To Our Fellow Stockholders:
In 2003, we continued to position JAKKS Pacific, Inc. as a leader in the toy, writing instruments and seasonal products industries. While we pride ourselves on being more than just a toy company, operating as a Top Five U.S. Toy Company is an achievement that we are quite proud of. We strive each day to create innovative products that have strong appeal to consumers of all ages. We aim to sell our toys, writing instruments, art activity kits, TV Games products, kites, pool toys and other consumer products, across an increasing number of diverse retail channels. We are pleased to report that JAKKS Pacific continued to grow stronger in 2003, and we are excited by the future that lies ahead.
Despite persistent challenging retail and economic conditions, we achieved record net sales of $315.8 million and continued to lay a solid foundation for long-term prosperity. In June 2003, we acquired the assets of P&M Color Workshop®, best known for its BloPens® airbrush markers and Vivid Velvet® brand of velvet art kits, which further strengthen our Flying Colors® division. We gained additional shelf space for our existing craft lines from the Color Workshop acquisition and also capitalized on distribution methods new to JAKKS Pacific, including direct response, which we have now incorporated as a sales channel for other JAKKS Pacific products. Also in June 2003, we sold $98 million in convertible senior notes payable, which affords us more opportunity when looking for additional attractive acquisition targets. We found our next gem in June 2004, and announced the completion of our acquisition of Play Along® toys. We believe Play Alongs solid portfolio of toys, including Cabbage Patch Kids® for dolls, Care Bears® for plush and pre-school learning, Teletubbies® for pre-school and playsets and DC Comics® Batman® and Justice League of America® for construction toys, will be an excellent complement to JAKKS Pacific. We expect Play Along to be immediately accretive and to contribute significantly to JAKKS Pacifics operations.
Throughout 2003, we launched many new licenses, such as NASCAR®, ¡Mucha Lucha!™, the Dragon Ball® franchise, Yu Yu Hakusho®, Universal Studios Monsters and Van Helsing™. These character brands, together with our previously signed licenses, Disney®, Nickelodeon®, Hello Kitty®, World Wrestling Entertainment™, Namco®, Atari®, Strawberry Shortcake® and more, position JAKKS Pacific as a highly sought-after licensee.
As we sign licenses and create partnerships with our licensors, we look to leverage the agreements across multiple categories, including toys, art activities, stationery, TV Games™ products, school supplies, kites, slumber bags and more. We believe we are maximizing opportunities available to us, creating compelling merchandise for our retail customers, generating successful programs for the licensors and developing innovative products across many categories for consumers. In our experience, its a win-win situation. Nickelodeon® is a great example. Our original agreement with Nick covered crafts and a number of related categories for our Flying Colors division. It now extends to many of JAKKS Pacifics brands and categories, including Go Fly a Kite®, Vivid Velvet®, stationery and back-to-school, TV Games and Child Guidance®.
Our TV Games products are another success story. The distribution of TV Games is wide-reaching, with availability in retail channels ranging from Wal-Mart and Toys R Us to Urban Outfitters, Bed Bath & Beyond, Best Buy and Musicland—outlets which are not traditional toy sellers. We have worked furiously to expand product offerings in this category by signing numerous top licenses such as Capcom®, Midway®, Marvel®, Disney®, World Poker Tour®, Star Wars® and Nickelodeon®, which we believe will appeal to gamers of all ages and interests. With these new licenses, we have extended the market range of the product, and even developed TV Games activity units just for young kids.
Our products are sold in a broad range of retail outlets—everywhere from Wal-Mart, Target, Toys R Us and Walgreens to GameStop, Michaels, Office Depot and Staples, to name just a few. JAKKS Pacific achieved strong sell-through in mass merchant and other retail channels in 2003. As the number of stores in our primary channel base has declined, we work hard to place more SKUs on these shelves, while at the same time leveraging our products outside of the toy category to secure shelf space at electronics, drug, convenience and office supply retail channels.
On the international front, we continued to think and act globally to expand our efforts, and have assembled a new team to increase our exposure worldwide. Charged with marketing key product lines that are compelling and appropriate for international customers, our teams around the world are helping to take JAKKS Pacific to the next level. In particular, we have launched initiatives for our TV Games line in Europe, Australia, Asia and New Zealand, and the response thus far has been promising.
In early 2004, we increased our marketing, advertising and product development spending to invest in our future. We have launched new products, while working to maximize the earnings potential of existing brands. We will strive to continue expanding our distribution channels and our product offerings across all product categories to obtain strong growth in revenue and earnings in 2004 and beyond.
We will continue to focus on opportunities that lie ahead, and will actively pursue complementary acquisitions, such as Play Along, that provide both near- and long-term growth potential and market share expansion opportunities.
Finally, in years to come, as in this past year, we will hold steadfast to our mission—to enable children of all ages to play in new ways, deliver new opportunities and value to our retailers and business partners and to reach the next level of our business success.
We would like to thank you, our stockholders, for your support as we continue to successfully execute our strategic plan. We would also like to thank our key partners, vendors and employees for their hard work and dedication. We look forward to communicating with you as we at JAKKS Pacific continue to achieve our goals and objectives for 2004, and laying the foundation for future success.