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4Kids Entertainment Reports 2008 Q4, Year End Results

4Kids Entertainment posted their year-end and 2008 fourth quarter results this week, with revenues down and losses up.

Net revenues for the three months that ended December 31, 2008 totaled $14.3 million, compared to $16.5 million for the same period in 2007. The company's net loss for the three months was $19.6 million, or $1.48 per diluted share, as compared to a net loss of $16.8 million, or $(1.26) per diluted share, for the same period in 2007.

For the year ended December 31, 2008, net revenues totaled $63.7 million, compared to $55.6 million for the same period in 2007. Revenue for the year included approximately $15.3 million from the sale of CHAOTIC trading cards. The company's net loss for the year 2008 was $36.8 million, or $2.79 per diluted share, as compared to $23.3 million, or $1.77 per diluted share, for the same period in 2007.

"The sharp economic downturn and associated severe deterioration of consumer confidence starting in September 2008 deeply impacted our licensing revenue and trading card game sales in the fourth quarter. Our results were also impacted by declining licensing revenue throughout the year from some of our more established properties. While we are extremely disappointed by our results for 2008, we implemented significant cost cutting initiatives in the fourth quarter of 2008 and the first quarter of 2009 that we expect to reduce our operating costs by $25 million in 2009 as compared with 2008," said Alfred R. Kahn, Chairman and CEO, 4Kids Entertainment.

"While CHAOTIC trading card sales for the first nine months of 2008 were in line with our expectations, sales for fourth quarter fell well below our expectations at $0.5 million. This decline in sales is primarily due to retailers and distributors reducing, canceling or returning orders in an effort to reduce their inventory as they respond to the rapid, steep economic decline. In addition to impacting sales, it also triggered an increase in our reserve for returns and allowances and a $3 million write-down of our trading card inventory. Despite the fourth quarter sales numbers, CHAOTIC finished the year as the number three selling trading card game in the U.S. behind POKEMON and YU-GI-OH!," said Kahn.

"Looking forward, we believe CHAOTIC still offers a tremendous opportunity for 4Kids in the future as we roll out the CHAOTIC trading cards in the U.K., France and Germany during the first half of 2009. CHAOTIC will also be bolstered by the revised and improved Chaoticgame.com website that went live on March 3 and is now available in English, French, German, Spanish and Italian. We also expect additional CHAOTIC licensed products to be available from our master toy licensee, Spin Master, and our videogame partner, Activision Publishing, which is scheduled to release a CHAOTIC videogame on the Wii, Nintendo DS, Xbox 360, and PlayStation 3 platforms in fall 2009."

Bruce Foster, Chief Financial Officer of 4Kids, stated, "During the fourth quarter, we experienced a measurable decrease in our cash and investments of $32.6 million. This decrease was attributable to multiple factors, including declining revenue, as described above and continued investment spending in our trading card game and website subsidiaries, TC Digital Games and TC Websites. The decrease in cash also resulted from fourth quarter payments to Fox and The CW network of approximately $15 million and costs associated with the buildup of Chaotic trading card inventory.

"During 2008, we recorded a temporary impairment of approximately $13.5 million, in addition to the $4 million temporary impairment recorded in 2007, due to a decline in value of our auction rate securities. In the fourth quarter, we also recorded a $7.8 million charge to operations resulting from the reclassification of certain auction rate securities as permanently impaired. This permanent impairment increased our fourth quarter loss to $19.6 million," said Foster.

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