
Net decrease in cash and cash equivalents
|
(6,085)
|
(31,500)
|
||||||
Cash and cash equivalents, beginning of period
|
254,837
|
278,346
|
||||||
Cash and cash equivalents, end of period
|
$
|
248,752
|
$
|
246,846
|
||||
Cash paid (received) during the period for:
|
||||||||
Income taxes
|
$
|
678
|
$ |
(6,784)
|
||||
Interest
|
$
|
2,630
|
$ |
2,250
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2010 | 2011 | 2010 |
2011
|
|||||||||||||
Net Sales
|
||||||||||||||||
Traditional Toys and Electronics
|
$ | 63,512 | $ | 67,733 | $ | 102,162 | $ | 105,897 | ||||||||
Role Play, Novelty and Seasonal Toys
|
59,743 | 64,197 | 98,438 | 98,356 | ||||||||||||
$ | 123,255 | $ | 131,930 | $ | 200,600 | $ | 204,253 |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2010 | 2011 | 2010 |
2011
|
|||||||||||||
Operating Income (Loss)
|
||||||||||||||||
Traditional Toys and Electronics
|
$ | 504 | $ | 1,231 | $ | (7,235 | ) | $ | (7,125 | ) | ||||||
Role Play, Novelty and Seasonal Toys
|
770 | 767 | (5,119 | ) | (5,667 | ) | ||||||||||
$ | 1,274 | $ | 1,998 | $ | (12,354 | ) | $ | (12,792 | ) |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
2010 | 2011 | 2010 |
2011
|
|||||||||||||
Depreciation and Amortization Expense
|
||||||||||||||||
Traditional Toys and Electronics
|
$ | 4,322 | $ | 3,932 | $ | 7,354 | $ | 6,904 | ||||||||
Role Play, Novelty and Seasonal Toys
|
1,884 | 2,003 | 3,438 | 2,915 | ||||||||||||
$ | 6,206 | $ | 5,935 | $ | 10,792 | $ | 9,819 |
December 31,
|
June 30,
|
|||||||
2010
|
2011
|
|||||||
Assets
|
||||||||
Traditional Toys and Electronics
|
$
|
252,107
|
$
|
255,821
|
||||
Role Play, Novelty and Seasonal Toys
|
381,299
|
359,071
|
||||||
$
|
633,406
|
$
|
614,892
|
December 31,
2010
|
June 30,
2011
|
|||||||
Long-lived Assets
|
||||||||
United States
|
$
|
16,023
|
$
|
19,767
|
||||
Hong Kong
|
923
|
889
|
||||||
$
|
16,946
|
$
|
20,656
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2010
|
2011
|
2010
|
2011
|
|||||||||||||
Net Sales by Geographic Area
|
||||||||||||||||
United States
|
$ | 104,445 | $ | 109,766 | $ | 168,920 | $ | 167,233 | ||||||||
Europe
|
6,895 | 8,551 | 12,053 | 14,812 | ||||||||||||
Canada
|
4,062 | 3,240 | 7,189 | 6,847 | ||||||||||||
Hong Kong
|
1,569 | 631 | 3,012 | 1,472 | ||||||||||||
Other
|
6,284 | 9,742 | 9,426 | 13,889 | ||||||||||||
$ | 123,255 | $ | 131,930 | $ | 200,600 | $ | 204,253 |
Three Months Ended June 30,
|
Six Months Ended June 30,
|
||||||||||||||||||||||||||||||
2010
|
2011
|
2010
|
2011
|
||||||||||||||||||||||||||||
|
Amount
|
Percentage of
Net Sales
|
Amount
|
Percentage of
Net Sales
|
Amount
|
Percentage of
Net Sales
|
Amount
|
Percentage of
Net Sales
|
|||||||||||||||||||||||
Wal-Mart
|
$
|
25,840
|
21.0
|
%
|
$
|
20,154
|
15.3
|
%
|
$
|
45,238
|
22.5
|
%
|
$
|
39,630
|
19.4
|
%
|
|||||||||||||||
Toys ‘R’ Us
|
11,192
|
9.1
|
11,669
|
8.8
|
21,018
|
10.5
|
21,046
|
10.3
|
|||||||||||||||||||||||
Target
|
23,881
|
19.3
|
28,203
|
21.4
|
36,281
|
18.1
|
38,132
|
18.7
|
|||||||||||||||||||||||
$
|
60,913
|
49.4
|
%
|
$
|
60,026
|
45.5
|
%
|
$
|
102,537
|
51.1
|
%
|
$
|
98,808
|
48.4
|
%
|
December 31,
2010
|
June 30,
2011
|
|||||||
Raw materials
|
$
|
3,340
|
$
|
8,369
|
||||
Finished goods
|
39,890
|
46,888
|
||||||
$
|
43,230
|
$
|
55,257
|
Three Months Ended June 30,
|
||||||||||||||||
2010
|
2011
|
|||||||||||||||
Income
|
Weighted
Average
Shares
|
Per-Share
|
Income
|
Weighted
Average
Shares
|
Per-Share
|
|||||||||||
Earnings per share – basic
|
||||||||||||||||
Income available to common
stockholders
|
|
$
|
2,975
|
27,382
|
$
|
0.11
|
$
|
4,240
|
26,947
|
$
|
0.16
|
|||||
Effect of dilutive securities:
|
||||||||||||||||
Options and warrants
|
-
|
28
|
-
|
20
|
||||||||||||
Unvested restricted stock grants
|
-
|
262
|
-
|
129
|
||||||||||||
Earnings per share – diluted
|
||||||||||||||||
Income available to common
stockholders plus assumed exercises
and conversion
|
$
|
2,975
|
27,672
|
$
|
0.11
|
$
|
4,240
|
27,096
|
$
|
0.16
|
Six Months Ended June 30,
|
|||||||||||||||||||
2010
|
2011
|
||||||||||||||||||
Income/(Loss)
|
Weighted
Average
Shares
|
Per-Share
|
Income/(Loss)
|
Weighted
Average
Shares
|
Per-Share
|
||||||||||||||
Loss per share - basic
|
|||||||||||||||||||
Income available to common stockholders
|
|
$
|
(2,182)
|
27,388
|
$
|
(0.08
|
) |
$
|
(6,335
|
) |
27,095
|
$
|
(0.23
|
) | |||||
- |
|
December 31,
|
June 30,
|
|||||||
2010
|
2011
|
|||||||
Capital Contributions
|
$
|
130
|
$
|
1,901
|
||||
Equity in cumulative net income/(loss)
|
(56
|
)
|
(55)
|
|||||
Investment in joint venture, net
|
$
|
74
|
$
|
1,846
|
Traditional
Toys and
Electronics
|
Role Play,
Novelty
and Seasonal
Toys
|
Total
|
||||||||||
Balance at beginning of the period
|
$
|
2,445
|
$
|
4,543
|
$
|
6,988
|
||||||
Adjustments to goodwill during the period
|
— | — | — | |||||||||
Balance, June 30, 2011
|
$
|
2,445
|
$
|
4,543
|
$
|
6,988
|
||||||
December 31, 2010
|
June 30, 2011
|
|||||||||||||||||||||||||||
Weighted
Useful
Lives
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
||||||||||||||||||||||
(Years)
|
||||||||||||||||||||||||||||
Amortized Intangible Assets:
|
||||||||||||||||||||||||||||
Acquired order backlog
|
.50
|
$
|
2,393
|
$
|
(2,393
|
)
|
$
|
—
|
$
|
2,393
|
$
|
(2,393)
|
$
|
—
|
||||||||||||||
Licenses
|
4.84
|
85,788
|
(65,435
|
)
|
20,353
|
85,788
|
(68,234)
|
17,554
|
||||||||||||||||||||
Product lines
|
3.62
|
19,100
|
(18,592
|
)
|
508
|
19,100
|
(18,637)
|
463
|
||||||||||||||||||||
Customer relationships
|
5.32
|
6,296
|
(3,902
|
)
|
2,394
|
6,296
|
(4,199)
|
2,097
|
||||||||||||||||||||
Non-compete/Employment contracts
|
3.84
|
3,133
|
(2,951
|
)
|
182
|
3,133
|
(3,016)
|
117
|
||||||||||||||||||||
Total amortized intangible assets
|
116,710
|
(93,273
|
)
|
23,437
|
116,710
|
(96,479)
|
20,231
|
|||||||||||||||||||||
Deferred Costs:
|
||||||||||||||||||||||||||||
Debt issuance costs
|
5.00
|
3,678
|
(856
|
)
|
2,822
|
3,678
|
(1,224)
|
2,454
|
||||||||||||||||||||
Unamortized Intangible Assets:
|
||||||||||||||||||||||||||||
Trademarks
|
indefinite
|
2,308
|
—
|
2,308
|
2,308
|
2,308
|
||||||||||||||||||||||
$
|
122,696
|
$
|
(94,129
|
)
|
$
|
28,567
|
$
|
122,696
|
$
|
(97,703)
|
$
|
24,993
|
Three Months Ended June 30, | Six months Ended June 30, | |||||||||||||||
2010
|
2011 | 2010 | 2011 | |||||||||||||
Net Income/Loss
|
$ | 2,975 | $ | 4,240 | $ | (2,182 | ) | $ | (6,335 | ) | ||||||
Other comprehensive income (loss):
|
||||||||||||||||
Foreign currency translation adjustment
|
(32 | ) | 19 | (32 | ) | (37 | ) | |||||||||
Comprehensive income/( loss)
|
$ | 2,943 | $ | 4,259 | $ | (2,214 | ) | $ | (6,372 | ) |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||
Stock option compensation expense
|
$ | (262 | ) | $ | — | $ | (223 | ) | $ | — | ||||||
Tax benefit related to stock option compensation
|
$ | (96 | ) | $ | — | $ | (82 | ) | $ | — | ||||||
Restricted stock compensation expense
|
$ | 1,172 | $ | 270 | $ | 2,313 | $ | 1,118 | ||||||||
Tax benefit related to restricted stock compensation
|
$ | 441 | $ | 92 | $ | 872 | $ | 413 |
Plan Stock Options (*)
|
||||||||
Number of
Shares
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding, December 31, 2010
|
318,265
|
$
|
19.23
|
|||||
Granted
|
—
|
$
|
—
|
|||||
Exercised
|
(10,000
|
) |
$
|
13.36
|
||||
Cancelled
|
(118,100
|
) |
$
|
20.02
|
||||
Outstanding, June 30, 2011
|
190,165
|
$
|
19.04
|
Restricted Stock Awards
|
||||||||
Number of
Shares
|
Weighted
Average
Grant
Price
|
|||||||
Outstanding, December 31, 2010
|
324,635
|
$
|
14.99
|
|||||
Awarded
|
137,523
|
$
|
18.29
|
|||||
Released
|
(166,261
|
)
|
$
|
12.36
|
||||
Forfeited
|
(35,875
|
)
|
$
|
18.34
|
||||
Outstanding, June 30, 2011
|
260,022
|
$
|
17.96
|
●
|
significant underperformance relative to expected historical or projected future operating results;
|
|
●
|
significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
|
|
●
|
significant negative industry or economic trends.
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||||||
2010 | 2011 | 2010 | 2011 | |||||||||||||||||
Net sales
|
100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost of sales
|
64.9 | 65.8 | 65.9 | 66.0 | ||||||||||||||||
Gross profit
|
35.1 | 34.2 | 34.1 | 34.0 | ||||||||||||||||
Selling, general and administrative expenses
|
34.0 | 32.7 | 40.3 | 40.2 | ||||||||||||||||
Income (Loss) from operations
|
1.1 | 1.5 | (6.2 | ) | (6.2 | ) | ||||||||||||||
Profit from video game joint venture
|
4.9 | 4.5 | 3.0 | 2.9 | ||||||||||||||||
Interest income
|
0.1 | 0.1 | 0.1 | 0.1 | ||||||||||||||||
Interest expense, net of benefit
|
(2.4 | ) | (1.5 | ) | (2.1 | ) | (2.0 | ) | ||||||||||||
Income (Loss) before Provision (benefit) for income taxes
|
3.7 | 4.6 | (5.2 | ) | (5.2 | ) | ||||||||||||||
Provision (Benefit) for income taxes
|
1.1 | 1.4 | (4.1 | ) | (2.1 | ) | ||||||||||||||
Net Income (Loss)
|
2.6 | % | 3.2 | % | (1.1 | ) | % | (3.1 | ) | % |
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
||||||||||
2010 | 2011 | 2010 | 2011 | ||||||||
Net Sales
|
|||||||||||
Traditional Toys and Electronics
|
$ |
63,512
|
$ |
67,733
|
$ |
102,162
|
$ |
105,897
|
|||
Role Play, Novelty and Seasonal Toys
|
59,743
|
64,197
|
98,438
|
98,356
|
|||||||
123,255
|
131,930
|
200,600
|
204,253
|
||||||||
Cost of Sales
|
|||||||||||
Traditional Toys and Electronics
|
41,145
|
43,113
|
66,118
|
71,718
|
|||||||
Role Play, Novelty and Seasonal Toys
|
38,881
|
43,725
|
66,020
|
63,172
|
|||||||
80,026
|
86,838
|
132,138
|
134,890
|
||||||||
Gross Profit
|
|||||||||||
Traditional Toys and Electronics
|
22,367
|
24,620
|
36,044
|
34,179
|
|||||||
Role Play, Novelty and Seasonal Toys
|
20,862
|
20,472
|
32,418
|
35,184
|
|||||||
$ |
43,229
|
$ |
45,092
|
$ |
68,462
|
$ |
69,363
|
●
|
Age Compression: The phenomenon of children outgrowing toys at younger ages, particularly in favor of interactive and high technology products;
|
|
●
|
Increasing use of technology;
|
|
●
|
Shorter life cycles for individual products; and
|
|
●
|
Higher consumer expectations for product quality, functionality and value.
|
●
|
our current products will continue to be popular with consumers;
|
|
●
|
the product lines or products that we introduce will achieve any significant degree of market acceptance; or
|
|
●
|
the life cycles of our products will be sufficient to permit us to recover licensing, design, manufacturing, marketing and other costs associated with those products.
|
●
|
media associated with our character-related and theme-related product lines will be released at the times we expect or will be successful;
|
|
●
|
the success of media associated with our existing character-related and theme-related product lines will result in substantial promotional value to our products;
|
|
●
|
we will be successful in renewing licenses upon expiration on terms that are favorable to us; or
|
|
●
|
we will be successful in obtaining licenses to produce new character-related and theme-related products in the future.
|
●
|
Our current licenses require us to pay minimum royalties
|
●
|
Some of our licenses are restricted as to use
|
●
|
New licenses are difficult and expensive to obtain
|
●
|
A limited number of licensors account for a large portion of our net sales
|
●
|
greater financial resources;
|
|
●
|
larger sales, marketing and product development departments;
|
|
●
|
stronger name recognition;
|
|
●
|
longer operating histories; and
|
|
●
|
greater economies of scale.
|
●
|
attractiveness of products;
|
|
●
|
suitability of distribution channels;
|
|
●
|
management ability;
|
|
●
|
financial condition and results of operations; and
|
|
●
|
the degree to which acquired operations can be integrated with our operations.
|
●
|
difficulties in integrating acquired businesses or product lines, assimilating new facilities and personnel and harmonizing diverse business strategies and methods of operation;
|
|
●
|
diversion of management attention from operation of our existing business;
|
|
●
|
loss of key personnel from acquired companies; and
|
|
●
|
failure of an acquired business to achieve targeted financial results.
|
●
|
currency conversion risks and currency fluctuations;
|
|
●
|
limitations, including taxes, on the repatriation of earnings;
|
|
●
|
political instability, civil unrest and economic instability;
|
|
●
|
greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;
|
|
●
|
complications in complying with laws in varying jurisdictions and changes in governmental policies;
|
|
●
|
greater difficulty and expenses associated with recovering from natural disasters;
|
|
●
|
transportation delays and interruptions;
|
|
●
|
the potential imposition of tariffs; and
|
|
●
|
the pricing of intercompany transactions may be challenged by taxing authorities in both Hong Kong and the United States, with potential increases in income taxes.
|
●
|
product liability claims;
|
|
●
|
loss of sales;
|
|
●
|
diversion of resources;
|
|
●
|
damage to our reputation;
|
|
●
|
increased warranty and insurance costs; and
|
|
●
|
removal of our products from the market.
|
Number
|
Description
|
|
3.1
|
Amended and Restated Certificate of Incorporation of the Company(1)
|
|
3.2.1
|
By-Laws of the Company(2)
|
|
3.2.2
|
Amendment to By-Laws of the Company(3)
|
|
4.3
|
Indenture, dated November 10, 2009, by and between the Registrant and Wells Fargo Bank, N.A. (4)
|
|
4.4
|
Form of 4.50% Senior Convertible Note (4)
|
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer(5)
|
|
31.2
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer(5)
|
|
32.1
|
Section 1350 Certification of Chief Executive Officer(5)
|
|
32.2
|
Section 1350 Certification of Chief Financial Officer(5)
|
(1)
|
Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement filed August 23, 2002 and incorporated herein by reference.
|
(2)
|
Filed previously as an exhibit to the Company’s Registration Statement on Form SB-2 (Reg. No. 333-2048-LA), effective May 1, 1996, and incorporated herein by reference.
|
(3)
|
Filed previously as an exhibit to the Company’s Registration Statement on Form SB-2 (Reg. No. 333-22583), effective May 1, 1997, and incorporated herein by reference.
|
(4)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K, filed on November 10, 2009, and incorporated herein by reference.
|
(5)
|
Filed herewith.
|
JAKKS PACIFIC, INC.
|
||
Date: August 1, 2011
|
By:
|
/s/ JOEL M. BENNETT
|
Joel M. Bennett
|
||
Executive Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
|
Number
|
Description
|
|
3.1
|
Amended and Restated Certificate of Incorporation of the Company(1)
|
|
3.2.1
|
By-Laws of the Company(2)
|
|
3.2.2
|
Amendment to By-Laws of the Company(3)
|
|
4.3
|
Indenture, dated November 10, 2009, by and between the Registrant and Wells Fargo Bank, N.A. (4)
|
|
4.4
|
Form of 4.50% Senior Convertible Note (4)
|
|
31.1
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer(5)
|
|
31.2
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer(5)
|
|
32.1
|
Section 1350 Certification of Chief Executive Officer(5)
|
|
32.2
|
Section 1350 Certification of Chief Financial Officer(5)
|
(1)
|
Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement filed August 23, 2002 and incorporated herein by reference.
|
(2)
|
Filed previously as an exhibit to the Company’s Registration Statement on Form SB-2 (Reg. No. 333-2048-LA), effective May 1, 1996, and incorporated herein by reference.
|
(3)
|
Filed previously as an exhibit to the Company’s Registration Statement on Form SB-2 (Reg. No. 333-22583), effective May 1, 1997, and incorporated herein by reference.
|
(4)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K, filed on November 10, 2009, and incorporated herein by reference.
|
(5)
|
Filed herewith.
|
By:
|
/s/ Stephen G. Berman
|
|
Stephen G. Berman
|
||
Director and Chief Executive Officer
|
By:
|
/s/ Joel M. Bennett
|
|
Joel M. Bennett
|
||
Chief Financial Officer
|
/s/ Stephen G. Berman
|
|
Stephen G. Berman
|
|
Director and Chief Executive Officer
|
/s/ Joel M. Bennett
|
|
Joel M. Bennett
|
|
Chief Financial Officer
|
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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
|||
---|---|---|---|---|---|
Accounts receivable, allowance for uncollectible accounts | $ 3,314 | $ 2,778 | [1] | ||
Preferred shares, par value | $ 0.001 | $ 0.001 | [1] | ||
Preferred shares, shares authorized | 5,000,000 | 5,000,000 | [1] | ||
Preferred shares, outstanding | 0 | 0 | [1] | ||
Common stock, par value | $ 0.001 | $ 0.001 | [1] | ||
Common stock, shares authorized | 100,000,000 | 100,000,000 | [1] | ||
Common stock, shares issued | 27,198,671 | 27,610,952 | [1] | ||
Common stock, shares outstanding | 27,198,671 | 27,319,624 | [1] | ||
Treasury Stock, shares | 0 | 291,328 | [1] | ||
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Per Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Net sales | $ 131,930 | $ 123,255 | $ 204,253 | $ 200,600 |
Cost of sales | 86,838 | 80,026 | 134,890 | 132,138 |
Gross profit | 45,092 | 43,229 | 69,363 | 68,462 |
Selling, general and administrative expenses | 43,094 | 41,955 | 82,155 | 80,816 |
Income (Loss) from operations | 1,998 | 1,274 | (12,792) | (12,354) |
Profit from video game joint venture | 6,000 | 6,000 | 6,000 | 6,000 |
Equity in net income (loss) of joint venture | (8) | Â | 1 | Â |
Interest income | 122 | 95 | 227 | 152 |
Interest expense, net of benefit | (2,025) | (3,007) | (4,065) | (4,204) |
Income (Loss) before provision (benefit) for income taxes | 6,087 | 4,362 | (10,629) | (10,406) |
Provision (Benefit) for income taxes | 1,847 | 1,387 | (4,294) | (8,224) |
Net income (loss) | $ 4,240 | $ 2,975 | $ (6,335) | $ (2,182) |
Income (Loss) per share - basic | $ 0.16 | $ 0.11 | $ (0.23) | $ (0.08) |
Income (Loss) per share - diluted | $ 0.16 | $ 0.11 | $ (0.23) | $ (0.08) |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Jul. 29, 2011
|
|
Document Information [Line Items] | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Trading Symbol | JAKK | Â |
Entity Registrant Name | JAKKS PACIFIC INC | Â |
Entity Central Index Key | 0001009829 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Accelerated Filer | Â |
Entity Common Stock, Shares Outstanding | Â | 27,198,671 |
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Income Taxes
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Income Taxes |
Note 6 — Income Taxes
The Company's income tax expense of $1.8 million for
the three months ended June 30, 2011 reflects an effective tax rate
of 30.3%. The Company's income tax expense for the three months
ended June 30, 2010 was $1.4 million and reflects an effective tax
rate of 32.2%.
The Company’s income tax benefit of $4.3 million for the six
months ended June 30, 2011 reflects an effective tax benefit rate
of 40.4%. Included in the tax benefit of $4.3 million is a tax
benefit of $1.5 million related to a reduction in tax reserves
resulting from closed statutes and an adjustment to record various
outstanding state tax refunds. The
Company’s income tax benefit for the six months ended June
30, 2010 was $8.2 million and reflects an effective tax benefit of
79.0%, including a discrete benefit of $4.9 million. Absent this
discrete tax benefit, the Company’s effective tax rate for
the six months ended June 30, 2010 was 31.7%.
|
Goodwill
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill |
Note 11
— Goodwill
The changes in the carrying amount of goodwill for the six months
ended June 30, 2011 are as follows (in
thousands):
The Company applies a fair value-based impairment test to the net
book value of goodwill and indefinite-lived intangible assets on an
annual basis and, if certain events or circumstances indicate that
an impairment loss may have been incurred, on an interim basis. The
analysis of potential impairment of goodwill requires a two-step
process. The first step is the estimation of fair value. If step
one indicates that an impairment potentially exists, the second
step is performed to measure the amount of impairment, if any.
Goodwill impairment exists when the estimated fair value of
goodwill is less than its carrying value.
|
Business Segments, Geographic Data, Sales by Product Group, and Major Customers
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Business Segments, Geographic Data, Sales by Product Group, and Major Customers |
Note 2
— Business Segments, Geographic Data, Sales by Product Group,
and Major Customers
The Company is a worldwide producer and marketer of
children’s toys and other consumer products, principally
engaged in the design, development, production, marketing and
distribution of its diverse portfolio. In the fourth quarter of
2010, the Company re-aligned its products into two new categories
to better reflect the operation of the business. The
Company’s reportable segments are Traditional Toys and
Electronics, and Role Play, Novelty and Seasonal Toys, each of
which includes worldwide sales.
The Traditional Toys and Electronics segment includes action
figures, vehicles, playsets, plush products, dolls,
accessories, electronic products, construction toys,
infant and pre-school toys, pet products and related
products.
Role Play, Novelty and Seasonal Toys includes role play
and dress-up products, Halloween and everyday costume play, novelty
toys, seasonal and outdoor products, and indoor and outdoor
kid’s furniture.
Segment performance is measured at the operating income level. All
sales are made to external customers, and general corporate
expenses have been attributed to the various segments based on
sales volumes. Segment assets are comprised of accounts receivable
and inventories, net of applicable reserves and allowances,
goodwill and other assets.
Results are not necessarily those that would be achieved were each
segment an unaffiliated business enterprise. Information by segment
and a reconciliation to reported amounts as of December 31, 2010
and June 30, 2011 and for the three and six months ended June 30,
2010 and 2011 are as follows (in thousands):
The following tables present information about the Company by
geographic area as of December 31, 2010 and June 30, 2011 and for
the three and six months ended June 30, 2010 and 2011 (in
thousands):
Major
Customers
Net sales to major customers for the three and six months ended
June 30, 2010 and 2011 were as follows (in thousands, except for
percentages):
No other customer accounted for more than 10% of the
Company’s total net sales.
At December 31, 2010 and June 30, 2011, the Company’s three
largest customers accounted for approximately 52.5% and 47.3%,
respectively, of net accounts receivable. The concentration of the
Company’s business with a relatively small number of
customers may expose the Company to material adverse effects if one
or more of its large customers were to experience financial
difficulty. The Company performs ongoing credit evaluations of its
top customers and maintains an allowance for potential credit
losses.
|
Common Stock and Preferred Stock
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Common Stock and Preferred Stock |
Note 8
— Common Stock and Preferred Stock
The Company has 105,000,000 authorized shares of stock consisting
of 100,000,000 shares of $.001 par value common stock and 5,000,000
shares of $.001 par value preferred stock.
In January 2011, the Company issued 27,442 shares of restricted
stock at a value of $0.5 million to an executive officer, which
vest, subject to certain company financial performance criteria,
over a six year period beginning in February 2012. In
addition, an aggregate of 26,480 shares of restricted stock was
issued to its five non-employee directors, which vest in January
2012, at an aggregate value of approximately $0.5
million. In February 2011, the Company issued an
aggregate of 65,363 shares of restricted stock at a value of $1.2
million to certain employees including an executive officer, which
vest over a three-year period beginning in December
2011. In addition, the company issued 18,238 shares of
restricted stock at a value of $0.3 million to an executive
officer, which vest, subject to certain company financial
performance criteria, over a six year period beginning in February
2011. In March 2011, the Company cancelled an aggregate
of 5,000 shares of restricted stock due to the termination of an
employee and the refusal of a grant by a current
employee. During the first quarter of 2011, an executive
officer surrendered an aggregate of 57,096 shares of restricted
stock at a value of $1.0 million to cover income taxes on the 2011
vesting of his restricted shares.
In April 2011, the Company issued 5,500 shares of common stock on
the exercise of options at a value of $73,480. Also, in
April 2011, the Company cancelled an aggregate of 19,362 shares of
restricted stock due to the termination of two
employees. In May 2011, the Company issued 4,500 shares
of common stock on the exercise of options at a value of
$60,120. In June 2011, the Company cancelled 13,013
shares of restricted stock due to the termination of an
employee.
In October 2010, the Company’s Board of Directors authorized
it to repurchase up to $30.0 million of its common
stock. As of December 31, 2010, 291,328 shares at a value of $5.6
million were repurchased and held in Treasury, and during the first
quarter of 2011, an additional 274,005 shares at a value of $5.1
million were repurchased. All such shares totaling 565,333 shares
represented approximately 2.0% of the Company’s outstanding
shares of common stock at the time of repurchase, and were retired
by the Company during the first quarter of 2011. As of June 30,
2011, $19.3 million remained authorized and available for common
stock repurchases. There is no expiration date for the authorized
repurchases.
All issuances of common stock, including those issued pursuant to
stock option and warrant exercises, restricted stock grants and
acquisitions, are issued from the Company’s authorized but
not issued and outstanding shares.
|
Comprehensive Income /(Loss)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Comprehensive Income /(Loss) |
Note 13
— Comprehensive Income /(Loss)
The table below presents the components of the Company’s
comprehensive loss for the three and six months ended June
30,
2010 and 2011 (in thousands):
|
Business Combinations
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Business Combinations |
Note 9
— Business Combinations
The Company acquired the following entities to further enhance its
existing product lines and to continue diversification into other
toy categories and seasonal businesses:
In October 2008, the Company acquired substantially all of the
assets of Tollytots Limited. The total initial consideration of
$26.8 million consisted of $12.0 million in cash and the assumption
of liabilities in the amount of $14.8 million, and resulted in
goodwill of $4.1 million, of which $3.1 million has been determined
to be impaired and was written off in the quarter ended June 30,
2009. In addition, the Company agreed to pay an earn-out of up to
an aggregate amount of $5.0 million in cash over the three calendar
years following the acquisition based on the achievement of certain
financial performance criteria, which will be recorded as goodwill
when and if earned. In the first two earn-out periods ended
December 31, 2009 and 2010, nil and $1.7 million, respectively, of
the earn-out was earned. Tollytots is a leading designer and
producer of licensed baby dolls and baby doll pretend play
accessories based on well-known brands, and was included in our
results of operations from the date of
acquisition.
In October 2008, the Company acquired all of the stock of Kids
Only, Inc. and a related Hong Kong company, Kids Only Limited
(collectively, “Kids Only”). The total initial
consideration of $23.8 million consisted of $20.4 million in cash
and the assumption of liabilities in the amount of $3.4 million,
and resulted in goodwill of $13.2 million, of which $12.7 million
has been determined to be impaired and was written off in the
quarter ended June 30, 2009. In addition, the Company agreed to pay
an earn-out of up to an aggregate amount of $5.6 million in cash
over the three calendar years following the acquisition based on
the achievement of certain financial performance criteria, which
will be recorded as goodwill when and if earned. In the first two
earn-out periods ended September 30, 2009 and 2010 the full
earn-out amounts of $1.9 million each were earned. Kids
Only is a leading designer and producer of licensed indoor and
outdoor kids’ furniture, and has an extensive portfolio which
also includes baby dolls and accessories, room decor and a myriad
of other children’s toy products, and was included in
its results of operations from the date of
acquisition.
During the first quarter of, 2011, an aggregate of $3.6 million of
earn-out was paid in connection with the Tollytots and Kids Only
acquisitions.
|
Earnings/(Loss) Per Share
|
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Jun. 30, 2011
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Earnings/(Loss) Per Share |
Note 7 — Earnings/(Loss) Per Share
The
following table is a reconciliation of the weighted average shares
used in the computation of earnings and loss per share for the
periods presented (in thousands, except per share
data):
Basic loss per share has been computed using the weighted average
number of common shares outstanding. Diluted loss per share has
been computed using the weighted average number of common shares
and common share equivalents outstanding (which consist of
warrants, options and convertible debt to the extent they are
dilutive). For the three and six months ended June 30, 2011, the
convertible notes interest and related common share equivalent of
6,320,910, diluted options and unvested restricted stock grants
outstanding of 259,572 and 243,389 respectively were excluded from
the diluted loss per share calculation because they were
anti-dilutive. Potentially dilutive stock options of 319,852 and
20,118 for the three months ended June 30, 2010 and 2011,
respectively, were excluded from the computation of diluted loss
per share as the average market price of the Company’s common
stock did not exceed the weighted average exercise price of such
options and to have included them would have been anti-dilutive.
Potentially dilutive stock options of 342,145 and 33,107 for
the six months ended June 30, 2010 and 2011, respectively, were
excluded from the computation of diluted loss per share as the
average market price of the Company’s common stock did not
exceed the weighted average exercise price of such options and to
have included them would have been anti-dilutive. Potentially
dilutive unvested restricted stock of nil and 128,745 for the
three months ended June 30, 2010 and 2011, respectively, and
207,253 and 105,564 for the six months ended June 30, 2010 and
2011, respectively, were excluded from the computation of diluted
loss per share as to have included them would have been
anti-dilutive.
|
Non cash investing and financing activity
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Non cash investing and financing activity |
Non cash investing and financing activity:
In January and February 2011, an executive officer surrendered an
aggregate of 57,096 shares of restricted stock at a value of $1.0
million to cover his income taxes due on the 2011 vesting of
restricted shares granted to him in 2010 and 2011. This restricted
stock was subsequently retired by the
Company.
See Notes 8 and 9 for additional supplemental information to the
condensed consolidated statements of cash
flows.
See notes to condensed consolidated financial
statements.
|
Inventory
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Inventory |
Note 3
— Inventory
Inventory, which includes the ex-factory cost of goods, in-bound
freight, duty and warehouse costs, is stated at the lower of cost
(first-in, first-out) or market and consists of the following (in
thousands):
|
Revenue Recognition and Reserve for Sales Returns and Allowances
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Revenue Recognition and Reserve for Sales Returns and Allowances |
Note 4
— Revenue Recognition and Reserve for Sales Returns and
Allowances
Revenue is recognized upon the shipment of goods to customers or
their agents, depending on terms, provided that there are no
uncertainties regarding customer acceptance, the sales price is
fixed or determinable, and collectability is reasonably assured and
not contingent upon resale.
Generally, the Company does not allow product returns. It provides
a negotiated allowance for breakage or defects to its customers,
which is recorded when the related revenue is recognized. However,
the Company does make occasional exceptions to this policy and
consequently accrues a return allowance in gross sales based on
historic return amounts and management estimates. The Company also
will occasionally grant credits to facilitate markdowns and sales
of slow moving merchandise. These credits are recorded as a
reduction of gross sales at the time of
occurrence.
The Company also participates in cooperative advertising
arrangements with some customers, whereby it allows a discount from
invoiced product amounts in exchange for customer purchased
advertising that features the Company’s products. Typically,
these discounts range from 1% to 6% of gross sales, and are
generally based on product purchases or on specific advertising
campaigns. Such amounts are accrued when the related revenue is
recognized or when the advertising campaign is initiated. These
cooperative advertising arrangements are accounted for as direct
selling expenses.
The Company’s reserve for sales returns and allowances
amounted to $28.4 million as of December 31, 2010, compared to
$16.9 million as of June 30, 2011. This decrease was primarily
due to certain customers taking their year-end allowances related
to 2010 during 2011.
|
Intangible Assets Other Than Goodwill
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Intangible Assets Other Than Goodwill |
Note 12
— Intangible Assets Other Than Goodwill
Intangible assets consist primarily of licenses, product lines,
customer relationships, and trademarks. Amortized intangible assets
are included in Intangibles, in the accompanying balance sheets.
Trademarks are disclosed separately in the accompanying balance
sheets. Debt offering costs from the issuance of the
Company’s convertible senior notes are included in the
accompanying balance sheets. Intangible assets and debt
issuance costs are as follows (in thousands, except for weighted
useful lives):
Amortization expense related to limited life intangible assets and
debt offering costs was $2.5 million and $2.4 million for the
three months ended June 30, 2010 and 2011, respectively,
and $4.0 million and $3.6 million for the six months ended June 30,
2010 and 2011, respectively.
|
Convertible Senior Notes
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Convertible Senior Notes |
Note 5
— Convertible Senior Notes
In November 2009, the Company sold an aggregate of $100.0 million
principal amount of 4.50% Convertible Senior Notes due 2014 (the
“Notes”). The Notes, which are senior unsecured
obligations of the Company, pay cash interest semi-annually at a
rate of 4.50% per annum and will mature on November 1, 2014. The
conversion rate is 63.2091 shares of JAKKS common stock
per $1,000 principal amount of notes (equivalent to an initial
conversion price of approximately $15.82 per share of common
stock), subject to adjustment in certain circumstances. Prior to
August 1, 2014, holders of the Notes may convert their Notes only
upon specified events. Upon conversion, the Notes may be settled,
at the Company’s election, in cash, shares of its common
stock, or a combination of cash and shares of its common stock.
Holders of the Notes may require the Company to repurchase for cash
all or some of their Notes upon the occurrence of a fundamental
change (as defined).
In accordance with ASC 470-20, “Debt with Conversion and
Other Options,” the Company allocated $13.7 million of the
$100.0 million principal amount of the Notes to the equity
component, which represents a discount to the debt and is being
amortized to interest expense through November 1,
2014. Interest expense associated with the amortization
of the equity component was $0.7 million and $0.7 million in the
three months ended June 30, 2010 and 2011, respectively, and $1.4
million and $1.4 million for the six months ended June 30, 2010 and
2011, respectively.
|
Share-Based Payments
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Jun. 30, 2011
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Share-Based Payments |
Note 15
— Share-Based Payments
The Company’s 2002 Stock
Award and Incentive Plan (the
“Plan”) provides for the awarding of stock options and
restricted stock to employees, officers and non-employee directors.
The Plan is more fully described in Notes 14 and 16 to the
Consolidated Financial Statements in the Company’s 2010
Annual Report on Form 10-K.
The following table summarizes the total share-based compensation
expense and related tax benefits recognized for the three and six
months ended June 30, 2010 and 2011 (in
thousands):
Stock option activity pursuant to the Plan for six months ended
June 30, 2011 is summarized as follows:
* The stock option activity excludes 100,000 shares underlying
fully vested warrants issued in 2003 with an exercise price of
$11.35 per share, which were exercised in full on March 10, 2011.
There are no warrants outstanding as of June 30,
2011.
Restricted stock award activity pursuant to the Plan for the six
months ended June 30, 2011 is summarized as
follows:
|
Basis of Presentation
|
6 Months Ended |
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Jun. 30, 2011
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Basis of Presentation |
Note 1
— Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations.
However, the Company believes that the disclosures are adequate to
prevent the information presented from being misleading. These
financial statements should be read in conjunction with
Management’s Discussion and Analysis of financial condition
and results of operations and the financial statements and the
notes thereto included in the Company’s Annual Report on Form
10-K, which contains audited financial information for the three
years in the period ended December 31, 2010.
The information provided in this report reflects all adjustments
(consisting solely of normal recurring items) that are, in the
opinion of management, necessary to present fairly the financial
position and the results of operations for the periods presented.
Interim results are not necessarily indicative of results to be
expected for a full year.
Certain reclassifications have been made to prior year balances in
order to conform to the current year
presentation.
The condensed consolidated financial statements include the
accounts of JAKKS Pacific, Inc. and its wholly-owned subsidiaries
(collectively “the Company”).
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Joint Ventures
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Joint Ventures |
Note 10
— Joint Ventures
The Company owned a fifty percent interest in a joint venture with
THQ Inc. (“THQ”), which developed, published and
distributed interactive entertainment software for the leading
hardware game platforms in the home video game market. Pursuant to
a Settlement Agreement and Mutual Release dated December 22,
2009, the joint venture was terminated on December 31, 2009
and THQ is obligated to pay the Company fixed payments in the
aggregate amount of $20.0 million payable $6.0 million on each
of June 30, 2010 (payment received in June 2010) and 2011
(payment received in June 2011) and $4.0 million on each of
June 30, 2012 and 2013 which the Company will record as income
on a cash basis when received.
The Company owns a fifty percent interest in a joint venture with
the U.S. entertainment subsidiary of a leading Japanese advertising
and animation production company. The joint venture was created to
develop and produce a boys animated television show which it
intends to license worldwide for television broadcast as well as
consumer products. The joint venture has already licensed the right
to the Company to develop and market toys based on the television
program and certain other merchandising rights to third-parties.
The Company is responsible for fifty percent of the operating
expenses of the joint venture and for twenty-five percent of the
production costs of the television show. The joint venture has
approved the production of 52 episodes of the show for which the
Company is responsible for an aggregate of $3.4
million. Production has commenced on the first 26
episodes for which the Company has paid an aggregate amount of
approximately $1.7 million in 2011. The Company’s
investment is being accounted for using the equity
method. For the three and six months ended June 30,
2011, the Company recognized a loss of $8,035 and income of $919,
respectively, from the joint venture. Operations of the
joint venture commenced in the fourth quarter of
2010. Accordingly, there was no activity in the three
and six months ended June 30, 2010.
As of December 31, 2010 and June, 2011, the balance of the
investment in the joint venture includes the following components
(in thousands):
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Litigation
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6 Months Ended |
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Jun. 30, 2011
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Litigation |
Note
14— Litigation
The Company is a party to, and certain of its property is the
subject of, various pending claims and
legal proceedings that routinely arise in the ordinary course of
its business. The Company does not believe that any of these claims
or proceedings will have a material effect on its business,
financial condition or results of operations.
|
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands |
Jun. 30, 2011
|
Dec. 31, 2010
|
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---|---|---|---|---|---|
Current assets | Â | Â | |||
Cash and cash equivalents | $ 246,846 | $ 278,346 | [1] | ||
Marketable securities | 210 | 207 | [1] | ||
Accounts receivable, net of allowance for uncollectible accounts of $2,778 and $3,314, respectively | 109,327 | 122,476 | [1] | ||
Inventory | 55,257 | 43,230 | [1] | ||
Income tax receivable | 18,871 | 19,052 | [1] | ||
Deferred income taxes | 23,882 | 23,576 | [1] | ||
Prepaid expenses and other | 34,109 | 25,275 | [1] | ||
Total current assets | 488,502 | 512,162 | [1] | ||
Property and equipment | Â | Â | |||
Office furniture and equipment | 12,306 | 12,127 | [1] | ||
Molds and tooling | 60,373 | 57,103 | [1] | ||
Leasehold improvements | 6,483 | 6,920 | [1] | ||
Total | 79,162 | 76,150 | [1] | ||
Less accumulated depreciation and amortization | 58,506 | 59,204 | [1] | ||
Property and equipment, net | 20,656 | 16,946 | [1] | ||
Deferred income taxes | 58,856 | 58,848 | [1] | ||
Intangibles | 20,231 | 23,437 | [1] | ||
Other long term assets | 15,505 | 12,643 | [1] | ||
Investment in joint venture | 1,846 | 74 | [1] | ||
Goodwill, net | 6,988 | 6,988 | [1] | ||
Trademarks, net | 2,308 | 2,308 | [1] | ||
Total assets | 614,892 | 633,406 | [1] | ||
Current liabilities | Â | Â | |||
Accounts payable | 51,537 | 35,886 | [1] | ||
Accrued expenses | 37,853 | 54,476 | [1] | ||
Reserve for sales returns and allowances | 16,888 | 28,378 | [1] | ||
Capital lease obligations | Â | 27 | [1] | ||
Income taxes payable | 9,382 | 6,143 | [1] | ||
Total current liabilities | 115,660 | 124,910 | [1] | ||
Convertible senior notes, net | 90,823 | 89,458 | [1] | ||
Other liabilities | 1,579 | 1,625 | [1] | ||
Income taxes payable | 4,497 | 5,005 | [1] | ||
Total liabilities | 212,559 | 220,998 | [1] | ||
Commitments and Contingencies | [1] | ||||
Stockholders' equity | Â | Â | |||
Preferred shares, $.001 par value; 5,000,000 shares authorized; nil outstanding | [1] | ||||
Common stock, $.001 par value; 100,000,000 shares authorized; 27,610,952 and 27,198,671 shares issued respectively; 27,319,624 and 27,198,671shares outstanding, respectively | 27 | 28 | [1] | ||
Additional paid-in capital | 293,082 | 302,425 | [1] | ||
Treasury Stock at cost; 291,328 and nil shares, respectively | Â | (5,641) | [1] | ||
Retained earnings | 113,549 | 119,884 | [1] | ||
Accumulated other comprehensive loss | (4,325) | (4,288) | [1] | ||
Total stockholders' equity | 402,333 | 412,408 | [1] | ||
Total liabilities and stockholders' equity | $ 614,892 | $ 633,406 | [1] | ||
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