July 22, 2010

JAKKS Pacific® Reports Second Quarter Results for 2010

MALIBU, Calif.–(BUSINESS WIRE)– JAKKS Pacific, Inc. (NASDAQ: JAKK) reported results for the Company’s second quarter and first six months ended June 30, 2010.

Net sales for the second quarter of 2010 were $123.3 million, compared to $144.8 million reported in the comparable period last year; and net sales for the six months were $200.6 million, compared to $253.5 million in 2009. Net income for the second quarter was $3.0 million, or $0.11 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, compared to a loss of $406.6 million, or $14.96 per diluted share, reported in the second quarter of 2009. The net loss for the six month period was $2.2 million, or $0.08 per diluted share, which also includes the payment to Jack Friedman’s estate, compared to a loss for the first six months of 2009 of $417.4 million, or $15.35 per diluted share.

On a non-GAAP basis, net sales for the second quarter of 2010 were $123.3 million, compared to $145.4 million, and $200.6 million for the six month period, compared to $254.1 million reported in the comparable period last year. On a non-GAAP basis, JAKKS reported net income for the second quarter of $3.0 million, or $0.11 per diluted share, compared to a loss of $0.9 million, or $0.03 per diluted share, in the second quarter of 2009. Non-GAAP results for the first six months of 2010 was a loss of $2.2 million, or $0.08 per diluted share, compared to a loss of $11.7 million, or $0.43 per diluted share, for the first six months of 2009.

Second quarter and six month GAAP results include the following, which were excluded in the non-GAAP results above:


There were no adjustments to the 2010 GAAP results.


* Pre-tax non-cash goodwill and other intangible asset impairment charges of $415.3 million.
* Pre-tax charges to royalty expense of $33.2 million related to the write-down of abandoned or underperforming licenses.
* Pre-tax charge to cost of goods of $23.3 million related to the impairment of inventory.
* Pre-tax non-cash charge of $2.3 million related to the write-off of obsolete tools and molds.
* Pre-tax charge of $1.3 million related to a product recall.
* Pre-tax non-cash charge of $22.5 million related to the reduction of our preferred return from our video game joint venture with THQ as a result of the arbitration decision.

“Our results for the second quarter reflect our commitment to tightening controls on our overall business and growing earnings,” commented Stephen Berman, CEO and President, JAKKS Pacific. “We began shipping some of our new toys, electronics and Halloween costumes for the second half of the year, with the bulk expected to ship in the third quarter. Orders for our diverse portfolio of product are ahead of order bookings at this point in the year compared to last year, giving us confidence in being able to achieve our goals for this year, despite container and labor shortages causing shipping delays and production capacity issues in Asia.

“We are closely managing our supply chain to minimize our exposure and keep third and fourth quarter production and shipments on track, and barring any extreme adverse circumstances related to these obstacles, we believe we will achieve our earnings guidance for this year in the range of $1.10 to $1.20 per diluted share on net sales of $660 to $670 million.

“Our diverse 2010 Fall portfolio offers Halloween costumes for the whole family based on top entertainment properties such as Iron Man 2, Toy Story 3, Sesame Street, Hasbro® brands and more, and a myriad of new toy initiatives including Spy Net™ electronics, Disney Princess® and Disney Fairies® dolls, dress-up, novelties and kids furniture, TNA®, UFC®, Phineas & Ferb™ and Pokémon® action figures, and other licensed and non-licensed product lines that we believe will resonate with kids this holiday season. Additionally, our line-up for 2011 is shaping up nicely and gives us reason to remain confident about our future.”

Operations provided cash of $24.0 million for the first six months of 2010, and as of June 30, 2010, the Company’s working capital was $358.1 million, including cash and equivalents and marketable securities of $249.0 million.

Joel Bennett, Executive Vice President and CFO, added, “During the second quarter we used $20.3 million of cash on hand to redeem our 4.625% Convertible Senior Notes which were offered to the Company for redemption, reducing the diluted share count by 1 million shares. We continue to expect to use our cash to execute on our acquisition and organic growth.”

Use of Non-GAAP Financial information

In addition to the preliminary results reported in accordance with U.S. GAAP included in this release, the Company has provided certain non-GAAP financial information, including net sales information that excludes recall items, and expense information that excludes intangible asset impairment charges and license and inventory impairment charges, among others. Management believes that the presentation of these non-GAAP financial measures provides useful information to investors because this information may allow investors to better evaluate ongoing business performance and certain components of the Company’s results. In addition, the Company believes that the presentation of these non-GAAP financial measures enhances an investor’s ability to make period-to-period comparisons of the Company’s operation results. This information should be considered in addition to the results presented in accordance with GAAP, and should not be considered a substitute for the GAAP results. The company has reconciled the non-GAAP financial information included in this release to the nearest GAAP measure. See the attached “Reconciliation of Non-GAAP Financial Information.”

Conference Call

JAKKS Pacific will webcast its second quarter earnings conference call at 9:00a.m. ET (6:00a.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) 203-1112, or (719) 457-0820 for international callers, pass code “2999141,” and will be available from approximately one hour after the call concludes, through August 22, 2010.

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™, Girl Gourmet™, Kids Only!™, Tollytots® and Disguise™. JAKKS is an award-winning licensee of several hundred nationally and internationally known trademarks including Disney®, Nickelodeon®, Warner Bros.®, Ultimate Fighting Championship®, Hello Kitty®, Graco® and Cabbage Patch Kids®. www.jakks.com

This press release may contain forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) that are based on current expectations, estimates and projections about JAKKS Pacific’s business based partly on assumptions made by its management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such statements due to numerous factors, including, but not limited to, those described above, changes in demand for JAKKS’ products, product mix, the timing of customer orders and deliveries, the impact of competitive products and pricing, and difficulties with integrating acquired businesses. The forward-looking statements contained herein speak only as of the date on which they are made, and JAKKS undertakes no obligation to update any of them to reflect events or circumstances after the date of this release.

© 2010 JAKKS Pacific, Inc. All rights reserved.