JAKKS PACIFIC INC - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

 

(Mark One)

 

For the transition period from ____________ to ____________

 

Commission File Number 0-28104

 

JAKKS PACIFIC, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Registrant’s telephone number, including area code: (424) 268-9444

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

 

Securities registered pursuant to Section 12(g) of the Exchange Act:

 

Title of Class

 

Common Stock, $.001 par value per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐    No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 of the Act.  Yes  ☐    No  ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x    No  o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No  x

 

The aggregate market value of the voting and non-voting common equity (the only such common equity being Common Stock, $.001 par value per share) held by non-affiliates of the registrant (computed by reference to the closing sale price of the Common Stock on June 30, 2017 of $4.00) is $107,392,952.

 

The number of shares outstanding of the registrant’s Common Stock, $.001 par value (being the only class of its common stock), is 29,159,324 as of March 15, 2018.

 

Documents Incorporated by Reference

 

None.

 

JAKKS PACIFIC, INC.

 

INDEX TO ANNUAL REPORT ON FORM 10-K

 

For the Fiscal Year ended December 31, 2017

 

Items in Form 10-K

 

 

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

 

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. For example, statements included in this report regarding our financial position, business strategy and other plans and objectives for future operations, and assumptions and predictions about future product demand, supply, manufacturing, costs, marketing and pricing factors are all forward-looking statements. When we use words like “intend,” “anticipate,” “believe,” “estimate,” “plan” or “expect,” we are making forward-looking statements. 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. We have disclosed certain important 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.

 

 

PART I

 

Item 1.  Business

 

In this report, “JAKKS,” the “Company,” “we,” “us” and “our” refer to JAKKS Pacific, Inc., its subsidiaries and our majority owned joint venture.

 

Company Overview

 

We are a leading multi-line, multi-brand toy company that designs, produces, markets and distributes toys and related products, consumables and related products, electronics and related products, kids indoor and outdoor furniture, and other consumer products. We focus our business on acquiring or licensing well-recognized trademarks and brand names, most with long product histories (“evergreen brands”). We seek to acquire these evergreen brands because we believe they are less subject to market fads or trends. We also develop proprietary products marketed under our own trademarks and brand names, and have historically acquired complementary businesses to further grow our portfolio. For accounting purposes, our products have been divided into three segments: (i) U.S. and Canada, (ii) International and (iii) Halloween. Segment information with respect to revenues, assets and profits or losses attributable to each segment is contained in Note 3 to the audited consolidated financial statements contained below in Item 8. Our products include:

 

Traditional Toys and Electronics

 

 

Role Play, Novelty and Seasonal Toys

 

 

We continually review the marketplace to identify and evaluate popular and evergreen brands and product categories that we believe have the potential for growth. We endeavor to generate growth within these lines by:

 

 

 

 

 

Our Business Strategy

 

In addition to developing our own proprietary brands and marks, licensing popular trademarks enables us to use these high-profile marks at a lower cost than we would incur if we purchased these marks or developed comparable marks on our own. By licensing trademarks, we have access to a far greater range of marks than would be available for purchase. We also license technology developed by unaffiliated inventors and product developers to enhance the design and functionality of our products.

 

We sell our products through our in-house sales staff and independent sales representatives to toy and mass-market retail chain stores, department stores, office supply stores, drug and grocery store chains, club stores, toy specialty stores and wholesalers. Our three largest customers are Wal-Mart, Target and Toys ‘R’ Us, which accounted for approximately 25.5%, 17.8% and 11.3%, respectively, of our net sales in 2017. No other customer accounted for more than 10.0% of our net sales in 2017.

 

Our Growth Strategy

 

 In 2016 and 2017, we generated net sales of $706.6 million and $613.1 million, respectively, and net income of $1.2 million in 2016 and a net loss of $83.1 million in 2017. Key elements of our growth strategy include:

 

●       Expand Core Products. We manage our existing and new brands through strategic product development initiatives, including introducing new products, modifying existing products and extending existing product lines to maximize their longevity. Our marketing teams and product designers strive to develop new products or product lines to offer added technological, aesthetic and functional improvements to our extensive portfolio.

 

●       Enter New Product Categories. We use our extensive experience in the toy and other consumer product industries to evaluate products and licenses in new product categories and to develop additional product lines. We began marketing licensed classic video games for simple plug-in use with television sets and expanded into several related categories by infusing additional technologies such as motion gaming and through the licensing of this category from our current licensors, such as Disney and Viacom which owns Nickelodeon®.

 

●      Pursue Strategic Acquisitions. We supplement our internal growth with selected strategic acquisitions. In October 2016, we acquired the operating assets of the C’est Moi™ performance makeup and youth skincare product lines whose distribution is limited primarily to Asia. We expect to launch a full line of makeup and skincare products branded under the C’est Moi name in the U.S. and Canada in the first quarter of 2018. We will continue focusing our acquisition strategy on businesses or brands that we believe have compatible product lines and/or offer valuable trademarks or brands.

●       Acquire Additional Character and Product Licenses. We have acquired the rights to use many familiar brand and character names and logos from third parties that we use with our primary trademarks and brands. Currently, among others, we have license agreements with Nickelodeon®, Disney and Warner Bros.®, as well as with the licensors of the many popular licensed children’s characters previously mentioned, among others. We intend to continue to pursue new licenses from these entertainment and media companies and other licensors. We also intend to continue to purchase additional inventions and product concepts through our existing network of inventors and product developers.

 

●       Expand International Sales. We believe that foreign markets, especially Europe, Australia, Canada, Latin America and Asia, offer us significant growth opportunities. In 2017, our sales generated outside the United States were approximately $134.0 million, or 21.9% of total net sales. We intend to continue to expand our international sales and further expand distribution agreements in Europe to capitalize on our experience and our relationships with foreign distributors and retailers. We expect these initiatives to contribute to our international growth in 2018.

 

●       Capitalize On Our Operating Efficiencies. We believe that our current infrastructure and operating model can accommodate growth without a proportionate increase in our operating and administrative expenses, thereby increasing our operating margins.

 

The execution of our growth strategy, however, is subject to several risks and uncertainties and we cannot assure you that we will continue to experience growth in, or maintain our present level of net sales (see “Risk Factors,” in Item 1A). For example, our growth strategy will place additional demands upon our management, operational capacity and financial resources and systems. The increased demand upon management may necessitate our recruitment and retention of additional qualified management personnel. We cannot assure you that we will be able to recruit and retain qualified personnel or expand and manage our operations effectively and profitably. To effectively manage future growth, we must continue to expand our operational, financial and management information systems and to train, motivate and manage our work force. While we believe that our operational, financial and management information systems will be adequate to support our future growth, no assurance can be given they will be adequate without significant investment in our infrastructure. Failure to expand our operational, financial and management information systems or to train, motivate or manage employees could have a material adverse effect on our business, financial condition and results of operations.

 

Moreover, implementation of our growth strategy is subject to risks beyond our control, including competition, market acceptance of new products, changes in economic conditions, our ability to obtain or renew licenses on commercially reasonable terms and our ability to finance increased levels of accounts receivable and inventory necessary to support our sales growth, if any.

 

Furthermore, we cannot assure you that we can identify attractive acquisition candidates or negotiate acceptable acquisition terms, and our failure to do so may adversely affect our results of operations and our ability to sustain growth.

 

Finally, our acquisition strategy involves a number of risks, each of which could adversely affect our operating results, including difficulties in integrating acquired businesses or product lines, assimilating new facilities and personnel and harmonizing diverse business strategies and methods of operation; diversion of management attention from operation of our existing business; loss of key personnel from acquired companies; and failure of an acquired business to achieve targeted financial results.

 

Industry Overview

 

According to Toy Industry Association, Inc., the leading toy industry trade group, the United States is the world’s largest toy market, followed by Japan and Western Europe. Total retail sales of toys, excluding video games, in the United States, were approximately $20.7 billion in 2017. We believe the two largest United States toy companies, Mattel and Hasbro, collectively hold a dominant share of the domestic non-video toy market. In addition, hundreds of smaller companies compete in the design and development of new toys, the procurement of character and product licenses, and the improvement and expansion of previously introduced products and product lines.

 

Over the past few years, the toy industry has experienced substantial consolidation among both toy companies and toy retailers. We believe that the ongoing consolidation of toy companies provides us with increased growth opportunities due to retailers’ desire to not be entirely dependent upon a few dominant toy companies. Retailer concentration also enables us to ship products, manage account relationships and track point of sale information more effectively and efficiently.

 

Products

 

We focus our business on acquiring or licensing well-recognized trademarks or brand names, and we seek to acquire evergreen brands which are less subject to market fads or trends. Generally, our license agreements for products and concepts call for royalties ranging from 1% to 21% of net sales, and some may require minimum guarantees and advances. Our principal products include:

 

Traditional Toys

 

Wheels Products

 

Motorized and plastic toy vehicles and accessories.

 

Our extreme sports offerings include our MXS® line of motorcycles with generic and well-known riders and other vehicles include off-road vehicles and skateboards, which are sold individually and with playsets and accessories. In 2014, we launched our proprietary line of motorized vehicles under the brand Max Tow®, and in 2015, we expanded the product line to include higher performance versions as well as mini size vehicles and play sets under the Max Tow®Mini line. In 2017, we launched Real Workin’ Buddies™ with Mr. Dusty, the talking cleaning dump truck.

 

Action Figures and Accessories

 

We currently develop, manufacture and distribute other action figures and action figure accessories including those based on Star Wars® and Batman®, capitalizing on the expertise we built in the action figure category.

 

Our line of Big-Figs™ large scale action figures features an assortment of 20” figures, 31” figures, and 48” figures of characters including Superman®, Power Rangers®, Star Wars® and Teenage Mutant Ninja Turtles®.

Dolls

 

Dolls and accessories include small dolls, large dolls, fashion dolls and baby dolls based on licenses, including Disney’s Frozen, Disney Princess, Disney Fairies, including an extensive line of baby doll accessories that emulate real baby products that mothers today use; plush, infant and pre-school toys, and private label fashion dolls for other retailers and sold to Disney Stores and Disney Parks and Resorts. In 2016, we launched lines of dolls based on Disney’s animated feature Moana and animated television series Elena of Avalor.

 

Role Play, Novelty & Seasonal

 

Role Play and Dress-up Products

 

Our line of role play and dress-up products for boys and girls features entertainment and consumer products properties such as Disney’s Frozen, Disney Princess, Disney Fairies, Moana, Elena of Avalor and Black & Decker®. These products generated a significant amount of sales in 2015, 2016 and 2017.

 

Seasonal/ Outdoor Products

 

We have a wide range of seasonal toys and outdoor and leisure products including our Maui® line of proprietary products including Sky Ball®, Sky Bouncer® and Wave Hoop® among other outdoor toys. Our Funnoodle® pool toys include basic Funnoodle® pool floats and a variety of other pool toys.

 

Indoor and Outdoor Kids’ Furniture

 

We produce an extensive array of licensed indoor and outdoor kids' furniture and activity tables, and room decor. Our licensed portfolio includes character licenses, including Crayola®, Disney Princess, Toy Story, Mickey Mouse, Paw Patrol®, and others. Products include children’s puzzle furniture, tables and chairs to activity sets, trays, stools and a line of licensed molded kiddie pools, among others.

 

Halloween and Everyday Costume Play

 

We produce an expansive and innovative line of Halloween costumes and accessories which includes a wide range of non-licensed Halloween costumes such as horror, pirates, historical figures and aliens to animals, vampires, angels and more, as well as popular licensed characters from top intellectual property owners including Disney, Hasbro®, Sesame Workshop®, Mattel®, and many others. In 2016, we launched new licenses including Lego® brands.

Sales, Marketing and Distribution

 

We sell all of our products through our own in-house sales staff and independent sales representatives to toy and mass-market retail chain stores, department stores, office supply stores, drug and grocery store chains, club stores, toy specialty stores and wholesalers. Our three largest customers are Wal-Mart, Target and Toys ‘R’ Us, which accounted for approximately 54.9% of our net sales in 2016 and 54.6% of our net sales in 2017. We generally sell products to our customers pursuant to letters of credit or, in some cases, on open account with payment terms typically varying from 30 to 90 days. From time to time, we allow our customers credits against future purchases from us in order to facilitate their retail markdown and sales of slow-moving inventory. We also sell our products through e-commerce sites, including Walmart.com, Target.com, Toysrus.com and Amazon.com.

 

We contract the manufacture of most of our products to unaffiliated manufacturers located in The People’s Republic of China (“China”). We sell the finished products on a letter of credit basis or on open account to our customers, many of whom take title to the goods in Hong Kong or China. These methods allow us to reduce certain operating costs and working capital requirements. A portion of our sales originate in the United States, so we hold certain inventory in our warehouses and fulfillment facilities. To date, a majority of all of our sales has been to domestic customers. We intend to continue expanding distribution of our products into foreign territories and, accordingly, we have:

 

 

 

 

 

 

 

 

Outside of the United States, we currently sell our products primarily in Europe, Australia, Canada, Latin America and Asia. Sales of our products abroad accounted for approximately $134.0 million, or 21.9% of our net sales in 2017 and approximately $162.5 million, or 23.0% of our net sales in 2016. We believe that foreign markets present an attractive opportunity, and we plan to intensify our marketing efforts and further expand our distribution channels abroad.

 

We establish reserves for sales allowances, including promotional allowances and allowances for anticipated defective product returns, at the time of shipment. The reserves are determined as a percentage of net sales based upon either historical experience or upon estimates or programs agreed upon by our customers and us.

 

We obtain, directly, or through our sales representatives, orders for our products from our customers and arrange for the manufacture of these products as discussed below. Cancellations generally are made in writing, and we take appropriate steps to notify our manufacturers of these cancellations. We may incur costs or other losses as a result of cancellations.

 

We maintain a full-time sales and marketing staff, many of whom make on-site visits to customers for the purpose of showing product and soliciting orders for products. We also retain a number of independent sales representatives to sell and promote our products, both domestically and internationally. Together with retailers, we occasionally test the consumer acceptance of new products in selected markets before committing resources to large-scale production.

 

We publicize and advertise our products in trade and consumer magazines and other publications, market our products at international, national and regional toy and other specialty trade shows, conventions and exhibitions and carry on cooperative advertising programs with toy and mass market retailers and other customers which include the use of print and television ads and in-store displays. We also produce and broadcast television commercials for several of our product lines, if we expect that the resulting increase in our net sales will justify the relatively high cost of television advertising.

 

Product Development

 

Each of our product lines has an in-house manager responsible for product development. The in-house manager identifies and evaluates inventor products and concepts and other opportunities to enhance or expand existing product lines or to enter new product categories. In addition, we create proprietary products to fully exploit our concept and character licenses. Although we have the capability to create and develop products from inception to production, we also use third-parties to provide a portion of the sculpting, sample making, illustration and package design required for our products in order to accommodate our increasing product innovations and introductions. Typically, the development process takes from three to nine months from concept to production and shipment to our customers.

 

We employ a staff of designers for all of our product lines. We occasionally acquire our other product concepts from unaffiliated third parties. If we accept and develop a third party’s concept for new toys, we generally pay a royalty on the sale of the toys developed from this concept, and may, on an individual basis, guarantee a minimum royalty. Royalties payable to inventors and developers generally range from 1% to 5% of the wholesale sales price for each unit of a product sold by us. We believe that utilizing experienced third-party inventors gives us access to a wide range of development talent. We currently work with numerous toy inventors and designers for the development of new products and the enhancement of existing products.

 

Safety testing of our products is done at the manufacturers’ facilities by quality control personnel employed by us or by independent third-party contractors engaged by us. Safety testing is designed to meet or exceed regulations imposed by federal and state, as well as applicable international governmental authorities, our retail partners, licensors and the Toy Industry Association. We also closely monitor quality assurance procedures for our products for safety purposes. In addition, independent laboratories engaged by some of our larger customers and licensors test certain of our products.

Manufacturing and Supplies

 

Most of our products are currently produced by overseas third-party manufacturers, which we choose on the basis of quality, reliability and price. Consistent with industry practice, the use of third-party manufacturers enables us to avoid incurring fixed manufacturing costs, while maximizing flexibility, capacity and production technology. Substantially all of the manufacturing services performed overseas for us are paid for on open account with the manufacturers. To date, we have not experienced any material delays in the delivery of our products; however, delivery schedules are subject to various factors beyond our control, and any delays in the future could adversely affect our sales. Currently, we have ongoing relationships with over eighty different manufacturers. We believe that alternative sources of supply are available to us although we cannot be assured that we can obtain adequate supplies of manufactured products.

 

Although we do not conduct the day-to-day manufacturing of our products, we are extensively involved in the design of the product prototype and production tools, dyes and molds for our products and we seek to ensure quality control by actively reviewing the production process and testing the products produced by our manufacturers. We employ quality control inspectors who rotate among our manufacturers’ factories to monitor the production of substantially all of our products.

 

The principal raw materials used in the production and sale of our toy products are plastics, zinc alloy, plush, printed fabrics, paper products and electronic components, all of which are currently available at reasonable prices from a variety of sources. Although we do not manufacture our products, we own the majority of the tools, dyes and molds used in the manufacturing process, and these are transferable among manufacturers if we choose to employ alternative manufacturers. Tools, dyes and molds represent a substantial portion of our property and equipment with a net book value of $15.7 million in 2016 and $17.0 million in 2017; substantially all of these assets are located in China.

 

Trademarks and Copyrights

 

Most of our products are produced and sold under trademarks owned by or licensed to us. We typically register our properties, and seek protection under the trademark, copyright and patent laws of the United States and other countries where our products are produced or sold. These intellectual property rights can be significant assets. Accordingly, while we believe we are sufficiently protected, the loss of some of these rights could have an adverse effect on our business, financial condition and results of operations.

 

Competition

 

Competition in the toy industry is intense. Globally, certain of our competitors have greater financial resources, larger sales and marketing and product development departments, stronger name recognition, longer operating histories and benefit from greater economies of scale. These factors, among others, may enable our competitors to market their products at lower prices or on terms more advantageous to customers than those we could offer for our competitive products. Competition often extends to the procurement of entertainment and product licenses, as well as the marketing and distribution of products and the obtaining of adequate shelf space. Competition may result in price reductions, reduced gross margins and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations. In each of our product lines we compete against one or both of the toy industry’s two dominant companies, Mattel and Hasbro. In addition, we compete in our Halloween costume lines with Rubies. We also compete with numerous smaller domestic and foreign toy manufacturers, importers and marketers in each of our product categories.

 

Seasonality and Backlog

 

In 2017, approximately 65.1% of our net sales were made in the third and fourth quarters. Generally, the first quarter is the period of lowest shipments and sales in our business and in the toy industry and therefore it is also the least profitable quarter due to various fixed costs. Seasonality factors may cause our operating results to fluctuate significantly from quarter to quarter. However, our seasonal products are primarily sold in the spring and summer seasons. Our results of operations may also fluctuate as a result of factors such as the timing of new products (and related expenses) introduced by us or our competitors, the advertising activities of our competitors, delivery schedules set by our customers and the emergence of new market entrants. We believe, however, that the low retail price of most of our products may be less subject to seasonal fluctuations than higher priced toy products.

 

We ship products in accordance with delivery schedules specified by our customers, who generally request delivery of products within three to six months of the date of their orders for orders shipped FOB China or Hong Kong and within three days for orders shipped domestically. Because customer orders may be canceled at any time, often without penalty, our backlog may not accurately indicate sales for any future period.

 

Government and Industry Regulation

 

Our products are subject to the provisions of the Consumer Product Safety Act (“CPSA”), the Federal Hazardous Substances Act (“FHSA”), the Flammable Fabrics Act (“FFA”) and the regulations promulgated there under. The CPSA and the FHSA enable the Consumer Products Safety Commission (“CPSC”) to exclude from the market consumer products that fail to comply with applicable product safety regulations or otherwise create a substantial risk of injury, and articles that contain excessive amounts of a banned hazardous substance. The FFA enables the CPSC to regulate and enforce flammability standards for fabrics used in consumer products. The CPSC may also require the repurchase by the manufacturer of articles. Similar laws exist in some states and cities and in various international markets. We maintain a quality control program designed to ensure compliance with all applicable laws.

 

Employees

 

As of February 28, 2018, we employed 751 people, all of whom are full-time employees, including three executive officers. We employed 409 people in the United States, 9 people in Canada, 4 people in Mexico, 203 people in Hong Kong, 100 people in China, 20 people in the United Kingdom, 3 people in France and 3 people in Germany. We believe that we have good relationships with our employees. None of our employees are represented by a union.

 

Environmental Issues

 

We are subject to legal and financial obligations under environmental, health and safety laws in the United States and in other jurisdictions where we operate. We are not currently aware of any material environmental liabilities associated with any of our operations.

 

Available Information

 

We make available free of charge on or through our Internet website, www.jakks.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The contents of our website are not incorporated in or deemed to be a part of any such report.

 

Our Corporate Information

 

We were formed as a Delaware corporation in 1995. Our principal executive offices are located at 2951 28^th Street, Santa Monica, California 90405. Our telephone number is (424) 268-9444 and our Internet Website address is www.jakks.com. The contents of our website are not incorporated in or deemed to be a part of this Annual Report on Form 10-K.

 

 

Item 1A.  Risk Factors

 

From time to time, including in this Annual Report on Form 10-K, we publish forward-looking statements, as disclosed in our Disclosure Regarding Forward-Looking Statements, beginning immediately following the Table of Contents of this Annual Report. We note that a variety of factors could cause our actual results and experience to differ materially from the anticipated results or other expectations expressed or anticipated in our forward-looking statements. The factors listed below are risks and uncertainties that may arise and that may be detailed from time to time in our public announcements and our filings with the Securities and Exchange Commission, such as on Forms 8-K, 10-Q and 10-K. We undertake no obligation to make any revisions to the forward-looking statements contained in this Annual Report on Form 10-K to reflect events or circumstances occurring after the date of the filing of this report.

 

Our inability to redesign, restyle and extend our existing core products and product lines as consumer preferences evolve, and to develop, introduce and gain customer acceptance of new products and product lines, may materially and adversely impact our business, financial condition and results of operations.

 

Our business and operating results depend largely upon the appeal of our products. Our continued success in the toy industry will depend upon our ability to redesign, restyle and extend our existing core products and product lines as consumer preferences evolve, and to develop, introduce and gain customer acceptance of new products and product lines. Several trends in recent years have presented challenges for the toy industry, including:

 

 

 

 

 

We cannot assure you that:

 

 

 

 

 

Our failure to achieve any or all of the foregoing benchmarks may adversely affect our business, financial condition and results of operations.

 

The failure of our character-related and theme-related products to become and/or remain popular with children may materially and adversely impact our business, financial condition and results of operations.

 

The success of many of our character-related and theme-related products depends upon the popularity of characters in movies, television programs, live sporting exhibitions, and other media and events. We cannot assure you that:

 

 

 

 

 

Our failure to achieve any or all of the foregoing benchmarks may cause the infrastructure of our operations to fail, thereby adversely affecting our business, financial condition and results of operations.

 

There are risks associated with our license agreements.

 

 

Sales of products under trademarks or trade or brand names licensed from others account for substantially all of our net sales. Product licenses allow us to capitalize on characters, designs, concepts and inventions owned by others or developed by toy inventors and designers. Our license agreements generally require us to make specified minimum royalty payments, even if we fail to sell a sufficient number of units to cover these amounts. In addition, under certain of our license agreements, if we fail to achieve certain prescribed sales targets, we may be unable to retain or renew these licenses.

 

 

Under the majority of our license agreements, the licensors have the right to review and approve our use of their licensed products, designs or materials before we may make any sales. If a licensor refuses to permit our use of any licensed property in the way we propose, or if their review process is delayed, our development or sale of new products could be impeded.

 

 

Our continued success will substantially depend upon our ability to obtain additional licenses. Intense competition exists for desirable licenses in our industry. We cannot assure you that we will be able to secure or renew significant licenses on terms acceptable to us. In addition, as we add licenses, the need to fund additional royalty advances and guaranteed minimum royalty payments may strain our cash resources.

 

 

We derive a significant portion of our net sales from a limited number of licensors. If one or more of these licensors were to terminate or fail to renew our license or not grant us new licenses, our business, financial condition and results of operations could be adversely affected.

 

The toy industry is highly competitive and our inability to compete effectively may materially and adversely impact our business, financial condition and results of operations.

 

The toy industry is highly competitive. Globally, certain of our competitors have financial and strategic advantages over us, including:

 

 

 

 

 

 

In addition, the toy industry has no significant barriers to entry. Competition is based primarily upon the ability to design and develop new toys, procure licenses for popular characters and trademarks and successfully market products. Many of our competitors offer similar products or alternatives to our products. Our competitors have obtained and are likely to continue to obtain licenses that overlap our licenses with respect to products, geographic areas and markets. We cannot assure you that we will be able to obtain adequate shelf space in retail stores to support our existing products, expand our products and product lines or continue to compete effectively against current and future competitors.

 

 

We may not be able to sustain or manage our product line growth, which may prevent us from increasing our net revenues.

 

Historically, we have experienced growth in our product lines through acquisitions of businesses, products and licenses. This growth in product lines has contributed significantly to our total revenues over the last few years. Even though we had no significant acquisitions since 2012, comparing our future period-to-period operating results may not be meaningful and results of operations from prior periods may not be indicative of future results. We cannot assure you that we will continue to experience growth in, or maintain our present level of, net sales.

 

Our growth strategy calls for us to continuously develop and diversify our toy business by acquiring other companies, entering into additional license agreements, refining our product lines and expanding into international markets, which will place additional demands upon our management, operational capacity and financial resources and systems. The increased demand upon management may necessitate our recruitment and retention of qualified management personnel. We cannot assure you that we will be able to recruit and retain qualified personnel or expand and manage our operations effectively and profitably. To effectively manage future growth, we must continue to expand our operational, financial and management information systems and to train, motivate and manage our work force. There can be no assurance that our operational, financial and management information systems will be adequate to support our future operations. Failure to expand our operational, financial and management information systems or to train, motivate or manage employees could have a material adverse effect on our business, financial condition and results of operations.

 

In addition, implementation of our growth strategy is subject to risks beyond our control, including competition, market acceptance of new products, changes in economic conditions, our ability to obtain or renew licenses on commercially reasonable terms, our ability to identify acquisition candidates and conclude acquisitions on acceptable terms, and our ability to finance increased levels of accounts receivable and inventory necessary to support our sales growth, if any. Accordingly, we cannot assure you that our growth strategy will be successful.

 

If we are unable to acquire and integrate companies and new product lines successfully, we will be unable to implement a significant component of our growth strategy.

 

Our growth strategy depends, in part, upon our ability to acquire companies and new product lines. Future acquisitions, if any, may succeed only if we can effectively assess characteristics of potential target companies and product lines, such as:

 

 

 

 

 

 

We cannot assure you that we can identify attractive acquisition candidates or negotiate acceptable acquisition terms, and our failure to do so may adversely affect our results of operations and our ability to sustain growth. Our acquisition strategy involves a number of risks, each of which could adversely affect our operating results, including:

 

 

 

 

 

 

 

A limited number of customers account for a large portion of our net sales, so that if one or more of our major customers were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us or return substantial amounts of our products, it could have a material adverse effect on our business, financial condition and results of operations.

 

Our three largest customers accounted for 54.6% of our net sales in 2017. Except for outstanding purchase orders for specific products, we do not have written contracts with or commitments from any of our customers and pursuant to the terms of certain of our vendor agreements, even some purchase orders may be cancelled without penalty up until delivery. A substantial reduction in or termination of orders from any of our largest customers could adversely affect our business, financial condition and results of operations. In addition, pressure by large customers seeking price reductions, financial incentives, and changes in other terms of sale or for us to bear the risks and the cost of carrying inventory could also adversely affect our business, financial condition and results of operations. If one or more of our major customers were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us or return substantial amounts of our products, it could have a material adverse effect on our business, financial condition and results of operations. In addition, the bankruptcy or other lack of success of one or more of our significant retailers could negatively impact our revenues and bad debt expense.

 

We depend upon our Chief Executive Officer and any loss or interruption of his services could adversely affect our business, financial condition and results of operations.

 

Our success has been largely dependent upon the experience and continued services of Stephen G. Berman, our President and Chief Executive Officer. We cannot assure you that we would be able to find an appropriate replacement for Mr. Berman should the need arise, and any loss or interruption of the services of Mr. Berman could adversely affect our business, financial condition and results of operations.

 

We depend upon third-party manufacturers, and if our relationship with any of them is harmed or if they independently encounter difficulties in their manufacturing processes, we could experience product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis, any of which could adversely affect our business, financial condition and results of operations.

 

We depend upon many third-party manufacturers who develop, provide and use the tools, dyes and molds that we generally own to manufacture our products. However, we have limited control over the manufacturing processes themselves. As a result, any difficulties encountered by the third-party manufacturers that result in product defects, production delays, cost overruns or the inability to fulfill orders on a timely basis could adversely affect our business, financial condition and results of operations.

 

We do not have long-term contracts with our third-party manufacturers. Although we believe we could secure other third-party manufacturers to produce our products, our operations would be adversely affected if we lost our relationship with any of our current suppliers or if our current suppliers’ operations or sea or air transportation with our overseas manufacturers were disrupted or terminated even for a relatively short period of time. Our tools, dyes and molds are located at the facilities of our third-party manufacturers.

 

Although we do not purchase the raw materials used to manufacture our products, we are potentially subject to variations in the prices we pay our third-party manufacturers for products, depending upon what they pay for their raw materials.

 

We have substantial sales and manufacturing operations outside of the United States, subjecting us to risks common to international operations.

 

We sell products and operate facilities in numerous countries outside the United States. Sales to our international customers comprised approximately 21.9% of our net sales for the year ended December 31, 2017 and approximately 23.0% of our net sales for the year ended December 31, 2016. We expect our sales to international customers to account for a greater portion of our revenues in future fiscal periods. Additionally, we utilize third-party manufacturers, located principally in China, and are subject to the risks normally associated with international operations, including:

 

 

 

 

 

 

 

 

 

 

 

 

Our reliance upon external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply, should such changes be necessary. However, if we were prevented from obtaining products or components for a material portion of our product line due to medical, political, labor or other factors beyond our control, our operations would be disrupted while alternative sources of products were secured. Also, the imposition of trade sanctions by the United States against a class of products imported by us from, or the loss of “normal trade relations” status by, China could significantly increase our cost of products imported from that nation. Because of the importance of international sales and international sourcing of manufacturing to our business, our financial condition and results of operations could be significantly and adversely affected if any of the risks described above were to occur.

 

Our business is subject to extensive government regulation and any violation by us of such regulations could result in product liability claims, loss of sales, diversion of resources, damage to our reputation, increased warranty costs or removal of our products from the market, and we cannot assure you that our product liability insurance for the foregoing will be sufficient.

 

Our business is subject to various laws, including the Federal Hazardous Substances Act, the Consumer Product Safety Act, the Flammable Fabrics Act and the rules and regulations promulgated under these acts. These statutes are administered by the CPSC, which has the authority to remove from the market products that are found to be defective and present a substantial hazard or risk of serious injury or death. The CPSC can require a manufacturer to recall, repair or replace these products under certain circumstances. We cannot assure you that defects in our products will not be alleged or found. Any such allegations or findings could result in:

 

 

 

 

 

 

 

Any of these results may adversely affect our business, financial condition and results of operations. There can be no assurance that our product liability insurance will be sufficient to avoid or limit our loss in the event of an adverse outcome of any product liability claim.

 

We depend upon our proprietary rights and our inability to safeguard and maintain the same, or claims of third parties that we have violated their intellectual property rights, could have a material adverse effect on our business, financial condition and results of operations.

 

We rely upon trademark, copyright and trade secret protection, nondisclosure agreements and licensing arrangements to establish, protect and enforce our proprietary rights in our products. The laws of certain foreign countries may not protect intellectual property rights to the same extent or in the same manner as the laws of the United States. We cannot assure you that we or our licensors will be able to successfully safeguard and maintain our proprietary rights. Further, certain parties have commenced legal proceedings or made claims against us based upon our alleged patent infringement, misappropriation of trade secrets or other violations of their intellectual property rights. We cannot assure you that other parties will not assert intellectual property claims against us in the future. These claims could divert our attention from operating our business or result in unanticipated legal and other costs, which could adversely affect our business, financial condition and results of operations.

 

 

Market conditions and other third-party conduct could negatively impact our margins and implementation of other business initiatives.

 

Economic conditions, such as decreased consumer confidence, may adversely impact our margins. In addition, general economic conditions were significantly and negatively affected by the September 11th terrorist attacks and could be similarly affected by any future attacks. Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could adversely affect our sales and profitability. Other conditions, such as the unavailability of electronics components, may impede our ability to manufacture, source and ship new and continuing products on a timely basis. Significant and sustained increases in the price of oil could adversely impact the cost of the raw materials used in the manufacture of our products, such as plastic.

 

We may not have the funds necessary to purchase our outstanding convertible senior notes upon a fundamental change or other purchase date, as required by the indenture governing the notes.

 

In June 2014 we sold an aggregate of $115.0 million principal amount of 4.875% convertible senior notes due on June 1, 2020, of which $113.0 million are currently outstanding (the “2020 Notes”). In July 2013, we sold an aggregate of $100.0 million principal amount of 4.25% convertible senior notes due on August 1, 2018, of which $21.2 million are currently outstanding (the “2018 Notes”) and $21.5 million were extended to November 1, 2020 (the “3.25% 2020 Notes” and collectively with the 2018 Notes and 2020 Notes, the “Notes”). Holders of the Notes may require us to repurchase for cash all or some of their notes upon the occurrence of a fundamental change (as defined in the Notes). Holders of the Notes may convert their notes upon the occurrence of specified events. Upon conversion, the Notes will be settled in shares of our common stock and/or in cash. Restrictions on borrowings under or loss of our credit facility could have a material adverse effect on our financial condition including an adverse impact on our ability to pay the Notes when due.

 

Restrictions under or the loss of availability under our credit facility could adversely impact our financial condition and our ability to pay our convertible senior notes when due.

 

In March 2014, we obtained a $75.0 million revolving line of credit. Any amounts borrowed under the revolving credit line are our senior secured obligations. All outstanding borrowings under the revolving credit line are accelerated and become immediately due and payable (and the revolving credit line terminates) in the event of a default which includes, among other things, failure to comply with financial ratio covenants or breach of representations contained in the credit line documents, defaults under other loans or obligations, involvement in bankruptcy proceedings, an occurrence of a change of control or an event constituting a material adverse effect on us (as such terms are defined in the credit line documents). We are also subject to negative covenants which, during the life of the credit line, prohibit and/or limit us from, among other things, incurring certain types of other debt, acquiring other companies, making certain expenditures or investments, changing the character of our business, and certain changes to our executive officers.

 

We have a valuation allowance on the deferred taxes on our books since their future realization is uncertain.

Deferred tax assets are realized by prior and future taxable income of appropriate character. Current accounting standards require that a valuation allowance be recorded if it is not likely that sufficient taxable income of appropriate character will be generated to realize the deferred tax assets. We currently believe that based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have recorded a valuation allowance against our US federal and state deferred tax assets. Our net operating losses and tax credit carry-forwards can expire if unused, and their utilization could be substantially limited in the event of an "ownership change," as defined in Section 382 of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.

 

An adverse decision in litigation in which we have been named as a defendant could have a material adverse effect on our financial condition and results of operations. 

 

We are defendants in a class action described herein and under “Legal Proceedings” in our periodic reports filed pursuant to the Securities Exchange Act of 1934 (see “Legal Proceedings”). No assurances can be given that the results of these litigation matters will be favorable to us or that an adverse decision in such litigation would not have a material adverse impact on our financial condition and results of operations.

 

We rely extensively on information technology in our operations, and any material failure, inadequacy, interruption, or security breach of that technology could have a material adverse impact on our business.

 

We rely extensively on information technology systems across our operations, including for management of our supply chain, sale and delivery of our products and services, reporting our results of operations, collection and storage of consumer data, personal data of customers, employees and other stakeholders, and various other processes and transactions. Many of these systems are managed by third-party service providers. We use third-party technology and systems for a variety of reasons, including, without limitation, encryption and authentication technology, employee email, content delivery to customers, back-office support, and other functions. A small and growing volume of our consumer products and services are web-based, and some are offered in conjunction with business partners or such third-party service providers. We, our business partners and third-party service providers collect, process, store and transmit consumer data, including personal information, in connection with those products and services. Failure to follow applicable regulations related to those activities, or to prevent or mitigate data loss or other security breaches, including breaches of our business partners’ technology and systems could expose us or our customers to a risk of loss or misuse of such information, which could adversely affect our operating results, result in regulatory enforcement, other litigation and could be a potential liability for us, and otherwise harm our business. Our ability to effectively manage our business and coordinate the production, distribution, and sale of our products and services depends significantly on the reliability and capacity of these systems and third-party service providers. Although we have developed systems and processes that are designed to protect customer information and prevent data loss and other security breaches, including systems and processes designed to reduce the impact of a security breach at a third party provider, such measures cannot provide absolute security. We have exposure to similar security risks faced by other large companies that have data stored on their information technology systems. To our knowledge, we have not experienced any material breach of our cybersecurity systems. If we or our third-party service providers systems fail to operate effectively or are damaged, destroyed, or shut down, or there are problems with transitioning to upgraded or replacement systems, or there are security breaches in these systems, any of the aforementioned could occur as a result of natural disasters, software or equipment failures, telecommunications failures, loss or theft of equipment, acts of terrorism, circumvention of security systems, or other cyber-attacks, including denial-of-service attacks, we could experience delays or decreases in product sales, and reduced efficiency of our operations. Additionally, any of these events could lead to violations of privacy laws, loss of customers, or loss, misappropriation or corruption of confidential information, trade secrets or data, which could expose us to potential litigation, regulatory actions, sanctions or other statutory penalties, any or all of which could adversely affect our business, and cause it to incur significant losses and remediation costs.

 

Item 2.  Properties

 

The following is a listing of the principal leased offices maintained by us as of February 28, 2018:

 

 *The Halloween segment is included in the properties listed above.

 

Item 3. Legal Proceedings

 

We are a party to, and certain of our property is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of our business, but we do not believe that any of these claims or proceedings will have a material effect on our business, financial condition or results of operations. 

 

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

PART II

 

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Market Information

 

Our common stock is traded on the Nasdaq Global Select exchange under the symbol “JAKK.” The following table sets forth, for the periods indicated, the range of high and low sales prices for our common stock on this exchange.

 

 

Performance Graph

 

The graph and tables below display the relative performance of our common stock, the Russell 2000 Price Index (the “Russell 2000”) and a peer group index, by comparing the cumulative total stockholder return (which assumes reinvestment of dividends, if any) on an assumed $100 investment on December 31, 2012 in our common stock, the Russell 2000 and the peer group index over the period from January 1, 2013 to December 31, 2017.

 

In accordance with recently enacted regulations implemented by the Securities and Exchange Commission, we retained the services of an expert compensation consultant. In the performance of its services, such consultant used a peer group index for its analysis of our compensation policies. We believe that these companies represent a cross-section of publicly-traded companies with product lines and businesses similar to our own throughout the comparison period and, accordingly, we are using the same peer group for purposes of the performance graph. EMak Worldwide Inc. and THQ Inc. were excluded from the performance peer group in 2014, Kid Brands, Inc. was excluded in 2015 and Leapfrog Enterprises, Inc. was excluded in 2016. Deckers Outdoor Corporation was added in 2016 and our peer group index now is comprised of the following companies: Activision Blizzard, Inc., Deckers Outdoor Corporation, Electronic Arts, Inc., Hasbro, Inc., Mattel, Inc. and Take-Two Interactive, Inc.

The historical performance data presented below may not be indicative of the future performance of our common stock, any reference index or any component company in a reference index.

 

 

 

		December 31, 2013				December 31, 2014				December 31, 2015				December 31, 2016				December 31, 2017
JAKKS Pacific			(45.6	)%			1.2	%			17.1	%			(35.3	)%			(54.4	)%
Peer Group			55.6				11.7				39.4				7.0				42.8
Russell 2000			38.8				4.9				(4.4	)			21.3				14.7

		January 1, 2013				December 31, 2013				December 31, 2014				December 31, 2015				December 31, 2016				December 31, 2017
JAKKS Pacific		$	100.0			$	54.4			$	55.1			$	64.4			$	41.7			$	19.0
Peer Group			100.0				155.6				173.8				242.2				259.2				370.6
Russell 2000			100.0				138.8				145.6				139.2				168.9				193.6

Plan Category

Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a)

Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights (b)

Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans, Excluding Securities Reflected in Column (a) (c)

Equity compensation plans approved by security holders

―

$

―

3,539,848

Equity compensation plans not approved by security holders

―

―

—

Total

―

$

―

3,539,848

		Years Ended December 31,
		2013				2014				2015				2016				2017
		(In thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales		$	632,925			$	810,060			$	745,741			$	706,603			$	613,111
Cost of sales			477,146				574,253				517,172				483,582				457,430
Gross profit			155,779				235,807				228,569				223,021				155,681
Selling, general and administrative expenses			195,296				203,326				198,039				205,915				206,303
Goodwill and other intangibles impairment			―				―				―				―				13,536
Reorganization charges			5,015				1,154				―				―				―
Income (loss) from operations			(44,532	)			31,327				30,530				17,106				(64,158	)
Change in fair value of business combination liability			6,000				5,932				5,642				―				―
Income (loss) from joint ventures			(3,148	)			314				2,761				889				105
Other income			―				―				―				305				342
Loss on extinguishment of convertible senior notes			―				―				―				―				(919	)
Write-off of investment in DreamPlay, LLC			―				―				―				―				(7,000	)
Interest income			327				112				62				51				37
Interest expense			(9,942	)			(12,461	)			(12,402	)			(12,975	)			(9,829	)
Income (loss) before provision for income taxes			(51,295	)			25,224				26,593				5,376				(81,422	)
Provision for income taxes			2,611				3,715				3,423				4,127				1,606
Net income (loss)			(53,906	)			21,509				23,170				1,249				(83,028	)
Net income (loss) attributable to non-controlling interests			―				―				(84	)			6				57
Net income (loss) attributable to JAKKS Pacific, Inc.		$	(53,906	)		$	21,509			$	23,254			$	1,243			$	(83,085	)
Basic earnings (loss) per share		$	(2.43	)		$	1.03			$	1.20			$	0.08			$	(3.89	)
Diluted earnings (loss) per share		$	(2.43	)		$	0.70			$	0.71			$	0.07			$	(3.89	)
Dividends declared per common share		$	0.14			$	—			$	—			$	—			$	—

	●	significant underperformance relative to expected historical or projected future operating results;
	●	significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and
	●	significant negative industry or economic trends.

		Years Ended December 31,
		2015				2016				2017
Net Sales			100.0	%			100.0	%			100.0	%
Cost of Sales			69.4				68.4				74.6
Gross profit			30.6				31.6				25.4
Selling, general and administrative expenses			26.5				29.1				33.7
Goodwill and other intangibles impairment			―				―				2.2
Income (loss) from operations			4.1				2.5				(10.5	)
Change in fair value of business combination liability			0.8				―				―
Income from joint ventures			0.4				0.1				―
Other income			―				―				0.1
Loss on extinguishment of convertible senior notes			―				―				(0.2	)
Write-off of investment in DreamPlay, LLC			―				―				(1.1	)
Interest income			―				―				―
Interest expense			(1.7	)			(1.8	)			(1.6	)
Income (loss) before provision for income taxes			3.6				0.8				(13.3	)
Provision for income taxes			0.5				0.6				0.2
Net income (loss)			3.1				0.2				(13.5	)
Net income attributable to non-controlling interests			―				―				0.1
Net income (loss) attributable to JAKKS Pacific, Inc.			3.1	%			0.2	%			(13.6	)%

		Years Ended December 31,
		2015				2016				2017
Net Sales
U.S. and Canada		$	478,728			$	478,595			$	406,411
International			169,826				131,229				107,231
Halloween			97,187				96,779				99,469
			745,741				706,603				613,111
Cost of Sales
U.S. and Canada			334,989				322,721				297,115
International			110,174				89,187				81,381
Halloween			72,009				71,674				78,934
			517,172				483,582				457,430
Gross Profit
U.S. and Canada			143,739				155,874				109,296
International			59,652				42,042				25,850
Halloween			25,178				25,105				20,535
		$	228,569			$	223,021			$	155,681

Comparison of the Years Ended December 31, 2017 and 2016

 

Net Sales

 

U.S. and Canada.  Net sales of our U.S. and Canada segment were $406.4 million in 2017, compared to $478.6 million in 2016, representing a decrease of $72.2 million, or 15.1%. The decrease in net sales was primarily due to decreases in unit sales in our Disney Tsum Tsum, Disney Frozen, XPV radio controlled vehicles, Graco, and Star Wars product lines partially offset by higher unit sales in our Moana, Squish-Dee-Lish, Beauty and the Beast Live Action, Tangled – the Series, and Real Workin’ Buddies – Mr. Dusty product lines.

 

International.  Net sales of our International segment were $107.2 million in 2017, compared to $131.2 million in 2016, representing a decrease of $24.0 million, or 18.3%. The decrease in net sales was primarily driven by declines in unit sales in our Disney Frozen, Star Wars, and Sofia the First product lines, partially offset by higher unit sales in our Moana, Elena of Avalor, Beauty & the Beast Live Action product lines.

 

Halloween.  Net sales of our Halloween segment were $99.5 million in 2017, compared to $96.8 million in 2016, representing an increase of $2.7 million, or 2.8%. The increase in net sales was due to an increase in unit sales of a variety of products in 2017.

Cost of Sales

 

U.S. and Canada.  Cost of sales of our U.S. and Canada segment was $297.1 million, or 73.1% of related net sales in 2017 compared to $322.7 million, or 67.4% of related net sales in 2016, representing a decrease of $25.6 million, or 7.9%. The decrease in cost of sales is due to lower overall unit sales in 2017, partially offset by minimum guarantee shortfalls. The increase as a percentage of net sales, year over year, is primarily due to increased charges recorded for minimum guarantee shortfalls and inventory impairment.

International.  Cost of sales of our International segment was $81.4 million, or 75.9% of related net sales in 2017 compared to $89.2 million, or 68.0% of related net sales in 2016, representing a decrease of $7.8 million, or 8.7%. The decrease in cost of sales is due to lower overall unit sales in 2017, partially offset by minimum guarantee shortfalls. The increase as a percentage of net sales, year-over-year, is primarily due to increased charges recorded for minimum guarantee shortfalls and inventory impairment.

Halloween.  Cost of sales of our Halloween segment was $78.9 million, or 79.3% of related net sales for 2017 compared to $71.7 million, or 74.1% of related net sales in 2016, representing an increase of $7.2 million, or 10.0%. The increase in cost of sales is due to higher overall unit sales in 2017 and minimum guarantee shortfalls. The increase as a percentage of net sales, year-over-year, is primarily due to increased charges for minimum guarantee shortfalls, changes in product mix and inventory impairment.

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses were $206.3 million in 2017 and $205.9 million in 2016, constituting 33.7% and 29.1% of net sales, respectively. Selling, general and administrative expenses increased by $0.4 million, primarily due to bad debt write-offs of $11.2 million, offset by lower marketing expense and other general and administrative costs. The increases as a percentage of net sales, year over year is due to the lower net sales in 2017 coupled with comparable costs. 

Goodwill and Other Intangibles Impairment

Goodwill and other intangibles impairment was $13.5 million for 2017, as compared to nil in the prior year period. In 2017, we recorded impairment charges of $8.3 million for goodwill, $2.9 million to write-off the remaining unamortized technology rights related to DreamPlay, LLC and $2.3 million to write down several underutilized trademarks and trade names that were determined to have no value.

Income from Joint Ventures

 

We recognized $0.1 million of income for funds received in 2017 related to our former video game joint venture in partial settlement of amounts owed to the Company when our joint venture partner was liquidated pursuant to their 2012 bankruptcy filing. It is not known if any additional funds will be received by us. In 2016, we recognized $0.2 million of income for funds received related to our former video game joint venture and $0.7 million of income for funds received related to Pacific Animation Partners.

Other Income

 

We recognized income of $0.1 million for funds received in 2017 related to the disgorgement of short swing trading profits from a shareholder, net of legal fees and a $0.1 million gain on extinguishment of convertible senior notes. We recognized income of $0.2 million for funds received in 2016 related to the disgorgement of short swing trading profits from a shareholder, net of legal fees and a $0.1 million gain on extinguishment of convertible senior notes.

Loss on Extinguishment of Convertible Senior Notes

 

In 2017, we recognized a $0.6 million loss related to the extinguishment of $21.5 million face amount of our 4.25% convertible senior notes due in 2018. In 2017, we also recognized a $0.3 million loss related to the fair market value adjustment for the 3.25% convertible senior notes due in 2020.

 

 

Interest Income

 

Interest income in 2017 was $37,000, comparable to $51,000 in 2016.

Interest Expense

Interest expense was $9.8 million in 2017, as compared to $13.0 million in the prior year period. In 2017, we recorded interest expense of $9.4 million related to our convertible senior notes payable due in 2018 and 2020 and $0.4 million related to our revolving credit facility. In 2016, we recorded interest expense of $11.7 million related to our convertible senior notes payable, $0.9 million related to our revolving credit facility and $0.4 million related to the interest component of our Maui acquisition earn-out. The overall decrease in 2017 is due to a lower average debt.

Provision for Income Taxes

 

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $1.6 million, or an effective tax rate of (2.0%) for 2017. During 2016, the income tax expense was $4.1 million, or an effective tax rate of 76.8%.

 

The 2017 tax expense of $1.6 million included a discrete tax benefit of $0.6 million primarily comprised of return to provision and uncertain tax position adjustments. Absent these discrete tax benefits, our effective tax rate for 2017 was (2.8%), primarily due to the US federal transition tax, various state taxes and taxes on foreign income.

The 2016 tax expense of $4.1 million included a discrete tax benefit of $0.1 million primarily comprised of return to provision adjustments. Absent these discrete tax expenses, our effective tax rate for 2016 was 79.2%, primarily due to US federal alternative minimum tax, various state taxes and taxes on foreign income.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. Based on our evaluation of all positive and negative evidence, as of December 31, 2017, a valuation allowance of $89.7 million has been recorded against the deferred tax assets that more likely than not will not be realized. The net deferred tax liabilities of $0.8 million consists of the net deferred tax liabilities in the foreign jurisdiction, where we are in a cumulative income position, partially offset by the deferred tax assets in the US related to the AMT carryforward, which are fully realizable.

Comparison of the Years Ended December 31, 2016 and 2015

 

Net Sales

 

U.S. and Canada.  Net sales of our U.S. and Canada segment were $478.6 million in 2016, compared to $478.7 million in 2015, representing a decrease of $0.1 million. Net sales were flat year-over year primarily due to a decrease in unit sales of various products due to the suspension of shipments to a major U.S. customer and lower than expected unit sales of some movie licensed products, offset by higher unit sales of our Disney Tsum Tsum line of collectibles, Disney Princess and Alice Through the Looking Glass dolls, kids furniture and accessories, and our Big Figs line.

 

International.  Net sales of our International segment were $131.2 million in 2016, compared to $169.8 million in 2015, representing a decrease of $38.6 million, or 22.7%. The decrease in net sales was primarily driven by declines in unit sales of various products in the United Kingdom and Western Europe due to the reduced buying power of our customers stemming from the devaluation of the British Pound, and lower than expected unit sales of movie licensed product.

Halloween.  Net sales of our Halloween segment were $96.8 million in 2016, compared to $97.2 million in 2015, representing a decrease of $0.4 million, or 0.4%. The decrease in net sales was primarily due to a decrease in unit sales of a variety of products in 2016.

Cost of Sales

 

U.S. and Canada.  Cost of sales of our U.S. and Canada segment was $322.7 million, or 67.4% of related net sales in 2016 compared to $335.0 million, or 70.0% of related net sales in 2015, representing a decrease of $12.3 million, or 3.7%. The decrease in cost of sales as a percentage of net sales, year over year, is due to reduced costing of legacy products and product mix, partially offset by increased product tooling driven by new product introductions in 2016. Depreciation of molds and tools for the segment increased slightly in 2016 due to an increase in new product tooling driven by product introductions in 2016.

International.  Cost of sales of our International segment was $89.2 million, or 68.0% of related net sales in 2016 compared to $110.2 million, or 64.9% of related net sales in 2015, representing a decrease of $21.0 million, or 19.1%. The decrease in cost of sales is a direct function of lower overall unit sales. The increase as a percentage of net sales, year-over-year, is due to the change in product mix to relatively higher cost product and an increase in the average royalty rate. The increase in royalties is driven by a shift in the product mix to products with relatively higher royalty rates and an increase in royalty rates on shipments made FOB China. Our depreciation of molds and tools for the segment showed a modest increase from 2015 due to increased product tooling driven by new product introductions in 2016.

Halloween.  Cost of sales of our Halloween segment was $71.7 million, or 74.1% of related net sales for 2016 compared to $72.0 million, or 74.1% of related net sales in 2015, representing a decrease of $0.3 million, or 0.4%. The percentage of net sales in 2016 is comparable to 2015.

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses were $205.9 million in 2016 and $198.0 million in 2015, constituting 29.1% and 26.5% of net sales, respectively. Selling, general and administrative expenses increased by $7.9 million driven by higher marketing expenses ($6.7 million), higher product development costs in support of increased product launches ($2.5 million), and increased depreciation and amortization ($1.6 million), partially offset by a decrease in general and administrative expenses ($2.9 million). 

  

Income from Joint Ventures

 

We recognized $0.2 million of income for funds received in 2016 related to our former video game joint venture in partial settlement of amounts owed to the Company when our joint venture partner was liquidated pursuant to their 2012 bankruptcy filing and $0.7 million of income for funds received in 2016 related to Pacific Animation Partners. In 2015, we recognized $2.7 million in income related to our former video game joint venture and $0.1 million of income for funds received related to Pacific Animation Partners.

 

Other Income

 

We recognized income of $0.2 million for funds received in 2016 related to the disgorgement of short swing trading profits from a shareholder, net of legal fees and a $0.1 million gain on extinguishment of convertible senior notes.

 

Interest Income

 

Interest income in 2016 was $51,000, comparable to $62,000 in 2015.

 

Interest Expense

 

Interest expense was $13.0 million in 2016, as compared to $12.4 million in 2015. In 2016, we recorded interest expense of $11.7 million related to our convertible senior notes payable, $0.9 million related to our revolving credit facility and $0.4 million related to the interest component of our Maui acquisition earn-out. In 2015, we recorded interest expense of $11.5 million related to our convertible senior notes payable and $0.9 million related to our revolving credit facility.

 

Provision for Income Taxes

 

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $4.1 million, or an effective tax rate of 76.8% for 2016. During 2015, the income tax expense was $3.4 million, or an effective tax rate of 12.9%.

 

The 2016 tax expense of $4.1 million included a discrete tax benefit of $0.1 million primarily comprised of return to provision adjustments. Absent these discrete tax benefits, our effective tax rate for 2016 was 79.2%, primarily due to US federal alternative minimum tax, various state taxes and taxes on foreign income.

The 2015 tax expense of $3.4 million included a discrete tax expense of $0.9 million primarily comprised of return to provision adjustments. Absent these discrete tax expenses, our effective tax rate for 2015 was 9.5%, primarily due to a full valuation allowance on the Company's United States deferred tax assets and the foreign rate differential, and is impacted by the proportion of Hong Kong earnings to overall earnings and is expected to vary depending on the level of consolidated earnings.

We assess the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets by jurisdiction. Based on our evaluation of all positive and negative evidence, as of December 31, 2016, a valuation allowance of $49.3 million has been recorded against the deferred tax assets that more likely than not will not be realized. The net deferred tax liabilities of $2.0 million represent the net deferred tax liabilities in the foreign jurisdiction, where we are in a cumulative income position.

As of December 31, 2016, we had net deferred tax liabilities of approximately $2.0 million related to foreign jurisdictions.

 

Quarterly Fluctuations and Seasonality

 

We have experienced significant quarterly fluctuations in operating results and anticipate these fluctuations in the future. The operating results for any quarter are not necessarily indicative of results for any future period. Our first quarter is typically expected to be the least profitable as a result of lower net sales but substantially similar fixed operating expenses. This is consistent with the performance of many companies in the toy industry.

 

The following table presents our unaudited quarterly results for the years indicated. The seasonality of our business is reflected in this quarterly presentation.

 

Debt with Conversion and Other Options

 

In July 2013, we sold an aggregate of $100.0 million principal amount of 4.25% convertible senior notes due 2018 (the “2018 Notes”). The 2018 Notes, which are senior unsecured obligations, pay interest semi-annually in arrears on August 1 and February 1 of each year at a rate of 4.25% per annum and will mature on August 1, 2018. The initial and still conversion rate for the 2018 Notes is 114.3674 shares of our common stock per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $8.74 per share of common stock, subject to adjustment in certain events. Upon conversion, the 2018 Notes will be settled in shares of our common stock. Holders of the 2018 Notes may require us to repurchase for cash all or some of their notes upon the occurrence of a fundamental change (as defined in the 2018 Notes). In 2016, we repurchased and retired $6.1 million principal amount of the 2018 Notes. In 2017, we exchanged and retired an aggregate of $51.1 million principal amount of the 2018 Notes at par for $35.6 million in cash and approximately 3.0 million shares of our common stock, and the maturity of $21.5 million principal amount of the 2018 Notes was extended to November 1, 2020 along with a reduction in the interest rate to 3.25% per annum if paid in cash and a reduction in the conversion price to $3.05 per share.

In June 2014, we sold an aggregate of $115.0 million principal amount of 4.875% convertible senior notes due 2020 (the “2020 Notes”). The 2020 Notes are senior unsecured obligations of the Company paying interest semi-annually in arrears on June 1 and December 1 of each year at a rate of 4.875% per annum and will mature on June 1, 2020. The initial and still conversion rate for the 2020 Notes is 103.7613 shares of our common stock per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $9.64 per share of common stock, subject to adjustment in certain events. Upon conversion, the 2020 Notes will be settled in shares of our common stock. Holders of the 2020 Notes may require us to repurchase for cash all or some of their notes upon the occurrence of a fundamental change (as defined in the 2020 Notes). In 2016, we repurchased and retired $2.0 million principal amount of the 2020 Notes.

 

Liquidity and Capital Resources

 

As of December 31, 2017, we had working capital of $146.9 million compared to $236.6 million as of December 31, 2016. The decrease was primarily attributable to the reclassification of $21.1 million of the 2018 convertible senior notes to current liabilities, the exchange and retirement of convertible senior notes, and the net loss, partially offset by proceeds from the issuance of common stock to a Hong Kong affiliate of our China joint venture partner during the second quarter of 2017.

 

Operating activities provided net cash of $65.8 million, $16.7 million and $11.4 million for the years ended December 31, 2015, 2016 and 2017, respectively. Net cash was favorably impacted primarily by decreases in accounts receivable and inventory. Our accounts receivable turnover as measured by days sales for the quarter outstanding in accounts receivable was 90 days, 96 days, and 96 days as of December 31, 2015, 2016 and 2017, respectively. Other than open purchase orders issued in the normal course of business, we have no obligations to purchase finished goods from our manufacturers. As of December 31, 2017, we had cash and cash equivalents of $65.0 million.

 

Investing activities used net cash of $21.7 million, $15.1 million and $14.8 million for the years ended December 31, 2015, 2016 and 2017, respectively. Cash used in 2017 consisted primarily of $14.9 million cash paid for the purchase of molds and tooling used in the manufacture of our products. Cash used in 2016 consisted primarily of $14.8 million cash paid for the purchase of office furniture, equipment, and molds and tooling used in the manufacturing of our products. Cash used in 2015 consisted primarily of $17.8 million cash paid for leasehold improvements, the purchase of office furniture, equipment and molds and tooling used in the manufacturing of our products. As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties generally ranging from 1% to 21% payable on net sales of such products. As of December 31, 2017, these agreements required future aggregate minimum guarantees of $57.1 million, exclusive of $23.4 million in advances already paid. Of this $57.1 million future minimum guarantee, $40.7 million is due over the next twelve months.

 

Financing activities used net cash of $13.4 million, $12.0 million and $21.4 million for the years ended December 31, 2015, 2016 and 2017, respectively. The cash used in 2017 consists primarily of the cash portion of $35.6 million in the exchange of $51.1 million principal amount of our 2018 convertible senior notes, partially offset by the issuance of approximately 3.7 million shares of common stock for cash in the amount of $19.3 million. The cash used in 2016 consists primarily of the repurchase of our common stock and convertible senior notes. The cash used in 2015 consists primarily of the repurchase of our common stock.

The following is a summary of our significant contractual cash obligations for the periods indicated that existed as of December 31, 2017 and is based upon information appearing in the notes to the consolidated financial statements (in thousands):

 

 `

The above table excludes any potential uncertain income tax liabilities that may become payable upon examination of our income tax returns by taxing authorities. Such amounts and periods of payment cannot be reliably estimated. See Note 13 to the consolidated financial statements for further explanation of our uncertain tax positions.

 

In October 2016, we acquired the operating assets of the C’est Moi brand of performance makeup and youth skincare products whose distribution is currently limited primarily to Asia. We expect to launch a full line of makeup and skincare products branded under the C’est Moi name in the U.S. and Canada in the first quarter of 2018 prior to which sales are anticipated to be nominal.

 

We believe that our cash flows from operations and cash and cash equivalents will be sufficient to meet our working capital and capital expenditure requirements and provide us with adequate liquidity to meet our anticipated operating needs for at least the next 12 months from the issuance of this annual report. We expect our capital expenditures to be approximately $14.0 million in 2018. Although operating activities are expected to provide cash, to the extent we make any acquisitions or grow significantly in the future, our operating and investing activities may use cash and, consequently, any acquisitions or growth may require us to obtain additional sources of financing. There can be no assurance that any necessary additional financing will be available to us on commercially reasonable terms, if at all. We intend to finance our long-term liquidity requirements out of net cash provided by operations and net cash and cash equivalents. As of December 31, 2017, we do not have any off-balance sheet arrangements.

 

During the last three fiscal years ending December 31, 2017, we do not believe that inflation has had a material impact on our net sales and revenues and on income from continuing operations.

Exchange Rates

 

Sales from our United States and Hong Kong operations are denominated in U.S. dollars and our manufacturing costs are denominated in either U.S. or Hong Kong dollars. Local sales (other than in Hong Kong) and operating expenses of our operations in Hong Kong, the United Kingdom, Germany, France, Spain, Canada, Mexico and China are denominated in local currency, thereby creating exposure to changes in exchange rates. Changes in the various exchange rates against the U.S. dollar may positively or negatively affect our operating results. The exchange rate of the Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government since 1983 at HK$7.80 to US$1.00 and, accordingly, has not represented a currency exchange risk to the U.S. dollar. We cannot assure you that the exchange rate between the United States and Hong Kong currencies will continue to be fixed or that exchange rate fluctuations between the United States and Hong Kong or all other currencies will not have a material adverse effect on our business, financial condition or results of operations.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

 

Market risk represents the risk of loss that may impact our financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates. We are exposed to market risk in the areas of changes in United States and international borrowing rates and changes in foreign currency exchange rates. In addition, we are exposed to market risk in certain geographic areas that have experienced or remain vulnerable to an economic downturn, such as China. We purchase substantially all of our inventory from companies in China, and, therefore, we are subject to the risk that such suppliers will be unable to provide inventory at competitive prices. While we believe that, should such events occur we would be able to find alternative sources of inventory at competitive prices, we cannot assure you that we would be able to do so. These exposures are directly related to our normal operating and funding activities. To date, we have not used derivative instruments or engaged in hedging activities to minimize our market risk.

 

Interest Rate Risk

 

As of December 31, 2017, we have outstanding convertible senior notes payable of $21.2 million principal amount due August 2018 with a fixed interest rate of 4.25% per annum, $113.0 million principal amount due June 2020 with a fixed interest rate of 4.875% per annum, and $21.5 million principal amount due November 2020 with a fixed interest rate of 3.25% per annum if paid in cash. As the interest rates on the notes are at fixed rates, we are not generally subject to any direct risk of loss related to these notes arising from changes in interest rates.

 

Our exposure to market risk includes interest rate fluctuations in connection with our revolving credit facility (see Note 11 - Credit Facility in the accompanying notes to the consolidated financial statements for additional information). Borrowings under the revolving credit facility bear interest at a variable rate based on Prime Lending Rate or LIBOR Rate at the option of the Company. For Prime Lending Rate loans, the interest rate is equal to the highest of (i) the Federal Funds Rate plus a margin of 0.50%, (ii) the rate last quoted by The Wall Street Journal as the “Prime Rate,” or (iii) the sum of a LIBOR rate plus 1.00%, plus a margin of 2.25%. For LIBOR rate loans, the interest rate is equal to a LIBOR rate plus a margin of 2.25%. Borrowings under the revolving credit facility are therefore subject to risk based upon prevailing market interest rates. Interest rate risk may result from many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors that are beyond our control. During the year ended December 31, 2017, the maximum amount borrowed under the revolving credit facility was $20.0 million and the average amount of borrowings outstanding was $5.7 million. As of December 31, 2017, the amount of total borrowings outstanding under the revolving credit facility was $5.0 million. If the prevailing market interest rates relative to these borrowings increased by 10%, our interest expense during the period ended December 31, 2017 would have increased by less than $0.1 million.

 

Foreign Currency Risk

 

We have wholly-owned subsidiaries in Hong Kong, China, the United Kingdom, Germany, France, Spain, Canada and Mexico. Sales are generally made by these operations on FOB China or Hong Kong terms and are denominated in U.S. dollars. However, purchases of inventory and Hong Kong operating expenses are typically denominated in Hong Kong dollars and local operating expenses in the United Kingdom, Germany, France, Spain, Canada, Mexico and China are denominated in local currency, thereby creating exposure to changes in exchange rates. Changes in the U.S. dollar exchange rates may positively or negatively affect our gross margins, operating income and retained earnings. The exchange rate of the Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government since 1983 at HK$7.80 to US$1.00 and, accordingly, has not represented a currency exchange risk to the U.S. dollar. We do not believe that near-term changes in these exchange rates, if any, will result in a material effect on our future earnings, fair values or cash flows. Therefore, we have chosen not to enter into foreign currency hedging transactions. We cannot assure you that this approach will be successful, especially in the event of a significant and sudden change in the value of these foreign currencies.

 

Item 8.  Consolidated Financial Statements and Supplementary Data

 

Report of Independent Registered Public Accounting Firm

 

Shareholders and Board of Directors

JAKKS Pacific, Inc.

Santa Monica, California

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of JAKKS Pacific, Inc. (the “Company") and subsidiaries as of December 31, 2017 and 2016 and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 16, 2018 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since 2006.

Los Angeles, California

March 16, 2018

 

JAKKS PACIFIC, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

See accompanying notes to consolidated financial statements.

 

		Years Ended December 31,
		2015				2016				2017
		(In thousands, except per share amounts)
Net sales		$	745,741			$	706,603			$	613,111
Cost of sales			517,172				483,582				457,430
Gross profit			228,569				223,021				155,681
Selling, general and administrative expenses			198,039				205,915				206,303
Goodwill and other intangibles impairment			—				—				13,536
Income (loss) from operations			30,530				17,106				(64,158	)
Change in fair value of business combination liability			5,642				—				—
Income from joint ventures			2,761				889				105
Other income			—				305				342
Loss on extinguishment of convertible senior notes			—				—				(919	)
Write-off of investment in DreamPlay, LLC			—				—				(7,000	)
Interest income			62				51				37
Interest expense			(12,402	)			(12,975	)			(9,829	)
Income (loss) before provision for income taxes			26,593				5,376				(81,422	)
Provision for income taxes			3,423				4,127				1,606
Net income (loss)			23,170				1,249				(83,028	)
Net income (loss) attributable to non-controlling interests			(84	)			6				57
Net income (loss) attributable to JAKKS Pacific, Inc.		$	23,254			$	1,243			$	(83,085	)
Basic earnings (loss) per share		$	1.20			$	0.08			$	(3.89	)
Basic weighted number of shares			19,435				16,542				21,341
Diluted earnings (loss) per share		$	0.71			$	0.07			$	(3.89	)
Diluted weighted number of shares			43,321				16,665				21,341

			Years Ended December 31,
			2015				2016				2017
							(In thousands)
Net income (loss)		$	23,170			$	1,249			$	(83,028	)
Other comprehensive income (loss):
Foreign currency translation adjustment			(3,216	)			(7,156	)			4,148
Comprehensive income (loss)			19,954				(5,907	)			(78,880	)
Less: Comprehensive income (loss) attributable to non-controlling interests			(84	)			6				57
Comprehensive income (loss) attributable to JAKKS Pacific, Inc.		$	20,038			$	(5,913	)		$	(78,937	)

		Common Stock																				Accumulated				JAKKS
														Additional								Other				Pacific, Inc.				Non-				Total
		Number								Treasury				Paid-in				Accumulated				Comprehensive				Stockholders’				Controlling				Stockholders’
		of Shares				Amount				Stock				Capital				Deficit				Loss				Equity				Interests				Equity
Balance, January 1, 2015			22,682			$	22			$	(24,000	)		$	202,052			$	(26,645	)		$	(6,835	)		$	144,594			$	490			$	145,084
Restricted stock grants			71				1				—				1,561				—				—				1,562				—				1,562
Retirement of restricted stock			(52	)			(1	)			—				—				—				—				(1	)			—				(1	)
Repurchase of common stock			(1,547	)			(1	)			(13,192	)			—				—				—				(13,193	)			—				(13,193	)
Retirement of treasury stock			—				(1	)			8,870				(8,869	)			—				—				―				—				―
Net income			—				—				—				—				23,254				—				23,254				(84	)			23,170
Foreign currency translation adjustment			—				—				—				—				—				(3,216	)			(3,216	)			—				(3,216	)
Balance, December 31, 2015			21,154				20				(28,322	)			194,744				(3,391	)			(10,051	)			153,000				406				153,406
Contributions from non-controlling interests			—				—				—				—				—				—				—				500				500
Restricted stock grants			65				1				—				1,620				—				—				1,621				—				1,621
Retirement of restricted stock			(25	)			—				—				—				—				—				—				—				—
Repurchase of common stock			(1,766	)			—				(13,506	)			—				—				—				(13,506	)			—				(13,506	)
Repurchase of common stock for employee tax withholding			(51	)			—				—				(1,462	)			—				—				(1,462	)			—				(1,462	)
Retirement of treasury stock			—				(2	)			17,828				(17,826	)			—				—				―				—				―
Excess tax benefit on vesting of restricted stock			—				—				—				548				—				—				548				—				548
Net income			—				—				—				—				1,243				—				1,243				6				1,249
Foreign currency translation adjustment			—				—				—				—				—				(7,156	)			(7,156	)			—				(7,156	)
Balance, December 31, 2016			19,377				19				(24,000	)			177,624				(2,148	)			(17,207	)			134,288				912				135,200
Restricted stock grants			981				1				—				3,111				―				―				3,112				—				3,112
Retirement of restricted stock			(9	)			—				—				—				―				―				—				—				―
Shares issued in exchange for convertible notes			2,977				3				—				15,521				―				―				15,524				—				15,524
Repurchase of common stock for employee tax withholding			(30	)			—				—				(79	)			—				—				(79	)			—				(79	)
Issuance of common stock to Hongkong Meisheng			3,661				4				—				19,307				—				—				19,311				—				19,311
Adjustment to additional paid in capital															325												325				—				325
Net income (loss)			—				—				—				—				(83,085	)			―				(83,085	)			57				(83,028	)
Foreign currency translation adjustment			—				—				—				—				—				4,148				4,148				—				4,148
Balance, December 31, 2017			26,957			$	27			$	(24,000	)		$	215,809			$	(85,233	)		$	(13,059	)		$	93,544			$	969			$	94,513

		Years Ended December 31,
		2015				2016				2017
		(In thousands)
Cash flows from operating activities
Net income (loss)		$	23,170			$	1,249			$	(83,028	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for doubtful accounts			—				—				11,803
Depreciation and amortization			18,860				22,944				21,003
Write-off and amortization of debt issuance costs			2,042				2,542				2,104
Share-based compensation expense			1,562				1,621				3,112
(Gain) loss on disposal of property and equipment			47				17				(71	)
Intangibles impairment			—				—				5,248
Write-off of investment in DreamPlay, LLC			—				—				7,000
Goodwill impairment			—				—				8,288
Change in fair value of business combination liability			(5,642	)			—				—
(Gain) loss on extinguishment of convertible senior notes			—				(98	)			497
Income from joint ventures			(1,017	)			—				—
Deferred income taxes			(329	)			(259	)			(1,251	)
Change in fair value of convertible senior notes			—				—				308
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			71,129				(10,212	)			19,339
Inventory			18,283				(14,891	)			17,003
Income taxes receivable			—				22,804				(676	)
Prepaid expenses and other assets			(7,513	)			15,227				(2,149	)
Accounts payable			(21,037	)			10,558				(380	)
Accrued expenses			(26,811	)			(12,767	)			3,500
Reserve for sales returns and allowances			(7,210	)			(843	)			1,198
Income taxes payable			(3,014	)			(21,018	)			(987	)
Other liabilities			3,281				(151	)			(467	)
Total adjustments			42,631				15,474				94,422
Net cash provided by operating activities			65,801				16,723				11,394
Cash flows from investing activities
Purchases of property and equipment			(17,840	)			(14,765	)			(14,928	)
Proceeds from sale of property and equipment			—				—				145
Distributions from joint venture			60				—				—
Cash paid for intangible assets			—				(300	)			—
Sale of marketable securities			220				—				—
Change in other assets			(4,149	)			—				—
Net cash used in investing activities			(21,709	)			(15,065	)			(14,783	)
Cash flows from financing activities
Surrender of common stock			(1	)			—				—
Repurchase of common stock			(13,193	)			(13,506	)			—
Repurchase of common stock for employee tax withholding			—				(1,462	)			(79	)
Net proceeds from credit facility borrowings			—				10,000				—
Repayment of credit facility borrowings			—				—				(5,000	)
Credit facility costs			(188	)			—				—
Repurchase of convertible senior notes			—				(8,035	)			(35,614	)
Proceeds from issuance of common shares of non-controlling interests			—				500				—
Proceeds from issuance of common stock			—				—				19,311
Excess tax benefit from share-based compensation			—				548				—
Net cash used in financing activities			(13,382	)			(11,955	)			(21,382	)
Net increase (decrease) in cash and cash equivalents			30,710				(10,297	)			(24,771	)
Effect of foreign currency translation			293				(6,167	)			3,684
Cash and cash equivalents, beginning of year			71,525				102,528				86,064
Cash and cash equivalents, end of year		$	102,528			$	86,064			$	64,977
Cash paid during the period for:
Interest		$	10,198			$	9,855			$	8,778
Income taxes		$	7,832			$	2,165			$	4,076

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2:	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3:	Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

					Fair Value Measurements
	Carrying Amount as of				As of December 31, 2016
	December 31, 2016				Level 1				Level 2				Level 3
Cash equivalents		$	15,312			$	15,312			$	—			$	—

					Fair Value Measurements
	Carrying Amount as of				As of December 31, 2017
	December 31, 2017				Level 1				Level 2				Level 3
Cash equivalents		$	13,718			$	13,718			$	—			$	—
3.25% Convertible senior notes due in 2020		$	22,469			$	—			$	—			$	22,469

		2017
Balance at January 1, 2017		$	—
Issuance of 3.25% Convertible Senior Notes due in 2020			22,161
Change in fair value			308
Balance at December 31, 2017		$	22,469

Office equipment	5 years
Automobiles	5 years
Furniture and fixtures	5 - 7 years
Leasehold improvements	Shorter of length of lease or 10 years

		Years Ended December 31,
		2015				2016				2017
Net Sales by Customer Area
United States		$	542,101			$	544,096			$	479,133
Europe			117,313				92,811				71,094
Canada			32,587				26,947				21,882
Hong Kong			1,675				2,012				1,064
Other			52,065				40,737				39,938
		$	745,741			$	706,603			$	613,111

		U.S. and Canada				International				Halloween				Total
Balance, January 1, 2016:
Goodwill		$	30,218			$	11,717			$	2,264			$	44,199
Adjustments to goodwill for foreign currency translation			(678	)			(262	)			(51	)			(991	)
Balance December 31, 2016:			29,540				11,455				2,213				43,208
Adjustments to goodwill for foreign currency translation			317				125				22				464
Impairment			(6,053	)			—				(2,235	)			(8,288	)
Balance December 31, 2017:		$	23,804			$	11,580			$	—			$	35,384

2018		$	4,261
2019			3,327
2020			3,053
2021			3,053
2022			3,053
Thereafter			5,443
		$	22,190

		2016				2017
Royalties		$	13,805			$	17,854
Inventory liabilities			5,425				5,943
Salaries and employee benefits			3,243				4,064
Unearned revenue			779				3,924
Bonuses			1,500				1,914
Goods in transit			3,441				1,669
Interest expense			2,520				1,398
Professional fees			3,696				1,376
Sales commissions			816				663
Other			3,420				3,340
		$	38,645			$	42,145

		2015				2016				2017
Federal		$	—			$	1,549			$	550
State and local			708				652				51
Foreign			3,044				1,637				2,256
Total Current			3,752				3,838				2,857
APIC			—				548				—
Deferred			(329	)			(259	)			(1,251	)
Total		$	3,423			$	4,127			$	1,606

		2016				2017
Net deferred tax assets/(liabilities):
Reserve for sales allowances and possible losses		$	801			$	611
Accrued expenses			1,739				1,375
Prepaid royalties			16,806				13,631
Accrued royalties			2,638				1,864
Inventory			3,506				6,146
State income taxes			98				26
Property and equipment			4,997				4,257
Original issue discount interest			(6,945	)			(2,131	)
Goodwill and intangibles			29,378				15,782
Share based compensation			1,607				578
Undistributed foreign earnings			(48,731	)			(2,524	)
Federal and state net operating loss carryforwards			22,755				14,091
Credit carryforwards			21,097				35,195
Other			(2,495	)			22
Gross			47,251				88,923
Valuation allowance			(49,285	)			(89,706	)
Total net deferred tax liabilities		$	(2,034	)		$	(783	)

		2015				2016				2017
Federal income tax expense			35.0	%			35.0	%			35.0	%
State income tax expense, net of federal tax effect			1.0				(3.6	)			5.0
Effect of differences in U.S. and foreign statutory rates			(9.4	)			(53.7	)			1.9
Uncertain tax positions			0.3				3.4				―
Earn-out adjustments			(7.4	)			―				―
Provision to return			12.2				4.5				(0.7)
Non-deductible expenses			1.1				8.9				(48.0)
Other			0.5				0.6				(0.2)
Foreign deemed dividend			1.7				262.2				―
Foreign tax credit			(0.5	)			(126.1	)			20.3
Undistributed foreign earnings			―				906.5				57.3
Effect of change in federal statutory rate			―				―				(23.0)
Valuation allowance			(21.6	)			(960.9	)			(49.6	)
			12.9	%			76.8	%			(2.0)	%

		2015				2016				2017
Domestic		$	11,692			$	(7,760	)		$	(85,288	)
Foreign			14,901				13,136				3,866
		$	26,593			$	5,376			$	(81,422	)

Balance, January 1, 2015		$	2.5
Current year additions			1.8
Current year reduction due to lapse of applicable statute of limitations			(2.1	)
Balance, December 31, 2015			2.2
Current year additions			0.1
Current year reduction due to lapse of applicable statute of limitations			—
Balance, December 31, 2016			2.3
Current year additions			0.1
Current year reduction due to audit settlement			(1.1	)
Balance, December 31, 2017		$	1.3

2018		$	13,403
2019			11,782
2020			9,614
2021			9,405
2022			9,479
Thereafter			7,121
		$	60,804

2018		$	40,725
2019			14,494
2020			1,914
		$	57,133

2018		$	8,936
2019			8,027
2020			2,285
		$	19,248

		Restricted and Performance Based Stock Awards (RSA)
		Number of Shares				Weighted Average Fair Value
Outstanding, January 1, 2015			568,057			$	6.54
Awarded			734,823				6.81
Released			(227,616	)			6.60
Forfeited			(663,855	)			6.77
Outstanding, December 31, 2015			411,409				6.61
Awarded			648,351				7.00
Released			(255,307	)			6.68
Forfeited			(608,000	)			6.88
Outstanding, December 31, 2016			196,453				7.01
Awarded			981,208				5.15
Released			(187,224	)			7.05
Forfeited			(9,229	)			6.32
Outstanding, December 31, 2017			981,208				5.15

		2016																2017
		First				Second				Third				Fourth				First				Second				Third				Fourth
		Quarter				Quarter				Quarter				Quarter				Quarter				Quarter				Quarter				Quarter
		(in thousands, except per share data)
Net sales		$	95,809			$	140,977			$	302,791			$	167,026			$	94,505			$	119,565			$	262,413			$	136,628
Gross profit		$	31,183			$	44,800			$	94,933			$	52,105			$	30,021			$	33,719			$	61,781			$	30,160
Income (loss) from operations		$	(13,816	)		$	(1,100	)		$	34,413			$	(2,391	)		$	(15,724	)		$	(14,108	)		$	(7,746	)		$	(26,580	)
Income (loss) before provision (benefit) for income taxes		$	(16,951	)		$	(3,441	)		$	31,612			$	(5,844	)		$	(18,629	)		$	(16,371	)		$	(16,651	)		$	(29,771	)
Net income (loss)		$	(17,383	)		$	(4,145	)		$	30,529			$	(7,752	)		$	(18,825	)		$	(16,687	)		$	(17,569	)		$	(30,487	)
Basic earnings (loss) per share		$	(1.01	)		$	(0.27	)		$	1.91			$	(0.47	)		$	(1.01	)		$	(.77	)		$	(.77	)		$	(1.33	)
Weighted average shares outstanding			17,218				16,402				16,044				16,098				18,104				21,616				22,772				22,799
Diluted earnings (loss) per share		$	(1.01	)		$	(0.27	)		$	0.82			$	(0.47	)		$	(1.01	)		$	(.77	)		$	(.77	)		$	(1.33	)
Weighted average shares and equivalents outstanding			17,218				16,402				39,504				16,098				18,104				21,616				22,772				22,799

		Balance at				Charged to								Balance
		Beginning				Costs and								at End
		of Period				Expenses				Deductions				of Period
		(In thousands)
Year ended December 31, 2015:
Allowance for:
Uncollectible accounts		$	3,264			$	(143	)		$	(407	)		$	2,714
Reserve for potential product obsolescence			7,877				1,511				(1,337	)			8,051
Reserve for sales returns and allowances			24,477				42,507				(49,717	)			17,267
		$	35,618			$	43,875			$	(51,461	)		$	28,032
Year ended December 31, 2016:
Allowance for:
Uncollectible accounts		$	2,714			$	303			$	(153	)		$	2,864
Reserve for potential product obsolescence			8,051				(161	)			(273	)			7,617
Reserve for sales returns and allowances			17,267				50,582				(51,425	)			16,424
		$	28,032			$	50,724			$	(51,851	)		$	26,905
Year ended December 31, 2017:
Allowance for:
Uncollectible accounts		$	2,864			$	11,803			$	(3,727	)		$	10,940
Reserve for potential product obsolescence			7,617				7,593				(764	)			14,446
Reserve for sales returns and allowances			16,424				42,654				(41,456	)			17,622
		$	26,905			$	62,050			$	(45,947	)		$	43,008

/S/ BDO USA, LLP

Name		Age			Positions with the Company
Stephen G. Berman			53		Chief Executive Officer, President, Secretary and Director
Joel M. Bennett			56		Executive Vice President and Chief Financial Officer
John J. McGrath			52		Chief Operating Officer
Michael S. Sitrick			70		Director
Murray L. Skala			71		Director
Alexander Shoghi			36		Director
Rex H. Poulsen			66		Director
Michael J. Gross			42		Director
Zhao Xiaoqiang			50		Director

Median Employee total annual compensation (excluding Mr. Berman)		$	67,807
Mr. Berman’s total annual compensation		$	2,139,711
Ratio of PEO to Median Employee Compensation			3.2	%

	By the Compensation Committee of the Board of Directors:
	Michael S. Sitrick, Chairman
	Rex H. Poulsen, Member
	Michael J. Gross, Member

Name and  Principal  Position		Year		Salary ($)				Bonus ($)				Stock Awards ($)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)				Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($) (1)				Total ($)
Stephen G. Berman		2017			1,475,000				750,000				3,500,000				―				―				―				30,000				5,755,000
Chief Executive Officer,		2016			1,372,916				652,500				―				―				―				―				30,000				2,055,416
President and Secretary		2015			1,240,000				1,241,200				262,500				—				—				—				30,000				2,773,700
John J. McGrath		2017			690,000				138,000				1,000,000				―				―				―				26,400				1,854,400
Chief Operating Officer		2016			675,000				―				―				―				―				―				26,400				701,400
2015					660,000				566,600				69,378				—				—				—				26,400				1,322,378
Joel M. Bennett		2017			505,000				―				294,000				―				―				―				24,000				823,000
Executive Vice President		2016			490,000				―				―				―				―				―				24,000				514,000
and Chief Financial Officer		2015			475,000				142,500				―				―				―				―				24,000				641,500

		Option Awards																				Stock Awards
Name		Number of Securities Underlying Unexercised Options Exercisable (#)				Number of Securities Underlying Unexercised Options Unexercisable (#)				Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)				Option Exercise Price ($)				Option Expiration Date				Number of Shares or Units of Stock that Have Not Vested (#)				Market Value of Shares or Units of Stock that Have Not Vested ($) (1)				Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that Have Not Vested (#)				Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Stephen G. Berman			—				—				—				—				—				679,612				1,597,088				—				—
John J. McGrath			—				—				—				—				—				194,175				456,311				—				—
Joel M. Bennett			—				—				—				—				—				57,087				134,154				—				—

(1)	The product of (x) $2.35 (the closing sale price of the common stock on December 29, 2017) multiplied by (y) the number of unvested restricted shares outstanding.

Option Awards

Stock Awards

Name

Number of Shares Acquired on Exercise (#)

Value Realized on Exercise ($)

Number of Shares Acquired on Vesting (#)

Value Realized on Vesting ($)

Stephen G. Berman

—

—

—

—

John J. McGrath

—

—

—

—

Joel M. Bennett

—

—

—

—

Upon Retirement

Quits For “Good Reason” (2)

Upon Death

Upon “Disability” (3)

Termination Without “Cause”

Termination For “Cause” (4)

Involuntary Termination In Connection with Change of Control(5)

Base Salary

$

―

$

4,425,000

$

―

$

―

$

4,425,000

$

―

$

5,373,918

(6)

Restricted Stock - Performance-Based

―

―

―

―

―

―

―

Annual Cash Incentive Award (1)

―

―

―

―

―

―

―

	(1) Assumes that if the Named Officer is terminated on December 31, 2017, they were employed through the end of the incentive period.
	(2) Defined as (i) our violation or failure to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by us, or (ii) the material change in the nature, titles or scope of the duties, obligations, rights or powers of the Named Officer’s employment resulting from any action or failure to act by us.
	(3) Defined as a Named Officer’s inability to perform his duties by reason of any disability or incapacity (due to any physical or mental injury, illness or defect) for an aggregate of 180 days in any consecutive 12-month period.
	(4) Defined as (i) the Named Officer’s conviction of, or entering a plea of guilty or nolo contendere (which plea is not withdrawn prior to its approval by the court) to, a felony offense and either the Named Officer’s failure to perfect an appeal of such conviction prior to the expiration of the maximum period of time within which, under applicable law or rules of court, such appeal may be perfected or, if he does perfect such an appeal, the sustaining of his conviction of a felony offense on appeal; or (ii) the determination by our Board of Directors, after due inquiry, based upon convincing evidence, that the Named Officer has:

	(A) committed fraud against, or embezzled or misappropriated funds or other assets of, our Company (or any subsidiary);
	(B) violated, or caused our Company (or any subsidiary) or any of our officers, employees or other agents, or any other individual or entity to violate, any material law, rule, regulation or ordinance, or any material written policy, rule or directive of our Company or our Board of Directors;
	(C) willfully, or because of gross or persistent inaction, failed properly to perform his duties or acted in a manner detrimental to, or adverse to our interests; or
	(D) violated, or failed to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by him under his employment agreement with us;

	(5) Section 280G of the Code disallows a company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a 20% excise tax on any person who receives excess parachute payments. As discussed above, Mr. Berman is entitled to certain payments upon termination of his employment, including termination following a change in control of our Company. Under the terms of his employment agreement (see “ - Employment Agreements”), Mr. Berman is not entitled to any payments that would be an excess parachute payment, and such payments are to be reduced by the least amount necessary to avoid the excise tax. Accordingly, our tax deduction would not be disallowed under Section 280G of the Code, and no excise tax would be imposed under Section 4999 of the Code.
	(6)  Under the terms of Mr. Berman’s employment agreement (see “ - Employment Agreements”), if a change of control occurs and within two years thereafter Mr. Berman is terminated without “Cause” or quits for “Good Reason”, then he has the right to receive a payment equal to 2.99 times his then current base amount as defined in the Code (which was $1,797,297 in 2017).

Upon Retirement

Quits For “Good Reason” (2)

Upon Death

Upon “Disability” (3)

Termination Without “Cause”

Termination For “Cause” (4)

Involuntary Termination In Connection with Change of Control(5)

Base Salary

$

―

$

2,070,000

$

―

$

―

$

2,070,000

$

―

$

2,070,000

(6)

Restricted Stock - Performance-Based

―

―

―

―

―

―

―

Annual Cash Incentive Award (1)

―

―

―

―

―

―

―

(1) Assumes that if the Named Officer is terminated on December 31, 2017, they were employed through the end of the incentive period.

	(2) Defined as (i) our violation or failure to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by us, or (ii) the material change in the nature, titles or scope of the duties, obligations, rights or powers of the Named Officer’s employment resulting from any action or failure to act by us.
	(3) Defined as a Named Officer’s inability to perform his duties by reason of any disability or incapacity (due to any physical or mental injury, illness or defect) for an aggregate of 180 days in any consecutive 12-month period.
	(4) Defined as (i) the Named Officer’s conviction of, or entering a plea of guilty or nolo contendere (which plea is not withdrawn prior to its approval by the court) to, a felony offense and either the Named Officer’s failure to perfect an appeal of such conviction prior to the expiration of the maximum period of time within which, under applicable law or rules of court, such appeal may be perfected or, if he does perfect such an appeal, the sustaining of his conviction of a felony offense on appeal; or (ii) the determination by our Board of Directors, after due inquiry, based on convincing evidence, that the Named Officer has:

	(A) committed fraud against, or embezzled or misappropriated funds or other assets of, our Company (or any subsidiary);
	(B) violated, or caused our Company (or any subsidiary) or any of our officers, employees or other agents, or any other individual or entity to violate, any material law, rule, regulation or ordinance, or any material written policy, rule or directive of our Company or our Board of Directors;
	(C) willfully, or because of gross or persistent inaction, failed properly to perform his duties or acted in a manner detrimental to, or adverse to our interests; or
	(D) violated, or failed to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by him under his employment agreement with us;

	(5) Section 280G of the Code disallows a company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a 20% excise tax on any person who receives excess parachute payments. As discussed above, Mr. McGrath is entitled to certain payments upon termination of his employment, including termination following a change in control of our Company. Under the terms of his employment agreement (see “ - Employment Agreements”), Mr. McGrath is not entitled to any payments that would be an excess parachute payment, and such payments are to be reduced by the least amount necessary to avoid the excise tax. Accordingly, our tax deduction would not be disallowed under Section 280G of the Code, and no excise tax would be imposed under Section 4999 of the Code.
	(6)  Under the terms of Mr. McGrath’s employment agreement (see “ - Employment Agreements”), if a change of control occurs and within two years thereafter Mr. McGrath is terminated without “Cause” or quits for “Good Reason”, then he has the right to receive a payment equal to the greater of two times his then current base salary or the payments due for the remainder of the term of his employment agreement.

Upon Retirement

Quits For “Good Reason” (2)

Upon Death

Upon “Disability” (3)

Termination Without “Cause”

Termination For “Cause” (4)

Involuntary Termination In Connection with Change of Control(5)

Base Salary

$

―

$

―

$

―

$

―

$

―

$

―

$

―

(6)

Restricted Stock - Performance-Based

―

―

―

―

―

―

―

Annual Cash Incentive Award (1)

―

―

―

―

―

―

―

	(1) Assumes that if the Named Officer is terminated on December 31, 2017, they were employed through the end of the incentive period.
	(2) Defined as (i) our violation or failure to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by us, or (ii) the material change in the nature, titles or scope of the duties, obligations, rights or powers of the Named Officer’s employment resulting from any action or failure to act by us.
	(3) Defined as a Named Officer’s inability to perform his duties by reason of any disability or incapacity (due to any physical or mental injury, illness or defect) for an aggregate of 180 days in any consecutive 12-month period.
	(4) Defined as (i) the Named Officer’s conviction of, or entering a plea of guilty or nolo contendere (which plea is not withdrawn prior to its approval by the court) to, a felony offense and either the Named Officer’s failure to perfect an appeal of such conviction prior to the expiration of the maximum period of time within which, under applicable law or rules of court, such appeal may be perfected or, if he does perfect such an appeal, the sustaining of his conviction of a felony offense on appeal; or (ii) the determination by our Board of Directors, after due inquiry, based on convincing evidence, that the Named Officer has:

	(A) committed fraud against, or embezzled or misappropriated funds or other assets of, our Company (or any subsidiary);
	(B) violated, or caused our Company (or any subsidiary) or any of our officers, employees or other agents, or any other individual or entity to violate, any material law, rule, regulation or ordinance, or any material written policy, rule or directive of our Company or our Board of Directors;
	(C) willfully, or because of gross or persistent inaction, failed properly to perform his duties or acted in a manner detrimental to, or adverse to our interests; or
	(D) violated, or failed to perform or satisfy any material covenant, condition or obligation required to be performed or satisfied by him under his employment agreement with us;

	(5) Section 280G of the Code disallows a company’s tax deduction for what are defined as “excess parachute payments” and Section 4999 of the Code imposes a 20% excise tax on any person who receives excess parachute payments. As discussed above, Mr. Bennett is entitled to certain payments upon termination of his employment, including termination following a change in control of our Company. Under the terms of his employment agreement (see “Employment Agreements”), Mr. Bennett is not entitled to any payments that would be an excess parachute payment, and such payments are to be reduced by the least amount necessary to avoid the excise tax. Accordingly, our tax deduction would not be disallowed under Section 280G of the Code, and no excise tax would be imposed under Section 4999 of the Code.
	(6) Under the terms of Mr. Bennett’s employment agreement (see “Employment Agreements”), if a change of control occurs and within two years thereafter Mr. Bennett is terminated without “Cause” or quits for “Good Reason”, then he has the right to receive a payment equal to the greater of two times his then current base salary or the payments due for the remainder of the term of his employment agreement.

Name			Year			Fees Earned or Paid in Cash ($)				Stock Awards ($)				Option Awards ($)				Non-Equity Incentive Plan Compensation ($)				Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total ($)
Murray L. Skala			2017				75,000				99,519	(1	)		—				—				—				—				174,519
Rex H. Poulsen			2017				165,000				99,519	(1	)		—				—				—				—				264,519
Michael S. Sitrick			2017				125,000				99,519	(1	)		—				—				—				—				224,519
Alexander Shoghi	(2	)	2017				86,301				86,551	(4	)		—				—				—				—				172,852
Michael J. Gross			2017				125,000				99,519	(1	)		—				—				—				—				224,519
Zhao Xiaoquiang	(3	)	2017				51,164				66,195	(5	)																		117,359

	(1) The value of the shares was determined by taking the product of (a) 19,324 shares of restricted stock multiplied by (b) $5.15, the last sales price of our common stock on January 1, 2016, as reported by Nasdaq, the date prior to the date the shares were granted, all of which shares vested on January 1, 2018.
	(2) Mr. Shoghi was reappointed to the Board on February 20, 2017.
	(3) Mr. Xiaoquiang was appointed to the Board on April 27, 2017.
	(4) The value of the shares was determined by taking the product of (a) 16,806 shares of restricted stock multiplied by (b) $5.15, the last sales price of our common stock on February 17, 2017, as reported by Nasdaq, the date prior to the date the shares were granted, all of which shares vested on January 1, 2018.
	(5) The value of the shares was determined by taking the product of (a) 13,319 shares of restricted stock multiplied by (b) $4.97, the last sales price of our common stock on April 26, 2017, as reported by Nasdaq, the date prior to the date the shares were granted, all of which shares vested on January 1, 2018.

Name and Address of Beneficial Owner (1)(2)		Amount and Nature of Beneficial Ownership (3)				Percent of Outstanding Shares (4)
Dr. Patrick Soon-Shiong			2,500,676 (5	)			8.6	%
Oasis Management Company Ltd.			2,506,930(6	)			8.3
Wolverine Asset Management, LLC			1,712,746(7	)			5.5
Renaissance Technologies LLC			2,069,500(8	)			7.1
Hongkong Meisheng Cultural Company Limited			5,239,538(9	)			18.0
Stephen G. Berman			2,311,086(10	)			7.9
Rex H. Poulsen			120,590(11	)			*
Michael S. Sitrick			133,217(12	)			*
Murray L. Skala			156,545(13	)			*
Joel M. Bennett			42,682				*
John J. McGrath			643,085(14	)			2.2
Alexander Shoghi			70,928(15	)			*
Michael J. Gross			63,367(16	)			*
Zhao Xiaoqiang			54,899(17	)			*
All directors and executive officers as a group (9 persons)			3,596,399(18	)			12.3

*	Less than 1% of our outstanding shares.

(1)	Unless otherwise indicated, such person’s address is c/o JAKKS Pacific, Inc., 2951 28th Street, Santa Monica, California 90405.
(2)	The number of shares of common stock beneficially owned by each person or entity is determined under the rules promulgated by the Securities and Exchange Commission. Under such rules, beneficial ownership includes any shares as to which the person or entity has sole or shared voting power or investment power. The percentage of our outstanding shares is calculated by including among the shares owned by such person any shares which such person or entity has the right to acquire within 60 days after March 4, 2018. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of such shares.
(3)	Except as otherwise indicated, exercises sole voting power and sole investment power with respect to such shares.
(4)	Does not include any shares of common stock issuable upon the conversion of $42.7 million of our 4.25% convertible senior notes due 2018, initially convertible at the rate of 114.3674 shares of common stock per $1,000 principal amount at issuance of the notes (but subject to adjustment under certain circumstances as described in the notes) nor any shares of common stock issuable upon the conversion of $113.0 million of our 4.875% convertible senior notes due 2020, initially convertible at the rate of 103.7613 shares of common stock per $1,000 principal amount at issuance of the notes (but subject to adjustment under certain circumstances as described in the notes). Does include 3,112,840 shares of common stock repurchased by the Company under a prepaid forward purchase contract under which no shares have been returned to the Company.
(5)	The address of Dr. Patrick Soon-Shiong is 10182 Culver Blvd., Culver City, CA 90232. Except for 239,622 shares, all of the shares are owned jointly with California Capital Z, LLC. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13D/A filed on July 26, 2016.
(6)	The address of Oasis Management Company Ltd. is c/o Oasis Management (Hong Kong) LLC, 21/F Man Yee Building, 68Des Voeux Road, Central, Hong Kong. Possesses shared voting and dispositive power of such shares. 1,063,553 of such shares underlie convertible notes. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13D/A filed on November 8, 2017.
(7)	The address of Wolverine Asset Management, LLC is175 West Jackson Blvd., Suite 340, Chicago Illinois 60604. Possesses joint voting and dispositive power with respect to 1,704,622 of such shares (the balance is held jointly by other related parties) and all which shares (except for 8,124 shares) underlie presently convertible notes. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on February 14, 2018.

(8)	The address of Renaissance Technologies LLC is 800 Third Avenue, New York, NY 10022. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13G/A filed on February 14, 2018.
(9)	The address of Hongkong Meisheng Culture Company Ltd is Room 1901, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong. Zhao Xiaoqiang, executive director of this entity, is a director of the Company. Possesses shared voting and dispositive power with respect to all of such shares. All the information presented in this Item with respect to this beneficial owner was extracted solely from the Schedule 13D/A filed on January 26, 2018.
(10)	Includes 1,489,362 shares of common stock issued on January 1, 2018 pursuant to the terms of Mr. Berman’s January 1, 2003 Employment Agreement (as amended to date), which shares are further subject to the terms of our January 1, 2018 Restricted Stock Award Agreement with Mr. Berman (the “Berman Agreement”). The Berman Agreement provides that Mr. Berman will forfeit his rights to some or all 1,489,362 shares unless certain conditions precedent are met prior to January 1, 2019, as described in the Berman Agreement, whereupon the forfeited shares will become authorized but unissued shares of our common stock. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(11)	Includes 120,590 shares of Common Stock issued pursuant to our 2002 Stock Award and Incentive Plan pursuant to which 41,580 of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2019. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(12)	Consists of 133,217 shares of Common Stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which 41,580 of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2019. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.

(13)	Consists of 156,545 shares of Common Stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which 41,580 of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2019. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(14)	Includes 425,532 shares of common stock issued on January 1, 2018 pursuant to the terms of Mr. McGrath’s March 4, 2010 Employment Agreement (as amended to date), which shares are further subject to the terms of our January 1, 2018 Restricted Stock Award Agreement with Mr. McGrath (the “McGrath Agreement”). The McGrath Agreement provides that Mr. McGrath will forfeit his rights to some or all 425,532 shares unless certain conditions precedent are met prior to January 1, 2019, as described in the McGrath Agreement, whereupon the forfeited shares will become authorized but unissued shares of our common stock. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(15)	Consists of 70,928 shares of common stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which 41,580 of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2019. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(16)	Consists of 63,367 shares of common stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which 41,580 of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2019. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors.
(17)	Consists of 54,899 shares of common stock issued pursuant to our 2002 Stock Award and Incentive Plan, pursuant to which 41,580 of such shares may not be sold, mortgaged, transferred or otherwise encumbered prior to January 1, 2019. Certain of these shares may be restricted from transfer pursuant to the minimum stock ownership provisions adopted by the Company's Board of Directors. Does not include the 5,239,538 shares owned by Hongkong Meisheng Cultural Company Limited reported above, of which entity Zhao Xiaoqiang is executive director.
(18)	Does not include the 5,239,538 shares owned by Hongkong Meisheng Cultural Company Limited reported above, of which entity Zhao Xiaoqiang is executive director.

		2016				2017
Audit Fees		$	1,215,000			$	1,468,199
Audit Related Fees			49,306				32,292
Tax Fees			7,555				2,103
		$	1,271,861			$	1,502,594

(1)	Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement, filed August 23, 2002, and incorporated herein by reference.
(2)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.
(3)	Filed previously as an exhibit to the Company's Current Report on Form 8-K filed July 24, 2013 and incorporated herein by reference.
(4)	Filed previously as Appendix A to the Company’s Schedule 14A Proxy Statement, filed June 23, 1998, and incorporated herein by reference
(5)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-90055), filed November 1, 1999, and incorporated herein by reference.
(6)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-40392), filed June 29, 2000, and incorporated herein by reference.
(7)	Filed previously as Appendix B to the Company’s Schedule 14A Proxy Statement, filed June 11, 2001, and incorporated herein by reference.
(8)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-101665), filed December 5, 2002, and incorporated herein by reference.
(9)	Filed previously as an exhibit to the Company’s Schedule 14A Proxy Statement, filed August 20, 2008, and incorporated herein by reference.
(10)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed April 2, 2014 and incorporated herein by reference.
(11)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 17, 2010, and incorporated herein by reference.
(12)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.
(13)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 25, 2012, and incorporated herein by reference.
(14)	Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1999, filed March 30, 2000, and incorporated herein by reference.
(15)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed February 20, 2014, and incorporated herein by reference.
(16)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed August 24, 2011, and incorporated herein by reference.
(17)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed May 21, 2013, and incorporated herein by reference.
(18)	Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003, filed March 15, 2004, and incorporated herein by reference.
(19)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2014 and incorporated herein by reference.
(20)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 16, 2015 and incorporated herein by reference.
(21)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2016 and incorporated herein by reference.
(22)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 30, 2016 and incorporated herein by reference.
(23)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed December 29, 2017 and incorporated herein by reference.
(24)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 11, 2017 and incorporated herein by reference.

(*)	Filed herewith.

Dated: March 16, 2018	JAKKS PACIFIC, INC.
	By:	/s/ STEPHEN G. BERMAN
		Stephen G. Berman
		Chief Executive Officer

Signature		Title		Date
/s/ STEPHEN G. BERMAN		Director and		March 16, 2018
Stephen G. Berman		Chief Executive Officer
		Chief Financial Officer
/s/ JOEL M. BENNETT		(Principal Financial Officer and		March 16, 2018
Joel M. Bennett		Principal Accounting Officer)
/s/ REX H. POULSEN		Director		March 16, 2018
Rex H. Poulsen
/s/ MICHAEL S. SITRICK		Director		March 16, 2018
Michael S. Sitrick
/s/ MURRAY L. SKALA		Director		March 16, 2018
Murray L. Skala
/s/ ALEXANDER SHOGHI		Director		March 16, 2018
Alexander Shoghi
/s/ MICHAEL J. GROSS		Director		March 16, 2018
Michael J. Gross
/s/ ZHAO XIAOQUIANG		Director		March 16, 2018
Zhao Xiaoquiang

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation of the Company (1)
3.2	Amended and Restated  By-Laws of the Company (2)
4.1	Indenture dated July 24, 2013 by and between the Registrant and Wells Fargo Bank, N.A (3)
4.2	Form of 4.25% Senior Convertible Note (3)
4.2.1	Convertible Senior Note due November 7, 2020 (24)
4.3	Credit Agreement dated as of March 27, 2014 by and among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (10)
4.3.1	Fourth Amendment to Credit Agreement dated as of June 5, 2015 by and among Registrant and its US wholly-owned subsidiaries and General Electric Capital Corporation (20)
4.4	Revolving Loan Note dated March 27, 2014 by Registrant and its US wholly-owned subsidiaries in favor of General Electric Capital Corporation (10)
4.5	Indenture dated June 9, 2014 by and between the Registrant and Wells Fargo Bank, N.A (19)
4.6	Form of 4.875% Senior Convertible Note (19)
10.1.1	Third Amended and Restated 1995 Stock Option Plan (4)
10.1.2	1999 Amendment to Third Amended and Restated 1995 Stock Option Plan (5)
10.1.3	2000 Amendment to Third Amended and Restated 1995 Stock Option Plan (6)
10.1.4	2001 Amendment to Third Amended and Restated 1995 Stock Option Plan (7)
10.2	2002 Stock Award and Incentive Plan (8)
10.2.1	2008 Amendment to 2002 Stock Award and Incentive Plan (9)
10.4.1	Second Amended and Restated Employment Agreement between the Company and Stephen G. Berman dated as of November 11, 2010 (11)
10.4.2	Clarification Letter dated October 20, 2011 with respect to Mr. Berman’s Second Amended and Restated employment agreement (12)
10.4.3	Amendment Number One dated September 21, 2012 to Mr. Berman’s Second Amended and Restated Employment Agreement (13)
10.4.4	Amendment Number Two dated June 7, 2016 to Mr. Berman’s Second Amended and Restated Employment Agreement (21)
10.5	Office Lease dated November 18, 1999 between the Company and Winco Maliview Partners (14)
10.6	Form of Restricted Stock Agreement (10)
10.7	Employment Agreement between the Company and Joel M. Bennett, dated October 21, 2011 (12)
10.7.1	Continuation and Extension of Term of Employment Agreement Between JAKKS Pacific, Inc. and Joel M. Bennett dated February 18, 2014 (15)
10.7.2	Amendment Extending Term of Employment Agreement Between JAKKS Pacific, Inc. and Joel M. Bennett dated June 11, 2015 (20)
10.7.3	Letter Agreement dated December 27, 2017 between the Company and Joel M. Bennett (23)
10.8	Employment Agreement between the Company and John a/k/a Jack McGrath, dated March 4, 2010 (16)
10.8.1	First Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated August 23, 2011 (16)
10.8.2	Second Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated May 15, 2013 (17)
10.8.3	Third Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated June 11, 2015 (20)
10.8.4	Fourth Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated September 29, 2016 (22)
10.8.5	Fifth Amendment to Employment Agreement between the Company and John a/k/a Jack McGrath, dated February 28, 2018 (*)
10.9	Exchange Agreement dated November 7, 2017 between the Company and Oasis Investments II Master Fund Ltd. (24)
14	Code of Ethics (18)
21	Subsidiaries of the Company (*)
23.1	Consent of BDO USA, LLP (*)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Stephen G. Berman (*)
31.2	Rule 13a-14(a)/15d-14(a) Certification of Joel M. Bennett (*)
32.1	Section 1350 Certification of Stephen G. Berman (*)
32.2	Section 1350 Certification of Joel M. Bennett (*)
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1)	Filed previously as Appendix 2 to the Company’s Schedule 14A Proxy Statement, filed August 23, 2002, and incorporated herein by reference.
(2)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.
(3)	Filed previously as an exhibit to the Company's Current Report on Form 8-K filed July 24, 2013 and incorporated herein by reference.
(4)	Filed previously as Appendix A to the Company’s Schedule 14A Proxy Statement, filed June 23, 1998, and incorporated herein by reference
(5)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-90055), filed November 1, 1999, and incorporated herein by reference.
(6)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-40392), filed June 29, 2000, and incorporated herein by reference.
(7)	Filed previously as Appendix B to the Company’s Schedule 14A Proxy Statement, filed June 11, 2001, and incorporated herein by reference.
(8)	Filed previously as an exhibit to the Company’s Registration Statement on Form S-8 (Reg. No. 333-101665), filed December 5, 2002, and incorporated herein by reference.
(9)	Filed previously as an exhibit to the Company’s Schedule 14A Proxy Statement, filed August 20, 2008, and incorporated herein by reference.
(10)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed April 2, 2014 and incorporated herein by reference.
(11)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 17, 2010, and incorporated herein by reference.
(12)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed October 21, 2011, and incorporated herein by reference.
(13)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 25, 2012, and incorporated herein by reference.
(14)	Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 1999, filed March 30, 2000, and incorporated herein by reference.
(15)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed February 20, 2014, and incorporated herein by reference.
(16)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed August 24, 2011, and incorporated herein by reference.
(17)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed May 21, 2013, and incorporated herein by reference.
(18)	Filed previously as an exhibit to the Company’s Annual Report on Form 10-K for its fiscal year ended December 31, 2003, filed March 15, 2004, and incorporated herein by reference.
(19)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2014 and incorporated herein by reference.
(20)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 16, 2015 and incorporated herein by reference.
(21)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed June 9, 2016 and incorporated herein by reference.
(22)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed September 30, 2016 and incorporated herein by reference.
(23)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed December 29, 2017 and incorporated herein by reference.
(24)	Filed previously as an exhibit to the Company’s Current Report on Form 8-K filed November 11, 2017 and incorporated herein by reference.

(*)	Filed herewith.