What changed in this filing

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Item 1. Business

2022-03-16 compared with 2021-03-19 · 39 added, 47 removed, 207 unchanged (29% of the section changed)

1 unchanged sentence

Company Overview

We are a leading multi-line, multi-brand toy company that designs, produces, markets and distributes toys and related products, consumables and related products, electronics and related products, kids indoor and outdoor furniture, and other consumer products.

We are a leading multi-line, multi-brand toy company that designs, produces, markets, sells and distributes toys and related products, consumables and related products, electronics and related products, kids indoor and outdoor furniture, and other consumer products.

We focus our business on acquiring or licensing well-recognized intellectual property (“IP”), trademarks and/or brand names, most with long product histories (“evergreen brands”).

We seek to acquire these evergreen brands because we believe they are less subject to market fads or trends.

We seek to acquire/license these evergreen brands because we believe they are less subject to market fads or trends.

We also develop proprietary products marketed under our own trademarks and brand names, and have historically acquired complementary businesses to further grow our portfolio.

For accounting purposes, our products have been divided into two segments:

(i) Toys/Consumer Products and (ii) Halloween.

(i) Toys/Consumer Products and (ii) Costumes.

Segment information with respect to revenues, assets and profits or losses attributable to each segment is contained in Note 3 to the audited consolidated financial statements contained below in Item 8.

Our products include:

Action figures and accessories, including licensed characters based on the Nintendo®, Sonic the Hedgehog®

and Apex Legends®

franchises and our own proprietary brands including Creepy Crawlers™;

Toy vehicles, including Xtreme Power Dozer®, Xtreme Power Dump Truck™, XPV®, Road Champs®, Fly Wheels®

and MXS®

toy vehicles and accessories;

Dolls and accessories, including small dolls, large dolls, fashion dolls and baby dolls based on licenses, including Disney Frozen 2®, Disney Princess®, Disney Raya and the Last Dragon™ and Minnie Mouse®, and infant and pre-school toys based on TV shows like Gigantosaurus®

and PBS’s Daniel Tiger’s Neighborhood®;

Action figures and accessories, including licensed characters based on the Nintendo®, Sonic the Hedgehog® and Apex Legends® franchises and our own proprietary brands including Creepy Crawlers™;

Toy vehicles, including Xtreme Power Dozer®, Xtreme Power Dump Truck®, XPV®, Road Champs®, Fly Wheels® and MXS® toy vehicles and accessories;

Dolls and accessories, including small dolls, large dolls, fashion dolls and baby dolls based on licenses, including Disney Encanto™, Disney ILY 4EVER™, Disney Frozen®, Disney Princess® and Minnie Mouse®, and infant and pre-school toys based on TV shows like Gigantosaurus® and PBS’s Daniel Tiger’s Neighborhood®;

Private label products developed exclusively for certain retail customers in various product categories;

Foot-to-floor ride-on products, including those based on Fisher-Price®, Nickelodeon®, and Hasbro®/Entertainment One®

licenses and inflatable environments, tents and wagons;

Role play, dress-up, pretend play and novelty products for boys and girls based on well-known brands and entertainment properties such as Disney Frozen, Black & Decker ®

, Disney Princess , and Raya and the Last Dragon , as well as those based on our own proprietary brands;

Indoor and outdoor kids’ furniture, activity trays and tables and room décor;

kiddie pools, seasonal and outdoor products, including those based on Disney characters, Nickelodeon, and Hasbro/Entertainment One licenses;

Halloween and everyday costumes for all ages based on licensed and proprietary non-licensed brands, including Super Mario Bros.®, Microsoft’s Halo®, LEGO®

Movie, Disney-Pixar Toy Story®, Harry Potter®, Jurassic World®, Sesame Street®, Power Rangers®¸

Hasbro brands and Disney Frozen, Disney Princess and related Halloween accessories;

Outdoor activity toys including Redo Skateboard Co.®

and Junior sports toys including Skyball®

hyper-charged balls, sport sets and Wave Hoops®

toy hoops marketed under our Maui®

Foot-to-floor ride-on products, including those based on Fisher-Price®, Nickelodeon®, and Hasbro®/Entertainment One® licenses and inflatable environments, tents and wagons;

Role play, dress-up, pretend play and novelty products for boys and girls based on well-known brands and entertainment properties such as Disney Frozen® , Black & Decker® , Disney Princess®, and Disney Encanto™, as well as those based on our own proprietary brands;

Indoor and outdoor kids’ furniture, activity trays and tables and room décor;

kiddie pools, seasonal and outdoor products, including those based on Disney® characters, Nickelodeon® , Hasbro® / Entertainment One® licenses;

Halloween and everyday costumes for all ages based on licensed and proprietary non-licensed brands, including Super Mario Bros.®, Microsoft’s Halo®, LEGO® Movie, Disney-Pixar Toy Story®, Harry Potter®, Jurassic World®, Sesame Street®, Power Rangers®¸ Hasbro® brands and Disney Frozen®, Disney Princess® and related Halloween accessories;

Outdoor activity toys including Redo Skateboard Co.® and Junior sports toys including Skyball® hyper-charged balls, sport sets and Wave Hoops® toy hoops marketed under our Maui® brand.

We continually review the marketplace to identify and evaluate popular and evergreen brands and product categories that we believe have the potential for growth.

11 unchanged sentences

We sell our products through our in-house sales staff and independent sales representatives to toy and mass-market retail chain stores, department stores, office supply stores, drug and grocery store chains, club stores, value-oriented dollar stores, toy specialty stores and wholesalers.

Our two largest customers are Wal-Mart®

and Target®, which accounted for 29.1% and 25.7%, respectively, of our net sales in 2020.

Our two largest customers are Walmart® and Target®, which accounted for 26.9% and 28.4%, respectively, of our net sales in 2021.

No other customer accounted for more than 10% of our net sales in 2021.

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●Pursue Strategic Acquisitions.

We supplement our internal growth with selected strategic acquisitions.

In October 2016, we acquired the operating assets of the C ’ est Moi ®

performance makeup and youth skincare product lines whose distribution was limited primarily to Asia.

We launched a full line of makeup and skincare products branded under the C’est Moi name in the U.S.

to a limited number of retail customers in 2018.

We have supplemented our internal growth with selected strategic acquisitions.

Most of the product lines we market today were originally acquired via acquisition over the past 20+ years.

In 2021, we evaluated several potential acquisitions although none resonated to the point of reaching an agreement.

1 unchanged sentence

We have acquired the rights to use many familiar brand and character names and logos from third parties that we use with our primary trademarks and brands.

Currently, among others, we have license agreements with Nickelodeon, Disney, Pixar®, Marvel®, NBC Universal®, Microsoft®, Sega®

and Warner Bros.®, as well as with the licensors of many other popular characters.

Currently, among others, we have license agreements with Nickelodeon®, Disney®, Pixar®, Marvel®, NBC Universal®, Microsoft©, Sega®, Sony®, Netflix® and WarnerMedia.®, as well as with the licensors of many other popular characters.

We also license IP from other toy companies for categories in which they do not offer products found within our Core Product Lines.

8 unchanged sentences

Although the COVID-19 pandemic had a significantly negative impact on our international business, we remain focused on international being a source of revenue growth.

We currently utilize one warehouse in the United Kingdom and another in the Netherlands to support sales expansion in that region.

●Capitalize On Our Operating Efficiencies.

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While we believe that our operational, financial and management information systems will be adequate to support our future growth, no assurance can be given they will be adequate without significant investment in our infrastructure.

Failure to expand our operational, financial and management information systems or to train, motivate or manage employees could have a material adverse effect on our business, financial condition and results of operations.

Failure to expand our operational, financial and management information systems or to train, motivate, manage and retain employees could have a material adverse effect on our business, financial condition and results of operations.

Moreover, implementation of our growth strategy is subject to risks beyond our control, including:

18 unchanged sentences

We focus our business on acquiring or licensing well-recognized properties, trademarks and/or brand names, and we seek to acquire evergreen brands which are less subject to market fads or trends.

Generally, our license agreements for products and concepts call for royalties ranging from 1% to 25% of net sales, and some may require minimum royalty guarantees and up-front or advance royalty payments.

Generally, our license agreements for products and concepts call for royalties ranging from 1% to 23% of net sales, and some may require minimum royalty guarantees and up-front or advanced royalty payments.

Our principal products are highlighted above in our Company Overview.

1 unchanged sentence

We sell all of our products through our own in-house sales staff and independent sales representatives to toy and mass-market retail chain stores, department stores, office supply stores, drug and grocery store chains, club stores, dollar stores, toy specialty stores and wholesalers.

In 2019, our two largest customers, Wal-Mart and Target, accounted for 29.6% and 20.8%, respectively, of our net sales.

In 2020, our two largest customers, Wal-Mart and Target, accounted for 29.1% and 25.7%, respectively, of our net sales.

In 2021, our two largest customers, Walmart and Target, accounted for 26.9% and 28.4%, respectively, of our net sales.

No other customer accounted for more than 10% of our net sales in 2021.

In 2020, our two largest customers, Walmart and Target, accounted for 29.1% and 25.7%, respectively, of our net sales.

No other customer accounted for more than 10% of our net sales in 2020.

We generally sell products to our customers on open account with payment terms typically varying from 30 to 90 days or, in some cases, pursuant to letters of credit.

1 unchanged sentence

From time to time, we allow our customers credits against future purchases from us in order to facilitate their retail markdown and sales of slow-moving inventory.

We also sell our products through e-commerce sites, including Walmart.com, Target.com and Amazon.com®.

We also sell our products through e-commerce sites, including Walmart.com®, Target.com™ and Amazon.com®.

We contract the manufacture of most of our products to unaffiliated manufacturers located in The People’s Republic of China (“China”).

1 unchanged sentence

These methods allow us to reduce certain operating costs and working capital requirements.

We also contract the manufacture of certain products from Hong Kong Meisheng Cultural Company Limited (“Meisheng”), which involved payment to Meisheng of approximately $64.8 million and $94.3 million for the year ended December 31, 2020 and December 31, 2019, respectively.

We also contract the manufacture of certain products from Hong Kong Meisheng Cultural Company Limited (“Meisheng”), which involved payment to Meisheng of approximately $77.7 million and $64.8 million for the year ended December 31, 2021 and 2020, respectively.

As of December 31, 2021, Meisheng owns 5.5% of our outstanding common stock, and Zhao Xiaoqiang, one of our directors, is executive director of Meisheng.

A portion of our sales originate in the United States, so we hold certain inventory in our warehouses and fulfillment facilities.

A portion of our sales originate in the United States, so we hold certain inventory in a US warehouse and fulfillment facility.

To date, a majority of all of our sales has been to customers based in the United States.

17 unchanged sentences

Together with retailers, we occasionally test the consumer acceptance of new products in selected markets before committing resources to large-scale production.

We publicize and advertise our products online, in trade and consumer magazines and other publications, market our products at international, national and regional toy and other specialty trade shows, conventions and exhibitions and carry on cooperative advertising programs with toy and mass market retailers and other customers which include the use of print, online and television ads and via in-store displays.

We also produce and broadcast television commercials for several of our product lines, if we expect that the resulting increase in our net sales will justify the relatively high cost of television advertising.

We publicize and advertise our products online and on mobile, in trade and consumer magazines and other publications, market our products at international, national and regional toy and other specialty trade shows, conventions and exhibitions and carry on cooperative advertising programs with toy and mass market retailers and other customers which include the use of print, online, mobile and television ads and via in-store displays.

Product Development

15 unchanged sentences

Manufacturing and Supplies

Most of our products are currently produced by overseas third-party manufacturers, which we choose on the basis of quality, reliability and price.

Most of our products are currently produced by overseas third-party manufacturers, which we choose on the basis of quality, flexibility, reliability and price.

Consistent with industry practice, the use of third-party manufacturers enables us to avoid incurring fixed manufacturing costs, while maximizing flexibility, capacity and the latest production technology.

Substantially all of the manufacturing services performed overseas for us are paid for on open account with the manufacturers.

To date, we have not experienced any material delays in the delivery of our products;

To date, we have not experienced any material delays in the delivery of our products from our manufacturers;

however, delivery schedules are subject to various factors beyond our control, and any delays in the future could adversely affect our sales.

The COVID-19 pandemic, in particular, created some short-term delays as manufacturing capacity both dropped during the peak of the China outbreak and then again was stretched when consumer demand for different categories of products spiked as a result of the unprecedented level of households operating under confined-to-home/social distancing guidelines.

The lingering impact of the pandemic has created volatility in costs associated with the sourcing and importation of product, in particular due to changes in factor inputs (labor, oil) and market demand for services (transport).

In addition, our third-party manufacturers have seen increases in foreign exchange rate exposure during this time.

Currently, we have ongoing relationships with over seventy different manufacturers.

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Although we do not directly manufacture our products, we own the majority of the tools, dies and molds used in the manufacturing process, and these are transferable among manufacturers if we choose to employ alternative manufacturers.

Tools, dies and molds represent a substantial portion of our property and equipment with a net book value of $10.8 million in 2020 and $11.4 million in 2019;

Tools, dies and molds represent a substantial portion of our property and equipment with a net book value of $11.6 million and $10.8 million as of December 31, 2021 and 2020, respectively.

Substantially all of these assets are located in China.

25 unchanged sentences

Because customer orders may be canceled at any time, often without penalty, our backlog may not accurately indicate sales for any future period.

In 2021, a number of factors ultimately attributable to the COVID-19 pandemic disruption created significant bottlenecks and supply-demand imbalances in exporting product out of Asia into the United States and Europe.

These factors increased the cost of ocean freight and the cost of trucking while incurring higher expenses and penalties from product being stuck at the port awaiting inbound trucking pickup.

The unpredictability of delivery times further resulted in higher warehouse handling costs as container arrival timelines proved less predictable sometimes requiring overtime labor and expansion of the short-term labor pool to cope with above-average arriving volumes.

Finally, the longer delivery time resulted in a slower cash conversion cycle for us as the net impact was a longer holding period for finished goods inventory between manufacture and sale to customer.

Government and Industry Regulation

8 unchanged sentences

JAKKS Pacific, Inc.

continuously strives to create a safe, productive and harmonious work environment.

continuously strives to create a safe, healthy, productive and harmonious work environment.

As of December 31, 2021, we had approximately 583 employees (including temporary and seasonal employees) working in over 8 countries worldwide to create innovative products and experiences that inspire, entertain, and develop children through play, with approximately 232 employees (40% of the total workforce) located outside the U.S.

7 unchanged sentences

Holding various events and workshops throughout the year, employees are encouraged to voice any concerns and/or to bring forth their ideas and suggestions.

We have communicated to staff that we will move to a work-from-home Friday operating model for most employees when we resume in-office activities.

Diversity and Inclusion

5 unchanged sentences

professional development and training;

promotions and transfers.

and promotions and transfers.

Training and Development

22 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business