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
|
Page
|
|||
Part
I
|
FINANCIAL
INFORMATION
|
|
|
Item
1.
|
Financial
Statements
|
2
|
|
Condensed
Consolidated Balance Sheets - December 31, 2005 and
September
30, 2006 (unaudited)
|
2
|
||
Condensed
Consolidated Statements of Income for the Three and Nine Months
Ended
September 30, 2005 and 2006 (unaudited)
|
3
|
||
Condensed
Consolidated Statements of Cash Flows for the Nine Months
Ended
September 30, 2005 and 2006 (unaudited)
|
4
|
||
Notes
to Condensed Consolidated Financial Statements (unaudited)
|
6
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and
Results
of Operations
|
22
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
30
|
|
Item
4.
|
Controls
and Procedures
|
30
|
|
Part
II
|
OTHER
INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
31
|
|
Item
1A.
|
Risk
Factors
|
33
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
None
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
None
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
40
|
|
Item
5.
|
Other
Information
|
None
|
|
Item
6.
|
Exhibits
|
41
|
|
Signatures
|
42
|
||
Exhibit
31.1
|
|||
Exhibit
31.2
|
|||
Exhibit
32.1
|
|||
Exhibit
32.2
|
December
31,
2005
|
September
30,
2006
|
||||||
(*)
|
(Unaudited)
|
||||||
ASSETS
|
|||||||
Current
assets
|
|||||||
Cash
and cash equivalents
|
$
|
240,238
|
$
|
132,966
|
|||
Accounts
receivable, net of allowances for uncollectible accounts of
$2,336
and $1,433, respectively
|
87,199
|
182,818
|
|||||
Inventory
|
66,729
|
86,676
|
|||||
Prepaid
expenses and other current assets
|
17,533
|
32,515
|
|||||
Deferred
income taxes
|
13,618
|
12,315
|
|||||
Total
current assets
|
425,317
|
447,290
|
|||||
Property
and equipment
|
|||||||
Office
furniture and equipment
|
7,619
|
8,619
|
|||||
Molds
and tooling
|
26,948
|
33,779
|
|||||
Leasehold
improvements
|
3,522
|
4,471
|
|||||
Total
|
38,089
|
46,869
|
|||||
Less
accumulated depreciation and amortization
|
25,394
|
31,136
|
|||||
Property
and equipment, net
|
12,695
|
15,733
|
|||||
Investment
in video game joint venture
|
10,365
|
1,936
|
|||||
Goodwill,
net
|
269,298
|
315,315
|
|||||
Trademarks,
net
|
17,768
|
19,068
|
|||||
Intangibles
and other, net
|
18,512
|
55,187
|
|||||
Total
assets
|
$
|
753,955
|
$
|
854,529
|
|||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|||||||
Current
liabilities
|
|||||||
Accounts
payable
|
$
|
50,533
|
$
|
85,935
|
|||
Accrued
expenses
|
44,415
|
48,122
|
|||||
Reserve
for sales returns and allowances
|
25,123
|
24,838
|
|||||
Income
taxes payable
|
3,792
|
4,441
|
|||||
Total
current liabilities
|
123,863
|
163,336
|
|||||
Deferred
income taxes
|
6,446
|
7,358
|
|||||
Deferred
rent liability
|
995
|
889
|
|||||
Convertible
senior notes
|
98,000
|
98,000
|
|||||
Total
liabilities
|
229,304
|
269,583
|
|||||
Stockholders’
equity
|
|||||||
Preferred
stock, $.001 par value; 5,000,000 shares authorized; nil
outstanding
|
—
|
—
|
|||||
Common
stock, $.001 par value; 100,000,000 shares authorized; 26,944,559
and
27,765,597 shares issued and outstanding, respectively
|
27
|
28
|
|||||
Additional
paid-in capital
|
287,356
|
298,189
|
|||||
Retained
earnings
|
240,057
|
289,249
|
|||||
Accumulated
comprehensive loss
|
(2,789
|
)
|
(2,520
|
)
|
|||
Total
stockholders’ equity
|
524,651
|
584,946
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
753,955
|
$
|
854,529
|
(*)
|
Derived
from audited financial statements
|
Three
Months Ended
September
30,
(Unaudited)
|
Nine
Months Ended
September
30,
(Unaudited)
|
||||||||||||
2005
|
2006
|
2005
|
2006
|
||||||||||
Net
sales
|
$
|
233,500
|
$
|
295,789
|
$
|
495,266
|
$
|
527,075
|
|||||
Cost
of sales
|
140,048
|
182,906
|
299,529
|
320,750
|
|||||||||
Gross
profit
|
93,452
|
112,883
|
195,737
|
206,325
|
|||||||||
Selling,
general and administrative
expenses
|
46,234
|
54,679
|
120,229
|
136,914
|
|||||||||
Income
from operations
|
47,218
|
58,204
|
75,508
|
69,411
|
|||||||||
Profit
(loss) from video game joint venture
|
238
|
(245
|
)
|
1,541
|
732
|
||||||||
Other
expense
|
(1,401
|
)
|
—
|
(1,401
|
)
|
—
|
|||||||
Interest
Income
|
1,386
|
1,029
|
3,419
|
3,530
|
|||||||||
Interest
Expense
|
(1,135
|
)
|
(1,133
|
)
|
(3,402
|
)
|
(3,400
|
)
|
|||||
Income
before provision for income taxes
|
46,306
|
57,855
|
75,665
|
70,273
|
|||||||||
Provision
for income taxes
|
13,553
|
17,356
|
21,186
|
21,083
|
|||||||||
Net
income
|
$
|
32,753
|
$
|
40,499
|
$
|
54,479
|
$
|
49,190
|
|||||
Earnings
per share - basic
|
$
|
1.22
|
$
|
1.46
|
$
|
2.04
|
$
|
1.79
|
|||||
Earnings
per share - diluted
|
$
|
1.05
|
$
|
1.26
|
$
|
1.77
|
$
|
1.57
|
Nine
Months Ended
September
30,
(Unaudited)
|
|||||||
2005
|
2006
|
||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|||||||
Net
income
|
$
|
54,479
|
$
|
49,190
|
|||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
Depreciation
and amortization
|
11,344
|
18,516
|
|||||
Share-based
compensation expense
|
(813
|
)
|
4,800
|
||||
Write-off
of investment in Chinese joint venture
|
1,401
|
—
|
|||||
Loss
on disposal of property and equipment
|
103
|
7
|
|||||
Deferred
income taxes
|
(4,295
|
)
|
2,216
|
||||
Change
in operating assets and liabilities:
|
|||||||
Accounts
receivable
|
(40,437
|
)
|
(82,587
|
)
|
|||
Inventory
|
(20,418
|
)
|
(18,241
|
)
|
|||
Prepaid
expenses and other current assets
|
(1,795
|
)
|
(14,265
|
)
|
|||
Investment
in video game joint venture
|
6,207
|
7,950
|
|||||
Accounts
payable
|
2,856
|
32,969
|
|||||
Accrued
expenses
|
23,867
|
8,938
|
|||||
Reserve
for sales returns and allowances
|
4,009
|
(2,498
|
)
|
||||
Income
taxes payable
|
19,315
|
649
|
|||||
Deferred
rent liability
|
—
|
(105
|
)
|
||||
Total
adjustments
|
1,344
|
(41,651
|
)
|
||||
Net
cash provided by operating activities
|
55,823
|
7,539
|
|||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|||||||
Cash
paid for net assets acquired, net of cash acquired
|
(20,610
|
)
|
(109,842
|
)
|
|||
Purchase
of property and equipment
|
(5,491
|
)
|
(7,718
|
)
|
|||
Sale
(purchase) of other assets
|
92
|
(151
|
)
|
||||
Net
purchase of marketable securities
|
19,047
|
—
|
|||||
Net
cash used by investing activities
|
(6,962
|
)
|
(117,711
|
)
|
|||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|||||||
Net
proceeds from stock options exercised
|
2,968
|
1,376
|
|||||
Tax
benefit from stock options exercised
|
—
|
1,218
|
|||||
Net
cash provided by financing activities
|
2,968
|
2,594
|
|||||
Foreign
currency translation adjustment
|
(320
|
)
|
306
|
||||
Net
increase (decrease) in cash and cash equivalents
|
51,509
|
(107,272
|
)
|
||||
Cash
and cash equivalents, beginning of period
|
176,544
|
240,238
|
|||||
Cash
and cash equivalents, end of period
|
$
|
228,053
|
$
|
132,966
|
|||
Supplemental
disclosure of cash flow information:
|
|||||||
Cash
paid during the period for:
|
|||||||
Income
taxes
|
$
|
7,792
|
$
|
17,004
|
|||
Interest
|
$
|
2,267
|
$
|
2,266
|
Three
Months Ended September 30, 2005
|
||||||||||||||||
Traditional
Toys
|
Craft/Activities/
Writing
Products
|
Seasonal
Products
|
Pet
Products
|
Total
|
||||||||||||
Net
Sales
|
||||||||||||||||
North
America Toys
|
$
|
186,815
|
$
|
15,880
|
$
|
1,268
|
$
|
—
|
$
|
203,963
|
||||||
Pet
Products
|
—
|
—
|
—
|
3,514
|
3,514
|
|||||||||||
International
|
23,898
|
2,109
|
16
|
—
|
26,023
|
|||||||||||
$
|
210,713
|
$
|
17,989
|
$
|
1,284
|
$
|
3,514
|
$
|
233,500
|
Three
Months Ended September 30, 2006
|
||||||||||||||||
Traditional
Toys
|
Craft/Activities/
Writing
Products
|
Seasonal
Products
|
Pet
Products
|
Total
|
||||||||||||
Net
Sales
|
||||||||||||||||
North
America Toys
|
$
|
241,650
|
$
|
13,103
|
$
|
8,460
|
$
|
—
|
$
|
263,213
|
||||||
Pet
Products
|
—
|
—
|
—
|
6,688
|
6,688
|
|||||||||||
International
|
24,438
|
1,436
|
14
|
—
|
25,888
|
|||||||||||
$
|
266,088
|
$
|
14,539
|
$
|
8,474
|
$
|
6,688
|
$
|
295,789
|
Nine
Months Ended September 30, 2005
|
||||||||||||||||
Traditional
Toys
|
Craft/Activities/
Writing
Products
|
Seasonal
Products
|
Pet
Products
|
Total
|
||||||||||||
Net
Sales
|
||||||||||||||||
North
America
Toys
|
$
|
363,996
|
$
|
44,633
|
$
|
15,201
|
$
|
—
|
$
|
423,830
|
||||||
Pet
Products (see Note 9)
|
—
|
—
|
—
|
4,595
|
4,595
|
|||||||||||
International
|
62,234
|
3,343
|
1,264
|
—
|
66,841
|
|||||||||||
$
|
426,230
|
$
|
47,976
|
$
|
16,465
|
$
|
4,595
|
$
|
495,266
|
Nine
Months Ended September 30, 2006
|
||||||||||||||||
Traditional
Toys
|
Craft/Activities/
Writing
Products
|
Seasonal
Products
|
Pet
Products
|
Total
|
||||||||||||
Net
Sales
|
||||||||||||||||
North
America
Toys
|
$
|
399,173
|
$
|
39,184
|
$
|
22,018
|
$
|
—
|
$
|
460,375
|
||||||
Pet
Products (see Note 9)
|
—
|
—
|
—
|
13,114
|
13,114
|
|||||||||||
International
|
49,564
|
3,529
|
493
|
—
|
53,586
|
|||||||||||
$
|
448,737
|
$
|
42,713
|
$
|
22,511
|
$
|
13,114
|
$
|
527,075
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||
2005
|
2006
|
2005
|
2006
|
||||||||||
Operating
Income
|
|||||||||||||
North
America
Toys
|
$
|
41,245
|
$
|
51,794
|
$
|
64,904
|
$
|
61,221
|
|||||
Pet
Products
|
711
|
1,316
|
835
|
1,708
|
|||||||||
International
|
5,262
|
5,094
|
9,769
|
6,482
|
|||||||||
$
|
47,218
|
$
|
58,204
|
$
|
75,508
|
$
|
69,411
|
December
31,
2005
|
September
30,
2006
|
||||||
Assets
|
|
|
|||||
North
America
Toys
|
$
|
677,420
|
$
|
760,416
|
|||
Pet
Products
|
23,432
|
19,321
|
|||||
International
|
53,103
|
74,792
|
|||||
$
|
753,955
|
$
|
854,529
|
December
31,
2005
|
September
30,
2006
|
|||||
Long-lived
Assets
|
|
|
|
|
||
United
States
|
$
|
283,350
|
$
|
338,665
|
||
Hong
Kong
|
34,038
|
65,585
|
||||
$
|
317,388
|
$
|
404,250
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||
2005
|
2006
|
2005
|
2006
|
||||||||||
Net
Sales by Geographic Area
|
|||||||||||||
United
States
|
$
|
198,369
|
$
|
256,600
|
$
|
412,547
|
$
|
453,045
|
|||||
Europe
|
13,481
|
10,223
|
32,889
|
22,662
|
|||||||||
Canada
|
9,108
|
13,300
|
15,878
|
20,409
|
|||||||||
Hong
Kong
|
6,830
|
7,607
|
20,431
|
12,210
|
|||||||||
Other
|
5,712
|
8,059
|
13,521
|
18,749
|
|||||||||
$
|
233,500
|
$
|
295,789
|
$
|
495,266
|
$
|
527,075
|
Three
Months Ended September 30,
|
Nine
Months Ended September 30,
|
||||||||||||||||||||||||
2005
|
2006
|
2005
|
2006
|
||||||||||||||||||||||
Amount
|
Percentage
of Net Sales
|
Amount
|
Percentage
of
Net Sales
|
Amount
|
Percentage
of
Net Sales
|
Amount
|
Percentage
of
Net Sales
|
||||||||||||||||||
|
|
|
|
||||||||||||||||||||||
Wal-Mart
|
$
|
75,604
|
32.4
|
%
|
$
|
78,766
|
26.6
|
%
|
$
|
131,545
|
26.6
|
%
|
$
|
126,914
|
24.1
|
%
|
|||||||||
Toys
‘R’ Us
|
34,553
|
14.8
|
%
|
43,366
|
14.7
|
54,831
|
11.1
|
%
|
74,361
|
14.1
|
|||||||||||||||
Target
|
21,493
|
9.2
|
%
|
38,167
|
12.9
|
50,060
|
10.1
|
%
|
86,406
|
16.4
|
|||||||||||||||
$
|
131,650
|
56.4
|
%
|
$
|
160,299
|
54.2
|
%
|
$
|
236,436
|
47.8
|
%
|
$
|
287,681
|
54.6
|
%
|
December 31,
2005
|
September 30,
2006
|
||||||
|
|||||||
Raw
materials
|
$
|
2,679
|
$
|
7,287
|
|||
Finished
goods
|
64,050
|
79,389
|
|||||
$
|
66,729
|
$
|
86,676
|
Three
Months Ended September 30,
|
|||||||||||||||||||
2005
|
2006
|
||||||||||||||||||
Income
|
Weighted
Average
Shares
|
Per-Share
|
Income
|
Weighted
Average
Shares
|
Per-Share
|
||||||||||||||
Earnings
per share - basic
|
|||||||||||||||||||
Income
available to common
stockholders
|
$
|
32,753
|
26,778
|
$
|
1.22
|
$
|
40,499
|
27,694
|
$
|
1.46
|
|||||||||
Effect
of dilutive securities
|
|||||||||||||||||||
Convertible
senior notes
|
801
|
4,900
|
737
|
4,900
|
|||||||||||||||
Options
and warrants
|
—
|
410
|
—
|
142
|
|||||||||||||||
Earnings
per share - diluted
|
|||||||||||||||||||
Income
available to common
stockholders
plus assumed exercises
and
conversion
|
$
|
33,554
|
32,088
|
$
|
1.05
|
$
|
41,236
|
32,736
|
$
|
1.26
|
Nine
Months Ended September 30,
|
|||||||||||||||||||
2005
|
2006
|
||||||||||||||||||
Income
|
Weighted
Average
Shares
|
Per-Share
|
Income
|
Weighted
Average
Shares
|
Per-Share
|
||||||||||||||
Earnings
per share - basic
|
|||||||||||||||||||
Income
available to common
stockholders
|
$
|
54,479
|
26,673
|
$
|
2.04
|
$
|
49,190
|
27,514
|
$
|
1.79
|
|||||||||
Effect
of dilutive securities
|
|||||||||||||||||||
Convertible
senior notes
|
2,448
|
4,900
|
2,210
|
4,900
|
|||||||||||||||
Options
and warrants
|
—
|
609
|
—
|
317
|
|||||||||||||||
Earnings
per share - diluted
|
|||||||||||||||||||
Income
available to common
stockholders
plus assumed exercises
and
conversion
|
$
|
56,927
|
32,182
|
$
|
1.77
|
$
|
51,400
|
32,731
|
$
|
1.57
|
Estimated
fair value of net assets:
|
||||
Current
assets acquired
|
$
|
15,655
|
||
Property
and equipment, net
|
1,235
|
|||
Other
assets
|
103
|
|||
Liabilities
assumed
|
(6,081
|
)
|
||
Intangible
assets other than
goodwill
|
49,688
|
|||
Goodwill
|
44,494
|
|||
$
|
105,094
|
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
||||||||||||
2005
|
2006
|
2005
|
2006
|
||||||||||
Net
sales
|
$
|
322,292
|
$
|
295,789
|
$
|
616,503
|
$
|
539,957
|
|||||
Net
income
|
$
|
41,572
|
$
|
40,498
|
$
|
69,615
|
$
|
50,857
|
|||||
Earnings
per share - basic
|
$
|
1.54
|
$
|
1.46
|
$
|
2.57
|
$
|
1.84
|
|||||
Weighted
average shares outstanding - basic
|
26,928
|
27,694
|
27,039
|
27,611
|
|||||||||
Earnings
per share - diluted
|
$
|
1.31
|
$
|
1.26
|
$
|
2.23
|
$
|
1.62
|
|||||
Weighted
average shares and equivalents outstanding - diluted
|
32,238
|
32,736
|
32,341
|
32,760
|
Estimated
fair value of net assets:
|
||||
Current
assets acquired
|
$
|
24,063
|
||
Property
and equipment, net
|
546
|
|||
Other
assets
|
3,184
|
|||
Liabilities
assumed
|
(22,263
|
)
|
||
Intangible
assets other than
goodwill
|
22,100
|
|||
Goodwill
|
74,723
|
|||
$
|
102,353
|
Balance
at beginning of period
|
$
|
269,298
|
||
Goodwill
acquired during the period (see Note
9)
|
44,494
|
|||
Adjustments
to goodwill during the period
|
1,523
|
|||
Balance
at end of period
|
$
|
315,315
|
December
31, 2005
|
September
30, 2006
|
|||||||||||||||||||||
Weighted
Useful
Lives
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
||||||||||||||||
(Years)
|
||||||||||||||||||||||
Amortized
Intangible Assets:
|
||||||||||||||||||||||
Acquired
order backlog
|
0.5
|
$
|
—
|
$
|
—
|
$
|
—
|
$
|
1,298
|
$
|
(1,298
|
)
|
$
|
—
|
||||||||
Licenses
|
4.3
|
23,635
|
(12,082
|
)
|
11,553
|
37,825
|
(19,048
|
)
|
18,777
|
|||||||||||||
Product
lines
|
3.5
|
17,700
|
(17,700
|
)
|
—
|
17,700
|
(17,700
|
)
|
—
|
|||||||||||||
Customer
relationships
|
6.1
|
1,846
|
(700
|
)
|
1,146
|
34,746
|
(3,647
|
)
|
31,099
|
|||||||||||||
Non-compete/Employment
contracts
|
4.0
|
2,748
|
(1,049
|
)
|
1,699
|
2,748
|
(1,576
|
)
|
1,172
|
|||||||||||||
Debt
offering costs
|
20.0
|
3,705
|
(477
|
)
|
3,228
|
3,705
|
(616
|
)
|
3,089
|
|||||||||||||
Total
amortized intangible assets
|
49,634
|
(32,008
|
)
|
17,626
|
98,022
|
(43,885
|
)
|
54,137
|
||||||||||||||
Unamortized
Intangible Assets:
|
||||||||||||||||||||||
Trademarks
|
indefinite
|
17,768
|
N/A
|
17,768
|
19,068
|
N/A
|
19,068
|
|||||||||||||||
$
|
67,402
|
$
|
(32,008
|
)
|
$
|
35,394
|
$
|
117,090
|
$
|
(43,885
|
)
|
$
|
73,205
|
Plan
Stock Options
|
|||||||
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
||||||
Outstanding,
December 31, 2005
|
1,789,106
|
$
|
16.32
|
||||
Granted
|
—
|
—
|
|||||
Exercised
|
(321,878
|
)
|
$
|
10.18
|
|||
Forfeited
|
(8,500
|
)
|
17.23
|
||||
Outstanding,
September 30, 2006
|
1,458,728
|
$
|
17.05
|
Number
of options outstanding
|
1,458,728
|
|||
Weighted-average
exercise price
|
$
|
17.05
|
||
Aggregate
intrinsic value
|
$
|
12,042,204
|
||
Weighted-average
contractual term of options
outstanding
|
3.5
years
|
|||
Number
of options currently exercisable
|
886,532
|
|||
Weighted-average
exercise of options currently exercisable
|
$
|
16.01
|
||
Aggregate
intrinsic value of options currently exercisable
|
$
|
9,136,611
|
||
Weighted-average
contractual term of currently exercisable
|
3.39
years
|
Three
Months
Ended
September
30,
2005
|
Nine
Months
Ended
September
30,
2005
|
||||||
Net
income, as reported
|
$
|
32,753
|
$
|
54,479
|
|||
Add
(deduct): Stock-based employee compensation expense (credit) included
in
reported
net income, net of related tax effects
|
(669
|
)
|
(1,696
|
)
|
|||
Deduct:
Total stock-based employee compensation expense determined
under
fair value method for all awards, net of related tax
effects
|
(816
|
)
|
(2,016
|
)
|
|||
Pro
forma net income
|
$
|
31,268
|
$
|
50,767
|
|||
Earnings
per share:
|
|||||||
Basic
- as reported
|
$
|
1.22
|
$
|
2.04
|
|||
Basic
- pro forma
|
$
|
1.17
|
$
|
1.90
|
|||
Diluted
- as reported
|
$
|
1.05
|
$
|
1.77
|
|||
Diluted
- pro forma
|
$
|
1.00
|
$
|
1.66
|
Three
Months
Ended
September 30,
|
Nine
Months
Ended
September 30,
|
||||||||||||
2005
|
2006
|
2005
|
2006
|
||||||||||
Net
income
|
$
|
32,753
|
$
|
40,499
|
$
|
54,479
|
$
|
49,190
|
|||||
Other
comprehensive income (loss):
|
|||||||||||||
Foreign
currency translation
adjustment
|
(105
|
)
|
130
|
(288
|
) |
269
|
|||||||
Comprehensive
income
|
$
|
32,648
|
$
|
40,629
|
$
|
54,191
|
$
|
49,459
|
Three
Months
Ended
September
30,
|
Nine
Months
Ended
September
30,
|
||||||||||||
2005
|
2006
|
2005
|
2006
|
||||||||||
Net
sales
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
|||||
Cost
of sales
|
60.0
|
61.8
|
60.5
|
60.9
|
|||||||||
Gross
profit
|
40.0
|
38.2
|
39.5
|
39.1
|
|||||||||
Selling,
general and administrative
expenses
|
19.8
|
18.5
|
24.2
|
26.0
|
|||||||||
Income
from operations
|
20.2
|
19.7
|
15.3
|
13.1
|
|||||||||
Profit
(loss) from video game joint venture
|
0.1
|
(0.1
|
)
|
0.3
|
0.1
|
||||||||
Other
expense
|
(0.6
|
)
|
—
|
(0.3
|
)
|
—
|
|||||||
Interest
income
|
0.6
|
0.3
|
0.7
|
0.7
|
|||||||||
Interest
expense
|
(0.5
|
)
|
(0.3
|
)
|
(0.7
|
)
|
(0.6
|
)
|
|||||
Income
before provision for income taxes
|
19.8
|
19.6
|
15.3
|
13.3
|
|||||||||
Provision
for income taxes
|
5.8
|
5.9
|
4.3
|
4.0
|
|||||||||
Net
income
|
14.0
|
%
|
13.7
|
%
|
11.0
|
%
|
9.3
|
%
|
Three
Months
Ended
September
30,
|
Nine
Months
Ended
September
30,
|
||||||||||||
2005
|
2006
|
2005
|
2006
|
||||||||||
Net
Sales
|
|||||||||||||
North
America Toys
|
$
|
203,963
|
$
|
263,213
|
$
|
423,830
|
$
|
460,375
|
|||||
Pet
Products
|
3,514
|
6,688
|
4,595
|
13,114
|
|||||||||
International
|
26,023
|
25,888
|
66,841
|
53,586
|
|||||||||
233,500
|
295,789
|
495,266
|
527,075
|
||||||||||
Cost
of Sales
|
|||||||||||||
North
America Toys
|
116,934
|
163,857
|
249,105
|
278,760
|
|||||||||
Pet
Products
|
2,580
|
3,135
|
3,402
|
7,476
|
|||||||||
International
|
20,534
|
15,914
|
47,022
|
34,514
|
|||||||||
140,048
|
182,906
|
299,529
|
320,750
|
||||||||||
Gross
Margin
|
|||||||||||||
North
America Toys
|
87,029
|
99,356
|
174,725
|
181,614
|
|||||||||
Pet
Products
|
934
|
3,553
|
1,193
|
5,638
|
|||||||||
International
|
5,489
|
9,974
|
19,819
|
19,073
|
|||||||||
$
|
93,452
|
$
|
112,883
|
$
|
195,737
|
$
|
206,325
|
·
|
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 costs; and
|
·
|
removal
of our products from the market.
|
Nominees
for Directors
|
For
|
Against
|
Withheld
|
|||||||
Jack
Friedman
|
21,372,241
|
0
|
801,668
|
|||||||
Stephen
Berman
|
21,384,323
|
0
|
789,586
|
|||||||
Dan
Almagor
|
21,801,938
|
0
|
371,971
|
|||||||
David
Blatte
|
22,001,691
|
0
|
172,218
|
|||||||
Robert
Glick
|
21,995,961
|
0
|
177,948
|
|||||||
Michael
Miller
|
21,996,364
|
0
|
177,545
|
|||||||
Murray
L. Skala
|
21,154,312
|
0
|
1,019,597
|
For
|
Against
|
Abstentions
|
|||||
22,149,090
|
19,853
|
4,966
|
Number
|
Description
|
|
3.1.1
|
|
Restated
Certificate of Incorporation of the Company(1)
|
3.1.2
|
Certificate
of Amendment of Restated Certificate of Incorporation of the
Company(2)
|
|
3.2.1
|
By-Laws
of the Company(1)
|
|
3.2.2
|
Amendment
to By-Laws of the Company(3)
|
|
4.1
|
Indenture,
dated as of June 9, 2003, by and between the Registrant and Wells
Fargo
Bank, N.A.(4)
|
|
4.2
|
Form
of 4.625% Convertible Senior 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 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.
|
(2)
|
Filed
previously as exhibit 4.1.2 of the Company’s Registration Statement on
Form S-3 (Reg. No. 333-74717), filed on March 9, 1999, 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 Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003, filed on August 14, 2003,
and
incorporated herein by reference.
|
(5)
|
Filed
herewith.
|
JAKKS
PACIFIC, INC.
|
||
|
|
|
Date: November 9, 2006 | By: | /s/ JOEL M. BENNETT |
Joel M. Bennett |
||
Executive
Vice
President and Chief Financial Officer
(Duly
Authorized Officer and Principal Financial
Officer)
|
Number
|
Description
|
|
3.1.1
|
|
Restated
Certificate of Incorporation of the Company(1)
|
3.1.2
|
Certificate
of Amendment of Restated Certificate of Incorporation of the
Company(2)
|
|
3.2.1
|
By-Laws
of the Company(1)
|
|
3.2.2
|
Amendment
to By-Laws of the Company(3)
|
|
4.1
|
Indenture,
dated as of June 9, 2003, by and between the Registrant and Wells
Fargo
Bank, N.A.(4)
|
|
4.2
|
Form
of 4.625% Convertible Senior 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 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.
|
(2)
|
Filed
previously as exhibit 4.1.2 of the Company’s Registration Statement on
Form S-3 (Reg. No. 333-74717), filed on March 9, 1999, and incorporated
herein by reference.
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(3)
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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.
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(4)
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Filed
previously as an exhibit to the Company’s Quarterly Report on Form 10-Q
for the quarter ended June 30, 2003, filed on August 14, 2003,
and
incorporated herein by reference.
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(5)
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Filed
herewith.
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a) designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is
being prepared;
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b) designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
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c) evaluated
the effectiveness of the Company’s disclosure controls and procedures and
presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period
covered by this quarterly report based on such
evaluation; and
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d) disclosed
in this quarterly report any change in the Company’s internal control over
financial reporting that occurred during the Company’s most recent fiscal
quarter (the Company’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting; and
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a) All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’s ability to record,
process, summarize and report financial
information; and
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b) Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the Company’s internal control
over financial reporting.
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By: | /s/ Jack Friedman | |
Jack
Friedman
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Chairman
and Chief Executive Officer
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a) designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is
being prepared;
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b) designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
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c) evaluated
the effectiveness of the Company’s disclosure controls and procedures and
presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period
covered by this report based on such
evaluation; and
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d) disclosed
in this quarterly report any change in the Company’s internal control over
financial reporting that occurred during the Company’s most recent fiscal
quarter (the Company’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting; and
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a) All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the Company’s ability to record,
process, summarize and report financial
information; and
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b) Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the Company’s internal control
over financial reporting.
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By: | /s/ Joel M. Bennett | |
Joel M. Bennett |
||
Chief Financial Officer |
By: | /s/ Jack Friedman | |
Jack Friedman |
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Chairman
and Chief Executive Officer
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By: | /s/ Joel M. Bennett | |
Joel M. Bennett |
||
Chief
Financial Officer
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