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2020
ANNUAL REPORT
SPI N M ASTE R C ORP.
Financial
Highlights
About Spin Master
Gross Product Sales1
Adjusted EBITDA1, 2
Spin Master Corp. (TSX:TOY) is a leading
global children’s entertainment company
creating exceptional play experiences
through a diverse portfolio of innovative
toys, entertainment franchises and digital
games. Spin Master is best known for award-
winning brands PAW Patrol®, Bakugan®,
Kinetic Sand®, Air Hogs®, Hatchimals®,
Rubik’s Cube® and GUND®, and is the toy
licensee for other popular properties.
Spin Master Entertainment creates and
produces compelling multiplatform content,
stories and endearing characters through
its in-house studio and partnerships with
outside creators, including the pre-school
success PAW Patrol and nine other original
shows along with multiple short-form series,
which are distributed in more than 190
countries. The Company has an established
digital presence anchored by the Toca Boca®
and Sago Mini® brands, which combined
have more than 40 million monthly active
users. With close to 2,000 employees in
28 offices globally, Spin Master distributes
products in more than 100 countries. For
more information visit spinmaster.com or
follow on Instagram, Facebook and Twitter
@spinmaster. Spin Master Corp. and its
subsidiaries are together referred to, in this
report, as the “Company” or “Spin Master.”
This Annual Report is intended to provide shareholders
and other interested persons with information concerning
Spin Master Corp. For further information concerning the
Company, shareholders and other interested persons should
consult the Company’s disclosure documents, such as its
most recent Annual Information Form and Management’s
Discussion and Analysis. Copies of the Company’s
continuous disclosure documents can be obtained from its
website at www.spinmaster.com or from www.sedar.com.
Readers should also review the note further in this report,
in the section entitled Forward-Looking Statements,
concerning the use of Forward-Looking Statements,
which applies to the entirety of this Annual Report.
All figures mentioned in this report are in U.S. dollars,
in millions, and as of December 31, 2020, unless
otherwise noted.
$1,708
$1,708
$1,657
$1,657
$1,708
$1,708
$1,691
$1,691
$1,691
$1,691
$1,624
$1,624
$1,624
$1,624
$1,657
$1,657
$1,255
$1,255
$1,255
$1,255
$304
$304
$292
$292
$304
$304
$292
$292
$206
$206
$206
$206
$219
$219
$219
$219
$181
$181
$181
$181
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
$232
$232
$232
$232
Adjusted Net Income1, 2
Free Cash Flow1
$173
$173
$173
$173
$164
$164
$164
$164
$120
$120
$120
$120
$93
$93
$93
$93
$53
$53
$53
$53
$210
$210
$210
$210
$110
$110
$110
$110
$32
$32
$32
$32
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
2016
2016
2017
2017
2018
2018
$5
$5
$5
$5
2019
2019
2020
2020
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
2016
2016
2017
2017
2018
2018
2019
2019
2020
2020
1. Gross Product Sales, Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are Non-IFRS
financial measures that do not have standard meaning prescribed by International Financial Reporting
Standards (“IFRS”). Refer to the “Non-IFRS Financial Measures” section further in this report for their
definition and their reconciliation with IFRS financial measures.
2. The Company adopted IFRS 16, effective January 1, 2019. The comparative information presented
for prior years has not been restated for the adoption of IFRS 16.
Growth Strategies
Letter to Shareholders
CSR at Spin Master
2020 Financial Review
1
2
6
8
Growth
Strategies
TOYS
DIGITAL GAMES
Continue to innovate
using our global internal
and external R&D network
• Leverage innovation capabilities
and global network to build a
robust pipeline
• Focus on strategic brand building
• Invest in advanced technology
and licenses
Increase sales in
international developing
and emerging markets
• Increase proportion of sales outside
of North America to 45% in the
medium term
ENTERTAINMENT
Develop evergreen global
entertainment properties
• Grow current franchises and
properties
• Launch one new property per year
• Strategically relaunch properties
to capitalize on value of owned
content library
• Grow revenue through content
distribution
• Maximize licensing and
merchandising revenue for owned
intellectual property
Establish leading
position in digital games
• Build evergreen digital games
properties
• Expand studio capability and
leverage owned intellectual property
to develop, nurture and
broaden offerings
• Drive organic growth
through internal design and
development capitalizing on
current and future trends
LEVERAGE GLOBAL
PLATFORM THROUGH
STRATEGIC ACQUISITIONS
• Fragmented toy industry with
opportunities for consolidation
• Acquire high-quality kid-focused
entertainment intellectual property
that can be developed into evergreen
entertainment properties
• Acquire digital games studios
to complement strategy to build
evergreen digital games properties
• Strong balance sheet with
financial flexibility
SPIN MASTER CORP. 2020 ANNUAL REPORT
| 1
Letter to
Shareholders
Fellow shareholders,
2020 saw us adapt to a shifting and evolving landscape, focused on driving
operational improvements globally, while also navigating through the complexities
of a global pandemic. At the outset of the year, we committed to resolving the
operational challenges we faced in 2019. We are pleased to say that we achieved
our goal through significantly improved focus and execution in every function
across Spin Master globally. We set ambitious objectives and we followed through
with meaningful results to return stability to our supply chain and strengthen
the platform for growth.
We’re extremely proud of how our team rallied
to adjust to the various waves of the pandemic.
From mobilizing to meet fluid production timelines,
to resolving supply chain issues and to driving
continued innovation in product development,
our team rose to the challenge. Our commitment
to collaboration and partnerships has shone
during a time where many of our team members
were working remotely. Together, we’ve been able
to provide magical moments and imaginative
experiences through our toys, entertainment and
digital games for kids around the world, at a time
when connecting with family has never been
more important.
The circumstances surrounding the pandemic have
triggered consumer behaviour shifts, some of which
will be long lasting. The shift to ecommerce, as
consumer shopping habits evolved towards online
shopping, had an impact on our business. In those
markets where we sell directly, we recorded over
30% of our sales through ecommerce channels.
The acceleration of digital adoption across the
board from shopping preferences to consumption
habits required us to remain agile and flexible to
best serve customers and consumers wherever
they shopped.
Our performance this year reflects our commitment
to, and the power of, a diversified portfolio of
brands, entertainment franchises and digital games.
We reported Gross Product Sales1 of $1.62 billion
and total revenue of $1.57 billion. We continued to
significantly strengthen our balance sheet, exiting
2020 with the strongest net cash position in our
history of just over $320 million, after generating
over $232 million in Free Cash Flow1 resulting from a
significant reduction in our net working capital.
We remediated the operational issues we
experienced in Q4 2019 and ended 2020 with
strong operational momentum. We used the
remediation process as an opportunity to build a
continuous improvement mindset, which is now
embedded in our organization globally. We will
continue to improve our systems and processes
in 2021. Our solid financial position, together with
the achievement of our operational improvement
initiatives, sets a very solid foundation for growth
for 2021 and beyond.
1. Gross Product Sales, Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are Non-IFRS financial measures that do not have standard meaning prescribed by International
Financial Reporting Standards (“IFRS”). Refer to the “Non-IFRS Financial Measures” section further in this report for their definition and their reconciliation with IFRS financial measures.
SPIN MASTER CORP. 2020 ANNUAL REPORT
| 2
Letter to Shareholders
“Founded over 26 years ago, Spin Master has grown from a single,
item-driven business to a leading global children’s entertainment company.
With a clear vision for the future, an exceptional leadership team in place,
a solid global operating platform and three thriving creative centres
encompassing toys, entertainment and digital games leveraged to deliver
the most imaginative experiences for kids and families around the world,
we are poised for the next stage of our growth.
Growth strategies
During 2020, we advanced key initiatives
within our growth strategies:
• Innovate using our global internal and
external research and development
network
• Increase international sales in
developed and emerging markets
• Develop evergreen global entertainment
franchises and establish a leading
position in digital games
• Leverage the Company’s global
platform through strategic acquisitions
These strategies continue to drive our
long-term growth and we are intensely
focused on our efforts to continue to
progress in each.
Innovation
TOYS
At its core, Spin Master values open-
mindedness, innovation, collaboration and
partnership; values that are reflected in
the development of our toys and products.
Building on our deep understanding of
play, our Internal Advanced Concepts Team
of inventors, designers and engineers,
in collaboration with a powerful, global
network of external inventors, review
thousands of product ideas annually to
unearth new ideas and develop imaginative
toys and games. While we are best known
for our own award-winning brands such
as PAW Patrol®, Bakugan®, Kinetic Sand®,
Air Hogs®, Hatchimals® and GUND®, we are
also constantly inventing and bringing new,
innovative toys to the market.
In 2020, we again demonstrated our
ability to break through with new items
with many of our toys landing on retailer
top-toy lists globally, and receiving
numerous toy industry accolades. In
North America, we received eight top-
selling toy awards including the Kinetic
Sand® brand Sandisfying Set™, which
was the top-selling toy in the Arts &
Crafts super category and the PAW
Patrol Dino Patroller™ vehicle, which
won the Preschool Toy of the Year Award
from The Toy Association. In Europe,
we received three top-selling NPD toy
awards and in Canada we received two.
The sustainability of our innovation
is achieved, in part, from our rolling
36-month brand innovation pipeline,
which we regularly review to identify
opportunities to commercialize innovation,
capitalize on growing trends, fill gaps
in our product categories, meet growth
targets and diversify our product offering.
Our continued focus on innovation
and diversification within our portfolio
of brands and products across all
11 categories of the toy industry was
evident in 2020. Our global point of sale
(POS) purchases increased 9%, in line with
the industry’s 10%. Global POS, excluding
the U.S., increased 9% compared to 4% for
the industry. This highlights the strength
of our international platform and the
strong results we achieved of more than
double the industry’s growth. Most of our
international growth came from Europe,
where we performed very strongly.
We continue to attract highly sought-
after toy licenses. In 2020, we introduced
new products within our current toy
lines, including the Monster Jam® and
DC Comics Batman® franchises. We also
announced several new toy licensing
SPIN MASTER CORP. 2020 ANNUAL REPORT
SPIN MASTER CORP. 2020 ANNUAL REPORT
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| 3
agreements, including the Warner Bros.
Consumer Products’ Wizarding World™,
FELD Entertainment Inc.’s Supercross™
and Riot Games’ League of Legends®
franchises, all of which have products
scheduled to launch in Fall 2021. Being
entrusted with these leading global
franchises gives us the opportunity to
develop innovative toys for kids and
fans everywhere.
ENTERTAINMENT
For the past few years, we observed the
changing consumer content consumption
patterns and have mobilized an established
multiplatform approach to content
production within our entertainment
creative centre to stay ahead of the curve.
Telling stories and creating engaging
and endearing characters that resonate
with kids around the world is important
to us regardless of what screen they are
watching. Our commitment to storytelling
is working. PAW Patrol, currently in its
eighth season, continues to be the number
one pre-school show. Fans around the
globe responded with excitement as we
announced Spin Master’s feature film
debut with PAW Patrol: The Movie™. The
animated feature film, including a cast
of star-studded voice and music talent,
is scheduled to debut August 2021, in
association with Nickelodeon Movies and
distributed by Paramount Pictures.
We also launched our first-ever straight-
to-streaming series with the Netflix original
Mighty Express™. Mighty Express is built on
an evergreen and timeless foundation with
a contemporary approach, which infuses
the show with action, humour and a
cast of characters that are diverse in
Letter to Shareholders
personality, experience and appearance.
We’ve taken a multifaceted approach to
the content creation for Mighty Express
that includes a YouTube destination with
short-form content, music videos and
character bios as well as a mobile app
to further engage kids where they are.
Spin Master has retained the rights to the
distribution of the series outside of SVOD,
including licensing of consumer products
and a toy line set to launch soon.
While we currently have 10 original shows
and multiple short-form series airing or
streaming in more than 190 countries
in 30 languages, the development team
within the entertainment creative centre
is constantly searching for fresh stories
and ideas that will captivate children and
families alike. While the PAW Patrol movie
is our first feature film, we have other
film concepts in development and are
currently developing our original series
slate well into 2023.
DIGITAL GAMES
Mobile device gaming is the fastest
growing segment of the video game
industry, and 67% of all games are now
played on mobile devices, with 94% of
all kids aged 2-12 playing digital games
on mobile devices. Playing digital games
has become an integral part of children’s
lives and this trend only further intensified
during the pandemic, with children finding
solace in digital games, using virtual
worlds to meet up with friends and “hang
out” virtually.
We are focused on delivering “play as a
service,” brought to life through our leading
digital brands, Toca Boca® and Sago Mini®.
We put kids first by creating expansive
and open-ended digital playgrounds while
also providing a safe and secure place
for them to explore, learn and express
themselves. This past year our digital
games revenue nearly tripled, driven by
significant growth in the Toca Life World™
platform. Monthly active users (MAU) for
Toca Boca digital games climbed to more
than 40 million. Sago Mini digital games
had over 242,000 subscribers at the end of
2020, up from 119,000 at the end of 2019.
In addition to growing our base of
users in 2020, we were also focused
on launching new products. Launches
in 2020 included Sago Mini School™, a
subscription-based learning app geared
to kids aged 3-5, which provides parents
with an educational and engaging tool.
The go-live in April was well-timed given
many parents have had to perform double
duty as both educator and parent during
the pandemic. In 2020, we launched Sago
Mini subscription boxes, monthly make-
and-play kits that bring quality, creative
play right to consumers’ doors.
We’re developing the Toca Boca and Sago
Mini brands into cross-category franchises
that have a strong presence in both the
physical and digital worlds. Leveraging
the deep connection kids have with these
popular characters, we’re bringing them
from the digital world to real life. Our teams
at Toca Boca are currently developing its
first multiplayer game, Toca Days™, which
is expected to go-live during Q4 2021. In
2021, building on the success of the Sago
Mini subscription boxes, we will introduce
Toca Life Boxes™, celebrating the power of
play with creative, do-it-yourself activities
full of fun and silliness.
International expansion
Despite the challenges posed
internationally due to the rolling retail
closures, we kept pace with toy industry
gains internationally. In 2020, our Gross
Product Sales1 in international markets
remained consistent year over year,
representing approximately 39% of Gross
Product Sales.1 We believe our international
platform remains under-leveraged and
provides us with a very meaningful
growth opportunity in the future. We are
making solid progress toward our goal
of increasing our Gross Product Sales1 in
international markets to 45% of our Gross
Product Sales.1
We continue to invest in converting
specific markets to direct distribution
where it provides a competitive advantage
and stronger sales potential. In 2020, we
moved to a direct distribution model in
Turkey and we plan to selectively convert
further third-party distributor markets
to direct sales where it makes sense
strategically for us to do so.
Acquisitions
While Spin Master has grown its business
organically on many fronts, we’ve also
built an aggressive acquisition strategy
to further diversify our product offerings.
With 22 acquisitions completed, we’ve
demonstrated an ability to successfully
identify, integrate and grow businesses
through acquisition. More importantly, we
have become a trusted steward to legacy
brands, and, in turn, these acquisitions
have enhanced our overall growth
and profitability.
Our financial flexibility, made possible by
our strong balance sheet and free cash
flow generation, positions Spin Master
to continue to supplement organic
growth with strategic acquisitions.
In October 2020, we announced our
intention to acquire Rubik’s Brand Limited,
owner of the iconic Rubik’s Cube™, and
subsequently closed the transaction
in January 2021. We are excited for the
opportunity to put our innovation on
the entire Rubik’s portfolio and expand
distribution through our global footprint.
The acquisition of Rubik’s Cube further
strengthens our presence in the Games &
Puzzles category and gives us a platform
for further innovation and global leverage.
We’ve been expanding our leading position
within this category through acquisitions
of new titles and innovative partnerships
and collaborations for some time. The
Games & Puzzles category was one of the
fastest growing super categories in 2020,
with families spending more quality time
at home with their loved ones.
We’re always on the lookout for accretive
M&A opportunities that complement our
organic growth strategy, and we continue
to apply a disciplined approach to assessing
1. Gross Product Sales, Adjusted EBITDA, Adjusted Net Income and Free Cash Flow are Non-IFRS financial measures that do not have standard meaning prescribed by International Financial
Reporting Standards (“IFRS”). Refer to the “Non-IFRS Financial Measures” section further in this report for their definition and their reconciliation with IFRS financial measures.
SPIN MASTER CORP. 2020 ANNUAL REPORT
| 4
Letter to Shareholders
all opportunities. We’re increasingly
focused on the entertainment and digital
games areas for M&A opportunities. Given
our growth in the digital games creative
centre, our potential M&A universe has
expanded dramatically.
Corporate social responsibility
Spin Master brings kids and families
together through the timeless magic of
play. As we continue to grow our business,
we seek to be an inclusive employer,
enhance the communities in which we
operate and minimize our environmental
impacts. Our CSR strategy is grounded in
four key areas: our people, our community,
our environment and our products.
This past year, we accelerated and
adapted our CSR programs in response
to the pandemic, putting efforts behind
immediate needs, while also laying
the foundation for the future. First and
foremost, we introduced supplemental
programs to support our team during
this challenging time. We also responded
to the early need for personal protective
equipment for front-line health workers,
producing and donating more than
450,000 face shields, made from our
Hedbanz™ game, to hospitals, shelters
and long-term care facilities. Finally,
recognizing the need for imagination and
inspiration has never been greater, we
increased the number of in-kind donations
for children, distributing more than
460,000 toys globally. We also progressed
against our environmental targets by
participating in carbon emissions offsets.
In 2020, we funded two projects through
Carbonfund, offsetting 10,000 metric
tonnes of carbon. Our goal in 2021 is to
offset 100% of our self-generated carbon.
More details regarding our CSR
commitments and progress in 2020 can
be found in our annual CSR report.
Looking ahead
At the end of 2020, we appointed
Max Rangel as Spin Master’s new Global
President, and he will assume the position
of CEO in April 2021. Max is a seasoned
executive who has successfully led global
exceptional leadership team in place, a
solid operating platform and three thriving
creative centres encompassing toys,
entertainment and digital games, we are
poised for the next stage of our growth.
We continue to believe in our long-term
financial framework and that at its core, our
formula for innovation and growth across
toys, entertainment and digital games is
stronger than ever.
On behalf of the Board of Directors
and management, we want to thank
our talented team members for their
incredible efforts in 2020 and to thank you
for your continued support of Spin Master.
Anton Rabie
Director and Co-CEO
Ronnen Harary
Chair and Co-CEO
Charles Winograd
Lead Director
businesses generating growth across
multiple consumer packaged goods
categories. He is an effective people
leader with a well-established ability to
unlock the potential of teams to boost
organizational capability. From April, we,
as co-founders, will continue to drive
the long-term vision and strategy for
Spin Master in our roles on the Board
of Directors. We will also continue to be
actively involved in areas of the business
we are passionate about, including
external partnerships and M&A. Ronnen
will maintain involvement in the creative
process for entertainment and oversight
of the digital games creative centres
and Anton will provide guidance on
Spin Master’s talent and culture globally.
As we look to the balance of 2021, our
team is fully aligned and we remain
deeply committed to disciplined cost
management, operational efficiency
and productivity gains, as we set the
foundation for a return to further growth
and margin improvement. We will capitalize
on the momentum we developed in 2020,
leveraging the significant improvements
in our operations to propel us forward. We
will continue making investments to drive
long-term operational excellence while we
continue to seek operating leverage. We
are confident in our strategy and
have aligned our leadership
structure to accelerate our
growth. With a clear vision
for the future, an
SPIN MASTER CORP. 2020 ANNUAL REPORT
SPIN MASTER CORP. 2020 ANNUAL REPORT
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CSR at
Spin Master
CSR Vision
Spin Master brings
kids and families
together through
the timeless magic
of play. We seek
to be an inclusive
employer, enhance
the communities
we operate in
and minimize our
environmental
impacts.
274M
Toys and games
produced in 2020.
These are a few highlights from our 2020 Corporate Social Responsibility Report.
To learn more about our CSR commitments and progress, visit our website for the
full report. www.spinmaster.com/en-US/corporate/corporate-social-responsibility
SPIN MASTER CORP. 2020 ANNUAL REPORT
| 6
Our Products
As a leading global children’s
entertainment company, we
operate in a highly regulated
industry and are committed
to the highest product quality
and safety.
99%
of manufacturing
facilities underwent
an Ethical Toy
Program audit in
2020.
Zero
Recalls
The Company has not had
any consumer recalls in over
a decade.
Our People
Our people are our key
differentiator. We are committed to
their development and well-being
and to fostering our unique and
inclusive culture.
Our Community
Giving back is an integral part of
our culture. Through philanthropic
giving, volunteering and toy
donations, we help enrich the lives
of children and families.
Our Environment
We recognize the need to act in
support of the environment and to
minimize the impact of our operations,
for children and families today and
generations to come.
462,294
Toys donated globally in 2020.
451,000
Face shields produced
and donated to hospitals,
shelters and long-term
care facilities.
58%
Reduced the number of
recordable health and safety
incidents in our facilities by 58%.
85%
of respondents in our 2020
engagement survey indicated
they are proud to work at
Spin Master.
41%
Women represent 41% of senior
management within the Company
(director level and above).
150
Spin Master employees joined our
Earth Buddy Teams to implement
sustainability action items in creative
ways and lead regional initiatives
both in the office and at home.
10,000
Metric Tonnes
We offset 10,000 metric tonnes
of carbon in 2020. Our goal is to
offset 100% of self-generated
carbon in 2021.
50%
Planned reduction in plastic
in packaging by 2025.
SPIN MASTER CORP. 2020 ANNUAL REPORT
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2020
Financial
Review
Management’s Discussion and
Analysis of Financial Results
Independent Auditor’s Report
Consolidated Statements
of Financial Position
Consolidated Statements
of Earnings and
Comprehensive Income
Consolidated Statements of
Changes in Shareholders’ Equity
Consolidated Statements
of Cash Flows
Notes to the Consolidated
Financial Statements
SPIN MASTER CORP. 2020 ANNUAL REPORT
| 8
SPIN MASTER CORP.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL RESULTS
For the three months and year ended December 31, 2020
March 1, 2021
INTRODUCTION
The following Management’s Discussion and Analysis (“MD&A”) for Spin Master Corp. (“Spin Master” or the
“Company”) is dated March 1, 2021 and provides information concerning the Company’s financial condition,
financial performance and cash flows for the year ended December 31, 2020 and the three months ended
December 31, 2020, (“fourth quarter”, “the quarter”, “Q4”). This MD&A should be read in conjunction with the
Company’s audited consolidated financial statements and accompanying notes (“financial statements”) for the
year ended December 31, 2020 and its Annual Information Form ("AIF"). Additional information relating to the
Company can be found under the Company's profile on SEDAR at www.sedar.com.
Some of the information contained in this MD&A contains forward‑looking statements that are based on
assumptions and involve risks and uncertainties. See the “Forward‑Looking Statements”, “Financial Risk
Management” and “Risks Relating to Spin Master’s Business” sections of this MD&A for a discussion of the
uncertainties, risks and assumptions associated with those statements. Actual results may differ materially from
those discussed in the forward‑looking statements as a result of various factors, including those described in
the “Risks Relating to Spin Master’s Business” section and elsewhere in this MD&A.
BASIS OF PRESENTATION
The financial statements of the Company have been prepared in accordance with International Financial
Reporting Standards (“IFRS”). However, certain financial measures contained in this MD&A are non-IFRS
measures and are discussed further in the “Non-IFRS Financial Measures” section of this MD&A. Effective
December 31, 2019, all financial information is presented in millions of United States dollars ("$", "dollars" and
"US$") and has been rounded to the nearest hundred thousand, except per share amounts and where
otherwise indicated. Certain totals, subtotals and percentages throughout this MD&A may not reconcile due to
rounding. The impact of these rounding adjustments do not have a material effect on the Company's MD&A.
BUSINESS OVERVIEW
Spin Master is a leading global children’s entertainment company creating exceptional play experiences
through a diverse portfolio of innovative toys, entertainment franchises and digital games. Spin Master is best
known for award-winning brands PAW Patrol, Bakugan, Kinetic Sand, Air Hogs, Hatchimals, Rubik's Cube and
GUND and is the toy licensee for other popular properties. Spin Master's entertainment team creates and
produces compelling multiplatform content, stories and endearing characters through its in-house studio and
partnerships with outside creators, including the pre-school success PAW Patrol and 9 other original shows
along with multiple short-form series, which are distributed in more than 190 countries. The Company has an
established digital games presence, anchored by the Toca Boca and Sago Mini brands, which combined have
more than 40 million monthly active users. With close to 2,000 employees in 28 offices globally, Spin Master
distributes products in more than 100 countries.
Spin Master’s principal strategies to drive the Company's continued growth include:
• Innovate using our global internal and external research and development network;
• Developing evergreen global entertainment franchises and digital games;
• Increasing international sales in developed and emerging markets; and
• Leveraging the Company's global platform through strategic acquisitions.
Spin Master's organic growth strategy is centered around the Company's 36-month brand innovation pipeline.
This pipeline is fed by internal innovation and multiple touch points with inventors, licensors, consumers and
1
potential acquisitions, traditional and innovative entertainment contact and digital toys. These touch points
strengthen consumers' attachments to Spin Master's brands and franchises and are the engine of long-term
growth.
Spin Master continues to expand into content for traditional television, video-on-demand, subscription video-on-
demand, in addition to other short-form and long-form content, including movies, across a variety of distribution
channels. In addition, the Company will continue its focus on direct-to-consumer initiatives as consumer
purchasing trends in the retail landscape evolve.
Spin Master’s business comprises three geographic segments: North America, comprised of the United States
("U.S.") and Canada; Europe, comprised of the United Kingdom, France, Italy, the Netherlands, Germany,
Austria, Switzerland, Belgium, Luxembourg, Slovakia, Hungary, Romania, Czech Republic, Poland, Turkey,
Russia and Greece; and the Rest of World, primarily comprised of Hong Kong, China, Vietnam, India, Australia,
New Zealand, Japan and Mexico and all other areas of the world serviced by Spin Master’s third party
distribution network. The Company remains focused on its long-term goal of more than 45% of sales outside of
the North America segment.
Spin Master’s diversified portfolio of toys, games and products is organized into five product categories:
(1) Activities, Games & Puzzles and Plush; (2) Boys Action and Construction; (3) Outdoor; (4) Pre-School
and Girls and (5) Remote Control and Interactive Characters. Effective January 1, 2021, Spin Master has
simplified its product categories to align with the Company's product offerings going forward (see Addendum for
additional information).
Seasonality factors cause the Company's operating results to fluctuate significantly from quarter to quarter. A
majority of the Company’s annual sales occur during the third and fourth quarters of the Company’s fiscal year
with a significant portion of its net income earned and cash flows generated during the same period.
COVID-19 PANDEMIC UPDATE
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. The
crisis related to COVID-19 is unprecedented and has had an impact on the Company's employees, customers
and suppliers.
Supply Chain
When COVID-19 first emerged early in the first quarter of 2020, it directly affected Spin Master’s third party
manufacturing capacity in China, which comprises between 60% to 65% of the Company's manufacturing
capacity, in addition to third party manufacturing in Vietnam, Mexico and India. Capacity progressively improved
through the first quarter such that by the end of the quarter it had largely returned to normal levels. Following
the first quarter, Spin Master did not experience any material disruption to its manufacturing as a result of
COVID-19.
The Company continues to closely monitor the changing global environment to enable immediate actions to be
taken to ensure customer order fulfillment is achieved across the various markets.
Demand
The pandemic spread to customer markets globally late in the first quarter of 2020 and continued through the
rest of the year. Due to government-imposed restrictions and the closure of many retail locations during certain
parts of the year, the pandemic resulted in significant reductions in retail consumer traffic in most countries
globally, including some of Spin Master’s largest markets. This put additional pressure on the Company's
business, driving disruption in customer behaviour and consumer demand. Although many retail locations re-
opened globally during the third quarter with the exception of some small specialty stores mainly in North
America, they were forced to close again during the fourth quarter. As a result, retail consumer traffic continues
to be impacted in markets with government-imposed restrictions. Online and e-commerce channels continue to
remain active in most countries.
2
Liquidity
During the first quarter of 2020, as a precautionary measure and to increase available cash on hand, the
Company drew $350.0 million from the $510.0 million available on its secured revolving credit facility ("Credit
Facility"). The Company repaid $50.0 million and $300.0 million on its Credit Facility in the second and third
quarters of 2020, respectively. As at December 31, 2020, the Company had unutilized liquidity of $838.0 million,
comprised of $320.6 million in cash and $517.4 million unutilized under its credit facilities. The Company
believes it has sufficient liquidity to meet its operational requirements.
Selected Financial Information
The following provides selected historical information and other data of the Company which should be read in
conjunction with the financial statements of the Company.
Key Performance Metrics
(US$ millions, except per share information)
Sales and Earnings
Gross Product Sales1
Net Sales1
Entertainment and Licensing revenue
Digital games revenue
Total revenue
Net income
Adjusted Net Income1
EBITDA1
Adjusted EBITDA1
Adjusted EBITDA Margin1
Earnings Per Share ("EPS")
Basic EPS
Diluted EPS
Adjusted Basic EPS1
Adjusted Diluted EPS1
Balance Sheet and Cash Flow Data
Cash
Total assets
Total liabilities
Cash provided by operating activities
Cash (used in) provided by investing activities
Cash (used in) provided by financing activities
Free Cash Flow1
Notes:
1) See "Non-IFRS Financial Measures".
Year Ended Dec 31
2020
2019
20182
1,623.7
1,415.6
78.2
76.8
1,691.2
1,463.7
91.7
26.2
1,708.0
1,509.6
98.3
23.6
1,570.6
1,581.6
1,631.5
45.5
53.4
124.5
180.6
64.3
92.8
181.3
219.0
154.9
163.5
292.0
303.6
11.5 %
13.8 %
18.6 %
0.45
0.44
0.52
0.51
320.6
1,342.1
499.2
310.8
(84.9)
(16.3)
232.1
0.63
0.62
0.91
0.90
115.3
1,256.4
496.0
98.4
(116.2)
(13.7)
4.7
1.52
1.51
1.61
1.60
143.5
999.2
336.7
192.9
(159.5)
0.2
110.4
2) The Company adopted International Financial Reporting Standard 16 Leases ("IFRS 16"), effective January 1, 2019. The Company implemented the standard using the
modified retrospective approach. The comparative information presented for 2018 has not been restated for the adoption of IFRS 16. On a pro forma basis, the impact of IFRS
16 on Adjusted EBITDA for 2018 would be an increase of $11.3 million.
3
(all amounts in US$ millions, except percentages)
Earnings Results
Gross Product Sales1 by Product Category
Activities, Games & Puzzles and Plush
Pre-School and Girls
Boys Action and Construction
Remote Control and Interactive Characters
Outdoor
Gross Product Sales1
Sales Allowances1
Net Sales1
Entertainment and Licensing revenue
Digital games revenue
Other revenue
Total revenue
Cost of sales
Gross profit
Gross margin
Selling, marketing, distribution and product development
Administrative expenses
Depreciation and amortization expenses
Other expenses (income)
Foreign exchange loss (gain)
Finance costs
Income before income tax (recovery) expense
Income tax (recovery) expense
Net income
Note:
1) See "Non-IFRS Financial Measures".
Year Ended Dec 31
2020
2019
20182
511.2
467.2
352.1
202.1
91.1
1,623.7
(208.1)
1,415.6
78.2
76.8
155.0
1,570.6
842.7
727.9
457.7
516.2
331.4
299.3
86.6
1,691.2
(227.5)
1,463.7
91.7
26.2
117.9
1,581.6
796.6
785.0
455.5
517.5
133.1
505.4
96.5
1,708.0
(198.4)
1,509.6
98.3
23.6
121.9
1,631.5
812.7
818.8
46.3 %
49.6 %
50.2 %
367.8
264.6
37.7
8.7
27.6
12.1
9.4
(36.1)
45.5
395.4
247.9
32.6
6.6
5.8
11.7
85.0
20.7
64.3
331.9
278.4
14.7
(14.7)
(9.3)
9.4
208.4
53.5
154.9
2) The Company adopted IFRS 16, effective January 1, 2019. The Company implemented the standard using the modified retrospective approach. The comparative
information presented for 2018 has not been restated for the adoption of IFRS 16.
The Company experienced a year-over-year decline in Gross Product Sales1 as a result of the government-
imposed restrictions and the closure of many retail locations that resulted in significant reductions in retail
consumer traffic in most countries globally, including some of Spin Master’s largest markets. Despite this
disruption in customer behaviour and consumer demand, the Company has experienced significant growth in
its digital games revenue, up over 193% from prior year. In addition, the Company has made significant
progress on its ongoing operational improvement initiatives, exceeding its goal of reducing the number of its
North American warehouses earlier than expected in 2020 in order to refine its supply chain infrastructure.
Total revenue of $1,570.6 million decreased by 0.7% from $1,581.6 million in 2019. In Constant Currency1
terms, total revenue decreased by 1.0%. The decline in revenue was primarily driven by lower Gross Product
Sales1, offset in part by an increase in digital games revenue and lower Sales Allowances1.
Net income for the year ended December 31, 2020 was $45.5 million, a decrease of $18.8 million or 29.2%
from $64.3 million in 2019. Excluding share-based compensation, restructuring expenses, foreign exchange
loss, legal settlement, acquisition related contingent consideration and other non-recurring items, Adjusted Net
Income1 for the year ended December 31, 2020 was $53.4 million, a decrease of $39.4 million or 42.5% from
$92.8 million in 2019.
Adjusted EBITDA1 decreased to $180.6 million or 11.5% of revenue, compared to $219.0 million or 13.8% in
2019, primarily driven by lower gross profit and higher administrative expenses, partially offset by lower
marketing and distribution expenses.
4
Gross Product Sales1 have decreased from $1,708.0 million in 2018 to $1,623.7 million in 2020. Over the same
period, total revenue has decreased from $1,631.5 million to $1,570.6 million. However, over the past 10 years,
the Company’s Gross Product Sales1 have grown at a 5.9% compound annual growth rate.
FINANCIAL PERFORMANCE
For the three months and year ended December 31, 2020 compared to the three months and year ended
December 31, 2019:
Consolidated Results
The following tables provide a summary of Spin Master’s consolidated results for the three months and year
ended December 31, 2020 and 2019:
(US$ millions)
Total revenue
Cost of sales
Gross profit
Selling, marketing, distribution and product
development
Administrative expenses
Depreciation and amortization expenses
Other expenses
Foreign exchange loss (gain)
Finance costs
Loss before income tax recovery
Income tax recovery
Net income (loss)
Three Months Ended Dec 31
2020
2019
$ Change
% Change
490.6
249.6
241.0
135.1
76.7
10.0
9.7
10.5
3.4
(4.4)
(4.7)
0.3
473.5
247.4
226.1
164.8
66.6
8.8
7.5
(0.1)
3.2
(24.7)
(7.5)
(17.2)
17.1
2.2
14.9
(29.7)
10.1
1.2
2.2
10.6
0.2
20.3
2.8
17.5
3.6 %
0.9 %
6.6 %
(18.0) %
15.2 %
13.6 %
29.3 %
n.m.
6.3 %
(82.2) %
(37.3) %
(101.7) %
Highlights for the three months ended December 31, 2020 as compared to the same period in 2019:
(US$ millions, except per share information)
•
Total revenue of $490.6 million increased by 3.6% from $473.5 million. In Constant Currency1
terms, total revenue increased by 2.4%. Contributing to this increase was higher digital games
revenue of $31.8 million, which increased by $25.5 million or 404.8% from $6.3 million.
•
•
•
• Gross profit as a percentage of total revenue increased to 49.1% from 47.8%.
•
Selling, marketing, distribution and product development expenses decreased to $135.1 million or
27.5% of total revenue from $164.8 million or 34.8%.
Administrative expenses increased to $76.7 million or 15.6% of total revenue from $66.6 million or
14.1%.
Net income was $0.3 million or earnings per share of nil compared to net loss of $17.2 million or
loss per share of $0.17.
Adjusted Net Income1 was $14.6 million or Adjusted Diluted EPS1 of $0.14 compared to Adjusted
Net Loss1 of $7.8 million or Adjusted Basic EPS1 of $(0.08).
Adjusted EBITDA1 increased to $51.5 million or 10.5% of total revenue from $6.7 million or 1.4%.
Cash provided by operating activities were $138.2 million compared to $10.8 million.
Free Cash Flow1 was $123.7 million compared to negative $19.3 million.
•
•
•
• On October 27, 2020, the Company announced it reached an agreement to acquire control of
Rubik's Brand Limited ("Rubik's") through the acquisition of 100% of the shares of its holding
company, Rubiks Malta Holding Company Limited. The transaction closed on January 4, 2021 for
a preliminary estimate of purchase consideration of $56.4 million. Gross Product Sales1 related to
Rubik's will be included in the Activities, Games & Puzzles and Plush product category.
5
(US$ millions)
Total revenue
Cost of sales
Gross profit
Selling, marketing, distribution and product
development
Administrative expenses
Depreciation and amortization expenses
Other expenses
Foreign exchange loss
Finance costs
Income before income tax (recovery) expense
Income tax (recovery) expense
Net income
Year Ended Dec 31
2020
2019
$ Change
% Change
1,570.6
1,581.6
842.7
727.9
367.8
264.6
37.7
8.7
27.6
12.1
9.4
(36.1)
45.5
796.6
785.0
395.4
247.9
32.6
6.6
5.8
11.7
85.0
20.7
64.3
(11.0)
46.1
(57.1)
(27.6)
16.7
5.1
2.1
21.8
0.4
(75.6)
(56.8)
(18.8)
(0.7) %
5.8 %
(7.3) %
(7.0) %
6.7 %
15.6 %
31.8 %
375.9 %
3.4 %
(88.9) %
(274.4) %
(29.2) %
Highlights for the year ended December 31, 2020 as compared to the same period in 2019:
(US$ millions, except per share information)
•
Total revenue of $1,570.6 million decreased by 0.7% from $1,581.6 million. In Constant Currency1
terms, total revenue decreased by 1.0%. Partially offsetting this decline was higher digital games
revenue of $76.8 million, which increased by $50.6 million or 193.1% from $26.2 million.
•
•
•
•
•
•
•
•
• Gross profit as a percentage of total revenue decreased to 46.3% from 49.6%.
•
Selling, marketing, distribution and product development expenses decreased to $367.8 million or
23.4% of total revenue from $395.4 million or 25.0%.
Administrative expenses increased by $16.7 million to $264.6 million from $247.9 million. As a
percentage of total revenue, administrative expenses increased to 16.8% from 15.7%.
In the first quarter of 2020, an internal transfer of intellectual property resulted in a one-time
income tax recovery of $33.3 million.
Net income was $45.5 million or earnings per share of $0.44 (diluted) compared to $64.3 million or
$0.62 (diluted).
Adjusted Net Income1 was $53.4 million or Adjusted Diluted EPS1 of $0.51 compared to $92.8
million or $0.90.
Adjusted EBITDA1 decreased to $180.6 million or 11.5% of total revenue, compared to $219.0
million or 13.8%.
Cash provided by operating activities were $310.8 million compared to $98.4 million.
Free Cash Flow1 was $232.1 million compared to $4.7 million.
In the first quarter of 2020, the Company borrowed $350.0 million on its Credit Facility and
subsequently repaid $50.0 million and $300.0 million in the second and third quarters of 2020,
respectively. As at December 31, 2020, the Credit Facility was undrawn while the Company had an
ending cash balance of $320.6 million.
Acquisition of Rubik's Brand Limited
On January 4, 2021, the Company acquired control of Rubik's Brand Limited through the acquisition of 100% of
the shares of its holding company, Rubiks Malta Holding Company Limited. The brand will be reported in the
Activities, Games & Puzzles and Plush product category beginning from the date of acquisition.
The preliminary estimate of purchase consideration of $56.4 million is comprised of $50.0 million of cash
consideration plus an estimated $6.4 million related to closing values for net working capital and fair value of
future royalties. Given the timing of the transaction and measurement uncertainty with final purchase
agreement consideration adjustments, the purchase price allocation is not yet final. The purchase price
allocation will be disclosed in the Company's first quarter 2021 condensed consolidated interim financial
statements.
There were $0.9 million in transaction related costs included in administrative expenses in the consolidated
statement of earnings and comprehensive income for the year ended December 31, 2020.
6
Revenue
For the three months ended December 31, 2020 as compared to the same period in 2019:
The following table provides a summary of Spin Master’s revenue by product category for the three months
ended December 31, 2020 and 2019:
(US$ millions)
2020
2019
$ Change
% Change
Three Months Ended Dec 31
Activities, Games & Puzzles and Plush
Pre-School and Girls
Boys Action and Construction
Remote Control and Interactive Characters
Outdoor
Gross Product Sales1
Sales Allowances1
Net Sales1
Entertainment and Licensing revenue
Digital games revenue
Other revenue
Total revenue
1) See "Non-IFRS Financial Measures".
165.1
154.0
116.9
60.1
15.7
511.8
(77.5)
434.3
24.5
31.8
56.3
490.6
162.1
152.4
114.8
106.5
14.9
550.7
(109.1)
441.6
25.6
6.3
31.9
473.5
3.0
1.6
2.1
(46.4)
0.8
(38.9)
31.6
(7.3)
(1.1)
25.5
24.4
17.1
1.9 %
1.0 %
1.8 %
(43.6) %
5.4 %
(7.1) %
(29.0) %
(1.7) %
(4.3) %
404.8 %
76.5 %
3.6 %
Gross Product Sales decreased by $38.9 million or 7.1%, to $511.8 million with a favourable foreign exchange
impact of $4.3 million or 0.8%. Excluding the impact of foreign exchange, Gross Product Sales decreased by
$43.2 million or 7.9% to $507.5 million. The decrease was driven by Remote Control & Interactive Characters,
partially offset by growth in Activities, Games & Puzzles and Plush, Boys Action & Construction and Pre-School
& Girls.
Gross Product Sales in Activities, Games & Puzzles and Plush increased by $3.0 million or 1.9% to $165.1
million. The increase was driven primarily by higher sales of Kinetic Sand and sales of Rainbow Jellies, partially
offset by declines in GUND, the Games & Puzzles portfolio and Bunchems.
Gross Product Sales in Pre‑School and Girls increased by $1.6 million or 1.0% to $154.0 million. The increase
was driven primarily by higher sales of PAW Patrol and Pre Cool, offset in part by declines in Candylocks,
Twisty Petz, Awesome Blossems, Off the Hook and Hatchimals Plush.
Gross Product Sales in Boys Action and Construction increased by $2.1 million or 1.8% to $116.9 million. The
increase was primarily driven by higher sales of DC licensed products and Tech Deck in addition to sales of
Present Pets, offset in part by declines in Bakugan, DreamWorks Dragons and Boxer.
Gross Product Sales in Remote Control and Interactive Characters decreased by $46.4 million or 43.6% to
$60.1 million, primarily due to lower sales of Hatchimals, Owleez, Juno and Luvabella, partially offset by an
increase in Monster Jam RC.
Gross Product Sales in Outdoor increased by $0.8 million or 5.4% to $15.7 million.
Sales Allowances decreased by $31.6 million or 29.0% to $77.5 million and as a percentage of Gross Product
Sales, declined 4.7% to 15.1% from 19.8%, The decrease was primarily driven by lower markdowns and non-
compliance charges as a result of the remediation of operational challenges, which arose in the fourth quarter
of 2019.
Other revenue grew by $24.4 million or 76.5% to $56.3 million. The increase was driven by higher in-game
purchases in the Toca Life World platform and growth in the Sago Mini subscription user base. Also
contributing to the increase was higher television distribution revenue, partially offset by lower licensing and
merchandising revenue.
7
The following table provides a summary of Spin Master’s Gross Product Sales by geographic segment for the
three months ended December 31, 2020 and 2019:
(US$ millions)
North America
Europe
Rest of World
Gross Product Sales1
1) See "Non-IFRS Financial Measures".
Three Months Ended Dec 31
2020
% of GPS
2019
% of GPS
$ Change % Change
272.4
168.0
71.4
511.8
53.2 %
32.8 %
14.0 %
100.0 %
308.8
164.2
77.7
550.7
56.1 %
29.8 %
14.1 %
100.0 %
(36.4)
(11.8) %
3.8
(6.3)
(38.9)
2.3 %
(8.1) %
(7.1) %
As a percentage of total Gross Product Sales, the North America segment decreased 2.9% to 53.2% compared
to 56.1% in the prior year. International sales, comprised of the Europe and Rest of World segments, increased
2.9% to 46.8% compared to 43.9% in the prior year.
Gross Product Sales in North America decreased by $36.4 million or 11.8% to $272.4 million, with a favourable
foreign exchange impact of $0.1 million. The decrease was driven by Hatchimals, Bakugan, Owleez, GUND,
DreamWorks Dragons, the Games & Puzzles portfolio, Juno, Candylocks, Marshmallow and Boxer, offset in
part by higher sales of Kinetic Sand, DC licensed products and Monster Jam RC in addition to sales of Present
Pets.
Gross Product Sales in Europe increased by $3.8 million or 2.3% to $168.0 million, with a favourable foreign
exchange impact of $5.6 million. The increase was driven by PAW Patrol, DC licensed products and Monster
Jam RC in addition to sales of Present Pets, offset in part by declines in Owleez, DreamWorks Dragons,
Hatchimals, Bakugan and Luvabella.
Gross Product Sales in Rest of World decreased by $6.3 million or 8.1% to $71.4 million, with an unfavourable
foreign exchange impact of $1.4 million. The decrease was driven by Hatchimals, Bakugan and DreamWorks
Dragons, offset in part by higher sales of DC licensed products and sales of Present Pets.
For the year ended December 31, 2020 as compared to the same period in 2019:
The following table provides a summary of Spin Master’s revenue by product category for the years ended
December 31, 2020 and 2019:
(US$ millions)
2020
2019
$ Change
% Change
Year Ended Dec 31
Activities, Games & Puzzles and Plush
Pre-School and Girls
Boys Action and Construction
Remote Control and Interactive Characters
Outdoor
Gross Product Sales1
Sales Allowances1
Net Sales1
Entertainment and Licensing revenue
Digital games revenue
Other revenue
Total revenue
1) See "Non-IFRS Financial Measures".
511.2
467.2
352.1
202.1
91.1
1,623.7
(208.1)
1,415.6
78.2
76.8
155.0
1,570.6
457.7
516.2
331.4
299.3
86.6
1,691.2
(227.5)
1,463.7
91.7
26.2
117.9
1,581.6
53.5
(49.0)
20.7
(97.2)
4.5
(67.5)
19.4
(48.1)
(13.5)
50.6
37.1
(11.0)
11.7 %
(9.5) %
6.2 %
(32.5) %
5.2 %
(4.0) %
(8.5) %
(3.3) %
(14.7) %
193.1 %
31.5 %
(0.7) %
Gross Product Sales decreased by $67.5 million or 4.0% to $1,623.7 million, with a favourable foreign
exchange impact of $3.0 million or 0.2%. Excluding the impact of foreign exchange, Gross Product Sales
decreased by $70.5 million or 4.2% to $1,620.7 million. The decrease was driven by Remote Control &
Interactive Characters and Pre-School & Girls, partially offset by growth in Activities, Games & Puzzles and
Plush and Boys Action & Construction.
8
Gross Product Sales in Activities, Games & Puzzles and Plush increased by $53.5 million or 11.7% to $511.2
million, primarily driven by increases in Kinetic Sand and the Games & Puzzles portfolio in addition to sales of
Rainbow Jellies and Orbeez, offset in part by declines in GUND and Bunchems.
Gross Product Sales in Pre‑School and Girls decreased by $49.0 million or 9.5% to $467.2 million, driven by
declines in Twisty Petz, Candylocks, PAW Patrol, Awesome Blossems, Off the Hook, Hatchimals Plush, Party
Popteenies and Universe, offset in part by higher sales of Pre Cool.
Gross Product Sales in Boys Action and Construction increased by $20.7 million or 6.2% to $352.1 million,
primarily due to higher sales of DC licensed products and Tech Deck in addition to sales of Present Pets,
partially offset by declines in DreamWorks Dragons, Bakugan, Boxer, Fugglers and Meccano.
Gross Product Sales in Remote Control and Interactive Characters decreased by $97.2 million or 32.5% to
$202.1 million, primarily due to declines in Hatchimals, Owleez, Juno, Luvabella, Moonlite, Air Hogs and
Zoomer, partially offset by increases in Monster Jam RC, Ninja Bots, PAW Patrol RC and sales of remote
controlled DC licensed products.
Gross Product Sales in Outdoor increased by $4.5 million or 5.2% to $91.1 million.
Sales Allowances decreased by $19.4 million or 8.5% to $208.1 million and as a percentage of Gross Product
Sales, declined 0.7% to 12.8% from 13.5%. The decline is primarily driven by lower markdowns and non-
compliance charges as a result of the remediation of operational challenges, which arose in the fourth quarter
of 2019.
Other revenue increased by $37.1 million or 31.5% to $155.0 million, driven by higher in-game purchases in the
Toca Life World platform and growth in the Sago Mini subscription user base, offset in part by lower licensing
and merchandising revenue.
The following table provides a summary of Spin Master’s Gross Product Sales by geographic segment for the
years ended December 31, 2020 and 2019:
(US$ millions)
North America
Europe
Rest of World
Gross Product Sales1
1) See "Non-IFRS Financial Measures".
2020
% of GPS
2019
% of GPS
$ Change % Change
Year Ended Dec 31
983.4
451.0
189.3
60.6 %
27.8 %
11.6 %
1,026.3
430.4
234.5
60.7 %
25.4 %
13.9 %
1,623.7
100.0 %
1,691.2
100.0 %
(42.9)
20.6
(45.2)
(67.5)
(4.2) %
4.8 %
(19.3) %
(4.0) %
As a percentage of total Gross Product Sales, the North America segment decreased 0.1% to 60.6% compared
to 60.7% in the prior year. International sales, comprised of the Europe and Rest of World segments, increased
0.1% to 39.4% compared to 39.3% in the prior year.
Gross Product Sales in North America decreased by $42.9 million or 4.2% to $983.4 million, with an
unfavourable foreign exchange impact of $0.2 million. The decrease was driven by PAW Patrol, Hatchimals,
DreamWorks Dragons, Owleez, Juno, GUND, Twisty Petz, Boxer, Bakugan, Candylocks, Awesome Blossems,
Fugglers, Luvabella and Cool Maker, offset in part by increases in DC licensed products, Kinetic Sand, the
Games & Puzzles portfolio, Monster Jam RC, Ninja Bots, Tech Deck, Pre Cool and SwimWays in addition to
sales of Present Pets and Orbeez.
Gross Product Sales in Europe increased by $20.6 million or 4.8% to $451.0 million, with a favourable foreign
exchange impact of $8.1 million. The increase was driven by PAW Patrol, DC licensed products, Kinetic Sand,
Monster Jam RC, Bakugan and the Games & Puzzles portfolio in addition to sales of Present Pets, offset in
part by declines in DreamWorks Dragons, Hatchimals, Owleez, Twisty Petz, Luvabella, Bunchems and Juno.
Gross Product Sales in Rest of World decreased by $45.2 million or 19.3% to $189.3 million, with an
unfavourable foreign exchange impact of $4.9 million. The decrease was driven by Bakugan, Hatchimals,
9
DreamWorks Dragons, Owleez, Candylocks, Monster Jam, Twisty Petz, Bunchems, PAW Patrol and GUND,
offset in part by higher sales of DC licensed products and sales of Present Pets.
Gross Profit as compared to the same period in 2019:
(US$ millions)
Total revenue
Gross profit
Gross profit as % of total revenue
Three Months Ended Dec 31
2020
490.6
241.0
49.1 %
2019
$ Change
% Change
473.5
226.1
47.8 %
17.1
14.9
N/A
3.6 %
6.6 %
1.3 %
For the three months ended December 31, 2020, gross profit increased by $14.9 million or 6.6% to $241.0
million. As a percentage of total revenue, gross profit increased to 49.1% from 47.8%, primarily due to lower
Sales Allowances1, higher digital games revenue and lower costs resulting from the Company's ongoing
operational improvement initiatives, which include lower freight-related expenses, scrap and obsolescence and
reconfiguration costs, offset in part by changes in product mix and lower entertainment and licensing revenue.
(US$ millions)
Total revenue
Gross profit
2020
1,570.6
727.9
1,581.6
785.0
Gross profit as % of total revenue
46.3 %
49.6 %
(11.0)
(57.1)
N/A
(0.7) %
(7.3) %
(3.3) %
Year Ended Dec 31
2019
$ Change
% Change
For the year ended December 31, 2020, gross profit decreased by $57.1 million or 7.3% to $727.9 million. As a
percentage of total revenue, gross profit decreased to 46.3% from 49.6%, primarily due to changes in product
mix, the sale of inventory resulting from the operational challenges, which arose in the second half of 2019,
higher Sales Allowances1 and freight-related expenses in the first half of 2020 and lower entertainment and
licensing revenue, offset in part by higher digital games revenue.
Selling, Marketing, Distribution and Product Development Expenses as compared to the same period in
2019:
Three Months Ended Dec 31
(US$ millions)
Selling expenses
Marketing expenses
Distribution expenses
Product development expenses
2020
32.0
70.0
22.7
10.4
% of
revenue
6.5 %
14.3 %
4.6 %
2.1 %
2019
37.5
72.6
46.5
8.2
Total
135.1
27.5 %
164.8
% of
revenue
7.9 %
15.3 %
9.8 %
1.7 %
34.8 %
$ Change % Change
(5.5)
(2.6)
(23.8)
2.2
(29.7)
(14.7) %
(3.6) %
(51.2) %
26.8 %
(18.0) %
Selling expenses decreased by $5.5 million or 14.7% to $32.0 million due to lower sales of licensed products.
Selling expenses as a percentage of total revenue decreased to 6.5% from 7.9%.
Marketing expenses decreased by $2.6 million or 3.6% to $70.0 million, due to lower traditional media
marketing in North America as a result of the COVID-19 environment. These declines were partially offset by
higher digital media marketing. Marketing expenses as a percentage of total revenue decreased to 14.3% from
15.3%.
Distribution expenses decreased by $23.8 million or 51.2% to $22.7 million, primarily due to the remediation of
operational challenges, which arose in the fourth quarter of 2019. In the prior year, the Company incurred
higher operational expenses attributed to the start-up and performance issues associated with the
establishment of a new third-party East Coast distribution centre in the U.S and the consolidation of the GUND,
SwimWays and Cardinal warehouses into this new facility. Distribution expenses as a percentage of total
revenue decreased to 4.6% from 9.8%.
Product development expenses increased by $2.2 million or 26.8% to $10.4 million.
10
Year Ended Dec 31
(US$ millions)
Selling expenses
Marketing expenses
Distribution expenses
Product development expenses
Total
2020
109.5
133.1
90.7
34.5
367.8
% of
revenue
7.0 %
8.5 %
5.8 %
2.2 %
23.4 %
2019
112.0
155.0
98.1
30.3
395.4
% of
revenue
7.1 %
9.8 %
6.2 %
1.9 %
(2.5)
(21.9)
(7.4)
4.2
25.0 %
(27.6)
(2.2) %
(14.1) %
(7.5) %
13.9 %
(7.0) %
$ Change % Change
Selling expenses decreased by $2.5 million or 2.2% to $109.5 million due to lower sales of licensed products.
Selling expenses as a percentage of total revenue decreased to 7.0% from 7.1%.
Marketing expenses decreased by $21.9 million or 14.1% to $133.1 million, due to lower traditional media
marketing, a decrease in experiential marketing and trade show cancellations as a result of the COVID-19
environment. These declines were partially offset by higher influencer and digital media marketing. Marketing
expenses as a percentage of total revenue decreased to 8.5% from 9.8%.
Distribution expenses decreased by $7.4 million or 7.5% to $90.7 million, primarily due to the remediation of
operational challenges, which arose in the fourth quarter of 2019. As part of its ongoing operational
improvement initiatives, the Company reduced its footprint from 18 warehouses to 4 warehouses as at
December 31, 2020, which has resulted in lower storage and distribution costs. Distribution expenses as a
percentage of total revenue decreased to 5.8% from 6.2%.
Product development expenses increased by $4.2 million or 13.9% to $34.5 million.
Administrative Expenses as compared to the same period in 2019:
(US$ millions)
Administrative expenses
Adjustments:
Restructuring expense1
Share based compensation2
Impairment of property, plant and equipment3
Transaction costs4
Bad debt recovery5
Adjusted Administrative Expenses6
1) Restructuring expense primarily relates to personnel related costs.
2020
76.7
(0.5)
(2.9)
(0.5)
(0.9)
—
71.9
Three Months Ended Dec 31
2019
66.6
(0.7)
(3.5)
—
—
0.9
63.3
$ Change
% Change
10.1
15.2 %
0.2
0.6
(0.5)
(0.9)
(0.9)
8.6
(28.6) %
(17.1) %
n.m.
n.m.
n.m.
13.6 %
2) Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the initial public offering ("IPO"), share option expense
and long-term incentive plan ("LTIP").
3) Impairment of property, plant and equipment related to machinery.
4) Non-recurring transaction costs relating to the acquisition of Rubik's.
5) Net bad debt recovery related to the bankruptcy declaration and liquidation proceedings of Toys "R" Us ("TRU").
6) See "Non-IFRS Financial Measures".
For the three months ended December 31, 2020, administrative expenses increased by $10.1 million or 15.2%
to $76.7 million. The increase was primarily due to higher personnel related costs and professional services
expenses, offset in part by lower travel related expenses as a result of COVID-19 travel restrictions.
Administrative expenses as a percentage of total revenue increased to 15.6% from 14.1%. Adjusted
Administrative Expenses1 increased by $8.6 million or 13.6% to $71.9 million. Adjusted Administrative
Expenses1 as a percentage of total revenue increased to 14.7% from 13.4%.
11
(US$ millions)
Administrative expenses
Adjustments:
Restructuring expense1
Share based compensation2
Impairment of property, plant and equipment3
Transaction costs4
Bad debt recovery5
Adjusted Administrative Expenses6
2020
264.6
(5.3)
(12.2)
(0.5)
(0.9)
—
245.7
Year Ended Dec 31
2019
247.9
(8.8)
(15.2)
—
—
0.9
224.8
$ Change
% Change
16.7
3.5
3.0
(0.5)
(0.9)
(0.9)
20.9
6.7 %
(39.8) %
(19.7) %
n.m.
n.m.
n.m.
9.3 %
1) Restructuring expense primarily relates to personnel related costs. Restructuring expense in the current year includes costs related to changes in senior leadership.
2) Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the IPO, share option expense and LTIP.
3) Impairment of property, plant and equipment related to machinery.
4) Non-recurring transaction costs relating to the acquisition of Rubik's.
5) Net bad debt recovery related to the bankruptcy declaration and liquidation proceedings of TRU.
6) See “Non-IFRS Financial Measures”.
For the year ended December 31, 2020, administrative expenses increased by $16.7 million or 6.7% to $264.6
million. The increase was primarily due to higher personnel related costs, professional services expenses and
software subscription costs in addition to an increase in bad debt expense due to the impact of COVID-19 on
smaller retailers in the European and North American markets. This was offset in part by lower travel related
expenses as a result of COVID-19 travel restrictions. Administrative expenses as a percentage of total revenue
increased to 16.8% from 15.7%. Adjusted Administrative Expenses1 increased by $20.9 million or 9.3% to
$245.7 million. Adjusted Administrative Expenses1 as a percentage of total revenue increased to 15.6% from
14.2%.
Finance Costs as compared to the same period in 2019:
For the three months ended December 31, 2020, finance costs increased by $0.2 million to $3.4 million. For the
year ended December 31, 2020, finance costs increased by $0.4 million to $12.1 million. The increase was
primarily due to higher interest expense related to the Company's utilization of its Credit Facility, offset in part
by lower bank fees, accretion expense and amortization of financing costs.
Depreciation and Amortization Expenses as compared to the same period in 2019:
For the three months ended December 31, 2020, depreciation and amortization expense increased by $1.2
million to $10.0 million. For the year ended December 31, 2020, depreciation and amortization expense
increased by $5.1 million to $37.7 million. The increase was primarily due to increased computer software,
trademarks, leasehold improvements, equipment and right-of-use assets.
Foreign Exchange Loss (Gain) as compared to the same period in 2019:
For the three months ended December 31, 2020, the Company incurred a foreign exchange loss of $10.5
million compared to a foreign exchange gain of $0.1 million. For the year ended December 31, 2020, the
Company incurred a foreign exchange loss of $27.6 million compared to $5.8 million.
Unrealized foreign exchange gains and losses are generated by the translation of monetary assets and
liabilities denominated in a currency other than the functional currency and also includes gains and losses
related to the Company's hedging programs. Realized foreign exchange gains and losses are recognized when
monetary assets and liabilities denominated in a currency other than the functional currency of the applicable
entity are settled. The Company uses derivative financial instruments such as foreign exchange forward
contracts to manage foreign currency risk.
Income Tax (Recovery) Expense as compared to the same period in 2019:
For the three months ended December 31, 2020 the Company had an income tax recovery of $4.7 million
compared to $7.5 million. The effective income tax rate was 106.8% compared to 30.4%.
12
For the year ended December 31, 2020 the Company had an income tax recovery of $36.1 million compared to
an income tax expense of $20.7 million. An internal transfer of intellectual property resulted in a one-time
income tax recovery of $33.3 million or 354.2% on the effective tax rate for the year ended December 31, 2020.
Excluding the one-time income tax recovery, the effective income tax rate was (29.8)% compared to 24.4%.
The change in the effective income tax rate was primarily driven by different tax rates of subsidiaries operating
in other jurisdictions.
Net Income (Loss) as compared to the same period in 2019:
Net income for the three months ended December 31, 2020 was $0.3 million, an increase of $17.5 million from
net loss of $17.2 million. Excluding share-based compensation, restructuring expense, foreign exchange loss
(gain), legal settlement, acquisition related contingent consideration and other non-recurring items, Adjusted
Net Income1 for the three months ended December 31, 2020 was $14.6 million, an increase of $22.4 million
from Adjusted Net Loss1 of $7.8 million.
Net income for the year ended December 31, 2020 was $45.5 million, a decrease of $18.8 million from $64.3
million. Excluding share-based compensation, restructuring expense, foreign exchange loss, legal settlement,
acquisition related contingent consideration, a one-time income tax recovery and other non-recurring items,
Adjusted Net Income1 for the year ended December 31, 2020 was $53.4 million, a decrease of $39.4 million
from $92.8 million.
OUTLOOK
Spin Master continues to focus on driving long-term growth. Its principle strategies are to:
• Innovate using our global internal and external research and development network;
• Increase international sales in developed and emerging markets;
• Develop evergreen global entertainment franchises;
• Establish a leading position in digital games; and
• Leverage the Company's global platform through strategic acquisitions.
The Company expects 2021 Gross Product Sales1 to increase low to mid single digits compared to 2020. The
seasonality of Gross Product Sales1 for 2021 is expected to be approximately 32-34% in the first half of 2021
and 66-68% in the second half of 2021.
On a full year basis, the Company expects 2021 total revenue to increase mid to high single digits compared to
2020. The Company expects 2021 Adjusted EBITDA Margin1 to be in the mid to high teens, significantly
improved over 2020.
13
SELECTED QUARTERLY FINANCIAL INFORMATION
Seasonality factors cause Spin Master’s operating results to fluctuate significantly from quarter to quarter. A
majority of the Company’s annual sales occur during the third and fourth quarters of the Company’s fiscal year.
The following table provides selected historical information and other data, which should be read in conjunction
with the financial statements of the Company.
(in US$ millions, except EPS)
Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019
Gross Product Sales1
Total revenue
Adjusted EBITDA1
Adjusted EBITDA Margin1
Net income (loss)
Basic EPS
Diluted EPS
Adjusted Net Income (Loss)1
Adjusted Basic EPS1
Adjusted Diluted EPS1
511.8
490.6
587.4
571.6
282.2
281.1
242.3
227.3
550.7
473.5
583.3
548.1
316.8
321.0
240.5
239.0
51.5
139.9
21.5
(32.3)
6.7
150.2
55.2
7.0
10.5% 24.5%
7.6% (14.2)% 1.4%
27.4% 17.2%
2.9%
0.3
$—
$—
14.6
$0.14
$0.14
86.8
$0.85
$0.83
95.1
$0.93
$0.91
(14.9)
(26.7)
(17.2)
$(0.15)
$(0.26)
$(0.17)
$(0.15)
$(0.26)
$(0.17)
(9.5)
(46.8)
(7.8)
$(0.09)
$(0.46)
$(0.08)
$(0.09)
$(0.45)
$(0.08)
92.2
$0.90
$0.89
93.3
$0.91
$0.91
10.2
$0.10
$0.10
19.9
$0.19
$0.19
(20.9)
$(0.21)
$(0.21)
(12.5)
$(0.12)
$(0.12)
Cash, net of loans and borrowings
Free Cash Flow1
1) See “Non-IFRS Financial Measures".
320.6
123.7
207.3
96.0
111.4
40.2
74.8
(27.8)
115.3
(19.3)
150.2
86.5
77.1
(34.7)
113.8
(27.8)
14
The following table provides reconciliations of net income (loss) to EBITDA1, Adjusted EBITDA1 and Adjusted
Net Income (Loss)1.
(US$ millions)
Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019
Net income (loss)
0.3
86.8
(14.9)
(26.7)
(17.2)
92.2
10.2
(20.9)
Finance costs
Depreciation and amortization
expenses
Income tax (recovery) expense
EBITDA1
Adjustments
Restructuring expense2
Foreign exchange loss (gain)3
Share based compensation4
Acquisition related contingent
consideration5
Impairment of intangible assets6
Impairment of property, plant and
equipment7
Legal settlement8
Transaction costs9
Bad debt recovery10
Adjusted EBITDA1
Finance costs
Depreciation and amortization
expenses
Income tax (recovery) expense
One-time income tax recovery11
Tax effect of adjustments12
Adjusted Net Income (Loss)1
Footnotes:
1) See "Non-IFRS Financial Measures".
3.4
2.6
3.3
2.8
3.2
3.2
2.6
2.7
27.6
26.4
25.7
23.3
16.2
22.2
24.8
21.4
(4.7)
14.7
26.6 130.5
2.1
16.2
(48.2)
(48.8)
(7.5)
33.0
(5.3) 150.6
2.8
40.4
(7.6)
(4.4)
0.5
10.5
2.9
3.7
0.4
0.5
1.4
5.1
2.9
—
—
—
5.5
0.9
—
—
—
—
51.5 139.9
2.6
3.4
(1.0)
3.5
2.8
—
—
—
—
—
—
21.5
3.3
4.4
8.5
3.6
—
—
—
—
—
—
(32.3)
2.8
0.7
(0.1)
3.5
3.2
5.6
—
—
—
0.3
(4.1)
3.4
—
—
—
—
—
(0.9)
—
6.7 150.2
3.2
3.2
27.6
(4.7)
—
10.6
14.6
26.4
14.7
—
1.1
95.1
25.7
2.1
23.3
(48.2)
—
33.3
(0.1)
(9.5)
3.3
(46.8)
16.2
(7.5)
—
2.6
(7.8)
22.2
33.0
—
(1.5)
93.3
7.2
3.6
3.9
—
—
—
—
—
—
55.1
2.6
24.8
2.8
—
5.1
19.8
0.7
6.3
4.4
—
—
—
—
—
—
7.0
2.7
21.4
(7.6)
—
3.0
(12.5)
2) Restructuring expense primarily relates to personnel related costs. Restructuring expense included costs related to changes in senior leadership in the first quarter of 2020.
In the second quarter of 2019, restructuring expenses also included costs related to facility closures.
3) Includes foreign exchange loss (gain) generated by the translation of monetary assets/liabilities denominated in a currency other than the functional currency of the
applicable entity and loss (gain) related to the Company's hedging programs.
4) Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company's IPO, share option expense and LTIP.
5) Remuneration expense associated with additional contingent consideration for previous acquisitions.
6) Impairment charges for intangible assets relating to licenses, content development, brands and trademarks.
7) Impairment of property, plant and equipment related to machinery.
8) Legal settlement in the fourth quarter of 2020.
9) Non-recurring transaction costs relating to the acquisition of Rubik's.
10) Bad debt recovery related to the bankruptcy declaration and liquidation proceedings of TRU.
11) One-time income tax recovery relates to internal transfer of intangible property of $33.3 million.
12) Tax effect of adjustments (Footnotes 2-10). Adjustments are tax effected at the effective tax rate of the given year-to-date period.
LIQUIDITY AND CAPITAL RESOURCES
The Company’s primary source of liquidity is cash flow from operations. As a result of the seasonal nature of
the toy and children’s entertainment industries, working capital requirements are variable throughout the year.
Working capital needs typically grow through the first three quarters as inventories are built up for the peak
sales periods for retailers in the fourth quarter. The Company’s cash flows from operating activities are typically
at their highest levels of the year in the fourth quarter. As at December 31, 2020, the Company had cash of
$320.6 million.
Cash flows from operations could be negatively impacted by decreased demand for the Company’s products,
which may result from factors such as adverse economic conditions and changes in public and consumer
preferences, the loss of confidence by the Company’s principal customers in the Company and its product
lines, or by increased costs associated with manufacturing and distribution of products. The Company’s primary
15
capital needs are related to inventory financing, accounts payable funding, debt servicing and capital
expenditures for tooling and film production and to fund strategic acquisitions. The Company expects that cash,
future operating cash flows and the amounts available to be drawn against the Credit Facilities will enable the
Company to finance its capital investment program and fund its ongoing business requirements over the next
12 months, including working capital and financial obligations.
During the first quarter of 2020, as a precautionary measure, the Company borrowed a total of $350.0 million
under its Credit Facility, to maximize liquidity and increase available cash on hand. The Company drew on the
Credit Facility due to the uncertainties caused by the COVID-19 pandemic. The Company repaid $50.0 million
and $300.0 million on its Credit Facility in the second and third quarters of 2020, respectively. As at
December 31, 2020, the Company had utilized $0.4 million (December 31, 2019 - $0.7 million) of the Facility:
$0.4 million (December 31, 2019 - $0.7 million) drawn in letters of credit and nil (December 31, 2019 - nil)
drawn in LIBOR Loans.
The Credit Facility may be used for general corporate purposes including refinancing existing indebtedness,
funding working capital requirements, permitted acquisitions and permitted distributions. The Credit Facility also
has an option which permits the Company to increase the total capital available by an additional $200.0 million.
As at December 31, 2020, unamortized debt issuance costs related to this facility were $0.5 million.
On December 19, 2018, the Company entered into an uncommitted Overdraft Facility Agreement (the
"European Facility") for $18.4 million (€15.0 million). The European Facility may be used to fund working capital
requirements in Europe. As at December 31, 2020, the European Facility was undrawn.
The Company has a credit facility (the "Production Facility") with a limit of $7.8 million ($10.0 CAD million) to
finance television and film production. The interest rate on amounts drawn under the Production Facility bear
interest at a variable rate referenced to the lending institution’s Canadian dollar prime rate. As at December 31,
2020, the Production Facility was undrawn.
As at December 31, 2020, the Company had unutilized liquidity of $838.0 million, comprised of $320.6 million in
cash and $517.4 million unutilized under its credit facilities. The Company believes it has sufficient liquidity to
meet its operational requirements.
Capital and Investment Framework
Over the long term, the Company plans to use its free cash flows to fund seasonal working capital requirements
related to product sales, television shows, feature films, short-form content, digital games development in
addition to strategic acquisitions.
Spin Master primarily uses third parties to manufacture, warehouse and distribute its products. As a result, the
Company does not have to incur material investments in property, plant and equipment. The Company’s capital
expenses are generally comprised of the purchase of tooling used in the manufacturing process and
entertainment property production.
CASH FLOW
The following tables provide a summary of Spin Master’s consolidated cash flows for the three months and
year ended December 31, 2020 and 2019:
(US$ millions)
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net increase (decrease) in cash
Effect of foreign currency exchange rate changes on cash
Cash at beginning of period
Cash at end of period
Three Months Ended Dec 31
2020
138.2
(19.3)
(4.0)
114.9
(1.6)
207.3
320.6
2019
10.8
(43.2)
(5.5)
(37.9)
1.8
151.4
115.3
$ Change
127.4
23.9
1.5
152.8
(3.4)
55.9
205.3
16
(US$ millions)
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net increase (decrease) in cash
Effect of foreign currency exchange rate changes on cash
Cash at beginning of period
Cash at end of period
Year Ended Dec 31
2020
310.8
(84.9)
(16.3)
209.6
(4.3)
115.3
320.6
2019
98.4
(116.2)
(13.7)
(31.5)
3.3
143.5
115.3
$ Change
212.4
31.3
(2.6)
241.1
(7.6)
(28.2)
205.3
Cash from Operating Activities as compared to the same period in 2019:
Cash flows provided by operating activities were $138.2 million for the three months ended December 31, 2020
compared to $10.8 million, primarily driven by the reduction in net working capital and higher EBITDA1.
For the year ended December 31, 2020, cash flows provided by operating activities were $310.8 million
compared to $98.4 million, primarily driven by the reduction in net working capital, partially offset by lower
EBITDA1.
The table below outlines key financial information pertaining to the Company's net working capital:
(US$ millions)
Trade receivables, net1
Other receivables2
Inventories
Advances on royalties
Prepaid expenses
Other assets
Total current assets
Trade payables
Accrued liabilities3
Contract liabilities
Provisions and contingent liabilities
Total current liabilities
Total net working capital
Dec 31,
2020
Dec 31,
2019
$ Change
% Change
265.2
73.4
102.0
17.2
7.9
3.0
468.7
161.4
153.0
25.3
29.2
368.9
99.8
370.7
57.0
185.3
18.0
14.4
—
645.4
215.8
129.8
7.6
26.2
379.4
266.0
(105.5)
16.4
(83.3)
(0.8)
(6.5)
3.0
(176.7)
(54.4)
23.2
17.7
3.0
(10.5)
(166.2)
(28.5) %
28.8 %
(45.0) %
(4.4) %
(45.1) %
n.m.
(27.4) %
(25.2) %
17.9 %
232.9 %
11.5 %
(2.8) %
(62.5) %
1) Trade receivables are net of allowance for doubtful accounts and provisions for sales allowances. Refer to Note 10 of the financial statements for additional details.
2) Other receivables include investment tax credits receivable, royalties, sales tax and other balances. Refer to Note 10 of the financial statements.
3) Accrued liabilities are comprised of employee compensation liabilities, royalties and commodity tax balances. Refer to Note 16 of the financial statements for additional
details.
Total net working capital decreased by $166.2 million or 62.5% to $99.8 million at December 31, 2020 from
$266.0 million. Excluding the impact of foreign exchange, total net working capital decreased by $153.0 million.
Trade receivables, net, decreased by $105.5 million or 28.5% to $265.2 million at December 31, 2020 from
$370.7 million, driven by increased collections in the fourth quarter and higher than normal trade receivables in
the prior year as a result of the shift in sales from the third quarter of 2019 to the fourth quarter of 2019.
Inventories decreased by $83.3 million or 45.0% to $102.0 million at December 31, 2020 from $185.3 million,
driven by the Company's ongoing operational improvement initiatives focused on optimizing inventory levels.
Trade payables and accrued liabilities decreased by $31.2 million or 9.0% to $314.4 million at December 31,
2020 from $345.6 million, driven by lower inventory purchases, offset in part by higher personnel related costs.
17
Investing Activities as compared to the same period in 2019:
The following tables provide a summary of Spin Master’s consolidated cash flows used in investing activities for
the three months and year ended December 31, 2020 and 2019:
(US$ millions)
Property, plant and equipment
Tooling
Other
Total property, plant and equipment
Intangible assets
Content development
Computer software
Brands, licenses and trademark acquisitions
Total intangible assets
Total capital expenditures
Business acquisitions, net of cash acquired
Investment in limited partnership
Proceeds from disposals
Cash used in investing activities
Three Months Ended Dec 31
2020
2019
$ Change
3.8
(2.0)
1.8
14.2
(1.7)
0.2
12.7
14.5
3.3
1.8
(0.3)
19.3
5.2
2.8
8.0
20.5
1.6
—
22.1
30.1
13.1
—
—
43.2
(1.4)
(4.8)
(6.2)
(6.3)
(3.3)
0.2
(9.4)
(15.6)
(9.8)
1.8
(0.3)
(23.9)
Cash used in investing activities was $19.3 million for the three months ended December 31, 2020 compared to
$43.2 million. Business acquisitions in 2019 relate to Orbeez while business acquisitions in the current year
relate to the advance paid for the Rubik's acquisition. Also contributing to the decrease was lower investments
in content development and other property, plant and equipment.
(US$ millions)
Property, plant and equipment
Tooling
Other
Total property, plant and equipment
Intangible assets
Brands, licenses and trademark acquisitions
Content development
Computer software
Total intangible assets
Total capital expenditures
Business acquisitions, net of cash acquired
Investment in trademark license agreement
Investment in limited partnership
Proceeds from disposals
Cash used in investing activities
Year Ended Dec 31
2020
2019
$ Change
18.9
2.1
21.0
1.2
50.6
5.9
57.7
78.7
2.3
2.4
1.8
(0.3)
84.9
24.7
16.2
40.9
—
48.1
5.2
53.3
94.2
22.5
—
—
(0.5)
116.2
(5.8)
(14.1)
(19.9)
1.2
2.5
0.7
4.4
(15.5)
(20.2)
2.4
1.8
0.2
(31.3)
For the year ended December 31, 2020, cash used in investing activities was $84.9 million compared to $116.2
million. Business acquisitions in 2019 relate to Orbeez and Hedbanz while business acquisitions in the current
year relate to the advance paid for the Rubik's acquisition. Also contributing to the decrease was lower
investments in property, plant and equipment. This was offset in part by an investment in a trademark license
agreement and an investment in a limited partnership.
Financing Activities as compared to the same period in 2019:
Cash flows used in financing activities were $4.0 million for the three months ended December 31, 2020
compared to $5.5 million. For the year ended December 31, 2020, cash flows used in financing activities were
18
$16.3 million compared to $13.7 million, primarily driven by the repurchase of shares arising from changes to
senior leadership in the first quarter of 2020.
Free Cash Flow1 as compared to the same period in 2019:
The following tables provide a reconciliation of Spin Master’s consolidated Free Cash Flow1 to cash from
operations for the three months and year ended December 31, 2020 and 2019:
(US$ millions)
Cash flows provided by operating activities
Cash flows used in investing activities
Add:
Cash used for license, brand and business acquisitions
Free Cash Flow1
(US$ millions)
Cash flows provided by operating activities
Cash flows used in investing activities
Add:
Cash used for license, brand and business acquisitions
Free Cash Flow1
1) See "Non-IFRS Financial Measures".
Three Months Ended Dec 31
2020
138.2
(19.3)
4.8
123.7
2019
10.8
(43.2)
13.1
(19.3)
Year Ended Dec 31
2020
310.8
(84.9)
6.2
232.1
2019
98.4
(116.2)
22.5
4.7
$ Change
127.4
23.9
(8.3)
143.0
$ Change
212.4
31.3
(16.3)
227.4
Free Cash Flow1 was $123.7 million for the three months ended December 31, 2020 compared to negative
$19.3 million, an increase of $143.0 million. For the year ended December 31, 2020, Free Cash Flow1 was
$232.1 million compared to $4.7 million, an increase of $227.4 million, driven by higher cash flows provided by
operating activities and lower cash flows used in investing activities.
COMMITMENTS
In the normal course of business, Spin Master enters into contractual arrangements to obtain and protect
Spin Master’s right to create and market certain products and to ensure availability and timely delivery of future
purchases of goods and services. These arrangements include commitments for future services, purchases
and royalty payments pursuant to licensing agreements. Certain of these commitments routinely contain
provisions for guarantees or minimum expenditures during the terms of the contracts. Additionally, Spin Master
routinely enters into non‑cancellable lease agreements for premises and equipment, which contain minimum
rental payments.
The following table summarizes Spin Master's contractual commitments and obligations as at December 31,
2020, which are primarily for the leasing of offices and related office equipment and minimum guarantees due
to licensors. The leases have been entered into with terms of between two and twelve years in length and
minimum guarantees to licensors are primarily due within 24 months, but can extend beyond 24 months.
(US$ millions)
<1 Year
1-5 Years
> 5 Years
Total
Lease obligations - undiscounted
Guaranteed payments due to licensors
Total commitments
15.7
8.4
24.1
37.8
25.3
63.1
48.7
4.0
52.7
102.2
37.7
139.9
Less than 1 year to greater than 5 years
OFF‑BALANCE SHEET ARRANGEMENTS
Spin Master has no off‑balance sheet arrangements that have or are reasonably likely to have a current or
future material effect on its financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
19
CAPITALIZATION
Share Capital
As at March 1, 2021, there were 102.0 million shares outstanding comprised of 70.6 million Multiple Voting
Shares and 31.4 million Subordinate Voting Shares.
As of March 1, 2021, pursuant to grants under the Company's Long-Term Incentive Plan, 0.8 million
Subordinate Voting Shares were issuable under outstanding Restricted Stock Units, up to 1.8 million
Subordinate Voting Shares were issuable under outstanding Performance Share Units (assuming vesting at a
maximum of 200% for units with an outstanding performance period) and 0.5 million Subordinate Voting Shares
were issuable under outstanding Share Option grants.
On February 18, 2020, the Company announced changes to senior leadership. As a result of these changes,
301,160 subordinate voting shares were forfeited and 133,550 subordinate voting shares with a fair value of
$1.1 million were canceled.
RISKS RELATING TO SPIN MASTER'S BUSINESS
An investment in securities of the Company involves significant risks. Investors should carefully
consider the risks described below, the other information described elsewhere in this Annual
Information Form and those risks set out in the Company's MD&A for the year ended December 31,
2020 (as updated by subsequent interim MD&A) before making a decision to buy securities of the
Company. If any of the following or other risks occur, the Company’s business, prospects, financial
condition, financial performance and cash flows could be materially adversely impacted. These factors
are also currently, and in the future may be, amplified by the COVID-19 pandemic. In that case, the
ability of the Company to make distributions to holders of Subordinate Voting Shares could be
adversely affected, the trading price of securities of the Company could decline and investors could
lose all or part of their investment in such securities. There is no assurance that risk management
steps taken will avoid future loss due to the occurrence of the below described or other unforeseen
risks.
If Spin Master does not create original, or enhance existing, products, brands and entertainment
properties that satisfy consumer preferences, and anticipate, initiate and capitalize on developments in
its industry, the Company’s business will suffer.
Spin Master depends on its ability to innovate and sell original products, brands and entertainment properties
and to identify changing consumer sentiments and respond to such changes on a timely basis. Spin Master
also relies on its ability to identify third-party entertainment media that is likely to be popular with consumers
and license rights to such media to incorporate into the Company’s products. Spin Master’s ability to maintain
current sales, and increase sales or establish sales with new, innovative products, will depend on its ability to
satisfy play preferences, enhance existing products, engineer, develop, introduce and achieve market
acceptance of its original products, brands and entertainment properties. If the Company is unable to anticipate
consumer preferences, its products, brands and entertainment properties may not be accepted by children,
parents, or families, demand for the Company’s products, brands and entertainment properties could decrease
and Spin Master’s business, financial condition and performance could be materially and adversely affected.
Spin Master’s business and financial performance depend largely upon the appeal of its products, brands and
entertainment properties. Failure to anticipate, identify and react to changes in children’s interests and
consumer preferences could significantly lower sales of its products, brands and entertainment properties and
harm its revenues and profitability. This challenge is more difficult with the ever increasing utilization of
technology and digital media in entertainment offerings, and the increasing breadth of entertainment available
to consumers. Evolving consumer tastes and shifting interests, coupled with changing and expanding sources
of entertainment and consumer products and properties which compete for children’s and families’ interest and
acceptance, create an environment in which some products and properties can fail to achieve consumer
acceptance, and other products and properties can be popular during a certain period of time but then be
rapidly replaced. The preferences and interests of children and families evolve quickly, can change drastically
from year to year and season to season and are difficult to anticipate. Significant, sudden shifts in demand are
caused by “hit” toys, technologies and trends, which are often unpredictable. Even the Company’s successful
brands and products typically have a relatively short period of high demand followed by a decrease in demand
as the product matures or is superseded by newer technologies and / or brands and products. A decline in the
popularity of the Company’s existing products, brands and entertainment properties, or the failure of Spin
Master’s original products, brands and entertainment properties to achieve and sustain market acceptance with
20
retailers and consumers, could significantly lower the Company’s revenues and operating margins, which would
harm Spin Master’s business, financial condition and performance.
The industries in which Spin Master operates are highly competitive and the Company’s inability to
compete effectively may materially and adversely impact its business, financial condition and
performance.
Spin Master operates in industries characterized by intense competition. The Company competes domestically
and internationally with numerous large and small companies that develop, market and sell analog toys and
games, products which combine analog and digital play, digital gaming products, and other entertainment and
consumer products, as well as with retailers who offer such products under their own private labels often at
lower prices. The growing importance of digital media, and the heightened connection between digital media
and consumer interest, has further increased the ability for new participants to enter Spin Master’s markets,
and has broadened the array of companies Spin Master competes with which can become a significant source
of competition for the Company in a very short period of time. In addition to existing customers, low barriers to
entry enable new competitors to quickly establish themselves with only a single popular product. New
participants with a popular product idea or property can gain access to consumers and become a significant
source of competition for the Company. Spin Master’s competitors’ products may achieve greater market
acceptance than the Company’s products and, in doing so, may potentially reduce the demand for the
Company’s products, brands or properties. Spin Master’s competitors have obtained and are likely to continue
to obtain licenses that overlap with the Company’s licenses with respect to products, geographic areas and
markets. Spin Master may not be able to obtain adequate shelf space in retail stores to support or expand its
brands or products, and the Company may not be able to continue to compete effectively against current and
future competitors. These existing and new competitors may be able to respond more rapidly than Spin Master
to changes in consumer preferences. Spin Master’s competitors’ products may achieve greater market
acceptance than the Company’s products and potentially reduce demand for the Company’s products, lower its
revenues and lower its profitability.
Spin Master also faces competition in the entertainment industry. Some of the Company’s competitors in the
content market have interests in multiple media businesses which are often vertically integrated. Spin Master’s
ability to compete in this market depends on a number of factors, including its ability to develop high quality and
popular entertainment content, adapt to new technologies and distribution platforms and achieve widespread
distribution.
Some of Spin Master’s competitors have longer operating histories, significantly greater financial, marketing
and other resources, greater economies of scale, more long-standing brands and products and greater name
recognition. The Company may be unable to compete with them in the future. If Spin Master fails to compete,
its business, financial condition and performance could be materially and adversely affected.
Spin Master’s failure to market or advertise products could have a material adverse effect on the
Company’s business, financial condition and performance.
Spin Master’s products are marketed worldwide through a diverse spectrum of advertising and promotional
programs. The Company’s ability to sell products is largely dependent upon the success of these programs. If
Spin Master does not market its products, sales could decline or if media or other advertising or promotional
costs increase, Spin Master’s costs could increase, which could have a material adverse effect on the
Company’s business, financial condition and performance. Additionally, loss of television or media support
related to any of the Company’s products may decrease the number of products it sells and harm its business,
financial condition and performance.
Failure to protect or enforce Spin Master’s IP rights and claims by third parties that the Company is
infringing their IP rights could materially and adversely affect Spin Master’s business, financial
condition and performance.
Spin Master relies on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions
and licensing arrangements to establish and protect its IP and proprietary rights. Contractual arrangements and
other steps the Company has taken to protect its IP may not prevent misappropriation of its IP or deter
independent third-party development of similar products. The steps Spin Master has taken may not prevent
unauthorized use of its IP, particularly in foreign countries where the Company does not hold patents or
trademarks or where the laws may not protect its IP as fully as in North America. Some of Spin Master’s
products and product features have limited IP protection, and, as a consequence, the Company may not have
the legal right to prevent others from reverse engineering or otherwise copying and using these features in
competitive products. Monitoring the unauthorized use of the Company’s IP is costly, and any dispute or other
21
litigation, regardless of the outcome, may be costly and time consuming and may divert the Company’s
resources.
Additionally, Spin Master has registered various domain names relating to some of its brands and products. If
the Company fails to maintain these registrations, or if a third party acquires domain names similar to the
Company’s and engages in a business that may be confusing to the Company’s users and customers, Spin
Master’s revenues may decline and it may incur additional expenses in maintaining its brands.
Spin Master periodically receives claims of infringement or otherwise becomes aware of potentially relevant
patents, copyrights, trademarks or other IP rights held by other parties. Responding to any infringement claim,
regardless of its validity, may be costly and time-consuming and may divert the Company’s resources. If Spin
Master or its licensors are found to be infringing on the IP rights of any third-party, Spin Master or its licensors
may be required to obtain a license to use those rights, which may not be obtainable on reasonable terms, if at
all. The Company also may be subject to significant damages or injunctions against the development and sale
of some of its products or against the use of a trademark or copyright in the sale of some of its products. Spin
Master’s insurance does not cover all types of IP claims and insurance levels for covered claims may not be
adequate to indemnify the Company against all liability, which could materially and adversely harm its business,
financial condition and performance.
Spin Master licenses IP rights from third-party owners. Failure of such owners to properly maintain or
enforce the IP underlying such licenses could have a material adverse effect on the Company’s
business, financial condition and performance. The Company’s licensors may also seek to terminate
Spin Master’s license.
Spin Master is a party to a number of licenses that give the Company rights to third-party IP that is necessary
or useful to the Company’s business. Spin Master’s success will depend in part on the ability of its licensors to
obtain, maintain and enforce its licensed IP, in particular, those IP rights to which the Company has secured
exclusive rights. Without protection for the IP Spin Master licenses, other companies might be able to offer
substantially identical products for sale, which could have a material adverse effect on the Company’s
business, financial condition and performance.
One or more of the Company’s licensors may allege that Spin Master has breached its license agreement with
them, and accordingly seek to terminate Spin Master’s license. If successful, this could result in the Company’s
loss of the right to use the licensed IP, which could adversely affect the Company’s ability to commercialize its
technologies, products or services, as well as have a material adverse effect on its business, financial condition
and performance.
The COVID-19 pandemic and actions taken by governments, businesses, and individuals in response to
it could adversely affect Spin Master’s business, financial position, sales, and results of operations.
The global COVID-19 pandemic and the actions taken by governments, businesses, and individuals in
response to it have resulted in significant global economic disruption, including, but not limited to, temporary
business closures, reduced retail traffic, volatility in financial markets, restrictions on travel, and safer-at-home
protocols. Such disruptions in the markets in which Spin Master, its employees, consumers, customers,
partners, licensees, licensors, suppliers, and manufacturers operate, can have, and at times in the past have
had, a significant negative impact on Spin Master’s business, financial position, sales, and results of
operations. Negative impacts may result from, among other things:
•
•
•
•
•
•
declines in net sales as a result of retail store closures (including specialty retailers), limited reopening,
evolving stay-at-home protocols, and limitations on the capacity of e-commerce in certain markets;
disruptions to the design, development, manufacturing, and/or distribution operations of Spin Master
and/or its third-party suppliers resulting in limitations on Spin Master’s ability to design, develop,
manufacture, and distribute products effectively, efficiently, and in a timely manner;
delays in entertainment content releases from our licensors, or changes in release plans, that can
adversely impact sales of the Company’s products;
disruptions or restrictions on the ability of Spin Master’s employees, suppliers, and manufacturers to
work effectively, including due to illness, quarantines, government actions, and facility closures or other
similar restrictions;
increased operational risks, including increased risks of accounts receivable collection, insolvency of
retailers (particularly specialty retailers), delays in payment, and negotiations with third parties over
payment terms or the ability to perform under certain contracts or licenses; and
any currently unforeseen effects of COVID-19.
22
Any one of these factors, or a combination thereof, could impact Spin Master’s ability to meet demand for its
products. To the extent any of these disruptions become prolonged or recur, particularly during seasonally high
periods of production or distribution, Spin Master’s ability to meet demand may be materially impacted.
Since mid-March 2020, the majority of Spin Master’s workforce has been working remotely. While reopening of
some of the Company’s offices has begun on a limited basis, Spin Master continues to actively develop a plan
to safely bring additional personnel back to its offices, which will be based on need and governmental, health,
and safety guidelines. The Company regularly communicates and engages with its employees to minimize the
disruption and stress of working remotely, provide flexibility and ensure that our employees are getting access
to information and accommodations as the Company plans for a successful and safe re-entry to the workplace.
The impact of the COVID-19 pandemic continues to be fluid and uncertain, making it difficult to forecast the
ultimate impact it could have on Spin Master’s future operations. If Spin Master’s business experiences
prolonged occurrence of adverse public health conditions due to COVID-19 or other similar public health
incidents, Spin Master’s business, financial position, sales, and results of operations could be materially
impacted.
Spin Master may not be able to sustain or manage its growth strategy, which may prevent the Company
from increasing its net revenues.
Historically, Spin Master has experienced growth in its product lines which at times has been rapid. The
Company’s growth strategy calls for it to continuously develop and diversify its business by introducing original
products, innovating and refining its existing product lines and expanding into international markets, entering
into additional license agreements, and acquiring other companies, which will place additional demands upon
the Company’s management, operational capacity and financial resources and systems. The increased
demand upon management may necessitate Spin Master’s recruitment and retention of qualified personnel.
This can be particularly difficult when unexpected, significant, sudden shifts in demand are caused by “hit” toys
and trends. There can be no assurance that the Company will be able to recruit and retain qualified personnel
or expand and manage its operations effectively and profitably. Implementation of Spin Master’s growth
strategy is subject to risks beyond its control, including competition, market acceptance of original products,
changes in economic conditions, its ability to obtain or renew licenses on commercially reasonable terms and
its ability to finance increased levels of accounts receivable and inventory necessary to support its sales
growth, if any. Accordingly, there can be no assurance that the Company’s growth strategy will be successful or
that it will be able to achieve its targeted future sales growth. The lack of success in the Company’s growth
strategy may have a material and adverse effect on its business, financial condition and performance.
Spin Master’s dependence on third-party manufacturers, distributors, distribution centres and logistics
service providers presents risks to the Company’s business and exposes it to risks associated with
international operations.
A majority of Spin Master’s products are manufactured by third-party manufacturers, most of which are located
in Asia and primarily in China, and transported, stored and distributed by third parties on its behalf. The
Company’s operations could be adversely affected if the Company lost its relationship with any of its third-party
service providers, or if there was any material failure, inadequacy or interruption resulting from its third-party
service providers due to factors beyond the Company’s control. Although Spin Master’s external sources of
manufacturing and its distribution centres and logistics service providers can be shifted over a period of time to
alternative sources, should such changes be necessary, the Company’s operations could be disrupted,
potentially for a significant period of time, while alternative sources were secured, and significant capital
investments could be required to remediate the problem.
Given that the majority of Spin Master’s products are manufactured by third-party manufacturers, public health
crises, such as the COVID-19 pandemic, and other factors affecting social and economic activity where our
manufacturers are located may affect the movement of people and products into and from those locations to
the Company’s major markets, including North America and Europe. Public health crises, such as the
COVID-19 pandemic, impacting the Company’s third-party manufacturers, distributors, distribution centres and
logistics service providers had and can have a significant negative impact on Spin Master’s business.
As a result of Spin Master’s dependence on third-party manufacturers, any difficulties encountered by one of
the Company’s third-party manufacturers that results in production delays, cost overruns or the inability to fulfill
its orders on a timely basis, including political disruptions, labour difficulties and other factors beyond the
Company’s control, could adversely affect the Company’s ability to deliver its products to its customers, which
in turn could harm the Company’s reputation and adversely affect its business, financial condition and
performance. Similarly, Spin Master relies on third-party distribution centres and logistics service providers to
transport its products to the markets in which they are sold and on third-party distributors to distribute those
23
products within those markets. Any disruption affecting the ability of the Company’s third-party service providers
to timely deliver or distribute its products to its customers could cause delays in product sales, cause customers
to cancel orders, have a material adverse effect on Spin Master’s revenue and profitability, and harm its
reputation.
Spin Master’s significant use of third-party manufacturers outside of North America also exposes the Company
to risks, including:
•
•
•
•
•
•
•
•
•
•
•
currency fluctuations;
limitations on the repatriation of capital;
potential challenges to the Company’s transfer pricing determinations and other aspects of its cross-
border transactions which may impact income tax expense;
political instability, civil unrest and economic instability;
greater difficulty enforcing IP rights and weaker laws protecting such rights;
requirements to comply with different laws in varying jurisdictions, which laws may dictate that certain
practices that are acceptable in some jurisdictions are not acceptable in others, and changes in
governmental policies;
natural disasters and greater difficulty and expense in recovering from them;
difficulties in moving materials and products from one country to another, including port congestion,
strikes and other transportation delays and interruptions;
difficulties in controlling the quality of raw materials and components used to manufacture the
Company’s products, which may lead to public health and other concerns regarding its products;
changes in international labour costs, labour strikes, disruptions or lock-outs; and
the imposition of tariffs or other protectionist measures, or the breakdown of trade relations.
Due to Spin Master’s reliance on international sourcing of manufacturing, its business, financial condition and
performance could be significantly and materially harmed if any of the risks described above were to occur.
Spin Master requires its third-party manufacturers and distributors to comply with Spin Master’s code of
conduct, which is designed to prevent products manufactured by or for the Company from being produced
under inhumane or exploitive conditions. Spin Master’s code of conduct addresses a number of issues,
including work hours and compensation, health and safety, and abuse and discrimination. In addition, the
Company requires that its products supplied by third-party manufacturers or distributors be produced or
distributed in compliance with all applicable laws and regulations, including consumer and product safety laws
in the markets where those products are sold. The Company has the right, both directly and through the use of
outside monitors, to monitor compliance by its third-party manufacturers and distributors with Spin Master’s
code of conduct and other manufacturing requirements. In addition, the Company conducts quality assurance
testing on its products, including products manufactured or distributed for the Company by third parties.
Notwithstanding these requirements and Spin Master’s monitoring and testing of compliance with them, there
remains the risk that one or more of the Company’s third-party manufacturers or distributors will not comply
with Spin Master’s requirements and that Spin Master will not immediately discover such non-compliance. Any
failure of the Company’s third-party manufacturers or distributors to comply with labour, consumer, product
safety or other applicable requirements in manufacturing or distributing products for the Company could result
in damage to Spin Master’s reputation, harm sales of its products and potentially create liability for Spin Master
and its business, financial condition and performance could be materially and adversely impacted.
Disruptions in Spin Master’s manufacturing operations or supply chain due to political instability, civil
unrest or public health crisis have adversely affected and could further adversely affect Spin Master’s
business, financial position, sales, and results of operations.
The Company owns, operates and manages manufacturing facilities and utilizes third-party manufacturers and
suppliers in China, as well as in Vietnam, India, Mexico, France and the U.S. The risk of political instability and
civil unrest in certain of these countries, which could temporarily or permanently damage the manufacturing
operations of the Company or its third-party manufacturers. Outbreaks of communicable diseases have also
been known to occur in certain of these countries and around the world. For example, the COVID-19 pandemic
began in Wuhan, Hubei Province, China, resulting in a global pandemic caused supply chain interruptions for
Spin Master, its suppliers and customers that contributed to lower net sales in the first half of 2020 and may
cause lower net sales to the extent they remain issues in the future. Other disruptions from public health crises
such as these result from, among other things, workers contracting diseases, restrictions on factory openings,
restrictions on travel, restrictions on shipping and shopping, and the closure of critical infrastructure. The
design, development, manufacture, distribution and sale of the Company’s products has suffered and could
further suffer if a significant number of the Company’s employees or the employees of its third-party
manufacturers, their suppliers, or of businesses where the Company’s products are sold, contract
communicable diseases such as these, or if the Company, the Company’s third-party manufacturers, or their
24
suppliers are adversely affected by other impacts of such diseases. In addition, the contingency plans the
Company has developed to help mitigate the impact of disruptions in its operations, have not and may not
prevent its business, financial position, sales, and results of operations from being adversely affected by a
significant disruption to its operations, suppliers or demand for the Company’s products.
Spin Master’s business is seasonal and therefore its annual financial performance depends, in large
part, on its sales relating to the holiday season. As retailers become more efficient in their control of
inventory levels and give shorter lead times for production, failures to predict demand and possible
transportation, production or other disruptions during peak demand times may affect the Company’s
ability to deliver products in time to meet retailer demands.
Seasonality factors cause Spin Master’s operating results to fluctuate significantly from quarter to quarter. A
majority of the Company’s sales occur during the third and fourth quarters, with a majority of retail sales
occurring during the period from September through December in anticipation of the holiday season. Generally,
the first quarter is the period of lowest shipments and revenues in the toy industry and therefore, the least
profitable because of certain fixed costs. This seasonality has increased over time, as retailers become more
efficient in their control of inventory levels through inventory management techniques. Further, ecommerce
continues to grow significantly and accounts for a higher portion of the ultimate sales of the Company’s
products to consumers. Ecommerce retailers tend to hold less inventory and take inventory closer to the time of
sale to consumers than traditional retailers. Spin Master’s failure to predict levels of consumer demand
surrounding the holiday season may result in under-producing popular products and overproducing
underperforming items, which, in either case, would adversely affect the Company’s business, financial
condition and performance. Spin Master’s results of operations may also fluctuate as a result of factors such as
the timing of new products or new products that its competitors introduce in the marketplace, the advertising
activities of its competitors and the emergence of new market entrants. In addition, due to the seasonal nature
of Spin Master’s business, the Company would be materially and adversely impacted, in a manner
disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen
events, such as public health crises and pandemics, terrorist attacks, adverse weather conditions or economic
shocks that harm the retail environment or consumer buying patterns during the Company’s key selling season,
or by events such as strikes, port delays or supply chain interruptions, that interfere with the manufacture or
shipment of goods during critical months leading up to the peak purchasing season.
If Spin Master fails to meet transportation schedules, it could damage the Company’s relationships with
retailers, increase the Company’s distribution and logistics costs or cause sales opportunities to be delayed or
lost. In order to be able to deliver its merchandise on a timely basis, Spin Master needs to maintain adequate
inventory levels of the desired products. If the Company’s inventory forecasting and production planning
processes result in Spin Master manufacturing inventory in excess of the levels demanded by its customers,
the Company could be required to record inventory write-downs for excess and obsolete inventory, which could
materially and adversely affect the Company’s financial performance. If the inventory of Spin Master products
held by its retailers is too high, they may not place or may reduce orders for additional products, which could
unfavourably impact the Company’s future sales and materially and adversely affect its financial performance.
Uncertainty and adverse changes in general economic conditions may negatively affect consumer
spending, which could have a material adverse effect on Spin Master’s revenue and profitability.
Current and future conditions in the economy have an inherent degree of uncertainty. As a result, it is difficult to
estimate the level of growth or contraction for the economy as a whole. It is even more challenging to estimate
growth or contraction in various parts, sectors and regions of the economy, including the many different
markets in which Spin Master participates. The Company’s budgeting and forecasting are dependent upon
estimates of demand for its products and growth or contraction in the markets it serves. Economic uncertainty
complicates reliable estimation of future income and expenditures. Adverse changes may occur as a result of
weakening global economic conditions, tightening of consumer credit, falling consumer confidence, increasing
unemployment, declining stock markets or other factors affecting economic conditions generally. These
changes may negatively affect demand for Spin Master’s products, increase exposure to retailers with whom it
does business, increase the cost and decrease the availability of financing to fund Spin Master’s working
capital needs, or increase costs associated with manufacturing and distributing products, any of which could
have a material and adverse effect on the Company’s revenue and profitability.
Consumer spending habits, including spending on Spin Master products, are affected by, among other things,
prevailing economic conditions, levels of employment, fuel prices, salaries and wages, the availability of
consumer credit, foreclosures, bankruptcies, falling home prices, consumer confidence and consumer
perception of economic conditions. A general economic slowdown in Canada, the U.S. and other parts of the
world could decrease demand for the Company’s products which would adversely affect its revenue; an
uncertain economic outlook may adversely affect consumer spending habits and customer traffic, which may
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result in lower revenue. A prolonged global economic downturn could have a material negative impact on the
Company’s business, financial condition and performance.
In addition to experiencing potentially lower revenues during times of economic difficulty, in an effort to maintain
sales during such times, Spin Master may need to reduce the price of its products, increase promotional
spending and/or sales allowances, offer incentives or take other steps to encourage retailer and consumer
purchase of its products. Those steps may lower the Company’s net revenues or increase its costs, thereby
decreasing its operating margins and lowering its profitability. These challenges can be exacerbated if
customers accumulate excess retail inventories over time due to their purchases of Spin Master’s products
exceeding sales of those products to ultimate consumers. It can then take the Company significant time,
working with retailers, to reduce those excess retail inventories, and in the interim its sales of new products can
be negatively impacted.
Spin Master’s sales are concentrated with a small number of retailers that do not make long-term
purchase commitments. Consequently, economic difficulties or changes in the purchasing strategies
and patterns of those retailers could have a material adverse effect on the Company’s business,
financial condition and performance.
A small number of retailers account for a large proportion of Spin Master’s total sales. In 2020, the three largest
customers collectively accounted for approximately 50.3% of the Company’s Gross Product Sales. This
concentration means that if one or more of Spin Master’s major customers were to experience difficulties in
fulfilling their obligations to the Company, cease doing business with the Company, significantly reduce the
amount of their purchases from the Company, return substantial amounts of Spin Master’s products, favour its
competitors or new entrants or increase their competition with Spin Master by expanding their private label
product lines, or seek material financial contributions from the Company towards price reductions at the retail
level, the Company’s business, financial condition and performance could suffer. The COVID-19 pandemic has
resulted in an increased reliance on Spin Master’s largest customers due to forced or voluntary store closures
by its specialty retail customers. In addition, increased concentration among Spin Master’s customers could
also negatively impact its ability to negotiate higher sales prices for its products, could result in lower margins
and could reduce the number of products the Company would otherwise be able to bring to market. Retailers
do not make any long-term commitments to the Company regarding purchase volumes and make all purchases
by delivering one-time purchase orders. Any customer could reduce its overall purchases of the Company’s
products, reduce the number and variety of the Company’s products that it carries and the shelf space allotted
for Spin Master’s products, or otherwise seek to materially change the terms of their business relationship with
Spin Master at any time. Any such change could significantly harm the Company’s business, financial condition
and performance. Similarly, liquidity problems at one or more of the Company’s key customers could expose
the Company to losses from bad debts and negatively impact its business, financial condition and performance.
Spin Master’s sales to retailers are typically made on credit without collateral. There is a risk that customers will
not pay, or that payment will be delayed, because of bankruptcy or other factors beyond Spin Master’s control,
which could increase its exposure to losses from bad debts and increase its cost of sales. In addition, if these
or other retailers were to cease doing business as a result of bankruptcy, or significantly reduce the number of
stores they operate, it could have a material adverse effect on the Company’s business, financial condition and
performance. Spin Master’s credit insurance may not cover all types of claims against customers and insurance
levels for covered claims may not be adequate to indemnify the Company against all liability, which could
materially and adversely harm the Company’s business, financial condition and performance.
Failure to maintain existing relationships, or to develop new relationships, with inventors and
entertainment content collaborators could have a material adverse effect on Spin Master’s business,
financial condition and performance.
Spin Master’s relationships with inventors are a critical aspect of the Company’s product development. A
significant portion of Spin Master’s product ideas have been sourced from inventors and developed by the
Company. If Spin Master fails to maintain existing relationships or to develop new relationships within the
inventor community or if the Company experiences an adverse change in the perception of the Company by
inventors, Spin Master may receive fewer product concepts from inventors. This would adversely impact Spin
Master’s ability to introduce new, innovative brands and products, which in turn would materially and adversely
harm its business, financial condition and performance.
including writers, content developers,
Spin Master’s relationships with entertainment collaborators,
broadcasters and directors, are a critical aspect of the Company’s development of its entertainment properties,
brands and content. A portion of Spin Master’s entertainment properties, brands and content have been
sourced from external collaborators. If Spin Master fails to maintain existing relationships or to develop new
relationships with entertainment collaborators or if the Company experiences an adverse change in the
perception of the Company by these entertainment collaborators, Spin Master may receive fewer concepts.
26
This would adversely impact Spin Master’s ability to introduce new entertainment properties, brands and
content, which in turn would materially and adversely harm its business, financial condition and performance.
Failure to leverage Spin Master’s portfolio of franchises effectively across entertainment and media
platforms, maintain relationships with key television and motion picture studios, and entertainment and
media companies could have a material adverse effect on the Company’s business, financial condition
and performance.
Complementing Spin Master’s product offerings with entertainment and media initiatives is an integral part of
the Company’s growth strategy. Spin Master invests in interactive media and other entertainment initiatives,
extending the Company’s brands across multiple platforms. Establishing and maintaining relationships with key
broadcasters and motion picture studios, and entertainment and media companies are critical to the successful
execution of these initiatives. The Company’s failure to execute effectively on these initiatives could result in its
inability to recoup its investment and harm the related toy brands employed in these initiatives. Such failures
could have a material adverse effect on the Company’s business, financial condition and performance.
Risks Related to the Entertainment Industry.
The entertainment industry involves a substantial degree of risk. Acceptance of children’s entertainment
programming represents a response not only to the production’s artistic components, but also the quality and
acceptance of other competing programs released into the marketplace at or near the same time, the
availability of alternative forms of children’s entertainment and leisure time activities, general economic
conditions, public tastes generally and other intangible factors, all of which could change rapidly or without
notice and cannot be predicted with certainty. There is a risk that some or all of Spin Master’s programming will
not be purchased or accepted by the public generally, resulting in a portion of costs not being recouped or
anticipated direct and indirect profits not being realized, which could have a material and adverse effect on the
Company’s business, financial condition and performance. There can be no assurance that revenue from
existing or future programming will replace loss of revenue associated with the cancellation or unsuccessful
commercialization of any particular production or that Spin Master’s entertainment programming will generate
product sales.
The business of producing and distributing television programs is highly competitive. There are numerous
suppliers of entertainment content and Spin Master faces intense competition with other producers and
distributors, many of whom are substantially larger and have greater resources. Further, vertical integration of
the television broadcast industry worldwide and the creation and expansion of new networks, which create a
substantial portion of their own programming, has decreased access for programs produced by third-party
production companies. The Company competes with other television production companies for ideas and
storylines created by third parties as well as for access to animation studios, writers, producers, actors,
directors and other personnel required for a production. Spin Master may not be successful in any of these
efforts which could have a material and adverse effect on its business, financial condition and performance.
Spin Master also faces competition from both regulated and unregulated players using existing or new
technologies and from illegal services. The rapid deployment of new technologies, services and products have
reduced the traditional lines between internet and broadcast services and further expanded the competitive
landscape. The Company may also be affected by changes in customer discretionary spending patterns, which
in turn are dependent on consumer confidence, disposable consumer income and general economic
conditions. New or alternative media technologies and business models, such as video-on-demand,
subscription-video-on-demand, high-definition television, personal video recorders, mobile television, internet
protocol television, over-the-top internet-based video entertainment services, connected televisions, virtual
multichannel programming distributors, audio streaming platforms, podcasting and direct-to-home satellite
compete for audiences. As well, mobile devices like smartphones and tablets allow consumers to access
content anywhere, anytime and are creating consumer demand for mobile, portable or free content. These
technologies and business models may increase audience fragmentation. Technological developments may
also disrupt traditional distribution platforms by enabling content owners to provide content directly to
consumers, thus bypassing traditional content aggregators.
Distributors’ decisions regarding the timing of release and promotional support of Spin Master’s television
programs are important in determining the success of these programs. The Company does not ultimately
control the timing and manner in which its distributors distribute the Company’s television programs. Any
decision by those distributors not to distribute or promote one of Spin Master’s television programs or to
promote competitors’ programs to a greater extent than they promote Spin Master’s programs could have a
material and adverse effect on the Company’s business, financial condition and performance.
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Production of film and television programs requires a significant amount of capital. Unforeseen events such as
labour disputes, changes related to technology, special effects or other aspects of production, shortage of
necessary equipment, or other unforeseen events affecting aspects of production may cause cost overruns and
delay or frustrate completion of a production. Although Spin Master has historically completed its productions
within budget, there can be no assurance that it will continue to do so. The Company currently maintains
insurance policies covering certain of these risks. There can be no assurance that any overrun resulting from
any occurrence will be adequately covered or that such insurance and completion bonds will continue to be
available or, if available on terms acceptable to Spin Master. In the event of substantial budget overruns, there
can be no assurance that such costs will be recouped, which could have a material and adverse effect on the
Company’s business, financial condition and performance.
Financial risks exist in productions relating to tax credits. There can be no assurance that industry funding
assistance programs and government tax credits which Spin Master may access in Canada and internationally
from time to time, including those sponsored by various European, Australian and Canadian governmental
agencies, will not be reduced, amended or eliminated or that Spin Master’s production projects will continue to
qualify for them. Any change in the policies of those countries in connection with their incentive programs could
have a material and adverse effect on the Company’s business, financial condition and performance.
International sales are subject to various risks and failure to implement the international growth
strategy could have a material adverse effect on the Company’s business, financial condition and
performance.
Spin Master currently relies on international sales of its products and expects to do so to a greater extent in the
future as it continues to expand its business. The Company believes that its revenue and financial performance
will depend in part upon its ability to increase sales in international markets. Implementation of Spin Master’s
international growth strategy is subject to risks beyond its control, and accordingly, there can be no assurance
that the Company’s international growth strategy will be successful. The lack of success in the Company’s
international growth strategy may have a material and adverse effect on its business, financial condition and
performance.
International sales are subject to various risks, including: exposure to currency fluctuations; political and
economic instability; increased difficulty of administering business; and the need to comply with a wide variety
of international and domestic laws and regulatory requirements. There are a number of risks inherent in the
Company’s international activities, including: unexpected changes in Canadian, U.S. or other governmental
policies concerning the import and export of goods; services and technology and other regulatory requirements;
tariffs and other trade barriers; costs and risks of localizing products for foreign languages; longer accounts
receivable payment cycles; limits on repatriation of earnings; the burdens of complying with a wide variety of
non-Canadian or U.S. laws; and difficulties supervising and managing local personnel. The financial stability of
non-Canadian or U.S. markets could also affect Spin Master’s international sales. In addition, international
income may be subject to taxation by more than one jurisdiction, which could also have a material adverse
effect on the Company’s financial performance. Such factors may have a material adverse effect on the
Company’s revenues and expenses related to international sales and, consequently, business, financial
condition and performance.
An increasing portion of Spin Master’s business may come from new and emerging markets, and
growing business in new and emerging markets presents additional challenges which could have a
material adverse effect on the Company’s business, financial condition and performance.
Spin Master expects an increasing portion of its revenues to come from new and emerging markets, including
China and Russia. Operating in new and emerging markets, each with its own unique consumer preferences
and business climates, presents additional challenges that Spin Master must meet. In addition, sales and
operations in new and emerging markets are subject to other risks associated with international operations.
Such risks include, but are not limited to: complications in complying with different laws in varying jurisdictions;
dealing with changes in governmental policies and the evolution of laws and regulations that impact Spin
Master’s product offerings and related enforcement; difficulties understanding the retail climate, consumer
trends, local customs and competitive conditions in foreign markets, which may be quite different from Canada
and the U.S.; difficulties in moving materials and products from one country to another, including port
congestion, strikes and other transportation delays and interruptions; potential challenges to Spin Master’s
transfer pricing determinations and other aspects of its cross border transactions; and the impact of tariffs,
quotas, or other protectionist measures. Spin Master’s business, financial condition and performance could be
harmed if any of the risks described above are not appropriately managed, or if the Company is otherwise
unsuccessful in managing its new and emerging market business.
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Product recalls, post-manufacture repairs of Spin Master’s products, product liability claims, absence
or cost of insurance, and associated costs could harm the Company’s reputation, which could have a
material adverse effect on the Company’s business, financial condition and performance.
Spin Master is subject to regulation by Health Canada, the U.S. Consumer Product Safety Commission and
regulatory authorities and by similar consumer protection regulatory authorities in other countries in which Spin
Master sells its products. These regulatory bodies have the authority to remove from the market, products that
are found to be defective and present a substantial hazard or risk of serious injury or death. The Company has
experienced, and may in the future experience, issues in relation to products that result in recalls, delays,
withdrawals, or post-manufacture repairs or replacements of products.
Individuals have asserted claims, and may in the future assert claims, that they have sustained injuries from the
Company’s products, and Spin Master may be subject to lawsuits relating to these claims. There is a risk that
these claims or liabilities may exceed, or fall outside of the scope of, Spin Master’s insurance coverage as Spin
Master does not maintain separate product recall insurance. The Company has recorded, and in the future may
record, charges and incremental costs relating to recalls, withdrawals or replacements of its products, based on
the Company’s most recent estimates of retailer inventory returns, consumer product replacement costs,
associated legal and other professional fees, and costs associated with advertising and administration of
product recalls. As these current and expected future charges are based on estimates, they may increase as a
result of numerous factors, many of which are beyond Spin Master’s control, including the amount of products
that may be returned by consumers and retailers, the number and type of legal, regulatory, or legislative
proceedings relating to product recalls, withdrawals or replacements or product safety proceedings in Canada,
the U.S. and elsewhere that may involve the Company, as well as regulatory or judicial orders or decrees in
Canada, the U.S. and elsewhere that may require the Company to take certain actions in connection with
product recalls.
Moreover, Spin Master may be unable to obtain adequate liability insurance in the future. Any of these issues
could result in damage to the Company’s reputation, diversion of development and management resources,
reduced sales, and increased costs and could cause the Company’s licensors to terminate or not renew its
licenses, any of which could materially and adversely harm its business, financial condition and performance.
Product recalls, withdrawals, or replacements may also increase the competition that Spin Master faces. Some
competitors may attempt to differentiate themselves by claiming that their products are produced in a manner
or geographic area that is insulated from the issues that preceded recalls, withdrawals or replacements of Spin
Master’s products. In addition, to the extent that the Company’s competitors choose not to implement enhanced
safety and testing protocols comparable to those that the Company and its third-party manufacturers have
adopted, such competitors could enjoy a cost advantage that could enable them to offer products at lower
prices than Spin Master.
Additionally, product recalls relating to Spin Master’s competitors’ products, post-manufacture repairs of their
products and product liability claims against the Company’s competitors may indirectly impact the Company’s
product sales even if its products are not subject to the same recalls, repairs or claims.
Unfavourable resolution of litigation matters and disputes, including those arising from recalls,
withdrawals or replacements of Spin Master’s products, could have a material adverse effect on the
Company’s business, financial condition and performance.
Spin Master is involved from time to time in litigation and disputes, including those arising from recalls,
withdrawals or replacements of its products. Since outcomes of regulatory investigations, litigation and
arbitration disputes are inherently difficult to predict, there is the risk that an unfavourable outcome in any of
these matters could negatively affect the Company’s business, financial condition and performance.
Regardless of the outcome, litigation may result in substantial costs and expenses to Spin Master and
significantly divert the attention of its management. The Company may not be able to prevail in, or achieve a
favourable settlement of, pending litigation. In addition to pending litigation, future litigation, government
proceedings, labour disputes or environmental matters could lead to increased costs or interruption of the
Company’s normal business operations.
Failure to implement new initiatives or meet product introduction schedules could have a material
adverse effect on Spin Master’s business, financial condition and performance.
Spin Master has undertaken, and in the future may undertake, initiatives to increase its efficiency, reduce its
costs, improve the execution of its core business, globalize and extend its brands, develop or extend
entertainment properties, leverage new trends, create new brands or franchises, offer new innovative products
and technologies, enhance product safety, develop its employees, improve productivity, simplify processes,
maintain customer service levels, drive sales growth, capitalize on its scale advantage and improve its supply
29
chain. These initiatives involve investment of capital and complex decision-making, as well as extensive and
intensive execution, and these initiatives may not succeed or there may be a delay in the anticipated timing of
the launch of new initiatives. In addition, Spin Master may anticipate introducing a specific product, product line
or brand at a certain time in the future. There is no guarantee that Spin Master will be able to manufacture,
source and ship new or continuing products in a timely manner and on a cost-effective basis. The risk is also
exacerbated by the increasing sophistication of many of the products the Company is designing, and the
brands being developed in terms of combining digital and analog technologies and providing greater innovation
and product differentiation. Unforeseen delays or difficulties in the development process or significant increases
in the planned cost of development for new products may cause the introduction date for products to be later
than anticipated or, in some situations, may cause a product or new product introduction to be discontinued.
Failure to implement any of these initiatives, or the delay of the anticipated launch, or the failure of any of these
initiatives or launches to produce the results anticipated by management, could have a material adverse effect
on the Company’s business, financial condition and performance.
A reduction or interruption in the delivery of raw materials, parts and components from Spin Master’s
suppliers or a significant increase in the price of supplies could negatively impact the Company’s profit
margins or result in lower sales.
Spin Master’s ability to meet customer demand depends in part on its ability to obtain timely and adequate
delivery of materials, parts and components from Spin Master’s suppliers. The Company has experienced
shortages in the past, including shortages of raw materials and components, and may encounter these
problems in the future. A reduction or interruption in supplies, whether resulting from more stringent regulatory
requirements, disruptions in transportation, port delays, labour strikes, lockouts, an outbreak of a severe public
health crisis, severe weather due to climate change or otherwise, the occurrence of threat of wars or other
conflicts, or a significant increase in the price of one or more supplies, such as fuel and resin (which is a
petroleum-based product), could have a material adverse effect on the Company’s business, financial condition
and performance. Cost increases, whether resulting from shortages of materials or rising costs of materials,
transportation, services or labour, could impact the profit margins on the sale of Spin Master’s products. Due to
market conditions, timing of pricing decisions and other factors, the Company may not be able to offset any of
these increased costs by adjusting the prices of its products. Increases in prices of the Company’s products
could result in lower sales and have a material adverse effect on its financial condition and performance.
Spin Master may not realize the full benefit of its licenses if the licensed material has less market
appeal than expected and licenses may not be profitable to the Company if sales revenue from the
licensed products are not sufficient to support the minimum guaranteed royalties.
An integral part of Spin Master’s business involves obtaining licenses to produce products utilizing various
entertainment brands and content. As a licensee of entertainment-based properties, the Company has no
guarantee that a particular brand or property will translate into a successful toy, entertainment brand or other
product. Additionally, a successful brand may not continue to be successful or maintain a high level of sales. If
Spin Master produces a line of products based on entertainment-based properties, the success of the
entertainment series has a critical impact on the level of consumer interest in the associated products being
offered by the Company. Spin Master relies on the efforts of third parties, such as licensors, film studios,
content producers and distribution channels with whom the Company works, with respect to development of
content and timing of media development, release dates and the ultimate consumer interest in and success of
these media efforts. Spin Master does not fully control when or if any particular project will be developed or
released, and the Company’s licensors, media partners or other third parties may change their plans with
respect to projects and release dates or cancel development all together. Lack of control can make it difficult for
the Company to successfully develop and market products in conjunction with such entertainment projects,
given the lengthy lead times involved in product development and successful marketing efforts. Any delay or
cancellation of planned product development work, releases, or media support may decrease the number of
products sold by the Company, which could harm its business. If any production or entertainment releases are
delayed, due to the COVID-19 pandemic or otherwise, it could adversely affect the Company’s business,
financial condition and performance.
The license agreements into which the Company enters usually require it to pay minimum royalty guarantees
that may be substantial, and in some cases may be greater than the amount it earns from sales of the licensed
brands. This could result in write-offs of significant amounts, which in turn could materially and adversely
impact the Company’s financial condition and performance. Acquiring or renewing licenses may require the
payment of minimum guaranteed royalties that Spin Master considers to be too high to be profitable, which may
result in losing licenses it currently holds when they become renewable under their terms, or missing business
opportunities for new licenses. If the Company is unable to acquire or maintain successful licenses on
advantageous terms, its business, financial condition and performance may be materially and adversely
impacted.
30
Spin Master’s operating procedures and product requirements are subject to change and may increase
costs, which may materially and adversely affect its relationship with vendors and make it more
difficult for it to produce, purchase and deliver products on a timely basis to meet market demands.
Future conditions may require the Company to adopt further changes that may increase its costs and
adversely affect the Company’s relationship with vendors.
Spin Master’s operating procedures and requirements for both its own manufacturing facilities and vendors,
which are regularly monitored and which are subject to change, including by implementing enhanced testing
requirements and standards, impose additional costs on both Spin Master and the vendors from whom it
purchases products. These changes may also delay delivery of the Company’s products. Additionally, changes
in industry wide product safety guidelines may affect the Company’s ability to sell its inventory and may
negatively impact its business. Spin Master’s relationship with existing vendors may be adversely affected as a
result of these changes, making it more dependent on a smaller number of vendors. Some vendors may
choose not to continue to do business with the Company or not to accommodate the Company’s needs to the
extent that they have done so in the past. Due to the seasonal nature of Spin Master’s business and the
demands of its customers for deliveries with short lead times, Spin Master depends upon the cooperation of its
vendors to meet market demand for its products in a timely manner. Existing and future events may require the
Company to impose additional requirements on its vendors that may adversely affect the Company’s
relationships with those vendors and its ability to meet market demand in a timely manner which may in turn
have a material and adverse effect on the Company’s business, financial condition and performance.
Spin Master may engage in acquisitions, mergers, or dispositions, which may affect the profit,
revenues, profit margins or other aspects of its business. Spin Master may not realize the anticipated
benefits of future acquisitions, mergers or dispositions to the degree anticipated, or such transactions
could have a material adverse impact on the Company’s business, financial condition and
performance.
Acquisitions have been a part of Spin Master’s growth and have enabled it to further broaden and diversify its
product offerings. The Company expects that in the future it will further expand its operations, brands, and
product offerings through the acquisition of additional businesses, products or technologies. However, the
Company may not be able to identify suitable acquisition targets or merger partners and the Company’s ability
to efficiently integrate large acquisitions may be limited by its lack of experience with them. If Spin Master is
able to identify suitable targets or merger partners, it may not be able to acquire these targets on acceptable
terms or agree to terms with merger partners. Also, Spin Master may not be able to integrate or profitably
manage acquired businesses and may experience substantial expenses, delays or other operational or
financial problems associated with the integration of acquired businesses. The Company may also face
substantial expenses, delays or other operational or financial problems if it is unable to sustain the distribution
channels and other relationships currently in place at an acquired business. The businesses, products, brands
or properties the Company acquires may not achieve or maintain popularity with consumers, and other
anticipated benefits may not be realized immediately or at all. Further, integration of an acquired business may
divert the attention of the Company’s management from its core business. In cases where Spin Master
acquires businesses that have key individuals, Spin Master cannot be certain that those persons will continue
to work for it after the acquisition or that they will continue to develop popular and profitable products. Loss of
such individuals could materially and adversely affect the value of businesses that the Company acquires.
Acquisitions also entail numerous other risks, including but not limited to:
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unanticipated costs and legal liabilities;
adverse effects on the Company’s existing business relationships with its suppliers and customers;
risk of entering markets in which the Company has limited or no prior experience;
amortizing any acquired intangible assets; and
difficulties in maintaining uniform standards, procedures, controls and policies.
Some or all of the foregoing risks could have a material adverse effect on Spin Master’s business, financial
condition and performance. In addition, any businesses, products or technologies the Company may acquire
may not achieve anticipated revenues or income and the Company may not be able to achieve cost savings
and other benefits that it would hope to achieve with an acquisition.
Acquisitions could also consume a substantial portion of Spin Master’s available cash, could result in incurring
substantial debt which may not be available on favourable terms, and could result in the Company assuming
contingent liabilities. In addition, if the business, product or technologies the Company acquires are
unsuccessful it would likely result in the incurrence of a write-down of such acquired assets, that could
31
adversely affect Spin Master’s financial performance. The Company’s failure to manage its acquisition strategy
could have a material adverse effect on its business, financial condition and performance.
Consistent with Spin Master’s past practice and in the normal course, the Company may have outstanding non-
binding letters of intent and / or conditional agreements or may otherwise be engaged in discussions with
respect to possible acquisitions which may or may not be material. However, there can be no assurance that
any of these letters, agreements and / or discussions will result in an acquisition and, if they do, what the final
terms or timing of any acquisition would be.
If Spin Master fails to maintain an effective system of internal controls, Spin Master may not be able to
report its financial results or prevent fraud, which could harm the Company’s financial performance
and may cause investors to lose confidence in it.
Spin Master must maintain effective internal financial controls for it to provide reliable and accurate financial
reports. The Company’s compliance with the internal control reporting requirements will depend on the
effectiveness of its financial reporting and data systems and controls. Spin Master expects these systems and
controls to become increasingly complex to the extent that its business grows, including through acquisitions.
To effectively manage such growth, the Company will need to continue to improve its operational, financial and
management controls and its reporting systems and procedures. These measures may not ensure that Spin
Master designs, implements and maintains adequate controls over its financial processes and reporting in the
future. Any failure to implement required new or improved controls, or difficulties encountered in their
implementation or operation, could harm the Company’s financial performance or cause it to fail to meet its
financial reporting obligations. Inferior internal controls could also cause investors to lose confidence in the
Company’s reported financial information, which could have a material and adverse effect on the trading price
of its stock and its access to capital.
Spin Master is subject to tax and regulatory compliance in all the jurisdictions in which it operates and
may be subject to audits from time to time that could result in the assessment of additional taxes,
interest and penalties.
Spin Master conducts business globally and is subject to tax and regulatory compliance in the jurisdictions in
which it operates. These include those related to collection and payment of value added taxes at appropriate
rates and the appropriate application of value added taxes to each of the Company’s products, those designed
to ensure that appropriate levels of customs duties are assessed on the importation of its products, as well as
transfer pricing and other tax regulations designed to ensure that its intercompany transactions are
consummated at prices that have not been manipulated to produce a desired tax result, that appropriate levels
of income are reported as earned and that it is taxed appropriately on such transactions. International transfer
pricing is a subjective area of taxation and generally involves a significant degree of judgment.
Spin Master may be subject to audits that are at various levels of review, assessment or appeal in a number of
jurisdictions involving various aspects of value added taxes, customs duties, transfer pricing, income taxes,
withholding taxes, sales and use and other taxes and related interest and penalties in material amounts. The
taxation authorities in the jurisdictions where the Company carries on business could challenge the Company’s
transfer pricing policies. In some circumstances, additional taxes, interest and penalties may be assessed and
deposits required to be paid in order to challenge the assessments. When applicable, the Company reserves in
the consolidated financial statements an amount that it believes represents the most likely outcome of the
resolution of disputes, but if it is incorrect in its assessment, it may have to pay a different amount which could
potentially be material. Ultimate resolution of these matters can take several years, and the outcome is
uncertain. If the taxing authorities in any of the jurisdictions in which the Company operates were to
successfully challenge its transfer pricing practices or its positions regarding the payment of income taxes,
customs duties, value added taxes, withholding taxes, sales and use, and other taxes, it could become subject
to higher taxes and its revenue and earnings could be adversely affected.
Significant changes in currency exchange rates could have a material adverse effect on Spin Master’s
business, financial condition and performance.
Spin Master’s global operations means business is transacted in many different currencies and financial
performance and cash flows are subject to changes in currency exchange rates and regulations. As the
Company’s financial results are reported in U.S. dollars, changes in the exchange rate between the U.S. dollar,
Canadian dollar, Pound Sterling, Peso and the Euro may have an adverse effect / beneficial impact on the
Company’s U.S. dollar results. Furthermore, potential significant revaluation of the Chinese yuan, which may
result in an increase in the cost of producing products in China, could negatively affect Spin Master’s business.
Government action may restrict the Company’s ability to transfer capital across borders and may also impact
the fluctuation of currencies in the countries where the Company conducts business or has invested capital.
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Significant changes in currency exchange rates and reductions in Spin Master’s ability to transfer capital across
borders could have a material adverse effect on its business, financial condition and performance. Currency
fluctuations may also adversely affect the Company’s financial performance when it repatriates the funds it
receives from these sales or other sources.
Spin Master is subject to various laws and government regulations, which, if violated, could subject
Spin Master to sanctions or third-party litigation or, if changed, could lead to increased costs, changes
in the Company’s effective tax rate or the interruption of normal business operations that would
negatively impact the Company’s business, financial condition and performance.
Spin Master operates in a highly regulated environment in the U.S., Canada and international markets,
including its products and the importation and exportation of its products. These policies or regulations may
include accounting standards, taxation requirements (including changes in applicable income tax rates, new tax
laws, and revised tax law interpretations), product safety and other safety standards, trade restrictions, duties
and tariffs (including international trade laws and regulations, export controls, and economic sanctions), and
regulations regarding currency and financial matters, anticorruption standards, environmental matters,
advertising directed toward children, product content, and privacy and data protection, as well as other
administrative and regulatory restrictions. The breakdown of trade relations between the U.S. and a foreign
country in which Spin Master has significant manufacturing facilities or other operations, could adversely affect
Spin Master’s business, financial condition and results of operations. For example, a change in trade status
between the U.S. and a foreign country could result in a substantial increase in the import duty of toys
manufactured in that foreign country and imported into the U.S. The U.S. has commenced certain trade actions,
including imposing increased tariffs on certain goods imported into the U.S. from China, which has resulted in
retaliatory tariffs by China. Any increased trade barriers or restrictions on global trade imposed by the U.S., or
further retaliatory trade measures taken by China or other countries in response, could adversely affect Spin
Master’s business, financial condition and performance. Given the recent change in the U.S. presidential
administration, Spin Master faces uncertainty with respect to U.S. trade policy going forward.
In addition, changes in laws or regulations may lead to increased costs, changes in the Company’s effective tax
rate, or the interruption of normal business operations that would materially and adversely impact its business,
financial condition and performance. The Company believes that it takes all necessary steps to comply with
these laws and regulations, but Spin Master cannot be certain that it is in full compliance or will be in the future.
Failure to comply could result in sanctions or delays that could have a negative impact on the Company’s
business, financial condition and performance.
Spin Master relies extensively on information technology in its operations, and any material failure in
design, inadequacy, interruption, or security breach of that technology could have a material adverse
impact on the Company’s business, financial condition and performance.
Spin Master relies extensively on various information technology systems and software applications across its
operations to manage many aspects of the business, including product development, management of its supply
chain, sale and delivery of its products, financial reporting, collection and storage of data, and various other
processes and transactions. Many of these systems are managed by third-party service providers. The
Company is critically dependent on the integrity, security and consistent operations of these systems and
related back-up systems. These systems are subject to damage or interruption from power outages, computer
and telecommunications failures, computer viruses, malware and other security breaches, catastrophic events
such as hurricanes, fires, floods, earthquakes, tornadoes, acts of war or terrorism and usage errors by
employees or partners. The efficient operation and successful growth of Spin Master’s business depends on
these information systems, including its ability to operate them effectively and to select and implement
appropriate upgrades or new technologies and systems and adequate disaster recovery systems successfully.
The failure of the information systems design, to perform as designed or Spin Master’s failure to implement and
operate them effectively could disrupt the Company’s business, require significant capital investments to
remediate a problem or subject the Company to liability and could have a material adverse effect on its
business, financial condition and performance.
Spin Master’s business could be significantly harmed if its electronic data is compromised.
Spin Master maintains significant amounts of data electronically in locations around the world. This data relates
to all aspects of the Company’s business and also contains certain customer and consumer data. The
Company maintains systems and processes designed to protect this data, but notwithstanding such protective
measures, there is a risk of intrusion or tampering that could compromise the integrity and privacy of this data.
In addition, Spin Master provides confidential and proprietary information to its third-party business partners in
certain cases where doing so is necessary to conduct the Company’s business. While Spin Master obtains
assurances from those parties that they have systems and processes in place to protect such data, and where
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applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those
partners may also be subject to data intrusion or otherwise compromise the protection of such data. While Spin
Master and its third-party business partners maintain systems for preventing and detecting a breach of their
respective information technology systems, Spin Master and those third parties may be unaware that a breach
has occurred, may be unable to detect an ongoing breach or may be delayed in detecting a breach. Spin
Master has exposure to similar security risks faced by other large companies that have data stored on their
information technology systems. To its knowledge, Spin Master has not experienced any material breach of its
cybersecurity systems. If Spin Master’s or any third-party service providers’ systems fail to operate effectively
or are damaged, destroyed, or shut down, or there are problems with transitioning to upgraded or replacement
systems, or there are security breaches in these systems, any of the aforementioned could occur as a result of
natural disasters, software or equipment failures, telecommunications failures, loss or theft of equipment, acts
of terrorism, circumvention of security systems, or other cyber-attacks, Spin Master could experience delays or
decreases in sales, and reduced efficiency of its operations. Any compromise of the confidential data of Spin
Master’s customers, its consumers or itself, or failure to prevent or mitigate the loss of this data could disrupt
Spin Master’s operations, damage its reputation, violate applicable laws and regulations and subject the
Company to additional costs and liabilities and have a material and adverse impact on its business, financial
condition and performance.
The challenge of continuously developing and offering products and entertainment experiences that
are sought after by children is compounded by the sophistication of today’s children and the
increasing array of technology and entertainment offerings available to them.
Children are increasingly utilizing electronic offerings such as computers, tablet devices and mobile phones and
they are expanding their interests to a wider array of innovative, technology-driven entertainment products and
digital and social media offerings at younger and younger ages. Spin Master’s products and digital games
compete with the offerings of consumer electronics companies, gaming, digital media and social media
companies. To meet this challenge, the Company is designing and marketing products and digital games which
incorporate increasing technology, seek to combine digital and analog play, and capitalize on evolving play
patterns and increased consumption of digital and social media. With the increasing array of competitive
entertainment offerings, there is no guarantee that:
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any of Spin Master’s products, brands or entertainment properties will achieve popularity or continue to
be popular;
any property for which Spin Master has a significant license will achieve or sustain popularity;
any new products or product lines Spin Master introduces, or entertainment content that it creates, will
be considered interesting to consumers and achieve an adequate market acceptance; or
any product’s life cycle or sales quantities will be sufficient to permit Spin Master to profitably recover
the development, manufacturing, marketing, royalties (including royalty advances and guarantees) and
other costs of producing, marketing and selling the product.
An increasing portion of Spin Master’s business may come from technologically advanced or
sophisticated digital and smart technology products, which present additional challenges compared to
more traditional toys and games.
Spin Master expects that children will continue to be interested in product offerings incorporating sophisticated
technology, such as video games, consumer electronics and social and digital media, at younger and younger
ages. Spin Master also expects that parents will seek to enhance child development and learning through
digital technologies and analog and technology-based play.
In addition to the risks associated with Spin Master’s more traditional products, sophisticated digital and smart
technology products face certain additional risks. Costs associated with designing, developing and producing
digital games and technologically advanced or sophisticated products tend to be higher than for many of Spin
Master’s more traditional products. Heavy competition in consumer electronics and entertainment products and
difficult economic conditions may increase the risk of Spin Master not achieving sales sufficient to recover the
increased costs associated with these products. Designing, developing and producing sophisticated digital and
smart technology products requires different competencies and may follow longer timelines than traditional toys
and games, and any delays in the design, development or production of these products could have a significant
impact on Spin Master’s ability to successfully offer such products. In addition, the pace of change in product
offerings and consumer tastes in the video games, consumer electronics and social and digital media areas is
potentially even greater than for Spin Master’s more traditional products. This pace of change means that the
window in which a technologically advanced or sophisticated product can achieve and maintain consumer
interest may be shorter than traditional toys and games. These products may also present data security and
data privacy risks and be subject to certain laws, government policies or regulations not applicable to more
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traditional products, such as the U.S. Children’s Online Privacy Protection Act of 1998, the EU General Data
Protection Regulation and the California Consumer Protection Act.
The production and sale of private-label toys by the retailers with which Spin Master does business
may result in lower purchases of the Spin Master’s branded products by those customers.
In recent years, retailers have been increasing the development of their own private-label products that directly
compete with the products of their other suppliers, including children’s entertainment companies. Some of the
retailers with whom Spin Master does business sell private-label toys designed, manufactured and branded by
the retailers themselves. The Company’s customers may sell their private-label toys at prices lower than
comparable toys sold by the Company, and, particularly in the event of strong sales of private-label toys, may
elect to reduce their purchases of Spin Master’s branded products. In some cases, retailers who sell these
private-label toys are larger than Spin Master and have substantially more resources. An increase in the sale of
private-label product by retailers could have a material adverse effect on the Company’s business, financial
condition and performance.
Spin Master’s success depends on key personnel and without them the Company may be unable to
maintain and expand its business.
Spin Master’s future success depends on the continued contribution of key personnel, including, executives,
designers, inventors, technical, sales, marketing and in the entertainment and digital creative centres. The loss
of services of any of the Company’s key personnel could harm its business. Recruiting and retaining skilled
personnel is costly and highly competitive around the world. If the Company fails to retain, hire, train and
integrate qualified employees and contractors, it may not be able to maintain and expand its business.
Natural disasters or other catastrophic events out of Spin Master’s control may damage its operations,
facilities or those of its contractors and could materially and adversely affect the Company’s business,
financial condition and performance.
A catastrophic event where Spin Master has operations, offices or manufacturing facilities, such as an
earthquake, tsunami, flood, typhoon, fire or other natural or manmade disaster, terrorist attacks, wars and other
conflicts, or an outbreak of a public health pandemic could disrupt the Company’s operations or those of its
contractors and impair production or distribution of its products, damage inventory, interrupt critical functions, or
otherwise affect its business negatively, and could materially and adversely affect the Company’s business,
financial condition and performance.
Increases in interest rates, the lack of availability of credit and Spin Master’s inability to meet the debt
covenant coverage requirements in its credit facility could negatively impact the Company’s ability to
conduct its business operations.
Increases in interest rates, both domestically and internationally, could negatively affect Spin Master’s cost of
financing its operations and investments. Adverse credit market conditions could limit the Company’s ability to
refinance its existing credit facility and raise additional debt that may be needed to fund the Company’s
operations. Additionally, Spin Master’s ability to issue or borrow long-term debt and obtain seasonal financing or
pay dividends could be adversely affected by factors such as an inability to meet certain debt covenant
requirements and ratios. In the past, the Company’s business has required and will continue to require capital
expenditures and available resources to finance acquisitions. Accordingly, Spin Master’s ability to maintain its
current credit facility and its ability to issue or borrow long-term debt and raise seasonal financing are critical for
the success of Spin Master’s business. The Company’s ability to conduct operations could be materially and
adversely impacted should these or other adverse conditions affect the Company’s sources of liquidity.
Negative publicity and product reviews may negatively impact Spin Master’s business, financial
condition and performance.
There has been a marked increase in the use of social media platforms and similar channels, including weblogs
(blogs), social media websites and other forms of Internet-based communications that provide individuals with
access to a broad audience of consumers and other interested persons. The availability and impact of
information on social media platforms is virtually immediate and the accuracy of such information is not
independently verified. The opportunity for dissemination of information, including inaccurate information, is
seemingly limitless and readily available. Information concerning Spin Master or one or more of its products or
employees may be posted on such platforms at any time. Information posted may be adverse to Spin Master’s
interests or may be inaccurate, each of which may harm the Company’s reputation and business. The harm
may be immediate without affording Spin Master an opportunity for redress or correction. Ultimately, the risks
35
associated with any such negative publicity or incorrect information cannot be completely eliminated or
mitigated and may materially and adversely impact its business, financial condition and performance.
System failures related to the websites that support Spin Master’s internet-related products,
applications, services and associated websites could harm the Company’s business.
The websites, applications and services associated with Spin Master’s internet-related products depend upon
the reliable performance of their technological infrastructure. Customers could be inconvenienced and the
Company’s business may suffer if demand for access to those websites, applications or services exceeds their
capacity. Any significant disruption to, or malfunction by, those websites or services, particularly malfunctions
related to transaction processing, on those associated websites could result in a loss of potential or existing
customers and sales.
Although Spin Master’s systems have been designed to function in the event of outages or catastrophic
occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss,
telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks, and other
events. Some of the Company’s systems are not fully redundant, and its disaster recovery planning is not
sufficient for all eventualities. Spin Master’s systems are also subject to break-ins, sabotage, and intentional
acts of vandalism. Despite any precautions the Company may take, the occurrence of a natural disaster or
other unanticipated problems at the Company’s hosting facilities could result in lengthy interruptions in its
services. Spin Master does not carry business interruption insurance sufficient to compensate it for losses that
may result from interruptions in its service as a result of system failures. Any unplanned disruption of the
Company’s systems could result in material and adverse financial impact on its business, financial condition
and performance.
FINANCIAL RISK MANAGEMENT
The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its
strategic objectives for growth. The main objectives of the Company’s risk management process are to ensure
that risks are properly identified and that the capital base is adequate in relation to these risks. The principal
financial risks to which the Company is exposed are described below.
Foreign currency risk
Due to the nature of the Company’s international operations, it is exposed to foreign currency risk driven by
fluctuations in foreign exchange rates. Risk arises because the value of monetary assets, liabilities, revenues
and expenditures arising from transactions denominated in foreign currencies may vary due to changes in
foreign exchange rates (“transaction exposures”) and because the non-U.S. dollar denominated financial
statements of the Company’s subsidiaries may vary on translation into the U.S. dollar presentation currency
(“translation exposures”). These exposures could impact the Company’s earnings and cash flows.
The Company uses derivative financial instruments such as foreign exchange forward contracts to manage
foreign currency risk.
Interest rate risk
Interest rate risk is the risk that the Company’s financial assets and liabilities will increase or decrease in value
due to a change in interest rates. The Company is exposed to interest rate risk as its loan facility bears interest
at a variable rate.
Credit risk and Customer Concentration
The Company is dependent on three main retailers with respect to product sales for the majority of its products.
These three customers accounted for 50.3% and 48.0% of consolidated Gross Product Sales1 for the years
ended December 31, 2020 and 2019 respectively.
As the Company usually grants credit to customers on an unsecured basis, credit risk arises from the possibility
that customers may experience financial difficulty and may be unable to fulfill their financial obligations.
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This risk is managed through the establishment of credit limits and payment terms based on an evaluation of
the customer’s financial performance, ability to generate cash, financing availability, and liquidity status. These
factors are reviewed at least annually, with more frequent reviews performed as necessary.
In addition, the Company uses a variety of financial arrangements to ensure collectability of trade receivables,
including requiring letters of credit, supplier financing programs, cash in advance of shipment and purchase of
insurance on trade customer receivables, when available.
RELATED PARTY TRANSACTIONS
The Company periodically engages the services of a law firm whose managing partner is also a member of the
Company’s Board of Directors. During the year ended December 31, 2020, the fees for services rendered were
approximately $1.6 million (2019 - $0.5 million).
CRITICAL ACCOUNTING ESTIMATES
The Company’s significant accounting policies are described in Note 2 of the Company's audited consolidated
financial statements and accompanying notes, which have been prepared in accordance with IFRS. The
preparation of financial statements requires management to make estimates, assumptions and judgments that
affect the reported amounts of assets and liabilities, related disclosures and the reported amounts of revenues
and expenses during the periods covered by the financial statements. Refer to Note 3 of the Company's
audited consolidated financial statements for additional information.
The Company has identified the following accounting policies under which significant judgments, estimates and
assumptions are made, where actual results may differ from these estimates under different assumptions and
conditions and which may materially affect financial results or the financial position in future periods.
Determination of cash‑generating units
A cash‑generating unit ("CGU") is defined as the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or groups of assets. Determining the
impact of impairment requires significant judgment in identifying which assets or groups of assets constitute
CGUs of the Company.
Functional currency
Transactions in foreign currencies are translated to the respective functional currencies of Company entities at
foreign exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.
Determining the appropriate functional currencies for entities in the Company requires analysis of various
factors, including the currencies and country‑specific factors that mainly influence sales prices, and the
currencies that mainly influence labour, materials, and other costs of providing goods or services.
Useful life of property, plant and equipment and intangible assets with finite useful lives
The Company employs significant estimates to determine the estimated useful lives of property, plant and
equipment and intangible assets with finite useful lives, considering industry trends such as technological
advancements, past experience, expected use and review of asset lives.
Components of an item of property, plant and equipment may have different useful lives. The Company makes
estimates when determining depreciation methods, depreciation rates and asset useful lives, which requires
taking into account industry trends and company-specific factors. The Company reviews depreciation methods,
useful lives and residual values annually or when circumstances change and adjusts its depreciation methods
and assumptions prospectively.
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Impairment testing of goodwill and indefinite life intangible assets
Goodwill and indefinite life intangible assets are assessed for impairment at least annually, and whenever there
is an indication that the asset may be impaired. The Company determines the fair value of its CGU groupings
and indefinite life intangible assets using discounted cash flow models corroborated by other valuation
techniques. The process of determining these fair values requires the Company to make estimates and
assumptions of a long-term nature regarding discount rates, projected revenues, royalty rates and margins, as
applicable, derived from past experience, actual operating results and budgets. These estimates and
assumptions may change in the future due to uncertain competitive and economic market conditions or
changes in business strategies.
Provision for inventories
Inventories are stated at the lower of cost and estimated net realizable value. The Company estimates net
realizable value as the amount at which inventories are expected to be sold, taking into consideration
fluctuations in retail prices due to seasonality less estimated costs necessary to make the sale. Inventories are
written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to
obsolescence, damage or declining selling prices.
Sales allowances
A sales allowance is established to reflect amounts for programs which can be contractual or discretionary by
nature, and can include negotiated discounts, customer audits, defective products and refund of costs incurred
by customers to sell the Company’s products. Contractual allowances are fixed and determinable at the time of
sale and are recorded at the time of sales as a reduction to revenue. Discretionary allowances can vary
depending on the future outcomes such as customer sales volume, inventory position, product performance at
retail, historical performance, market conditions and other considerations. The Company may adjust its
estimate of sales allowances when facts and circumstances used in the estimation process change.
Income and other taxes
The calculation of current and deferred income taxes requires the Company to make estimates and
assumptions and to exercise judgment regarding the carrying values of assets and liabilities which are subject
to accounting estimates inherent in those balances, the interpretation of income tax legislation across various
jurisdictions, expectations about future operating results, the timing of reversal of temporary differences and
possible audits of income tax filings by tax authorities.
Changes or differences in underlying estimates or assumptions may result in changes to the current or deferred
income tax balances on the consolidated statements of financial position and income tax (recovery) expense on
the consolidated statements of earnings and comprehensive income.
All income, capital and commodity tax filings are subject to audits and reassessments. Changes in
interpretations or judgments may result in a change in the Company’s income, capital or commodity tax
provisions in the future. The amount of such a change cannot be reasonably estimated.
FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments such as foreign exchange forward contracts to manage
foreign currency risk.
As at December 31, 2020, the Company is committed under outstanding foreign exchange contracts
representing a total net purchase commitment of approximately $11.3 million in US$ (2019 - $15.8 million).
These foreign exchange contracts have maturity dates varying from January to December 2021. The fair value
of these contracts at December 31, 2020 results in an unrealized loss of $7.2 million included in accrued
liabilities and an unrealized gain of $3.7 million included in other receivables (2019 - $0.5 million included in
accrued liabilities). In 2020, realized losses on the Company’s matured hedges were $2.6 million (2019 -
realized gains of $0.6 million) and is included in the consolidated statement of earnings and comprehensive
income.
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DISCLOSURE CONTROLS AND PROCEDURES
The Co-Chief Executive Officers and the Chief Financial Officer (the “Certifying Officers”) have designed, or
caused to be designed under their supervision, Disclosure Controls and Procedures (“DC&P”) to provide
reasonable assurance that (i) material information relating to the Company is made known to them by others,
particularly during the period in which the annual filings are being prepared; and (ii) information required to be
disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under
securities legislation is recorded, processed, summarized and reported within the time periods specified in
securities legislation. The Certifying Officers have evaluated, or caused to be evaluated under their supervision,
the effectiveness of the Company’s DC&P as at December 31, 2020 and have concluded that the Company's
DC&P was effective as at December 31, 2020.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Certifying Officers have also designed, or caused to be designed under their supervision, Internal Control
over Financial Reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes prepared in accordance with IFRS. The
Certifying Officers have used the Internal Control – Integrated Framework (2013 COSO Framework) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to design the Company’s
ICFR. The Certifying Officers have evaluated, or caused to be evaluated under their supervision, the
effectiveness of the Company’s ICFR as at December 31, 2020 and have concluded that the Company's ICFR
was effective as at December 31, 2020.
There have been no changes in the Company’s ICFR during the year ended December 31, 2020 which have
materially affected, or are reasonably likely to materially affect, the Company’s ICFR and its disclosure controls
and procedures.
LIMITATIONS OF AN INTERNAL CONTROL SYSTEM
The Co-Chief Executive Officers and the Chief Financial Officer believe that any Disclosure Controls and
Procedures or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met and that all control issues, including instances of
fraud, if any, within the Company have been prevented or detected. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs. The design of any system of control is also based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated
goals under all potential (future) conditions.
NON-IFRS FINANCIAL MEASURES
In addition to using financial measures prescribed under IFRS, references are made in this MD&A to “EBITDA”,
“Adjusted EBITDA”, “Adjusted EBITDA Margin”, “Adjusted Net Income (Loss)”, “Free Cash Flow”, “Gross
Product Sales”, “Constant Currency”, “Sales Allowances”, "Net Sales" and "Adjusted Administrative Expenses"
which are non-IFRS financial measures. Non-IFRS financial measures do not have any standardized meaning
prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other
issuers.
EBITDA is calculated as net earnings before finance costs, income tax expense and depreciation and
amortization.
Adjusted EBITDA is calculated as EBITDA excluding adjustments that do not necessarily reflect the Company’s
underlying financial performance. These adjustments include restructuring expenses, foreign exchange gains
or losses, share based compensation expenses, acquisition related contingent consideration, impairment of
intangible assets, impairment of property, plant and equipment, legal settlement, transaction costs, bad debt
recovery and expense and fair market value adjustments to acquired inventories. Adjusted EBITDA is used by
management as a measure of the Company’s profitability.
Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Revenue. Management uses Adjusted
EBITDA Margin to evaluate the Company’s performance compared to internal targets and to benchmark its
performance against key competitors.
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Adjusted Net Income (Loss) is calculated as net income (loss) excluding adjustments, as defined above, in
addition to a one-time income tax recovery and the corresponding impact these items have on income tax
expense. Management uses Adjusted Net Income (Loss) to measure the underlying financial performance of
the business on a consistent basis over time.
Adjusted Basic EPS is calculated by dividing Adjusted Net Income (Loss) by the weighted average number of
shares outstanding during the period. Adjusted Diluted EPS is calculated by dividing Adjusted Net Income
(Loss) by the weighted average number of common shares outstanding, assuming the conversion of all dilutive
securities were exercised during the period.
Constant Currency represents Revenue and Gross Product Sales results that are presented excluding the
impact from changes in foreign currency exchange rates. The current period and prior period results for entities
reporting in currencies other than the US dollar are translated using consistent exchange rates, rather than
using the actual exchange rate in effect during the respective periods. The difference between the current
period and prior period results using the consistent exchange rates reflects the changes in the underlying
performance results, excluding the impact from fluctuations in foreign currency exchange rates.
Free Cash Flow is calculated as cash flows provided by/used in operating activities reduced by cash flows used
in investing activities and adding back cash used in license, brand and business acquisitions. Management
uses the Free Cash Flow metric to analyze the cash flow being generated by the Company’s business. Prior
year comparative information has been updated to conform with the current disclosure.
Gross Product Sales represent sales of the Company’s products to customers, excluding the impact of Sales
Allowances. As Sales Allowances are generally not associated with individual products, the Company uses
changes in Gross Product Sales to provide meaningful comparisons across product category and geographical
segment results to highlight trends in Spin Master’s business. For a reconciliation of Gross Product Sales to
Revenue, please see the revenue table for the three months and year ended December 31, 2020 as compared
to the same period in 2019 in this MD&A.
Sales Allowances represent marketing and sales credits requested by customers relating to factors such as
cooperative advertising, contractual discounts, negotiated discounts, customer audits, volume rebates,
defective products and costs incurred by customers to sell the Company’s products and are recorded as a
reduction to Gross Product Sales. Management uses Sales Allowances to identify and compare the cost of
doing business with individual retailers, different geographic markets and amongst various distribution
channels.
Net Sales represents Gross Product Sales less Sales Allowances. Management uses Net Sales to evaluate the
Company’s total net revenue generating capacity compared to internal targets and as a measure of Company
performance.
Adjusted Administrative Expenses is calculated as administrative expenses adjusted for restructuring
expenses, share based compensation expenses, impairment of property, plant and equipment, transaction
costs and bad debt recovery. Please see the Adjusted Administrative Expenses table for the three months and
year ended December 31, 2020 as compared to the same period in 2019 in this MD&A.
Management believes the non-IFRS measures defined above are important supplemental measures of
operating performance and highlight trends in the core business that may not otherwise be apparent when
relying solely on IFRS financial measures. Management believes that these measures allow for assessment of
the Company’s operating performance and financial condition on a basis that is more consistent and
comparable between reporting periods. The Company believes that lenders, securities analysts, investors and
other interested parties frequently use these non-IFRS financial measures in the evaluation of issuers.
40
Reconciliation Tables
The following table presents a reconciliation of net income to EBITDA1, Adjusted EBITDA1 and Adjusted Net
Income1, and cash from operations to Free Cash Flow1 for the fiscal years ended December 31, 2020, 2019
and 2018:
(US$ millions)
Reconciliation of Non-IFRS Financial Measures
Net income
Income tax (recovery) expense
Finance costs
Depreciation and amortization expenses
EBITDA1
Adjustments:
Restructuring expense2
Foreign exchange loss (gain)3
Share based compensation4
Acquisition related contingent consideration5
Impairment of intangible assets6
Impairment of property, plant and equipment7
Legal settlement8
Transaction costs9
Bad debt (recovery) expense10
Amortization of fair market value adjustments11
Adjusted EBITDA1, 14
Income tax (recovery) expense
Finance costs
Depreciation and amortization expenses
One-time income tax recovery12
Tax effect of adjustments13
Adjusted Net Income1
Cash provided by operating activities
Cash used in investing activities
Add:
Cash used for license, brand and business acquisitions
Free Cash Flow1
1) See "Non-IFRS Financial Measures".
Year Ended Dec 31
2020
2019
201814
45.5
(36.1)
12.1
103.0
124.5
5.3
27.6
12.2
3.7
0.4
0.5
5.5
0.9
—
—
180.6
(36.1)
12.1
103.0
33.3
14.9
53.4
310.8
(84.9)
6.2
232.1
64.3
20.7
11.7
84.6
154.9
53.5
9.4
74.2
181.3
292.0
8.8
5.8
15.2
3.2
5.6
—
—
—
(0.9)
—
7.2
(9.3)
12.2
1.2
—
—
(15.5)
—
12.1
3.7
219.0
303.6
20.7
11.7
84.6
—
9.2
92.8
53.5
9.4
74.2
—
3.0
163.5
98.4
(116.2)
192.9
(159.5)
22.5
4.7
77.0
110.4
2) Restructuring expense primarily relates to personnel related costs. Restructuring in the current period includes costs related to changes in senior leadership. In the second
quarter of 2019 and fourth quarter of 2018, restructuring expenses also included costs related to facility closures.
3) Includes foreign exchange loss (gain) generated by the translation of monetary assets/liabilities denominated in a currency other than the functional currency of the
applicable entity and losses (gains) related to the Company's hedging programs.
4) Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the IPO and share option expense. As of August 1,
2018, share based compensation includes expenses related to the Company's LTIP.
5) Remuneration expense associated with additional contingent consideration for previous acquisitions.
6) Impairment of intangible assets related to content development, licenses, brands and trademarks.
7) Impairment of property, plant and equipment related to machinery.
8) Legal settlement in the fourth quarter of 2020 and in the second quarter of 2018.
9) Non-recurring transaction costs relating to the acquisition of Rubik's.
10) Net bad debt (recovery) expense related to the bankruptcy declaration and liquidation proceedings of TRU during the fourth quarter of 2019 and first quarter of 2018.
11) Amortization of fair market value adjustments to inventory relating to the acquisition of Gund in the second quarter of 2018.
12) One-time income tax recovery relates to internal transfer of intangible property of $33.3 million.
13) Tax effect of adjustments (Footnotes 2-11). Adjustments are tax effected at the effective tax rate of the given period.
14) The comparative information presented for 2018 has not been restated for the adoption of IFRS 16. On a pro forma basis, the impact of IFRS 16 on Adjusted EBITDA for
2018 would be an increase of $11.3 million.
41
FORWARD‑LOOKING STATEMENTS
Certain statements, other than statements of historical fact, contained in this MD&A constitute “forward-looking
information” within the meaning of certain securities laws, including the Securities Act (Ontario), and are based
on expectations, estimates and projections as of the date on which the statements are made in this MD&A. The
words “plans”, “expects”, “projected”, “estimated”, “forecasts”, “anticipates”, “indicative”, “intend”, “guidance”,
“outlook”, “potential”, “prospects”, “seek”, “strategy”, “targets” or “believes”, or variations of such words and
phrases or statements that certain future conditions, actions, events or results “will”, “may”, “could”, “would”,
“should”, “might” or “can”, or negative versions thereof, “be taken”, “occur”, “continue” or “be achieved”, and
other similar expressions, identify statements containing forward-looking information. Statements of forward-
looking information in this MD&A include, without limitation, statements with respect to: the Company’s outlook
for 2021 (see “Outlook”); future growth expectations in 2021 and beyond; financial position, cash flows and
financial performance; drivers for such growth; the resolution of logistics problems; the program to achieve
operational efficiencies supports the growth of the Company's global platform; the successful execution of its
strategies for growth; the impacts of the COVID-19 pandemic on the Company; and consumer demand and the
seasonality of financial results and performance.
Forward-looking statements are necessarily based upon management’s perceptions of historical trends, current
conditions and expected future developments, as well as a number of specific factors and assumptions that,
while considered reasonable by management as of the date on which the statements are made in this MD&A,
are inherently subject to significant business, economic and competitive uncertainties and contingencies which
could result in the forward-looking statements ultimately being incorrect. In addition to any factors and
assumptions set forth above in this MD&A, the material factors and assumptions used to develop the forward-
looking information include, but are not limited to: the ability of factories to manufacture products, including
labour size and allocation, tooling, raw material and component availability, ability to shift between product mix,
and customer acceptance of delayed delivery dates; that the program designed to gain operational efficiencies
will achieve the desired results; the expanded use of advanced technology, robotics and innovation the
Company applies to its products will have a level of success consistent with its past experiences; the Company
will continue to successfully secure broader licenses from third parties for major entertainment properties
consistent with past practices; the expansion of sales and marketing offices in new markets will increase the
sales of products in that territory; the Company will be able to successfully identify and integrate strategic
acquisition opportunities; the Company will be able to maintain its distribution capabilities; the Company will be
able to leverage its global platform to grow sales from acquired brands; the Company will be able to recognize
and capitalize on opportunities earlier than its competitors; the Company will be able to continue to build and
maintain strong, collaborative relationships; the Company will maintain its status as a preferred collaborator; the
culture and business structure of the Company will support its growth; the current business strategies of the
Company will continue to be desirable on an international platform; the Company will be able to expand its
portfolio of owned branded intellectual property and successfully license it to third parties; use of advanced
technology and robotics in the Company’s products will expand; access of entertainment content on mobile
platforms will expand; fragmentation of the market will continue to create acquisition opportunities; the
Company will be able to maintain its relationships with its employees, suppliers and retailers; the Company will
continue to attract qualified personnel to support its development requirements; and the Company's key
personnel will continue to be involved in the Company products and entertainment properties will be launched
as scheduled and that the risk factors noted in this MD&A, collectively, do not have a material impact on the
Company.
By its nature, forward-looking information is subject to inherent risks and uncertainties that may be general or
specific and which give rise to the possibility that expectations, forecasts, predictions, projections or
conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic
goals and priorities will not be achieved. Known and unknown risk factors, many of which are beyond the
control of the Company, could cause actual results to differ materially from the forward-looking information in
this MD&A. Such risks and uncertainties include, without limitation, the magnitude and length of economic
disruption as a result of the COVID-19 pandemic; and the factors discussed in the Company's disclosure
materials, including the Annual MD&A and the Company's most recent AIF, filed with the securities regulatory
authorities in Canada and available under the Company's profile on SEDAR (www.sedar.com). These risk
factors are not intended to represent a complete list of the factors that could affect the Company and investors
are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put
undue reliance on forward-looking statements.
There can be no assurance that forward-looking statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such statements. Forward-looking statements are
provided for the purpose of providing information about management’s expectations and plans relating to the
42
future. The Company disclaims any intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise, or to explain any material difference
between subsequent actual events and such forward-looking statements, except to the extent required by
applicable law.
43
ADDENDUM
Effective January 1, 2021, Spin Master has simplified its product categories to align with the Company's
product offerings going forward. The following table restates 2020 Gross Product Sales1 in the same format that
the Company will be presenting Gross Product Sales1 in 2021:
Gross Product Sales1 by Product Category
(US$ millions)
Pre-School and Girls
Activities, Games & Puzzles and Plush
Boys
Outdoor
Q1 2020
Q2 2020
Q3 2020
Q4 2020
73.1
80.1
60.7
28.4
93.5
99.8
54.1
34.8
242.7
181.0
151.4
12.3
587.4
200.2
173.9
122.1
15.6
511.8
Gross Product Sales1
242.3
282.2
Total
609.5
534.8
388.3
91.1
1,623.7
44
Spin Master Corp.
Annual consolidated financial statements
For the years ended December 31, 2020 and December 31, 2019
Deloitte LLP
Bay Adelaide East
8 Adelaide Street West
Suite 200
Toronto ON M5H 0A9
Canada
Tel: 416-601-6150
Fax: 416-601-6151
www.deloitte.ca
Independent Auditor’s Report
To the Shareholders of Spin Master Corp.
Opinion
We have audited the consolidated financial statements of Spin Master Corp. (the “Company”), which
comprise the consolidated statements of financial position as at December 31, 2020 and 2019, and
the consolidated statements of earnings and comprehensive income, consolidated statements of
changes in shareholders’ equity and consolidated statements of cash flows for the years then ended,
and notes to the consolidated financial statements, including a summary of significant accounting
policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the
financial position of the Company as at December 31, 2020 and 2019, and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting
Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards
(“Canadian GAAS”). Our responsibilities under those standards are further described in the Auditor’s
Responsibilities for the Audit of the Financial Statements section of our report. We are independent of
the Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Key Audit Matter
A key audit matter is a matter that, in our professional judgment, was of most significance in our audit
of the financial statements for the year ended December 31, 2020. This matter was addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on this matter.
Provisions for sales allowances - Refer to Notes 2F, 3D and 10 to the financial statements
Key Audit Matter Description
The Company routinely enters into arrangements with its customers to provide sales incentives,
support customer promotional activities and provide compensation for defective merchandise. Such
arrangements are considered variable consideration for revenue recognition purposes, and the
Company uses the expected value method to quantify the variable consideration. A sales allowance is
established to reflect amounts for programs which can be contractual or discretionary by nature.
Contractual allowances are fixed and determinable at the time of sale, which do not require
management to make significant judgments. The determination of the provisions for discretionary
sales allowances are impacted by various current and forward-looking factors including customer sales
volumes, channel inventory positions, product performance at retail, historical performance, market
conditions and other considerations.
Given the significant judgments made by management to estimate the provisions for discretionary
sales allowances, performing audit procedures to evaluate their reasonableness required a high degree
of auditor judgment and an increased extent of audit effort.
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of the provisions for discretionary sales allowances
included the following procedures, among others:
•
•
•
Evaluated management’s methods around the development of the provisions for discretionary
sales allowances.
Evaluated the reasonableness of the assumptions used by management to develop the provisions
for discretionary sales allowances, including assessing the completeness and appropriateness of
information considered by management.
Tested the underlying inputs used in the determination of the provisions for discretionary sales
allowances.
• Assessed management’s historical ability to estimate the provisions for discretionary sales
allowances by comparing the prior year estimated amounts to actual allowances utilized in the
current year.
•
Evaluated the reasonableness of the provisions for discretionary sales allowances by comparing a
sample to the actual results of transactions occurring after year end.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
•
The information, other than the financial statements and our auditor’s report thereon, in the
Annual Report
Our opinion on the financial statements does not cover the other information and we do not and will
not express any form of assurance conclusion thereon. In connection with our audit of the financial
statements, our responsibility is to read the other information identified above and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based
on the work we have performed on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact in this auditor’s report. We
have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If,
based on the work we will perform on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact to those charged with
governance.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable
the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless management either intends to liquidate the Company or
to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report
that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to
fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not
detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override
of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Company’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor's report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
The engagement partner on the audit resulting in this independent auditor’s report is
Steve Lawrenson.
Chartered Professional Accountants
Licensed Public Accountants
March 1, 2021
Spin Master Corp.
Consolidated statements of financial position
(US$ millions)
Assets
Current assets
Cash
Trade receivables
Other receivables
Inventories
Advances on royalties
Prepaid expenses
Other assets
Non-current assets
Intangible assets
Goodwill
Right-of-use assets
Property, plant and equipment
Deferred income tax assets
Advances on royalties
Other assets
Total assets
Liabilities
Current liabilities
Trade payables and accrued liabilities
Contract liabilities
Provisions and contingent liabilities
Income tax payable
Lease liabilities
Non-current liabilities
Provisions and contingent liabilities
Deferred income tax liabilities
Lease liabilities
Total liabilities
Shareholders’ equity
Share capital
Retained earnings (accumulated deficit)
Contributed surplus
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
Approved by the Board of Directors on March 1, 2021.
The accompanying notes on pages 5 to 44 are an integral part of these consolidated financial statements.
Notes
Dec 31,
2020
Dec 31,
2019
10
10
11
12
14
15
24
13
9
12
16
17
19
9
24
19
9
24
20
320.6
265.2
73.4
102.0
17.2
7.9
3.0
789.3
192.0
138.0
67.0
53.4
98.7
0.7
3.0
552.8
1,342.1
314.4
25.3
29.2
21.1
15.4
405.4
5.2
29.6
59.0
93.8
499.2
115.3
370.7
57.0
185.3
18.0
14.4
—
760.7
182.4
138.8
78.3
66.8
26.2
3.2
—
495.7
1,256.4
345.6
7.6
26.2
4.5
15.1
399.0
9.0
20.4
67.6
97.0
496.0
724.8
17.4
36.6
64.1
842.9
1,342.1
714.5
(28.1)
35.8
38.2
760.4
1,256.4
1
Spin Master Corp.
Consolidated statements of earnings and comprehensive income
(US$ millions, except earnings per share)
Notes
Year Ended Dec 31
2020
2019
Revenue
Cost of sales
Gross profit
Expenses
Selling, marketing, distribution and product development
Administrative expenses
Depreciation and amortization expenses
Other expenses
Foreign exchange loss
Finance costs
Income before income tax (recovery) expense
Income tax (recovery) expense
Net income
Earnings per share
Basic
Diluted
(US$ millions)
Net income
Items that may be subsequently reclassified to net income
Foreign currency translation gain on foreign operations
Other comprehensive income
Total comprehensive income
4
7
7
7
5
8
6
9
21
21
Notes
1,570.6
1,581.6
842.7
727.9
367.8
264.6
37.7
8.7
27.6
12.1
9.4
(36.1)
45.5
0.45
0.44
796.6
785.0
395.4
247.9
32.6
6.6
5.8
11.7
85.0
20.7
64.3
0.63
0.62
Year Ended Dec 31
2019
64.3
2020
45.5
25.9
25.9
71.4
18.3
18.3
82.6
The accompanying notes on pages 5 to 44 are an integral part of these consolidated financial statements.
2
Spin Master Corp.
Consolidated statements of changes in shareholders' equity
(US$ millions)
January 1, 2019
Net income
Other comprehensive income
Share-based compensation
Shares released from equity participation
Exercise of share options
Shares issued upon settlement of LTIP
December 31, 2019
January 1, 2020
Net income
Other comprehensive income
Cancellation of common shares
Share-based compensation
Shares released from equity participation
Shares issued upon settlement of LTIP
December 31, 2020
(Accumulated
deficit)
retained
earnings
Contributed
surplus
Accumulated
other
comprehensive
income
Note
20
20
20
20
20
20
20
20
Share
capital
694.1
—
—
—
8.4
0.2
11.8
714.5
714.5
—
—
(1.1)
—
8.2
3.2
(92.4)
64.3
—
—
—
—
—
(28.1)
(28.1)
45.5
—
—
—
—
—
40.9
—
—
15.2
(8.4)
(0.1)
(11.8)
35.8
35.8
—
—
—
12.2
(8.2)
(3.2)
36.6
724.8
17.4
The accompanying notes on pages 5 to 44 are an integral part of these consolidated financial statements.
19.9
—
18.3
—
—
—
—
Total
662.5
64.3
18.3
15.2
—
0.1
—
38.2
760.4
38.2
—
25.9
—
—
—
—
760.4
45.5
25.9
(1.1)
12.2
—
—
64.1
842.9
3
Spin Master Corp.
Consolidated statements of cash flows
(US$ millions)
Operating activities
Net income
Adjustments to reconcile net income to cash provided by operating activities
Income tax (recovery) expense
Interest expense (income)
Depreciation and amortization expense
Gain on disposal of property, plant and equipment
Accretion expense
Amortization of financing costs
Impairment of intangible asset and property, plant and equipment
Unrealized foreign exchange loss
Share-based compensation expense
Net change in non-cash working capital
Net change in provisions and contingent liabilities
Income taxes paid
Income taxes received
Interest (paid) received
Cash provided by operating activities
Investing activities
Investment in property, plant and equipment
Investment in intangible assets
Business acquisitions, net of cash acquired
Advance paid for business acquisitions
Investment in limited partnership
Investment in trademark license agreement
Proceeds from sale of investments
Proceeds from disposal of property, plant and equipment
Cash used in investing activities
Financing activities
Proceeds from loans and borrowings
Repayment of loans and borrowings
Payment of lease liabilities
Issuance of common shares from exercise of share options
Cancellation of common shares
Cash used in financing activities
Effect of foreign currency exchange rate changes on cash
Net increase (decrease) in cash during the period
Cash, beginning of period
Cash, end of period
9
6
7
13
6
6
13, 14
8
20
22
13
14
15
12, 29
12
14
15
13
18
18
24
20
20
The accompanying notes on pages 5 to 44 are an integral part of these consolidated financial statements.
Notes
2020
2019
45.5
64.3
(36.1)
1.7
103.0
(0.1)
5.6
0.4
0.9
41.7
12.2
153.0
(1.8)
(25.6)
12.1
(1.7)
310.8
(21.0)
(57.7)
0.7
(3.0)
(1.8)
(2.4)
0.3
—
(84.9)
350.0
(350.0)
(15.2)
—
(1.1)
(16.3)
20.7
(1.6)
84.6
—
6.5
0.9
5.6
11.7
15.2
(91.6)
7.2
(27.0)
—
1.9
98.4
(40.9)
(53.3)
(22.5)
—
—
—
—
0.5
(116.2)
—
—
(13.8)
0.1
—
(13.7)
(4.3)
3.3
205.3
115.3
320.6
(28.2)
143.5
115.3
4
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
1.
Description of business
Spin Master Corp., was incorporated on June 9, 2004, under the laws of the Province of Ontario, Canada and is a
global children’s entertainment company creating exceptional play experiences through a diverse portfolio of
innovative toys, entertainment franchises and digital games. Spin Master Corp. creates, designs, manufactures,
licenses and markets a diversified portfolio of toys, games and products, creates and produces multiplatform
content, stories and characters in both original shows along with short-form series and creates digital games and
apps. Its registered office is located at 225 King Street West, Suite 200, Toronto, Canada, M5V 3M2. Spin Master
Corp. and its subsidiaries are together referred to, in these consolidated financial statements, as the “Company” or
“Spin Master”.
The Company has three reportable operating segments: North America, Europe and Rest of World (see Note 28).
2.
Summary of significant accounting policies
(A) Statement of compliance and basis of preparation and measurement
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board ("IASB") with interpretations of the
International Financial Reporting Interpretations Committee ("IFRIC").
All financial information is presented in millions of United States dollars ("US$") and has been rounded to the
nearest hundred thousand, except as otherwise indicated.
These consolidated financial statements were approved and authorized for issuance by the Board of Directors on
March 1, 2021.
The consolidated financial statements have been prepared on the historical cost basis except for certain financial
instruments that are measured at fair value, as explained in the accounting policies below. Historical cost is
measured on the fair value of the consideration provided in exchange for goods and services.
(B) Application of new and revised IFRS
IFRS 16 Leases
The Company has adopted the IFRS 16 "Leases" amendment related to COVID-19 Rent Concessions effective
June 1, 2020. The amendment provides lessees with a practical expedient that relieves a lessee from assessing
whether a COVID-19-related rent concession is a lease modification.
The Company, as a lessee, has elected to apply the practical expedient to all eligible contracts and has accounted
for rent concessions occurring as a direct consequence of COVID-19 as if they were not lease modifications. The
forgiveness of lease payments is accounted for as a variable lease payment and that part of the lease liability is
derecognized. For deferrals of lease payments, interest continues to be recognized on the lease liability and the
liability is reduced once payments are made to the lessor.
The Company has applied the amendment and has recognized an impact for the year ended December 31, 2020 in
its lease liabilities on the balance sheet of $0.1 million related to rent forgiveness and $1.0 million related to rent
deferrals.
IFRS 3 Business Combinations
The IASB published amendments to IFRS 3 "Business Combinations". The amendment clarifies the definition of a
business and outputs. The amendment also adds guidance that determines if substantive processes have been
acquired or if an acquired set of activities and assets is a business. The amendments are effective for fiscal years
beginning on or after January 1, 2020. The Company has adopted these changes to IFRS 3 for the year ended
December 31, 2020.
5
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2.
Summary of significant accounting policies (continued)
(C) Basis of preparation
The consolidated financial statements incorporate the financial statement accounts of the Company and entities
controlled by the Company and its subsidiaries (the “Group”). Control is achieved when the Company:
•
•
•
has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of
during the year are included in the consolidated statement of earnings and comprehensive income from the date
the Company gains control until the date when the Company ceases to control the subsidiary.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between
members of the Group are eliminated in full on consolidation.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which has
resulted in governments worldwide enacting emergency measures to combat the spread of the pandemic. These
measures have caused disruption to businesses globally resulting in an economic slowdown which has impacted
the demand for the Company’s products.
The Company’s financial performance in 2020 was impacted by the supply chain disruption in the first half of 2020
and the reduction in customer demand due to COVID-19. As a result of the dynamic nature of these circumstances,
it is not possible to reliably estimate the length and severity of the pandemic and the impact on the financial results
of the Company.
During the first quarter of 2020, due to the uncertainties caused by the COVID-19 pandemic and as a precautionary
measure, the Company borrowed a total of $350.0 million under its credit facility, to maximize liquidity and
increase available cash on hand. The Company repaid $50.0 million and $300.0 million in the second and third
quarters of 2020, respectively.
The Company has assessed the significant accounting judgments and estimates in preparing the Company’s
consolidated financial statements for the year ended December 31, 2020.
(D) Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a
business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of
the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree
and the equity interests issued by the Company in exchange for control of the acquiree. Acquisition-related costs
are recognized in profit or loss as incurred.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting
from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair
value and included as part of the consideration transferred in a business combination. Changes in the fair value of
the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with
corresponding adjustment against goodwill. Measurement period adjustments are adjustments that arise from
additional information obtained during the “measurement period” (which cannot exceed one year from the
acquisition date) about facts and circumstances that existed at the acquisition date.
6
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2.
Summary of significant accounting policies (continued)
(D) Business combinations (continued)
All other subsequent changes in the fair value of contingent consideration classified as an asset or liability are
accounted for in accordance with the relevant policy. Contingent consideration that is classified as equity is not
remeasured and its subsequent settlement is accounted for within equity. Other contingent consideration is
remeasured to fair value at subsequent reporting dates with changes in fair value recognized in profit or loss. There
has been no changes in the fair value of contingent consideration classified as equity.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete.
Those provisional amounts are adjusted during the measurement period (see above), or additional assets or
liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the
acquisition date that, if known would have affected the amounts recognized at that time.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value.
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the
business less accumulated impairment losses, if any. Goodwill is measured as the excess of the sum of the
consideration transferred, over the net of the acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed. For the purposes of impairment testing, goodwill is allocated to each of the Company’s cash
generating units ("CGUs") (or groups of CGUs) that are expected to benefit from the combination.
(E) Goodwill
A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is an
indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the
impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the
other assets of the unit pro-rata based on the carrying amount of each asset in the unit.
Any impairment loss for goodwill is recognized directly in profit or loss, and an impairment loss recognized for
goodwill is not reversed in subsequent periods. On disposal of the relevant CGU, the attributed amount of goodwill
is included in the determination of the profit or loss on disposal.
(F) Revenue recognition
Sale of Goods
The majority of the Company’s revenue is derived from the sales of toys and related products to retail customers
and distributors in domestic and international markets. Revenue is recognized at an amount that reflects the
consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
The Company recognizes revenue when control of the goods has transferred, which is determined by respective
shipping terms and certain additional considerations. Invoices are generally issued at the time of delivery (which is
when the Company has satisfied its performance obligations under the arrangement). As such, a receivable is
recognized as the consideration is unconditional and only the passage of time is required before payment is due.
The Company does not have performance obligations subsequent to delivery of the sale of goods to customers and
revenues from sale of goods are recognized upon the passing of control to the customer.
The Company routinely enters into arrangements with its customers to provide sales incentives, support customer
promotion and provides allowances for returns and defective merchandise. Such programs are based primarily on
purchases, customer performance of specified promotional activities and other specified factors, which are not
necessarily stipulated in the customer's contract.
Revenue represents the amount of consideration to which the Company expects to be entitled to through the sale of
goods excluding sales tax and after the application of the variable consideration constraint. Variable consideration
includes estimates for defective products, sales allowances and returns by customers made based on certain
judgments, contractual terms and conditions and historical data. The Company uses the expected value method to
quantify the variable consideration. The Company monitors periodic results against historical data and makes any
adjustments to both sales discounts and returns accruals as required. Note 3 - Significant accounting judgments
and estimates outlines additional details on sales allowances.
7
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2. Significant accounting policies (continued)
(F) Revenue recognition (continued)
Entertainment and Licensing revenue
Television distribution sales, which are generated by the use of the Company's brands and other intellectual
property through the production of television and streaming programming for licensing to third parties, are
recognized in accordance with the relevant agreements. The license agreement is assessed as either providing the
customer with a 'right-to-use' or 'right-to-access' license and the applicable revenue is recognized at a point-in-time
or over time based on the classification determined. The license to distribute television and streaming programming
grants a right to use the Company's brands and other intellectual property. The licensee pays a fixed fee for the
license of the produced content. Revenue is recognized upon delivery of the television or streaming programming
and is measured based on the consideration to which the Company expects to be entitled to upon delivery. There
are no future performance obligations associated with the delivery of the programs.
For entertainment and licensing revenues that are generated by the use of the Company’s brands and other
intellectual property, the license is assessed as either providing the customer with a ‘right-to-use’ or ‘right-to-access’
license and revenue is recognized at a point-in-time or over time based on the classifications determined. Judgment
is required in determining the appropriate classification. The license of the Company’s brands provide access to the
intellectual property over the term of the license and is considered a right-to-access license of intellectual property.
The Company records sales-based or usage-based royalty revenues for right-to-access licenses upon occurrence
of the licensees’ subsequent sale or usage.
Customer advances on contracts, licensing and/or television distribution, are recorded in contract liabilities until all
of the foregoing revenue recognition conditions have been met. This does not give rise to a significant financing
component as the timing difference between when the customer advances are recorded and the revenue
recognition conditions being fulfilled are protective for both parties of a contract, to protect against failure of
completion of some of their obligations under the contract.
Digital games
The Company develops digital applications ("apps") which are hosted by third-party platform providers. The
Company controls all aspects of the apps delivered to the end user. The third-party platform providers are providing
the service of hosting and administrating receipt from the end users. The Company has determined that it is the
principal in the arrangement and revenues are recorded in other revenue on a gross basis. The fees charged by the
third-party platform providers are recorded within cost of sales. Revenue associated with the sale of apps is
recognized when control is transferred. This condition is typically met when the end-user purchases and downloads
the app from the third-party. The end users can make in-app purchases and the Company recognizes revenue at
the time of sale. The Company has no additional performance obligations other than the delivery of apps to the
third-party platform providers.
Disaggregation of revenue
The Company disaggregates its revenues from contracts with customers by geographic segment: North America,
Europe and Rest of World. The Company further disaggregates revenues by product category: Activities, Games &
Puzzles and Plush, Remote Control and Interactive Characters, Boys Action and Construction, Pre-School and Girls
and Outdoor. The Company believes these collectively depict how the nature, amount, timing and uncertainty of
revenue and cash flows are affected by economic factors. See Note 28 Segment information for further information.
8
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2. Significant accounting policies (continued)
(G) Leases
The Company assesses whether a contract is or contains a lease, at inception of a contract. The Company
recognizes a right-of-use asset and a corresponding lease liability with respect to all lease agreements in which it is
the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of
low value assets. For these leases, the Company recognizes the leases as an operating expense on a straight-line
basis over the term of the lease unless another systematic basis is more representative of the time pattern in which
economic benefits from the leased assets are assumed.
Lease liability
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the
Company uses its incremental borrowing rate. The incremental borrowing rate is defined as the rate of interest that
the Company would have to pay to borrow over a similar term and with a similar security the funds necessary to
obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
Lease payments included in the measurement of the lease liability comprise:
•
•
•
•
•
fixed lease payments (including in-substance fixed payments), less any lease incentives receivable;
variable lease payments that depend on an index or rate, initially measured using the index or rate at the
commencement date;
the amount expected to be payable by the lessee under residual value guarantees;
the exercise of purchase options, if the lessee is reasonably certain to exercise the options; and
payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate
the lease.
The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease
liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments
made.
The Company remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use
asset) whenever:
•
•
•
the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which
case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate;
the lease payments change due to changes in an index or rate or a change in expected payment under a
guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease
payments using the initial discount rate (unless the lease payments change is due to a change in a floating
interest rate, in which case a revised discount rate is used); and
a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case
the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.
Right-of-use asset
The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made
at or before the commencement day and any initial direct costs. They are subsequently measured at cost less
accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a
lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Company
expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the
underlying asset. The depreciation starts at the commencement date of the lease.
The Company applies IAS 36 Impairment of Assets to determine whether a right-of-use asset is impaired.
Variable rents that do not depend on an index or rate are not included in the measurement of the lease liability and
the right-of-use asset. The related payments are recognized as an expense in the period in which the event or
condition that triggers those payments occurs and are included in administrative expenses in the consolidated
statement of earnings and comprehensive income.
9
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2. Significant accounting policies (continued)
(G) Leases (continued)
As a practical expedient, IFRS 16 permits a lessee not to separate non-lease components and instead account for
any lease and associated non-lease components as a single arrangement. The Company has elected to use this
practical expedient.
(H) Foreign currencies
The Company reports its financial results in US$; however, the functional currency of the Company is the Canadian
dollar.
The assets and liabilities of foreign operations that have a functional currency different from that of the Company
are translated into the Company’s functional currency of Canadian dollars using exchange rates prevailing at the
end of each reporting period. Income and expense items are translated at the average exchange rates for the
period, unless exchange rates fluctuate significantly during that period, in which case the exchange rates at the
dates of the transactions are used. Exchange differences arising, if any, are recognized in the foreign currency
translation adjustment as part of other comprehensive income.
In preparing the financial statements of each individual Group entity, transactions in currencies other than the Group
entity’s functional currency are recognized at the rates of exchange prevailing at the dates of the transactions. At
the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates
prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are
retranslated at the rates prevailing when the fair value was determined. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
The resulting foreign currency exchange gains or losses are recognized in profit or loss.
For the purposes of presenting these consolidated financial statements, the assets and liabilities of the Group’s
foreign operations are translated into US$ using exchange rates prevailing at the end of each reporting period.
Income and expense items are translated in the same manner as above with exchange differences impacting other
comprehensive income and accumulated in equity.
At December 31, 2020 and 2019, the functional currencies of the Groups subsidiaries included the Canadian dollar,
the Euro, the Great Britain pound sterling, the Hong Kong dollar, the Mexican peso, the Chinese yuan, the
Vietnamese dong, the Japanese yen, the Swedish krona, the Australian dollar, the Indian rupee, the Polish zloty,
and the Russian ruble.
(I) Earnings per share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares
outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding, assuming the conversion of all dilutive securities were exercised
during the period. Securities refer to all outstanding share options, Restricted Stock Units ("RSUs") and
Performance Share Units ("PSUs").
(J) Income taxes
Income tax expense or recovery represents the sum of the taxes currently payable or receivable and deferred
taxes.
Current tax
For each entity in the Group, the tax currently payable is based on taxable income for the year. Taxable income
differs from “income before income tax expense (recovery)” as reported on the consolidated statement of earnings
and comprehensive income because of items of income or expense that are taxable or deductible in other years
and items that are never taxable or deductible. The Company’s current tax expense or recovery is calculated using
income tax rates that have been enacted or substantively enacted by the end of the reporting period.
10
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2. Significant accounting policies (continued)
(J) Income taxes (continued)
Deferred tax
Deferred tax is recognized on temporary differences between the carrying amount of assets and liabilities in the
consolidated financial statements and the corresponding tax basis used in the computation of taxable income.
Deferred tax liabilities are recognized for taxable temporary differences. Deferred tax assets are recognized for
deductible temporary differences to the extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilized.
Deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition
(other than a business combination) of assets and liabilities in a transaction that does not affect either taxable
income or net income before income taxes. In addition, deferred tax liabilities are not recognized if the temporary
difference arises from the initial recognition of goodwill.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the
extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to
be recovered.
Deferred tax liabilities and assets are measured at the income tax rates that are expected to apply in the period in
which the liability is expected to be settled or the asset realized, based on income tax rates (and income tax laws)
that have been enacted or substantively enacted at the end of the reporting period, reflecting the tax consequences
that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or
settle the carrying amount of its assets and liabilities.
Current and deferred tax for the period
Current and deferred tax expense or recovery are recognized in profit or loss, except when they relate to items that
are recognized in other comprehensive income or directly in equity, in which case the current and deferred tax
expenses are also recognized in other comprehensive income or directly in equity, respectively. Where current
deferred taxes arises from the initial accounting for a business combination, the tax effect is included in the
accounting for the business combination.
(K) Cash
Cash is net of outstanding bank overdrafts, if applicable.
(L) Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment
losses, if any.
Depreciation is recognized so as to depreciate the cost or valuation of assets less their residual values over their
useful lives, using the straight-line method or declining balance method. Repairs and maintenance costs are
recognized in profit or loss as incurred.
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting
period, with the effect of any changes in estimate accounted for on a prospective basis.
The following are the estimated useful lives for the major classes of property, plant and equipment:
Land
Buildings
Moulds, dies and tools
Office equipment
Not depreciated
30 years
2 years
3 years
Leasehold improvements
Lesser of lease term or 5 years
Computer hardware
3 years
Machinery and equipment
30% declining balance
An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an
item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying
amounts of the asset and is recognized in profit or loss.
11
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2.
Significant accounting policies (continued)
(M) Intangible assets
The following are the estimated useful lives for the major classes of intangible assets:
Brands
Trademarks and licenses
Customer lists
Indefinite
5 years
5 years
Intellectual property ("IP")
10 years
App and content development
1-5 years
Computer software
1-5 years
Intangible assets acquired separately in an asset acquisition
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortization and accumulated impairment losses, if any.
Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets. The
estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of
any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives, such as brands that are acquired separately are carried at cost less
accumulated impairment losses.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially
recognized at their fair values at the acquisition date (which is regarded as their initial cost).
Subsequent to initial recognition, intangible assets acquired in business combinations are reported at cost less
accumulated amortization if applicable and accumulated impairment losses, on the same basis as intangible assets
that are acquired separately.
Internally-generated intangible assets - research and development expenditures
Expenditures on research activities are recognized as incurred. An internally-generated intangible asset arising from
development (or from the development phase of an internal project) is recognized only if all of the following have
been demonstrated:
•
•
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset for use or sale;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or
sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred
from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-
generated intangible asset can be recognized, development expenditures are recognized in profit or loss in the
period in which they are incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated
amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired
separately.
12
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2.
Significant accounting policies (continued)
(M) Intangible assets (continued)
Television production assets
Television production assets are a component of intangible assets and are recorded at cost as content
development. The Company has access to government programs, including tax credits that are designed to assist
film and television production and distribution in Canada. The federal and provincial tax credits are not recognized
until there is reasonable assurance that the Company will comply with the conditions attached to them and that the
tax credits will be received. Capitalized costs net of expected federal and provincial tax credits are charged to
amortization expense as completed episodes are delivered on a pro-rata basis over the total number of episodes
for the season.
Contract liabilities related to television production assets arises as a result of consideration received in advance of
the Company fulfilling its obligations.
Impairment of tangible and intangible assets other than goodwill
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets
to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of
the asset is estimated in order to determine the extent of the impairment loss (if any).
When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the
recoverable amount of the CGU to which the asset belongs. When a reasonable and consistent basis of allocation
can be identified, corporate assets are also allocated to individual CGUs, otherwise, they are allocated to the
smallest group of CGUs for which a reasonable and consistent allocation basis can be identified. Intangible assets
with indefinite useful lives or that are not yet available for use are tested for impairment at least annually and
whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying
amount of the asset (or CGU) is reduced to its recoverable amount. An impairment loss equal to the difference
between the carrying and recorded amounts is recognized immediately in profit or loss.
When an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the
revised estimate of its recoverable amount, provided that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognized for the asset (or CGU)
in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
(N) Advances on royalties
The Company enters into license agreements with inventors and licensors for the use of their intellectual properties
in its products. These agreements may call for payment in advance of minimum guaranteed amounts. Amounts paid
in advance are initially recorded as an asset and subsequently expensed to net income or loss as revenue from the
related products is recognized. If all or a portion of an advance does not appear to be recoverable through future
use of the rights obtained under license, the non-recoverable portion is expensed immediately in profit or loss.
(O) Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out
method. Cost includes the purchase price and other costs, such as import duties, taxes and transportation costs.
Trade discounts and rebates are deducted from the purchase price. Net realizable value represents the estimated
selling price for inventories in the ordinary course of business, less all estimated costs of completion and costs
necessary to make the sale. Reserves for excess and obsolete inventory are based upon quantities on hand,
projected volumes from demand forecast and net realizable value. The impact of changes in inventory reserves is
reflected in cost of sales.
13
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2.
Significant accounting policies (continued)
(P) Provisions and contingent liabilities
A provision is a liability of uncertain timing or amount. Provisions are recognized when the Company has a present
legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required
to settle the obligation and if the amount can be reliably estimated. Provisions are measured at the present value of
the amount expected to be required to settle the obligation and are re-measured each reporting date.
Contingent consideration
Where the Company is committed to pay royalties on sales of acquired brands, the future royalty obligation is based
on the Company’s estimate of the related brands future sales, discounted for the timing of expected payments.
Provision for defectives
Defectives refer to when the end consumer returns defective goods to the Company’s customers. Customers
without a fixed allowance for defectives are eligible for a credit for the cost of the product if returned as defective by
the end consumer. The estimate of defectives is made based on the class and nature of the product and is recorded
as a reduction to revenue in the consolidated statement of earnings and comprehensive income.
Supplier obligations
Supplier obligations represent the estimated compensation to be paid to suppliers for lower than expected volumes
purchased, resulting in the supplier having excess raw material and finished goods inventories. While payments are
not contractually required, the Company regularly compensates suppliers to maintain supplier relationships, which
represents a constructive obligation due to past practices. The supplier obligation is based on an estimate of the
cost of the supplier’s excess raw material and finished goods inventory.
(Q) Share-based payments
As part of the Company’s Initial Public Offering (the “Initial Offering”), employees were granted subordinate voting
shares through equity participation arrangements. The Initial Offering price multiplied by the number of shares that
an employee was entitled to receive is recognized as an expense in administrative expenses, with a corresponding
increase in contributed surplus over the vesting period, at the end of which, the employees become unconditionally
entitled to the shares. The amount expensed is adjusted for forfeitures as required.
The Company has one share option plan for key employees, which forms part of their long-term incentive
compensation plan. Under the plan, the exercise price of each option equals the market price of the Company’s
shares on the date of grant and the options have a maximum term of ten years. Options vest between zero and four
years.
The equity based compensation plan providing for the issuance of securities from treasury under which the grants
will be made by the Company. Under the long-term incentive plan ("LTIP"), the Board may at its discretion from time
to time, grant share options, share units (in the form of RSUs and PSUs), Stock Appreciation Rights ("SARs"),
restricted stock and any other equity based awards. These awards may be settled in shares at the option of the
Company. LTIP liabilities are recorded in shareholders equity and not marked to market.
(R) Financial instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual
provisions of the respective instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and
financial liabilities at fair value through profit or loss) are included in the initial carrying value of the related
instrument and are amortized using the effective interest method. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in
profit or loss.
14
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2.
Significant accounting policies (continued)
(R) Financial instruments (continued)
Fair value estimates are made at the consolidated statement of financial position date based on relevant market
information and information about the financial instrument. All financial instruments are classified into either: fair
value through profit or loss (“FVTPL”) or amortized cost.
The Company has made the following classifications:
Cash
Trade and other receivables
Other long-term assets
Investment in a limited partnership
Trade payables and other liabilities
Loans and borrowings
Interest payable
Other long-term liabilities
Foreign exchange forward contracts
(S) Financial assets
Amortized cost
Amortized cost
Amortized cost
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
The classification of financial assets depends on the nature and purpose of the financial assets and is determined
at the time of initial recognition.
Financial assets at FVTPL
Financial assets are classified as FVTPL when the financial asset is either held for trading or it is designated as
FVTPL. A financial asset is classified as held for trading if:
•
•
•
it has been acquired principally for the purpose of selling it in the near term;
on initial recognition it is part of a portfolio of identified financial instruments that the Company manages
together and has a recent actual pattern of short-term profit-taking; or
it is a derivative that is not designated and effective as a hedging instrument.
Financial assets at amortized cost
Financial assets at amortized cost are non-derivative financial assets which are held within a business model
whose objective is to hold assets to collect contractual cash flows and whose contractual terms give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A financial asset (unless it is a trade receivable without a significant financing component that is initially measured
at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are
directly attributable to its acquisition. Subsequent to initial recognition, financial assets are measured at amortized
cost using the effective interest method, less any impairment.
Impairment of financial assets
Financial assets, other than those classified as FVTPL, are assessed for indicators of impairment at the end of each
reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of
one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows
of the investment have been decreased.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are offset against the allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss. Loss allowances are based on the lifetime
expected credit losses that result from all possible default events over the expected life of the trade receivable,
using the simplified approach.
15
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2.
Significant accounting policies (continued)
(T) Financial liabilities and equity instruments
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized,
the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of
the investment at the date the impairment is reversed does not exceed what the amortized cost would have been
had the impairment not been recognized.
Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and the definitions of a financial liability and an
equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities. Equity instruments issued by the Company are recognized as the proceeds received, net of direct
issue costs.
Other financial liabilities
Other financial liabilities (including loans and borrowings and trade payables and other liabilities) are initially
measured at fair value, net of transaction costs. Subsequently, other financial liabilities are measured at amortized
cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash payments (including all fees and points paid or received that form an integral part of the effective
interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or
(where appropriate) a shorter period, to the net carrying amount on initial recognition.
(U) Derivative financial instruments
The Company enters into foreign exchange forward contracts to manage its exposure to foreign exchange rate
risks.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are
subsequently re-measured at their fair value at the end of each reporting period. The resulting gain or loss is
recognized in profit or loss.
(V) Fair value hierarchy and liquidity risk disclosure
Fair value measurements are classified using a fair value hierarchy that reflects the significance of inputs used in
making the measurements. The fair value hierarchy has the following levels:
•
•
•
Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market
data (unobservable inputs).
The fair value of short-term financial instruments approximates their carrying amounts due to the relatively short
period to maturity. These include cash, trade and other receivables, as well as trade payables and other liabilities
and provisions. Fair value amounts represent point-in-time estimates and may not reflect fair value in the future.
16
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
2.
Significant accounting policies (continued)
(W) Accounting standards issued but not yet adopted
IAS 1 Presentation of Financial Statements
The IASB published amendments to IAS 1 "Presentation of Financial Statements". The amendments clarify the
requirements for classifying liabilities as current or non-current. In particular, they specify the conditions which exist
at the end of the reporting period will be used to determine if a right to defer settlement of a liability exists, and
clarify the situations that are considered settlement of a liability. The amendments are effective for fiscal years
beginning on or after January 1, 2023 and are applicable retrospectively. The Company is currently assessing these
changes and their potential impact on the Company's financial statements.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
The IASB published amendments to IAS 37 "Provisions, Contingent Liabilities and Contingent Assets". The
amendments specify that the cost of fulfilling a contract consists of both incremental costs of fulfilling the contract
and an allocation of other costs that relate directly to fulfilling contracts. The amendments are effective for fiscal
years beginning on or after January 1, 2022. The Company is currently assessing these changes and their potential
impact on the Company's financial statements.
3. Significant accounting judgments and estimates
In the application of the Company’s accounting policies, management is required to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
As these estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant, actual results may differ. The estimates and underlying assumptions are reviewed on an
ongoing basis. Adjustments are recognized in the period in which the estimate is modified if the change affects only
that period, or in the period the estimate is modified and future periods if the revision affects both current and future
periods.
Critical judgments in applying accounting policies
The Company has identified the following judgments, apart from estimates, which management has made in the
process of applying the Company’s accounting policies and which have the most significant effect on the amounts
recognized in the consolidated financial statements.
(A) Determination of CGUs
A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. Determining the impact of impairment
requires significant judgment in identifying which assets or groups of assets are CGUs of the Company.
(B) Functional currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at
exchange rates as of the dates the transactions occur. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.
Determining the appropriate functional currencies for entities in the Group requires analysis of various factors,
including the currencies and country-specific factors that mainly influence sales prices, and the currencies that
mainly influence labour, materials and other costs of providing goods or services.
Significant estimates and assumptions
The Company has identified the following accounting policies under which significant judgments, estimates and
assumptions are made, where actual results may differ from these estimates under different assumptions and
conditions, and which may materially affect the Company's financial results or financial position in future periods.
(A) Useful life of property, plant and equipment and intangible assets with finite useful lives
The Company employs significant estimates to determine useful lives of property, plant and equipment and
intangible assets with finite useful lives, considering industry trends such as technological advancements, past
experience, expected use and review of asset lives.
17
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
3. Significant accounting judgments and estimates (continued)
Components of an item of property, plant and equipment may have different useful lives. The Company makes
estimates when determining depreciation methods, depreciation rates and useful lives, which require taking into
account industry trends and company-specific factors. The Company reviews depreciation methods, useful lives
and residual values annually or when circumstances change and adjusts, if necessary, its depreciation methods
and assumptions prospectively.
(B) Impairment testing of goodwill and indefinite life intangible assets
Goodwill and indefinite life intangible assets are assessed for impairment at least annually, and whenever there is
an indication of impairment. The Company determines the fair value of its CGU groupings and indefinite life
intangible assets using discounted cash flow models corroborated by other valuation techniques.
The process of determining these fair values requires the Company to make estimates and assumptions of a long-
term nature regarding discount rates, projected revenues, royalty rates and margins derived from past experience,
actual operating results and budgets. These estimates and assumptions may change in the future due to uncertain
competitive and economic market conditions or changes in business strategies.
(C) Provision for inventories
Inventories are stated at the lower of cost and estimated net realizable value. The Company estimates net
realizable value as the amount at which inventories are expected to be sold, taking into consideration fluctuations in
retail prices due to seasonality less estimated costs required to sell. Inventories are written down to net realizable
value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage or declining
selling prices.
(D) Sales allowances
A sales allowance is established to reflect amounts for programs which can be contractual or discretionary by
nature, and can include negotiated discounts, customer audits, defective products and refund of costs incurred by
customers to sell the Company’s products. Contractual allowances are fixed and determinable at the time of sale
and are recorded at the time of sale as a reduction to revenue. Discretionary allowances can vary depending on
future outcomes such as customer sales volume, inventory position, product performance at retail, historical
performance, market conditions and other considerations. The Company may adjust its estimate of sales
allowances when facts and circumstances used in the estimation process change.
(E) Income and other taxes
The calculation of current and deferred income taxes requires the Company to make estimates and assumptions
and to exercise judgment regarding the carrying values of assets and liabilities which are subject to accounting
estimates inherent in those balances, the interpretation of income tax legislation across various jurisdictions,
expectations about future operating results, the timing of reversal of temporary differences and possible audits of
income tax filings by tax authorities.
Changes or differences in underlying estimates or assumptions may result in changes to the current or deferred
income tax balances on the consolidated statements of financial position, a charge or credit to income tax expense
in the consolidated statement of earnings and comprehensive income and may result in cash payments or receipts.
All income, capital and commodity tax filings are subject to audits and reassessments. Changes in interpretations or
judgments may result in a change in the Company’s income, capital or commodity tax provisions in the future. The
amount of such a change cannot be reliably estimated.
18
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
4. Revenue
The Company earns revenue from the following primary sources:
a. Sales of toys and related products;
b. Entertainment and Licensing revenue; and
c. Digital games revenue.
(US$ millions)
Revenue from sale of goods
Entertainment and Licensing revenue
Digital games revenue
Revenue
5.
Other expenses
(US$ millions)
Impairment of non-current assets
Other
Other expenses
Year Ended Dec 31
2020
2019
1,415.6
1,463.7
78.2
76.8
91.7
26.2
1,570.6
1,581.6
Notes
13, 14
Year Ended Dec 31
2020
0.9
7.8
8.7
2019
5.6
1.0
6.6
The Company agreed to a legal settlement of $5.5 million included in other expenses in the consolidated statement
of earnings and comprehensive income for the year ended December 31, 2020. The legal settlement was recorded
in accrued liabilities and paid subsequent to December 31, 2020.
Other includes $3.7 million in contingent consideration related to previous acquisitions (see Note 19) (2019 - $4.3
million).
6. Finance costs
(US$ millions)
Bank fees
Accretion expense - lease liabilities
Accretion expense - other
Amortization of financing costs
Interest expense (income)
Finance costs
7. Expenses
Year Ended Dec 31
2020
2019
4.4
4.6
1.0
0.4
1.7
12.1
5.9
4.8
1.7
0.9
(1.6)
11.7
Included within expenses are the following: selling, marketing, distribution and product development expenses;
administrative expenses, which include employee benefit expenses, property and operations and professional fees;
and depreciation and amortization expenses.
Selling, marketing, distribution and product development expenses
(US$ millions)
Selling
Marketing
Distribution
Product development
Selling, marketing, distribution and product development expenses
Year Ended Dec 31
2020
109.5
133.1
90.7
34.5
367.8
2019
112.0
155.0
98.1
30.3
395.4
19
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
7. Expenses (continued)
Administrative expenses
(US$ millions)
Employee compensation and benefits
Professional services
Property and operations
Technology
Recruiting and training
Bad debts
Other taxes
Restructuring
Other
Administrative expenses
Employee compensation and benefits
(US$ millions)
Salaries, wages and bonuses
Employee benefits
Employee compensation and benefits expenses in cost of sales
Salaries, wages and bonuses
Share-based compensation
Restructuring expense
Employee benefits
Employee compensation and benefits in administrative expenses
Employee compensation and benefits
Depreciation and amortization expenses
(US$ millions)
Property, plant and equipment
Moulds, dies and tools, included in cost of sales
Equipment
Land and leasehold improvements
Computer hardware
Intangible assets
Trademarks, licenses, IP & customer lists - definite
Content development, included in cost of sales
App development, included in cost of sales
Computer software
Right-of-use assets
Depreciation and amortization expenses
Year Ended Dec 31
2020
184.5
26.9
17.2
13.7
8.0
3.3
3.2
—
7.8
2019
172.1
22.8
27.6
12.2
6.9
0.2
2.3
2.7
1.1
264.6
247.9
Year Ended Dec 31
2020
2019
5.8
1.2
7.0
5.6
0.9
6.5
144.3
130.5
12.2
5.3
22.7
184.5
191.5
15.2
6.1
20.3
172.1
178.6
Year Ended Dec 31
2020
2019
23.6
4.2
6.3
1.6
35.7
7.7
38.6
3.1
4.6
54.0
20.9
3.4
5.8
1.4
31.5
6.8
28.8
2.3
2.2
40.1
13.3
13.0
103.0
84.6
20
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
8. Foreign exchange loss
For the year ended December 31, 2020, the Company incurred a foreign exchange loss (net of gains) of $27.6
million (2019 - $5.8 million).
(US$ millions)
Unrealized foreign exchange losses
Realized foreign exchange gains
Foreign exchange loss
2020
41.7
(14.1)
27.6
2019
11.7
(5.9)
5.8
Unrealized foreign exchange gains and losses are generated by the translation of monetary assets and liabilities
denominated in a currency other than the functional currency and also includes gains and losses related to the
Company's hedging programs. Realized foreign exchange gains and losses are recognized when monetary assets
and liabilities denominated in a currency other than the functional currency of the applicable entity are settled. The
Company uses derivative financial instruments such as foreign exchange forward contracts to manage foreign
currency risk (see Note 27).
9. Income tax
The income tax (recovery) expense recognized in the consolidated statement of earnings and comprehensive
income comprise of the following:
(US$ millions)
Current income tax expense
Deferred income tax recovery
Income tax (recovery) expense
2020
27.4
(63.5)
(36.1)
2019
22.9
(2.2)
20.7
The income tax (recovery) expense is calculated as follows:
(US$ millions)
Income before income tax (recovery) expense
2020
9.4
2019
85.0
Income tax expense at Canadian statutory tax rate of 26.5% (2019 - 26.5%)
2.5
26.5 %
22.5
26.5 %
Effect of:
Different tax rates of subsidiaries operating in other jurisdictions
(5.0)
(53.1) %
(4.2)
Unused tax losses and tax attributes not recognized as deferred tax assets
(Income) expenses not (taxable) deductible in determining taxable income
Recognition of previously unrecognized tax losses and other deferred tax assets
Internal transfer of intangible property
Other
Income tax (recovery) expense
1.7
(0.3)
—
18.1 %
(3.2) %
— %
(33.3)
(354.2) %
(1.7)
(36.1)
(18.1) %
(384.0) %
1.5
0.5
(0.4)
—
0.8
20.7
(5.0) %
1.8 %
0.6 %
(0.5) %
— %
1.0 %
24.4 %
The tax rates used for the reconciliations above are the Canadian statutory tax rates of the parent payable by
corporate entities in the Group, on taxable profits under tax laws in the respective jurisdictions in which the
Company operates.
Current tax assets and liabilities
As at December 31, 2020, the Company had an income tax payable of $21.1 million (2019 - $4.5 million).
Deferred income tax balances
The following is the analysis of deferred income tax assets and liabilities presented in the consolidated statements
of financial position:
(US$ millions)
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax assets
2020
98.7
(29.6)
69.1
2019
26.2
(20.4)
5.8
21
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
9. Income tax (continued)
The sources of deferred income tax balances are as follows:
(US$ millions)
Property, plant and equipment
Intangible assets
Provisions and contingent liabilities
Allowance for doubtful accounts
Benefits of tax loss carryforwards
Other temporary differences in basis
Net deferred tax assets
(US$ millions)
Property, plant and equipment
Intangible assets
Provisions and contingent liabilities
Allowance for doubtful accounts
Benefits of tax loss carryforwards
Other temporary differences in basis
Net deferred tax assets
Unused tax losses
2018
(1.6)
(7.9)
9.6
0.2
0.3
6.4
(1.2)
5.5
Recognized
in
net income
Foreign
currency
translation
Recognized
on business
combination
3.2
(1.5)
1.8
—
3.5
0.4
(1.7)
2.2
2019
1.6
(11.1)
11.3
0.2
2.0
6.7
(2.9)
5.8
—
—
(0.1)
—
(0.1)
(0.1)
—
(0.2)
—
(1.7)
—
—
(1.7)
—
—
(1.7)
Recognized
in
net income
Foreign
currency
translation
5.5
52.6
5.4
(0.5)
63.0
1.3
(0.8)
63.5
(0.1)
0.7
(0.6)
—
—
(0.4)
0.2
(0.2)
2019
1.6
(11.1)
11.3
0.2
2.0
6.7
(2.9)
5.8
2020
7.0
42.2
16.1
(0.3)
65.0
7.6
(3.5)
69.1
As at December 31, 2020, the Company had unused tax losses of $5.5 million (2019 - $5.7 million). Unused tax
losses of $0.4 million will expire between 2021 and 2030, $2.6 million will expire beyond 2030 and $2.5 million may
be carried forward indefinitely. There were no unrecognized deductible temporary differences for the year ended
December 31, 2020 (2019 - nil).
Unrecognized taxable temporary differences associated with investments
The aggregate amount of temporary differences associated with investments in subsidiaries for which deferred tax
liabilities were not recognized as at December 31, 2020, are $219.0 million (2019 - $236.2 million).
22
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
10. Trade and other receivables
Trade receivables
(US$ millions)
Trade receivables
Provisions for sales allowances
Allowance for doubtful accounts
Trade receivables
Dec 31,
2020
426.5
(158.1)
(3.2)
265.2
Dec 31,
2019
546.2
(174.9)
(0.6)
370.7
Trade receivables disclosed above include amounts that are past due as at the end of the reporting period.
Trade receivables past due but not impaired
(US$ millions)
61-90 days
91-120 days
> 120 days
Total trade receivables past due but not impaired
Movement in the allowance for doubtful accounts
(US$ millions)
Beginning of year
Net impairment losses (net recoveries) recognized
Amounts written off during the year as uncollectible
Foreign currency translation
End of year
Dec 31,
2020
1.5
0.7
10.9
13.1
Dec 31,
2019
6.7
2.9
19.7
29.3
Dec 31,
2020
Dec 31,
2019
0.6
4.1
(1.6)
0.1
3.2
2.2
(0.8)
(0.8)
—
0.6
In determining the recoverability of a trade receivable, the Company considers any change in the credit quality of
the trade receivable from the date credit was initially granted up to the end of the reporting period.
During the year ended December 31, 2019, the Company recognized a bad debt recovery of $0.9 million in
administrative expenses (other), related to the legal motion filed by Toys R Us Inc. on March 15, 2018, to wind down
and liquidate certain of Toys R Us Inc.'s global businesses.
Other receivables
(US$ millions)
Investment tax credits receivable
Royalty receivables
Production receivables
Sales tax receivables
Digital games receivables
Unrealized foreign exchange gain
Other
Other receivables
Dec 31,
2020
31.8
11.5
10.6
7.6
4.3
3.7
3.9
73.4
Dec 31,
2019
24.2
14.2
2.9
12.0
3.4
—
0.3
57.0
23
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
11.
Inventories
(US$ millions)
Raw materials
Finished goods
Inventories
Dec 31,
Dec 31,
2020
7.8
94.2
102.0
2019
12.4
172.9
185.3
The cost of inventories recognized as an expense in cost of sales during the year was $692.4 million (2019 - $686.9
million).
During the year ended December 31, 2020, $1.1 million of inventories were written down to net realizable value
(2019 - $9.0 million). This charge is included within cost of sales in the consolidated statement of earnings and
comprehensive income.
12. Other assets
(US$ millions)
Current
Non-current
Other assets
Dec 31,
2020
Dec 31,
2019
3.0
3.0
6.0
—
—
—
The current portion of the other assets includes $3.0 million relating to the Company's deposit for the acquisition of
Rubik's Brand Limited subsequent to December 31, 2020 (see Note 29).
The non-current portion of the other assets includes $3.0 million relating to the Company's investment in a limited
partnership. The Company has paid $1.8 million and is obligated to pay the remaining $1.2 million upon receiving
capital calls over the remaining term of the limited partnership agreement. The investment is held for medium to
long-term strategic purposes (see Note 27).
24
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
13. Property, plant and equipment
(US$ millions)
Cost
December 31, 2018
Additions
Disposals
Foreign currency translation
December 31, 2019
Additions
Disposals
Asset impairments
Foreign currency translation
December 31, 2020
Accumulated depreciation
December 31, 2018
Depreciation
Disposals
Foreign currency translation
December 31, 2019
Depreciation
Disposals
Asset Impairments
Foreign currency translation
December 31, 2020
Net carrying amount
December 31, 2019
December 31, 2020
Moulds, dies
and tools
Equipment
Land and
leasehold
improvements
Computer
hardware
114.0
24.7
(8.7)
(1.1)
128.9
18.9
(2.8)
—
7.5
152.5
(93.5)
(20.9)
8.7
1.4
(104.3)
(23.6)
2.8
—
(5.5)
(130.6)
24.6
21.9
24.4
7.6
(2.3)
—
29.7
1.4
(0.1)
(0.6)
0.8
31.2
(15.2)
(3.4)
2.3
(0.1)
(16.4)
(4.2)
0.2
0.1
(1.2)
(21.5)
13.3
9.7
33.8
5.6
(1.9)
1.6
39.1
0.3
—
—
0.7
40.1
(10.4)
(5.8)
1.9
(0.5)
(14.8)
(6.3)
—
—
(0.7)
(21.8)
24.3
18.3
11.3
3.0
(0.2)
0.1
14.2
0.4
(0.1)
—
0.5
15.0
(8.4)
(1.4)
0.2
—
(9.6)
(1.6)
0.1
—
(0.4)
(11.5)
4.6
3.5
Total
183.5
40.9
(13.1)
0.6
211.9
21.0
(3.0)
(0.6)
9.5
238.8
(127.5)
(31.5)
13.1
0.8
(145.1)
(35.7)
3.1
0.1
(7.8)
(185.4)
66.8
53.4
Using a discounted cash flow approach, the Company assessed tangible assets for any indication of impairment.
Impairment losses are recorded when the carrying amount of the asset exceeds its recoverable amount. The
recoverable amount was based on the asset's value in use. For the year ended December 31, 2020, the Company
recorded impairment losses of $0.5 million (2019 - nil).
25
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
14.
Intangible assets
(US$ millions)
Cost
December 31, 2018
Additions
Asset impairments
Note
Brands -
indefinite
Trademarks,
licenses, IP
& customer
lists -
definite
Content
development
Computer
software
Total
292.2
53.3
(5.6)
12.0
5.9
357.8
57.7
(0.2)
(0.4)
2.4
11.9
429.2
(126.4)
(40.1)
(8.9)
(175.4)
(54.0)
0.2
(8.0)
113.4
—
(5.6)
6.5
1.4
115.7
—
—
—
—
1.8
117.5
—
—
—
—
—
—
—
—
45.9
—
—
5.5
0.3
51.7
1.2
—
—
2.4
(0.5)
54.8
(11.9)
(6.8)
0.2
(18.5)
(7.7)
—
—
113.2
48.1
—
—
3.2
164.5
50.6
—
(0.4)
—
9.5
224.2
(97.3)
(31.1)
(8.3)
(136.7)
(41.7)
—
(7.2)
19.7
5.2
—
—
1.0
25.9
5.9
(0.2)
—
—
1.1
32.7
(17.2)
(2.2)
(0.8)
(20.2)
(4.6)
0.2
(0.8)
(26.2)
(185.6)
(25.4)
(237.2)
115.7
117.5
33.2
28.6
27.8
38.6
5.7
7.3
182.4
192.0
Assets acquired through business
combinations
26
Foreign currency translation
December 31, 2019
Additions
Disposals
Asset impairments
Assets acquired through business
combinations
Foreign currency translation
December 31, 2020
Accumulated amortization
December 31, 2018
Amortization
Foreign currency translation
December 31, 2019
Amortization
Disposal
Foreign currency translation
December 31, 2020
Net carrying amount
December 31, 2019
December 31, 2020
The Company has capitalized content development costs for an entertainment production with a carrying amount of
$16.9 million at December 31, 2020 (2019 - $6.1 million). Amortization of these costs will begin once the content
has been delivered and will be amortized over an estimated 2 year period.
The Company holds intellectual property relating to the Games and Puzzles CGU. The carrying amount of $5.7
million at December 31, 2020 (2019 - $6.6 million) will be fully amortized in 6 years.
The carrying amount of indefinite life brands by CGU is as follows:
(US$ millions)
Games and Puzzles
GUND
Swimways
Toca Boca
Etch A Sketch
Meccano
Total
Dec 31,
2020
33.4
33.9
27.8
13.0
7.2
2.2
Dec 31,
2019
31.6
33.9
27.8
13.0
7.2
2.2
117.5
115.7
26
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
14.
Intangible assets (continued)
The Company has assessed these intangible assets to have indefinite useful lives as they will generate economic
benefit with no foreseeable limit. Therefore, the Company does not amortize these intangible assets, but tests for
impairment in accordance with the Company's policy.
Using a discounted cash flow approach, the Company assessed intangible assets for any indication of impairment.
For assets where indicators of impairment existed, the Company has determined the recoverable amount of net
assets. Impairment losses are recorded where the carrying amount of the CGU exceeds its recoverable amount.
The recoverable amount of a CGU is determined based on a value in use calculation which uses cash flow
projections based on financial forecasts covering a five-year period and a terminal value. The terminal value is the
value attributed to the CGU's cash flows beyond the five-year period. The key assumptions used in the value in use
calculation are discount rates and growth rates.
The discount rate applied to each CGU to determine the value in use is a pre-tax discount rate that reflects current
market assessments of the time value of money and considers the risk-free rate, market equity risk premium, size
premium and the risks specific to each CGU's cash flow projections. The pre-tax discount rates used by the
Company for the purpose of its value in use calculations ranged from 10% to 18% (2019 - 11% to 14%).
Revenue growth rates are based on management's best estimates considering historical and expected future
operating and plans, economic considerations and the general outlook for the industry and markets in which the
CGU operates. Cash flow projections during the forecast period are determined using expected gross margins and
raw materials price inflation throughout the forecast period. The projections are prepared separately for each of the
Company's CGUs and are based on the most recent financial budgets approved by management. The terminal
value is projected using a 1.0% (2019 - 1.0%) per annum growth rate in perpetuity which is the projected long-term
average growth rate.
The Company has conducted a sensitivity analysis on the key assumptions used to determine the recoverable
amount for each of the CGUs. Management believes that any reasonable change in the key assumptions on which
the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate
recoverable amount of the related CGUs.
For the year ended December 31, 2020, the Company completed its annual impairment tests for indefinite life
intangible assets and concluded there was no impairment (2019 - $5.6 million in 1 CGU).
The Company recorded an impairment loss of $0.4 million in content development (2019 - nil).
15. Goodwill
(US$ millions)
Balance, beginning of year
Additions during the year
Measurement period adjustment
Proceeds from sale during the year
Foreign currency translation
Balance, end of year
Dec 31,
2020
138.8
—
(0.7)
(0.3)
0.2
Dec 31,
2019
124.2
13.6
—
—
1.0
138.0
138.8
27
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
15. Goodwill (continued)
The carrying amount of goodwill was allocated to these CGUs as follows:
(US$ millions)
Games and Puzzles
Swimways
GUND
Toca Boca
Orbeez
Etch A Sketch
Meccano
Tech Deck
Spin Master UK
Goodwill
Dec 31,
2020
48.5
42.1
20.3
11.5
8.0
4.1
2.1
1.2
0.2
Dec 31,
2019
48.2
42.1
20.3
11.5
9.0
4.1
2.2
1.2
0.2
138.0
138.8
The Company assessed goodwill for any indication of impairment. The recoverable amount of the CGUs for
goodwill have been determined on the same basis and assumptions as the indefinite lived intangible assets (see
Note 14). There have been no impairment losses recognized with respect to goodwill during 2020 (2019 - nil).
16.
Trade payables and accrued liabilities
(US$ millions)
Trade payables
Accrued liabilities
Trade payables and accrued liabilities
Dec 31,
2020
161.4
153.0
314.4
Dec 31,
2019
215.8
129.8
345.6
Accrued liabilities are comprised of payroll related liabilities, accrued royalties, commodity tax and other balances.
During the year ended December 31, 2020, the Company announced changes in senior leadership. Included within
accrued liabilities is a restructuring provision of $1.1 million (December 31, 2019 - $2.1 million). In the prior year, the
Company executed the restructuring of the GUND, Swimways, Cardinal and other business units.
17.
Contract liabilities
Contract liabilities are comprised of advances on contracts relating to entertainment and licensing revenue, which
arise as a result of consideration received in advance of the Company fulfilling its obligations. As at December 31,
2020, the Company had contract liabilities of $25.3 million (December 31, 2019 - $7.6 million).
During the year ended December 31, 2020, the Company recognized revenue of $5.6 million previously deferred in
contract liabilities (2019 - $4.2 million). There was no revenue recognized that related to performance obligations
from a prior year.
18.
Loans and borrowings
Secured Debt
Bank Facilities
(i) The Company has a secured revolving credit facility (the “Facility”) in the amount of $510.0 million, which matures
in July 2023. Advances under the Facility may be used for general corporate purposes including refinancing existing
indebtedness, funding working capital requirements, permitted acquisitions and permitted distributions. The Facility
also has an option which permits the Company to increase the total capital available by an additional $200.0 million.
28
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
18.
Loans and borrowings (continued)
Available borrowing options under the Facility include:
•
•
•
•
•
•
•
Prime Rate Loans;
Base Rate Loans;
Bankers’ Acceptances from BA Lenders with a maturity of thirty, sixty, ninety or one hundred and eighty
days, subject to availability;
BA Equivalent Loans from the Non-BA Lenders with a maturity of thirty, sixty, ninety or one hundred and
eighty days, subject to availability;
LIBOR Loans with an interest period of one, two, three or six months, subject to availability;
Swing Loans; or
Letters of Credit
As at December 31, 2020, the Company had utilized $0.4 million (December 31, 2019 - $0.7 million) of the Facility:
$0.4 million (December 31, 2019 - $0.7 million) drawn in letters of credit and nil (December 31, 2019 - nil) drawn in
LIBOR Loans.
The obligation under the Facility is secured by a general security and pledge agreement in respect of all present
and future personal property, assets and undertaking of the credit parties. This facility is subject to the maintenance
of the following financial covenants:
•
•
Total leverage ratio, defined as the ratio of (a) total debt at such time, to (b) EBITDA for the applicable
twelve-month period, is calculated on a quarterly basis, of 3.00 to 1.00 or less, provided that, in the event
the borrower used proceeds of a borrowing to complete a single permitted acquisition with aggregate
consideration greater than $100.0 million during any two consecutive fiscal quarters falling within the
twelve-month reporting period immediately following such permitted acquisition, the borrower must only
maintain a total leverage ratio 3.50 to 1.00 or less; and
Interest coverage ratio, calculated on a consolidated, rolling four quarter basis, of 3.00:1.00 or greater.
The Company was in compliance with all covenants as at December 31, 2020.
(ii) On December 2, 2019, the Company reduced the limit of the credit facility (the "Production Facility") to $10.0 million
CAD ($7.8 million US$) to better align with the Company's borrowing needs under the Production Facility. As at
December 31, 2020, the balance of the Production Facility was nil.
Unsecured Debt
Bank Overdraft Facility
(iii) On December 19, 2018, the Company entered into an uncommitted Overdraft Facility Agreement (the "European
Facility") for €15.0 million ($18.4 million US$). The European Facility will be used to fund working capital
requirements in Europe. As at December 31, 2020, the outstanding balance was nil (December 31, 2019 - nil).
19.
Provisions and contingent liabilities
(US$ millions)
Defectives(i)
Supplier liabilities(ii)
Contingent consideration, acquisitions(iii)
Provisions and contingent liabilities
Current
Non-current
Provisions and contingent liabilities
Dec 31,
2020
13.0
5.6
15.8
34.4
29.2
5.2
34.4
Dec 31,
2019
13.8
4.9
16.5
35.2
26.2
9.0
35.2
29
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
19.
Provisions and contingent liabilities (continued)
December 31, 2018
Provisions recognized
Accretion recognized
Payments
December 31, 2019
Provisions recognized
Accretion recognized
Payments
December 31, 2020
Provisions
Defectives(i)
Supplier
liabilities(ii)
Contingent
consideration,
acquisitions(iii)
9.8
15.8
—
(11.8)
13.8
12.8
—
(13.6)
13.0
6.2
0.5
—
(1.8)
4.9
5.7
—
(5.0)
5.6
14.9
4.3
1.7
(4.4)
16.5
3.7
1.0
(5.4)
15.8
Total
30.9
20.6
1.7
(18.0)
35.2
22.2
1.0
(24.0)
34.4
(i) Defectives refer to when the end consumer returns faulty goods to the Company’s customers. Customers
without a fixed allowance for defectives are eligible for a credit for the cost of the product if returned as
defective by the end consumer. The estimate of defectives is made based on the class and nature of the
product and reduces the net sales figure in the consolidated statement of earnings and comprehensive
income.
(ii) Supplier liabilities represent the estimated compensation to be paid to suppliers for lower than expected
volumes purchased, resulting in the supplier having excess raw material and finished goods inventory.
While payments are not legally required, the Company will regularly compensate suppliers to maintain
supplier relationships. The supplier obligation is based on the Company’s estimate of the cost of the
supplier’s excess raw material and finished goods inventory. The provision for supplier obligations is
recorded in cost of sales in the consolidated statement of earnings and comprehensive income.
(iii) Business combinations as described in Note 26 include a royalty payable over the next seven calendar
years. The fair value of the total contingent consideration on December 31, 2020 was $15.8 million (2019
- $16.5 million) and is based on the achievement of certain financial performance criteria. The accretion
of the royalty is recorded in finance costs in the consolidated statement of earnings and comprehensive
income. Subsequent reviews of financial performance may result in the recording of additional
considerations or reductions of the existing provision in other expenses in the consolidated statement of
earnings and comprehensive income. For the year ended December 31, 2020, $3.7 million was recorded
in other expenses relating to additional contingent consideration for previous acquisitions (2019 - $4.3
million).
The Company is involved in various routine legal proceedings incidental to the ordinary course of its business. The
Company believes that the outcome of all pending legal proceedings in the aggregate is not probable to have a
material adverse effect on the Company’s business, financial condition and/or its results of operations. However, in
light of the uncertainties involved in legal proceedings generally, the ultimate outcome of a particular matter could
be material to the Company’s operating results for a particular period depending on, among other things, the size of
the loss or the nature of the liability imposed and the level of the Company’s income for that particular period.
30
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
20.
Share capital
(a) Authorized as at December 31, 2020 and December 31, 2019
•
•
•
Unlimited number of multiple voting shares;
Unlimited number of subordinate voting shares; and
Unlimited number of preferred shares issuable in series.
Multiple voting shares and subordinate voting shares entitle the holder to receive dividends, and to receive the
proceeds of liquidation, dissolution or winding up the Company in proportion to the number of shares held. These
rights are subject to the prior rights of the holders of any shares ranking prior to the multiple voting shares and the
subordinate voting shares.
The holders of the multiple voting shares are entitled to 10 votes for each share held and the holders of the
subordinate voting shares are entitled to 1 vote for each share held.
Multiple voting shares are convertible at any time into an equivalent number of subordinate voting shares.
Subordinate voting shares do not have any redemption or conversion rights.
Preferred shares of each series will be entitled to preference over the multiple voting shares and subordinate voting
shares with respect to the payment of dividends and to receive the proceeds of liquidation, dissolution or winding up
of the Company.
Multiple voting shares:
Balance, beginning of year
Conversion to subordinate voting shares
Balance, end of year
Subordinate voting shares:
Balance, beginning of year
Issuance of common shares
Cancellation of common shares
Forfeiture of common shares
Conversion from multiple voting shares
Balance, end of year
Common shares issued and outstanding, end of year
2020
2019
Shares
(millions)
Amount
(US$ millions)
Shares
(millions)
Amount
(US$ millions)
70.6
—
70.6
31.6
0.2
(0.1)
(0.3)
—
31.4
102.0
360.5
—
360.5
354.0
11.4
(1.1)
—
—
364.3
724.8
70.7
(0.1)
70.6
31.1
0.4
—
—
0.1
31.6
102.2
360.8
(0.3)
360.5
333.3
20.4
—
—
0.3
354.0
714.5
As at December 31, 2020, the Company does not hold any of its outstanding shares (2019 - nil).
(b) Share-based plans
Participation arrangements
The Company had equity participation arrangements (“Participation Arrangements”) with six senior employees and
four former employees pursuant to which all were entitled to receive a cash payment and shares on the Initial
Offering of the Company. The Participation Arrangements served to reward past service and encourage retention.
The terms of the Participation Arrangements differ between participants with vested participants being entitled to
some or all of their shares between six months and six years following the Initial Offering.
The Company satisfied the participants’ entitlements by making a one-time cash payment to participants and by
issuing an aggregate of 4,790,178 subordinate voting shares immediately prior to the closing of the Initial Offering.
The compensation expense for the Participation Arrangements is calculated based on the fair value of each
participation arrangement, as determined by the value of the Company at the closing of the Initial Offering, less the
value of the cash settlement. The Company recognizes compensation expense over the vesting period of the
Participation Arrangements, which is between six months and six years.
31
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
20.
Share capital (continued)
On February 18, 2020, the Company announced changes to senior leadership. As a result of these changes,
301,160 subordinate voting shares were forfeited and 133,550 subordinate voting shares with a fair value of $1.1
million were canceled.
As at December 31, 2020, 151,993 (December 31, 2019 - 1,068,258) subordinate voting shares were outstanding
relating to the Participation Arrangements with a weighted average grant date fair value of $2.1 million (December
31, 2019 - $14.9 million) based on the weighted average of the contractual life remaining of 7 months.
Share based compensation expense of $1.5 million (2019 - $3.3 million) relating to Participation Arrangements is
recorded in administrative expenses in the consolidated statement of earnings and comprehensive income for the
year ended December 31, 2020.
Long-Term Incentive Plan
The Company has an equity based compensation plan providing for the issuance of securities from treasury under
which the grants will be made by the Company. Under the LTIP, the Board may at its discretion from time to time,
grant share options, share units, in the form of RSUs and PSUs, Stock Appreciation Rights, restricted stock and any
other equity based awards.
The Company settled vested LTIP grants during the year ended December 31, 2020 through the issuance of
shares. The settlements resulted in a transfer of $3.2 million (2019 - $11.8 million) from contributed surplus to share
capital.
RSUs and PSUs
Below is a summary of the activity related to RSUs and PSUs outstanding as at December 31, 2020 and
December 31, 2019.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Dec 31,
Dec 31,
2020
2019
713,908
708,090
1,418,898
460,559
(260,854)
(413,088)
(126,907)
(41,653)
1,745,045
713,908
Included in the above table are grants of 918,929 PSUs to certain key employees during the year ended
December 31, 2020 (December 31, 2019 - 453,246).
Share based compensation expense of $9.9 million (2019 - $10.1 million) relating to RSUs and PSUs is recorded in
administrative expenses in the consolidated statement of earnings and comprehensive income for the year ended
December 31, 2020 with corresponding entries recorded in contributed surplus.
Deferred Share Units ("DSUs")
Below is a summary of the activity related to DSUs outstanding as at December 31, 2020 and December 31, 2019.
(number of units)
Outstanding, beginning of year
Granted
Outstanding, end of year
Dec 31,
Dec 31,
2020
78,311
43,460
121,771
2019
60,393
17,918
78,311
32
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
20.
Share capital (continued)
Share based compensation expense of $0.7 million (2019 - $0.5 million) with a mark to market gain of $0.4 million
(2019 - loss of $0.1 million) relating to DSUs is recorded in administrative expenses in the consolidated statement
of earnings and comprehensive income for the year ended December 31, 2020. A corresponding amount was
recorded in accrued liabilities.
Share Purchase Options (“Options”)
The Company has one share option plan for key employees, which forms part of their LTIP. Under this plan, the
exercise price of each option equals the market price of the Company’s shares on the date of grant and the Options
have a maximum term of ten years. The Options vest ratably over four years.
The Company did not issue any Options in 2020. As at December 31, 2020, 545,322 (December 31, 2019 -
836,596) Options were outstanding with a weighted average exercise price of $34.42 CAD (December 31, 2019 -
$34.60 CAD).
Share based compensation expense of $0.8 million (2019 - $1.8 million) relating to Options is recorded in
administrative expenses in the consolidated statement of earnings and comprehensive income for the year ended
December 31, 2020.
The total expense recognized for employee services received during the period for equity-settled transactions is
shown in the following table:
(US$ millions)
Equity-settled RSUs and PSUs
Equity-settled Participation Arrangement transactions
Share purchase options
Share based compensation expense
Year Ended Dec 31
2020
9.9
1.5
0.8
12.2
2019
10.1
3.3
1.8
15.2
Share based compensation expense of $12.2 million (2019 - $15.2 million) is recorded in administrative expenses
in the consolidated statement of earnings and comprehensive income for the year ended December 31, 2020. A
corresponding amount was recorded in contributed surplus.
33
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
21. Earnings per share
(Number of shares
in millions)
Basic
Diluted
2020
Weighted average
number of shares
102.0
104.2
Per share amount
(US$)
0.45
0.44
2019
Weighted average
number of shares
102.1
102.9
Per share amount
(US$)
0.63
0.62
The Participation Arrangements issued to employees upon the Initial Offering as subordinate voting shares resulted
in the issuance of fewer multiple voting shares to the principal shareholders. As these share issuances are anti-
dilutive, they are not included in the computation of diluted earnings per share.
22. Changes in net working capital
(US$ millions)
Decrease (increase) in:
Trade receivables
Other receivables
Inventories
Prepaid expenses
Advances on royalties
(Decrease) increase in:
Trade payables and accrued liabilities
Contract liabilities
Provisions and contingent liabilities
Other
Total changes in net working capital
23.
Related party transactions
2020
2019
97.5
(23.5)
82.3
7.3
2.4
(103.9)
11.8
(75.1)
0.6
6.9
166.0
(159.7)
(29.7)
17.8
0.1
(1.2)
(13.0)
153.0
68.8
0.6
(3.1)
1.8
68.1
(91.6)
During the years ended December 31, 2020 and 2019, the Company engaged the services of a law firm whose
managing partner is also a member of the Company's Board of Directors. For the year ended December 31, 2020,
related party transactions were included in administrative expenses in the consolidated statement of earnings and
comprehensive income of the Company in the amount of $1.6 million (December 31, 2019 - $0.5 million).
Compensation of key management personnel
The compensation of directors and other key management personnel during the years were as follows:
(US$ millions)
Salaries, wages and bonuses
Share-based compensation
Employee benefits
Total compensation of key management personnel
2020
3.2
0.6
0.1
3.9
2019
5.4
6.6
0.2
12.2
34
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
24.
Leases
Amounts recognized in the balance sheet
Leased office buildings represented approximately 94.0% of the right-of-use assets with the remainder comprised of
leases of distribution centres, information technology ("IT") equipment, and vehicles.
(US$ millions)
Transition, January 1, 2019
Additions
Disposals and modifications
Depreciation and amortization
Foreign currency translation
Accretion
Lease payments
December 31, 2019
Additions
Disposals and modifications
Depreciation and amortization
Foreign currency translation
Accretion
Lease payments
December 31, 2020
(US$ millions)
Lease Liabilities, current
Lease Liabilities, non-current
December 31, 2020
Right-of-use Assets
Lease Liabilities
83.4
9.8
(1.5)
(13.0)
(0.4)
—
—
78.3
1.1
(0.1)
(13.3)
1.0
—
—
67.0
2020
15.4
59.0
74.4
83.4
9.8
(1.5)
—
—
4.8
(13.8)
82.7
1.1
(0.1)
—
1.3
4.6
(15.2)
74.4
2019
15.1
67.6
82.7
The Company has categorized class of assets for leases of office buildings and distribution centres as "Building"
and IT equipment and vehicles are as "Equipment". The weighted average lease term is 11 years. The carrying
value of right-of-use assets and depreciation by class of underlying assets at December 31, 2020 are as follows:
As at December 31, 2020
Net carrying amount
Depreciation expense
As at December 31, 2019
Net carrying amount
Depreciation expense
Building
Equipment
65.0
12.0
2.0
1.3
Building
Equipment
75.4
12.0
2.9
1.0
Total
67.0
13.3
Total
78.3
13.0
Extension and termination options are included in a number of property and equipment leases across the Company.
These terms are used to maximize operational flexibility in terms of managing contracts. The majority of extension
and termination options are exercisable only by the Company and not by the respective lessor.
Amounts recognized in the statement of earnings and comprehensive income
(US$ millions)
Depreciation expense on right-of-use assets
Accretion expense on lease liabilities
Expense relating to short-term leases
Expense relating to leases of low value assets
Expense relating to variable lease payments not included in measurement of lease liability
Total
2020
13.3
4.6
—
1.2
3.8
22.9
2019
13.0
4.8
0.6
1.1
3.4
22.9
The total cash outflows for leases for the year end December 31, 2020 was $20.2 million (2019 - $18.3 million).
35
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
25. Commitments for expenditures
Licensing and similar agreements in effect at December 31, 2020 contain provisions for future minimum payments
of $40.4 million (2019 - $32.7 million).
(US$ millions)
< 1 Year
1-5 Years
> 5 Years
Total
Lease liabilities - undiscounted
Guaranteed payments due to licensors
Total commitments
15.7
8.4
24.1
37.8
25.3
63.1
48.7
4.0
52.7
102.2
37.7
139.9
Less than 1 year to greater than 5 years
26. Business acquisitions
Prior year acquisitions
Acquisition of Orbeez
On December 4, 2019, the Company acquired the rights to the Orbeez brand, pursuant to an asset purchase
agreement with The Maya Group. The acquisition secures the Company the global intellectual property and the
ability to sell, market and license for further penetration into existing markets as well as expansion into new
territories. The acquisition also allows Spin Master to incorporate Orbeez products into new and existing product
lines.
Pursuant to the terms set forth in the agreement, the Company acquired control of the Orbeez intellectual property
through the acquisition of certain assets of The Maya Group for total purchase consideration of $15.2 million.
Included in the total purchase consideration of $15.2 million is $2.1 million related to the estimated fair value of
future royalties. The total purchase consideration has been allocated to the identifiable intangible assets based on
their estimated fair values of $5.5 million (related to the brands and trademarks), and $9.0 million of goodwill. The
assets are included in the Activities, Games & Puzzles and Plush product category, belonging to the North America
segment effective December 4, 2019.
The pro forma and actual results of operations for this acquisition have not been presented and are immaterial.
There were $0.1 million in transaction related costs included in administrative expenses in the consolidated
statement of earnings and comprehensive income for the year ended December 31, 2019.
Assets acquired at the date of acquisition
Assets acquired
Inventories
Intangible assets
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Consideration paid in cash
Present value of future royalties
Total purchase consideration
Fair value of identifiable net assets acquired
Goodwill arising from transaction
Fair Value as at Dec 4, 2019
0.7
5.5
6.2
13.1
2.1
15.2
6.2
9.0
Goodwill arose on the acquisition of Orbeez as the cost of the consideration paid for the combination effectively
included amounts for the benefit of expected synergies, revenue growth and future market development. These
benefits are not recognized separately from goodwill because they do not meet the recognition criteria for
identifiable intangible assets. Subsequently in 2020, the Company sold certain assets relating to the Orbeez
acquisition, reducing the goodwill by $1.0 million to $8.0 million as at December 31, 2020.
36
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
26. Business acquisitions (continued)
Acquisition of Hedbanz
On August 9, 2019, the Company acquired the intellectual property associated with the Hedbanz brand, pursuant to
a share purchase agreement for total cash consideration of $9.4 million. The Company originally acquired the
distribution rights to Hedbanz for the U.S and Mexico in 2011. The acquisition secures the Company the global IP
and the ability to sell, market and license for further penetration into markets presently under license as well as
expansion into new territories.
The total purchase consideration has been allocated to the identifiable intangible assets based on their estimated
fair values of $6.5 million (related to the brands and trademarks), $1.7 million related to a deferred tax liability and
$4.6 million of goodwill acquired. The assets are included in the Activities, Games & Puzzles and Plush product
category, belonging to the North America segment effective August 9, 2019. The pro forma and actual results of
operations for this acquisition have not been presented and are immaterial. There were $0.1 million in transaction
related costs included in administrative expenses in the consolidated statement of earnings and comprehensive
income for the year ended December 31, 2019.
Assets acquired and liabilities recognized at the date of acquisition
Fair Value as at Aug 9, 2019
Assets acquired
Intangible assets
Liabilities assumed
Deferred tax liability
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Consideration paid in cash
Fair value of identifiable net assets acquired
Goodwill arising from transaction
6.5
1.7
4.8
9.4
4.8
4.6
Goodwill arose on the acquisition of Hedbanz as the consideration paid effectively included amounts for the benefit
of expected synergies, revenue growth and future market development. These benefits are not recognized
separately from goodwill as they do not meet the recognition criteria for identifiable intangible assets.
27. Financial instruments and risk management
Capital management
Management includes the following items in its definition of capital:
(US$ millions)
Share capital
Contributed surplus
Retained earnings (accumulated deficit)
Capital
Dec 31,
2020
724.8
36.6
17.4
778.8
Dec 31,
2019
714.5
35.8
(28.1)
722.2
The Company makes adjustments to its capital structure based on the funds available to the Company in
supporting the operations of the business and to ensure that the subsidiaries of the Company will be able to
continue on a going concern basis, while maximizing the return to stakeholders through the optimization of the debt
and equity balances.
The Company manages its capital structure, and may make adjustments in light of changes in economic conditions.
In order to maintain or modify the capital structure, the Company may arrange new debt with existing or new
lenders, or obtain additional financing through other means.
37
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
27.
Financial instruments and risk management (continued)
Management reviews its capital management strategy for reasonability on an ongoing basis and believes that this
approach is reasonable. There were no changes in the Company’s approach to capital management during the
year ended December 31, 2020.
The Company is subject to capital requirements under the credit facility agreement, as described in Note 18. As at
December 31, 2020, the Company was in compliance with all financial covenants.
Financial risk management objectives
Management’s objective is to protect the Company and its subsidiaries on a consolidated basis against material
economic exposures and the variability of results from various financial risks that include foreign currency risk,
interest rate risk, credit risk and liquidity risk.
Market risk
Foreign currency risk
Due to the structure of the Company’s international operations, it is exposed to foreign currency risk driven by
fluctuations in exchange rates. Risk arises because the value of monetary assets, liabilities, revenues and
expenditures arising from transactions denominated in foreign currencies may vary due to changes in exchange
rates (“transaction exposures”) and because the non-US dollar denominated financial statements of the Company’s
subsidiaries may vary on translation into the US dollar presentation currency (“translation exposures”). These
exposures could impact the Company’s earnings and cash flows.
The Company uses derivative financial instruments such as foreign exchange forward contracts with various
financial institutions to manage foreign currency risk.
As at December 31, 2020, the Company is committed under outstanding foreign exchange contracts representing a
total net purchase commitment of approximately $11.3 million in US$ (2019 - $15.8 million). These foreign
exchange contracts have maturity dates varying from January to December 2021. The fair value of these contracts
at December 31, 2020 results in an unrealized loss of $7.2 million included in accrued liabilities and an unrealized
gain of $3.7 million included in other receivables (2019 - $0.5 million included in accrued liabilities). In 2020,
realized losses on the Company’s matured hedges were $2.6 million (2019 - realized gains of $0.6 million) and is
included in the consolidated statement of earnings and comprehensive income.
As at December 31, 2020
(in millions)
Foreign exchange contracts
Buy US$
Buy US$
Buy US$
Sell US$
Total
As at December 31, 2019
(in millions)
Foreign exchange contracts
Buy US$
Buy US$
Buy US$
Sell US$
Sell US$
Total
Notional value:
foreign currency
Notional value:
US$
Unrealized
(loss) gain: US$
42.5 EUR
25.0 GBP
360.6 MXN
(114.2) CAD
(49.4)
(31.9)
(15.9)
85.9
(11.3)
(2.9)
(2.3)
(2.0)
3.7
(3.5)
Notional value:
foreign currency
Notional value:
US$
Unrealized
gain (loss): US$
35.5 EUR
23.0 GBP
270.0 MXN
(260.0) JPY
(85.9) CAD
(40.6)
(29.1)
(13.5)
2.4
65.0
(15.8)
0.3
(1.4)
(0.6)
—
1.2
(0.5)
38
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
27.
Financial instruments and risk management (continued)
Foreign currency risk - sensitivity analysis
The Company is mainly exposed to the Canadian dollar, the Great Britain pound sterling, the Mexican peso and the
Euro. The following table details the Company's sensitivity to a 5.0% change in currency units against the US$. The
sensitivity analysis includes all outstanding foreign currency denominated monetary assets and liabilities and
adjusts their translation as at the end of the reporting period for a 5.0% change in foreign currency rates. A positive
number below indicates an increase in a foreign exchange gain where the currency unit strengthens 5.0% against
US$.
(US$ millions)
Canadian dollar
Great Britain pound sterling
Mexican peso
Euro
Interest rate risk - management
2020
(9.9)
0.5
1.7
2.2
2019
(5.5)
0.7
2.0
2.6
Interest rate risk is the risk that the Company’s financial assets and liabilities will increase or decrease in value due
to a change in interest rates. The Company is exposed to interest rate risk as its loan facilities bears interest at a
variable rate.
Interest rate risk - sensitivity analysis
The Company is exposed to interest rate risk on financial instruments. A sensitivity rate of 50 basis points
represents management’s assessment of the reasonably possible change in interest rates to which the Company is
exposed.
For the year ended December 31, 2020, with all other variables held constant, a 50 basis point decrease in interest
rates would have resulted in a decrease to net interest expense of $0.2 million for the year (2019 - a decrease to
interest income of $0.3 million).
Credit risk
As the Company usually grants credit to customers on an unsecured basis, credit risk arises from the possibility that
customers may experience financial difficulty and may be unable to fulfill their financial obligations.
This risk is managed through the establishment of credit limits and payment terms based on an evaluation of the
customer’s financial performance, ability to generate cash, financing availability and liquidity status. These factors
are reviewed at least annually, with more frequent reviews performed as necessary.
In addition, the Company uses a variety of financial arrangements to ensure collectability of trade receivables,
including requiring letters of credit, supplier financing programs, cash in advance of shipment and purchase of
insurance on trade customer receivables, when available.
As at December 31, 2020, approximately 44.8% (2019 - 46.5%) of the Company’s trade receivables are due from
three major retail customers which represent approximately 50.3% of gross product sales for the year ended
December 31, 2020 (2019 - 48.0%).
The Company mitigates credit risk on its cash balance by ensuring deposits are with financial institutions with high
credit-ratings assigned by international credit-rating agencies.
Liquidity risk
The following details the Company’s remaining contractual maturities for its financial liabilities with contractual
repayment periods. The tables reflect the undiscounted cash flows of financial liabilities based on the earliest date
on which the Company can be required to pay, including both interest and principal.
To the extent that interest rates are floating, the undiscounted amount is derived from interest rate curves at the end
of the reporting period. The contractual maturity is based on the earliest date on which the Company may be
required to pay.
39
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
27.
Financial instruments and risk management (continued)
The Company's contractual maturities are as follows:
As at December 31, 2020
< 1 year
1-5 years
> 5 years
Total
Trade payables and accrued liabilities
Provisions and contingent liabilities
314.4
29.2
343.6
—
5.2
5.2
—
—
—
314.4
34.4
348.8
As at December 31, 2019
< 1 year
1-5 years
> 5 years
Total
Trade payables and accrued liabilities
Provisions and contingent liabilities
345.6
26.2
371.8
—
9.0
9.0
—
—
—
345.6
35.2
380.8
Financing facilities
(US$ millions)
Bank loan facilities
Amount undrawn
Bank loan facilities
Fair value measurements
Dec 31,
2020
536.2
536.2
Dec 31,
2019
534.5
534.5
With the exception of foreign exchange forward contracts which are recorded at fair value, the carrying amounts of
all other financial assets or liabilities of the Company approximate their fair values as follows:
(US$ millions)
Financial assets
Cash
Trade receivables
Other receivables
Other assets
Financial assets
Financial liabilities
Trade payables and accrued liabilities
Provisions and contingent liabilities
Financial liabilities
Dec 31,
2020
Dec 31,
2019
320.6
265.2
73.4
6.0
665.2
314.4
34.4
348.8
115.3
370.7
57.0
—
543.0
345.6
35.2
380.8
The Company records foreign exchange forward contracts at fair value in the financial statements.
The fair value of foreign exchange forward contracts at December 31, 2020 represented an asset of $3.7 million,
which is recorded in other receivables and a liability of $7.2 million recorded in accrued liabilities (2019 - liability of
$0.5 million). These fair values are categorized within Level 2 of the fair value hierarchy. The fair values of over-the-
counter derivative financial instruments are based on broker or observable market rates. Those quotes are tested
for reasonableness by discounting expected future cash flows using market interest and exchange rates for a
similar instrument at the measurement date. Fair values reflect the credit risk of the instrument for the Company
and counterparty when appropriate. The fair value of foreign exchange contracts is estimated based on forward
exchange rates observable at the end of the reporting period and contract forward rates. Realized and unrealized
gains and losses on derivative financial instruments may be offset by realized and unrealized losses and gains on
the underlying exposures being hedged and are recorded in earnings as they occur.
40
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
27.
Financial instruments and risk management (continued)
The fair value of the investment in a limited partnership as at December 31, 2020 is recorded in other assets of $3.0
million (2019 - nil) with no impact to profit or loss for the year. This fair value is categorized within Level 3 of the fair
value hierarchy (2019 - nil). As a result of the timing of the investment and limited changes in the partnership at
December 31, 2020, the Company determined that the carrying amount approximates the fair value of the
investment in a limited partnership.
28.
Segment information
Spin Master is a global children's entertainment company. Spin Master’s portfolio includes children’s products,
brands and entertainment properties which are grouped into five major categories as follows:
(i) Activities, games & puzzles and plush
(ii) Pre-school and girls
(iii) Boys action and construction
(iv) Remote control and interactive characters
(v) Outdoor
Information reported to the Chief Operating Decision Maker (“CODM”) for the purposes of resource allocation and
assessment of segment performance focuses on geographical areas rather than product category. The executives
of the Company have chosen to organize the Company around the 3 operating segments as follows: (i) North
America, (ii) Europe, and (iii) Rest of World. Factors considered in determining the operating segments include the
nature of the Company’s business activities, the management structure directly accountable to the CODM,
availability of discrete financial information and strategic priorities within the organizational structure.
The North American segment is comprised of the United States and Canada. The European segment is comprised
of the United Kingdom, France, Italy, the Netherlands, Germany, Austria, Switzerland, Belgium, Luxembourg,
Slovakia, Hungary, Romania, Czech Republic, Poland, Turkey, Russia and Greece. The Rest of World segment is
primarily comprised of Hong Kong, China, Vietnam, India, Australia, New Zealand, Japan and Mexico, as well as all
other areas of the world serviced by the Company’s distribution network.
Segment revenue and results
The Company’s gross product sales and results from operations by reportable segment are as follows:
(US$ millions)
Revenue by segment
North America
Europe
Rest of World
Gross product sales
Sales allowances
Net sales
Other revenue
Revenue
Segment income (loss) before tax (recovery) expense
North America
Europe
Rest of World
Total segment income before tax (recovery) expense
Corporate and other
Income before income tax (recovery) expense
2020
2019
983.4
451.0
189.3
1,623.7
(208.1)
1,415.6
155.0
1,570.6
(12.1)
17.2
—
5.1
4.3
9.4
1,026.3
430.4
234.5
1,691.2
(227.5)
1,463.7
117.9
1,581.6
51.9
23.9
18.7
94.5
(9.5)
85.0
Revenues for North America include revenues attributable to Canada of $127.3 million (2019 - $158.3 million) for
the year ended December 31, 2020.
41
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
28.
Segment information (continued)
Revenue reported by segment above represents revenue generated from external customers. There were no inter-
segment sales in the current year (2019 - nil). The Company does not include sales adjustments such as trade
discounts and other allowances in reporting revenue by segment (referred to as "gross product sales”).
The accounting policies of the reportable segments are the same as the Company’s accounting policies described
in Note 2. Segment income represents income before income tax (recovery) expense earned by each segment prior
to any allocation of other expenses, foreign exchange loss and finance costs. This measure is reported to the
CODM for the purposes of resource allocation and assessment of segment performance.
Segment assets
(US$ millions)
North America
Europe
Rest of World
Total segment assets
Corporate and other
Total assets
Non-current assets by reportable segment are detailed as follows:
(US$ millions)
North America
Europe
Rest of World
Total segment non-current assets
Corporate and other
Total non-current assets
Dec 31,
2020
971.4
217.6
111.3
1,300.3
41.8
1,342.1
Dec 31,
2020
426.4
33.2
19.9
479.5
73.3
552.8
Dec 31,
2019
872.7
211.2
120.7
1,204.6
51.8
1,256.4
Dec 31,
2019
395.1
26.9
13.4
435.4
60.3
495.7
Non-current assets for North America include assets attributable to Canada of $139.3 million as at December 31,
2020 (December 31, 2019 - $140.2 million).
Segment liabilities
(US$ millions)
North America
Europe
Rest of World
Total segment liabilities
Corporate and other
Total liabilities
Dec 31,
2020
410.7
84.9
39.4
535.0
(35.8)
499.2
Dec 31,
2019
387.6
68.9
56.9
513.4
(17.4)
496.0
For the purposes of monitoring segment performance and allocating resources between segments:
•
•
all assets are allocated to reportable segments other than deferred tax assets, other long-term assets and
computer software. Goodwill is allocated to cash generating units. Assets used jointly by reportable segments
are allocated on the basis of the revenues earned by individual reportable segments; and
all liabilities are allocated to reportable segments other than royalties payable (included within trade payables
and accrued liabilities) and deferred tax liabilities. Liabilities for which reportable segments are jointly liable are
allocated in proportion to segment assets.
42
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
28.
Segment information (continued)
Capital expenditures by reportable segment
(US$ millions)
North America
Europe
Rest of World
Total capital expenditures
Depreciation and amortization by reportable segment
(US$ millions)
North America
Europe
Rest of World
Total segment depreciation and amortization
Corporate and other
Total depreciation and amortization
2020
66.8
5.3
6.6
78.7
2020
82.3
11.4
4.7
98.4
4.6
103.0
2019
81.1
7.5
5.6
94.2
2019
66.9
9.4
4.6
80.9
3.7
84.6
Impairment losses of $0.9 million were recognized in respect of property, plant and equipment, intangible assets,
right-of-use assets and goodwill for the year ended December 31, 2020 (2019 - $5.6 million).
Revenue from major product categories
The Company’s worldwide revenues based on its major product categories are as follows:
(US$ millions)
Activities, games & puzzles and plush
Pre-school and girls
Boys action and construction
Remote control and interactive characters
Outdoor
Gross product sales
Sales allowances
Net sales
Entertainment and Licensing revenue
Digital games revenue
Revenue
Major customers
Year Ended Dec 31,
2020
511.2
467.2
352.1
202.1
91.1
1,623.7
(208.1)
1,415.6
78.2
76.8
2019
457.7
516.2
331.4
299.3
86.6
1,691.2
(227.5)
1,463.7
91.7
26.2
1,570.6
1,581.6
Sales to the Company's three largest customers accounted for 50.3% (2019 - 48.0%) of gross product sales for the
year ended December 31, 2020, respectively. Other than the top three customers, which have remained the same
year over year, no other single customer contributed 10% or more to gross product sales for the year ended
December 31, 2020 (2019 - nil).
(US$ millions)
Gross product sales
Customer 1
Customer 2
Customer 3
Total
2020
2019
363.1
273.1
180.2
816.4
403.1
240.8
168.5
812.4
43
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2020 and December 31, 2019
29.
Subsequent event
Acquisition of Rubik's Brand Limited
On January 4, 2021, the Company acquired control of Rubik's Brand Limited through the acquisition of 100% of the
shares of its holding company, Rubiks Malta Holding Company Limited. The brand will be reported in the Activities,
Games & Puzzles and Plush product category beginning from the date of acquisition.
The preliminary estimate of purchase consideration of $56.4 million is comprised of $50.0 million of cash
consideration plus an estimated $6.4 million related to closing values for net working capital and fair value of future
royalties. Given the timing of the transaction and measurement uncertainty with final purchase agreement
consideration adjustments, the purchase price allocation is not yet final. The purchase price allocation will be
disclosed in the Company's first quarter 2021 condensed consolidated interim financial statements.
There were $0.9 million in transaction related costs included in administrative expenses in the consolidated
statement of earnings and comprehensive income for the year ended December 31, 2020.
30.
Prior year comparatives
Certain prior year comparatives have been reclassified to conform with current year presentation.
44
Corporate
Directory
Board of Directors
Senior Management
Anton Rabie
Chairman, Co-Founder &
Co-Chief Executive Officer
Ronnen Harary
Director, Co-Founder &
Co-Chief Executive Officer
Jeffrey I. Cohen
Non-Executive Director
Reggie Fils-Aimé
Non-Executive Director
Kevin Glass
Non-Executive Director
Dina R. Howell
Non-Executive Director
Christina Miller
Non-Executive Director
Todd Tappin
Non-Executive Director
Ben Varadi
Director, Executive Vice President &
Chief Creative Officer
Charles Winograd
Lead Director
Anton Rabie
Chairman, Co-Founder &
Co-Chief Executive Officer
Ronnen Harary
Director, Co-Founder &
Co-Chief Executive Officer
Ben Varadi
Director, Executive Vice President &
Chief Creative Officer
Max Rangel
Global President
Mark L. Segal
Executive Vice President &
Chief Financial Officer
Chris Beardall
President, Toys
Jennifer Dodge
President, Entertainment
Fredrick Loving
President, Digital Games
Adam Beder
Executive Vice President, Strategic
Partnership & Franchise Development
Paul Blom
Executive Vice President,
Global Operations & Technology
Tara Deakin
Executive Vice President &
Chief People Officer
Christopher Harrs
Executive Vice President &
General Counsel, Corporate Secretary
Laura Henderson
Executive Vice President, Marketing
Ben Dermer
Senior Vice President, Creative Development
Head Office
225 King Street West, Suite 200
Toronto, ON M5V 3M2
Tel. (416) 364-6002
Fax (416) 364-5097
www.spinmaster.com
Toronto Stock
Exchange Listing
Trading symbol: TOY
Securities listed: Subordinate Voting Shares
Auditor
Deloitte LLP
8 Adelaide Street West, Suite 200
Toronto, ON M5H 0A9
Transfer Agent &
Registrar
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, ON M5J 2Y1
Legal Counsel
Torkin Manes LLP
1500 – 151 Yonge Street
Toronto, ON M5C 2W7
Annual Meeting
of Shareholders
May 6, 2021
Investor Contact Information
Email: Investor.relations@spinmaster.com
The trademarks contained in this report are owned by Spin Master Corp. or by its subsidiaries. Trademarks that are not owned
by Spin Master Corp. are used with permission.
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Spin Master Corp.
225 King Street West, Suite 200, Toronto, ON M5V 3M2
Tel. (416) 364-6002 Fax (416) 364-5097
spinmaster.com
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