4 unchanged sentences
(In thousands, except share amounts)
−Removed: September 30,
Current assets
1 unchanged sentence
Restricted cash
−Removed: Accounts receivable, net of allowance for doubtful accounts of $ 2,922 and $ 2,626 at September 30, 2022 and December 31, 2021, respectively
+Added: Accounts receivable, net of allowances for credit losses of $ 3,226 and $ 2,865 at March 31, 2023 and December 31, 2022, respectively
Prepaid expenses and other assets
8 unchanged sentences
Other long-term assets
−Removed: Intangible assets, net
+Added: Deferred income tax assets, net
Liabilities, Preferred Stock and Stockholders' Equity
12 unchanged sentences
Income taxes payable
−Removed: Deferred income taxes, net
Total liabilities
1 unchanged sentence
5,000,000 shares authorized;
−Removed: 200,000 shares issued and outstanding at September 30, 2022 and December 31, 2021
+Added: 200,000 shares issued and outstanding at March 31, 2023 and December 31, 2022
Stockholders' Equity
1 unchanged sentence
100,000,000 shares authorized;
−Removed: 9,723,534 and 9,520,817 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively
+Added: 9,870,927 and 9,742,236 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively
Additional paid-in capital
9 unchanged sentences
AND SUBSIDIARIES
−Removed: CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
+Added: CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share data)
−Removed: Three Months Ended
−Removed: September 30,
−Removed: Nine Months Ended
−Removed: September 30,
+Added: Three Months Ended March 31,
Cost of sales:
7 unchanged sentences
Selling, general and administrative expenses
−Removed: Intangibles impairment
−Removed: Income from operations
+Added: Loss from operations
Other income (expense), net
Change in fair value of preferred stock derivative liability
−Removed: Change in fair value of convertible senior notes
−Removed: Gain on loan forgiveness
−Removed: Loss on debt extinguishment
Interest income
Interest expense
−Removed: Income (loss) before provision for income taxes
−Removed: Provision for income taxes
−Removed: Net income (loss)
−Removed: Net income (loss) attributable to non-controlling interests
−Removed: Net income (loss) attributable to JAKKS Pacific, Inc.
−Removed: Net income (loss) attributable to common stockholders
−Removed: Earnings (loss) per share - basic
−Removed: Shares used in earnings (loss) per share - basic
−Removed: Earnings (loss) per share - diluted
−Removed: Shares used in earnings (loss) per share - diluted
−Removed: Comprehensive income (loss)
−Removed: Comprehensive income (loss) attributable to JAKKS Pacific, Inc.
+Added: Loss before provision for (benefit from) income taxes
+Added: Provision for (benefit from) income taxes
+Added: Net loss attributable to non-controlling interests
+Added: Net loss attributable to JAKKS Pacific, Inc.
+Added: Net loss attributable to common stockholders
+Added: Loss per share - basic and diluted
+Added: Shares used in loss per share - basic and diluted
+Added: Comprehensive loss
+Added: Comprehensive loss attributable to JAKKS Pacific, Inc.
See accompanying notes to condensed consolidated financial statements.
1 unchanged sentence
AND SUBSIDIARIES
−Removed: CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
+Added: CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
−Removed: Three and Nine Months Ended September 30, 2022
+Added: Three Months Ended March 31, 2023
Pacific, Inc.
Stockholders'
−Removed: Stockholders'
Comprehensive
+Added: Stockholders'
Balance, December 31, 2022
2 unchanged sentences
Preferred stock accrued dividends
−Removed: Net income (loss)
Foreign currency translation adjustment
Balance, March 31, 2023
−Removed: Share-based compensation expense
−Removed: Preferred stock accrued dividends
−Removed: Net income (loss)
−Removed: Foreign currency translation adjustment
−Removed: Balance, June 30, 2022
−Removed: Share-based compensation expense
−Removed: Repurchase of common stock for employee tax withholding
−Removed: Preferred stock accrued dividends
−Removed: Net income (loss)
−Removed: Foreign currency translation adjustment
−Removed: Balance, September 30, 2022
−Removed: Three and Nine Months Ended September 30, 2021
+Added: Three Months Ended March 31, 2022
Pacific, Inc.
Stockholders'
−Removed: Stockholders'
Comprehensive
+Added: Stockholders'
Balance, December 31, 2021
1 unchanged sentence
Repurchase of common stock for employee tax withholding
−Removed: Conversion of convertible senior notes
Preferred stock accrued dividends
−Removed: Net income (loss)
Foreign currency translation adjustment
Balance, March 31, 2022
−Removed: Share-based compensation expense
−Removed: Conversion of convertible senior notes
−Removed: Preferred stock accrued dividends
−Removed: Net income (loss)
−Removed: Foreign currency translation adjustment
−Removed: Balance, June 30, 2021
−Removed: Share-based compensation expense
−Removed: Conversion of convertible senior notes
−Removed: Preferred stock accrued dividends
−Removed: Foreign currency translation adjustment
−Removed: Balance, September 30, 2021
See accompanying notes to condensed consolidated financial statements.
3 unchanged sentences
(In thousands)
−Removed: Nine Months Ended September 30,
+Added: Three Months Ended March 31,
Cash flows from operating activities
−Removed: Net income (loss)
−Removed: Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
−Removed: Provision for (recovery of) doubtful accounts
+Added: Adjustments to reconcile net loss to net cash used in operating activities:
+Added: Provision for (recovery of) credit losses
Depreciation and amortization
−Removed: Payment-in-kind interest
Write-off and amortization of debt discount
2 unchanged sentences
Gain on disposal of property and equipment
−Removed: Gain on loan forgiveness
−Removed: Loss on debt extinguishment
−Removed: Intangibles impairment
−Removed: Deferred income taxes
−Removed: Change in fair value of convertible senior notes
Change in fair value of preferred stock derivative liability
9 unchanged sentences
Total adjustments
−Removed: Net cash provided by (used in) operating activities
+Added: Net cash used in operating activities
Cash flows from investing activities
7 unchanged sentences
Repayment of 2021 BSP Term Loan
−Removed: Net proceeds from issuance of long-term debt
−Removed: Deferred issuance costs
−Removed: Repayment of 2019 Recap Term Loan
Net cash used in financing activities
−Removed: Net increase (decrease) in cash, cash equivalents and restricted cash
+Added: Net decrease in cash, cash equivalents and restricted cash
Effect of foreign currency translation
1 unchanged sentence
Cash, cash equivalents and restricted cash, end of period
−Removed: Supplemental disclosures of non-cash financing activities:
−Removed: Forgiveness of Paycheck Protection Program Loan
Supplemental disclosures of cash flow information:
1 unchanged sentence
Cash paid for interest
−Removed: As of September 30, 2022, there was $ 4.7 million of property and equipment purchases included in accounts payable.
−Removed: As of September 30, 2021, there was $ 3.1 million of property and equipment purchases included in accounts payable.
+Added: As of March 31, 2023 and 2022, there was $ 2.6 million and $ 3.3 million, respectively, of property and equipment purchases included in accounts payable.
See Notes 1, 5, 6 and 9 for additional supplemental information to the condensed consolidated statements of cash flows.
3 unchanged sentences
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
+Added: March 31, 2023
Note 1 — Basis of Presentation
7 unchanged sentences
and its wholly-owned subsidiaries (collectively, “the Company”).
−Removed: 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.
+Added: The condensed consolidated financial statements also include the accounts of 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.
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326):
3 unchanged sentences
As a result, the effective date for the standard is fiscal years beginning after December 15, 2022, and interim periods therein, and early adoption is permitted.
−Removed: The Company is currently evaluating the impact of the adoption of ASU 2016-13 on its condensed consolidated financial statements.
−Removed: In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes,” which simplifies the accounting for income taxes related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax assets for investments.
−Removed: The guidance also reduces complexity in certain areas, including the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating taxes to members of a consolidated group.
−Removed: This new standard is effective for the Company for fiscal years beginning January 1, 2021, with early adoption permitted.
−Removed: The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
+Added: The Company adopted ASU 2016-13 and its related amendments on January 1, 2023.
+Added: The adoption of this new accounting standard did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848):
3 unchanged sentences
The amendments in ASU 2020-04 apply to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to the global transition away from LIBOR and certain other interbank offered rates.
−Removed: The new standard is effective for the Company for fiscal years beginning after December 15, 2022, including interim periods within these fiscal years, with early adoption permitted.
+Added: In December 2022, the FASB issued ASU 2022-06 which extended the effective date of the new standard to fiscal years beginning after December 15, 2024, including interim periods within those fiscal years, with early adoption permitted.
+Added: In Q1 2023, the Company entered into amendments to its 2021 BSP Term Loan Agreement and its JPMorgan ABL Credit Agreement, which transitioned the interest reference rate on its term loan and revolving line of credit from LIBOR to the Secured Overnight Financing Rate (“SOFR”) (See Note 5 – Debt and Note 6 – Credit Facilities).
The Company is currently evaluating the impact that the adoption of this new guidance will have on its condensed consolidated financial statements.
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):
5 unchanged sentences
The Company is currently evaluating the impact that the adoption of this new guidance will have on its condensed consolidated financial statements.
−Removed: In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832):
−Removed: Disclosures by Business Entities about Government Assistance.” ASU 2021-10 requires annual disclosures that are expected to increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions and (3) the effect of those transactions on an entity’s financial statements.
−Removed: The provisions of ASU 2021-10 are effective for fiscal years beginning after December 31, 2021, with early adoption permitted.
−Removed: The Company adopted ASU 2021-10 during the fiscal period December 31, 2021 (see Note 5 – Debt and Note 18 –Prepaid Expenses and Other Assets, for disclosures related to government assistance received by the Company).
−Removed: The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
+Added: JAKKS PACIFIC, INC.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
+Added: March 31, 2023
Note 2 — Business Segments, Geographic Data and Sales by Major Customers
7 unchanged sentences
Certain assets which are not tracked by operating segment and/or that benefit multiple operating segments have been allocated on the same basis.
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
Results are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise.
−Removed: Information by segment and a reconciliation to reported amounts for the three and nine months ended September 30, 2022 and 2021 and as of September 30, 2022 and December 31, 2021 are as follows (in thousands):
+Added: Information by segment and a reconciliation to reported amounts for the three months ended March 31, 2023 and 2022 and as of March 31, 2023 and December 31, 2022 are as follows (in thousands):
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
Toys/Consumer Products
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
−Removed: Income from Operations
+Added: Income (Loss) from Operations
Toys/Consumer Products
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
Depreciation and Amortization Expense
Toys/Consumer Products
−Removed: September 30,
Toys/Consumer Products
+Added: JAKKS PACIFIC, INC.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
+Added: March 31, 2023
Net revenues are categorized based upon location of the customer, while long-lived assets are categorized based upon the location of the Company’s assets.
−Removed: The following tables present information about the Company by geographic area as of September 30, 2022 and December 31, 2021 and for the three and nine months ended September 30, 2022 and 2021 (in thousands):
−Removed: September 30,
+Added: The following tables present information about the Company by geographic area as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023 and 2022 (in thousands):
Long-lived Assets
1 unchanged sentence
United Kingdom
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
Net Sales by Customer Area
4 unchanged sentences
Major Customers
−Removed: Net sales to major customers for the three and nine months ended September 30, 2022 and 2021 were as follows (in thousands, except for percentages):
−Removed: Three Months Ended September 30,
−Removed: Nine Months Ended September 30,
+Added: Net sales to major customers for the three months ended March 31, 2023 and 2022 were as follows (in thousands, except for percentages):
+Added: Three Months Ended March 31,
No other customer accounted for more than 10% of the Company's total net sales.
1 unchanged sentence
The Company performs ongoing credit evaluations of its top customers and maintains an allowance for potential credit losses.
+Added: JAKKS PACIFIC, INC.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
+Added: March 31, 2023
Note 3 — Inventory
Inventory, which includes the ex-factory cost of goods, capitalized warehouse costs, and in-bound freight and duty, is valued at the lower of cost or net realizable value, net of inventory obsolescence reserve, and consists of the following (in thousands):
−Removed: September 30,
Raw materials
Finished goods
−Removed: As of September 30, 2022 and December 31, 2021, the inventory obsolescence reserve was $ 7.7 million and $ 4.6 million, respectively.
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
+Added: As of March 31, 2023 and December 31, 2022, the inventory obsolescence reserve was $ 9.8 million and $ 9.0 million, respectively.
Note 4 — Revenue Recognition and Reserve for Sales Returns and Allowances
22 unchanged sentences
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.
−Removed: For the three and nine months ended September 30, 2022, shipping and handling costs were $ 1.1 million and $ 4.8 million, respectively.
−Removed: For the three and nine months ended September 30, 2021, shipping and handling costs were $ 0.9 million and $ 3.0 million, respectively.
−Removed: The Company’s reserve for sales returns and allowances amounted to $ 59.2 million as of September 30, 2022, compared to $ 46.3 million as of December 31, 2021.
−Removed: Note 5 — Debt
−Removed: Convertible senior notes
−Removed: In August 2019, the Company entered into and consummated multiple, binding definitive agreements (collectively, the “Recapitalization Transaction”) among Wells Fargo, Oasis Investments II Master Fund Ltd.
−Removed: and an ad hoc group of holders of the Company’s 4.875 % convertible senior notes due 2020 (the “Investor Parties”) to recapitalize the Company’s balance sheet, including the extension to the Company of incremental liquidity and at least three-year extensions of substantially all of the Company’s outstanding convertible debt obligations and revolving credit facility.
+Added: For the three months ended March 31, 2023 and 2022, shipping and handling costs were $ 1.9 million and $ 1.5 million, respectively.
+Added: The Company’s reserve for sales returns and allowances amounted to $ 41.1 million as of March 31, 2023, compared to $ 51.9 million as of December 31, 2022.
JAKKS PACIFIC, INC.
1 unchanged sentence
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
−Removed: In connection with the Recapitalization Transaction, the Company issued (i) amended and restated notes with respect to the Company’s $ 21.6 million Oasis Note issued on November 7, 2017, and the $ 8.0 million Oasis Note issued on July 26, 2018 (together, the “Existing Oasis Notes”), and (ii) a new $ 8.0 million convertible senior note having the same terms as such amended and restated notes (the "New $8.0 million Oasis Note" and collectively, the “New Oasis Notes” or the "3.25% convertible senior notes due 2023").
−Removed: Interest on the New Oasis Notes is payable on each May 1 and November 1 until maturity and accrues at an annual rate of (i) 3.25 % if paid in cash or 5.00 % if paid in stock plus (ii) 2.75 % payable in kind.
−Removed: The New Oasis Notes mature 91 days after the amounts outstanding under the 2019 Recap Term Loan are paid in full, and in no event later than July 3, 2023.
−Removed: Excluding the impact of the Reverse Stock Split in July of 2020, the New Oasis Notes provide, among other things, that the initial conversion price is $ 1.00 .
−Removed: The conversion price will be reset on each February 9 and August 9, starting on February 9, 2020 (each, a “reset date”) to a price equal to 105 % of the 5-day VWAP preceding the applicable reset date.
−Removed: Under no circumstances shall the reset result in a conversion price be below the greater of (i) the closing price on the trading day immediately preceding the applicable reset date and (ii) 30 % of the stock price as of the Transaction Agreement Date, or August 7, 2019, and will not be greater than the conversion price in effect immediately before such reset.
−Removed: The Company may trigger a mandatory conversion of the New Oasis Notes if the market price exceeds 150 % of the conversion price under certain circumstances.
−Removed: The Company may redeem the New Oasis Notes in cash if a person, entity or group acquires shares of the Company’s Common Stock, par value $ 0.001 per share (the “Common Stock”), and as a result owns at least 49 % of the Company’s issued and outstanding Common Stock.
−Removed: On February 9, 2020, excluding the impact of the Reverse Stock Split, the conversion price of the New Oasis Notes reset to $ 1.00 per share ($ 10.00 per share after reverse stock split).
−Removed: On August 9, 2020, the conversion price of the New Oasis Notes reset to $ 5.647 .
−Removed: On February 9, 2021, the conversion price of the New Oasis Notes recalculated and remained unchanged at $ 5.647 .
−Removed: During 2021, $ 24.0 million of the New Oasis Notes (including $ 1.2 million in PIK interest) were converted for 4,246,828 shares of common stock.
−Removed: As a result, the Company recorded an increase to additional paid-in capital of $ 50.8 million.
−Removed: As a result of the conversions in 2021, the New Oasis Notes were fully extinguished.
−Removed: The Company accounted for the debt held by Oasis at fair value using Level 3 inputs and as a result, recognized a loss of $ 3.7 million and $ 16.5 million for the three and nine months ended September 30, 2021, respectively, related to changes in the fair value of the 3.25% convertible senior notes due 2023 (see Note 16 – Fair Value Measurement).
−Removed: On February 5, 2021, Benefit Street Partners and Oasis Investment II Master Funds Ltd, both related parties, entered into a purchase and sale agreement wherein Benefit Street Partners purchased $ 11.0 million of principal amount, plus all accrued and unpaid interest thereon, of the New Oasis Notes from Oasis Investment II Master Funds Ltd (see Note 17 – Related Party Transactions).
−Removed: The transaction closed on February 8, 2021.
+Added: March 31, 2023
+Added: Note 5 — Debt
Term loan consists of the following (in thousands):
−Removed: September 30, 2022
+Added: March 31, 2023
December 31, 2022
4 unchanged sentences
The debt discount and issuance costs are amortized over the life of the term loan on a straight-line basis which approximates the effective interest method.
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
On June 2, 2021, the Company and certain of its subsidiaries, as borrowers, entered into a First Lien Term Loan Facility Credit Agreement (the “2021 BSP Term Loan Agreement”) with Benefit Street Partners L.L.C., as Sole Lead Arranger, and BSP Agency, LLC, as agent, for a $ 99.0 million first-lien secured term loan (the “Initial Term Loan”) and a $ 19.0 million delayed draw term loan (the “Delayed Draw Term Loan” and collectively, the “2021 BSP Term Loan”).
1 unchanged sentence
These fees are amortized over the life of the 2021 BSP Term Loan on a straight-line basis which approximates the effective interest method.
−Removed: Proceeds from the Initial Term Loan, together with available cash from the Company, were used to repay the Company’s existing term loan (the “2019 Recap Term Loan” formerly known as the “New Term Loan” in prior filings) under the agreement dated as of August 9, 2019 with Cortland Capital Market Services LLC, as agent for certain investor parties.
+Added: Proceeds from the Initial Term Loan, together with available cash from the Company, were used to repay the Company’s former term loan (the “2019 Recap Term Loan” formerly known as the “New Term Loan” in prior filings) under the agreement dated as of August 9, 2019 with Cortland Capital Market Services LLC, as agent for certain investor parties.
The Delayed Draw Term Loan provision was designed to provide necessary capital to redeem any of the Company’s outstanding 3.25 % convertible senior notes due 2023, upon their maturity, which, upon repayment of the 2019 Recap Term Loan, accelerated to no later than 91 days from the repayment of the 2019 Recap Term Loan, or September 1, 2021.
2 unchanged sentences
The 2021 BSP Term Loan matures in June 2027.
+Added: In January 2023, the Company entered into a second amendment for its 2021 BSP Term Loan Agreement, which transitioned the interest reference rate on its 2021 BSP Term Loan from LIBOR to the Secured Overnight Financing Rate (“SOFR”).
+Added: The new interest reference rate for the 2021 BSP Term Loan will be effective on April 1, 2023.
+Added: In addition to the transition to SOFR, the amendment also includes a constant 0.10 % spread adjustment until the maturity of the 2021 BSP Term Loan.
The 2021 BSP Term Loan Agreement contains negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge its assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.
7 unchanged sentences
provided however, that, the Applicable Minimum Cash Amount shall in no event be reduced below $15.0 million .
+Added: JAKKS PACIFIC, INC.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
+Added: March 31, 2023
On June 27, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, the Company made a voluntary fee-free $ 10.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan.
On September 28, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, the Company made a voluntary $ 17.5 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $ 0.5 million prepayment penalty.
+Added: On January 3, 2023, as permitted by the terms within the 2021 BSP Term Loan Agreement, the Company made a voluntary $ 15.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $ 0.2 million prepayment penalty.
+Added: On March 3, 2023, as required by the terms within the 2021 BSP Term Loan Agreement under the Excess Cash Flow (“ECF”) Sweep provision, the Company made a mandatory $ 23.1 million payment towards the outstanding principal amount of the 2021 BSP Term Loan.
The 2021 BSP Term Loan Agreement contains events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults and a change of control as specified in the 2021 BSP Term Loan Agreement.
If an event of default occurs, the maturity of the amounts owed under the 2021 BSP Term Loan Agreement may be accelerated.
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
The obligations under the 2021 BSP Term Loan Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens and subject to the priority lien granted under the JPMorgan ABL Credit Agreement (see Note 6 – Credit Facility).
The agent and Sole Lead Arranger under the 2021 BSP Term Loan are affiliates of an affiliate of the Company, which affiliate, at the time of refinancing, owned common stock, and the 3.25 % convertible senior notes due 2023 of the Company as well as the Company’s outstanding Series A Preferred Stock.
−Removed: Amortization expense classified as interest expense related to the $ 0.8 million of debt issuance costs associated with the issuance of the 2021 BSP Term Loan was $ 0.3 million and $ 0.4 million for the three and nine months ended September 30, 2022, respectively.
−Removed: Amortization expense classified as interest expense related to the $ 1.0 million of debt issuance costs associated with the issuance of the 2021 BSP Term Loan was $ 43,533 and $ 57,627 for the three and nine months ended September 30, 2021.
−Removed: Amortization expense classified as interest expense related to the $ 1.6 million debt discount associated with the issuance of the 2021 BSP Term Loan was $ 0.6 million and $ 0.8 million for the three and nine months ended September 30, 2022, respectively.
−Removed: Amortization expense classified as interest expense related to the $ 2.3 million debt discount associated with the issuance of the 2021 BSP Term Loan was $ 94,164 and $ 124,506 for the three and nine months ended September 30, 2021.
+Added: Amortization expense classified as interest expense related to the $ 0.3 million of debt issuance costs associated with the issuance of the 2021 BSP Term Loan was $ 26,784 for the three months ended March 31, 2023, and $ 43,584 for the three months ended March 31, 2022.
+Added: Amortization expense classified as interest expense related to the $ 0.7 million debt discount associated with the issuance of the 2021 BSP Term Loan was $ 57,867 for the three months ended March 31, 2023, and $ 94,164 for the three months ended March 31, 2022.
The fair value of the Company’s 2021 BSP Term Loan is considered Level 3 fair value (see Note 15 – Fair Value Measurements for further discussion of the fair value hierarchy) and are measured using the discounted future cash flow method.
2 unchanged sentences
The Company believes that this is the best information available for use in the fair value measurement.
−Removed: The estimated fair value of the 2021 BSP Term Loan was $ 70.8 million and $ 97.3 million as of September 30, 2022 and December 31, 2021, respectively, compared to a carrying value of $ 67.7 million and $ 95.5 million as of September 30, 2022 and December 31, 2021, respectively.
−Removed: As of September 30, 2022, the Company was in compliance with the financial covenants under the 2021 BSP Term Loan Agreement.
−Removed: Loan under Paycheck Protection Program
−Removed: On June 12, 2020, the Company received a $ 6.2 million loan under the Paycheck Protection Program (“PPP”) within the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).
−Removed: The PPP loan maturity date was June 2, 2022, and was subject to the CARES Act terms which included, among other terms, an interest rate of 1.00 % per annum and monthly installment payments of $ 261,275 commencing on September 27, 2021.
−Removed: The PPP loan allowed for prepayment at any time prior to maturity with no prepayment penalties.
−Removed: The PPP Loan was subject to events of default and other provisions customary for a loan of this type.
−Removed: A PPP loan may be forgiven, partially or in full, if certain conditions are met, principally based on having been disbursed for permissible purposes and maintaining certain average levels of employment and payroll as required by the CARES Act.
−Removed: On September 10, 2021, the full amount of the PPP loan was forgiven.
−Removed: The Small Business Administration (“SBA”) may review the Company’s PPP loan forgiveness application for six years after the date of forgiveness.
−Removed: The Company may be subjected to penalties and repayment of the PPP loan if the SBA disagrees with the Company’s eligibilities.
+Added: The estimated fair value of the 2021 BSP Term Loan was $ 31.0 million and $ 69.3 million as of March 31, 2023 and December 31, 2022, respectively, compared to a carrying value of $ 30.2 million and $ 68.9 million as of March 31, 2023 and December 31, 2022, respectively.
+Added: As of March 31, 2023, the Company was in compliance with the financial covenants under the 2021 BSP Term Loan Agreement.
JAKKS PACIFIC, INC.
1 unchanged sentence
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
+Added: March 31, 2023
Note 6 — Credit Facilities
3 unchanged sentences
The Company pays a commitment fee ( 0.25 % - 0.375 %) based on the unused portion of the revolving credit facility.
−Removed: Any amounts borrowed under the JPMorgan ABL Facility will bear interest at either (i) Eurodollar spread plus 1.50 % - 2.00 % (determined by reference to an excess availability pricing grid) or (ii) Alternate Base Rate plus 0.50 % - 1.00 % (determined by reference to an excess availability pricing grid and base rate subject to a 1.00% floor).
+Added: Any amounts borrowed under the JPMorgan ABL Facility will bear interest at either (i) LIBOR plus 1.50 % - 2.00 % (determined by reference to an excess availability pricing grid) or (ii) Alternate Base Rate plus 0.50 % - 1.00 % (determined by reference to an excess availability pricing grid and base rate subject to a 1.00% floor).
The JPMorgan ABL Facility matures in June 2026.
−Removed: As of September 30, 2022, the weighted average interest rate on the credit facility with JPMorgan Chase Bank was 1.88 %.
+Added: As of March 31, 2023, the weighted average interest rate on the credit facility with JPMorgan Chase Bank was nil .
+Added: In March 2023, the Company entered into a first amendment for its JPMorgan ABL Credit Agreement, which transitioned the interest reference rate on its JPMorgan ABL Facility from LIBOR to the Secured Overnight Financing Rate (“SOFR”).
+Added: The new interest reference rate for the ABL Facility became effective on March 16, 2023.
+Added: Any amounts borrowed under the JPMorgan ABL Facility will bear interest at either (i) SOFR plus 1.50 % - 2.00 % (determined by reference to an excess availability pricing grid) plus a constant 0.10 % spread adjustment or (ii) Alternate Base Rate plus 0.50 % - 1.00 % (determined by reference to an excess availability pricing grid and base rate subject to a 1.00% floor).
The JPMorgan ABL Credit Agreement contains negative covenants that, subject to certain exceptions, limit the ability of the Company and its subsidiaries to, among other things, incur additional indebtedness, make restricted payments, pledge their assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.
3 unchanged sentences
The obligations under the JPMorgan ABL Credit Agreement are guaranteed by the Company, the subsidiary borrowers thereunder and certain of the other existing and future direct and indirect subsidiaries of the Company and are secured by substantially all of the assets of the Company, the subsidiary borrowers thereunder and such other subsidiary guarantors, in each case, subject to certain exceptions and permitted liens.
−Removed: As of September 30, 2022, the amount of outstanding borrowings was nil and the total excess borrowing availability was $ 46.5 million.
−Removed: As of September 30, 2022, off-balance sheet arrangements include letters of credit issued by JPMorgan of $ 17.2 million.
−Removed: Amortization expense classified as interest expense related to the $ 1.6 million of debt issuance costs associated with the transaction that closed on June 2, 2021 (i.e., JPMorgan ABL Credit Agreement) was $ 79,132 and $ 0.2 million for the three and nine months ended September 30, 2022.
−Removed: As of September 30, 2022, the Company was in compliance with the financial covenants under the JPMorgan ABL Credit Agreement.
−Removed: Note 7 — Income Taxes
−Removed: The Company’s income tax expense of $ 11.6 million for the three months ended September 30, 2022, reflects an effective tax rate of 27.4 %.
−Removed: The Company’s income tax expense of $ 0.3 million for the three months ended September 30, 2021, reflects an effective tax rate of 0.8 %.
−Removed: The tax expense for the three months ended September 30, 2022, primarily relates to U.S.
−Removed: and foreign income taxes, and discrete items.
−Removed: The tax expense for the three months ended September 30, 2021 primarily relates to foreign income taxes and discrete items.
+Added: As of March 31, 2023, the amount of outstanding borrowings was nil and the total excess borrowing availability was $ 41.4 million.
+Added: As of March 31, 2023, off-balance sheet arrangements include letters of credit issued by JPMorgan of $ 17.2 million.
+Added: Amortization expense classified as interest expense related to the $ 1.6 million of debt issuance costs associated with the transaction that closed on June 2, 2021 (i.e., JPMorgan ABL Credit Agreement) was $ 0.1 million for the three months ended March 31, 2023 and March 31, 2022.
+Added: As of March 31, 2023, the Company was in compliance with the financial covenants under the JPMorgan ABL Credit Agreement.
JAKKS PACIFIC, INC.
1 unchanged sentence
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
−Removed: The Company’s income tax expense of $ 13.3 million for the nine months ended September 30, 2022 reflects an effective tax rate of 20.1 %.
−Removed: The Company’s income tax expense of $ 0.3 million for the nine months ended September 30, 2021 reflects an effective tax rate of (11.7%).
−Removed: The majority of the tax expense for the nine months ended September 30, 2022 relates to U.S.
−Removed: and foreign income taxes, and discrete items.
−Removed: The majority of the tax expense for the nine months ended September 30, 2021 relates to foreign income taxes and discrete items.
−Removed: Note 8 — Earnings (Loss) Per Share
−Removed: The following table is a reconciliation of the weighted average shares used in the computation of earnings (loss) per share for the periods presented (in thousands, except per share data):
+Added: March 31, 2023
+Added: Note 7 — Income Taxes
+Added: The Company’s income tax benefit of $ 1.4 million for the three months ended March 31, 2023, reflects an effective tax rate of 20.6 %.
+Added: The Company’s income tax expense of $ 0.4 million for the three months ended March 31, 2022, reflects an effective tax rate of ( 11.9 )%.
+Added: The tax benefit for the three months ended March 31, 2023, primarily relates to discrete items and the tax benefit related to the overall worldwide loss (i.e.
+Added: federal, state, and foreign).
+Added: The tax expense for the three months ended March 31, 2022 primarily relates to foreign income taxes and discrete items.
+Added: Note 8 — Loss Per Share
+Added: 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):
Three Months Ended
−Removed: September 30,
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: Earnings (loss) per share - basic and diluted
−Removed: Net income (loss)
−Removed: Net income (loss) attributable to non-controlling interests
−Removed: Net income (loss) attributable to JAKKS Pacific, Inc.
+Added: Loss per share - basic and diluted
+Added: Net loss attributable to non-controlling interests
+Added: Net loss attributable to JAKKS Pacific, Inc.
Preferred stock dividend *
−Removed: Net income (loss) attributable to common stockholders **
−Removed: Weighted average common shares outstanding - basic
−Removed: Earnings (loss) per share available to common stockholder- basic
−Removed: Weighted average common shares outstanding - diluted
−Removed: Earnings (loss) per share available to common stockholder- diluted
+Added: Net loss attributable to common stockholders **
+Added: Weighted average common shares outstanding - basic and diluted
+Added: Loss per share available to common stockholder - basic and diluted
* The 200,000 shares issued and outstanding are non-participating.
−Removed: ** Net income (loss) attributable to common stockholders was computed by deducting preferred dividends of $ 0.4 million and $ 1.1 million for the three and nine months ended September 30, 2022, respectively.
−Removed: Net income (loss) attributable to common stockholders was computed by deducting preferred dividends of $ 0.3 million and $ 1.0 million for the three and nine months ended September 30, 2021, respectively.
−Removed: Basic earnings (loss) per share is calculated using the weighted average number of common shares outstanding during the period.
−Removed: Diluted earnings (loss) per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of restricted stock units and convertible debt to the extent they are dilutive).
−Removed: For the three and nine months ended September 30, 2021, the convertible senior notes interest and related weighted common share equivalent of 409,589 and 2,412,419 , respectively, were excluded from the diluted earnings per share calculation since they would have been anti-dilutive.
−Removed: No restricted stock units were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2022.
−Removed: Potentially dilutive restricted stock awards and units of 499,584 for the nine months ended September 30, 2021, were excluded from the computation of diluted loss per share since they would have been anti-dilutive.
−Removed: No restricted stock units were excluded from the computation of diluted earnings per share for the three months ended September 30, 2021.
+Added: ** Net loss attributable to common stockholders was computed by deducting preferred dividends of $ 0.4 million and $ 0.3 million for the three months ended March 31, 2023 and 2022, respectively.
+Added: Basic loss per share is calculated using the weighted average number of common shares outstanding during the period.
+Added: Diluted loss per share is calculated using the weighted average number of common shares and common share equivalents outstanding during the period (which consist of restricted stock units to the extent they are dilutive).
+Added: Potentially dilutive restricted stock units of 494,106 and 310,907 for the three months ended March 31, 2023 and 2022, respectively, were excluded from the computation of diluted loss per share since they would have been anti-dilutive.
Note 9 — Common Stock and Preferred Stock
All issuances of common stock, including those issued pursuant to restricted stock or unit grants, are issued from the Company’s authorized but not issued and outstanding shares.
+Added: During 2022, certain employees, including two executive officers, surrendered an aggregate of 113,162 shares of restricted stock units for $ 1.4 million to cover income taxes due on the vesting of restricted shares.
+Added: Additionally, an aggregate of 149,238 shares of restricted stock granted in 2019 with a value of approximately $ 2.2 million was forfeited during 2022.
+Added: During 2023, certain employees, including two executive officers, surrendered an aggregate of 69,358 shares of restricted stock for $ 1.2 million to cover income taxes due on the vesting of restricted shares.
+Added: Additionally, an aggregate of 2,206 shares of restricted stock granted in 2019 with the value of approximately $ 41,000 was forfeited during 2023.
+Added: No dividend was declared or paid in the three months ended March 31, 2023 and 2022.
JAKKS PACIFIC, INC.
1 unchanged sentence
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
−Removed: During 2021, certain employees, including two executive officers, surrendered an aggregate of 32,846 shares of restricted stock for $ 0.2 million to cover income taxes due on the vesting of restricted shares.
−Removed: Additionally, an aggregate of 93,352 shares of restricted stock granted in 2018 with a value of approximately $ 0.5 million was forfeited during 2021.
−Removed: During 2022, certain employees, including two executive officers, surrendered an aggregate of 105,758 shares of restricted stock units for $ 1.3 million to cover income taxes due on the vesting of restricted shares.
−Removed: Additionally, an aggregate of 11,480 shares of restricted stock granted in 2019 with a value of approximately $ 0.1 million was forfeited during 2022.
−Removed: No dividend was declared or paid in the three and nine months ended September 30, 2022 and 2021.
+Added: March 31, 2023
+Added: At the Market Offering
+Added: On July 1, 2022, the Company entered into an At the Market Issuance Sales Agreement (“ATM Agreement”) with B.
+Added: Riley, as agent pursuant to which the Company may, from time to time, sell shares of its common stock, up to $ 75 million of common stock, in one or more offerings in amounts, prices and at terms that the Company will determine at the time of the offering.
+Added: As of March 31, 2023, the Company has not sold any shares of common stock under the ATM Agreement.
+Added: The Company has on file with the SEC an effective registration statement pursuant to which it may issue, from time to time, up to an additional $ 75 million of securities consisting of, or any combination of, common stock, preferred stock, debt securities, warrants, rights and/or units, in one or more offerings in amounts, prices and at terms that the Company will determine at the time of the offering.
+Added: As of March 31, 2023, the Company has not sold any securities pursuant to its shelf registration statement.
Redeemable Preferred Stock
−Removed: On August 9, 2019, in connection with the Recapitalization Transaction (see Note 5 - Debt), the Company issued 200,000 shares of Series A Senior Preferred Stock (the “Series A Preferred Stock”), $ 0.001 par value per share, to the Investor Parties (the “New Preferred Equity”).
−Removed: As of September 30, 2022 and December 31, 2021, 200,000 shares of Series A Preferred Stock were outstanding.
+Added: On August 9, 2019, the Company entered into and consummated multiple, binding definitive agreements (collectively, the “Recapitalization Transaction”) among various investor parties to recapitalize the Company’s balance sheet.
+Added: In connection with the Recapitalization Transaction, the Company issued 200,000 shares of Series A Senior Preferred Stock (the “Series A Preferred Stock”), $ 0.001 par value per share, to the Investor Parties (the “New Preferred Equity”).
+Added: As of March 31, 2023 and December 31, 2022, 200,000 shares of Series A Preferred Stock were outstanding.
Each share of Series A Preferred Stock has an initial value of $ 100 per share, which is automatically increased for any accrued and unpaid dividends (the “Accreted Value”).
1 unchanged sentence
No cash dividends have been declared or paid.
−Removed: For the three and nine months ended September 30, 2022, the Company recorded $ 0.4 million and $ 1.1 million, respectively, of preferred stock dividends as an increase in the value of the Series A Preferred Stock.
−Removed: For the three and nine months ended September 30, 2021, the Company recorded $ 0.3 million and $ 1.0 million, respectively, of preferred stock dividends as an increase in the value of the Series A Preferred Stock.
+Added: For the three months ended March 31, 2023 and 2022, the Company recorded $ 0.4 million and $ 0.3 million, respectively, of preferred stock dividends as an increase in the value of the Series A Preferred Stock.
The Series A Preferred Stock has no stated maturity, however, the Company has the right to redeem all or a portion of the Series A Preferred Stock at its Liquidation Preference (as defined below) at any time after payment in full of the 2019 Recap Term Loan.
In addition, upon the occurrence of certain change of control type events, holders of the Series A Preferred Stock are entitled to receive an amount (the “Liquidation Preference”), in preference to holders of Common Stock or other junior stock, equal to (i) 20 % of the Accreted Value in the case of a certain specified transaction, or (ii) otherwise, 150 % of the Accreted value, plus any accrued and unpaid dividends.
−Removed: The Company has the right, but is not required, to repurchase all or a portion of the Series A Preferred Stock at its Liquidation Preference at any time after payment in full of the 2019 Recap Term Loan (see Note 5 - Debt).
+Added: The Company has the right, but is not required, to repurchase all or a portion of the Series A Preferred Stock at its Liquidation Preference at any time after payment in full of the 2019 Recap Term Loan.
The Series A Preferred Stock does not have any voting rights, except to the extent required by the Delaware General Corporation Law, except for the exclusive right to elect the Series A Preferred Directors (as described below) and except for certain approval rights over certain transactions (as described below).
3 unchanged sentences
In addition, holders of the Series A Preferred Stock have preemptive rights regarding future issuance of Series A Preferred Stock or parity stock.
+Added: In 2022, an agreement was reached with the preferred shareholders to eliminate their ability to elect members to the Company’s Board of Directors on a going-forward basis.
JAKKS PACIFIC, INC.
1 unchanged sentence
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
+Added: March 31, 2023
The Series A Preferred Stock redemption amount is contingent upon certain events with no stated redemption date as of the reporting date, although may become redeemable in the future.
11 unchanged sentences
Accordingly, these two embedded derivatives are accounted for separately from the Series A Preferred Stock at fair value.
−Removed: As of September 30, 2022, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 4.1 million, and the redemption provision, as a bifurcated derivative, is recorded as a long-term liability with an estimated value of $ 23.3 million.
+Added: As of March 31, 2023, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 4.9 million, and the redemption provision, as a bifurcated derivative, is recorded as a long-term liability with an estimated value of $ 21.8 million.
As of December 31, 2022, the Series A Preferred Stock is recorded in temporary equity at the amount of accrued, but unpaid dividends of $ 4.5 million, and the redemption provision, as a bifurcated derivative, is recorded as a long-term liability with an estimated value of $ 21.9 million.
−Removed: As of September 30, 2022, the Series A Preferred Stock had a carrying value of $ 24.1 million, and a liquidation value of $ 36.2 million.
+Added: As of March 31, 2023, the Series A Preferred Stock had a carrying value of $ 24.9 million and a liquidation value of $ 37.3 million.
As of December 31, 2022, the Series A Preferred Stock had a carrying value of $ 24.5 million and a liquidation value of $ 36.7 million.
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
The following table provides a reconciliation of the beginning and ending balances of the Series A Preferred Stock, which is recorded in temporary equity:
Balance, January 1,
−Removed: $ 3,074 $ 1,740
Preferred stock accrued dividends
Balance, March 31,
−Removed: Preferred stock accrued dividends
−Removed: Balance, June 30,
−Removed: Preferred stock accrued dividends
−Removed: Balance, September 30,
−Removed: $ 4,128 $ 2,733
Note 10 — Joint Ventures
2 unchanged sentences
The Company owns fifty-one percent of the joint venture and consolidates the joint venture since control rests with the Company.
−Removed: The non-controlling interest’s share of the loss was $ 17,000 and $ 470,000 for the three and nine months ended September 30, 2022, respectively.
−Removed: The non-controlling interest’s share of the income was $ 42,000 and $ 101,000 for the three and nine months ended September 30, 2021, respectively.
+Added: The non-controlling interest’s share of the loss was $ 5,000 and $ 0.1 million for the three months ended March 31, 2023 and 2022, respectively.
+Added: JAKKS PACIFIC, INC.
+Added: AND SUBSIDIARIES
+Added: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
+Added: March 31, 2023
In October 2016, the Company entered into a joint venture with Hong Kong Meisheng Cultural Company Limited ("Meisheng"), a Hong Kong-based subsidiary of Meisheng Culture & Creative Corp., for the purpose of creating and developing original, multiplatform content for children including new short-form series and original shows.
3 unchanged sentences
The results of operations of the joint venture are consolidated with the Company's results.
−Removed: The non-controlling interest’s share of the income (loss) from the joint venture for the three and nine months ended September 30, 2022 and 2021 was nil .
+Added: The non-controlling interest’s share of the income (loss) from the joint venture for the three months ended March 31, 2023 and 2022 was nil .
Note 11 — Goodwill
1 unchanged sentence
Goodwill impairment exists when the estimated fair value of goodwill is less than its carrying value.
−Removed: Based on the Company’s April 1 annual Step 1 assessment, it determined that the fair values of its reporting units were not less than the carrying amounts.
−Removed: No goodwill impairment was determined to have occurred for the nine months ended September 30, 2022 and September 30, 2021.
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
−Removed: Note 12 — Intangible Assets Other Than Goodwill
−Removed: Intangible assets other than goodwill consist primarily of licenses, product lines, customer relationships and trademarks.
−Removed: Amortized intangible assets are included in intangibles in the accompanying condensed consolidated balance sheets.
−Removed: Trademarks are disclosed separately in the accompanying condensed consolidated balance sheets.
−Removed: Intangible assets as of September 30, 2022 and December 31, 2021 include the following (in thousands, except for weighted useful lives):
−Removed: September 30, 2022
−Removed: December 31, 2021
−Removed: Amortization/
−Removed: Amortization/
−Removed: Amortized Intangible Assets:
−Removed: Product lines
−Removed: Customer relationships
−Removed: Non-compete agreements
−Removed: Total amortized intangible assets
−Removed: September 30, 2022
−Removed: December 31, 2021
−Removed: Unamortized Intangible Assets:
−Removed: Note 13 — Comprehensive Income (Loss)
−Removed: The table below presents the components of the Company’s comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021 (in thousands):
+Added: For the three months ended March 31, 2023, there were no events or circumstances that indicated that an impairment loss may have been incurred.
+Added: Note 12 — Comprehensive Loss
+Added: The table below presents the components of the Company’s comprehensive loss for the three months ended March 31, 2023 and 2022 (in thousands):
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
−Removed: Net income (loss)
−Removed: Other comprehensive income
+Added: Other comprehensive income (loss):
Foreign currency translation adjustment
−Removed: Comprehensive income (loss)
−Removed: Comprehensive income (loss) attributable to non-controlling interests
−Removed: Comprehensive income (loss) attributable to JAKKS Pacific, Inc.
+Added: Comprehensive loss
+Added: Comprehensive loss attributable to non-controlling interests
+Added: Comprehensive loss attributable to JAKKS Pacific, Inc.
Note 13 — Litigation and Contingencies
11 unchanged sentences
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
+Added: March 31, 2023
Note 14 — Share-Based Payments
2 unchanged sentences
Shares for the restricted stock units are not issued until they vest.
−Removed: The following table summarizes the total share-based compensation expense recognized for the three and nine months ended September 30, 2022 and 2021 (in thousands)
+Added: The following table summarizes the total share-based compensation expense recognized for the three months ended March 31, 2023 and 2022 (in thousands)
Three Months Ended
−Removed: Nine Months Ended
−Removed: September 30,
−Removed: September 30,
Share-based compensation expense
Restricted Stock Units
−Removed: Restricted stock unit activity (including those with performance-based vesting criteria) for the nine months ended September 30, 2022 is summarized as follows:
+Added: Restricted stock unit activity (including those with performance-based vesting criteria) for the three months ended March 31, 2023 is summarized as follows:
Restricted Stock Units
3 unchanged sentences
Outstanding, December 31, 2022
−Removed: Outstanding, September 30, 2022
−Removed: As of September 30, 2022, there was $ 12.3 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 2.4 years.
+Added: Outstanding, March 31, 2023
+Added: As of March 31, 2023, there was $ 17.4 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 2.5 years.
Note 15 — Fair Value Measurements
13 unchanged sentences
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
+Added: March 31, 2023
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.
−Removed: The following tables summarize the Company's financial liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021 (in thousands):
+Added: The following tables summarize the Company's financial liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):
Fair Value Measurements
−Removed: as of September 30, 2022
−Removed: Carrying Amount as of
−Removed: September 30, 2022
+Added: as of March 31, 2023
Preferred stock derivative liability
1 unchanged sentence
as of December 31, 2022
−Removed: Carrying Amount as of
−Removed: December 31, 2021
Preferred stock derivative liability
3 unchanged sentences
Change in fair value
−Removed: Balance, September 30,
−Removed: 3.25% convertible senior notes due in 2023
−Removed: Balance, January 1,
−Removed: Conversion of convertible senior notes
−Removed: Change in fair value
−Removed: Balance, September 30,
−Removed: The Company’s derivative liability is classified within Level 3 of the fair value hierarchy because unobservable inputs were used in estimating the fair value.
+Added: Balance, March 31,
+Added: The Company’s Series A Preferred derivative liability is classified within Level 3 of the fair value hierarchy because unobservable inputs were used in estimating the fair value.
The fair value of the redemption provision embedded in the Series A Preferred Stock is estimated based on a discounted cash flow model and probability assumptions based on management’s estimates of a change of control event occurring.
+Added: The value of the redemption provision explicitly considered the present value of the potential premium that would be paid related to, and the probability of, an event that would trigger its payment.
In subsequent periods, the derivative liability is accounted for at fair value, with changes in fair value recognized as other income (expense) on the Company's condensed consolidated statements of operations.
+Added: The following table provides quantitative information of liabilities measured at fair value and the significant unobservable inputs (Level 3), the range of the significant unobservable inputs, and the valuation techniques.
+Added: As of March 31, 2023
+Added: (Weighted Average)
+Added: (In thousands)
+Added: Preferred Stock Derivative Liability
+Added: Discounted Cash Flow
+Added: Change-in-control probability assumptions
+Added: 10 % to 40 % ( 27.2 %)
+Added: Timing of change-in-control assumptions
+Added: 1 to 10 years ( 4.16 years)
+Added: Discount Rate
+Added: 18.16 % to 18.91 % ( 18.59 %)
+Added: Implied yield*
JAKKS PACIFIC, INC.
1 unchanged sentence
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
−Removed: The Company has elected the fair value option of measurement for the 3.25 % 2023 Notes, under ASC 815, Derivatives and Hedging.
−Removed: As a result, these notes are re-measured each reporting period using Level 3 inputs (Monte Carlo simulation model and inputs for stock price, risk-free rate and volatility), with changes in fair value reflected in current period earnings in its condensed consolidated statements of operations.
−Removed: The fair value of the Series A Preferred Stock derivative liability is calculated using unobservable inputs (Level 3 fair value measurements).
−Removed: The value of the redemption provision explicitly considered the present value of the potential premium that would be paid related to, and the probability of, an event that would trigger its payment.
−Removed: The probability of a triggering event was based on management’s estimates of the probability of a change of control event occurring.
−Removed: The Company’s accounts receivable, accounts payable, and accrued expenses represent financial instruments.
−Removed: The carrying value of these financial instruments is a reasonable approximation of fair value.
+Added: March 31, 2023
+Added: As of December 31, 2022
+Added: (Weighted Average)
+Added: (In thousands)
+Added: Preferred Stock Derivative Liability
+Added: Discounted Cash Flow
+Added: Change-in-control probability assumptions
+Added: 10 % to 40 % ( 27.3 %)
+Added: Timing of change-in-control assumptions
+Added: 1 to 10 years ( 4.19 years)
+Added: Discount Rate
+Added: 17.48 % to 18.23 % ( 17.70 %)
+Added: Implied yield*
+Added: * Represents the implied yield of the 2021 BSP Term Loan
+Added: The Company’s cash and cash equivalents including restricted cash, accounts receivable, accounts payable, and accrued expenses represent financial instruments.
+Added: The carrying value of these financial instruments is a reasonable approximation of fair value due to the short-term nature of the instruments.
Note 16 — Related Party Transactions
4 unchanged sentences
Meisheng also serves as a significant manufacturer of the Company.
−Removed: For the three and nine months ended September 30, 2022, the Company made inventory-related payments to Meisheng of approximately $ 43.6 million and $ 109.3 million, respectively.
−Removed: For the three and nine months ended September 30, 2021, the Company made inventory-related payments to Meisheng of approximately $ 33.1 million and $ 62.3 million, respectively.
−Removed: As of September 30, 2022 and December 31, 2021, amounts due to Meisheng for inventory received by the Company, but not paid totaled $ 28.3 million and $ 15.9 million, respectively.
+Added: For the three months ended March 31, 2023 and 2022, the Company made inventory-related payments to Meisheng of approximately $ 9.3 million and $ 15.5 million, respectively.
+Added: As of March 31, 2023 and December 31, 2022, amounts due to Meisheng for inventory received by the Company, but not paid totaled $ 8.0 million and $ 9.8 million, respectively.
A director of the Company is a director at Benefit Street Partners, who owns 145,788 shares of the Series A Preferred Stock (see Note 9 – Common Stock and Preferred Stock).
−Removed: As of September 30, 2022, a division of Benefit Street Partners held $ 69.5 million in principal amount of the 2021 BSP Term Loan (see Note 5 - Debt).
+Added: As of March 31, 2023, a division of Benefit Street Partners held $ 30.2 million in principal amount of the 2021 BSP Term Loan (see Note 5 - Debt).
Note 17 — Prepaid Expenses and Other Assets
−Removed: Prepaid expenses and other assets as of September 30, 2022 and December 31, 2021 consist of the following (in thousands):
−Removed: September 30,
−Removed: Prepaid expenses
−Removed: Government-funded COVID-19 relief
−Removed: Income taxes receivable
+Added: Prepaid expenses and other assets as of March 31,2023 and December 31, 2022 consist of the following (in thousands):
Royalty advances
+Added: Prepaid expenses
+Added: Income tax receivable
+Added: Employee retention credit
Prepaid expenses and other assets
−Removed: JAKKS PACIFIC, INC.
−Removed: AND SUBSIDIARIES
−Removed: NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
−Removed: September 30, 2022
−Removed: Note 19 — Subsequent Events
−Removed: Sales Agreement
−Removed: On October 26, 2022, the Company entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B.
−Removed: Riley Securities, Inc., (the “Agent”), pursuant to which the Company may, from time to time, offer and sell shares of the Company’s common stock having an aggregate offering price of up to $ 75.0 million in “at the market” offerings through the Agent.
−Removed: Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent.
−Removed: The Agent will receive a commission from the Company of 3.0 % of the gross proceeds of any shares of common stock sold under the Sales Agreement.
−Removed: The Company is not obligated to sell, and the Agent is not obligated to buy or sell, any shares of common stock under the Sales Agreement.
−Removed: No assurance can be given that the Company will sell any shares of common stock under the Sales Agreement, or, if it does, as to the price or amount of shares of common stock that it sells or the dates when such sales will take place.
−Removed: The Company and the Agent may each terminate the Sales Agreement at any time upon specified prior written notice.
−Removed: As of November 14, 2022, the Company has not sold any shares of its common stock under the Sales Agreement.
Management ’ s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of financial condition and results of operations should be read together with our condensed consolidated financial statements and notes thereto, which appear elsewhere herein.
−Removed: Explanatory Note
−Removed: As of the date of filing of this Quarterly Report on Form 10-Q (this “Report”), there continue to be uncertainties regarding the Novel Coronavirus (“COVID-19”) pandemic (“the pandemic”), including the scope of health issues, the duration of the pandemic, and the continuing local and worldwide social, and economic disruption.
−Removed: To date, the pandemic has had far-reaching impacts on many aspects of the operations of JAKKS Pacific, Inc.
−Removed: (the “Company,” “we,” “our” or “us”), including on consumer behavior, customer store traffic, production capabilities, timing of product availability, our employees’ personal and business lives, and the market generally.
−Removed: The scope and nature of these impacts continue to evolve each day.
−Removed: The pandemic has resulted in, and may continue to result in, regional and local quarantines, labor stoppages and shortages, changes in consumer purchasing patterns, mandatory or elective shut-downs of retail locations, disruptions to supply chains, including the inability of our suppliers and service providers to deliver materials and services on a timely basis, or at all, severe market volatility, liquidity disruptions, and overall economic instability, which, in many cases, have had, and we expect will continue to have, adverse impacts on our business, financial condition and results of operations.
−Removed: This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.
−Removed: We expect to continue to assess the evolving impact of the pandemic on our customers, consumers, employees, supply chain, and operations, and intend to make adjustments to our responses accordingly.
−Removed: However, the extent to which the pandemic and our precautionary measures in response thereto may impact our business, financial condition, and results of operations will depend on how the pandemic and its impact continues to develop in the United States and elsewhere in the world, which remains highly uncertain and cannot be predicted at this time.
−Removed: The pandemic continues to have a lasting impact on household consumption and wealth.
−Removed: Changes in personal behavior brought on by the pandemic in combination with government spending and stimulus have created an inflationary environment in many countries around the world, the United States included.
−Removed: The war in Ukraine has also been disruptive to the economies of Europe in particular.
−Removed: Global supply chains designed for optimized efficiency with minimal slack have been challenged to react in surges and rapid declines in demand, while also accounting for spikes in factor cost inputs like labor and fuel.
−Removed: In light of these uncertainties, for purposes of this report, except where otherwise indicated, the descriptions of our business, our strategies, our risk factors, and any other forward-looking statements, including regarding us, our business and the market generally, do not reflect the potential impact of the pandemic and the follow-on market volatility.
−Removed: In addition, the disclosures contained in this report are made only as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
−Removed: For further information, see “Disclosure Regarding Forward-Looking Statements” and “Risk Factors.”
Disclosure Regarding Forward-Looking Statements
2 unchanged sentences
When we use words like “intend,” “anticipate,” “believe,” “estimate,” “plan” or “expect,” or other words of a similar import, we are making forward-looking statements.
−Removed: We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, based upon information available to us on the date hereof (but excluding the impact of COVID-19, as described above in “Explanatory Note”), but we cannot assure you that these assumptions and expectations will prove to have been correct or that we will take any action that we may presently be planning.
−Removed: We have disclosed certain important factors (e.g., see “Explanatory Note” and “Risk Factors”) that could cause our actual results to differ materially from our current expectations elsewhere in this Report.
+Added: We believe that the assumptions and expectations reflected in such forward-looking statements are reasonable, based upon information available to us on the date hereof, but we cannot assure you that these assumptions and expectations will prove to have been correct or that we will take any action that we may presently be planning.
+Added: We have disclosed certain important factors (e.g., see “Risk Factors”) that could cause our actual results to differ materially from our current expectations elsewhere in this Report.
You should understand that forward-looking statements made in this Report are necessarily qualified by these factors.
We are not undertaking to publicly update or revise any forward-looking statement if we obtain new information or upon the occurrence of future events or otherwise.
−Removed: Critical Accounting Policies & Estimates
−Removed: Our critical accounting policies and estimates are included in the 2021 Annual Report on Form 10-K and did not materially change during the first nine months of 2022.
+Added: Critical Accounting Estimates
+Added: Our critical accounting policies and estimates are included in the 2022 Annual Report on Form 10-K and did not materially change during the first three months of 2023.
New Accounting Pronouncements
2 unchanged sentences
The following unaudited table sets forth, for the periods indicated, certain statement of income data as a percentage of net sales:
−Removed: Three Months Ended
−Removed: September 30,
−Removed: Nine Months Ended
−Removed: September 30,
+Added: Three Months Ended March 31,
Cost of sales:
7 unchanged sentences
Selling, general and administrative expenses
−Removed: Intangibles impairment
−Removed: Income from operations
+Added: Loss from operations
Other income (expense), net
Change in fair value of preferred stock derivative liability
−Removed: Change in fair value of convertible senior notes
−Removed: Gain on loan forgiveness
−Removed: Loss on debt extinguishment
Interest income
Interest expense
−Removed: Income (loss) before provision for income taxes
−Removed: Provision for income taxes
−Removed: Net income (loss)
−Removed: Net income (loss) attributable to non-controlling interests
−Removed: Net income (loss) attributable to JAKKS Pacific, Inc.
+Added: Loss before provision for (benefit from) income taxes
+Added: Provision for (benefit from) income taxes
+Added: Net loss attributable to non-controlling interests
+Added: Net loss attributable to JAKKS Pacific, Inc.
The following unaudited table summarizes, for the periods indicated, certain statements of operations data by segment (in thousands):
−Removed: Three Months Ended
−Removed: September 30,
−Removed: Nine Months Ended
−Removed: September 30,
+Added: Three Months Ended March 31,
Toys/Consumer Products
2 unchanged sentences
Toys/Consumer Products
−Removed: Comparison of the Three Months Ended September 30, 2022 and 2021
+Added: Comparison of the Three Months Ended March 31, 2023 and 2022
Toys/Consumer Products.
−Removed: Net sales of our Toys/Consumer Products segment were $269.6 million for the three months ended September 30, 2022 compared to $173.0 million for the prior year period, representing an increase of $96.6 million, or 55.8%.
−Removed: The Doll/Dress-Up/Nurturing Play and Action Play and Collectibles division sales increased, led by Disney Encanto™ and Sonic the Hedgehog®.
−Removed: Net sales of our Costumes segment were $53.4 million for the three months ended September 30, 2022 compared to $64.0 million for the prior year period, representing a decrease of $10.6 million, or 16.6%.
−Removed: The decrease in sales was related to earlier customer shipments in the second quarter to mitigate possible supply chain issues experienced a year ago.
+Added: Net sales of our Toys/Consumer Products segment were $97.9 million for the three months ended March 31, 2023 compared to $111.1 million for the prior year period, representing a decrease of $13.2 million, or 11.9%.
+Added: The decrease was primarily driven by lower sales in North America, which was down $14.6 million, or 15.8%.
+Added: Net sales of our Costumes segment were $9.6 million for the three months ended March 31, 2023 compared to $9.8 million for the prior year period, representing a decrease of $0.2 million, or 2.0%.
Cost of Sales
Toys/Consumer Products.
−Removed: Cost of sales of our Toys/Consumer Products segment was $186.3 million, or 69.1% of related net sales for the three months ended September 30, 2022 compared to $115.1 million, or 66.5% of related net sales for the prior year period, representing an increase of $71.2 million, or 61.9%.
−Removed: The increase in dollars is related to higher overall sales.
−Removed: The increase as a percentage of net sales, year over year, is due to a higher average royalty rate and higher freight costs, slightly offset by lower product costs.
−Removed: Cost of sales of our Costumes segment was $44.8 million, or 83.9% of related net sales for the three months ended September 30, 2022, compared to $46.9 million, or 73.3% of related net sales for the prior year period, representing a decrease in dollars of $2.1 million, or 4.5%.
+Added: Cost of sales of our Toys/Consumer Products segment was $68.7 million, or 70.2% of related net sales for the three months ended March 31, 2023 compared to $83.0 million, or 74.7% of related net sales for the prior year period, representing a decrease of $14.3 million, or 17.2%.
The decrease in dollars is related to lower overall sales.
−Removed: The increase as a percentage of net sales was driven by higher product cost and a higher average royalty rate.
−Removed: Selling, General and Administrative Expenses
−Removed: Selling, general and administrative expenses were $38.2 million for the three months ended September 30, 2022 compared to $38.2 million for the prior year period constituting 11.8% and 16.1% of net sales, respectively.
−Removed: Selling, general and administrative expenses were flat versus prior year due to lower selling costs offset by higher general and administrative costs.
−Removed: Interest Expense
−Removed: Interest expense was $4.4 million for the three months ended September 30, 2022, as compared to $2.7 million in the prior year period.
−Removed: During the three months ended September 30, 2022, we incurred interest expense of $3.4 million related to our 2021 BSP Term Loan, $0.2 million related to our revolving credit facility and $0.8 million related to other borrowing costs.
−Removed: During the three months ended September 30, 2021, we incurred interest expense of $2.4 million related to our 2021 BSP Term Loan, $0.2 million related to our revolving credit facility and $0.1 million related to our convertible senior notes due in 2023.
−Removed: Provision For Income Taxes
−Removed: Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $11.6 million, or an effective tax rate of 27.4%, for the three months ended September 30, 2022.
−Removed: During the comparable period in 2021, our income tax expense was $0.3 million, or an effective tax rate of 0.8%.
−Removed: Comparison of the Nine Months Ended September 30, 2022 and 2021
−Removed: Toys/Consumer Products.
−Removed: Net sales of our Toys/Consumer Products segment were $529.6 million for the nine months ended September 30, 2022 compared to $334.4 million for the prior year period, representing an increase of $195.2 million, or 58.4%.
−Removed: The Doll/Dress-Up/Nurturing Play and Action Play and Collectibles division sales increased, led by Disney Encanto™ and Sonic the Hedgehog®.
−Removed: Net sales of our Costumes segment were $134.7 million for the nine months ended September 30, 2022 compared to $98.8 million for the prior year period, representing an increase of $35.9 million, or 36.3%.
−Removed: The increase in sales was related to increased points of distribution in both the North America and International markets.
−Removed: Cost of Sales
−Removed: Toys/Consumer Products.
−Removed: Cost of sales of our Toys/Consumer Products segment was $375.0 million, or 70.8% of related net sales for the nine months ended September 30, 2022 compared to $225.3 million, or 67.4% of related net sales for the prior year period, representing an increase of $149.7 million, or 66.4%.
−Removed: The increase in dollars is related to higher overall sales.
−Removed: The increase as a percentage of net sales, year over year, is due to higher freight costs and a higher average royalty rate.
−Removed: Cost of sales of our Costumes segment was $106.6 million, or 79.1% of related net sales for the nine months ended September 30, 2022, compared to $75.0 million, or 75.9% of related net sales for the prior year period, representing an increase in dollars of $31.6 million, or 42.1%.
−Removed: The increase in dollars is related to higher overall sales.
−Removed: The increase as a percentage of net sales was driven by higher product cost and a higher average royalty rate.
+Added: The decrease as a percentage of net sales, year over year, is primarily due to lower freight costs.
+Added: Cost of sales of our Costumes segment was $7.4 million, or 77.1% of related net sales for the three months ended March 31, 2023, compared to $8.0 million, or 81.6% of related net sales for the prior year period, representing a decrease in dollars of $0.6 million, or 7.5%.
+Added: The decrease is related to lower product costs.
Selling, General and Administrative Expenses
−Removed: Selling, general and administrative expenses were $105.8 million for the nine months ended September 30, 2022 compared to $97.1 million for the prior year period constituting 15.9% and 22.4% of net sales, respectively.
−Removed: Selling, general and administrative expenses increased as a result of higher payroll costs.
+Added: Selling, general and administrative expenses were $35.8 million for the three months ended March 31, 2023 compared to $30.7 million for the prior year period constituting 33.3% and 25.4% of net sales, respectively.
+Added: Selling, general and administrative expenses were primarily due to higher warehouse and storage costs.
Interest Expense
−Removed: Interest expense was $8.9 million for the nine months ended September 30, 2022, as compared to $11.9 million in the prior year period.
−Removed: During the nine months ended September 30, 2022, we incurred interest expense of $7.4 million related to our 2021 BSP Term Loan, $0.5 million related to our revolving credit facility and $1.0 million related to other borrowing costs.
−Removed: During the nine months ended September 30, 2021, we incurred interest expense of $7.3 million related to our 2019 Recap Term Loan, $3.3 million related to our 2021 BSP Term Loan, $0.7 million related to our convertible senior notes due in 2023 and $0.6 million related to our revolving credit facility.
+Added: Interest expense was $3.0 million for the three months ended March 31, 2023, as compared to $2.2 million in the prior year period.
+Added: During the three months ended March 31, 2023, we incurred interest expense of $2.5 million related to our 2021 BSP Term Loan, $0.1 million related to our revolving credit facility and $0.4 million related to other borrowing costs.
+Added: During the three months ended March 31, 2022, we incurred interest expense of $2.0 million related to our 2021 BSP Term Loan and $0.2 million related to our revolving credit facility.
Provision For (Benefit From) Income Taxes
−Removed: Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $13.3 million, or an effective tax rate of 20.1%, for the nine months ended September 30, 2022.
+Added: Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $1.4 million, or an effective tax rate of 20.6%, for the three months ended March 31, 2023.
During the comparable period in 2022, our income tax expense was $0.4 million, or an effective tax rate of (11.9)%.
3 unchanged sentences
Our working capital needs have been highest during the second and third quarters as we make royalty advance payments for some of our licenses and buy and sell inventory subject to customer payment terms.
−Removed: The pandemic has somewhat disrupted historical industry seasonality.
−Removed: Consumer demand for certain product categories has surged during this time.
−Removed: Surges in consumer demand have also strained the supply-chain, lengthening the amount of time it takes to move products from factory to warehouse to customers.
−Removed: Customers have also had increased challenges in managing their inventory levels, resulting in either out-of-stock or over-supply scenarios, depending on the product category and product line.
While we have taken steps to level sales over the entire year, sales are expected to remain heavily influenced by the seasonality of our toy and costume products.
4 unchanged sentences
Liquidity and Capital Resources
−Removed: As of September 30, 2022, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $135.8 million, compared to $114.5 million as of December 31, 2021, representing an increase in working capital of $21.3 million during the nine-month period ended September 30, 2022.
−Removed: Operating activities provided net cash of $75.3 million during the nine months ended September 30, 2022, as compared to net cash used of $26.9 million in the prior year period.
−Removed: The increase in net cash provided by operating activities year-over-year is primarily due to a higher net income and lower working capital usage, partially offset by lower non-cash charges related to valuation adjustments for our convertible senior notes and preferred stock derivative liability.
+Added: As of March 31, 2023, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $77.8 million, compared to $97.4 million as of December 31, 2022, representing a decrease in working capital of $19.6 million during the three-month period ended March 31, 2023.
+Added: The decrease in working capital is primarily attributable to the $38.7 million of principal payments made during the quarter related to our 2021 BSP Term Loan.
+Added: $23.1 million was related to the ECF Sweep provision and was classified as short-term debt and $15.6 million was related to the principal payments on the non-current portion of the 2021 BSP Term Loan.
+Added: Operating activities used net cash of $4.1 million during the three months ended March 31, 2023, as compared to net cash used of $2.7 million in the prior year period.
+Added: The increase in net cash used in operating activities year-over-year is primarily due to a higher net loss.
Other than open purchase orders issued in the normal course of business related to shipped product, we have no obligations to purchase inventory from our manufacturers.
1 unchanged sentence
As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties/obligations generally ranging from 1% to 21% payable on net sales of such products.
−Removed: As of September 30, 2022, these agreements required future aggregate minimum royalty guarantees of $71.4 million exclusive of $1.1 million in advances already paid.
+Added: As of March 31, 2023, these agreements required future aggregate minimum royalty guarantees of $67.8 million exclusive of $5.8 million in advances already paid.
Of this $67.8 million future minimum royalty guarantee, $38.9 million is due over the next twelve months.
−Removed: Investing activities used net cash of $8.1 million and $6.3 million for the nine months ended September 30, 2022 and 2021, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.
−Removed: Financing activities used net cash of $30.3 million and $32.5 million for the nine months ended September 30, 2022 and 2021, respectively.
−Removed: The cash used in financing activities during the nine months ended September 30, 2022, primarily consists of the repayment of our 2021 BSP Term Loan of $29.0 million, and the repurchase of common stock for employee tax withholding of $1.3 million.
−Removed: The cash used in financing activities during the nine months ended September 30, 2021 of $32.5 million consists of the repayment of our 2019 Recap Term Loan of $125.8 million, as well as, debt issuance costs of $2.6 million incurred in connection with the refinancing of our debt (see Note 5 – Debt), partially offset by the net proceeds from the issuance of our 2021 BSP Term Loan of $96.3 million.
−Removed: As of September 30, 2022, we have $69.5 million of outstanding indebtedness under our first-lien secured term loan (the “2021 BSP Term Loan Agreement”) and we have no outstanding indebtedness under our senior secured revolving credit facility (the “JPMorgan ABL Facility”), aside from utilizing $17.2 million in letters of credit.
+Added: Investing activities used net cash of $3.5 million and $1.8 million for the three months ended March 31, 2023 and 2022, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products.
+Added: Financing activities used net cash of $39.9 million and $0.9 million for the three months ended March 31, 2023 and 2022, respectively.
+Added: The cash used in financing activities during the three months ended March 31, 2023, primarily consists of the repayment of our 2021 BSP Term Loan of $38.7 million and the repurchase of common stock for employee tax withholding of $1.2 million.
+Added: The cash used in financing activities during the three months ended March 31, 2022, primarily consists of the repayment of our 2021 BSP Term Loan of $0.2 million and the repurchase of common stock for employee tax withholding of $0.6 million.
+Added: As of March 31, 2023, we have $30.2 million of outstanding indebtedness under our first-lien secured term loan (the “2021 BSP Term Loan Agreement”) and we have no outstanding indebtedness under our senior secured revolving credit facility (the “JPMorgan ABL Facility”), aside from utilizing $17.2 million in letters of credit.
The First Lien Term Loan Facility Credit Agreement (the “2021 BSP Term Loan Agreement”) and the Credit Agreement with JPMorgan Chase Bank, N.A., as agent and lender (the “JPMorgan ABL Credit Agreement”) each contain negative covenants that, subject to certain exceptions, limit our ability and our subsidiaries ability to, among other things, incur additional indebtedness, make restricted payments, pledge our assets as security, make investments, loans, advances, guarantees and acquisitions, undergo fundamental changes and enter into transactions with affiliates.
9 unchanged sentences
On September 28, 2022, as permitted by the terms within the 2021 BSP Term Loan Agreement, we made a voluntary $17.5 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $0.5 million prepayment penalty.
+Added: On January 3, 2023, as permitted by the terms within the 2021 BSP Term Loan Agreement, we made a voluntary $15.0 million prepayment towards the outstanding principal amount of the 2021 BSP Term Loan and incurred a $0.2 million prepayment penalty.
+Added: On March 3, 2023, as required by the terms within the 2021 BSP Term Loan Agreement under the Excess Cash Flow (“ECF”) Sweep provision, we made a mandatory $23.1 million payment towards the outstanding principal amount of the 2021 BSP Term Loan.
The 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement contain events of default that are customary for a facility of this nature, including (subject in certain cases to grace periods and thresholds) nonpayment of principal, nonpayment of interest, fees or other amounts, material inaccuracy of representations and warranties, violation of covenants, cross-default to certain other existing indebtedness, bankruptcy or insolvency events, certain judgment defaults and a change of control as specified in each Agreement.
If an event of default occurs under either Agreement, the maturity of the amounts owed under the 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement may be accelerated.
−Removed: We were in compliance with the financial covenants under the 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement as of September 30, 2022.
+Added: We were in compliance with the financial covenants under the 2021 BSP Term Loan Agreement and the JPMorgan ABL Agreement as of March 31, 2023.
See Note 5 – Debt and Note 6 – Credit Facilities for additional information pertaining to our Debt and Credit Facilities.
−Removed: As of September 30, 2022 and December 31, 2021, we held cash and cash equivalents, including restricted cash, of $76.6 million and $45.3 million, respectively.
−Removed: Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $72.3 million and $30.7 million as of September 30, 2022 and December 31, 2021, respectively.
+Added: As of March 31, 2023 and December 31, 2022, we held cash and cash equivalents, including restricted cash, of $38.3 million and $85.5 million, respectively.
+Added: Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $33.9 million and $39.4 million as of March 31, 2023 and December 31, 2022, respectively.
The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S.
1 unchanged sentence
tax should such amounts be repatriated in the form of dividends or deemed distributions.
−Removed: Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of September 30, 2022.
+Added: Any such repatriation may result in foreign withholding taxes, which we expect would not be significant as of March 31, 2023.
Our primary sources of working capital are cash flows from operations and borrowings under our JPMorgan ABL Facility (see Note 6 – Credit Facilities).
5 unchanged sentences
Changes in this area could have a material adverse impact on our liquidity.
−Removed: As of September 30, 2022 off-balance sheet arrangements include letters of credit issued by JPMorgan of $17.2 million.
+Added: As of March 31, 2023 off-balance sheet arrangements include letters of credit issued by JPMorgan of $17.2 million.
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.