JAKKS PACIFIC INC

Previous 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.

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 six months of 2025.

Previous 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.

Current wording

Costumes. Net sales of our Costumes segment were $38.7 million for the three months ended June 30, 2025 compared to $44.0 million for the prior year period, representing a decrease of $5.3 million, or 12.0%. The decrease was primarily due to reduced orders from select recurring customers in turn due to higher importation cost for FOB sales.

Previous wording

Selling, general and administrative expenses were $42.8 million for the three months ended March 31, 2025 compared to $42.4 million for the prior year period constituting 37.7% and 47.1% of net sales, respectively. Selling, general and administrative expenses were primarily flat year over year, with slightly higher product development expenses being offset by lower outside spending.

Current wording

Selling, general and administrative expenses were $41.8 million for the three months ended June 30, 2025 compared to $39.9 million for the prior year period constituting 35.1% and 26.9% of net sales, respectively. Selling, general and administrative expenses were up $2.9 million year over year, with slightly higher selling expenses, salaries and benefits and professional services.

Previous 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.

Current wording

*Toys/Consumer Products.*Net sales of our Toys/Consumer Products segment were $187.8 million for the six months ended June 30, 2025 compared to $187.5 million for the prior year period, representing an increase of $0.3 million, or 0.2%. The increase was driven by higher sales in Action Play and Collectibles, up 4.6% versus a year ago, due to higher sales related to the Sonic 3 Movie product, offset by slightly lower sales of 2.5% from the Dolls, Role-Play/Dress Up segment in part due to a customer’s discontinuation of a private label program in 2024.

Previous wording

Toys/Consumer Products. Cost of sales of our Toys/Consumer Products segment was $69.2 million, or 64.4% of related net sales for the three months ended March 31, 2025 compared to $65.1 million, or 78.5% of related net sales for the prior year period, representing an increase of $4.1 million, or 6.4%, in line with the increase in net sales. The decrease as a percentage of net sales was due to a higher mix of high margin movie-related product as well as decreased inventory reserves.

Current wording

Toys/Consumer Products. Cost of sales of our Toys/Consumer Products segment was $122.5 million, or 65.2% of related net sales for the six months ended June 30, 2025 compared to $132.6 million, or 70.7% of related net sales for the prior year period, representing a decrease of $10.1million, or 7.6%. The decrease as a percentage of net sales was due to a product-mix weighted towards high margin movie-related product as well as lower inventory reserves.

Previous 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.

Current wording

Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $1.8 million, or an effective tax rate of 27.3%, for the six months ended June 30, 2025. During the comparable period in 2024, our income tax benefit was $4.4 million, or an effective tax rate of 33.2%. The decrease in the effective tax rate is primarily due to a decrease in benefits from discrete items.

Previous 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.

Current wording

As of June 30, 2025, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $109.1 million, compared to $119.3 million as of December 31, 2024, representing a decrease in working capital of $10.2 million during the six-month period ended June 30, 2025. The decrease in working capital is mainly attributable to cash used for financing activities.

Previous 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.

Current wording

Operating activities used net cash of $15.9 million during the six months ended June 30, 2025, as compared to net cash used of $27.7 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 and less cash taxes paid. 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 June 30, 2025, these agreements required future aggregate minimum royalty guarantees of $63.4 million exclusive of $2.9 million in advances already paid. Of this $63.4 million future minimum royalty guarantee, $48.5 million is due over the next twelve months.

Previous 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.

Current wording

Investing activities used net cash of $6.0 million and $6.2 million for the six months ended June 30, 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 $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.

Current wording

Financing activities used net cash of $9.4 million and $20.1 million for the six months ended June 30, 2025 and 2024, respectively. The cash used in financing activities during the six months ended June 30, 2025, consists of $3.8 million used for the repurchase of our common stock for employee tax withholding and $5.6 million used to pay dividends. The cash used in financing activities during the six months ended June 30, 2024, primarily consists of $20.0 million used in the redemption of our outstanding preferred stock and $5.1 million used in the repurchase of common stock for employee tax withholdings, compensated by $5.0 million of cash provided by the draw on our senior secured revolving credit facility (the “JPMorgan ABL Facility”).

Previous 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.

Current wording

As of June 30, 2025 and December 31, 2024, we held cash and cash equivalents, including restricted cash, of $43.1 million and $70.1 million, respectively. Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $13.9 million and $16.5 million as of June 30, 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 June 30, 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.

Previous wording

Our primary sources of working capital are cash flows from operations and borrowings under our JPMorgan ABL Facility (see Note 5 – Credit Facilities).

Current wording

Our primary sources of working capital are cash flows from operations and borrowings under our Revolving Facility (see Note 5 – Credit Facilities).

Previous wording

As of March 31, 2025 off-balance sheet arrangements include letters of credit issued by JPMorgan of $4.4 million.

Current wording

As of June 30, 2025 off-balance sheet arrangements include letters of credit issued by JPMorgan of $4.4 million temporarily secured with cash as collateral. New letters of credit will be issued with BMO as part of the new lending agreement announced on June 24, 2025.