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 six 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 nine months of 2025.

Previous 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.

Current wording

Costumes. Net sales of our Costumes segment were $55.1 million for the three months ended September 30, 2025 compared to $57.3 million for the prior year period, representing a decrease of $2.2 million, or 3.8%. The decrease was primarily due to reduced orders from select recurring customers.

Previous 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.

Current wording

Toys/Consumer Products. Cost of sales of our Toys/Consumer Products segment was $104.5 million, or 66.9% of related net sales for the three months ended September 30, 2025 compared to $171.8 million, or 65% of related net sales for the prior year period, representing a decrease of $67.3 million, or 39.2%, in line with the decrease in net sales. The increase as a percentage of net sales was due to a lower mix of high margin movie-related product, slightly offset by decreased inventory reserves.

Previous wording

Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $0.6 million, or an effective tax rate of 20.7%, for the three months ended June 30, 2025. During the comparable period in 2024, our income tax expense was $2.3 million, or an effective tax rate of 30.2%. The decrease in the effective tax rate is primarily due to a change in the forecasted annual effective tax rate driven by the change in the jurisdictional mix of earnings.

Current wording

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $9.8 million, or an effective tax rate of 33.1%, for the three months ended September 30, 2025. During the comparable period in 2024, our income tax expense was $15.4 million, or an effective tax rate of 22.8%. The increase in the effective tax rate is primarily due to a change in the forecasted annual effective tax rate driven by the change in the jurisdictional mix of earnings.

Previous wording

Costumes. Net sales of our Costumes segment were $44.5 million for the six months ended June 30, 2025 compared to $51.2 million for the prior year period, representing a decrease of $6.7 million, or 13.1%. The decrease was primarily due to reduced orders from select recurring customers in turn due to higher importation cost for FOB sales.

Current wording

Costumes. Net sales of our Costumes segment were $99.7 million for the nine months ended September 30, 2025 compared to $108.5 million for the prior year period, representing a decrease of $8.8 million, or 8.1%. The decrease was primarily due to reduced orders from select recurring customers attributable to tariff expense.

Previous wording

Selling, general and administrative expenses were $84.6 million for the six months ended June 30, 2025 compared to $82.3 million for the prior year period constituting 36.4% and 34.5% of net sales, respectively. Selling, general and administrative expenses were up $2.3 million year over year, with slightly higher selling expenses and salaries and benefits.

Current wording

Selling, general and administrative expenses were $122.9 million for the nine months ended September 30, 2025 compared to $123.1 million for the prior year period constituting 27.7% and 22.0% of net sales, respectively. Selling, general and administrative expenses were essentially flat year over year, but as a percentage of net sales selling, general and administrative expenses were up year over year because of lower net sales.

Previous 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.

Current wording

Our income tax expense, which includes federal, state and foreign income taxes and discrete items, was $8.1 million, or an effective tax rate of 34.7%, for the nine months ended September 30, 2025. During the comparable period in 2024, our income tax benefit was $11.0 million, or an effective tax rate of 20.2%. The increase in the effective tax rate is primarily due to a decrease in pre-tax book income across the jurisdictions.

Previous 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.

Current wording

As of September 30, 2025, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $133.8 million, compared to $119.3 million as of December 31, 2024, representing an increase in working capital of $14.6 million during the nine-month period ended September 30, 2025. The increase in working capital is mainly attributable to cash used for financing activities, which was burdened by $20.0 million cash outflow for the redemption of the Company’s preferred stock in March 2024.

Previous 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.

Current wording

Operating activities used net cash of $24.8 million during the nine months ended September 30, 2025, as compared to net cash used of $15.2 million in the prior year period. The increase in net cash used in operating activities year-over-year is primarily due to a lower net income in 2025. 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, 2025, these agreements required future aggregate minimum royalty guarantees of $79.7 million exclusive of $1.8 million in advances already paid. Of this $79.7 million future minimum royalty guarantee, $39.3 million is due over the next twelve months.

Previous 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.

Current wording

Investing activities used net cash of $9.7 million and $9.0 million for the nine months ended September 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 $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”).

Current wording

Financing activities used net cash of $12.8 million and $26.5 million for the nine months ended September 30, 2025 and 2024, respectively. The cash used in financing activities during the nine months ended September 30, 2025, consists primarily of $4.2 million used for the repurchase of our common stock for employee tax withholding and $8.4 million used to pay dividends. The cash used in financing activities during the nine months ended September 30, 2024, primarily consisted 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.

Previous wording

Availability under the revolving facility as of June 30, 2025, was $70.0 million. The facility provides the Company with flexibility to fund working capital, capital expenditures, acquisitions, and general corporate purposes.

Current wording

Availability under the revolving facility as of September 30, 2025, was $68.3 million. The facility provides the Company with flexibility to fund working capital, capital expenditures, acquisitions, and general corporate purposes.

Previous 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.

Current wording

As of September 30, 2025 and December 31, 2024, we held cash and cash equivalents, including restricted cash, of $27.8 million and $70.1 million, respectively. Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $18.7 million and $16.5 million as of September 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 was no preferred stock outstanding as of September 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

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.

Current wording

As of September 30, 2025, off-balance sheet arrangements include letters of credit issued by JPMorgan of $1.6 million, temporarily secured with cash as collateral, and letters of credit issued by BMO of $1.7 million.