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 nine months of 2025.

Current wording

Our critical accounting policies and estimates are included in the 2025 Annual Report on Form 10-K and did not materially change during the first three months of 2026.

Previous wording

*Toys/Consumer Products.*Net sales of our Toys/Consumer Products segment were $156.1 million for the three months ended September 30, 2025 compared to $264.3 million for the prior year period, representing a decrease of $108.2 million, or 40.9%. The decrease was driven by lower sales from both our North American and International businesses. Decreases were seen in all three of our divisions: Dolls, Role-Play/Dress-up was down 37.1% versus a year ago, Action Play & Collectibles division was down 46.4% and the Outdoor/Seasonal segment was down 42.1%.

Current wording

*Toys/Consumer Products.*Net sales of our Toys/Consumer Products segment were $100.1 million for the three months ended March 31, 2026 compared to $107.4 million for the prior year period, representing a decrease of $7.3 million, or 6.8%. The decrease was driven by lower sales from North American customers despite higher sales from our International regions. Dolls, Role-Play/Dress-up sales were down 32.4% versus a year ago due to lower sales related to the Moana 2 Movie product as well Disney Princess products. Net sales from the Action Play & Collectibles division were up 28.9% due to higher net sales from the Super Mario Movie 2 products.

Previous 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.

Current wording

Toys/Consumer Products. Cost of sales of our Toys/Consumer Products segment was $66.1 million, or 66.0% of related net sales for the three months ended March 31, 2026 compared to $69.2 million, or 64.4% of related net sales for the prior year period, representing a decrease of $3.1 million, or 4.5%. The increase as a percentage of net sales was due to a higher cost of product and tolling amortization compared with prior year.

Previous wording

Toys/Consumer Products. Cost of sales of our Toys/Consumer Products segment was $227.0 million, or 66.0% of related net sales for the nine months ended September 30, 2025 compared to $304.3 million, or 67.4% of related net sales for the prior year period, representing a decrease of $77.3 million, or 25.4%, in line with the decrease in net sales. The decrease as a percentage of net sales was due to changes in product mix as well as decreased inventory reserves.

Current wording

Costumes. Cost of sales of our Costumes segment was $5.0 million, or 75.8% of related net sales for the three months ended March 31, 2026, compared to $5.0 million, or 86.2% of related net sales for the prior year period. The decrease as a percentage of net sales was due to lower royalty expense.

Previous 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.

Current wording

Selling, general and administrative expenses were $41.2 million for the three months ended March 31, 2026 compared to $42.8 million for the prior year period constituting 38.6% and 37.7% of net sales, respectively. Selling, general and administrative expenses were slightly lower year over year, led by decreases in temp help and media spend.

Previous 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.

Current wording

Our income tax benefit, which includes federal, state and foreign income taxes and discrete items, was $0.8 million, or an effective tax rate of 16.6%, for the three months ended March 31, 2026. During the comparable period in 2025, our income tax benefit was $1.2 million, or an effective tax rate of 32.8%. The decrease in the effective tax rate is primarily attributable to a decrease in discrete tax benefits and an increase in pre-tax book loss for the current period.

Previous 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.

Current wording

As of March 31, 2026, we had working capital (inclusive of cash, cash equivalents and restricted cash) of $111.8 million, compared to $121.0 million as of December 31, 2025, representing a decrease in working capital of $9.2 million during the three-month period ended March 31, 2026. The decrease in working capital is mainly attributable to changes in receivables, inventory and payables, coupled with cash used in financing activities.

Previous 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.

Current wording

Operating activities provided net cash of $21.8 million during the three months ended March 31, 2026, as compared to net cash used of $1.7 million in the prior year period. The increase in net cash provided by operating activities year-over-year is primarily due to higher receivable collections, lower inventory purchases, less capital tied in prepaids and other assets, a lower cash out-flow for payables and a net refund of cash taxes paid in prior years. 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, 2026, these agreements required future aggregate minimum royalty guarantees of $193.4 million exclusive of $4.5 million in advances already paid. Of this $193.4 million future minimum royalty guarantee, $66.8 million is due over the next twelve months.

Previous 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.

Current wording

Investing activities used net cash of $5.8 million and $3.1 million for the three months ended March 31, 2026 and 2025, 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 $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.

Current wording

Financing activities used net cash of $4.3 million and $6.6 million for the three months ended March 31, 2026 and 2025, respectively. The cash used in financing activities during the three months ended March 31, 2026, mainly consists of $1.3 million used for the repurchase of our common stock for employee tax withholding and $2.9 million used to pay dividends. 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.

Previous 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.

Current wording

As of March 31, 2026 and December 31, 2025, we held cash and cash equivalents, including restricted cash, of $64.0 million and $54.1 million, respectively. Cash, and cash equivalents, including restricted cash held outside of the United States in various foreign subsidiaries totaled $20.0 million and $16.9 million as of March 31, 2026 and December 31, 2025, 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. 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 Revolving Facility (see Note 5 – Credit Facilities).

Current wording

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

Previous 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.

Current wording

As of March 31, 2026 off-balance sheet arrangements include letters of credit issued by JPMorgan of $0.9 million, temporarily secured with cash as collateral, and letters of credit issued by BMO of $1.7 million.