Jakks Reports Q4, 2013 Results; Expects Return to Profitability in 2014
Jakks Pacific, Inc., reported results for the company’s fourth quarter and full year ended December 31, 2013. Net sales for the fourth quarter of 2013 were $137.7 million, compared to $133.5 million reported in the comparable period in 2012. The reported net loss for the fourth quarter was $16.1 million, or $0.73 per diluted share, which included a restructuring charge of $5 million, or $0.23 per share. This compares to a net loss of $119.5 million, or $5.45 per diluted share, reported in the comparable period in 2012, which included a one-time non-cash charge of $91.7 million, or $4.18 per diluted share, related to the impairment of deferred tax assets.
Net sales for the full year of 2013 were $632.9 million compared to $666.8 million in 2012. The reported net loss for the full year was $53.9 million, or $2.43 per diluted share, which included charges for license minimum guarantee shortfalls of $14.4 million and inventory impairment of $14.9 million in addition to the restructuring charge of $5 million. This compares to net loss for the full year of 2012 of $104.8 million, or $4.37 per diluted share, which included $91.7 million, or $3.83 per diluted share, for the deferred tax asset impairment charge.
Stephen Berman, president and CEO, Jakks Pacific, Inc., said in a statement, “Our sales results for the fourth quarter of 2013 contributed to our exceeding our revised sales and earnings guidance for the full year. Highlights of our fourth quarter sales include Disney Princess dolls and dress-up, including products from the blockbuster Disney animated feature film, Frozen, Sofia the First roleplay toys, Disney Fairies dolls and dress-up, Cabbage Patch Kids, Black & Decker boys’ roleplay, large-scale figures, foot-to-floor ride-ons, and activity tables.”
Berman continued, “In 2013, we launched our Little Mermaid and miWorld toys with DreamPlay apps utilizing NantWorks’ recognition technology. Our Little Mermaid Ariel’s Musical Surprise app received extremely positive reviews from numerous tech and app sites, both on the quality of the toys and the functionality of the app. The reviews highlighted the incredible graphics in the app, the DreamPlay toy technology and the child friendliness of the app. We are expanding our DreamPlay portfolio for 2014 by doubling our DreamPlay product offerings with brand new innovations that we believe push the boundaries of technology-based digital and physical play experiences and will contribute to our profitability in 2014 and beyond. We are also launching four new toy app initiatives, including a boys’ battling app tied to a consumer product activation that will involve key boys’ play patterns and a stand-alone app that creates the ultimate virtual pet.”
Working Capital
As of December 31, 2013, Jakks’ working capital was $136.3 million, including cash and equivalents and marketable securities of $117.3 million, compared to working capital of $186.6 million including cash and equivalents and marketable securities of $189.5 million as of December 31, 2012. On-hand inventory levels decreased to $46.8 million at year-end 2013 from $59.7 million at year-end 2012.
2014 Guidance
Jakks currently anticipates net sales for the full year of 2014 in the range of approximately $633 million to $640 million, with earnings in the range of $0.30 to $0.40 per diluted share and EBITDA in the range of $41 million to $43 million. For the first quarter ending March 31, 2014, the company expects net sales in the range of $72 million to $75 million with a loss in the range of $0.77 to $0.81 per share compared to net sales of $78.1 million and a loss of $1.26 per share for the same period in 2013. The improvement in earnings in 2014 reflects the impact of cost-saving and other margin improvement initiatives undertaken in 2013.
Credit Facility
The company also announced that it entered into a Commitment Letter with General Electric Capital Corporation (GECC) to provide up to $75 million under a senior secured credit facility. Closing and funding of the proposed credit facility is subject to various conditions, including GECC’s completion of financial, legal, and other due diligence, entry into definitive loan documentation acceptable to Jakks and GECC, Jakks meeting such financial tests and covenants established by GECC, and such other conditions that may be required by GECC. There is no assurance that such conditions and the closing and funding will occur.
To the extent funding under the credit facility becomes available, Jakks intends to use the net proceeds for working capital, capital expenditures and general corporate purposes.
DreamWorks Animation Announced Q4, 2013 Results
DreamWorks Animation (DWA) SKG, Inc., announced financial results for its fourth quarter ended December 31, 2013. For the quarter, the company reported total revenue of $204.3 million and net income attributable to DWA of $17.2 million, or earnings per share of $0.20 cents on a fully diluted basis, which includes the impacts of impairment charges and a gain on the sale of technology in the quarter. For the 12 months ended December 31, 2013, the company reported total revenue of $706.9 million and net income attributable to DWA of $55.1 million, or earnings per share of $0.65 cents on a fully diluted basis.
The company’s fourth quarter 2013 results included an impairment charge of $13.5 million, or a loss of approximately $0.12 cents of earnings per share on a fully diluted basis, related to the Turbo feature film, as a result of its performance during the last two months of the quarter. The company also recorded an impairment charge of $6.7 million, or a loss of approximately $0.06 cents of earnings per share on a fully diluted basis, related to other content. Additionally, Other Operating Income of $6.4 million, or a gain of approximately $0.05 cents of earnings per share on a fully diluted basis, was recorded in the quarter related to the sale of a consumer social app that was in development.
“We made significant progress in 2013, transforming and positioning DreamWorks Animation for long-term success as a diversified family entertainment company,” said Jeffrey Katzenberg, CEO of DreamWorks Animation. “In 2014, we have three great feature film releases, led by Mr. Peabody & Sherman on March 7, followed by the sequel to one of our most beloved films, How to Train Your Dragon 2 in June, and Home in November, which has an incredible voice cast led by Rihanna and Jim Parsons. Beyond our feature films we plan to continue to invest in our television, consumer products, digital, and location-based entertainment businesses, where we believe there are significant growth opportunities for our company going forward.”
The feature film segment contributed revenue of $127.9 million and gross profit of $53.4 million to the fourth quarter.
Turbo, which was released theatrically on July 17, 2013, reached $282.6 million at the worldwide box office. The film contributed feature film revenue of $1.6 million in the quarter. Turbo was released into the domestic home entertainment market on November 12, 2013. The film reached an estimated 3.3 million home entertainment units sold worldwide through the end of the fourth quarter, net of actual and estimated future returns.
The Croods contributed feature film revenue of $59.7 million in the quarter, primarily from home entertainment. The film was released into the domestic home entertainment market on October 1, 2013, and reached an estimated 6.7 million home entertainment units sold worldwide through the end of the fourth quarter, net of actual and estimated future returns.
Rise of the Guardians contributed feature film revenue of $8.5 million to the quarter, primarily from television and home entertainment. The film reached an estimated 5.2 million home entertainment units sold worldwide through the end of the fourth quarter, net of actual and estimated future returns.
Madagascar 3: Europe’s Most Wanted contributed feature film revenue of $11.4 million to the quarter, primarily from home entertainment. The film reached an estimated 8.8 million home entertainment units sold worldwide through the end of the fourth quarter, net of actual and estimated future returns.
Library titles contributed feature film revenue of $46.8 million to the quarter.
The Television segment contributed revenue of $47.1 million and gross profit of $7.3 million to the fourth quarter, primarily from Classic Media and DreamWorks specials holiday content, as well as DreamWorks Dragons: Riders of Berk on Cartoon Network.
The consumer products segment contributed revenue of $12.4 million and gross profit of $2 million to the fourth quarter, primarily from Classic Media.
The segment consisting of all Other items contributed revenue of $16.8 million and gross profit of $2.3 million to the fourth quarter, primarily from streaming rights related to Shrek The Musical.
Costs of revenue for the quarter equaled $139.3 million. Selling, general, and administrative expenses totaled $51.9 million, including $3.8 million of stock-based compensation expense.
The company’s income tax expense for the fourth quarter was $1.7 million. The company’s combined effective tax rate, its actual tax rate coupled with the effect of a tax-sharing agreement with a former stockholder, was 5.7 percent for the fourth quarter. The company currently expects that its full-year 2014 combined effective tax rate will be in the mid-30 percent range.
Significant first quarter 2014 events include the theatrical release of Mr. Peabody & Sherman as well as the release of The Croods and Turbo into the domestic pay television market.
The company’s full-year 2014 results are expected to be driven primarily by the performance of Mr. Peabody & Sherman and How to Train Your Dragon 2.