JAKKS Pacific Reports Second Quarter Financial Results; 28th Consecutive Quarter of...

Business Editors

MALIBU, Calif.--(BUSINESS WIRE)--July 22, 2002

JAKKS Pacific, Inc. (Nasdaq NM: JAKK) today reported operating results for the three- and six-month periods ended June 30, 2002.

Second-quarter net sales increased 12.6% to $79.0 million, compared to $70.1

million in the comparable period last year. Excluding one-time charges, net income increased 29.9% to $8.9 million, or $0.41 per diluted share. The Company recognized a $1.5 million pre-tax charge during the second quarter of 2002 related to the recent voluntary recall of one of its products. Including this one-time charge, reported net income increased 13.9% to $7.8 million from $6.9 million and diluted earnings per share for the quarter was $0.36, comparable to $0.36 in the year-ago period.

The Company's net sales for the six months ended June 30, 2002 increased 6.8% to $138.9 million, versus $130.1 million during the same period in 2001. Reported net income during the period was $10.0 million, or $0.47 per diluted share, compared to $12.9 million, or $0.67 per diluted share, for the comparable period last year. Excluding the restructuring charges taken during the first quarter and the aforementioned product recall charge, net income for the first six months increased 23.4% to $15.9 million, or $0.76 per diluted share.

Jack Friedman, Chairman and Chief Executive Officer of JAKKS Pacific commented, "Our operations and financial results have proven resilient, even considering a challenging economy and a lackluster toy retail environment. This is a tribute to our company, its dedicated employees worldwide and our business strategy. Through our broad, expanding and diverse product lines, which include Flying Colors, Pentech, World Wrestling Entertainment action figures, accessories and video games, Funnoodle and Go Fly a Kite, amongst others, we have been able to continue our strategy of providing great value to our retailers and our consumers."

Mr. Friedman continued, "We, like many, expected industry conditions to improve as the quarter progressed. More recently, our retailer partners have further lowered inventory levels to control their risk, which in turn is impacting our sales expectations. We still expect 2002 to be a record sales year for JAKKS Pacific, but have adjusted our expectations to reflect the environment as we head into the holiday selling season. We now expect full year sales of $310 million to $330 million and diluted earnings per share in the range of $1.64 to $1.70, excluding one-time charges."

"The second quarter was a solid one operationally and we have almost completed the integration of Toymax," stated Stephen Berman, President and Chief Operating Officer of JAKKS Pacific. "Looking forward, we will continue to focus on expanding our product base and on our overall profitability. We have already implemented numerous initiatives to help offset a more modest sales forecast, including decreasing our workforce by approximately 15% and reducing expenses. These efforts are in addition to those we have already implemented as part of the Toymax integration. We expect these and other steps will enhance our financial results. That said, our financial strength remains fundamentally solid. We ended the quarter with $87.1 million in cash and marketable securities, $151.2 million in net working capital, no significant debt, and stockholders' equity of $13.96 per share."

Mr. Berman concluded, "We believe our financial strength and management skills places us in the position to continue to explore acquisitions that will expand our product lines and strengthen our company overall."

JAKKS Pacific, Inc. (Nasdaq NM:JAKK) is a multi-brand company that designs and markets a broad range of toys and leisure products. The product categories include: Action Figures, Arts & Crafts Activity Kits, Stationery, Writing Instruments, Performance Kites, Water Toys, Sports Activity Toys, Vehicles, Infant/Pre-School, Plush and Dolls. The products are sold under various brand names including Flying Colors(R), Road Champs(R), Remco(R), Child Guidance(R), Pentech(R), Toymax(R), Funnoodle(R), Laser Challenge(TM) and Go Fly a Kite(TM). The Company also participates in a joint venture with THQ Inc. that has exclusive worldwide rights to publish and market World Wrestling Entertainment(TM) video games. For further information, visit www.jakkspacific.com.

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: This press release contains forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual future results or events may vary materially from those described herein.

                 JAKKS Pacific, Inc. and Subsidiaries
                 Condensed Consolidated Balance Sheets


                                    June 30,         December 31,
                                      2002               2001


                                ASSETS

Current assets:
 Cash and cash equivalents        $81,276,777       $ 25,036,203
 Marketable securities              5,813,342         37,119,071
 Accounts receivable, net          78,080,430         52,888,452
 Inventory, net                    49,911,765         32,023,960
 Prepaid expenses and other
  current assets                    5,826,372          6,726,847

         Total current assets     220,908,686        153,794,533


Property and equipment             36,770,336         33,515,574
Less accumulated depreciation
 and amortization                  21,653,028         17,762,905

     Property and equipment, net   15,117,308         15,752,669


Deferred income taxes              13,805,932                 --
Notes receivable - officers         1,974,000          2,224,000
Goodwill, net                     136,360,429         89,863,415
Trademarks & other intangibles,
 net                               11,567,679         11,567,679
Investment in joint venture         3,831,317          7,893,312
Other assets                        2,719,345          2,945,075

         Total assets           $ 406,284,696      $ 284,040,683



                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued
   expenses                       $61,118,676       $ 35,714,430
  Current portion of long term
   debt                                22,560             22,560
  Income taxes payable              8,612,930          1,570,973

      Total current liabilities    69,754,166         37,307,963


Long term debt, net of current
 portion                               77,457             72,510
Deferred income taxes               2,207,429          2,256,817

                                    2,284,886          2,329,327

         Total liabilities         72,039,052         39,637,290

Minority interest                   4,973,237                 --

Stockholders' equity:
  Common stock, $.001 par value        23,585             20,320
  Additional paid-in capital      230,081,185        168,114,819
  Treasury Stock, at cost - nil
   and 1,493,600 shares                    --        (12,911,483)
  Retained earnings                99,167,637         89,179,737

                                  329,272,407        244,403,393

      Total liabilities and
       stockholders' equity     $ 406,284,696      $ 284,040,683



                 JAKKS Pacific, Inc. and Subsidiaries
              Second Quarter Earnings Announcement, 2002
            Condensed Statements of Operations (Unaudited)


                     Three Months Ended          Six Months Ended
                          June 30,                  June 30,
                     2002           2001        2002          2001


Net sales        $ 78,991,479 $ 70,141,387 $ 138,886,969 $ 130,103,259
Less cost of
  sales
 Cost of goods     37,970,980   30,407,236    66,091,975    58,619,256
 Royalty expense    4,071,988    5,306,495     7,408,319    10,813,183
 Amortization
  of tools
  and molds         1,756,908    1,818,241     3,725,221     3,593,717
 Cost of sales     43,799,876   37,531,972    77,225,515    73,026,156
    Gross profit   35,191,603   32,609,415    61,661,454    57,077,103
Direct selling
 expenses          12,051,915   10,995,248    20,136,756    17,169,915
Selling,
 general and
 administrative
 expenses          11,166,321   10,686,147    21,052,150    20,207,327
Acquisition
 shut-down and
 recall costs       1,500,000      843,387     8,121,497     1,150,020
Depreciation and
 amortization         560,959    1,205,463     1,019,210     2,403,817
  Income from
   operations       9,912,408    8,879,170    11,331,841    16,146,024
Other (income)
 expense:
   Profit from
    Joint Venture    (672,170)    (153,139)   (1,968,865)    (880,755)
   Interest, net     (264,346)    (445,936)     (532,941)    (931,442)
Income before
 provision for
 income taxes
 and minority
 interest          10,848,924    9,478,245    13,833,647    17,958,221
Provision for
 income taxes       2,929,210    2,605,027     3,735,085     5,064,220
Income before
 minority
 interest           7,919,714    6,873,218    10,098,562    12,894,001
Minority
 interest              87,915           --       110,662            --
Net income        $ 7,831,799  $ 6,873,218   $ 9,987,900   $12,894,001
  Earnings per
   share -
   diluted             $ 0.36       $ 0.36        $ 0.47        $ 0.67
  Shares used in
   earnings per
   share -
   diluted         21,953,168   19,259,081    21,080,870    19,114,249