Delaware
|
95-4527222
|
(State or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer Identification No.)
|
2951 28th Street
Santa Monica, California
|
90405
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
Large accelerated filer ☐
|
Accelerated filer ☒
|
Non-accelerated filer ☐(Do not check if a smaller reporting company)
|
Smaller reporting company ☐
|
Emerging growth company ☐
|
|
||
|
||
|
3
|
|
|
4
|
|
|
5
|
|
|
6
|
|
19
|
||
27
|
||
27
|
||
|
|
|
|
||
28
|
||
28
|
||
35
|
||
Item 3.
|
Defaults Upon Senior Securities
|
None
|
Item 4.
|
Mine Safety Disclosures
|
None
|
Item 5.
|
Other Information
|
None
|
35
|
||
|
|
|
37
|
||
|
||
|
||
|
||
|
Assets
|
March 31,
2018 |
December 31,
2017 |
||||||
(Unaudited)
|
||||||||
Current assets
|
||||||||
Cash and cash equivalents
|
$
|
46,779
|
$
|
64,977
|
||||
Accounts receivable, net of allowance for doubtful accounts of $24,730 and $10,940 at March 31, 2018 and December 31, 2017, respectively
|
93,928
|
142,457
|
||||||
Inventory
|
53,997
|
58,432
|
||||||
Prepaid expenses and other assets
|
20,812
|
16,803
|
||||||
Total current assets
|
215,516
|
282,669
|
||||||
Property and equipment
|
||||||||
Office furniture and equipment
|
15,171
|
15,043
|
||||||
Molds and tooling
|
116,920
|
115,378
|
||||||
Leasehold improvements
|
10,945
|
10,936
|
||||||
Total
|
143,036
|
141,357
|
||||||
Less accumulated depreciation and amortization
|
120,080
|
118,130
|
||||||
Property and equipment, net
|
22,956
|
23,227
|
||||||
Intangible assets, net
|
21,023
|
22,190
|
||||||
Other long term assets
|
18,504
|
6,579
|
||||||
Goodwill
|
35,592
|
35,384
|
||||||
Trademarks
|
300
|
300
|
||||||
Total assets
|
$
|
313,891
|
$
|
370,349
|
||||
Liabilities and Stockholders' Equity
|
||||||||
Current liabilities
|
||||||||
Accounts payable
|
$
|
39,072
|
$
|
49,916
|
||||
Accrued expenses
|
37,145
|
42,145
|
||||||
Reserve for sales returns and allowances
|
15,343
|
17,622
|
||||||
Short term debt
|
—
|
5,000
|
||||||
Convertible senior notes, net
|
21,119
|
21,075
|
||||||
Total current liabilities
|
112,679
|
135,758
|
||||||
Convertible senior notes, net
|
134,716
|
133,497
|
||||||
Other liabilities
|
4,426
|
4,537
|
||||||
Income taxes payable
|
1,327
|
1,261
|
||||||
Deferred income taxes, net
|
781
|
783
|
||||||
Total liabilities
|
253,929
|
275,836
|
||||||
Commitments and contingencies
|
||||||||
Stockholders' equity
|
||||||||
Preferred stock, $.001 par value; 5,000,000 shares authorized; nil outstanding
|
—
|
—
|
||||||
Common stock, $.001 par value; 100,000,000 shares authorized; 29,169,913 and 26,957,354 shares issued
and outstanding at March 31, 2018 and December 31, 2017, respectively
|
30
|
27
|
||||||
Treasury stock, at cost; 3,112,840 shares
|
(24,000
|
)
|
(24,000
|
)
|
||||
Additional paid-in capital
|
216,398
|
215,809
|
||||||
Accumulated deficit
|
(121,477
|
)
|
(85,233
|
)
|
||||
Accumulated other comprehensive loss
|
(12,009
|
)
|
(13,059
|
)
|
||||
Total JAKKS Pacific, Inc. stockholders' equity
|
58,942
|
93,544
|
||||||
Non-controlling interests
|
1,020
|
969
|
||||||
Total stockholders' equity
|
59,962
|
94,513
|
||||||
Total liabilities and stockholders' equity
|
$
|
313,891
|
$
|
370,349
|
Three Months Ended March 31,
(Unaudited)
|
||||||||
2018
|
2017
|
|||||||
Net sales
|
$
|
93,004
|
$
|
94,505
|
||||
Cost of sales
|
70,045
|
64,484
|
||||||
Gross profit
|
22,959
|
30,021
|
||||||
Selling, general and administrative expenses
|
58,617
|
45,745
|
||||||
Loss from operations
|
(35,658
|
)
|
(15,724
|
)
|
||||
Income from joint ventures
|
22
|
—
|
||||||
Other income
|
50
|
23
|
||||||
Change in fair value of convertible senior notes
|
(1,021
|
)
|
—
|
|||||
Interest income
|
14
|
4
|
||||||
Interest expense
|
(1,936
|
)
|
(2,932
|
)
|
||||
Loss before benefit from income taxes
|
(38,529
|
)
|
(18,629
|
)
|
||||
Benefit from income taxes
|
(2,336
|
)
|
(344
|
)
|
||||
Net loss
|
(36,193
|
)
|
(18,285
|
)
|
||||
Net income attributable to non-controlling interests
|
51
|
31
|
||||||
Net loss attributable to JAKKS Pacific, Inc.
|
$
|
(36,244
|
)
|
$
|
(18,316
|
)
|
||
Loss per share - basic and diluted
|
$
|
(1.57
|
)
|
$
|
(1.01
|
)
|
||
Shares used in loss per share - basic and diluted
|
23,100
|
18,104
|
||||||
Comprehensive loss
|
$
|
(35,143
|
)
|
$
|
(17,754
|
)
|
||
Comprehensive loss attributable to JAKKS Pacific, Inc.
|
$
|
(35,194
|
)
|
$
|
(17,785
|
)
|
Three Months Ended March 31,
(Unaudited)
|
||||||||
2018
|
2017
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
|
$
|
(36,193
|
)
|
$
|
(18,285
|
)
|
||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
||||||||
Depreciation and amortization
|
3,096
|
4,380
|
||||||
Write-off and amortization of debt issuance costs
|
242
|
837
|
||||||
Share-based compensation expense
|
676
|
748
|
||||||
Provision for doubtful accounts
|
13,794
|
(2
|
)
|
|||||
Change in fair value of convertible senior notes
|
1,021
|
—
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
34,735
|
75,108
|
||||||
Inventory
|
4,435
|
7,969
|
||||||
Prepaid expenses and other assets
|
(15,936
|
)
|
(15,597
|
)
|
||||
Accounts payable
|
(9,934
|
)
|
(19,258
|
)
|
||||
Accrued expenses
|
(5,000
|
)
|
(20,001
|
)
|
||||
Reserve for sales returns and allowances
|
(2,279
|
)
|
(5,873
|
)
|
||||
Income taxes payable
|
66
|
—
|
||||||
Other liabilities
|
(111
|
)
|
(95
|
)
|
||||
Total adjustments
|
24,805
|
28,216
|
||||||
Net cash provided by (used in) operating activities
|
(11,388
|
)
|
9,931
|
|||||
Cash flows from investing activities
|
||||||||
Purchases of property and equipment
|
(2,568
|
)
|
(4,367
|
)
|
||||
Net cash used in investing activities
|
(2,568
|
)
|
(4,367
|
)
|
||||
Cash flows from financing activities
|
||||||||
Repurchase of convertible senior notes
|
—
|
(24,052
|
)
|
|||||
Repayment of credit facility borrowings
|
(5,000
|
)
|
—
|
|||||
Repurchase of common stock for employee tax withholding
|
(85
|
)
|
(12
|
)
|
||||
Net cash used in financing activities
|
(5,085
|
)
|
(24,064
|
)
|
||||
Net decrease in cash and cash equivalents
|
(19,041
|
)
|
(18,500
|
)
|
||||
Effect of foreign currency translation
|
843
|
468
|
||||||
Cash and cash equivalents, beginning of period
|
64,977
|
86,064
|
||||||
Cash and cash equivalents, end of period
|
$
|
46,779
|
$
|
68,032
|
||||
Cash paid during the period for:
|
||||||||
Income taxes
|
$
|
331
|
$
|
221
|
||||
Interest
|
$
|
485
|
$
|
2,039
|
|
Three Months Ended
March 31, |
|||||||
2018
|
2017
|
|||||||
Net Sales
|
||||||||
U.S. and Canada
|
$
|
70,535
|
$
|
70,912
|
||||
International
|
17,299
|
19,942
|
||||||
Halloween
|
5,170
|
3,651
|
||||||
$
|
93,004
|
$
|
94,505
|
Three Months Ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Loss from Operations
|
||||||||
U.S. and Canada
|
$
|
(22,979
|
)
|
$
|
(7,876
|
)
|
||
International
|
(6,939
|
)
|
(1,772
|
)
|
||||
Halloween
|
(5,740
|
)
|
(6,076
|
)
|
||||
$
|
(35,658
|
)
|
$
|
(15,724
|
)
|
Three Months Ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Depreciation and Amortization Expense
|
||||||||
U.S. and Canada
|
$
|
2,416
|
$
|
3,374
|
||||
International
|
581
|
898
|
||||||
Halloween
|
99
|
108
|
||||||
$
|
3,096
|
$
|
4,380
|
March 31,
2018 |
December 31,
2017 |
|||||||
Assets
|
||||||||
U.S. and Canada
|
$
|
199,711
|
$
|
229,505
|
||||
International
|
91,764
|
106,255
|
||||||
Halloween
|
22,416
|
34,589
|
||||||
$
|
313,891
|
$
|
370,349
|
March 31,
2018 |
December 31,
2017 |
|||||||
Long-lived Assets
|
||||||||
China
|
$
|
17,229
|
$
|
17,194
|
||||
United States
|
5,504
|
5,755
|
||||||
Hong Kong
|
223
|
278
|
||||||
$
|
22,956
|
$
|
23,227
|
Three Months Ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Net Sales by Customer Area
|
||||||||
United States
|
$
|
71,373
|
$
|
69,560
|
||||
Europe
|
8,629
|
12,560
|
||||||
Canada
|
3,761
|
4,444
|
||||||
Hong Kong
|
227
|
219
|
||||||
Other
|
9,014
|
7,722
|
||||||
$
|
93,004
|
$
|
94,505
|
Three Months Ended March 31,
|
||||||||||||||||
2018
|
2017
|
|||||||||||||||
Amount
|
Percentage of
Net Sales
|
Amount
|
Percentage of
Net Sales
|
|||||||||||||
Wal-Mart
|
$
|
24,758
|
26.6
|
%
|
$
|
26,370
|
27.9
|
%
|
||||||||
Target
|
15,312
|
16.5
|
12,671
|
13.4
|
||||||||||||
Toys "R" Us
|
10,625
|
11.4
|
13,260
|
14.0
|
||||||||||||
$
|
50,695
|
54.5
|
%
|
$
|
52,301
|
55.3
|
%
|
March 31,
2018 |
December 31,
2017 |
|||||||
Raw materials
|
$
|
1,594
|
$
|
1,596
|
||||
Finished goods
|
52,403
|
56,836
|
||||||
$
|
53,997
|
$
|
58,432
|
|
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||||||||||
|
|
Principal/
|
|
Debt
|
|
Principal/
|
|
Debt
|
||||||||||||||||
|
Fair Value
|
|
Issuance
|
|
Net
|
|
Fair Value
|
|
Issuance
|
|
Net
|
|||||||||||||
|
|
Amount
|
|
Costs
|
|
Amount
|
|
Amount
|
|
Costs
|
|
Amount
|
||||||||||||
3.25% convertible senior notes (due 2020) *
|
$
|
23,490
|
$
|
―
|
$
|
23,490
|
$
|
22,469
|
$
|
―
|
$
|
22,469
|
||||||||||||
4.25% convertible senior notes (due 2018)
|
21,178
|
59
|
21,119
|
21,178
|
103
|
21,075
|
||||||||||||||||||
4.875% convertible senior notes (due 2020)
|
113,000
|
1,774
|
111,226
|
113,000
|
1,972
|
111,028
|
||||||||||||||||||
Total convertible senior notes, net of debt issuance costs
|
$
|
157,668
|
$
|
1,833
|
$
|
155,835
|
$
|
156,647
|
$
|
2,075
|
$
|
154,572
|
|
Three Months Ended March 31,
|
|||||||||||||||||||||||
2018
|
2017
|
|||||||||||||||||||||||
Loss
|
Weighted
Average Shares
|
Per-Share
|
Loss
|
Weighted
Average Shares
|
Per-Share
|
|||||||||||||||||||
Loss per share — basic and diluted
|
||||||||||||||||||||||||
Net loss available to common stockholders
|
$
|
(36,244
|
)
|
23,100
|
$
|
(1.57
|
)
|
$
|
(18,316
|
)
|
18,104
|
$
|
(1.01
|
)
|
Total
|
||||
Balance, December 31, 2017
|
$
|
35,384
|
||
Adjustments to goodwill for foreign currency translation
|
208
|
|||
Balance, March 31, 2018
|
$
|
35,592
|
|
March 31, 2018
|
December 31, 2017
|
||||||||||||||||||||||||||
Weighted
Useful
Lives
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
Gross
Carrying
Amount
|
Accumulated
Amortization
|
Net
Amount
|
||||||||||||||||||||||
(Years)
|
||||||||||||||||||||||||||||
Amortized Intangible Assets:
|
||||||||||||||||||||||||||||
Licenses
|
5.81
|
$
|
20,130
|
$
|
(18,900
|
)
|
$
|
1,230
|
$
|
20,130
|
$
|
(18,620
|
)
|
$
|
1,510
|
|||||||||||||
Product lines
|
10.36
|
33,858
|
(14,065
|
)
|
19,793
|
33,858
|
(13,178
|
)
|
20,680
|
|||||||||||||||||||
Customer relationships
|
4.90
|
3,152
|
(3,152
|
)
|
—
|
3,152
|
(3,152
|
)
|
—
|
|||||||||||||||||||
Trade names
|
5.00
|
3,000
|
(3,000
|
)
|
—
|
3,000
|
(3,000
|
)
|
—
|
|||||||||||||||||||
Non-compete agreements
|
5.00
|
200
|
(200
|
)
|
—
|
200
|
(200
|
)
|
—
|
|||||||||||||||||||
Total amortized intangible assets
|
$
|
60,340
|
$
|
(39,317
|
)
|
$
|
21,023
|
$
|
60,340
|
$
|
(38,150
|
)
|
$
|
22,190
|
||||||||||||||
Unamortized Intangible Assets:
|
||||||||||||||||||||||||||||
Trademarks
|
$
|
300
|
$
|
—
|
$
|
300
|
$
|
300
|
$
|
—
|
$
|
300
|
Three Months Ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Net Loss
|
$
|
(36,193
|
)
|
$
|
(18,285
|
)
|
||
Other comprehensive income:
|
||||||||
Foreign currency translation adjustment
|
1,050
|
531
|
||||||
Comprehensive loss
|
(35,143
|
)
|
(17,754
|
)
|
||||
Less: Comprehensive income attributable to non-controlling interests
|
51
|
31
|
||||||
Comprehensive loss attributable to JAKKS Pacific, Inc.
|
$
|
(35,194
|
)
|
$
|
(17,785
|
)
|
Three Months Ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Restricted stock compensation expense
|
$
|
676
|
$
|
748
|
||||
Tax benefit related to restricted stock compensation
|
—
|
—
|
Restricted Stock Awards
|
||||||||
Number of Shares
|
Weighted Average
Grant Fair Value
|
|||||||
Outstanding, December 31, 2017
|
981,208
|
$
|
5.15
|
|||||
Awarded
|
2,164,374
|
2.35
|
||||||
Released
|
(194,800
|
)
|
5.14
|
|||||
Forfeited
|
—
|
—
|
||||||
Outstanding, March 31, 2018
|
2,950,782
|
3.10
|
Restricted Stock Units
|
||||||||
Number of Shares
|
Weighted Average
Grant Fair Value
|
|||||||
Outstanding, December 31, 2017
|
959,192
|
$
|
5.15
|
|||||
Awarded
|
—
|
—
|
||||||
Released
|
(125,290
|
)
|
5.15
|
|||||
Forfeited
|
(79,831
|
)
|
5.15
|
|||||
Outstanding, March 31, 2018
|
754,071
|
5.15
|
Level 1:
|
Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
|
Level 2:
|
Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
|
Level 3:
|
Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
|
|
|
Fair Value Measurements
|
||||||||||||||
|
|
Carrying Amount as of
|
|
As of March 31, 2018
|
||||||||||||
|
|
March 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
|
||||||||||||||||
Cash equivalents
|
$
|
8,169
|
$
|
8,169
|
$
|
—
|
$
|
—
|
||||||||
3.25% Convertible senior notes due in 2020
|
23,490
|
—
|
—
|
23,490
|
|
|
Fair Value Measurements
|
||||||||||||||
|
|
Carrying Amount as of
|
|
As of December 31, 2017
|
||||||||||||
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
|
||||||||||||||||
Cash equivalents
|
$
|
13,718
|
$
|
13,718
|
$
|
—
|
$
|
—
|
||||||||
3.25% Convertible senior notes due in 2020
|
22,469
|
—
|
—
|
22,469
|
|
2018
|
|||
Balance at January 1, 2018
|
$
|
22,469
|
||
Change in fair value
|
1,021
|
|||
Balance at March 31, 2018
|
$
|
23,490
|
Level 1:
|
Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
|
Level 2:
|
Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
|
Level 3:
|
Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.
|
|
|
Fair Value Measurements
|
||||||||||||||
|
|
Carrying Amount as of
|
|
As of March 31, 2018
|
||||||||||||
|
|
March 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
|
||||||||||||||||
Cash equivalents
|
$
|
8,169
|
$
|
8,169
|
$
|
—
|
$
|
—
|
||||||||
3.25% Convertible senior notes due in 2020
|
23,490
|
—
|
—
|
23,490
|
|
|
|
Fair Value Measurements
|
|||||||||||||
|
|
Carrying Amount as of
|
|
As of December 31, 2017
|
||||||||||||
|
|
December 31, 2017
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||
|
||||||||||||||||
Cash equivalents
|
$
|
13,718
|
$
|
13,718
|
$
|
—
|
$
|
—
|
||||||||
3.25% Convertible senior notes due in 2020
|
22,469
|
—
|
—
|
22,469
|
|
2018
|
|||
Balance at January 1, 2018
|
$
|
22,469
|
||
Change in fair value
|
1,021
|
|||
Balance at March 31, 2018
|
$
|
23,490
|
●
|
|
significant underperformance relative to expected historical or projected future operating results;
|
●
|
|
significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
|
●
|
|
significant negative industry or economic trends.
|
Three Months Ended
March 31,
|
||||||||
2018
|
2017
|
|||||||
Net sales
|
100.0
|
%
|
100.0
|
%
|
||||
Cost of sales
|
75.3
|
68.2
|
||||||
Gross profit
|
24.7
|
31.8
|
||||||
Selling, general and administrative expenses
|
63.0
|
48.4
|
||||||
Loss from operations
|
(38.3
|
)
|
(16.6
|
)
|
||||
Other income
|
—
|
—
|
||||||
Change in fair value of convertible senior notes
|
(1.1
|
)
|
—
|
|||||
Interest income
|
—
|
—
|
||||||
Interest expense
|
(2.0
|
)
|
(3.1
|
)
|
||||
Loss before benefit from income taxes
|
(41.4
|
)
|
(19.7
|
)
|
||||
Benefit from income taxes
|
(2.5
|
)
|
(0.3
|
)
|
||||
Net loss
|
(38.9
|
)
|
(19.4
|
)
|
||||
Net income attributable to non-controlling interests
|
0.1
|
—
|
||||||
Net loss attributable to JAKKS Pacific, Inc.
|
(39.0
|
)%
|
(19.4
|
)%
|
Three Months Ended
March 31, |
||||||||
2018
|
2017
|
|||||||
Net Sales
|
||||||||
U.S. and Canada
|
$
|
70,535
|
$
|
70,912
|
||||
International
|
17,299
|
19,942
|
||||||
Halloween
|
5,170
|
3,651
|
||||||
93,004
|
94,505
|
|||||||
Cost of Sales
|
||||||||
U.S. and Canada
|
51,642
|
47,627
|
||||||
International
|
13,825
|
12,608
|
||||||
Halloween
|
4,578
|
4,249
|
||||||
70,045
|
64,484
|
|||||||
Gross Profit (Loss)
|
||||||||
U.S. and Canada
|
18,893
|
23,285
|
||||||
International
|
3,474
|
7,334
|
||||||
Halloween
|
592
|
(598
|
)
|
|||||
$
|
22,959
|
$
|
30,021
|
|
●
|
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 products that we introduce will achieve any significant degree of market acceptance;
|
|
●
|
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; or
|
|
●
|
our inclusion of new technology will result in higher sales or increased profits.
|
|
●
|
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;
|
|
●
|
failure of an acquired business to achieve targeted financial results; and
|
|
●
|
Limited capital to finance acquisitions.
|
|
●
|
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, such as earthquakes, hurricanes and floods;
|
|
●
|
transportation delays and interruption;
|
|
●
|
work stoppages;
|
|
●
|
the potential imposition of tariffs; and
|
|
●
|
the pricing of intercompany transactions may be challenged by taxing authorities in both foreign jurisdictions 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 and insurance costs; and
|
|
●
|
removal of our products from the market.
|
Number
|
|
Description
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Company (1)
|
3.2
|
|
Amended and Restated By-Laws of the Company (2)
|
4.1
|
|
Indenture dated July 24, 2013 by and between the Registrant and Wells Fargo Bank, N.A (3)
|
4.2
|
|
Form of 4.25% Senior Convertible Note (3)
|
4.3
|
|
Credit Agreement dated as of March 27, 2014 by and among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (4)
|
4.4
|
|
Revolving Loan Note dated March 27, 2014 by Registrant and its US wholly-owned subsidiaries in favor of General Electric Capital Corporation (4)
|
4.5
|
|
Indenture dated June 9, 2014 by and between the Registrant and Wells Fargo Bank, N.A (5)
|
4.6
|
|
Form of 4.875% Senior Convertible Note (5)
|
4.7
|
|
Fourth Amendment to Credit Agreement dated as of June 5, 2015 among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (6)
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (7)
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (7)
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer (7)
|
32.2
|
|
Section 1350 Certification of Chief Financial Officer (7)
|
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
(1)
|
Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement filed August 23, 2002 and incorporated herein by reference.
|
|
|
(2)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011 and incorporated herein by reference.
|
|
|
(3)
|
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed July 24, 2013 and incorporated herein by reference.
|
|
|
(4)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed April 2, 2014 and incorporated herein by reference.
|
|
|
(5)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2014 and incorporated herein by reference.
|
|
|
(6)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 16, 2015 and incorporated herein by reference.
|
|
|
(7)
|
Filed herewith.
|
|
JAKKS PACIFIC, INC.
|
|
|
|
|
|
|
Date: May 10, 2018
|
By:
|
/s/ Brent Novak
|
|
|
|
Brent Novak
|
|
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
(Duly Authorized Officer and Principal Financial Officer)
|
|
Number
|
|
Description
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of the Company (1)
|
3.2
|
|
Amended and Restated By-Laws of the Company (2)
|
4.1
|
|
Indenture dated July 24, 2013 by and between the Registrant and Wells Fargo Bank, N.A (3)
|
4.2
|
|
Form of 4.25% Senior Convertible Note (3)
|
4.3
|
|
Credit Agreement dated as of March 27, 2014 by and among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (4)
|
4.4
|
|
Revolving Loan Note dated March 27, 2014 by Registrant and its US wholly-owned subsidiaries in favor of General Electric Capital Corporation (4)
|
4.5
|
|
Indenture dated June 9, 2014 by and between the Registrant and Wells Fargo Bank, N.A (5)
|
4.6
|
|
Form of 4.875% Senior Convertible Note (5)
|
4.7
|
|
Fourth Amendment to Credit Agreement dated as of June 5, 2015 among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (6)
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (7)
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (7)
|
32.1
|
|
Section 1350 Certification of Chief Executive Officer (7)
|
32.2
|
|
Section 1350 Certification of Chief Financial Officer (7)
|
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
|
(1)
|
Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement filed August 23, 2002 and incorporated herein by reference.
|
|
|
(2)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011 and incorporated herein by reference.
|
|
|
(3)
|
Filed previously as an exhibit to the Company's Current Report on Form 8-K filed July 24, 2013 and incorporated herein by reference.
|
|
|
(4)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed April 2, 2014 and incorporated herein by reference.
|
|
|
(5)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2014 and incorporated herein by reference.
|
|
|
(6)
|
Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 16, 2015 and incorporated herein by reference.
|
|
|
(7)
|
Filed herewith.
|
|
By:
|
/s/ Stephen G. Berman
|
|
|
Stephen G. Berman
|
|
|
Chief Executive Officer
|
|
By:
|
/s/ Brent Novak
|
|
|
Brent Novak
|
|
|
Chief Financial Officer
|
|
/s/ Stephen G. Berman
|
|
Stephen G. Berman
|
|
Chief Executive Officer
|
|
/s/ Brent Novak
|
|
Brent Novak
|
|
Chief Financial Officer
|
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
May 10, 2018 |
|
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | JAKK | |
Entity Registrant Name | JAKKS PACIFIC INC | |
Entity Central Index Key | 0001009829 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 29,169,913 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Accounts receivable, allowance for doubtful accounts | $ 24,730 | $ 10,940 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 29,169,913 | 26,957,354 |
Common stock, shares outstanding | 29,169,913 | 26,957,354 |
Treasury stock, shares | 3,112,840 | 3,112,840 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Net Sales | $ 93,004 | $ 94,505 |
Cost of sales | 70,045 | 64,484 |
Gross profit | 22,959 | 30,021 |
Selling, general and administrative expenses | 58,617 | 45,745 |
Loss from operations | (35,658) | (15,724) |
Income from joint ventures | 22 | |
Other income | 50 | 23 |
Change in fair value of convertible senior notes | (1,021) | |
Interest income | 14 | 4 |
Interest expense | (1,936) | (2,932) |
Loss before benefit from income taxes | (38,529) | (18,629) |
Benefit from income taxes | (2,336) | (344) |
Net loss | (36,193) | (18,285) |
Net income attributable to non-controlling interests | 51 | 31 |
Net loss attributable to JAKKS Pacific, Inc. | $ (36,244) | $ (18,316) |
Loss per share - basic and diluted | $ (1.57) | $ (1.01) |
Shares used in loss per share - basic and diluted | 23,100 | 18,104 |
Comprehensive loss | $ (35,143) | $ (17,754) |
Comprehensive loss attributable to JAKKS Pacific, Inc. | $ (35,194) | $ (17,785) |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
Accounts Payable | ||
Purchase of property and equipment incurred | $ 4.3 | $ 5.2 |
Basis of Presentation |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Basis of Presentation |
Note 1 — Basis of Presentation
The accompanying unaudited interim condensed consolidated financial
statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”). Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations.
However, the Company believes that the disclosures are adequate to
prevent the information presented from being misleading. These
financial statements should be read in conjunction with
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and the financial statements and the
notes thereto included in the Company’s Annual Report on Form
10-K, which contains audited financial information for the three
years in the period ended December 31, 2017.
The information provided in this report reflects all adjustments
(consisting solely of normal recurring items) that are, in the
opinion of management, necessary to present fairly the financial
position and the results of operations for the periods presented.
Interim results are not necessarily, especially given seasonality,
indicative of results to be expected for a full year.
The condensed consolidated financial statements include the
accounts of JAKKS Pacific, Inc. and its wholly-owned subsidiaries
(collectively, “the Company”). The condensed
consolidated financial statements also include the accounts of
DreamPlay Toys, LLC, a joint venture with NantWorks LLC, JAKKS
Meisheng Trading (Shanghai) Limited, a joint venture with Meisheng
Cultural & Creative Corp., Ltd., and JAKKS Meisheng Animation
(HK) Limited, a joint venture with Hong Kong Meisheng Cultural
Company Limited.
Certain prior period amounts have been reclassified for consistency
with the current period presentation.
In May 2014, the FASB issued ASU 2014-09, “Revenue from
Contracts with Customers (Topic 606)”, which supersedes the
revenue recognition requirements in ASC 605, (Topic 605), and most
industry-specific guidance. Under the new model, recognition of
revenue occurs when a customer obtains control of promised goods or
services in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or
services. In addition, the new standard requires that reporting
companies disclose the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. In
August 2015, the FASB issued ASU 2015-14, “Revenue from
Contracts with Customers – Deferral of the Effective
Date”, which defers the effective date of ASU 2014-09 to
annual reporting periods beginning after December 15, 2017, and
interim periods therein. In 2016, the FASB issued ASU 2016-08,
“Principal versus Agent Considerations (Reporting Revenue
Gross versus Net)”, ASU 2016-10, “Identifying
Performance Obligations and Licensing”, and ASU 2016-12,
“Revenue from Contracts with Customers - Narrow-Scope
Improvements and Practical Expedients”. Entities have the
choice to adopt these updates using either of the following
transition methods: (i) a full retrospective approach reflecting
the application of the standard in each prior reporting period with
the option to elect certain practical expedients, or (ii) a
modified retrospective approach with the cumulative effect of these
standards recognized at the date of the adoption.
On January 1, 2018, the Company adopted the new accounting standard
ASC 606, (Topic 606), Revenue from Contracts with Customers and all
the related amendments (“new revenue standard”) using
the modified retrospective method applied to those contracts which
were not completed as of January 1, 2018. Results for reporting
periods beginning after January 1, 2018 are presented under Topic
606, while prior period amounts are not adjusted and continue to be
reported in accordance with the Company’s historic accounting
under ASC 605, (Topic 605).
There is no impact to the Company’s condensed consolidated
financial statements resulting from the adoption of Topic 606 as
the timing and measurement of revenue remained consistent with
Topic 605, although our approach to revenue recognition is now
based on the transfer of control. Further, there is no difference
in the amounts of the revenue and cost of sales reported in the
Company’s condensed consolidated statements of operations and
comprehensive loss for the quarter ended March 31, 2018 that were
recognized pursuant to Topic 606 and those that would have been
reported pursuant to Topic 605.
In January 2016, the FASB issued ASU 2016-01, “Financial
Instruments - Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities” (“ASU
2016-01”). The new guidance is intended to improve the
recognition and measurement of financial instruments. The ASU is
effective for fiscal years and interim periods within those years
beginning after December 15, 2017. The adoption of this standard
does not have an impact on the Company’s condensed
consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
“Leases”. ASU 2016-02 establishes a right-of-use
(“ROU”) model that requires a lessee to record a ROU
asset and a lease liability on the balance sheet for all leases
with terms longer than 12 months. Leases will be classified as
either finance or operating, with classification affecting the
pattern of expense recognition in the income statement. ASU 2016-02
is effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early adoption
is permitted. A modified retrospective transition approach is
required for lessees for capital and operating leases existing at,
or entered into after, the beginning of the earliest comparative
period presented in the financial statements, with certain
practical expedients available. The Company is currently evaluating
the impact of the pending adoption of this new standard on its
condensed consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, “Statement of
Cash Flows (Topic 230): Classification of Certain Cash Receipts and
Cash Payments.” The new guidance is intended to reduce
diversity in practice in how transactions are classified in the
statement of cash flows. This ASU is effective for fiscal years,
and for interim periods within those fiscal years, beginning after
December 15, 2017. The adoption of this standard does not have an
impact on the Company’s condensed consolidated financial
statements.
In October 2016, the FASB issued ASU 2016-16, “Income Taxes
(Topic 740): Intra-Entity Transfers of Assets Other than
Inventory.” The amendments in this ASU reduces the complexity
in the accounting standards by allowing the recognition of current
and deferred income taxes for an intra-entity asset transfer, other
than inventory, when the transfer occurs. Historically, recognition
of the income tax consequence was not recognized until the asset
was sold to an outside party. This ASU is effective for fiscal
years, and interim periods within those fiscal years, beginning
after December 15, 2017. The adoption of this standard does not
have an impact on the Company’s condensed consolidated
financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of
Cash Flows (Topic 230): Restricted Cash”. The update requires
that amounts generally described as restricted cash or restricted
cash equivalents be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. The new standard will be
effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years, and early
adoption is permitted. The Company early adopted this standard
during the second quarter of 2017. The adoption of this standard
had a reclassification impact for the three month period ended
March 31, 2017. The restricted cash as of March 31, 2017, in the
amount of $10.6 million, was previously classified as a financing
activity related to borrowings exceeding the Company’s
borrowing base availability under the Wells Fargo credit facility.
The increase to cash and cash equivalents was $10.6 million.
In May 2017, the FASB issued ASU 2017-09, “Compensation -
Stock Compensation (Topic 718): Scope of Modification
Accounting”, which clarifies when to account for a change to
the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is
required only if the fair value, vesting conditions, or the
classification of the award (as equity or liability) changes as a
result of the change in terms or conditions. ASU 2017-09 is
effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years. The adoption
of this standard does not have an impact on the Company’s
condensed consolidated financial statements.
In January 2018, the FASB issued ASU 2018-02, Income Statement -
Reporting Comprehensive Income (Topic 220): Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income,
which gives entities the option to reclassify to retained earnings
the tax effects resulting from the Act related to items in
Accumulated Other Comprehensive Income (“AOCI”) that
the FASB refers to as having been stranded in AOCI. The new
guidance may be applied retrospectively to each period in which the
effect of the Act is recognized in the period of adoption. The
Company could adopt this guidance for fiscal years beginning after
December 15, 2018 and interim periods within those fiscal years.
Early adoption is permitted for periods for which financial
statements have not yet been issued or made available for issuance,
including the period the Act was enacted. The guidance, when
adopted, will require new disclosures regarding a company’s
accounting policy for releasing the tax effects in AOCI and permit
the company the option to reclassify to retained earnings the tax
effects resulting from the Act that are stranded in AOCI. The
Company is not early adopting at this time and does not have plans
to adopt this new guidance.
|
Business Segments, Geographic Data, and Sales by Major Customers |
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Business Segments, Geographic Data, and Sales by Major Customers |
Note 2 — Business Segments, Geographic Data, and Sales by
Major Customers
The Company is a worldwide producer and marketer of
children’s toys and other consumer products, principally
engaged in the design, development, production, marketing and
distribution of its diverse portfolio of products. The Company has
aligned its operating segments into three reporting segments that
reflect the management and operation of the business. The
Company’s segments are (i) U.S. and Canada, (ii)
International, and (iii) Halloween.
The U.S. and Canada segment includes action figures, vehicles, play
sets, plush products, dolls, electronic products, construction
toys, infant and pre-school toys, role play and everyday costume
play, foot to floor ride-on vehicles, wagons, novelty toys,
seasonal and outdoor products, kids’ indoor and outdoor
furniture, and related products.
Within the International segment, the Company markets and sells its
toy products in markets outside of the U.S. and Canada, primarily
in the European, Asia Pacific, and Latin American regions.
Within the Halloween segment, the Company markets and sells
Halloween costumes and accessories and everyday costume play
products, primarily in the U.S. and Canada.
Segment performance is measured at the operating income (loss)
level. All sales are made to external customers and general
corporate expenses have been attributed to the various segments
based upon relative sales volumes. Segment assets are primarily
comprised of accounts receivable and inventories, net of applicable
reserves and allowances, goodwill and other assets. Certain assets
which are not tracked by operating segment and/or that benefit
multiple operating segments have been allocated on the same
basis.
Results are not necessarily those which would be achieved if each
segment was an unaffiliated business enterprise. Information by
segment and a reconciliation to reported amounts for the three
months ended March 31, 2018 and 2017 and as of March 31, 2018 and
December 31, 2017 are as follows (in thousands):
The following tables present information about the Company by
geographic area as of March 31, 2018 and December 31, 2017 and for
the three months ended March 31, 2018 and 2017 (in
thousands):
Major Customers
Net sales to major customers for the three months ended March 31,
2018 and 2017 were as follows (in thousands, except for
percentages):
At March 31, 2018 and December 31, 2017, the Company’s three
largest customers accounted for approximately 58.4% and 60.6%,
respectively, of the Company’s gross accounts receivable. The
concentration of the Company’s business with a relatively
small number of customers may expose the Company to material
adverse effects if one or more of its large customers were to
experience financial difficulty. The Company performs ongoing
credit evaluations of its top customers and maintains an allowance
for potential credit losses.
On
March 15, 2018, Toys “R” Us (“TRU”) filed a
motion to conduct an orderly wind down of its operations in the
U.S. and commence store closing sales at all 735 U.S. stores. The
total worldwide pre and post-petition gross accounts receivable
balance as of March 31, 2018 is $35.1 million. In April 2018, the
Company collected $12.0 million from its insurance carrier and $0.6
million from TRU, resulting in a net receivable from TRU of $22.5
million. The
$22.5 million net receivable balance has been fully reserved by the
Company as of March 31, 2018.
At March 31, 2018 and December 31, 2017, the Company's TRU
consolidated accounts receivable balance represented 29.4% and
26.4%, respectively, of the Company’s gross accounts
receivable.
|
Inventory |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||
Inventory |
Note 3 — Inventory
Inventory, which includes the ex-factory cost of goods, in-bound
freight, duty and capitalized warehouse costs, is valued at the
lower of cost (first-in, first-out) or net realizable value, net of
inventory obsolescence reserve, and consists of the following (in
thousands):
During the first quarter of 2017, the Company adopted ASU 2015-11,
“Simplifying the Measurement of Inventory (Topic 330)”.
The amendments, which apply to inventory that is measured using any
method other than the last-in, first-out (LIFO) or retail inventory
method, require that entities measure inventory at the lower of
cost or net realizable value. ASU 2015-11 is effective for fiscal
years, and interim periods within those years, beginning after
December 15, 2016 and should be applied on a prospective basis. The
adoption of ASU 2015-11 did not have an impact to the
Company’s condensed consolidated financial statements.
|
Revenue Recognition and Reserve for Sales Returns and Allowances |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Revenue Recognition and Reserve for Sales Returns and Allowances |
Note 4 — Revenue Recognition and Reserve for Sales Returns
and Allowances
The Company’s contracts with customers only include one
performance obligation (i.e., sale of the Company’s
products). Revenue is recognized in the gross amount at a point in
time when delivery is completed and control of the promised goods
is transferred to the customers. Revenue is measured as the amount
of consideration the Company expects to be entitled to in exchange
for those goods. The Company’s contracts do not involve
financing elements as payment terms with customers are less than
one year. Further, because revenue is recognized at the point in
time goods are sold to customers, there are no contract assets or
contract liability balances.
The Company disaggregates its revenues from contracts with
customers by reporting segment: U.S. and Canada, International, and
Halloween. The Company further disaggregates revenues by major
geographic region. See Note 2, Business
Segments, Geographic Data, and Sales by Major Customers, for
further information.
The Company offers various discounts, pricing concessions, and
other allowances to customers, all of which are considered in
determining the transaction price. Certain discounts and allowances
are fixed and determinable at the time of sale and are recorded at
the time of sale as a reduction to revenue. Other discounts and
allowances can vary and are determined at management’s
discretion (variable consideration). Specifically, the Company
occasionally grants discretionary credits to facilitate markdowns
and sales of slow moving merchandise, and consequently accrues an
allowance based on historic credits and management estimates.
Further, while the Company generally does not allow product
returns, the Company does make occasional exceptions to this
policy, and consequently records a sales return allowance based
upon historic return amounts and management estimates. These
allowances (variable consideration) are estimated using the
expected value method and are recorded at the time of sale as a
reduction to revenue. The Company adjusts its estimate of variable
consideration at least quarterly or when facts and circumstances
used in the estimation process may change. The variable
consideration is not constrained as the Company has sufficient
history on the related estimates and does not believe there is a
risk of significant revenue reversal.
The Company also participates in cooperative advertising
arrangements with some customers, whereby it allows a discount from
invoiced product amounts in exchange for customer purchased
advertising that features the Company’s products. Generally,
these allowances range from 2% to 10% of gross sales, and are
generally based upon product purchases or specific advertising
campaigns. Such allowances are accrued when the related revenue is
recognized. These cooperative advertising arrangements provide a
distinct benefit and fair value, and are accounted for as direct
selling expenses.
Sales commissions are expensed when incurred as the related revenue
is recognized at a point in time and therefore the amortization
period is less than one year. As a result these costs are recorded
as direct selling expenses, as incurred.
Shipping and handling activities are considered part of the
Company’s obligation to transfer the products and therefore
are recorded as direct selling expenses, as incurred.
The Company’s reserve for sales returns and allowances
amounted to $15.3 million as of March 31, 2018, compared to $17.6
million as of December 31, 2017. This decrease was primarily due to
certain customers taking their annual allowances related to 2017
sales.
|
Credit Facility |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Credit Facility |
Note 5 — Credit Facility
In March 2014, the Company and its domestic subsidiaries entered
into a secured credit facility with General Electric Capital
Corporation (“GECC”). The loan agreement, as amended
and subsequently assigned to Wells Fargo Bank, N.A. pursuant to its
acquisition of GECC, provides for a $75.0 million revolving credit
facility subject to availability based on prescribed advance rates
on certain domestic accounts receivable and inventory (the
“WF Loan Agreement”). The amounts outstanding under the
credit facility, as amended, are payable in full upon maturity of
the facility on March 27, 2019, except that the credit facility
will mature on June 15, 2018 if we do not refinance or extend the
maturity of the Convertible Senior Notes that mature in 2018,
provided that any such refinancing or extension shall have a
maturity date that is no sooner than six months after the stated
maturity of the facility (i.e., on or about September 27, 2019).
The credit facility is secured by a security interest in favor of
the lender covering a substantial amount of the assets of the
Company. As of March 31, 2018, there were no outstanding borrowings
and the amount of outstanding stand-by letters of credit totaled
$13.7 million; the total excess availability under the facility was
$10.0 million. As of December 31, 2017, the amount of outstanding
borrowings was $5.0 million and outstanding stand-by letters of
credit totaled $20.0 million; the total excess availability under
the facility was $14.1 million.
The Company’s ability to borrow under the WF Loan Agreement
is also subject to its ongoing compliance with certain financial
covenants, including the maintenance by the Company of a fixed
charge coverage ratio of at least 1.25:1.0 based on the trailing
four fiscal quarters in the event minimum excess availability of
$10.0 million under the facility is not maintained. As of March 31,
2018 and December 31, 2017, the Company was in compliance with the
financial covenants under the WF Loan Agreement.
The Company may borrow funds at LIBOR or at a Base Rate, plus
applicable margins of 225 basis point spread over LIBOR and 125
basis point spread on Base Rate loans. The Base Rate is the highest
of (i) the Federal Funds Rate plus a margin of 0.50%, (ii) the rate
last quoted by The Wall Street Journal as the “Prime
Rate,” or (iii) the sum of a LIBOR rate plus 1.00%. In
addition to standard fees, the facility has an unused credit line
fee, which ranges from 25 to 50 basis points. As of March 31, 2018
and December 31, 2017, the weighted average interest rate on the
credit facility was approximately 3.79%.
The WF Loan Agreement also contains customary events of default,
including a cross default provision and a change of control
provision. In the event of a default, all of the obligations of the
Company and its subsidiaries under the WF Loan Agreement may be
declared immediately due and payable. For certain events of default
relating to insolvency and receivership, all outstanding
obligations become due and payable.
|
Convertible Senior Notes |
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Senior Notes |
Note 6 — Convertible Senior Notes
Convertible senior notes consist of the following (in
thousands):
* The amount presented for the 3.25% 2020 convertible senior notes
within the table represents the fair value as of March 31, 2018.
The principal amount of these notes is $21.5 million.
Amortization expense classified as interest expense related to debt
issuance costs was $0.2 million and $0.3 million for the three
months ended March 31, 2018 and 2017, respectively.
In July 2013, the Company sold an aggregate of $100.0 million
principal amount of 4.25% Convertible Senior Notes due 2018 (the
“2018 Notes”). The 2018 Notes are senior unsecured
obligations of the Company paying interest semi-annually in arrears
on August 1 and February 1 of each year at a rate of 4.25% per
annum and will mature on August 1, 2018. The initial and still
current conversion rate for the 2018 Notes is 114.3674 shares of
the Company’s common stock per $1,000 principal amount of
notes, equivalent to an initial conversion price of approximately
$8.74 per share of common stock, subject to adjustment in certain
events. Upon conversion, the 2018 Notes will be settled in shares
of the Company’s common stock. Holders of the 2018 Notes may
require that the Company repurchase for cash all or some of their
notes upon the occurrence of a fundamental change (as defined in
the 2018 Notes). In 2016, the Company repurchased and retired an
aggregate of approximately $6.1 million principal amount of the
2018 Notes. In addition, approximately $0.1 million of the
unamortized debt issuance costs were written off and a nominal gain
was recognized in conjunction with the retirement of the 2018
Notes. During the first quarter of 2017, the Company exchanged and
retired $39.1 million principal amount of the 2018 Notes at par for
$24.1 million in cash and approximately 2.9 million shares of its
common stock. During the second quarter of 2017, the Company
exchanged and retired $12.0 million principal amount of the 2018
Notes at par for $11.6 million in cash and 112,400 shares of its
common stock, and approximately $0.1 million of the unamortized
debt issuance costs were written off and a $0.1 million gain was
recognized in conjunction with the exchange and retirement of the
2018 Notes.
In August 2017, the Company agreed with Oasis Management and Oasis
Investments II Master Fund Ltd., the holder of approximately $21.5
million face amount of its 4.25% Convertible Senior Notes due in
2018, to extend the maturity date of these notes to November 1,
2020. In addition, the interest rate was reduced to 3.25% per annum
and the conversion rate was increased to 328.0302 shares of the
Company’s common stock per $1,000 principal amount of notes,
among other things. After execution of a definitive agreement for
the modification and final approval by the other members of the
Company’s Board of Directors and Oasis’ Investment
Committee the transaction closed on November 7, 2017. In connection
with this transaction, the Company recognized a loss on
extinguishment of the debt of approximately $0.6 million. Further,
the Company elected to measure and present the new debt held by
Oasis at fair value using Level 3 inputs and as a result,
recognized a loss of $1.0 million for the three months ended March
31, 2018 related to changes in the fair value of the 3.25% 2020
Notes. At March 31, 2018 and December 31, 2017, the 3.25% 2020
Notes had a fair value of approximately $23.5 million and $22.5
million, respectively. The Company evaluated its credit risk as of
March 31, 2018, and determined that there was no change from
December 31, 2017.
In June 2014, the Company sold an aggregate of $115.0 million
principal amount of 4.875% Convertible Senior Notes due 2020 (the
“2020 Notes”). The 2020 Notes are senior unsecured
obligations of the Company paying interest semi-annually in arrears
on June 1 and December 1 of each year at a rate of 4.875% per annum
and will mature on June 1, 2020. The initial and still current
conversion rate for the 2020 Notes is 103.7613 shares of the
Company’s common stock per $1,000 principal amount of notes,
equivalent to an initial conversion price of approximately $9.64
per share of common stock, subject to adjustment in certain events.
Upon conversion, the 2020 Notes will be settled in shares of the
Company’s common stock. Holders of the 2020 Notes may require
that the Company repurchase for cash all or some of their notes
upon the occurrence of a fundamental change (as defined in the 2020
Notes). In January 2016, the Company repurchased and retired an
aggregate of $2.0 million principal amount of the 2020 Notes. In
addition, approximately $0.1 million of the unamortized debt
issuance costs were written off and a $0.1 million gain was
recognized in conjunction with the retirement of the 2020
Notes.
|
Income Taxes |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Income Taxes |
Note 7 — Income Taxes
The Company’s income tax benefit of $2.3 million for the
three months ended March 31, 2018 reflects an effective tax rate of
6.1%. The Company’s income tax benefit of $0.3 million for
the three months ended March 31, 2017 reflects an effective tax
rate of 1.8%. The majority of the tax benefit for the three months
ended March 31, 2018 relates to foreign income taxes partially
offset by discrete items. The majority of the tax benefit for the
three months ended March 31, 2017 relates to foreign income taxes
partially offset by the U.S. alternative minimum tax.
The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act
reduces the U.S. federal corporate income tax rate from 35% to 21%,
and requires companies to pay a one-time transition tax on earnings
of certain foreign subsidiaries that were previously tax deferred
and creates new taxes on certain foreign sourced earnings. Due to
the timing of the enactment and the complexity involved in applying
the provisions of the Act, we made reasonable estimates of the
effects and recorded provisional amounts in our financial
statements as of December 31, 2017. As we collect and prepare
necessary data, and interpret the Act and any additional guidance
issued by the U.S. Treasury Department, the Internal Revenue
Service (IRS), and other standard-setting bodies, we may make
adjustments to the provisional amounts. Those adjustments may
materially affect our provision for income taxes and effective tax
rate in the period in which the adjustments are made. No
adjustments were made in the first quarter of 2018 as the
provisional amounts as of December 31, 2017 remain reasonable. We
will continue to make and refine our calculations as additional
analysis is completed in 2018.
The Act subjects a U.S. shareholder to tax on Global intangible
low-taxed income (GILTI) earned by certain foreign subsidiaries.
The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global
Intangible Low-Taxed Income, states that an entity can make an
accounting policy election to either recognize deferred taxes for
temporary basis differences expected to reverse as GILTI in future
years or provide for the tax expense related to GILTI in the year
the tax is incurred as a period expense only. Given the complexity
of the GILTI provisions, we are still evaluating the effects of the
GILTI provisions and have not yet determined our accounting policy.
At March 31, 2018, because we are still evaluating the GILTI
provisions and our analysis of future taxable income that is
subject to GILTI, we have included GILTI related to current-year
operations only. The GILTI provision does not impact the 2018 first
quarter tax expense due to the fully valued tax attributes
carryforward.
|
Loss Per Share |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss Per Share |
Note 8 — Loss Per Share
The following table is a reconciliation of the weighted average
shares used in the computation of loss per share for the periods
presented (in thousands, except per share data):
Basic loss per share is calculated using the weighted average
number of common shares outstanding during the period. Diluted
earnings per share is calculated using the weighted average number
of common shares and common share equivalents outstanding during
the period (which consist of warrants, options, restricted stock
awards, restricted stock units and convertible debt to the extent
they are dilutive). The weighted average number of common shares
outstanding excludes shares repurchased pursuant to a prepaid
forward share repurchase agreement associated with the issuance of
the Convertible Senior Notes due 2020. Common share equivalents
that could potentially dilute basic earnings per share in the
future, which were excluded from the computation of diluted
earnings per share due to being anti-dilutive, totaled
approximately 24,917,528 and 22,969,239 for the three months ended
March 31, 2018 and 2017, respectively.
|
Common Stock and Preferred Stock |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Common Stock and Preferred Stock |
Note 9 — Common Stock and Preferred Stock
In January and February 2017, the Company issued an aggregate of
873,787 shares of restricted stock at a value of approximately $4.5
million to two executive officers, which vest, subject to certain
company financial performance criteria and market conditions, over
a three year period. In addition, an aggregate of 94,102 shares of
restricted stock at an aggregate value of approximately $0.5
million were issued to its five non-employee directors, which
vested in January 2018.
In January and February 2017, the Company issued an aggregate of
2,865,000 shares of its common stock at a value of $15.1 million to
holders of its 2018 convertible senior notes as partial
consideration for the exchange at par of $39.1 million principal
amount of such notes.
In March 2017, the Company entered into an agreement to issue
3,660,891 shares of its common stock at an aggregate price of $19.3
million to a Hong Kong affiliate of its China joint venture
partner. After their shareholder and China regulatory approval, the
transaction closed on April 27, 2017. Upon the closing, the Company
added a representative of Meisheng as a non-employee director and
issued 13,319 shares of restricted stock at a value of $0.1
million, which vested in January 2018.
In June 2017, the Company issued an aggregate of 112,400 shares of
its common stock at a value of approximately $0.4 million to
holders of its 2018 convertible senior notes as partial
consideration for the exchange at par of $11.6 million principal
amount of such notes.
In January 2018, the Company issued an aggregate of 1,914,894
shares of restricted stock at a value of approximately $4.5 million
to two executive officers, which vest, subject to certain company
financial performance criteria and market conditions, over a three
year period. In addition, an aggregate of 249,480 shares of
restricted stock at an aggregate value of approximately $0.6
million were issued to its six non-employee directors, which vest
in January 2019.
All issuances of common stock, including those issued pursuant to
stock option and warrant exercises, restricted stock grants and
acquisitions, are issued from the Company’s authorized but
not issued and outstanding shares.
No dividend was declared or paid in the first quarter of 2018 and
in 2017.
|
Joint Ventures |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Joint Ventures |
Note 10 — Joint Ventures
The Company owns a fifty percent interest in a joint venture
(“Pacific Animation Partners”) with the U.S.
entertainment subsidiary of a leading Japanese advertising and
animation production company. The joint venture was created to
develop and produce a boys’ animated television show, which
it licensed worldwide for television broadcast as well as consumer
products. The Company produced toys based upon the television
program under a license from the joint venture which also licensed
certain other merchandising rights to third parties. The joint
venture completed and delivered 65 episodes of the show, which
began airing in February 2012, and has since ceased production of
the television show. For the three months ended March 31, 2018 and
2017, the Company recognized income from the joint venture of
$22,000 and nil, respectively.
As of March 31, 2018 and December 31, 2017, the balance of the
investment in the Pacific Animation Partners joint venture is
nil.
In September 2012, the Company entered into a joint venture
(“DreamPlay Toys”) with NantWorks LLC
(“NantWorks”) in which it owns a fifty percent
interest. Pursuant to the operating agreement of DreamPlay Toys,
the Company paid to NantWorks cash in the amount of $8.0 million
and issued NantWorks a warrant to purchase 1.5 million shares of
the Company’s common stock at a value of $7.0 million in
exchange for the exclusive right to arrange for the provision of
the NantWorks recognition technology platform for toy products. The
Company had classified these rights as an intangible asset, which
was being amortized over the anticipated revenue stream from the
exploitation of these rights. However, the Company has abandoned
the use of the technology in connection with its toy products and
no future sales are anticipated, and the Company recorded an
impairment charge to income of $2.9 million to write off the
remaining unamortized technology rights during the third quarter of
2017. The Company retains the financial risk of the joint venture
and is responsible for the day-to-day operations, which are
expected to be nominal in future periods. The results of operations
of the joint venture are consolidated with the Company’s
results.
In addition, in 2012, the Company invested $7.0 million in cash in
exchange for a five percent economic interest in a related entity,
DreamPlay, LLC, that was expected to monetize the exploitation of
the recognition technologies in non-toy consumer product
categories. Adoption of the technology has been inadequate to
establish a commercially viable market for the technology.
NantWorks has the right to repurchase the Company’s interest
for $7.0 million, but the Company does not anticipate that
NantWorks will do so. As of September 30, 2017, the Company
determined the value of this investment will not be realized and
that full impairment of the value had occurred. Accordingly, the
Company recorded an impairment charge of $7.0 million during the
quarter ended September 30, 2017.
In November 2014, the Company entered into a joint venture with
Meisheng Culture & Creative Corp., for the purpose of providing
certain JAKKS licensed and non-licensed toys and consumer products
to agreed-upon territories of the People’s Republic of China.
The joint venture includes a subsidiary in the Shanghai Free Trade
Zone that sells, distributes and markets these products, which
include dolls, plush, role play products, action figures, costumes,
seasonal items, technology and app-enhanced toys, based on
entertainment licenses and JAKKS’ own proprietary brands. The
Company owns fifty-one percent of the joint venture and
consolidates the joint venture since control rests with the
Company. The non-controlling interest’s share of the income
from the joint venture for the three months ended March 31, 2018
and 2017 was income of $51,000 and $31,000, respectively.
In October 2016, the Company entered into a joint venture with Hong
Kong Meisheng Cultural Company Limited, a Hong Kong-based
subsidiary of Meisheng (“HK Meisheng”), for the purpose
of creating and developing original, multiplatform content for
children including new short-form series and original shows. JAKKS
and HK Meisheng each own fifty percent of the joint venture and
will jointly own the content. JAKKS will retain merchandising
rights for kids’ consumer products in all markets except
China, which Meisheng will oversee through the Company’s
existing distribution joint venture. The non-controlling
interest’s share of the loss from the joint venture for three
months ended March 31, 2018 and 2017 was nil. As of April 27, 2017,
Hong Kong Meisheng Cultural Company Limited beneficially owns more
than 10% of the Company’s outstanding common stock.
|
Goodwill |
3 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||
Goodwill |
Note 11 — Goodwill
The changes to the carrying amount of goodwill as of March 31, 2018
are summarized as follows (in thousands):
The Company applies a fair value-based impairment test to the
carrying value of goodwill and indefinite-lived intangible assets
on an annual basis and, on an interim basis, if certain events or
circumstances indicate that an impairment loss may have been
incurred. Goodwill impairment exists when the estimated fair value
of goodwill is less than its carrying value. Based on several
factors that occurred during the quarter ended March 31, 2018, the
Company determined the fair value of its reporting units should be
retested for potential impairment. As a result of the retesting
performed, no goodwill impairment was determined to have occurred
for the three months ended March 31, 2018.
|
Intangible Assets Other Than Goodwill |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Intangible Assets Other Than Goodwill |
Note 12 — Intangible Assets Other Than Goodwill
Intangible assets other than goodwill consist primarily of
licenses, product lines, customer relationships and trademarks.
Amortized intangible assets are included in intangibles in the
accompanying condensed consolidated balance sheets. Trademarks are
disclosed separately in the accompanying condensed consolidated
balance sheets. Intangible assets as of March 31, 2018 and December
31, 2017 include the following (in thousands, except for weighted
useful lives):
|
Comprehensive Loss |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Loss |
Note 13 — Comprehensive Loss
The table below presents the components of the Company’s
comprehensive loss for the three months ended March 31, 2018 and
2017 (in thousands):
|
Litigation |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Litigation |
Note 14 — Litigation
The Company is a party to, and certain of its property is the
subject of, various pending claims and legal proceedings that
routinely arise in the ordinary course of its business, but the
Company does not believe that any of these claims or proceedings
will have a material effect on its business, financial condition or
results of operations.
|
Share-Based Payments |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Payments |
Note 15 — Share-Based Payments
The Company’s 2002
Stock Award and Incentive Plan (the
“Plan”), as amended, provides for the awarding of stock
options, restricted stock and restricted stock units to certain key
employees, executive officers and non-employee directors. Current
awards under the Plan include grants to directors, executive
officers and certain key employees of restricted stock awards and
units, with vesting contingent upon (a) the completion of specified
service periods ranging from one to five years and/or (b) meeting
certain financial performance and/or market-based metrics. Unlike
the restricted stock awards, the shares for the restricted stock
units are not issued until they vest. The Plan is more fully
described in Notes 15 and 17 to the Condensed Consolidated
Financial Statements in the Company’s 2017 Annual Report on
Form 10-K.
The following table summarizes the total share-based compensation
expense and the related tax benefits recognized for the three
months ended March 31, 2018 and 2017 (in thousands):
Restricted Stock Awards
Restricted stock award activity (including those with
performance-based vesting criteria) for the three months ended
March 31, 2018 is summarized as follows:
As of March 31, 2018, there was $4.4 million of total unrecognized
compensation cost related to non-vested restricted stock awards,
which is expected to be recognized over a weighted-average period
of 2.73 years.
Restricted Stock Units
Restricted stock unit activity (including those with
performance-based vesting criteria) for the three months ended
March 31, 2018 is summarized as follows:
As of March 31, 2018, there was $1.8 million of total unrecognized
compensation cost related to non-vested restricted stock units,
which is expected to be recognized over a weighted-average period
of 2.3 years.
Stock Options
There
has been no stock option activity pursuant to the
Plan since December 31, 2015.
|
Fair Value Measurements |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
Note 16 — Fair Value Measurements
Fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In determining fair
value, the Company uses various methods including market, income
and cost approaches. Based upon these approaches, the Company often
utilizes certain assumptions that market participants would use in
pricing the asset or liability, including assumptions about risk
and/or the risks inherent in the inputs to the valuation technique.
These inputs can be readily observable, market-corroborated, or
unobservable inputs. The Company utilizes valuation techniques that
maximize the use of observable inputs and minimize the use of
unobservable inputs. Based upon observable inputs used in the
valuation techniques, the Company is required to provide
information according to the fair value hierarchy. The fair value
hierarchy ranks the quality and reliability of the information used
to determine fair values into three broad levels as follows:
In instances where the determination of the fair value measurement
is based upon inputs from different levels of the fair value
hierarchy, the level in the fair value hierarchy within which the
entire fair value measurement falls is based upon the lowest level
input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a
particular input to the fair value measurement in its entirety
requires judgment, and considers factors specific to the asset or
liability.
The following table summarizes our financial assets measured at
fair value on a recurring basis as of March 31, 2018 (in
thousands):
The following table provides a reconciliation of the beginning and
ending balances of assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) (in
thousands):
|
Liquidity |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Liquidity |
Note 17 — Liquidity
As of March 31, 2018 and December 31, 2017, the Company held cash
and cash equivalents of $46.8 million and $65.0 million,
respectively. Cash and cash equivalents held outside of the United
States in various foreign subsidiaries totaled $39.7 million and
$52.8 million as of March 31, 2018 and December 31, 2017,
respectively. The cash and cash equivalent balances in foreign
subsidiaries have been fully taxed in the U.S. in connection with
the Tax Cuts and Jobs Act, and would not be subject to additional
U.S. tax should such amounts be repatriated in the form of
dividends or deemed distributions. Any such repatriation may result
in foreign withholding taxes, which would not be significant as of
March 31, 2018.
The Company’s primary sources of working capital are cash
flows from operations and borrowings under its credit facility (see
Note 5).
Typically, cash flows from operations are impacted by the effect on
sales of (1) the appeal of the Company’s products, (2) the
success of its licensed brands, (3) the highly competitive
conditions existing in the toy industry, (4) dependency on a
limited set of large customers, and (5) general economic
conditions. A downturn in any single factor or a combination of
factors could have a material adverse impact upon the
Company’s ability to generate sufficient cash flows to
operate the business. In addition, the Company’s business and
liquidity are dependent to a significant degree on its vendors and
their financial health, as well as the ability to accurately
forecast the demand for products. The loss of a key vendor, or
material changes in support by them, or a significant variance in
actual demand compared to the forecast, can have a material adverse
impact on the Company’s cash flows and business. Given the
conditions in the toy industry environment in general, vendors,
including licensors, may seek further assurances or take actions to
protect against non-payment of amounts due them. Changes in this
area could have a material adverse impact on the Company’s
liquidity.
Cash and cash equivalents, projected cash flow from operations and
borrowings under the Company’s credit facility should be
sufficient to meet working capital and capital expenditure
requirements, and allow the repayment of the Company’s
indebtedness in 2018, for the next 12 months with certain
mitigating plans described herein. The Company is currently in the
process of negotiating to amend its credit facility to allow for
certain foreign accounts receivable to be included in the borrowing
base calculation to improve the liquidity position. The Company is
also in the process of negotiating a term loan with another bank
under which the amount advanced would be based on certain types of
inventory. These two transactions would provide the Company with
additional working capital after the 2018 convertible notes of
$21.2 million are effectively repaid on or about June 15, 2018 as a
result of the springing maturity provision included in its credit
facility. The Company cannot make assurances that it will be able
to close the aforementioned two transactions or that it will have
the financial resources required to obtain, or that the conditions
of the capital markets will support, any future debt or equity
financings. In addition, the Company’s ability to fund
operations and retire or refinance the 2018 convertible notes is
dependent on a number of factors, some of which are beyond its
control, including the Company’s future operating performance
and the factors mentioned above and included in “Risk
Factors” in Item 1A of this Form 10-Q. If the Company is
unable to amend its credit facility to increase the borrowing base,
close the contemplated term loan, refinance the 2018 convertible
notes or secure another source of capital on commercially
reasonable terms, it may be required to take additional measures,
such as reorganizing its cost structure and adjusting inventory
purchases and/or payment terms with suppliers, which could have a
material adverse impact on its revenues and business.
|
Business Segments, Geographic Data, and Sales by Major Customers (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Information by Segment and Reconciliation to Reported Amounts |
Information by segment and a reconciliation to reported amounts for
the three months ended March 31, 2018 and 2017 and as of March 31,
2018 and December 31, 2017 are as follows (in thousands):
|
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Information by Geographic Area |
The following tables present information about the Company by
geographic area as of March 31, 2018 and December 31, 2017 and for
the three months ended March 31, 2018 and 2017 (in
thousands):
|
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Net Sales to Major Customers |
Net sales to major customers for the three months ended March 31,
2018 and 2017 were as follows (in thousands, except for
percentages):
|
Inventory (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||
Net of Inventory Obsolescence Reserve |
Inventory, which includes the ex-factory cost of goods, in-bound
freight, duty and capitalized warehouse costs, is valued at the
lower of cost (first-in, first-out) or net realizable value, net of
inventory obsolescence reserve, and consists of the following (in
thousands):
|
Convertible Senior Notes (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Senior Notes |
Convertible senior notes consist of the following (in
thousands):
* The amount presented for the 3.25% 2020 convertible senior notes
within the table represents the fair value as of March 31, 2018.
The principal amount of these notes is $21.5 million.
|
Loss Per Share (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Weighted Average Shares Used in Computation of Loss Per Share |
The following table is a reconciliation of the weighted average
shares used in the computation of loss per share for the periods
presented (in thousands, except per share data):
|
Goodwill (Tables) |
3 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2018 | |||||||||||||||||||||
Changes to Carrying Amount of Goodwill |
The changes to the carrying amount of goodwill as of March 31, 2018
are summarized as follows (in thousands):
|
Intangible Assets Other Than Goodwill (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible Assets |
Intangible assets as of March 31, 2018 and December 31, 2017
include the following (in thousands, except for weighted useful
lives):
|
Comprehensive Loss (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Comprehensive Income (Loss) |
The table below presents the components of the Company’s
comprehensive loss for the three months ended March 31, 2018 and
2017 (in thousands):
|
Share-Based Payments (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Share-Based Compensation Expense and Related Tax Benefits Recognized |
The following table summarizes the total share-based compensation
expense and the related tax benefits recognized for the three
months ended March 31, 2018 and 2017 (in thousands):
|
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Restricted Stock Award Activity |
Restricted stock award activity (including those with
performance-based vesting criteria) for the three months ended
March 31, 2018 is summarized as follows:
|
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Restricted Stock Unit Activity |
Restricted stock unit activity (including those with
performance-based vesting criteria) for the three months ended
March 31, 2018 is summarized as follows:
|
Fair Value Measurements (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets Measured at Fair Value on Recurring Basis |
The following table summarizes our financial assets measured at
fair value on a recurring basis as of March 31, 2018 (in
thousands):
|
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Reconciliation of Beginning and Ending Balances of Assets Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs (Level 3) |
The following table provides a reconciliation of the beginning and
ending balances of assets measured at fair value on a recurring
basis using significant unobservable inputs (Level 3) (in
thousands):
|
Basis of Presentation - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Basis of Presentation [Line Items] | ||
Net cash used in financing activities | $ (5,085) | $ (24,064) |
Increase to cash and cash equivalents | $ (19,041) | (18,500) |
Accounting Standards Update 2016-18 | ||
Basis of Presentation [Line Items] | ||
Net cash used in financing activities | (10,600) | |
Increase to cash and cash equivalents | $ 10,600 |
Information by Segment and Reconciliation to Reported Amounts (Detail) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Segment Reporting Information [Line Items] | |||
Net Sales | $ 93,004 | $ 94,505 | |
Loss from Operations | (35,658) | (15,724) | |
Depreciation and Amortization Expense | 3,096 | 4,380 | |
Assets | 313,891 | $ 370,349 | |
U.S. and Canada | |||
Segment Reporting Information [Line Items] | |||
Net Sales | 70,535 | 70,912 | |
Loss from Operations | (22,979) | (7,876) | |
Depreciation and Amortization Expense | 2,416 | 3,374 | |
Assets | 199,711 | 229,505 | |
International | |||
Segment Reporting Information [Line Items] | |||
Net Sales | 17,299 | 19,942 | |
Loss from Operations | (6,939) | (1,772) | |
Depreciation and Amortization Expense | 581 | 898 | |
Assets | 91,764 | 106,255 | |
Halloween | |||
Segment Reporting Information [Line Items] | |||
Net Sales | 5,170 | 3,651 | |
Loss from Operations | (5,740) | (6,076) | |
Depreciation and Amortization Expense | 99 | $ 108 | |
Assets | $ 22,416 | $ 34,589 |
Information by Geographic Area (Detail) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Long-lived Assets | $ 22,956 | $ 23,227 | |
Net Sales | 93,004 | $ 94,505 | |
China | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Long-lived Assets | 17,229 | 17,194 | |
United States | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Long-lived Assets | 5,504 | 5,755 | |
Net Sales | 71,373 | 69,560 | |
Hong Kong | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Long-lived Assets | 223 | $ 278 | |
Net Sales | 227 | 219 | |
Europe | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Net Sales | 8,629 | 12,560 | |
Canada | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Net Sales | 3,761 | 4,444 | |
Other | |||
Revenues from External Customers and Long-Lived Assets [Line Items] | |||
Net Sales | $ 9,014 | $ 7,722 |
Inventory Valued at Lower of Cost (First-in, First-out) or Market, Net of Inventory Obsolescence Reserve (Detail) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Inventory [Line Items] | ||
Raw materials | $ 1,594 | $ 1,596 |
Finished goods | 52,403 | 56,836 |
Inventory, net | $ 53,997 | $ 58,432 |
Revenue Recognition and Reserve for Sales Returns and Allowances - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
Significant Accounting Policies [Line Items] | ||
Reserve for sales returns and allowances | $ 15,343 | $ 17,622 |
Minimum | ||
Significant Accounting Policies [Line Items] | ||
Discount on invoiced amount of products | 2.00% | |
Maximum | ||
Significant Accounting Policies [Line Items] | ||
Discount on invoiced amount of products | 10.00% |
Convertible Senior Notes (Parenthetical) (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
Jun. 30, 2014 |
Jul. 31, 2013 |
|
Debt Instrument [Line Items] | ||||
Long term debt, principal amount | $ 157,668 | $ 156,647 | ||
4.25% Convertible Senior Notes (due 2018) | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, maturity year | 2018 | 2018 | ||
Debt instrument, interest rate | 4.25% | 4.25% | 4.25% | |
Long term debt, principal amount | $ 21,178 | $ 21,178 | $ 100,000 | |
3.25% Convertible Senior Notes (due 2020) | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, maturity year | 2020 | 2020 | ||
Debt instrument, interest rate | 3.25% | 3.25% | ||
Long term debt, principal amount | $ 23,490 | $ 22,469 | ||
4.875% Convertible Senior Notes (due 2020) | ||||
Debt Instrument [Line Items] | ||||
Debt instrument, maturity year | 2020 | 2020 | ||
Debt instrument, interest rate | 4.875% | 4.875% | 4.875% | |
Long term debt, principal amount | $ 113,000 | $ 113,000 | $ 115,000 |
Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Income Taxes [Line Items] | |||
Provision for (benefit from) income taxes | $ (2,336) | $ (344) | |
Effective income tax rate | 6.10% | 1.80% | |
U.S. statutory tax rate | 21.00% | 35.00% |
Reconciliation of Weighted Average Shares Used in Computation of Loss Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Earnings Per Share Disclosure [Line Items] | ||
Net loss available to common stockholders | $ (36,244) | $ (18,316) |
Shares used in loss per share | 23,100 | 18,104 |
Loss per share | $ (1.57) | $ (1.01) |
Loss Per Share - Additional Information (Detail) - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Common Stock Equivalents | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Potentially dilutive securities excluded from computation of diluted earnings per common share | 24,917,528 | 22,969,239 |
Changes in Carrying Amount of Goodwill (Detail) $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Goodwill [Line Items] | |
Balance at beginning of the period | $ 35,384 |
Adjustments to goodwill for foreign currency translation | 208 |
Goodwill Ending Balance | $ 35,592 |
Goodwill - Additional Information (Detail) |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Goodwill [Line Items] | |
Goodwill impairment | $ 0 |
Components of Comprehensive Income (Loss) (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Condensed Statement of Income Captions [Line Items] | ||
Net loss | $ (36,193) | $ (18,285) |
Other comprehensive income: | ||
Foreign currency translation adjustment | 1,050 | 531 |
Comprehensive loss | (35,143) | (17,754) |
Less: Comprehensive income attributable to non-controlling interests | 51 | 31 |
Comprehensive loss attributable to JAKKS Pacific, Inc. | $ (35,194) | $ (17,785) |
Share-Based Payments - Additional Information (Detail) $ in Millions |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Restricted Stock | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Unrecognized compensation, non-vested restricted stock awards | $ 4.4 |
Unrecognized compensation, non-vested restricted stock awards expected recognized period | 2 years 8 months 23 days |
Restricted Stock | Minimum | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Vesting period | 1 year |
Restricted Stock | Maximum | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Vesting period | 5 years |
Restricted Stock Units (RSUs) | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Unrecognized compensation, non-vested restricted stock awards | $ 1.8 |
Unrecognized compensation, non-vested restricted stock awards expected recognized period | 2 years 3 months 19 days |
Total Share-Based Compensation Expense and Related Tax Benefits Recognized (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Restricted stock compensation expense | $ 676 | $ 748 |
Restricted Stock | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Tax benefit related to restricted stock compensation | $ 0 | $ 0 |
Summary of Restricted Stock Award Activity (Detail) - Restricted Stock |
3 Months Ended |
---|---|
Mar. 31, 2018
$ / shares
shares
| |
Number of Shares | |
Outstanding at beginning of period | shares | 981,208 |
Awarded | shares | 2,164,374 |
Released | shares | (194,800) |
Forfeited | shares | 0 |
Outstanding at end of period | shares | 2,950,782 |
Weighted Average Grant Fair Value | |
Outstanding at beginning of period | $ / shares | $ 5.15 |
Awarded | $ / shares | 2.35 |
Released | $ / shares | 5.14 |
Forfeited | $ / shares | 0 |
Outstanding at end of period | $ / shares | $ 3.10 |
Summary of Restricted Stock Unit Activity (Detail) - Restricted Stock Units (RSUs) |
3 Months Ended |
---|---|
Mar. 31, 2018
$ / shares
shares
| |
Number of Shares | |
Outstanding at beginning of period | shares | 959,192 |
Awarded | shares | 0 |
Released | shares | (125,290) |
Forfeited | shares | (79,831) |
Outstanding at end of period | shares | 754,071 |
Weighted Average Fair Value | |
Outstanding at beginning of period | $ / shares | $ 5.15 |
Awarded | $ / shares | 0 |
Released | $ / shares | 5.15 |
Forfeited | $ / shares | 5.15 |
Outstanding at end of period | $ / shares | $ 5.15 |
Financial Assets Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Thousands |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Fair Value Measurements, Level 3 | 3.25% Convertible Senior Notes (due 2020) | ||
Schedule Of Servicing Assets At Fair Value And Amortized Value [Line Items] | ||
Convertible senior notes | $ 23,490 | $ 22,469 |
Cash Equivalents | Fair Value Measurements, Level 1 | ||
Schedule Of Servicing Assets At Fair Value And Amortized Value [Line Items] | ||
Assets measured at fair value on recurring basis | 8,169 | 13,718 |
Carrying Amount | 3.25% Convertible Senior Notes (due 2020) | ||
Schedule Of Servicing Assets At Fair Value And Amortized Value [Line Items] | ||
Convertible senior notes | 23,490 | 22,469 |
Carrying Amount | Cash Equivalents | ||
Schedule Of Servicing Assets At Fair Value And Amortized Value [Line Items] | ||
Assets measured at fair value on recurring basis | $ 8,169 | $ 13,718 |
Reconciliation of Beginning and Ending Balances of Assets Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs (Level 3) (Detail) - Fair Value Measurements, Level 3 - Fair Value Measurements, Recurring $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items] | |
Beginning Balance | $ 22,469 |
Change in fair value | 1,021 |
Ending Balance | $ 23,490 |
Liquidity - Additional Information (Detail) - USD ($) $ in Thousands |
1 Months Ended | 3 Months Ended | |||
---|---|---|---|---|---|
Jul. 31, 2013 |
Mar. 31, 2018 |
Dec. 31, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Cash and Cash Equivalents [Line Items] | |||||
Cash and cash equivalents | $ 46,779 | $ 64,977 | $ 68,032 | $ 86,064 | |
Convertible senior notes, principal\ fair value amount | 157,668 | 156,647 | |||
4.25% Convertible Senior Notes (due 2018) | |||||
Cash and Cash Equivalents [Line Items] | |||||
Convertible senior notes, principal\ fair value amount | $ 100,000 | $ 21,178 | 21,178 | ||
Line of credit facility, maturity date | Aug. 01, 2018 | Jun. 15, 2018 | |||
Foreign Subsidiaries | |||||
Cash and Cash Equivalents [Line Items] | |||||
Cash and cash equivalents | $ 39,700 | $ 52,800 |
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