JAKK

JAKKS Pacific, Inc. (JAKK)

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JAKKS Pacific (JAKK)

Q4 2012 Earnings Call

February 21, 2013 9:00 am ET

Executives

Stephen G. Berman - Co-Founder, Chief Executive Officer, President, Secretary and Director

Joel M. Bennett - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Edward M. Woo - Ascendiant Capital Markets LLC, Research Division

Andrew E. Crum - Stifel, Nicolaus & Co., Inc., Research Division

Sean P. McGowan - Needham & Company, LLC, Research Division

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for joining the JAKKS Pacific Fourth Quarter and Full Year 2012 Earnings Call with Management. Today, JAKKS will review the results of the fourth quarter and full year ended December 31, 2012, which the company released earlier this morning.

On the call today are Stephen Berman, President and Chief Executive Officer; and Joel Bennett, Executive Vice President and Chief Financial Officer. Mr. Berman will first provide an overview of the quarter and the full year, and then Mr. Bennett will provide detailed comments regarding JAKKS Pacific's financial and operational results. Mr. Berman will then conclude the prepared portion of the call with highlights of product lines and current business trends prior to opening up the call for your questions. [Operator Instructions]

Before we begin, the company would like to point out that any comments made by JAKKS Pacific's future performance, events or circumstances, including the estimates of sales and earnings per share for 2012, as well as any other forward-looking statements concerning 2013 and beyond are subject to the Safe Harbor protection under Federal security laws. These statements reflect the company's best judgment based on current market trends and conditions today and are subject to certain risks and uncertainties, which could cause actual results to differ materially from those projected in forward-looking statements. For details concerning these and other such risks and uncertainties, you should consult JAKKS' most recent 10-K and 10-Q filings with the SEC, as well as the company's other reports subsequently filed with the SEC from time to time.

With that, I'll turn the call over to Mr. Berman.

Stephen G. Berman

Thank you for joining us today. With the backdrop of a fairly challenging season for the toy industry and the global economy overall, weaker-than-expected product demand during the holidays led to a lower-than-expected results for fourth quarter and full year 2012. However, our core business remains strong. Our products in Traditional Toy segment, such as Infant/Pre-school, Seasonal, Dress-Up, and Role Play and Halloween continued to perform at retail and remained our areas of strength.

The world is changing and JAKKS is changing along with it. We have experienced such excitement and receptiveness on our DreamPlay technology initiative. What we have shown on the iD image recognition and DreamPlay technologies, combined with toys and kids consumer products, has been nothing short of redefining the boundaries of the physical and digital toy play. From retail partners in the U.S. and internationally, to our licensing partner, Disney, as well as some of the biggest toy and consumer product companies and brands in the world, there is a strong belief in the long-term adoption by children and adults of this technology.

We believe that toys and technology have to change to adapt to the way kids play today, as kids gain more and more access to smart devices. By applying the technologies to a broad array of characters and play patterns, we believe we will create a new consumer demand for our toy products. Through the DreamPlay venture, we aim to achieve substantial long-range growth and profitability, warranting the investment in this technology and content that we are making.

2013 will be a period of focused transition as we build the infrastructure for our DreamPlay venture, while also continuing to execute on our core business strategy of organic and external growth. We have added to our core business a number of new brands and licenses that we are launching this year that we feel show great promise.

We are keeping a tight rein on our operational expenses, starting with a meaningful internal restructuring. Our outlook for 2013 remains cautiously optimistic as we invest for the future and begin to rollout our plans with exciting growth opportunities in 2014 and beyond with our DreamPlay initiatives, as well as our continued focus on capitalizing on our international distribution growth opportunities.

While we recognize that it's critical for us to provide new, exciting and magical experiences for today's wired families, we will not deviate from our core business strategy to offer a diverse portfolio of evergreen products that support traditional play patterns and products that remain core to our business.

I would now like to turn the call over to Joel Bennett to review our financial results for the fourth quarter and full year of 2012, and then I will give a further update on our business this year and beyond. Joel?

Joel M. Bennett

Thank you, Stephen, and good morning, everyone. Net sales for the fourth quarter of 2012 were $133.5 million compared to $141.1 million reported in the comparable period in 2011. The reported net loss for the fourth quarter was $119.5 million or $5.45 per diluted share, which includes $800,000 of pretax charges or $0.03 per diluted share related to financial and legal advisory fees and expenses associated with the unsolicited indication of interest and activist shareholder activities, and onetime noncash charge of $91.7 million related to the impairment of deferred tax assets. This compares to a net loss of $20 million or $0.77 per diluted share reported in the comparable period in 2011, which included $1.9 million or $0.05 per diluted share of financial and legal advisory fees and expenses. Excluding the legal and financial advising fees and expenses and the deferred tax impairment charge, the 2012 fourth quarter loss would have totaled $27.2 million or $1.24 per diluted share, compared to a loss of $18.8 million or $0.72 per diluted share in 2011.

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