4Kids Entertainment

4Kids Entertainment Reports Second Quarter 2008 Results

Monday 11 August 2008

4Kids Entertainment Reports Second Quarter 2008 Results

NEW YORK--4Kids Entertainment, Inc. (NYSE: KDE - News), a global provider of children’s entertainment and merchandise licensing, today announced financial results for the quarter ended June 30, 2008.

Net revenues for the three months ended June 30, 2008 totaled $16.5 million, compared to $12.0 million for the same period in 2007. Revenue for the second quarter of 2008 included approximately $5.1 million from the sale of Chaotic® trading cards at major retailers and comic and hobby stores across the U.S. and Canada. The Company’s net loss for the quarter ended June 30, 2008 was $(5.5) million, or $(0.42) per diluted share, as compared to a net loss of $(2.2) million, or $(0.17) per diluted share, for the same period in 2007.

For the six months ended June 30, 2008, net revenues totaled $31.6 million, compared to $26.9 million for the same period in 2007. Revenue for the six month period ended June 30, 2008 included approximately $7.5 million from the sale of Chaotic trading cards. The Company’s net loss for the six months ended June 30, 2008 was $(11.9) million, or $(0.91) per diluted share, as compared to a net loss of $(2.4) million, or $(0.18) per diluted share, for the same period in 2007.

“Our second quarter results reflect increasing Chaotic trading card sales, which we expect will ramp up considerably in the second half of the year,” said Alfred R. Kahn, Chairman and Chief Executive Officer, 4Kids Entertainment. “We believe that we are on track to meet our previously announced target of $20-$30 million in Chaotic trading card sales for 2008. We have made several scheduled improvements to the Chaotic Website, including adding attack animation and sound effects to game play, reintroducing the simpler 1 Creature vs. 1 Creature game play for Chaotic beginners and adding the more demanding 6 vs. 6 game play for the more experienced Chaotic players. We’ve also implemented revisions enabling www.chaoticgame.com to operate on less technologically-capable computers. We expect that these initiatives will result in faster growth for the Chaotic online community. However, in the short term, expenditures related to improvements on the Chaotic Website and trading card company operations contributed to higher SG&A costs for the quarter as compared to the second quarter of 2007.”

“Although Chaotic trading card sales came in on plan, the second quarter was negatively impacted by lower licensing revenue attributable to our core properties, Yu-Gi-Oh! ™, Teenage Mutant Ninja Turtles™ and Cabbage Patch Kids® as compared to the second quarter of 2007. In order to diversify our licensing business, we have signed agreements to represent two new properties, a popular Russian animated series which we are calling “GOGORiKi®” and a successful specialty store brand called “Kooky Klickers®”. We expect these new properties, along with Dinosaur King™, to begin to contribute to licensing revenues starting in the second half of 2008,” added Kahn.

“Starting next month, we will begin programming nine hours of children’s television on Saturday mornings, including a five-hour block on The CW Network and a four-hour block on Fox. We have announced many of the shows that will make up the bulk of this programming, including Chaotic, a new Yu-Gi-Oh! animated series entitled “Yu-Gi-Oh! 5D’s,” Dinosaur King, GOGORiKi, and Viva Piñata, with new shows “Kamen Rider - Dragon Knight”, “Huntik” and “RollBots” scheduled to join the lineup in the first quarter of 2009. With so many promising things going on at 4Kids, we are optimistic about the second half of 2008 and excited by our prospects in 2009,” Mr. Kahn concluded.

About 4Kids Entertainment, Inc.

With U.S. headquarters in New York City, regional offices for its trading card business in San Diego, California and international offices in London, 4Kids Entertainment, Inc. (NYSE: KDE - News) is a global organization devoted to the creation, development, production, broadcasting, distribution, licensing and manufacturing of children’s entertainment products.

Through its subsidiaries, 4Kids produces animated television series and films, distributes 4Kids’ produced or licensed animated television series for the domestic and international television and home video markets, licenses merchandising rights worldwide to 4Kids’ owned or represented properties, operates Web sites to support 4Kids’ owned or represented properties, and produces and markets collectible trading card games. Additionally, the Company programs and sells the national advertising time in a four-hour “4KidsTV” block which airs on nearly 200 affiliated FOX television stations Saturday mornings. Beginning in September 2008, the Company will also program and sell the national advertising time in the five-hour “TheCW4Kids” Saturday morning block on The CW television network.

Additional information is available on the www.4KidsEntertainment.com corporate web site and at the www.4Kids.tv game station site.

The information contained in this press release, other than historical information, consists of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors beyond the Company's control, including general economic conditions, consumer spending levels, competition from toy companies, motion picture studios and other licensing companies, the uncertainty of public response to the Company's properties and other factors could cause actual results to differ materially from the Company's expectations.

 

(Tables follow)

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2008 and DECEMBER 31, 2007

(In thousands of dollars, except share data)

 
           
ASSETS:  

2008

 

2007

 
Current assets:   (Unaudited)        
Cash and cash equivalents   $ 36,315   $ 24,872  
Investments     19,746     36,106  
Total cash, cash equivalents and investments     56,061     60,978  
               
Accounts receivable - net     17,381     21,403  
Inventories     499     611  
Prepaid income taxes     950     1,159  
Prepaid expenses and other current assets     2,012     2,985  
Current assets from discontinued operations     451     372  
Total current assets     77,354     87,508  
               
Property and equipment - net     4,655     4,255  
Long-term investments     17,100     31,806  
Accounts receivable – non-current, net     168     208  
Film and television costs - net     14,755     14,352  
Non-current assets from discontinued operations     475     926  
Other assets - net (includes related party amounts of $5,417 and $4,265, respectively)     15,036     12,024  
Total assets   $ 129,543   $ 151,079  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY:              
Current liabilities:              
Due to licensors   $ 4,569   $ 4,420  
Accounts payable and accrued expenses     18,355     14,969  
Deferred revenue     2,628     2,984  
Total current liabilities     25,552     22,373  
Deferred rent     529     618  
Total liabilities     26,081     22,991  
               
Commitments and contingencies              
Stockholders’ equity              
Preferred stock, $.01 par value - authorized, 3,000,000 shares; none issued     —     —  
Common stock, $.01 par value - authorized, 40,000,000 shares;

issued, 15,171,579 and 15,099,812 shares; outstanding 13,152,019 and 13,332,207 shares in 2008 and 2007, respectively

    152     151  
Additional paid-in capital     64,875     63,679  
Accumulated other comprehensive loss     (13,581)     (2,562 )
Retained earnings     88,392     100,323  
      139,838     161,591  
Less cost of 2,019,560 and 1,767,605 treasury shares in 2008 and 2007, respectively     36,376     33,503  
      103,462     128,088  
Total liabilities and stockholders’ equity   $ 129,543   $ 151,079  

4KIDS ENTERTAINMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007

(In thousands of dollars, except share data)

 
   
     

Three Months Ended

     

Six Months Ended

 
     

June 30,

     

June 30,

 
     

2008

     

2007

     

2008

   

2007

 
                               
Net revenues:                              
Service revenue   $ 11,475     $ 12,009     $ 24,086   $ 26,940  
Product revenue     5,065       —       7,493     —  
Total net revenues     16,540       12,009       31,579     26,940  
                               
Costs and expenses:                              
Selling, general and administrative     13,347       10,176       25,955     19,139  
Production service costs     1,990       1,788       3,535     3,568  
Cost of sales of trading cards     1,897       —       2,913     —  
Amortization of television and film costs     1,697       1,444       3,405     3,131  
Amortization of 4Kids TV broadcast fee     3,906       3,825       9,109     8,244  
Total costs and expenses     22,837       17,233       44,917     34,082  
                               
Loss from operations     (6,297 )     (5,224 )     (13,338 )   (7,142 )
                               
Interest income     737       1,480       1,407     2,567  
                               
Loss before income taxes     (5,560 )     (3,744 )     (11,931 )   (4,575 )
                               
Benefit from income taxes     28       1,598       —     2,275  
                               
Loss from unconsolidated operations –                              
net of a tax benefit     —       (67 )     —     (118 )
                               
Net loss   $ (5,532 )   $ (2,213 )   $ (11,931 ) $ (2,418 )