JAKKS PACIFIC INC

Previous wording

Our critical accounting policies and estimates are included in the 2023 Annual Report on Form 10-K and did not materially change during the first nine months of 2024.

Current wording

Our critical accounting policies and estimates are included in the 2024 Annual Report on Form 10-K and did not materially change during the first three months of 2025.

Previous wording

*Toys/Consumer Products.*Net sales of our Toys/Consumer Products segment were $264.3 million for the three months ended September 30, 2024 compared to $246.0 million for the prior year period, representing an increase of $18.3 million, or 7.4%. Net sales from the Action Play & Collectibles division were up 5.5% in part due to higher net sales from the Sonic the Hedgehog™ 3 movie and core product lines.

Current wording

*Toys/Consumer Products.*Net sales of our Toys/Consumer Products segment were $107.4 million for the three months ended March 31, 2025 compared to $82.9 million for the prior year period, representing an increase of $24.5 million, or 29.6%. The increase was driven by higher sales in Dolls, Role-Play/Dress-up, up 36.7% versus a year ago, due to higher sales related to the Moana 2 Movie product as well as increases in Disney Princess and Style Collection products. Additionally, net sales from the Action Play & Collectibles division were up 29.9% due to higher net sales from the Sonic 3 Movie, DogMan and Simpsons products.

Previous wording

Costumes. Net sales of our Costumes segment were $57.3 million for the three months ended September 30, 2024 compared to $63.7 million for the prior year period, representing a decrease of $6.4 million, or 10.0%. The decrease in net sales was primarily due to reduced orders from select recurring customers informed in part by the prior year’s sell-through during the Halloween shopping season.

Current wording

Costumes. Net sales of our Costumes segment were $5.8 million for the three months ended March 31, 2025 compared to $7.2 million for the prior year period, representing a decrease of $1.4 million, or 19.4%. The decrease was primarily due to reduced orders from select recurring customers.

Previous wording

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $15.4 million, or an effective tax rate of 22.8%, for the three months ended September 30, 2024. During the comparable period in 2023, our income tax expense was $12.4 million, or an effective tax rate of 20.5%. The effective tax rate increased primarily due to non-deductible compensation and foreign inclusions.

Current wording

Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $1.2 million, or an effective tax rate of 32.8%, for the three months ended March 31, 2025. During the comparable period in 2024, our income tax benefit was $6.7 million, or an effective tax rate of 32.1%. The slight increase in the effective tax rate is primarily due to the relationship between the tax provision benefit and a lower pre-tax book loss this year.

Previous wording

The retail toy industry is inherently seasonal. Generally, our sales have been highest during the second and third quarters owing to our preference for the FOB (free-on-board)/DI (direct import) business model where our customers take possession of the product in Asia and are responsible for importing into their respective countries from that point forward, and collections for those sales have been highest during the succeeding third and fourth quarters. Our working capital needs have been highest during the second and third quarters as we make royalty advance payments for some of our licenses and buy and sell inventory subject to customer payment terms.

Current wording

The retail toy industry is inherently seasonal. Generally, our sales have been highest during the second and third quarters, and collections for those sales have been highest during the succeeding fourth and first quarters. Our working capital needs have been highest during the second and third quarters as we make royalty advance payments for some of our licenses and buy and sell inventory subject to customer payment terms.

Previous wording

As of September 30, 2024, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $130.4 million, compared to $106.1 million as of December 31, 2023, representing an increase in working capital of $24.3 million during the nine-month period ended September 30, 2024. The increase in working capital is primarily attributable to the seasonal increases in inventory, accounts receivables, payables and accrued expenses by $71.3 million net, offset by the $20.0 million cash payment made to holders for the redemption of our outstanding preferred stock. The remaining decrease is mainly attributable to cash used in operating activities and other working capital usage.

Current wording

As of March 31, 2025, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $109.2 million, compared to $119.3 million as of December 31, 2024, representing a decrease in working capital of $10.1 million during the three-month period ended March 31, 2025. The decrease in working capital is mainly attributable to cash used for financing activities.

Previous wording

Operating activities used net cash of $15.2 million during the nine months ended September 30, 2024, as compared to net cash provided by operating activities of $87.7 million in the prior year period. The decrease in net cash used in operating activities year-over-year is primarily due to a decrease in net income for the nine months ended September 30, 2024 by $5.7 million, an increase in cash taxes paid by $11.7 million and $80.5 million in other working capital changes. Other than open purchase orders issued in the normal course of business related to shipped product, we have no obligations to purchase inventory from our manufacturers. However, we may incur costs or other losses as a result of not placing orders consistent with our forecasts for product manufactured by our suppliers or manufacturers for a variety of reasons including customer order cancellations or a decline in demand. As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties/obligations generally ranging from 1% to 22% payable on net sales of such products. As of September 30, 2024, these agreements required future aggregate minimum royalty guarantees of $77.8 million exclusive of $0.9 million in advances already paid. Of this $77.8 million future minimum royalty guarantee, $47.8 million is due over the next twelve months.

Current wording

Operating activities used net cash of $1.7 million during the three months ended March 31, 2025, as compared to net cash used of $12.9 million in the prior year period. The decrease in net cash used in operating activities year-over-year is primarily due to a lower net loss. Other than open purchase orders issued in the normal course of business related to shipped product, we have no obligations to purchase inventory from our manufacturers. However, we may incur costs or other losses as a result of not placing orders consistent with our forecasts for product manufactured by our suppliers or manufacturers for a variety of reasons including customer order cancellations or a decline in demand. As part of our strategy to develop and market new products, we have entered into various character and product licenses with royalties/obligations generally ranging from 1% to 22% payable on net sales of such products. As of March 31, 2025, these agreements required future aggregate minimum royalty guarantees of $76.8 million exclusive of $3.5 million in advances already paid. Of this $76.8 million future minimum royalty guarantee, $54.8 million is due over the next twelve months.

Previous wording

Investing activities used net cash of $9.0 million and $5.7 million for the nine months ended September 30, 2024 and 2023, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products and purchases of investments to fund our obligation to our employees stemming from our non-qualified deferred compensation plan.

Current wording

Investing activities used net cash of $3.1 million and $3.6 million for the three months ended March 31, 2025 and 2024, respectively, and consisted primarily of cash paid for the purchase of molds and tooling used in the manufacture of our products and purchases of investments to fund our obligation to our employees stemming from our non-qualified deferred compensation plan.

Previous wording

Financing activities used net cash of $26.5 million and $71.7 million for the nine months ended September 30, 2024 and 2023, respectively. The cash used in financing activities during the nine months ended September 30, 2024, primarily consists of $20.0 million used in the redemption of our outstanding preferred stock and $6.5 million used in the repurchase of common stock for employee tax withholdings. The cash used in financing activities during the nine months ended September 30, 2023, primarily consists of the repayment of our 2021 BSP Term Loan of $69.2 million and the repurchase of common stock for employee tax withholding of $2.5 million.

Current wording

Financing activities used net cash of $6.6 million and $20.0 million for the three months ended March 31, 2025 and 2024, respectively. The cash used in financing activities during the three months ended March 31, 2025, consists of $3.8 million used for the repurchase of our common stock for employee tax withholding and $2.8 million used to pay dividends. The cash used in financing activities during the three months ended March 31, 2024, consists of $20.0 million used in the redemption of our outstanding preferred stock.

Previous wording

As of September 30, 2024, we have no outstanding indebtedness under the JPMorgan ABL Facility, aside from utilizing $4.4 million in letters of credit.

Current wording

As of March 31, 2025, we have no outstanding indebtedness under our senior secured revolving credit facility (the “JPMorgan ABL Facility”), aside from utilizing $4.4 million in letters of credit.

Previous wording

See Note 5 – Debt and Note 6 – Credit Facilities for additional information pertaining to our Debt and Credit Facilities.

Current wording

See Note 5 – Credit Facilities for additional information pertaining to our Credit Facilities.

Previous wording

As of September 30, 2024 and December 31, 2023, we held cash and cash equivalents, including restricted cash, of $22.3 million and $72.6 million, respectively. Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $15.5 million and $21.5 million as of September 30, 2024 and December 31, 2023, respectively. The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S. or tax has been accounted for in connection with the Tax Cuts and Jobs Act, or may be eligible for a full foreign dividends received deduction under such Act, and thus would not be subject to additional U.S. tax should such amounts be repatriated in the form of dividends or deemed distributions. During the first quarter of 2024, the Company declared a one-time dividend from Canada to the U.S in the amount of $5.9 million, in order to fund the preferred stock redemption that occurred during the quarter, resulting in a 5% withholding tax. This was a significant one-time event as there are no preferred stock outstanding after the redemption. Future cash remittances will come from Hong Kong, which does not impose withholding taxes. As such, foreign withholding taxes on future repatriations are not expected to be significant.

Current wording

As of March 31, 2025 and December 31, 2024, we held cash and cash equivalents, including restricted cash, of $59.4 million and $70.1 million, respectively. Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $15.4 million and $16.5 million as of March 31, 2025 and December 31, 2024, respectively. The cash and cash equivalents, including restricted cash balances in our foreign subsidiaries have either been fully taxed in the U.S. or tax has been accounted for in connection with the Tax Cuts and Jobs Act, or may be eligible for a full foreign dividends received deduction under such Act, and thus would not be subject to additional U.S. tax should such amounts be repatriated in the form of dividends or deemed distributions. During the first quarter of 2024, the Company declared a one-time dividend from Canada to the U.S in the amount of $5.9 million, in order to fund the preferred stock redemption that occurred during the quarter, resulting in a 5% withholding tax. This was a significant one-time event as there are no preferred stock outstanding as of March 31, 2024. Future cash remittances will come from Hong Kong, which does not impose withholding taxes. As such, foreign withholding taxes on future repatriations are not expected to be significant.