2021
ANNUAL REPORT
S P I N M A S T E R C O R P.
Growth Strategies
Financial Highlights
Letter to Shareholders
Corporate Social Responsibility
2021 Financial Review
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About Spin Master
Spin Master Corp. (TSX:TOY) is a leading global
children’s entertainment company, creating
exceptional play experiences through its three
creative centres: Toys, Entertainment and Digital
Games. With distribution in over 100 countries,
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 global toy licensee for other
popular properties. Spin Master Entertainment
creates and produces compelling multiplatform
content, through its in-house studio and
partnerships with outside creators, including the
preschool franchise PAW Patrol and numerous
other original shows, short-form series and
feature films. The Company has an established
presence in digital games, anchored by the
Toca Boca® and Sago Mini® brands, offering
open-ended and creative game and educational
play in digital environments. Through Spin Master
Ventures, the Company makes minority
investments globally in emerging companies
and start-ups. With over 30 offices in close
to 20 countries, Spin Master employs more
than 2,000 team members globally. For more
information visit spinmaster.com or follow us 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, 2021, unless otherwise noted.
Growth
Strategies
TOYS
ENTERTAINMENT
DIGITAL GAMES
Continue to
innovate using our
global internal and
external research &
development 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
Develop evergreen
global entertainment
properties
• Grow current franchises
and properties
• Launch at least one new
property per year
• Strategically relaunch
properties to capitalize on
value of owned content library
Establish leading
position in digital
games
• Develop evergreen digital
games properties with
global appeal
• Expand studio capability
• Leverage owned intellectual
property to develop, nurture
and broaden offerings
• Grow revenue through content
• Drive organic growth
distribution
• Maximize licensing and
merchandising revenue for
owned intellectual property
through internal design and
development capitalizing on
current and future trends
LEVERAGE GLOBAL PLATFORM THROUGH STRATEGIC ACQUISITIONS
• Acquire toy companies with strong intellectual
• Acquire digital games studios to
property/brands in order to innovate, grow margins
and leverage our global infrastructure
complement strategy to build evergreen
digital games properties
• Acquire high-quality kid-focused entertainment
intellectual property that can be developed into
evergreen entertainment properties
• Maintain a strong balance sheet
with financial flexibility
SPIN MASTER CORP. 2021 ANNUAL REPORT
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Financial
Highlights
Revenue
2021
2020
2019
2018
2017
Gross Product Sales1
2021
2020
2019
2018
2017
$2,042
Revenue
$2,042M
Gross Product Sales1
$1,962M
$1,571
$1,582
$1,632
$1,551
$1,962
$1,624
$1,691
$1,708
$1,657
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Net Income2
2021
2020
2019
2018
2017
Adjusted Net Income1, 2
2021
2020
2019
2018
2017
Adjusted EBITDA1, 2
2021
2020
2019
2018
2017
Free Cash Flow1
2021
2020
2019
2018
2017
Net Income2
$199M
Adjusted Net Income1, 2
$221M
Adjusted EBITDA1, 2
$414M
Free Cash Flow1
$340M
$199
$46
$64
$155
$161
$221
$53
$93
$164
$173
$414
$181
$219
$304
$292
$340
$232
$5
$110
$210
1. Non-GAAP financial measure. Non-GAAP financial measures do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and therefore
may not be comparable to similar measures presented by other issuers. Please refer to the section entitled “Non-GAAP Financial Measures and Ratios” in the Management’s Discussion
and Analysis dated February 28, 2022 for the three months and year ended December 31, 2021 within Spin Master’s public filings for a discussion of the definition, components and
uses of such Non-GAAP measures, as well as a reconciliation of such Non-GAAP measures to IFRS measures. The MD&A is available at www.sedar.com.
2. Spin Master adopted International Financial Reporting Standard 16 Leases (“IFRS 16”), effective January 1, 2019. The Company implemented the standard using the modified
retrospective approach. As a result, the Company’s 2019 results reflect lease accounting under IFRS 16. Prior year results have not been restated. See “Application of new and revised
IFRS” in Note 2 of the Company’s annual consolidated financial statements for the year ended December 31, 2019 for more information on the implementation of IFRS 16.
SPIN MASTER CORP. 2021 ANNUAL REPORT
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Letter to
Shareholders
Fellow Shareholders,
2021 was a pivotal year for Spin Master as we began to leverage the
potential of our three creative centres, successfully transitioned
and organized our leadership team, and positioned our Company to
enter its next phase of growth. We delivered magical experiences to
retailers, playrooms, movie theatres, iPads, televisions, streaming
services and virtual playgrounds around the world. We are where kids
are, ensuring our presence in their lives in a landscape characterized
by ever-expanding options for kids to spend their time. Energized by
the strength of our diversified portfolio, inspired by our formula for
innovation and propelled by a strong operational foundation, our global
team is delivering on our vision of reimagining where imagination can
take us.
At the onset of the year, Max Rangel stepped
into the role of Global President and Chief
Executive Officer. As founders, we have created
a clear vision and strategy for Spin Master, one
that Max and the rest of the leadership team are
focused on executing. This leadership transition
allowed Anton and I to take on evolved roles, to
oversee M&A opportunities and to continue to
build a legacy for Spin Master.
We firmly established our three creative centres:
Toys, Entertainment and Digital Games, which
were further strengthened with the appointment
of highly skilled and experienced leaders
including Chris Beardall as President of Toys,
Jennifer Dodge as President of Entertainment
and Fredrik Loving as President of Digital Games.
This past year, we reached record levels of
revenues and profitability. The most significant
element of our excellent performance in 2021
was the broad, diversified way we achieved
it, across all our creative centres and all
our geographies. Our strong financial and
operational performance this year is a clear
demonstration of our commitment to creating
exceptional play experiences and the power of
our three creative centres. Our growth in Toys
revenue was driven by the global success of
new and innovative products and brands and
enthusiastic fandom for our newest licensed
toy properties. Our internal teams navigated a
complex supply chain environment to deliver
products throughout the year, providing the
foundation to grow Spin Master’s share in key
markets. In addition, the Entertainment creative
centre drove record revenue and marked a
historical milestone, our first-ever feature film
for our leading preschool franchise PAW Patrol,
expanding the entire franchise globally from
toys to licensing. The Digital Games creative
centre maintained its impressive revenue
momentum during 2021, growing over 127% and
culminating in Toca Life World being recognized
as the App Store’s 2021 iPhone App of the Year.
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Letter to Shareholders
“Energized by the strength of our diversified
portfolio, inspired by our formula for innovation
and propelled by a strong operational foundation,
our global team is delivering on our vision of
reimagining where imagination can take us.
TOYS
Innovation has always been at the heart
of who Spin Master is, and we believe it
is one of the key drivers of our success.
Our teams review over 3,000 new ideas
annually. Innovation is what fuels us and
it’s what has inspired our own award-
winning brands from the very beginning
with Air Hogs to Bakugan onto PAW Patrol
and now Kinetic Sand. We are constantly
reimagining, inventing and bringing new
toys to market.
The global success of new and innovative
items and enthusiastic fandom for our
newest licensed toy properties resulted in
Toys revenue growth of over 20% in 2021,
highlighting the strength of our brands
on a global scale. We entered the year
acutely aware of our need to address the
global supply chain challenges brought
on by COVID. We maintained strict cost
management discipline, leveraged our
diversified third-party manufacturing
footprint to optimize production and
worked with our logistics partners to gain
access to additional ports and shipping
lines. These teams worked diligently to
bring forward production earlier in the
season to ensure inventory was available
for the key shopping period.
Our core brands and franchises
demonstrated broad leadership in key
markets this year. The success of PAW
Patrol: The Movie had a positive halo
effect on our PAW Patrol toy line, which
outperformed the preschool category
globally, landing the number one
preschool character position and ranking
as the eighth largest toy property globally
for the year, according to NPD. Bakugan
continues to be the number one brand in
battling toys in France, Italy, the U.K. and
Belgium, per NPD. Kinetic Sand continued
to drive the activities category, and is
now the number two reusable compound,
building on its position as an evergreen
brand with international brand awareness
and affinity.
We continue to win highly sought-after
licenses, demonstrating our ability to bring
innovation to these popular franchises
and growing them on a global scale. This
year we debuted the Gabby’s Dollhouse
toy line, delivering the ultimate dollhouse
experience for fans of DreamWorks
Animation’s Netflix series. We revealed
an epic second year of Batman toys with
Warner Bros. Consumer Products and
announced that we have renewed our
initial contract with Warner Bros. that will
see Spin Master retain the DC Franchise
global toy rights for the action figure,
playset, role play and vehicle categories
for a further four-year term, beginning
2023 through 2026.
We also launched the first of our
innovative toys inspired by the Wizarding
World stories and characters from the
Harry Potter and Fantastic Beasts films.
Our relationship with Feld Entertainment
expanded beyond Monster Jam to include
Supercross as the new global master
toy licensee for the premier off-road
motorcycle racing series. Spin Master also
joined forces with Riot Games’ League of
Legends franchise, the most-played PC
game in the world, delivering enhanced
collectibility and unique play experiences
for the global League of Legends fan base
both on and offline.
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ENTERTAINMENT
As a creative centre, Spin Master
Entertainment is focused on leadership
of children’s entertainment brands and
as a producer of quality entertainment.
Through the creation of endearing
characters and exceptional stories
infused with a sense of play, our in-
house studio talent and outside partners
produce a rich slate of multiplatform
global entertainment properties, building
franchises that are positioned for
long-term growth. We are focused on
expanding our content pipeline with a
story-first mindset that can be adapted to
any screen or viewing service.
It’s been nearly a decade since the
adventures of a tech-savvy boy named
Ryder and his team of pups first
brightened preschoolers’ lives. This year,
for the first time ever, our Entertainment
creative centre, in partnership with
Paramount Pictures and Nickelodeon,
unleashed their biggest adventure yet –
taking PAW Patrol to the big screen with
the PAW Patrol: The Movie feature film.
In August 2021, preschoolers and their
families around the world emerged from
their homes for what was for many a
shared first big screen experience with
their beloved pups.
Marking an incredible milestone for Spin
Master Entertainment, we loved telling
a deeper PAW Patrol story on a bigger
canvas and fans loved watching it (on
average three times). Grossing more
than $47 million in the U.S. (excluding
Paramount Plus subscription revenue)
and more than $150 million worldwide to
date, the feature film’s success had a halo
effect on the franchise, raising PAW Patrol
awareness globally.
We currently have 10 original shows
and multiple short-form series airing or
streaming in more than 190 countries
in 30 languages. While PAW Patrol: The
Movie was our first feature film, it will not
be the last, with other film concepts in
development including a second PAW
Patrol movie to debut in fall 2023.
Letter to Shareholders
“With innovation as our driving force, we are
increasing our customer centricity to ensure
that the toys, entertainment and digital games
we bring to market are resonating with our core
audience – kids and their families.
DIGITAL GAMES
Today, playing digital games is an integral
part of children’s lives. Kids turn to gaming
as a creative outlet, to connect with their
friends, explore and engage with favourite
characters. Parents and teachers are also
increasingly turning to engaging digital
solutions for play-based learning – all of
which was amplified by the pandemic.
Our Digital Games creative centre creates
expansive digital play experiences for
kids, allowing them to explore, learn and
express themselves. We think of our
apps as digital playgrounds because
they are free of rules, scores and the
idea of winning and losing. This is our
focus moving forward as we expand,
introducing new apps and new platforms,
sparking kids’ imaginations and creating
opportunities for open-ended play. We
see tremendous opportunity to continue
to expand our digital games presence
and further expand into the “play to learn”
space, combining our deep understanding
of entertainment and education.
Our Digital Games creative centre
continued to experience record growth
in 2021, primarily driven by the Toca
Life World platform. With over 56 million
monthly active users, the app was
recognized by Apple as the #1 iPhone
App of the Year. Toca Life World marked
its first in-app licensing integration,
welcoming global lifestyle brand Sanrio
and its Hello Kitty and Friends franchise
into the digital playground.
Today, the entire Toca Boca ecosystem
has over 74 million monthly active users,
up over 64% compared to last year.
Toca Boca apps have been downloaded
more than 400 million times in 238
markets. Strong user growth continues
in core markets, including the U.S. and
Western Europe, but also increasingly in
countries such as Mexico and Brazil, and
in Eastern Europe.
Sago Mini, which includes the Sago
Mini School app and Sago Mini Boxes
subscription boxes, also helped fuel our
digital games growth, with an ever-
expanding subscription base that saw a
29% increase in 2021 compared to 2020.
In 2021 we established NOID, a new digital
games studio based in Stockholm. NOID
is focused on developing digital games
using Spin Master’s owned intellectual
property. Our first game is expected
to launch in 2023 and we are very
excited about the growth possibilities
for digital games that are emerging from
this initiative.
ACQUISITIONS
In 2021, we made three strategic
acquisitions that include iconic brands,
strengthen our innovation capabilities
and bolster our presence in the play to
learn space.
In January, we completed the acquisition
of Rubik’s Brands Limited, owner of the
Rubik’s Cube and one of the industry’s
most recognizable brands. The acquisition
of the Rubik’s brand further strengthened
our presence in the games and puzzle
category and gives us a platform for
further innovation and global leverage.
In April, we enhanced our innovation
capabilities through the acquisition of a
SPIN MASTER CORP. 2021 ANNUAL REPORT
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talented product development team
that we have worked with for more
than 20 years. They are leaders in the
development of technologically complex
toys that have mass market appeal. This
acquisition will accelerate our growth,
enable our team to take on more complex
projects, increase our idea generation
velocity and further expand our innovation
pipeline for 2022 and beyond.
We also acquired Originator Inc. in May,
a San Francisco-based digital games
developer that develops and publishes
educational mobile apps for kids and
families. Originator, with its impressive
roster of apps that have achieved number
one positions in their categories in the
Apple App Store, will complement
Sago Mini’s “play to learn” offering and
leverage its substantial subscription user
base to expand the Originator apps to
new audiences.
We continue to actively look for further
accretive acquisitions globally.
SPIN MASTER VENTURES
We took an important step to broaden
our capital deployment options with
the establishment of our Spin Master
Ventures strategic initiative, which will
seek to accelerate growth within our three
creative centres.
Against the backdrop of a rapidly
changing children’s entertainment space,
Spin Master Ventures will make strategic
minority investments in start-ups and
early-stage companies with promising
ideas through an infusion of seed or
growth capital. These investments will give
us access to new ideas, products and
services that complement our own
R&D efforts.
We aim to become the ultimate partnership
generator, widening our relationships,
networks and knowledge, while bolstering
our product development pipeline and
ultimately our leadership position in the
children’s entertainment space.
Letter to Shareholders
CORPORATE SOCIAL
RESPONSIBILITY
Spin Master has always had a noble vision to
create magical play experiences for children
and their families. Our commitment to this
vision has been unwavering, and in these
challenging times the power of play has
been one way we can make a meaningful
impact in the lives of children around the
world. We’ve been entrusted by kids and their
parents to conduct our business with integrity,
transparency and social responsibility. We
value that trust and are committed to being
responsible citizens and custodians of the
world that these children will one day inherit.
This past year we continued our legacy of
giving to children globally, donating more
than 170,000 toys as well as $1.95 million
in cash. We also established new strategic
relationships with leading children’s charities
to expand access to arts programming, digital
education, science, technology, engineering,
arts and mathematics (STEAM) activities, and
experiential learning to help ensure kids reach
their full potential. Through our charitable
programming, educational investments
and toy donations, we reached close to
300,000 children globally in 2021.
Our social responsibility is anchored by
four pillars: our people, our community, our
products and our environment. In addition
to tracking progress against our goals in
these areas, we also developed a multi-year
Corporate Social Responsibility (CSR) plan
to ensure long-term commitments and
accountability for performance to our board
and external stakeholders. One increasingly
material issue is the rising concern of climate
change. In 2021, we offset 100% of our Scope 1,
2 and some of our Scope 3 emissions and are
committed to creating a climate action plan by
the end of 2022.
We remain focused on our targets for reducing
waste and packaging and are actively
investigating more sustainable materials.
We implemented a toy recycling program in
partnership with TerraCycle® in the United
States and Australia and are looking to expand
this program into other regions in 2022. More
information regarding our progress in these
areas can be found in our 2021 CSR Report.
As we look to 2022, we are focused on
harnessing the full potential of our three
thriving creative centres. With innovation
as our driving force, we are also increasing
our customer centricity to ensure that the
toys, entertainment and digital games we
bring to market are resonating with our core
audience – kids and their families. We want
to fuel fandom for our evergreen franchises,
creating a long-lasting connection.
While the supply chain dynamics continue
to present challenges, we believe we have a
strong operational foundation and that our
teams are equipped to navigate this complex
environment, delivering our products, content
and digital games to our customers and to
families around the world.
We are well-positioned to capitalize on the
momentum from this past year, leveraging the
significant improvements in our operations to
propel us forward. We have full confidence in
our strategy, our clear vision for the future and
in our Executive Leadership Team to accelerate
growth across our diversified portfolio.
On behalf of the Board of Directors and
management, we want to thank our talented
team members globally for their contributions
in 2021. As we begin 2022, we see even
greater potential to connect, engage and reach
even more kids and families with magical and
memorable toy, entertainment and digital
games experiences. We look forward to
creating a long-lasting legacy for Spin Master
as a leader in the children’s entertainment
industry and to generating shareholder value.
Ronnen Harary
Chair & Co-Founder
Anton Rabie
Director & Co-Founder
Max Rangel
Global President & CEO
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Ronnen Harary
Chair & Co-Founder
Anton Rabie
Director & Co-Founder
Max Rangel
Global President & CEO
CSR at
Spin Master
CSR VISION
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.
CSR STRATEGIC FOCUS AREAS
OUR PRODUCTS
As a leading children’s entertainment company,
we operate in a highly regulated industry and are
committed to the highest level of product quality
and safety.
OUR PEOPLE
Our talented team is the driving force behind our
purpose of creating magical experiences for children
and their families. We are committed to investing in
our employees’ well-being and development and to
fostering an inclusive workplace where everyone
can thrive, grow and ultimately have fun.
OUR COMMUNITIES
We give children in communities around the world
the opportunity to grow, explore and learn through
the power of play. Through our philanthropic giving,
volunteering and toy donations, we are helping
children to harness their creativity and develop the
skills to achieve things they thought unimaginable.
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
for generations to come.
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253M
toys and games produced
in 2021.
These are a few highlights from our 2021 CSR
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
97%
of our manufacturing
facilities underwent
an IETP/Ethical Toy
Program audit, or
equivalent, in 2021.
Zero
Recalls
The Company has had
no consumer recalls in
over a decade.
More than
10,000
Metric Tonnes
of Scope 1 & 2 and some Scope 3
carbon emissions offset.
50%
planned reduction
in plastic packaging
by 2025.
Less than
10
recordable health &
safety incidents globally,
a reduction of 20% over
the prior year.
Toy
Recycling
Initiated toy recycling
programs in the U.S.
and Australia.
Close to
300,000
children were impacted by our charitable
programs, designed to give kids the opportunity
to grow and learn through the power of play.
$1.95M
in cash donations1 provided to organizations
helping children and youth to learn through play,
harness their creativity and develop the skills to
achieve things they thought unimaginable.
84%
of respondents in our
2021 Employee Engagement
Survey indicated they are
proud to work at Spin Master.
40%
Women represent 40%
of senior management
(director level and above).
97%
Achieved 97% gender-
based pay equity.
1. Cash donations include monetary contributions to registered charities, cost of goods of donated products and direct operational costs associated with donations.
SPIN MASTER CORP. 2021 ANNUAL REPORT
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2021
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. 2021 ANNUAL REPORT
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Spin Master Corp.
Management's Discussion and Analysis of Financial Results
For the three months and year ended December 31, 2021
TABLE OF CONTENTS
INTRODUCTION .........................................................................................................................................................
BASIS OF PRESENTATION ....................................................................................................................................
BUSINESS OVERVIEW .............................................................................................................................................
FINANCIAL PERFORMANCE ..................................................................................................................................
1
1
1
4
OUTLOOK .................................................................................................................................................................... 13
INVESTMENTS AND ACQUISITIONS ................................................................................................................... 14
SELECTED QUARTERLY FINANCIAL INFORMATION .................................................................................... 16
LIQUIDITY AND CAPITAL RESOURCES ............................................................................................................. 17
CASH FLOW ............................................................................................................................................................... 18
CONTRACTUAL OBLIGATIONS & COMMITMENTS ......................................................................................... 21
OFF‑BALANCE SHEET ARRANGEMENTS ......................................................................................................... 21
CAPITALIZATION ...................................................................................................................................................... 22
RISKS RELATING TO SPIN MASTER'S BUSINESS ......................................................................................... 22
FINANCIAL RISK MANAGEMENT ......................................................................................................................... 39
RELATED PARTY TRANSACTIONS ..................................................................................................................... 40
CRITICAL ACCOUNTING ESTIMATES ................................................................................................................. 40
FINANCIAL INSTRUMENTS .................................................................................................................................... 42
DISCLOSURE CONTROLS AND PROCEDURES ............................................................................................... 42
LIMITATIONS OF AN INTERNAL CONTROL SYSTEM ..................................................................................... 42
NON-GAAP FINANCIAL MEASURES AND RATIOS ......................................................................................... 43
FORWARD‑LOOKING STATEMENTS .................................................................................................................. 51
ADDENDUM ................................................................................................................................................................ 53
February 28, 2022
INTRODUCTION
The following Management’s Discussion and Analysis (“MD&A”) for Spin Master Corp. and its subsidiaries
(“Spin Master” or the “Company”) is dated February 28, 2022 and provides information concerning the
Company’s financial condition, financial performance and cash flows for the year ended December 31, 2021
and the three months ended December 31, 2021, (“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, 2021, as well as its Annual Information Form ("AIF")
dated March 15, 2021. These and additional information relating to the Company can be found under the
Company's profile on SEDAR at www.sedar.com.
Some of the statements in this MD&A contain forward-looking information 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 and ratios contained in this MD&A do not
have any standardized meaning under IFRS ("Non-GAAP") and are discussed further in the “Non-GAAP
Financial Measures and Ratios” section of this MD&A. Management believes the Non-GAAP financial
measures and Non-GAAP financial ratios defined in the section noted above are important supplemental
measures of operating performance and highlight trends in the business. Management believes that these
measures allow for assessment of the Company’s operating performance and financial condition on a basis
that is consistent and comparable between reporting periods. The Company believes that investors, lenders,
securities analysts and other interested parties frequently use these Non-GAAP financial measures and Non-
GAAP financial ratios in the evaluation of issuers.
All financial information is presented in United States dollars ("$", "dollars" and "US$") and has been rounded to
the nearest hundred thousand, except per share amounts and where otherwise indicated.
BUSINESS OVERVIEW
Spin Master Corp. is a leading global children's entertainment company, creating exceptional play experiences
through it’s three creative centres: Toys, Entertainment and Digital Games. With distribution in over 100
countries, 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 global toy licensee for other popular properties.
Spin Master Entertainment creates and produces compelling multiplatform content, through its in-house studio
and partnerships with outside creators, including the preschool franchise PAW Patrol and numerous other
original shows, short-form series and feature films. The Company has an established presence in digital
games, anchored by the Toca Boca® and Sago Mini® brands, offering open-ended and creative game and
educational play in digital environments. Through Spin Master Ventures, the Company makes minority
investments globally in emerging companies and start-ups. With over 30 offices in close to 20 countries, Spin
Master employs more than 2,000 team members globally.
Spin Master’s principal strategies to drive the Company’s continued growth include:
•
•
•
Innovate using our internal and external global research and development network;
Increase international sales in developed and emerging markets;
Develop global evergreen entertainment franchises;
1
•
•
Establish a leading position in digital games; and
Leverage the Company's global platform through strategic acquisitions and investments.
Spin Master's organic growth strategy is centered around the Company's 36-month brand innovation pipeline.
This pipeline is fed by internal innovation from inventors, licensors, consumers and potential acquisitions,
traditional and innovative entertainment content and digital games.
Spin Master continues to expand into both entertainment content for traditional television, video-on-demand,
subscription video-on-demand, and other short-form and long-form content, including movies, as well
expanding the Company’s digital games business led by Toca Boca and Sago Mini.
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 toy creative centre is organized into four product categories: (1) Activities, Games & Puzzles and
Plush; (2) Wheels & Action; (3) Outdoor and (4) Preschool, Dolls & Interactive. In the fourth quarter of 2021, the
"Preschool and Girls" product category was renamed "Preschool and Dolls & Interactive" and the "Boys"
product category was renamed "Wheels & Action".
Seasonality factors cause the Company's operating results to fluctuate significantly from quarter to quarter. In
particular, Toy revenue is concentrated in the third and fourth quarters of a fiscal year with a significant portion
of its net income earned and cash flows generated during the same period.
COVID-19 PANDEMIC
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 in 2020 and 2021.
Supply Chain
The Company closely monitors the changing global environment to enable immediate actions to be taken to
ensure customer order fulfillment is achieved across the various markets. The shipment of goods from ports in
Asia to North America and Europe continues to be affected by shipping container availability issues and port
disruptions.
Demand
Consumer demand for toys is strong in most major markets. Brick and mortar retail consumer traffic continues
to be affected in some markets with government-imposed restrictions and consumer purchasing behaviour.
Online and e-commerce channels are active in most countries.
Spin Master’s Entertainment and Digital Games creative centres were not adversely impacted by COVID-19.
Demand for entertainment content and digital games increased during the pandemic as parents sought
entertainment for their children whilst they were at home.
Liquidity
As at December 31, 2021, the Company had unutilized liquidity of $1,080.2 million, comprised of $562.7 million
in cash and cash equivalents and $517.5 million under its credit facilities. The Company believes it has
sufficient liquidity to meet its operational requirements.
2
Selected Financial Information
The following provides selected key performance metrics of the Company for the year ended December 31,
2021, which should be read in conjunction with the financial statements of the Company.
Key Performance Metrics
(US$ millions, except per share information)
Sales and Earnings
Gross Product Sales1
Toy revenue
Entertainment and Licensing revenue
Digital games revenue
Revenue
Net income
Net margin2
Adjusted Net Income1
Adjusted Net Margin1
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 and cash equivalents
Total assets
Total liabilities
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Free Cash Flow1
Notes:
Year Ended Dec 31
2021
2020
2019
1,962.4
1,731.8
135.8
174.8
2,042.4
198.6
9.7 %
221.3
10.8 %
384.1
414.1
1,623.7
1,415.6
78.2
76.8
1,691.2
1,463.7
91.7
26.2
1,570.6
1,581.6
45.5
2.9 %
53.4
3.4 %
124.5
180.6
64.3
4.1 %
92.8
5.9 %
181.3
219.0
20.3 %
11.5 %
13.8 %
1.94
1.89
2.16
2.10
562.7
1,736.7
684.3
419.1
(153.2)
(18.3)
339.6
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) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2) Net margin is calculated as Net income divided by Revenue.
Revenue was $2,042.4 million which increased by 30.0% from $1,570.6 million in 2020. Constant Currency
Revenue1 grew by 28.9%2 to $2,025.2 million from $1,570.6 million. The growth in revenue was attributed to all
three creative centers - Toy, Entertainment and Licensing and Digital Games.
Gross Product Sales1 have increased from $1,623.7 million in 2020 to $1,962.4 million in 2021. Over the same
period, toy revenue were $1,731.8 million up from $1,415.6 million, driven by growth in all product categories,
particularly Preschool and Dolls & Interactive.
Entertainment and Licensing revenue increased by $57.6 million or 73.7% to $135.8 million. The increase was
primarily a result of higher distribution revenue related to PAW Patrol: The Movie and higher licensing and
merchandising revenue.
Digital Games revenue increased by $98.0 million or 127.6% to $174.8 million. The increase was primarily due
to higher in-game purchases in Toca Life World.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"
2 See "Percentage change in Constant Currency Gross Product Sales" and "Percentage change in Constant Currency Revenue"
within "Non-GAAP Financial Measures and Ratios".
3
Gross profit of $1,056.6 million increased by 45.2% from $727.9 million in 2020. The increase in gross profit
was primarily driven by a 22.3% increase in toy revenue, higher digital games revenue, cost reductions
resulting from the Company's operational improvement and productivity initiatives and higher entertainment and
licensing revenue. Gross margin3 increased from 46.3% to 51.7%. The improvement in gross margin was as a
result of cost reductions resulting from the Company's operational improvements and productivity initiatives,
favourable changes in product mix, a higher proportion of Digital Games and licensing and merchandising
revenue and lower closeout sales. This increase was offset in part by inflation on product costs and ocean
freight, which was partially mitigated by price increases implemented during the third quarter, as well as by the
dilutive effect of PAW Patrol: The Movie (revenue less amortization of production costs).
Net income for the year ended December 31, 2021 was $198.6 million, an increase of $153.1 million or 336.5%
from $45.5 million in 2020. Adjusted Net Income1 for the year ended December 31, 2021 was $221.3 million, an
increase of $167.9 million or 314.4% from $53.4 million in 2020.
Adjusted EBITDA1 increased to $414.1 million with Adjusted EBITDA Margin1 of 20.3%, compared to $180.6
million and 11.5%, respectively, in 2020, primarily driven by higher gross profit, higher administrative, marketing
and selling expenses, partially offset by lower distribution expenses.
FINANCIAL PERFORMANCE
Consolidated Results
The following tables provide a summary of Spin Master’s consolidated results for the three months and years
ended December 31, 2021 and 2020:
(US$ millions)
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Depreciation and amortization expenses
Other expense, net
Net foreign exchange (gain) loss
Finance costs
Income (loss) before income tax expense
(recovery)
Income tax expense (recovery)
Net income
(US$ millions)
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Depreciation and amortization expenses
Other expense, net
Net foreign exchange (gain) loss
Finance costs
Income before income tax expense (recovery)
Income tax expense (recovery)
Net income
3 Gross margin is calculated as Gross profit divided by Revenue.
Three Months Ended Dec 31
2021
2020
$ Change
% Change
620.5
297.2
323.3
267.4
7.9
9.6
(0.7)
3.1
36.0
9.5
26.5
490.6
249.6
241.0
211.8
10.0
9.7
10.5
3.4
(4.4)
(4.7)
0.3
129.9
47.6
82.3
55.6
(2.1)
(0.1)
(11.2)
(0.3)
40.4
14.2
26.2
26.5 %
19.1 %
34.1 %
26.3 %
(21.0) %
(1.0) %
(106.7) %
(8.8) %
(918.2) %
(302.1) %
8,733.3 %
Year Ended Dec 31
2021
2020
$ Change
% Change
2,042.4
985.8
1,056.6
742.5
33.5
11.3
(2.9)
10.2
262.0
63.4
198.6
1,570.6
842.7
727.9
632.4
37.7
8.7
27.6
12.1
9.4
(36.1)
45.5
471.8
143.1
328.7
110.1
(4.2)
2.6
(30.5)
(1.9)
252.6
99.5
153.1
30.0 %
17.0 %
45.2 %
17.4 %
(11.1) %
29.9 %
(110.5) %
(15.7) %
2,687.2 %
(275.6) %
336.5 %
4
Revenue
For the three months ended December 31, 2021 as compared to the same period in 2020:
The following table provides a summary of Spin Master’s revenue, including by product category, for the three
months ended December 31, 2021 and 2020:
(US$ millions)
Preschool and Dolls & Interactive2
Activities, Games & Puzzles and Plush5
Wheels & Action2
Outdoor
Gross Product Sales 3
Sales Allowances4
Toy revenue
Entertainment and Licensing revenue
Digital Games revenue6
Other revenue
Three Months Ended Dec 31
2021
20201
$ Change
% Change
251.8
206.5
146.1
23.1
627.5
(85.5)
542.0
28.5
50.0
78.5
200.2
173.9
122.1
15.6
511.8
(77.5)
434.3
24.5
31.8
56.3
51.6
32.6
24.0
7.5
115.7
(8.0)
107.7
4.0
18.2
22.2
25.8 %
18.7 %
19.7 %
48.1 %
22.6 %
10.3 %
24.8 %
16.3 %
57.2 %
39.4 %
620.5
Revenue
1 Effective Q1 2021, Spin Master simplified its product categories to align with the Company's product offerings going forward. Prior year
comparative information has been updated to conform with the current disclosure. See "Addendum" for further details.
2 Effective Q4 2021, the "Preschool and Girls" product category was renamed "Preschool and Dolls & Interactive" and the "Boys" product
category was renamed "Wheels & Action".
3 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
4 Sales Allowances represent sales credits requested by customers relating to factors such as cooperative advertising, contractual and
negotiated discounts, volume rebates, and costs incurred by customers to sell the Company’s products.
5 Includes $9.7 million related to Rubik's in Q4 2021. Rubik's was acquired on January 4, 2021.
6 Includes $1.0 million related to Originator in Q4 2021. Originator was acquired on June 14, 2021.
490.6
129.9
26.5 %
Revenue was $620.5 million, an increase of 26.5% from $490.6 million driven by revenue growth in Toy,
Entertainment and Licensing and Digital Games. Constant Currency Revenue1 was $622.1 million, up from
$490.6 million, an increase of 26.8%2.
Toy revenue increased by $107.7 million or 24.8% to $542.0 million driven by growth in all product categories,
offset by an increase in Sales Allowances.
Gross Product Sales increased by $115.7 million or 22.6%, to $627.5 million from $511.8 million. Constant
Currency Gross Product Sales1 increased by $117.2 million or 22.9%2 to $629.0 million, up from $511.8 million.
The improvement was generated by growth in all product categories and reflected strong customer demand
throughout the quarter and the Company's successful management of the global supply chain volatility.
Gross Product Sales in Preschool, Dolls & Interactive increased by $51.6 million or 25.8% to $251.8 million,
arising from sales of Wizarding World, Gabby's Dollhouse, PAW Patrol and Purse Pets, offset in part by a
decline in Hatchimals.
Gross Product Sales in Activities, Games & Puzzles and Plush increased by $32.6 million or 18.7% to $206.5
million, mainly due to increases in Kinetic Sand, Rubik's and Orbeez.
Gross Product Sales in Wheels & Action increased by $24.0 million or 19.7% to $146.1 million, led by increases
in DC licensed products and Tech Deck, partially offset by a decline in DreamWorks Dragons.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"
2 See "Percentage change in Constant Currency Gross Product Sales" and "Percentage change in Constant Currency Revenue"
within "Non-GAAP Financial Measures and Ratios".
5
Gross Product Sales in Outdoor increased by $7.5 million or 48.1% to $23.1 million, primarily driven by
increases in SwimWays and Aerobie.
Sales Allowances decreased by $8.0 million or 10.3% to $85.5 million. As a percentage of Gross Product Sales,
Sales Allowances declined 1.5% to 13.6% from 15.1%, primarily driven by lower non-compliance charges.
Entertainment and Licensing revenue increased by $4.0 million or 16.3% to $28.5 million. The increase was
primarily driven by licensing and merchandising revenue.
Digital games revenue increased by $18.2 million or 57.2% to $50.0 million. The increase was driven by higher
in-game purchases in the Toca Life World platform.
Revenue by Geographic Segment
The following table provides a summary of Spin Master’s Gross Product Sales by geographic segment for the
three months ended December 31, 2021 and 2020:
(US$ millions)
North America
Europe
Rest of World
International
Gross Product Sales1
Sales Allowances
Toy revenue
Three Months Ended Dec 31
2021
% of GPS
2020
% of GPS
$ Change % Change
361.8
187.5
78.2
265.7
627.5
(85.5)
542.0
57.6 %
29.9 %
12.5 %
42.4 %
100.0 %
(13.6) %
272.4
168.0
71.4
239.4
511.8
(77.5)
434.3
53.2 %
32.8 %
14.0 %
46.8 %
100.0 %
(15.1) %
89.4
19.5
6.8
26.3
115.7
(8.0)
107.7
32.8 %
11.6 %
9.5 %
11.0 %
22.6 %
10.3 %
24.8 %
1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
As a percentage of total Gross Product Sales, the North America segment increased 4.4% to 57.6% compared
to 53.2%. International sales, comprised of the Europe and Rest of World segments, decreased 4.4% to 42.4%
compared to 46.8%.
Gross Product Sales in North America increased by $89.4 million or 32.8% to $361.8 million, with a favourable
foreign exchange impact of $0.5 million. The increase was driven by Gabby's Dollhouse, DC licensed products,
Kinetic Sand, SwimWays, Monster Jam RC and PAW Patrol.
Gross Product Sales in Europe increased by $19.5 million or 11.6% to $187.5 million, with a unfavourable
foreign exchange impact of $1.9 million. The increase was driven by Wizarding World, Purse Pets, PAW Patrol
and Rubik's, offset in part by Hatchimals and Present Pets.
Gross Product Sales in Rest of World increased by $6.8 million or 9.5% to $78.2 million, with an unfavourable
foreign exchange impact of $0.1 million. The increase arose from Wizarding World, Rubik's and PAW Patrol,
offset in part by Hatchimals.
6
For the year ended December 31, 2021 as compared to the same period in 2020:
The following table provides a summary of Spin Master’s revenue, including by product category, for the years
ended December 31, 2021 and 2020:
(US$ millions)
Preschool and Dolls & Interactive2
Activities, Games & Puzzles and Plush4
Wheels & Action2
Outdoor
Gross Product Sales3
Sales Allowances5
Toy revenue
Entertainment and Licensing revenue6
Digital Games revenue7
Other revenue
Year Ended Dec 31
2021
809.6
587.8
445.6
119.4
1,962.4
(230.6)
1,731.8
135.8
174.8
310.6
20201
609.5
534.8
388.3
91.1
1,623.7
(208.1)
1,415.6
78.2
76.8
155.0
$ Change
% Change
200.1
53.0
57.3
28.3
338.7
(22.5)
316.2
57.6
98.0
155.6
32.8 %
9.9 %
14.8 %
31.1 %
20.9 %
10.8 %
22.3 %
73.7 %
127.6 %
100.4 %
2,042.4
1,570.6
Revenue
30.0 %
1 Effective Q1 2021, Spin Master simplified its product categories to align with the Company's product offerings going forward. Prior
year comparative information has been updated to conform with the current disclosure. See "Addendum" for further details.
2 Effective Q4 2021, the "Preschool and Girls" product category was renamed "Preschool and Dolls & Interactive" and the "Boys"
product category was renamed "Wheels & Action".
3 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
4 Includes $25.2 million related to Rubik's in 2021. Rubik's was acquired on January 4, 2021.
5 Sales Allowances represent sales credits requested by customers relating to factors such as cooperative advertising, contractual
and negotiated discounts, volume rebates, and costs incurred by customers to sell the Company’s products.
6 Includes $26.0 million related to revenue for PAW Patrol: The Movie in 2021.
7 Includes $2.3 million related to Originator in 2021. Originator was acquired on June 14, 2021.
471.8
Revenue was $2,042.4 million, an increase of 30.0% from $1,570.6 million driven by revenue growth in Toy,
Entertainment and Licensing and Digital Games. Constant Currency Revenue1 increased by 28.9%2 to
$2,025.2 million from $1,570.6 million.
Toy revenue increased by $316.2 million or 22.3% to $1,731.8 million, driven by growth in all product
categories, particularly Preschool and Dolls & Interactive.
Gross Product Sales increased by $338.7 million or 20.9% to $1,962.4 million, with a favourable foreign
exchange impact of $12.3 million or 0.8%. Constant Currency Gross Product Sales1 increased by $326.4
million to $1,950.1 million from $1,623.7 million, an increase of 20.1%2. The improvement was due to growth in
all product categories, particularly Preschool and Dolls & Interactive.
Gross Product Sales in Preschool, Dolls & Interactive increased by $200.1 million or 32.8% to $809.6 million,
driven primarily by increases in PAW Patrol, Wizarding World, Gabby's Dollhouse and Purse Pets, offset in part
by declines in Hatchimals and Twisty Petz.
Gross Product Sales in Activities, Games & Puzzles and Plush increased by $53.0 million or 9.9% to $587.8
million, mainly due to increases in Kinetic Sand, Rubik's and GUND, offset in part by a decline in the Games &
Puzzles portfolio.
Gross Product Sales in Wheels & Action increased by $57.3 million or 14.8% to $445.6 million, driven by
increases in DC licensed products, Monster Jam RC and Tech Deck, partially offset by declines in Ninja Bots
and DreamWorks Dragons.
Gross Product Sales in Outdoor increased by $28.3 million or 31.1% to $119.4 million, a result of increases in
SwimWays and Aerobie.
7
Sales Allowances increased by $22.5 million or 10.8% to $230.6 million. As a percentage of Gross Product
Sales, Sales Allowances declined 1.0% to 11.8% from 12.8%, primarily driven by lower non-compliance
charges and markdowns.
Entertainment and Licensing revenue increased by $57.6 million or 73.7% to $135.8 million. The increase was
driven by distribution revenue from PAW Patrol: The Movie and higher licensing and merchandising revenue.
Digital games revenue increased by $98.0 million or 127.6% to $174.8 million. The increase was driven by
higher in-game purchases in the Toca Life World platform.
Revenue by Geographic Segment
The following table provides a summary of Spin Master’s Gross Product Sales by geographic segment for the
years ended December 31, 2021 and 2020:
(US$ millions)
North America
Europe
Rest of World
International
Gross Product Sales1
Sales Allowances
Toy revenue
Year Ended Dec 31
2021
% of GPS
2020
% of GPS
$ Change % Change
1,197.3
530.7
234.4
765.1
61.0 %
27.0 %
12.0 %
39.0 %
983.4
451.0
189.3
640.3
1,962.4
100.0 %
1,623.7
(230.6)
(11.8) %
(208.1)
1,731.8
1,415.6
60.6 %
27.8 %
11.6 %
39.4 %
100.0 %
(12.8) %
213.9
79.7
45.1
124.8
338.7
(22.5)
316.2
21.8 %
17.7 %
23.8 %
19.5 %
20.9 %
10.8 %
22.3 %
1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
As a percentage of total Gross Product Sales, the North America segment increased 0.4% to 61.0% compared
to 60.6%. International sales, comprised of the Europe and Rest of World segments, decreased 0.4% to 39.0%
compared to 39.4%.
Gross Product Sales in North America increased by $213.9 million or 21.8% to $1,197.3 million, with a
favourable foreign exchange impact of $1.8 million. The increase was driven by PAW Patrol, Gabby's
Dollhouse, SwimWays, Monster Jam RC, Kinetic Sand, Wizarding World, DC licensed products and Bakugan,
offset in part by the Games & Puzzles portfolio.
Gross Product Sales in Europe increased by $79.7 million or 17.7% to $530.7 million, with a favourable foreign
exchange impact of $6.4 million. The increase was driven by PAW Patrol, Wizarding World, Purse Pets,
Rubik's, Kinetic Sand, Tech Deck, Zoobles and GUND, offset in part by Hatchimals.
Gross Product Sales in Rest of World increased by $45.1 million or 23.8% to $234.4 million, with a favourable
foreign exchange impact of $4.1 million. The increase was driven by PAW Patrol, Wizarding World, Rubik's and
Orbeez, offset in part by Hatchimals and Present Pets.
8
Gross Profit as compared to the same period in 2020:
(US$ millions)
Revenue
Gross profit
Gross margin
Three Months Ended Dec 31
2021
620.5
323.3
52.1 %
2020
$ Change
% Change
490.6
241.0
49.1 %
129.9
82.3
N/A
26.5 %
34.1 %
3.0 %
For the three months ended December 31, 2021, gross profit increased by $82.3 million or 34.1% to $323.3
million, primarily driven by a 24.8% increase in toy revenue and higher digital games revenue.
Gross margin increased to 52.1% from 49.1% as compared to the same period in 2020, as a result of lower
closeout sales, a higher proportion of Digital Games and licensing and merchandising revenue and favourable
changes in product mix and productivity savings, offset in part by inflation on product costs and ocean freight,
which was partially mitigated by price increases.
(US$ millions)
Revenue
Gross profit
Gross margin
Year Ended Dec 31
2020
$ Change
% Change
2021
2,042.4
1,056.6
1,570.6
727.9
51.7 %
46.3 %
471.8
328.7
N/A
30.0 %
45.2 %
5.4 %
For the year ended December 31, 2021, gross profit increased by $328.7 million or 45.2% to $1,056.6 million,
primarily driven by a 22.3% increase in toy revenue, higher digital games revenue, cost reductions resulting
from the Company's operational improvement and productivity initiatives and higher entertainment and
licensing revenue.
Gross margin increased to 51.7% from 46.3%, as a result of cost reductions resulting from the Company's
operational improvements and productivity initiatives, favourable changes in product mix, a higher proportion of
Digital Games and licensing and merchandising revenue and lower closeout sales. This increase was offset in
part by inflation on product costs and ocean freight, which was partially mitigated by price increases
implemented during the third quarter, as well as by the dilutive effect of PAW Patrol: The Movie (revenue less
amortization of production costs).
Selling, General and Administrative Expenses ("SG&A") as compared to the same period in 2020:
(US$ millions)
Selling expenses
Marketing expenses
Distribution expenses
Product development expenses
Administrative expenses
SG&A
Three Months Ended Dec 31
2021
41.3
92.0
22.9
7.4
103.8
267.4
% of
revenue
6.7 %
14.8 %
3.7 %
1.2 %
16.7 %
43.1 %
2020
32.0
70.0
22.7
10.4
76.7
211.8
% of
revenue
6.5 %
14.3 %
4.6 %
2.1 %
15.6 %
43.2 %
$ Change % Change
9.3
22.0
0.2
(3.0)
27.1
55.6
29.1 %
31.4 %
0.9 %
(28.8) %
35.3 %
26.3 %
Selling expenses increased by $9.3 million or 29.1% to $41.3 million due to higher sales volume of partner
licensed brands. Selling expenses as a percentage of revenue increased to 6.7% from 6.5%.
Marketing expenses increased by $22.0 million or 31.4% to $92.0 million, due to higher media and commercial
production spend. Marketing expenses were lower in the prior year due to lower media spend as a result of
COVID-19. Marketing expenses as a percentage of revenue increased to 14.8% from 14.3%.
9
Distribution expenses increased by $0.2 million or 0.9% to $22.9 million, primarily due to lower storage and
outbound transportation costs. Distribution expenses as a percentage of revenue decreased to 3.7% from
4.6%.
Product development expenses decreased by $3.0 million or 28.8% to $7.4 million.
For the three months ended December 31, 2021, administrative expenses increased by $27.1 million or 35.3%
to $103.8 million. The increase was primarily due to higher personnel related costs and incentive compensation
driven by improved operating results. Administrative expenses as a percentage of revenue increased to 16.7%
from 15.6%.
(US$ millions)
Selling expenses
Marketing expenses
Distribution expenses
Product development expenses
Administrative expenses
SG&A
2021
133.8
179.7
71.3
27.4
330.3
742.5
% of
revenue
6.6 %
8.8 %
3.5 %
1.3 %
16.2 %
36.4 %
Year Ended Dec 31
2020
109.5
133.1
90.7
34.5
264.6
632.4
% of
revenue
7.0 %
8.5 %
5.8 %
2.2 %
16.8 %
40.3 %
$ Change % Change
24.3
46.6
(19.4)
(7.1)
65.7
110.1
22.2 %
35.0 %
(21.4) %
(20.6) %
24.8 %
17.4 %
Selling expenses increased by $24.3 million or 22.2% to $133.8 million, due to higher sales volume of partner
licensed brands. Selling expenses as a percentage of revenue decreased to 6.6% from 7.0%, driven by lower
proportion of revenue from partner licensed brands.
Marketing expenses increased by $46.6 million or 35.0% to $179.7 million, due to higher media and
commercial production spend. Marketing expenses were lower in the prior year due to decreased media
marketing, lower experiential marketing and trade show cancellations as a result of COVID-19. Marketing
expenses as a percentage of revenue increased to 8.8% from 8.5%.
Distribution expenses decreased by $19.4 million or 21.4% to $71.3 million, primarily due to lower storage and
outbound transportation costs. Contributing to the decline was the Company's reduction of its North American
warehouse footprint from 18 warehouses to 4 warehouses during 2020. Distribution expenses as a percentage
of revenue decreased to 3.5% from 5.8%.
Product development expenses decreased by $7.1 million or 20.6% to $27.4 million.
For the year ended December 31, 2021, administrative expenses increased by $65.7 million or 24.8% to
$330.3 million.
10
Adjusted SG&A as compared to the same period in 2020:
(US$ millions)
2021
267.4
Selling, general and administrative expenses
Adjustments1:
Restructuring expense2
Share based compensation3
Impairment of property, plant and equipment4
Transaction costs5
Adjusted SG&A6
259.9
1) These adjustments relate to items recorded within Administrative expenses.
—
(1.4)
(4.0)
(2.1)
Three Months Ended Dec 31
2020
211.8
$ Change
% Change
55.6
26.3 %
(0.5)
(2.9)
(0.5)
(0.9)
207.0
(0.9)
(1.1)
0.5
(1.2)
52.9
180.0 %
37.9 %
n.m.
n.m.
25.6 %
2) Restructuring expense primarily relates to personnel related costs. Restructuring expense in the prior year includes costs related to changes in
senior leadership.
3) Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company's initial public
offering, share option expense and long-term incentive plan.
4) Impairment of property, plant and equipment related to machinery.
5) Professional fees incurred relating to acquisitions and other transactions.
6) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
Adjusted SG&A1 increased by $52.9 million or 25.6% to $259.9 million. Adjusted SG&A1 as a percentage of
revenue decreased to 41.9% from 42.2%.
(US$ millions)
2021
742.5
Selling, general and administrative expenses
Adjustments1:
Restructuring expense2
Share based compensation3
Impairment of property, plant and equipment4
Transaction costs5
Adjusted SG&A6
721.9
1) These adjustments relate to items recorded within Administrative expenses.
—
(15.3)
(2.8)
(2.5)
Year Ended Dec 31
2020
632.4
$ Change
% Change
110.1
17.4 %
(5.3)
(12.2)
(0.5)
(0.9)
613.5
2.8
(3.1)
0.5
(1.9)
108.4
(52.8) %
25.4 %
n.m.
n.m.
17.7 %
2) Restructuring expense primarily relates to personnel related costs. Restructuring expense in the prior year includes costs related to changes in
senior leadership.
3) Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company's initial public
offering, share option expense and long-term incentive plan. See Note 21 of the Consolidated financial statements.
4) Impairment of property plant and equipment related to machinery. See Note 5 of the Consolidated financial statements.
5) Professional fees incurred relating to acquisitions and other transactions.
6) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
The increase was primarily due to higher personnel related costs and incentive compensation driven by
improved operating results as well as higher professional services expenses. Administrative expenses as a
percentage of revenue decreased to 16.2% from 16.8%. Adjusted SG&A increased by $108.4 million or 17.7%
to $721.9 million. Adjusted SG&A as a percentage of revenue decreased to 35.3% from 39.1%.
Finance Costs as compared to the same period in 2020:
For the three months ended December 31, 2021, finance costs decreased by $0.3 million to $3.1 million. For
the year ended December 31, 2021, finance costs decreased by $1.9 million to $10.2 million. The decrease
was primarily due to lower interest expense.
11
Depreciation and Amortization Expenses as compared to the same period in 2020:
(US$ millions)
Included in cost of sales
Included in expenses
Depreciation and amortization expenses
Three Months Ended Dec 31
2021
15.1
7.9
23.0
2020
$ Change
% Change
17.6
10.0
27.6
(2.5)
(2.1)
(4.6)
(14.2) %
(21.0) %
(16.7) %
For the three months ended December 31, 2021, depreciation and amortization expense decreased by $4.6
million to $23.0 million. The decrease was primarily due to lower expenses related to entertainment content
development.
(US$ millions)
Included in cost of sales
Included in expenses
Depreciation and amortization expenses
Year Ended Dec 31
2021
78.4
33.5
111.9
2020
$ Change
% Change
65.3
37.7
103.0
13.1
(4.2)
8.9
20.1 %
(11.1) %
8.6 %
For the year ended December 31, 2021, depreciation and amortization expense increased by $8.9 million to
$111.9 million. The increase was primarily due to higher expenses related to entertainment content and app
development.
Foreign Exchange (Gain) Loss as compared to the same period in 2020:
For the three months ended December 31, 2021, the Company incurred a foreign exchange gain of $0.7 million
(unrealized gain of $0.7 million and realized gain of $nil) compared to a net foreign exchange loss of $10.5
million (realized loss of $4.1 million and unrealized loss of $6.4 million). For the year ended December 31,
2021, the Company incurred a foreign exchange gain of $2.9 million (realized gain of $2.5 million and
unrealized gain of $0.4 million) compared to a net foreign exchange loss of $27.6 million (unrealized loss of
$41.7 million, net of realized gain of $14.1 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 Expense (Recovery) as compared to the same period in 2020:
For the three months ended December 31, 2021, the Company had an income tax expense of $9.5 million
compared to an income tax recovery of $4.7 million. For the year ended December 31, 2021, the Company had
an income tax expense of $63.4 million compared to an income tax recovery of $36.1 million. The effective tax
rate was 24.2% compared to (384.0)%. The prior year effective tax rate related to an internal transfer of
intellectual property, which resulted in a one-time income tax recovery of $33.3 million or (354.2)% for the year
ended December 31, 2020 as well as from different tax rates of subsidiaries operating in other jurisdictions and
income not taxable in determining the taxable income.
Net Income as compared to the same period in 2020:
Net income for the three months ended December 31, 2021 was $26.5 million, an increase of $26.2 million
from $0.3 million. Adjusted Net Income1 for the three months ended December 31, 2021 was $38.7 million, an
increase of $24.1 million from $14.6 million.
Net income for the year ended December 31, 2021 was $198.6 million, an increase of $153.1 million from
$45.5 million. Adjusted Net Income1 for the year ended December 31, 2021 was $221.3 million, an increase of
$167.9 million from $53.4 million.
12
OUTLOOK
Spin Master continues to focus on driving long-term growth. Its principal strategies are to:
• Innovate using our internal and external global research and development network;
• Increase international sales in developed and emerging markets;
• Develop global evergreen entertainment franchises;
• Establish a leading position in digital games; and
• Leverage the Company's global platform through strategic acquisitions and investments.
Revenue increased 30.0% for the year ended December 31, 2021 compared to 2020. Previous guidance on
November 4, 2021 was for Revenue to increase slightly above 20% compared to 2020. The higher than
expected Revenue growth was primarily driven by Gross Product Sales1, which increased 20.9% for the year
ended December 31, 2021 compared to 2020. Previous guidance was for Gross Product Sales1 to increase
mid-teens compared to 2020. The increase in Gross Product Sales1, was primarily driven by the strength of
customer demand for Spin Master’s innovative product line and the Company’s ability to successfully manage
through global supply chain disruptions, to ensure steady inventory flow and availability both on shelf and on-
line.
2022 Guidance
The Company expects 2022 Gross Product Sales1 to increase mid to high single digits compared to 2021.
The Company expects 2022 Revenue to increase mid to high single digits compared to 2021 Revenue,
excluding PAW Patrol: The Movie Distribution Revenue1 of $26.0 million.
The Company expects 2022 Adjusted EBITDA Margin1 to be in line with 2021 Adjusted EBITDA Margin,
excluding PAW Patrol: The Movie Distribution Revenue1 of $26.0 million.
13
INVESTMENTS AND ACQUISITIONS
Acquisition of Rubik's Brand Limited
On January 4, 2021, the Company completed the acquisition of Rubik's Brand Limited by acquiring 100% of the
shares of its holding company, Rubiks Malta Holding Company Limited (“Rubik’s”). Rubik’s is a licensor and
distributor of various editions of the Rubik’s product lines and qualifies as a business under IFRS 3, Business
Combinations ("IFRS 3"). The Company secured the global intellectual property for the Rubik’s portfolio and the
ability to sell, market and license for further penetration directly to wholesale customers or continue to sell
indirectly through distributors into markets as well as expansion into new territories. The brand has been
reported in the Activities, Games & Puzzles and Plush product category and included in the Rubik's
cash‑generating unit ("CGU") beginning from the date of acquisition.
The total purchase consideration of $55.2 million was comprised of $51.4 million of cash consideration plus
$3.8 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 $38.1 million (related to
brands and customer relationships), tangible assets of $6.5 million and assumed liabilities of $12.0 million with
the remainder allocated to goodwill.
The Company incurred transaction related costs of $1.1 million. $0.9 million was recorded in administrative
expenses in the Consolidated statements of earnings and comprehensive income for the year ended December
31, 2020 and $0.2 million was recorded in administrative expenses in the Consolidated statements of earnings
and comprehensive income for the year ended December 31, 2021.
The total purchase consideration includes $3.8 million in deferred payments for future royalties. The future
royalties are payable to the vendor upon the achievement of key performance indicators over a six-year period.
The potential undiscounted amount of all future payments that the Company could be required to make under
this contingent consideration arrangement is between $nil and $5.7 million. Based on a subsequent review of
financial performance of the existing contingent consideration provision at year end, an additional $0.7 million
was recorded for the year ended December 31, 2021.
Acquisition of certain assets from a product invention and development company
On April 16, 2021, the Company acquired assets and assumed liabilities of a product invention and
development company which constitutes a business under IFRS 3. Included in the acquisition is an assembled
workforce to complement the Company's toy innovation and development capabilities. The acquisition has
been reported in the Toy CGU from the date of acquisition.
The total purchase consideration was comprised of $7.5 million of cash consideration and has been allocated
as $0.7 million of tangible assets and $0.7 million of assumed liabilities with the remainder allocated to goodwill.
The Company had pre-existing licensing arrangements for the acquired intellectual property. No gain/loss from
the settlement of the pre-existing relationship was generated from this transaction.
The Company incurred $0.2 million in transaction related costs which were included in administrative expenses
in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021.
The purchase agreement includes deferred consideration of $14.5 million which is contingent on continued
employment of key principals over a five-year period. These payments are considered an incentive-
remuneration expense and are accrued over the five-year period. Deferred remuneration expense of $4.3
million is included in Other expenses, net in the Consolidated statements of earnings and comprehensive
income for the year ended December 31, 2021, and in provisions and contingent liabilities in the Consolidated
statements of financial position.
14
Acquisition of Originator Inc.
On June 14, 2021, the Company acquired 100% of the shares of Originator Inc., which qualifies as a business
under IFRS 3. Originator Inc. is a developer and publisher of education focused mobile apps for kids and
families and was acquired to complement Sago Mini's edutainment digital games offering. The acquisition has
been reported in the Digital Games CGU and its revenue is included within Digital Games revenue from the
date of acquisition.
The total purchase consideration was comprised of $15.0 million of cash consideration. The total purchase
consideration has been allocated to identifiable intangible assets based on their estimated fair values of $9.1
million (related to brands, customer relationships and app development), tangible assets of $0.6 million and
assumed liabilities of $2.9 million with the remainder allocated to goodwill. The purchase price allocation was
finalized in the Company's third quarter of 2021.
The purchase agreement also includes deferred consideration of $4.0 million which is contingent on meeting
certain performance metrics and has been allocated a fair value of $nil in the total purchase consideration.
The Company incurred $0.4 million in transaction related costs which were included in administrative expenses
in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021,
respectively.
The purchase agreement includes total deferred consideration of $10.0 million which is contingent on the
continued employment of key principals as well as certain performance metrics, over a five-year period. These
payments are considered an incentive-related remuneration expense and are accrued over the five-year period.
Deferred remuneration expense of $2.5 million is included in Other expenses, net in the Consolidated
statements of earnings and comprehensive income for the year ended December 31, 2021, and in provisions
and contingent liabilities in the Consolidated statements of financial position.
Spin Master Ventures
On October 19, 2021, the Company announced the creation of Spin Master Ventures ("SMV"). SMV’s focus is
to accelerate growth in each of the Company’s three creative centres comprising of Toys, Entertainment and
Digital Games, through strategic minority investments. Spin Master will initially allocate $100 million capital to
SMV, funded from existing internal resources. In the third quarter of 2021, SMV made minority investments in
two companies for $2.4 million, namely, Nørdlight Games AB ("Nørdlight") for $0.6 million and Hoot Reading
Inc. ("Hoot") for $1.8 million.
•
•
Nørdlight, a mobile game development company based in Stockholm is comprised of a five-person team
with over 50 years of experience in the mobile games industry.
Hoot Reading, an education technology company based in Canada providing an online tutoring service that
provides children with live, 1:1 reading lessons with experienced teachers.
15
SELECTED QUARTERLY FINANCIAL INFORMATION
Seasonality factors cause Spin Master’s operating results to fluctuate significantly from quarter to quarter. A
majority of the Company’s annual Gross Product Sales1 occur during the third and fourth quarters of the
Company’s fiscal year.
The following table provides selected historical information and other data, which should be read in conjunction
with the financial statements of the Company.
(in US$ millions, except EPS)
Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
Gross Product Sales1
Toy revenue
Entertainment and Licensing revenue
Digital games revenue
Revenue
627.5
542.0
28.5
50.0
681.2
607.8
52.9
53.8
359.0
326.4
27.5
36.9
294.7
255.6
26.9
34.1
511.8
434.3
24.5
31.8
587.4
523.3
20.5
27.8
282.2
252.6
18.3
10.2
242.3
205.4
14.9
7.0
620.5
714.5
390.8
316.6
490.6
571.6
281.1
227.3
Net income (loss)
Net margin
Adjusted EBITDA1
Adjusted EBITDA Margin1
26.5
4.3%
78.3
135.4
19.0%
217.3
33.5
8.6%
81.8
3.2
1.0%
36.7
0.3
0.1%
51.5
86.8
(14.9)
(26.7)
15.2% (5.3)% (11.7)%
139.9
21.5
(32.3)
12.6% 30.4% 20.9% 11.6% 10.5% 24.5%
7.6% (14.2)%
Basic EPS
Diluted EPS
$0.26
$0.25
$1.32
$1.29
$0.33
$0.32
$0.03
$0.03
$—
$—
$0.85
$0.83
$(0.15)
$(0.26)
$(0.15)
$(0.26)
Adjusted Net Income (Loss)1
Adjusted Net Margin1
Adjusted Basic EPS1
Adjusted Diluted EPS1
38.7
6.2%
$0.38
$0.37
132.6
41.6
18.6% 10.6%
$1.30
$1.26
$0.41
$0.40
8.4
2.7%
$0.08
$0.08
14.6
3.0%
$0.14
$0.14
95.1
(9.5)
(46.8)
16.6% (3.4)% (20.6)%
$(0.46)
$(0.09)
$0.93
$0.91
$(0.09)
$(0.45)
562.7
360.5
310.7
262.3
320.6
207.3
111.5
74.8
Cash and cash equivalents, net of loans
and borrowings
Cash flow from operating activities
230.1
85.8
Cash used in investing activities
Free Cash Flow1
1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
(22.7)
(19.6)
211.3
65.8
94.2
(46.9)
69.0
9.0
(64.0)
(6.5)
138.2
(19.3)
123.7
117.2
(20.2)
96.0
64.2
(26.4)
40.2
(8.8)
(19.0)
(27.8)
16
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 industry, 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, 2021, the Company had cash and cash equivalents of $562.7
million (December 31, 2020 - $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
capital needs are related to inventory financing, accounts payable funding, and capital expenditures for tooling,
film production, digital games development and to fund strategic acquisitions and investments. 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.
On September 28, 2021, the Company entered into an agreement to amend and restate its existing $510.0
million secured five-year revolving credit facility (the "Facility"). Under the terms of the amended and restated
agreement, the Facility is now unsecured, matures on September 28, 2026 and contains certain financial
covenants. The Facility also has an option which permits the Company to increase the total capital available by
an additional $200.0 million. Total financing costs of $1.7 million, which include Facility amendment fees and
related legal fees, are recognized in Other assets and will be amortized over the term of the amended and
restated agreement.
As at December 31, 2021, there were $0.4 million (December 31, 2020 - $0.4 million) in letters of credit utilized
under the Facility and no amounts drawn (December 31, 2020 - nil) under this Facility.
The Company has an uncommitted Overdraft Facility Agreement (the "European Facility") for $17.0 million
(€15.0 million). The European Facility may be used to fund working capital requirements in Europe. As at
December 31, 2021, the European Facility was undrawn.
The Company has a credit facility (the "Production Facility") with a limit of $7.9 million (CAD$10.0 million) to
finance television and film production. As at December 31, 2021, the Production Facility was undrawn.
As at December 31, 2021, the Company had unutilized liquidity of $1,080.2 million, comprised of $562.7 million
in cash and cash equivalents and $517.5 million under its credit facilities. The Company believes it has
sufficient liquidity to meet its operational requirements.
Short Form Base Shelf Prospectus
The Company filed a short form base shelf prospectus dated November 2, 2021, pursuant to which, for a period
of 25 months thereafter, the Company (and shareholders of the Company) may sell up to an aggregate of
CAD$1.0 billion of Subordinate Voting Shares, preferred shares, debt securities, subscription receipts, warrants
or any combination thereof as a unit. This filing provides the Company with the flexibility to access debt and
equity markets on a timely basis. The Company's previous base shelf prospectus in the amount of CAD$750.0
million, expired during the third quarter of 2021.
Capital and Investment Framework
Over the long term, the Company plans to use its free cash flows to fund seasonal working capital requirements
related to product sales, television shows, feature films, short-form content, digital games development in
addition to strategic acquisitions and minority investments.
Spin Master primarily uses third parties to manufacture, warehouse and distribute its products. As a result, the
Company does not have to incur material investments in property, plant and equipment. The Company’s capital
expenses are generally comprised of the purchase of tooling used in the manufacturing process and
entertainment property production.
17
CASH FLOW
The following tables provide a summary of Spin Master’s consolidated cash flows for the three months and
year ended December 31, 2021 and 2020:
(US$ millions)
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net increase in cash and cash equivalents (excluding
the effect of foreign currency exchange rate changes)
Effect of foreign currency exchange rate changes on cash
and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
(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 in cash and cash equivalents (excluding
the effect of foreign currency exchange rate changes)
Effect of foreign currency exchange rate changes on cash
and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Three Months Ended Dec 31
2021
230.1
(19.6)
(3.5)
207.0
(4.8)
360.5
562.7
2020
138.2
(19.3)
(4.0)
114.9
(1.6)
207.3
320.6
Year Ended Dec 31
2021
419.1
(153.2)
(18.3)
247.6
(5.5)
320.6
562.7
2020
310.8
(84.9)
(16.3)
209.6
(4.3)
115.3
320.6
$ Change
91.9
(0.3)
0.5
92.1
(3.2)
153.2
242.1
$ Change
108.3
(68.3)
(2.0)
38.0
(1.2)
205.3
242.1
Cash from Operating Activities as compared to the same period in 2020:
Cash flows provided by operating activities were $230.1 million for the three months ended December 31, 2021
compared to $138.2 million driven by higher net income and the decrease in change in net working capital.
Cash flows provided by operating activities were $419.1 million for the year ended December 31, 2021
compared to $310.8 million driven by higher net income and the decrease in change in net working capital.
The table below outlines key financial information pertaining to the Company's net working capital:
$ Change
50.7
% Change
18.3 %
(US$ millions)
Trade receivables, net1
Other receivables2
Inventories
Advances on royalties
Prepaid expenses
Other assets
Total current assets
Trade payables
Accrued liabilities3
Deferred revenue
Provisions and contingent liabilities
Total current liabilities
Total net working capital
Dec 31,
2021
Dec 31,
2020
327.9
66.7
137.4
7.1
9.0
—
548.1
274.7
201.7
10.9
25.1
512.4
35.7
277.2
59.2
102.0
17.2
7.2
3.0
465.8
161.4
153.0
25.3
29.2
368.9
96.9
7.5
35.4
(10.1)
1.8
(3.0)
82.3
113.3
48.7
(14.4)
(4.1)
143.5
(61.2)
1) Trade receivables are net of allowance for doubtful accounts and provisions for sales allowances. Refer to Note 10 of the financial statements.
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 payroll related liabilities, accrued royalties, commodity tax and other balances. Refer to Note 17 of the financial statements.
12.7 %
34.7 %
(58.7) %
25.0 %
(100.0) %
17.7 %
70.2 %
31.8 %
(56.9) %
(14.0) %
38.9 %
(63.2) %
18
(US$ millions)
Trade receivables, net1
Other receivables2
Inventories
Advances on royalties
Prepaid expenses
Other assets
Total current assets
Trade payables
Accrued liabilities3
Deferred revenue
Provisions and contingent liabilities
Total current liabilities
Total net working capital
Dec 31,
2020
Dec 31,
2019
$ Change
% Change
277.2
59.2
102.0
17.2
7.2
3.0
465.8
161.4
153.0
25.3
29.2
368.9
96.9
370.7
57.0
185.3
18.0
14.4
—
645.4
215.8
129.8
7.6
26.2
379.4
266.0
(93.5)
2.2
(83.3)
(0.8)
(7.2)
3.0
(179.6)
(54.4)
23.2
17.7
3.0
(10.5)
(169.1)
(25.2) %
3.9 %
(45.0) %
(4.4) %
(50.0) %
n.m
(27.8) %
(25.2) %
17.9 %
232.9 %
11.5 %
(2.8) %
(63.6) %
1) Trade receivables are net of allowance for doubtful accounts and provisions for sales allowances. Refer to Note 10 of the financial statements.
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 payroll related liabilities, accrued royalties, commodity tax and other balances. Refer to Note 17 of the financial statements.
Total net working capital decreased by $61.2 million or 63.2% to $35.7 million at December 31, 2021 from
$96.9 million. Excluding the impact of foreign exchange, total net working capital increased by $49.9 million.
Trade receivables, net, increased by $50.7 million or 18.3% to $327.9 million at December 31, 2021 from
$277.2 million, driven by the increase in toy revenue in the fourth quarter compared to the prior year.
Inventories increased by $35.4 million or 34.7% to $137.4 million at December 31, 2021 from $102.0 million,
driven by higher in-transit inventory and higher product and ocean freight costs due to inflation.
Trade payables and accrued liabilities increased by $162.0 million or 51.5% to $476.4 million at December 31,
2021 from $314.4 million, driven by the timing of payments in line with the seasonality of the business.
Investing Activities as compared to the same period in 2020:
The following tables provide a summary of Spin Master’s consolidated cash flows used in investing activities for
the three months and year ended December 31, 2021 and 2020:
(US$ millions)
Property, plant and equipment
Tooling
Other
Total property, plant and equipment
Intangible assets
Entertainment content and app development
Computer software
Brands, licenses and trademark acquisitions
Total intangible assets
Total capital expenditures
Business acquisitions, net of cash acquired
Investment in minority interests and limited partnership, net of
investment distribution income
Proceeds from disposals
Cash used in investing activities
Three Months Ended Dec 31
2021
2020
$ Change
4.3
(1.1)
3.2
14.6
0.5
0.5
15.6
18.8
0.7
0.1
—
19.6
3.8
(2.0)
1.8
14.2
(1.7)
0.2
12.7
14.5
3.3
1.8
(0.3)
19.3
0.5
0.9
1.4
0.4
2.2
0.3
2.9
4.3
(2.6)
(1.7)
0.3
0.3
19
Cash used in investing activities was $19.6 million for the three months ended December 31, 2021 compared to
$19.3 million as a result of higher investments in entertainment content and app development offset by lower
investments in business acquisitions.
(US$ millions)
Property, plant and equipment
Tooling
Other
Total property, plant and equipment
Intangible assets
Entertainment content and app development
Computer software
Brands, licenses and trademark acquisitions
Total intangible assets
Total capital expenditures
Business acquisitions, net of cash acquired
Investment in minority interests and limited partnership, net of
investment distribution income
Investment in trademark license agreement
Proceeds from disposals
Cash used in investing activities
Year Ended Dec 31
2021
2020
$ Change
22.8
3.6
26.4
50.3
1.8
1.0
53.1
79.5
70.9
2.8
—
—
153.2
18.9
2.1
21.0
50.6
5.9
1.2
57.7
78.7
2.3
1.8
2.4
(0.3)
84.9
3.9
1.5
5.4
(0.3)
(4.1)
(0.2)
(4.6)
0.8
68.6
1.0
(2.4)
0.3
68.3
For the year ended December 31, 2021, cash used in investing activities was $153.2 million compared to $84.9
million. Business acquisitions in the current year relate to the acquisition of Rubik's, Originator and certain
assets from a product invention and development company. Also contributing to the increase was higher
investment in property, plant and equipment, offset in part by lower investments in computer software.
Financing Activities as compared to the same period in 2020:
Cash flows used in financing activities were $3.5 million for the three months ended December 31, 2021
compared to $4.0 million. For the year ended December 31, 2021, cash flows used in financing activities were
$18.3 million compared to cash flows used in financing activities of $16.3 million driven by higher payment of
lease liabilities.
Free Cash Flow1 as compared to the same period in 2020:
The following tables provide a reconciliation of Spin Master’s consolidated Free Cash Flow1 to cash from
operating activities and cash used in investing activities for the three months and year ended December 31,
2021 and 2020:
(US$ millions)
Cash flows provided by operating activities
Cash flows used in investing activities
Add:
Business acquisitions, net of cash acquired
Investment in limited partnership
Advance paid for business acquisitions
Free Cash Flow1
Three Months Ended Dec 31
2021
230.1
(19.6)
0.7
0.1
—
2020
138.2
(19.3)
—
1.8
3.0
211.3
123.7
$ Change
91.9
(0.3)
0.7
(1.7)
(3.0)
87.6
20
(US$ millions)
Cash flows provided by operating activities
Cash flows used in investing activities
Add:
Business acquisitions, net of cash acquired
Advance paid for business acquisitions
Investment in trademark license agreement
Investment distribution income
Investment in limited partnership
Investment in minority interests
Proceeds from sale of investments
Free Cash Flow1
Year Ended Dec 31
2021
419.1
(153.2)
70.9
—
—
(0.6)
1.0
2.4
—
339.6
2020
310.8
(84.9)
(0.7)
3.0
2.4
—
1.8
—
(0.3)
232.1
$ Change
108.3
(68.3)
71.6
(3.0)
(2.4)
(0.6)
(0.8)
2.4
0.3
107.5
1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
Free Cash Flow1 was $211.3 million for the three months ended December 31, 2021 compared to $123.7
million, an increase of $87.6 million. Free Cash Flow1 increased primarily due to higher cash flows generated
by operating activities driven by higher net income and the decrease in net working capital. For the year ended
December 31, 2021, Free Cash Flow1 was $339.6 million compared to $232.1 million, an increase of $107.5
million. In both comparative periods, Free Cash Flow1 increased primarily due to higher cash flows generated
by operating activities driven by higher net income and the decrease in net working capital.
CONTRACTUAL OBLIGATIONS & COMMITMENTS
In the normal course of business, Spin Master enters into contractual arrangements to obtain and protect
Spin Master’s right to create and market certain products and to ensure availability and timely delivery of future
purchases of goods and services. These arrangements include commitments for future services, purchases,
commitments to settle foreign currency forward contracts and royalty payments pursuant to licensing
agreements. Certain of these commitments routinely contain provisions for guarantees or minimum
expenditures during the terms of the contracts. Additionally, Spin Master routinely enters into non‑cancellable
lease agreements for premises and equipment, which contain minimum rental payments.
The following table summarizes Spin Master's contractual commitments and obligations as at December 31,
2021, which are primarily for the leasing of offices and related office equipment and minimum guarantees due
to licensors. The leases have been entered into with terms of between two and twelve years in length and
minimum guarantees to licensors are primarily due within 24 months.
(US$ millions)
<1 Year
1-5 Years
> 5 Years
Total
Lease obligations - undiscounted
Guaranteed payments due to licensors
Total commitments
15.0
15.1
30.1
38.7
14.0
52.7
45.4
2.0
47.4
99.1
31.1
130.2
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.
21
CAPITALIZATION
Share Capital
As at February 28, 2022, there were 102.4 million shares outstanding comprised of 70.6 million Multiple Voting
Shares and 31.8 million Subordinate Voting Shares.
As of February 28, 2022, pursuant to grants under the Company's Long-Term Incentive Plan, 0.9 million
Subordinate Voting Shares were issuable under outstanding Restricted Stock Units, up to 2.2 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,
2021 (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
22
Master’s original products, brands and entertainment properties to achieve and sustain market acceptance with
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
23
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 not renew its expiring licenses or 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 Toy revenue 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.
24
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 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 political, 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
25
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 and France. 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. 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
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
26
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 Toy revenue is concentrated in 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. 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
result in lower revenue. A prolonged global economic downturn could have a material negative impact on the
Company’s business, financial condition and performance.
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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 revenue. 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. 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.
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.
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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.
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
29
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. 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.
30
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
31
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 raw materials and labour 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.
32
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
33
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
and local currencies in which the Company operates 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.
34
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 in the past imposed certain trade
actions, including imposing increased tariffs on certain goods imported into the U.S. from China, which resulted
in retaliatory tariffs by China. Any increased trade barriers or restrictions on global trade imposed by the U.S.,
or other countries in response, could adversely affect Spin Master’s business, financial condition and
performance.
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.
Cyberattacks are increasing in their frequency, sophistication and intensity, and are becoming increasingly
difficult to detect. They are often carried out by motivated, well-resourced, skilled and persistent actors,
including nation states, organized crime groups, “hacktivists” and employees or contractors acting with
malicious intent. Cyberattacks could include the deployment of harmful malware and key loggers, ransomware,
35
a denial of-service attack, a malicious website, the use of social engineering and other means to affect the
confidentiality, integrity and availability of the Company’s technology systems and data. Cyberattacks could
also include supply chain attacks, which could cause a delay in the manufacturing of the Company’s products.
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
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:
•
•
•
•
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
36
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
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
37
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
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.
Spin Master may face increased costs in achieving its sustainability goals, and any failure to achieve
its goals could result in reputational damage.
Spin Master believes the long-term viability and health of the Company’s own operations and its supply chain,
and the significant potential for environmental improvements, are critical to its business success. The Company
has set key goals and objectives in this area. Spin Master devotes resources and expenditures to help achieve
these goals. It is possible that the Company will incur expenses in trying to achieve these goals with no
assurance that it will be successful. Additionally, Spin Master’s reputation could be damaged if we fail to
achieve the sustainability goals, or if the Company or others in the industry do not act, or are perceived not to
act, responsibly with respect to the production and packaging of its products.
Spin Master may be subject to risks relating to its minority investments.
Spin Master may invest in companies at different stages of development, including early-stage companies and
emerging businesses, which are developing products, emerging technologies and pioneering services that will
require significant additional development, testing and investment prior to any commercialization. There can be
no assurance that the technologies or products these companies have under development will materialize, be
capable of being produced in commercial quantities at reasonable costs or be successfully marketed, which
could result in a loss of all or a substantial part of Spin Master’s investment in these companies. The Company
expects that its minority investments will complement its acquisition strategy, however certain minority
investments may not be suitable acquisition targets. If Spin Master’s minority investments are suitable
acquisition targets, it may not be able to acquire these targets on acceptable terms. Spin Master may not
realize the expected returns or anticipated benefits from its minority investments to the degree anticipated.
38
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. 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.
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.
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 facilities 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 52.6% and 50.3%% of consolidated Gross Product Sales1 for the years
ended December 31, 2021 and 2020 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 fulfil their financial obligations.
This risk is mitigated through financial arrangements such as cash in advance of shipment, letters of credit or
bank or parental guarantees. In addition, the Company purchases Accounts Receivables insurance for our
global customer base, who are not covered by other financial arrangements. This process, in conjunction with
an established credit limit and payment term, mitigates the Company’s risk of loss. The financial arrangements,
insurance policies and customer credit limits are reviewed each year.
39
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, 2021, the fees for services rendered were
in the amount of $1.3 million (December 31, 2020 - $1.6 million). As at December 31, 2021, amounts payable to
the director's law firm were $0.2 million (December 31, 2020 - $0.8 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 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.
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.
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.
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.
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.
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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.
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.
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 statements 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.
Business combinations
Business combinations are accounted for using the acquisition method of accounting. The Company
determines the fair value of its the identifiable assets acquired and the liabilities assumed 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.
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FINANCIAL INSTRUMENTS
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, 2021, the Company is committed under outstanding foreign exchange contracts
representing a total net purchase commitment of $11.5 million (December 31, 2020 - $11.3 million). These
foreign exchange contracts have maturity dates varying from January 2022 to April 2023. The fair value of
foreign exchange forward contracts at December 31, 2021 resulted in an unrealized gain of $3.4 million, which
is recorded in other receivables (2020 - $3.7 million) and an unrealized loss of $1.0 million recorded in accrued
liabilities (2020 - $7.2 million). For the year ended December 31, 2021, realized gain on the Company’s
matured hedges were $0.8 million (2020 - realized losses of $2.6 million) and is included in the Consolidated
statements of earnings and comprehensive income.
DISCLOSURE CONTROLS AND PROCEDURES
The Chief Executive Officer 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, 2021 and have concluded that the Company's
DC&P was effective as at December 31, 2021.
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, 2021 and have concluded that the Company's ICFR
was effective as at December 31, 2021.
There have been no changes in the Company’s ICFR during the three months ended December 31, 2021
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 Chief Executive Officer 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.
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NON-GAAP FINANCIAL MEASURES AND RATIOS
In addition to using financial measures prescribed under IFRS, references are made in this MD&A to the
following terms, each of which is a non-GAAP financial measure:
EBITDA
•
Adjusted EBITDA
•
Adjusted Net Income (Loss)
•
•
Free Cash Flow
• Gross Product Sales
•
•
•
•
•
•
Constant Currency Gross Product Sales
Constant Currency Revenue
Adjusted Selling, General and Administration Expenses ("Adjusted SG&A")
Net Working Capital
Revenue, excluding PAW Patrol: The Movie Distribution Revenue
Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue
Non-GAAP financial measures do not have any standardized meaning prescribed by IFRS and therefore may
not be comparable to similar measures presented by other issuers.
Additionally, references are made in this MD&A to the following terms, each of which is a non-GAAP financial
ratio:
•
•
•
•
•
•
•
•
•
Adjusted EBITDA Margin
Adjusted Net Margin
Adjusted Basic EPS
Adjusted Diluted EPS
Sales Allowance as a percentage of Gross Product Sales
Adjusted SG&A as a percentage of Revenue
Percentage change in Constant Currency Gross Product Sales
Percentage change in Constant Currency Revenue
Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue
Non-GAAP financial ratios do not have any standardized meaning prescribed by IFRS and therefore may not
be comparable to similar measures presented by other issuers.
Management believes the Non-GAAP financial measures and Non-GAAP financial ratios defined above are
important supplemental measures of operating performance and highlight trends in the business. Management
believes that these measures allow for assessment of the Company’s operating performance and financial
condition on a basis that is consistent and comparable between reporting periods. The Company believes that
investors, lenders, securities analysts and other interested parties frequently use these Non-GAAP financial
measures and Non-GAAP financial ratios in the evaluation of issuers.
Non-GAAP Financial Measures
EBITDA is calculated as net income (loss) before finance costs, income tax expense (recovery) and
depreciation and amortization. EBITDA is used by management as a measure of the Company’s profitability.
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 goodwill, investment distribution income, acquisition related deferred incentive
compensation, net unrealized gain on investment, impairment of property, plant and equipment, legal
settlement, transaction costs, gain on disposal of asset and bad debt recovery. Adjusted EBITDA is used by
management as a measure of the Company’s profitability. Refer to the "Reconciliation of Non-GAAP Financial
Measures" section below for a reconciliation of this metric to Net Income, the closest IFRS measure.
Adjusted Net Income (Loss) is calculated as net income excluding adjustments (as defined in Adjusted
EBITDA), the corresponding impact these items have on income tax expense and a one-time income tax
recovery in 2020. Management uses Adjusted Net Income (Loss) to measure the underlying financial
performance of the business on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP
Financial Measures" section below for a reconciliation of this metric to Net Income, the closest IFRS measure.
43
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 for business acquisitions and investment in limited partnership
and minority interests, net of investment distribution income. Management uses the Free Cash Flow metric to
analyze the cash flows being generated by the Company’s business. The calculation of this metric was revised
to include the impact of investment distribution income as Management believes this composition to be relevant
to investors, lenders, securities analysts and other interested parties of the Company. Refer to the
"Reconciliation of Non-GAAP Financial Measures" section for a reconciliation of this metric to Cash flow from
operating activities, the closest IFRS measure.
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, the closest IFRS measure, refer to the "Revenue" section within the "Financial Performance" section
for the three months and year ended December 31, 2021, and the "Reconciliation of Non-GAAP Financial
Measures" section for the previous eight fiscal quarters.
Constant Currency Gross Product Sales and Constant Currency Revenue represent Gross Product Sales and
Revenue presented excluding the impact from changes in foreign currency exchange rates, respectively. 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. Management uses Constant Currency Gross Product Sales and Constant Currency
Revenue to measure the underlying financial performance of the business on a consistent basis over time.
Refer to the "Reconciliation of Non-GAAP Financial Measures" section for a reconciliation of these metrics to
Revenue, the closest IFRS measure.
Adjusted SG&A is calculated as selling, general and administrative expenses adjusted for restructuring
expenses, share based compensation expenses, impairment of property, plant and equipment, transaction
costs and bad debt recovery. Refer to the Adjusted SG&A table for the three months and year ended
December 31, 2021 as compared to the same period in 2020 in this MD&A. Management uses Adjusted SG&A
to measure the underlying financial performance of the business on a consistent basis over time. Refer to the
"Selling, General & Administrative Expenses" section within the "Financial Performance" section for a
reconciliation of these metrics to selling, general & administrative Expenses, the closest IFRS measure.
Net Working Capital is calculated as the difference between total current assets and total current liabilities.
Refer to the Total Net Working Capital table for the year ended December 31, 2021 as compared to the same
period in 2020 in this MD&A. Management uses Net Working Capital to measure the underlying financial
performance of the business on a consistent basis over time. Refer to the "Cash Flow" section for a
composition of this metric to total current assets and total current liabilities, the closest IFRS measures.
Revenue, excluding PAW Patrol: The Movie Distribution Revenue is calculated as revenue excluding
distribution revenue of $26.0 million related to PAW Patrol: The Movie recognized in 2021. Revenue, excluding
PAW Patrol: The Movie Distribution Revenue is used to measure the underlying financial performance of the
business on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial Measures"
section for a reconciliation of this metric to Revenue, the closest IFRS measure.
Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Adjusted EBITDA
excluding distribution revenue of $26.0 million related to PAW Patrol: The Movie recognized in 2021. Adjusted
EBITDA, excluding PAW Patrol: The Movie Distribution Revenue is used by management as a measure of the
Company’s profitability on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial
Measures" section below for a reconciliation of this metric to Net Income, the closest IFRS measure.
44
Non-GAAP Financial Ratios
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.
Adjusted Net Margin is calculated as Adjusted Net Income (Loss) divided by Revenue. Management uses
Adjusted Net Margin to evaluate the Company’s performance compared to internal targets and to benchmark
its performance against key competitors.
Adjusted Basic EPS is calculated by dividing Adjusted Net Income 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. Management uses Adjusted Basic EPS and Adjusted Diluted EPS to
measure the underlying financial performance of the business on a consistent basis over time.
Sales Allowance as a percentage of Gross Product Sales is calculated by dividing Sales Allowance by Gross
Product Sales. Management uses Sales Allowance as percentage of Gross Product Sales to identify and
compare the cost of doing business with individual retailers, different geographic markets and amongst various
distribution channels.
Adjusted SG&A as a percentage of Revenue is calculated by dividing Adjusted SG&A by Revenue.
Management uses Adjusted SG&A as a percentage of Revenue to measure the underlying financial
performance of the business on a consistent basis over time.
Percentage change in Constant Currency Gross Product Sales is calculated by dividing the change in Gross
Product Sales excluding the impact from changes in foreign currency exchange rates by the Gross Product
Sales of the comparative period. Management uses Percentage change in Constant Currency Gross Product
Sales to measure the underlying financial performance of the business on a consistent basis over time
excluding the impact from changes in foreign currency exchange rates.
Percentage change in Constant Currency Revenue is calculated by dividing the change in Revenue excluding
the impact from changes in foreign currency exchange rates by the Revenue of the comparative period.
Management uses Percentage change in Constant Currency Revenue to measure the underlying financial
performance of the business on a consistent basis over time excluding the impact from changes in foreign
currency exchange rates.
Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Adjusted
EBITDA excluding PAW Patrol: The Movie Distribution Revenue divided by Revenue. Management uses
Adjusted EBITDA Margin excluding PAW Patrol: The Movie Distribution Revenue to evaluate the Company’s
performance compared to internal targets and to benchmark its performance against key competitors on a
consistent basis over time.
45
Reconciliation of Non-GAAP Financial Measures
The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and Adjusted Net
Income for the years ended December 31, 2021, 2020 and 2019:
(in US$ millions)
Net income
Income tax expense (recovery)
Finance costs
Depreciation and amortization expenses
EBITDA
Adjustments
Share based compensation1
Acquisition related deferred incentive compensation2
Transaction costs3
Acquisition related contingent consideration4
Impairment of intangible assets5
Restructuring expense6
Impairment of goodwill7
Legal settlement8
Impairment of property, plant and equipment9
Bad debt (recovery) expense10
Gain on disposal of asset11
Investment distribution income12
Net unrealized gain on investment13
Foreign exchange (gain) loss14
Adjusted EBITDA
Distribution revenue related to PAW Patrol: The Movie
Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue
Distribution revenue related to PAW Patrol: The Movie
Income tax expense (recovery)
Finance costs
Depreciation and amortization expenses
One-time income tax recovery15
Tax effect of adjustments16
Adjusted Net Income
Year Ended Dec 31
2021
2020
2019
198.6
63.4
10.2
111.9
384.1
15.3
6.8
2.8
2.7
2.6
2.5
1.9
—
—
—
(0.2)
(0.6)
(0.9)
(2.9)
414.1
(26.0)
388.1
(26.0)
63.4
10.2
45.5
(36.1)
12.1
103.0
124.5
64.3
20.7
11.7
84.6
181.3
12.2
15.2
—
0.9
3.7
0.4
5.3
—
5.5
0.5
—
—
—
—
27.6
—
—
3.2
5.6
8.8
—
—
—
(0.9)
—
—
—
5.8
180.6
219.0
—
—
180.6
219.0
—
(36.1)
12.1
—
20.7
11.7
84.6
—
9.2
92.8
111.9
103.0
—
7.3
221.3
33.3
14.9
53.4
1 Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the
Company's initial public offering, share option expense and long-term incentive plan. See Note 21 of the Consolidated financial
statements.
2 Deferred incentive compensation associated with acquisitions. See Note 5 of the Consolidated financial statements.
3 Professional fees incurred relating to acquisitions and other transactions.
4 Remuneration expense associated with contingent consideration for acquisitions. See Note 5 of the Consolidated financial
statements.
5 Impairment of intangible assets related to entertainment content and app development. See Note 5 of the Consolidated financial
statements.
6 Restructuring expense primarily relates to to changes in personnel. Restructuring expense in the prior year includes costs related
to changes in senior leadership. See Note 7 of the Consolidated financial statements.
7 Impairment of goodwill associated with assets held for sale and one other CGU. See Note 5 of the Consolidated financial
statements.
8 Legal settlement in the fourth quarter of 2020. See Note 5 of the Consolidated financial statements.
9 Impairment of property plant and equipment related to machinery. See Note 5 of the Consolidated financial statements.
10 Net bad debt (recovery) expense related to the bankruptcy declaration and liquidation proceedings of TRU during 2019.
11 Gain on disposal of intangible asset.
12 Distribution income related to investment in limited partnership. See Note 5 of the Consolidated financial statements.
13 Net unrealized gain related to investment in limited partnership. See Note 5 of the Consolidated financial statements.
14 Includes foreign exchange (gains) losses generated by the translation of monetary assets/liabilities denominated in a currency
other than the functional currency of the applicable entity and (gains) losses related to the Company's hedging programs. See Note
8 of the Consolidated financial statements.
15 One-time income tax recovery relates to internal transfer of intangible property of $33.3 million. See Note 9 of the Consolidated
financial statements.
16 Tax effect of adjustments (Footnotes 1-14). Adjustments are tax effected at the effective tax rate of the given period.
46
The following table provides reconciliations of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted Net
Income (Loss) for the previous eight fiscal quarters.
(US$ millions)
Net income (loss)
Income tax expense (recovery)
Finance costs
Depreciation and amortization expenses
EBITDA
Adjustments
Share based compensation1
Acquisition related contingent
consideration2
Acquisition related deferred incentive
compensation3
Transaction costs4
Restructuring expense5
Impairment of intangible assets6
Impairment of goodwill7
Net unrealized loss (gain) on
investment8
Impairment of property, plant and
equipment9
Legal settlement10
Investment distribution income11
Gain on disposal of asset12
Foreign exchange (gain) loss13
Adjusted EBITDA
Distribution revenue related to PAW
Patrol: The Movie
Adjusted EBITDA, excluding PAW
Patrol: The Movie Distribution Revenue
Distribution revenue related to PAW
Patrol: The Movie
Income tax expense (recovery)
Finance costs
Three Months Ended
Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
26.5
135.4
9.5
3.1
41.8
2.3
23.0
41.7
62.1
221.2
33.5
11.1
2.3
24.1
71.0
3.2
1.0
2.5
23.1
29.8
0.3
(4.7)
3.4
86.8
14.7
2.6
27.6
26.4
26.6
130.5
(14.9)
2.1
3.3
25.7
16.2
(26.7)
(48.2)
2.8
23.3
(48.8)
4.0
4.1
4.0
3.2
2.9
2.9
2.8
3.6
3.4
—
—
(0.7)
3.7
—
—
2.6
2.7
1.5
—
—
—
2.1
1.4
1.2
1.9
0.3
—
—
—
—
0.1
0.4
—
—
0.6
—
0.5
—
—
0.7
0.9
—
—
(0.3)
(0.9)
—
—
(0.2)
(0.2)
—
—
(0.4)
—
4.9
81.8
—
—
—
—
3.7
36.7
0.9
0.5
0.4
—
—
0.5
5.5
—
—
10.5
51.5
(0.7)
78.3
(10.8)
217.3
—
—
(1.0)
—
—
—
—
—
—
—
3.5
—
1.4
—
—
—
—
—
—
—
5.1
—
(26.0)
—
—
—
—
—
78.3
191.3
81.8
36.7
51.5
139.9
21.5
(32.3)
139.9
21.5
(32.3)
—
(26.0)
—
9.5
3.1
41.8
11.1
2.3
2.3
—
1.0
2.5
—
(4.7)
3.4
—
14.7
2.6
—
2.1
3.3
Depreciation and amortization
One-time income tax recovery14
Tax effect of normalization adjustments15
Adjusted Net Income (Loss)
23.0
41.7
24.1
23.1
27.6
26.4
25.7
—
4.0
—
(1.1)
—
2.7
38.7
132.6
41.6
—
1.7
8.4
—
10.6
14.6
—
1.1
95.1
—
(0.1)
(9.5)
—
—
—
4.4
—
—
—
—
—
—
—
8.5
(48.2)
2.8
23.3
33.3
3.3
(46.8)
1 Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the
Company's initial public offering, share option expense and long-term incentive plan.
2 Remuneration expense associated with contingent consideration for acquisitions.
3 Deferred incentive compensation associated with acquisitions.
4 Professional fees incurred relating to acquisitions and other transactions.
5 Restructuring expense primarily relates to changes in personnel. Restructuring expense in the prior year includes costs related to
changes in senior leadership.
6 Impairment of intangible assets related to entertainment content and app development.
7 Impairment of goodwill associated with assets held for sale and one other CGU.
8 Net unrealized loss related to investment in limited partnership.
9 Impairment of property plant and equipment related to machinery.
10 Legal settlement in the fourth quarter of 2020.
11 Distribution income related to investment in limited partnership.
12 Gain on disposal of intangible asset.
13 Includes foreign exchange (gains) losses generated by the translation of monetary assets/liabilities denominated in a currency
other than the functional currency of the applicable entity and (gains) losses related to the Company's hedging programs.
14 One-time income tax recovery relates to internal transfer of intangible property of $33.3 million.
15 Tax effect of adjustments (Footnotes 1-13). Adjustments are tax effected at the effective tax rate of the given period.
47
The following table provides reconciliations from Cash provided by operating activities and Cash used in
investing activities to Free Cash Flow for the years ended December 31, 2021, 2020 and 2019:
(US$ millions)
Cash provided by operating activities
Cash used in investing activities
Add:
Business acquisitions, net of cash acquired
Investment in minority interests
Investment in limited partnership
Advance paid for business acquisitions
Investment in trademark license agreement
Proceeds from sale of investments
Investment distribution income
Free Cash Flow
Year Ended Dec 31
2021
2020
2019
419.1
(153.2)
310.8
(84.9)
98.4
(116.2)
70.9
2.4
1.0
—
—
—
(0.6)
339.6
(0.7)
—
1.8
3.0
2.4
(0.3)
—
232.1
22.5
—
—
—
—
—
—
4.7
The following table provides reconciliations from Cash provided by operating activities and Cash used in
investing activities to Free Cash Flow for the previous eight fiscal quarters:
(US$ millions)
Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
Cash provided (used in) operating
activities
Cash used in investing activities
Add:
Business acquisitions, net of cash
acquired
Investment in limited partnership
Advance paid for business acquisitions
Investment in trademark license
agreement
Investment distribution income
Investment in minority interests
Proceeds from sale of investments
230.1
85.8
94.2
9.0 138.2 117.2
64.2
(8.8)
(19.6)
(22.7)
(46.9)
(64.0)
(19.3)
(20.2)
(26.4)
(19.0)
0.7
—
21.7
48.5
—
(0.7)
—
0.1
—
—
—
—
—
0.9
—
—
(0.6)
2.4
—
—
—
—
—
—
—
—
—
—
—
—
—
1.8
3.0
—
—
—
—
—
—
—
—
—
(0.3)
—
—
2.4
—
—
—
—
—
—
—
—
—
—
Free Cash Flow
211.3
65.8
69.0
(6.5) 123.7
96.0
40.2
(27.8)
48
The following table provides reconciliations of Gross Product Sales to revenue for the previous eight fiscal
quarters:
(US$ millions)
Gross Product Sales
Sales Allowances
Toy revenue
Entertainment and Licensing revenue
Digital games revenue
Other revenue
Revenue
Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
627.5 681.2 359.0 294.7 511.8 587.4 282.2 242.3
(85.5)
(73.4)
(32.6)
(39.1)
(77.5)
(64.1)
(29.6)
(36.9)
542.0 607.8 326.4 255.6 434.3 523.3 252.6 205.4
28.5
50.0
52.9
53.8
27.5
36.9
26.9
34.1
24.5
31.8
20.5
27.8
18.3
10.2
14.9
7.0
78.5 106.7
64.4
61.0
56.3
48.3
28.5
21.9
620.5 714.5 390.8 316.6 490.6 571.6 281.1 227.3
The following table presents a reconciliation of Revenue to Revenue, excluding PAW Patrol: The Movie
Distribution Revenue for the years ended December 31, 2021 and 2020:
(US$ millions)
Revenue
Distribution revenue related to PAW Patrol: The Movie
Revenue, excluding PAW Patrol: The Movie Distribution Revenue
Year Ended Dec 31
2021
2020
2,042.4 $
1,570.6
(26.0)
—
2,016.4 $
1,570.6
$
$
The following table presents a reconciliation of Revenue to Revenue, excluding PAW Patrol: The Movie
Distribution Revenue for the previous eight fiscal quarters:
(US$ millions)
Q4 2021 Q3 2021 Q2 2021 Q1 2021 Q4 2020 Q3 2020 Q2 2020 Q1 2020
Revenue
Distribution revenue related to PAW
Patrol: The Movie
Revenue, excluding PAW Patrol: The
Movie Distribution Revenue
$ 620.5 $ 714.5 $ 390.8 $ 316.6 $ 490.6 $ 571.6 $ 281.1 $ 227.3
—
(26.0)
—
—
—
—
—
—
$ 620.5 $ 688.5 $ 390.8 $ 316.6 $ 490.6 $ 571.6 $ 281.1 $ 227.3
The following tables present reconciliations of Revenue to Constant Currency Gross Product Sales and
Revenue to Constant Currency Revenue for the three months and years ended December 31, 2021, and 2020:
(US$ millions)
Constant Currency Gross Product Sales
Impact of foreign exchange
Gross Product Sales
Sales Allowances
Toy revenue
Entertainment and Licensing revenue
Digital Games revenue
Other revenue
Revenue
(US$ millions)
Constant Currency Revenue
Impact of foreign exchange
Revenue
Year Ended Dec 31
Q4 2021
Q4 2020
2021
2020
629.0 $
507.5 $
1,950.1 $
1,620.7
(1.5)
4.3
12.3
627.5 $
511.8 $
1,962.4 $
(85.5)
(77.5)
(230.6)
542.0 $
434.3 $
1,731.8 $
28.5
50.0
78.5 $
620.5 $
24.5
31.8
56.3 $
490.6 $
135.8
174.8
310.6 $
2,042.4 $
3.0
1,623.7
(208.1)
1,415.6
78.2
76.8
155.0
1,570.6
Year Ended Dec 31
Q4 2021
Q4 2020
2021
2020
622.1 $
484.7 $
2,025.2 $
1,565.4
(1.6)
5.9
17.2
5.2
620.5 $
490.6 $
2,042.4 $
1,570.6
$
$
$
$
$
$
$
49
The following tables present the composition of Percentage change in Constant Currency Gross Product Sales
and Percentage change in Constant Currency Revenue for the three months and years ended December 31,
2021:
(US$ millions)
Gross Product Sales
Revenue
(US$ millions)
Gross Product Sales
Revenue
$
$
$
$
Q4 2021
2021
627.5 $
620.5 $
2020
511.8
490.6
$ Change
Impact of
foreign
exchange
In
Constant
Currency
As
reported
$ 115.7 $
1.5 $ 117.2
$ 129.9 $
1.6 $ 131.5
% Change
As
reported
22.6 %
26.5 %
In
Constant
Currency
22.9 %
26.8 %
Year Ended Dec 31
2021
2020
$ Change
Impact of
foreign
exchange
In
Constant
Currency
As
reported
1,962.4 $
1,623.7
$ 338.7 $
(12.3) $ 326.4
2,042.4 $
1,570.6
$ 471.8 $
(17.2) $ 454.6
% Change
As
reported
20.9 %
30.0 %
In
Constant
Currency
20.1 %
28.9 %
50
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 2022 (see “Outlook”); future growth expectations in 2022 and beyond; drivers and trends for such growth
and financial performance; the successful execution of its strategies for growth; the Company's SMV initiative;
content and product pipeline; financial position, cash flows and financial performance; and the creation of long
term shareholder value.
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: 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; the steps taken will create long term shareholder value; 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 and minority investment 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, retailers and license partners; 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.
51
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
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.
52
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 presents 2020 Gross Product Sales1 in the same format
that the Company presents Gross Product Sales1 in 2021:
Gross Product Sales1 by Product Category
(US$ millions)
Preschool, Dolls & Interactive1
Activities, Games & Puzzles and Plush
Wheels & Action1
Outdoor
Gross Product Sales2
Q1 2020
Q2 2020
Q3 2020
Q4 2020
73.1
80.1
60.7
28.4
93.5
99.8
54.1
34.8
242.3
282.2
242.7
181.0
151.4
12.3
587.4
200.2
173.9
122.1
15.6
511.8
Total
609.5
534.8
388.3
91.1
1,623.7
1) Prior to the fourth quarter of 2021, "Preschool, Dolls & Interactive" and "Wheels & Action" were called "Preschool and Girls" and "Boys", respectively. No other changes to
these product categories were made.
2) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
53
Spin Master Corp.
Consolidated financial statements
For the years ended December 31, 2021 and December 31, 2020
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
Table of contents
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 ........................................................................................................................
1
4
5
6
7
Notes to the Consolidated financial statements ..........................................................................................................
8 - 53
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, 2021 and 2020, 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, 2021 and 2020, 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 consolidated financial
statements for the year ended December 31, 2021. 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 judgements 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.
1
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 regarding 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.
2
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 consolidated 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 Steven Lawrenson.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
February 28, 2022
3
Spin Master Corp.
Consolidated statements of financial position
(in US$ millions)
Assets
Current assets
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Prepaid expenses and other assets
Assets held for sale
Non-current assets
Intangible assets
Goodwill
Right-of-use assets
Property, plant and equipment
Deferred income tax assets
Other assets
Total assets
Liabilities
Current liabilities
Trade payables and accrued liabilities
Deferred revenue
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
Contributed surplus
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
Approved by the Board of Directors on February 28, 2022.
The accompanying notes on pages 8 to 53 are an integral part of these Consolidated financial statements.
Notes
Dec 31,
2021
Dec 31,
2020
10
10
11
12
13
15
16
25
14
9
12
17
18
20
9
25
20
9
25
21
562.7
327.9
66.7
137.4
16.1
8.9
1,119.7
227.2
173.1
65.2
39.8
97.0
14.7
617.0
1,736.7
476.4
10.9
25.1
36.2
13.3
561.9
14.0
48.7
59.7
122.4
684.3
736.9
216.0
40.8
58.7
1,052.4
1,736.7
320.6
277.2
59.2
102.0
27.4
—
786.4
192.0
138.0
67.0
53.4
98.7
6.6
555.7
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
724.8
17.4
36.6
64.1
842.9
1,342.1
4
Spin Master Corp.
Consolidated statements of earnings and comprehensive income
(in US$ millions, except earnings per share)
Year Ended Dec 31
Notes
2021
2020
Revenue
Cost of sales
Gross profit
Expenses
Selling, general and administrative expenses
Depreciation and amortization expenses
Other expenses, net
Net foreign exchange (gain) loss
Finance costs
Income before income tax expense (recovery)
Income tax expense (recovery)
Net income
Earnings per share
Basic
Diluted
Weighted average number of shares
Basic
Diluted
(in US$ millions)
Net income
Items that may be subsequently reclassified to net income
Foreign currency translation (loss) gain
Other comprehensive (loss) income
Total comprehensive income
4
7
7
5
8
6
9
22
22
22
22
2,042.4
985.8
1,056.6
1,570.6
842.7
727.9
742.5
632.4
33.5
11.3
(2.9)
10.2
262.0
63.4
198.6
1.94
1.89
102.3
105.3
37.7
8.7
27.6
12.1
9.4
(36.1)
45.5
0.45
0.44
102.0
104.2
Year Ended Dec 31
2020
45.5
2021
198.6
(5.4)
(5.4)
193.2
25.9
25.9
71.4
The accompanying notes on pages 8 to 53 are an integral part of these Consolidated financial statements.
5
Spin Master Corp.
Consolidated statements of changes in shareholders' equity
(Accumulated
deficit)
retained
earnings
Share
capital
Contributed
surplus
Accumulated
other
comprehensive
income
Note
(in US$ millions)
Balance at 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 long-term
incentive plan
Balance at December 31, 2020
Balance at January 1, 2021
Net income
Other comprehensive loss
Share-based compensation
Shares released from equity participation
Share options exercised and common shares issued
Shares issued upon settlement of long-term
incentive plan
Balance at December 31, 2021
714.5
—
—
(1.1)
—
8.2
3.2
724.8
724.8
—
—
—
2.2
1.3
8.6
736.9
(28.1)
45.5
—
—
—
—
—
17.4
17.4
198.6
—
—
—
—
—
216.0
35.8
—
—
—
12.2
(8.2)
(3.2)
36.6
36.6
—
—
15.3
(2.2)
(0.3)
(8.6)
40.8
21
21
21
21
21
21
21
21
The accompanying notes on pages 8 to 53 are an integral part of these Consolidated financial statements.
38.2
—
25.9
—
—
—
—
Total
760.4
45.5
25.9
(1.1)
12.2
—
—
64.1
842.9
64.1
—
(5.4)
—
—
—
—
842.9
198.6
(5.4)
15.3
—
1.0
—
58.7 1,052.4
6
Spin Master Corp.
Consolidated statements of cash flows
For the year ended December 31
(in US$ millions)
Operating activities
Net income
Adjustments to reconcile net income to cash provided by operating activities
Income tax expense (recovery)
Interest (income) expense
Depreciation and amortization expense
Loss (gain) on disposal of non-current assets
Accretion expense
Amortization of Facility fee costs
Gain on investment in limited partnership, net of distribution income
Impairment of goodwill and intangible assets
Unrealized foreign exchange (gain) 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 received (paid)
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 distribution income
Investment in limited partnership
Investment in minority interests
Proceeds from sale of investments
Investment in trademark license agreement
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
Payment of financing costs related to Facility
Cash used in financing activities
Notes
2021
2020
198.6
45.5
9
6
7
14, 15
6
6
12
15, 16
8
21
23
14
15
27
27
5
12
12
16
15
19
19
25
21
21
12, 19
63.4
(1.1)
111.9
0.2
6.0
0.4
(1.5)
4.5
(0.4)
15.3
49.9
9.2
(42.0)
3.7
1.0
419.1
(26.4)
(53.1)
(70.9)
—
0.6
(1.0)
(2.4)
—
—
(153.2)
—
—
(17.6)
1.0
—
(1.7)
(18.3)
(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)
—
0.3
(2.4)
(84.9)
350.0
(350.0)
(15.2)
—
(1.1)
—
(16.3)
Effect of foreign currency exchange rate changes on cash and cash equivalents
(5.5)
(4.3)
Net increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
242.1
320.6
562.7
205.3
115.3
320.6
The accompanying notes on pages 8 to 53 are an integral part of these Consolidated financial statements.
7
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
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 29).
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").
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
February 28, 2022.
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
Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
In August 2020, the IASB commenced Phase 2 of the Interest Rate Benchmark Reform. The amendments provide
temporary reliefs which address the financial reporting effects when an interbank offered rate (“IBOR”) is replaced
with an alternative nearly risk-free rate (“RFR”). The amendments include the following practical expedients:
• A practical expedient to require contractual changes, or changes to cash flows that are directly required by the
reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of
interest;
• Permit changes required by IBOR reform to be made to hedge designations and hedge documentation
without the hedging relationship being discontinued; and
• Provide temporary relief to entities from having to meet the separately identifiable requirement when
an RFR instrument is designated as a hedge of a risk component.
The amendments are effective for fiscal years beginning on or after January 1, 2021. These amendments had no
impact on the Consolidated financial statements of the Company. The Company intends to use the practical
expedients in the future periods if they become applicable.
(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.
8
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(C) Basis of preparation (continued)
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 statements 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. The crisis
related to the COVID-19 pandemic is unprecedented and has had an impact on the its employees, customers and
suppliers in 2020 and 2021.
The Company closely monitors the changing global environment to enable immediate actions to be taken to ensure
customer order fulfillment is achieved across the various markets.
Consumer demand for toys is strong in most major markets, however due to continued government-imposed
restrictions, the closure of certain retail locations and consumer purchasing behaviour, the pandemic has resulted in
reductions in brick and mortar retail consumer traffic in various countries globally, including some of Spin Master’s
largest markets. Online and e-commerce channels are active in most countries.
Furthermore, the Company's Entertainment and Digital Games creative centres were not adversely impacted by
COVID-19. Demand for entertainment content and digital games increased during the pandemic as parents sought
entertainment for their children whilst they were at home.
As at December 31, 2021, the Company had unutilized liquidity of $1,080.2 million, comprised of $562.7 million in
cash and cash equivalents and $517.5 million under its credit facilities. The Company believes it has sufficient
liquidity to meet its operational requirements.
(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 Company in a business combination includes 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.
All other subsequent changes in the fair value of contingent consideration classified as a 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 have 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 Company 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.
9
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(D) Business combinations (continued)
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the
business less accumulated impairments, 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 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 for goodwill is recognized directly in profit or loss, and an impairment 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
Toy revenue
The Company’s Toy revenue is derived from the sale of toys and related products to retail customers and
distributors in domestic and international markets. Toy 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 to provide sales allowances requested by customers relating to
cooperative advertising, contractual and negotiated discounts, volume rebates, and costs incurred by customers to
sell the Company’s products. Such programs are based primarily on purchases, customer performance of specified
promotional activities and other specified factors, as agreed to with customers. Gross product sales represent sales
of the Company’s products to customers, excluding the impact of sales allowances.
Toy revenue represents the amount of consideration to which the Company expects to be entitled 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 allowances and returns accruals as required. Note 3 - Significant accounting
judgments and estimates outlines additional details on sales allowances.
Entertainment and Licensing revenue
Entertainment and Licensing revenues are comprised of Distribution revenues and Licensing and merchandising
revenues.
Distribution revenues are primarily generated through licensing the Company's brands and other intellectual
property for the sale of television and streaming content produced by the Company, in accordance with the relevant
agreements. Such license agreements are assessed as either providing the customer with a 'right-to-use' or 'right-
to-access'. Applicable revenues are recognized at a point-in-time or over time based on the classification
determined. Judgment is required in determining the appropriate classification. Licenses to distribute television and
streaming content grants licensees a right to use the Company's brands and other intellectual property. Licensees
pay a fixed fee for licenses 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
upon delivery. There are no future performance obligations associated with the delivery of the programs.
10
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(F) Revenue recognition (continued)
Entertainment and Licensing revenue (continued)
Licensing and merchandising revenues are generated through licensing the Company’s brands and other
intellectual property. The licenses of the Company’s brands provide access to the intellectual property over the
term of the licenses and are considered right-to-access licenses 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 licensing and/or distribution content, are recorded in deferred revenue until all of the
foregoing revenue recognition conditions have been met.
Digital Games revenue
The Company develops digital games ("apps") which are distributed via 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 distributing apps via their online store/marketplace and administrating payment receipt from the end
users. The Company has determined that it is the principal in the arrangement and accordingly, Digital Games
revenues are recorded 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 as there are no additional performance
obligations other than the delivery of apps to the third-party platform providers or the delivery of the item purchased
within the app.
The Company also generates recurring subscription revenue from certain apps. Revenue is recognized ratably over
the contractual subscription term, beginning on the date that the subscription is made available to the end user.
Disaggregation of revenue
The Company disaggregates its revenues into Toy, Entertainment and Licensing and Digital Games revenues. The
Company also disaggregates components of Toy revenues by geographic segment: North America, Europe and
Rest of World as well as into four major product categories as follows: (i) Preschool and Dolls & Interactive, (ii)
Activities, Games & Puzzles and Plush, (iii) Wheels & Action and (iv) Outdoor. In the fourth quarter of 2021, the
"Preschool and Girls" product category was renamed "Preschool and Dolls & Interactive" and the "Boys" product
category was renamed "Wheels & Action".
The Company believes the disaggregation of revenue described above collectively depict how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by economic factors. See Note 29 Segment
information for further information.
(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.
11
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(G) Leases (continued)
Lease liability
Lease liabilities are 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
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 impairments.
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
statements of earnings and comprehensive income.
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.
12
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(G) Leases (continued)
COVID-19 Rent Concessions
The Company adopted the IFRS 16 "Leases" amendment related to COVID-19 Rent Concessions effective June 1,
2020. The amendment, effective through June 30, 2021, provides lessees with a practical expedient that relieves a
lessee from assessing whether a COVID-19-related rent concession is a lease modification. During the year, the
amendment was extended by one year, to June 30, 2022.
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 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 $1.0 million related to rent
deferrals. There were no impacts for the year ended December 31, 2021.
(H) Foreign currencies
The Company reports its financial results in United States dollars (US$); however, the functional currency of Spin
Master Corp. 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.
The functional currency of the Company's consolidated subsidiaries is typically the economic currency in the
associated jurisdiction. At December 31 2021 and 2020, the functional currencies of the Company's subsidiaries
included the US dollar, 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").
13
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(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 statements 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.
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 and cash equivalents
Cash and cash equivalents is net of outstanding bank overdrafts, if applicable. Cash equivalents consist of highly
liquid marketable investments with an original maturity date of 90 days or less from the date of acquisition.
14
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(L) Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairments, 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
Indefinite
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.
(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 development
1-5 years
Entertainment 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 impairments, 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 impairments.
15
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(M) Intangible assets (continued)
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 impairments, 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 and recorded as Product development expenses
within Selling, general and administrative expenses in the Consolidated statements of earnings and comprehensive
income. 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 impairments, on the same basis as intangible assets that are acquired separately.
Entertainment content development
Entertainment content development includes film and television production assets. The Company has access to
government programs, including tax credits that are designed to aid in the 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 for television
programming. These costs for film productions are charged to amortization expense once the content is delivered.
Deferred revenue related to entertainment content development assets arises as a result of consideration received
in advance of the Company fulfilling its obligations.
App development
App development includes digital games and related applications. The Company has access to government
programs, including tax credits that are designed to aid in the development of interactive digital media in Canada.
These 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. These capitalized costs, net of expected
provincial tax credits, are charged to amortization expense based on the useful life of the related app.
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 (if any).
16
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(M) Intangible assets (continued)
Impairment of tangible and intangible assets other than goodwill (continued)
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 equal to the difference between
the carrying and recorded amounts is recognized immediately in profit or loss.
When an impairment 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 been recognized for the asset (or CGU) in prior years.
A reversal of an impairment 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 for a portion 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.
(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 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 statements of earnings and comprehensive income.
17
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(P) Provisions and contingent liabilities (continued)
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 consigned parts 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.
The costs of equity-settled awards are measured using the Black-Scholes valuation model using management’s
inputs and assumptions. Share-based compensation expense for equity-settled awards is recognized over the
vesting period of each award, with a corresponding increase to contributed surplus, based on the vesting period
that has elapsed and the Company’s best estimate of the number of equity instruments that will vest.
(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.
Fair value estimates are made at the Consolidated statements 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”), fair value through other comprehensive income ("FVTOCI") or amortized
cost.
18
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(R) Financial instruments (continued)
The Company has made the following classifications:
Cash and cash equivalents
Trade receivables
Other receivables
Other assets
Investment in a limited partnership
Minority interest investments
Trade payables and accrued liabilities
Loans and borrowings
Interest payable
Foreign exchange forward contracts
(S) Financial assets
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL/FVTOCI
Amortized cost
Amortized cost
Amortized cost
FVTPL
The Company classifies its financial assets in the following measurement categories:
•
•
those to be measured at amortized cost; and
those to be measured subsequently at fair value (either through OCI or through profit or loss); and
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 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.
Financial assets at fair value
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.
For financial assets measured at fair value, gains and losses will either be recorded in profit or loss (within Other
expenses, net) or OCI.
Financial assets at fair value - Investment in a limited partnership and minority interest investments
The Company measures the Investment in a limited partnership and minority interest investments (collectively,
"investments") at fair value.
For investments in equity instruments that are not held for trading, FVTPL or FVTPL designation will depend on
whether the Company has made an irrevocable election at the time of initial recognition to account for the equity
investment at FVTOCI. If the irrevocable election is made, there is no subsequent reclassification of fair value gains
and losses to profit or loss following the derecognition of the investment.
Distribution income from investments are recognized in profit or loss within Other expenses, net when the
Company’s right to receive payments is established, irrespective of fair value designation.
19
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(S) Financial assets (continued)
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.
Impairments (and reversal of impairments) on equity investments measured at FVTOCI are not reported separately
from other changes in fair value.
The carrying amount of the financial asset is reduced by the impairments 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.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized,
the previously recognized impairment 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.
(T) Financial liabilities and equity instruments
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.
20
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
2.
Summary of significant accounting policies (continued)
(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 and cash equivalents, trade and other receivables, as well as trade payables
and other liabilities. Fair value amounts represent point-in-time estimates and may not reflect fair value in the future.
(W) Non-current assets held for sale
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of carrying amount
and fair value less costs to sell.
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered
through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale
is highly probable and the asset (or disposal group) is available for immediate sale in its present condition.
Management must be committed to the sale which should be expected to qualify for recognition as a competed sale
within one year from the date of classification.
When the Company is committed to a sale plan involving loss of control of a subsidiary, all of the assets and
liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of
whether the Company will retain a non-controlling interest in its former subsidiary after the sale.
(X) Future changes in accounting standards
Certain new accounting standards, amendments to accounting standards and interpretations have been published
that are not mandatory for periods beginning on or after January 1, 2021 and have not been early adopted by
the Company. The Company is currently assessing the impact, if any, on the Consolidated financial statements.
Annual Improvements to IFRS Standards 2018–2020;
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
Reference to Conceptual Framework (Amendments to IFRS 3);
Classification of Liabilities as Current or Non-current (Amendments to IAS 1);
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
Definition of Accounting Estimates (Amendments to IAS 8);
•
•
•
•
•
•
• Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37); and
•
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
21
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
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.
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.
22
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
3.
Significant accounting judgments and estimates (continued)
Significant estimates and assumptions (continued)
(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 statements 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.
(F) Business combinations
Business combinations are accounted for using the acquisition method of accounting. The Company determines the
fair value of its the identifiable assets acquired and the liabilities assumed 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. Refer to note 27 for further details
on acquisitions.
23
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
4. Revenue
The Company earns revenue from the following primary sources:
a. Toy revenue;
b. Entertainment and Licensing revenue; and
c. Digital Games revenue.
(US$ millions)
Toy revenue
Entertainment and Licensing revenue
Digital Games revenue
Revenue
5.
Other expenses, net
(US$ millions)
Acquisition related deferred incentive compensation
Acquisition related contingent consideration
Impairment of intangible assets
Impairment of goodwill
Investment distribution income
Net unrealized gain on investment
Impairment of property, plant and equipment
Legal settlement
Other
Other expenses, net
Year Ended Dec 31
2021
2020
1,731.8
1,415.6
135.8
174.8
78.2
76.8
2,042.4
1,570.6
Notes
Year Ended Dec 31
2021
2020
27
20
15
16
12
12
14
6.8
2.7
2.6
1.9
(0.6)
(0.9)
—
—
(1.2)
11.3
—
3.7
0.4
—
—
—
0.5
5.5
(1.4)
8.7
Acquisition related deferred incentive compensation includes $2.5 million related to the acquisition of Originator
Inc., and $4.3 million related to the acquisition of certain assets from a product invention and development
company. These amounts are contingent on the continued employment of key principals as well as certain
performance metrics, over a five-year period (see Note 27)
During the year ended December 31, 2020, the Company agreed to a legal settlement of $5.5 million included in
Other expenses, net in the Consolidated statements of earnings and comprehensive income. The legal settlement
was recorded in accrued liabilities and paid in the current year.
6. Finance costs
(US$ millions)
Bank fees
Accretion expense - lease liabilities
Accretion expense - other
Amortization of Facility fee costs
Interest (income) expense
Finance costs
Year Ended Dec 31
2021
2020
4.9
4.4
1.6
0.4
(1.1)
10.2
4.4
4.6
1.0
0.4
1.7
12.1
24
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
7. Expenses
Expenses include selling, general and administrative expenses and depreciation and amortization expenses.
Selling, general and administrative expenses
(US$ millions)
Selling
Marketing
Distribution
Product development
Administrative expenses
Selling, general and administrative expenses
Administrative expenses include the following:
(US$ millions)
Employee compensation and benefits
Professional services
Property and operations
Technology
Recruiting and training
State and local taxes
Directors' fees
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
Year Ended Dec 31
2021
133.8
179.7
71.3
27.4
330.3
742.5
2020
109.5
133.1
90.7
34.5
264.6
632.4
Year Ended Dec 31
2021
239.0
34.1
18.5
13.8
8.5
4.0
2.8
9.6
330.3
2020
184.0
26.9
17.2
13.7
8.0
3.2
0.5
11.1
264.6
Year Ended Dec 31
2021
5.5
1.1
6.6
192.3
15.3
2.5
28.9
239.0
245.6
2020
5.8
1.2
7.0
143.8
12.2
5.3
22.7
184.0
191.0
25
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
7. Expenses (continued)
Depreciation and amortization expenses
(US$ millions)
Property, plant and equipment
Moulds, dies and tools, included in cost of sales
Equipment, included in cost of sales
Equipment
Land and leasehold improvements
Computer hardware
Intangible assets
Entertainment content development, included in cost of sales
Trademarks, licenses, IP & customer lists - definite
App development, included in cost of sales
Computer software
Right-of-use assets
Depreciation and amortization expenses
(US$ millions)
Included in cost of sales
Included in expenses
Depreciation and amortization expenses
8. Foreign exchange
(US$ millions)
Unrealized foreign exchange (gain) loss
Realized foreign exchange gain
Net foreign exchange (gain) loss
Year Ended Dec 31
2021
2020
24.5
23.6
0.4
2.9
6.2
1.2
—
4.2
6.3
1.6
35.2
35.7
47.7
6.1
5.8
3.9
63.5
38.6
7.7
3.1
4.6
54.0
13.2
13.3
111.9
103.0
Year Ended Dec 31
2021
78.4
33.5
111.9
2020
65.3
37.7
103.0
Year Ended Dec 31
2021
(0.4)
(2.5)
(2.9)
2020
41.7
(14.1)
27.6
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 28).
26
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
9. Income tax
The income tax expense (recovery) recognized in the Consolidated statements of earnings and comprehensive
income comprise of the following:
(US$ millions)
Current income tax expense
Deferred income tax expense (recovery)
Income tax expense (recovery)
2021
52.3
11.1
63.4
2020
27.4
(63.5)
(36.1)
The income tax expense (recovery) is calculated as follows:
(US$ millions)
Income before income tax expense (recovery)
2021
262.0
2020
9.4
Income tax expense at Canadian statutory tax rate of 26.5% (2020 - 26.5%)
Effect of:
69.4
26.5 %
2.5
26.5 %
Different tax rates of subsidiaries operating in other jurisdictions
(9.0)
(3.4) %
(5.0)
(53.1) %
Unused tax losses and tax attributes not recognized as deferred tax assets
Expenses (income) not deductible (taxable) in determining taxable income
Internal transfer of intangible property
Other
Income tax expense (recovery)
3.5
0.2
—
(0.7)
63.4
1.3 %
0.1 %
— %
(0.3) %
24.2 %
1.7
(0.3)
18.1 %
(3.2) %
(33.3)
(354.2) %
(1.7)
(36.1)
(18.1) %
(384.0) %
The tax rates used for the reconciliations above are the Canadian statutory tax rates of the parent payable by
corporate entities in the Company, on taxable profits under tax laws in the respective jurisdictions in which the
Company operates.
Current tax assets and liabilities
As at December 31, 2021, the Company had an income tax payable of $36.2 million (2020 - $21.1 million).
Deferred income tax balances
The following is the analysis of deferred income tax assets and liabilities presented in the Consolidated statements
of financial position:
(US$ millions)
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax assets
2021
97.0
48.7
48.3
2020
98.7
29.6
69.1
27
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
9. Income tax (continued)
The sources of deferred income tax balances are as follows:
(US$ millions)
Property, plant and equipment
Intangible assets
Provisions
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
Allowance for doubtful accounts
Benefits of tax loss carryforwards
Other temporary differences in basis
Net deferred tax assets
Unused tax losses
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
Recognized
in
net income
Recognized
on business
combination
(3.7)
(8.3)
(0.5)
0.4
(12.1)
(3.2)
4.2
(11.1)
—
(9.7)
—
—
(9.7)
—
—
(9.7)
2020
7.0
42.2
16.1
(0.3)
65.0
7.6
(3.5)
69.1
2020
7.0
42.2
16.1
(0.3)
65.0
7.6
(3.5)
69.1
2021
3.3
24.2
15.6
0.1
43.2
4.4
0.7
48.3
As at December 31, 2021, the Company had unused tax losses of $8.4 million (2020 - $5.5 million). Unused tax
losses of $0.6 million will expire between 2022 and 2031, $3.1 million will expire beyond 2031 and $4.7 million may
be carried forward indefinitely. There were no unrecognized deductible temporary differences for the year ended
December 31, 2021 (2020 - $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, 2021, are $315.0 million (2020 - $219.0 million).
28
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
10. Trade and other receivables
Trade receivables
(US$ millions)
Trade receivables
Provisions for sales allowances
Allowance for doubtful accounts
Trade receivables
Dec 31,
2021
493.1
(164.5)
(0.7)
327.9
Dec 31,
2020
438.5
(158.1)
(3.2)
277.2
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)
Balance, beginning of year
Net impairments (net recoveries) recognized
Amounts written off during the year as uncollectible
Foreign currency translation
Balance, end of year
Dec 31,
2021
7.3
2.6
4.9
14.8
Dec 31,
2020
1.5
0.7
10.9
13.1
Dec 31,
2021
Dec 31,
2020
3.2
(0.5)
(2.1)
0.1
0.7
0.6
4.1
(1.6)
0.1
3.2
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.
Other receivables
(US$ millions)
Investment tax credits receivable
Royalty receivables
Sales tax receivables
Unrealized foreign exchange gain
Other digital games receivables
Other
Other receivables
11.
Inventories
(US$ millions)
Raw materials
Finished goods
Inventories
Dec 31,
Dec 31,
2021
27.3
24.0
6.3
3.4
0.2
5.5
2020
31.8
11.5
7.6
3.7
0.7
3.9
66.7
59.2
Dec 31,
2021
6.8
130.6
137.4
Dec 31,
2020
7.8
94.2
102.0
29
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
11. Inventories (continued)
Inventories recorded as at December 31, 2021 are net of $6.6 million that was recorded for the write-down of
inventories to net realizable value (December 31, 2020 - $10.2 million).
The cost of inventories recognized as an expense in cost of sales during the year was $794.6 million in (2020 -
$692.4 million).
During the year ended December 31, 2021, $0.9 million of inventories were written down to net realizable value
(2020 - $1.1 million). This charge is included within cost of sales in the Consolidated statements of earnings and
comprehensive income.
12.
Prepaid expenses and other assets
(US$ millions)
Advances on royalties
Prepaid expenses
Deposit related to acquisition of Rubik's
Prepaid expenses and other assets
(US$ millions)
Advances on royalties
Investment in a limited partnership
Investment tax credits - non-current portion
Minority interest investments
Unamortized Facility fee costs
Other assets, non-current
Investment in a limited partnership
Notes
27
Notes
19
Dec 31,
2021
7.1
9.0
—
16.1
Dec 31,
2020
17.2
7.2
3.0
27.4
Dec 31,
2021
Dec 31,
2020
4.1
3.9
2.7
2.4
1.6
14.7
0.7
3.0
2.2
—
0.7
6.6
For the year ended December 31, 2021, the Company recognized a net unrealized gain in Other expenses, net in
the Consolidated statements of earnings and comprehensive income of $0.9 million (2020 - $nil). The Company
recognized distribution income for the year ended December 31, 2021 in Other expenses, net of $0.6 million (2020 -
$nil).
The Company has paid $2.8 million and is obligated to pay the remaining $0.2 million upon receiving capital calls
over the remaining term of the limited partnership agreement. The investment in a limited partnership is held for
medium to long-term strategic purposes (see Note 28).
Minority interest investments
In 2021, the Company acquired a minority interest in Hoot Reading Inc. ("Hoot Reading"), a Canadian children's
education technology company and Nørdlight Games AB ("Nørdlight"), a Swedish mobile game development
company. These investments are held for medium to long term strategic purposes.
Minority interest investments classified as FVTOCI comprise of equity instruments that the Company has
irrevocably elected to recognize in this category. These are strategic investments and the Company considers this
classification to be more relevant.
The carrying value of these minority interest investments as at December 31, 2021 and 2020 were as follows:
(US$ millions)
Hoot Reading
Nørdlight
Minority interest investments
Acquisition
date
Q3 2021
Q3 2021
Classification
Initial
investment
Dec 31,
Dec 31,
2021
2020
FVTPL
FVTOCI
1.8
0.6
2.4
1.8
0.6
2.4
—
—
—
There were no gains or losses recognized for any minority interest investments in the Consolidated statements of
earnings and comprehensive income for the year ended December 31, 2021.
30
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
13.
Assets held for sale
Subsequent to December 31, 2021, the Company divested manufacturing assets located in Tarboro, North Carolina
and certain related brands associated with its Outdoor business. As at December 31, 2021 these assets, which
include inventories of $5.7 million, property, plant and equipment of $2.1 million and goodwill of $1.1 million were
classified as "Assets held for sale" and are presented separately in the Consolidated statements of financial
position.
The proceeds of disposal were not expected to exceed the carrying amount of the related net assets, and
accordingly an impairment to goodwill of $0.9 million has been recognized on the classification of the disposal
group held for sale within Other expenses, net in the Consolidated statements of earnings and comprehensive
income.
14.
Property, plant and equipment
Note
Moulds, dies
and tools
Equipment
Land and
leasehold
improvements
Computer
hardware
(US$ millions)
Cost
Balance at December 31, 2019
Additions
Disposals
Impairments
Foreign currency translation
Balance at December 31, 2020
Additions
Disposals
Assets recognized upon acquisition
27
Foreign currency translation
Transfer to intangible assets
Assets reclassified as held for sale
13
Balance at December 31, 2021
Accumulated depreciation
Balance at December 31, 2019
Depreciation
Disposals
Impairments
Foreign currency translation
Balance at December 31, 2020
Depreciation
Disposals
Foreign currency translation
Assets reclassified as held for sale
13
128.9
18.9
(2.8)
—
7.5
152.5
22.8
(4.3)
0.1
2.6
—
(1.1)
172.6
(104.3)
(23.6)
2.8
—
(5.5)
(130.6)
(24.5)
4.3
(1.6)
1.0
29.7
1.4
(0.1)
(0.6)
0.8
31.2
2.0
(0.2)
0.3
(0.6)
—
(4.6)
28.1
(16.4)
(4.2)
0.2
0.1
(1.2)
(21.5)
(3.3)
0.2
(0.4)
2.7
39.1
0.3
—
—
0.7
40.1
0.3
(0.4)
—
(0.2)
—
(0.2)
39.6
(14.8)
(6.3)
—
—
(0.7)
(21.8)
(6.2)
0.4
0.1
0.1
14.2
0.4
(0.1)
—
0.5
15.0
1.3
(0.7)
—
(1.0)
(2.2)
—
12.4
(9.6)
(1.6)
0.1
—
(0.4)
(11.5)
(1.2)
0.7
0.2
—
Total
211.9
21.0
(3.0)
(0.6)
9.5
238.8
26.4
(5.6)
0.4
0.8
(2.2)
(5.9)
252.7
(145.1)
(35.7)
3.1
0.1
(7.8)
(185.4)
(35.2)
5.6
(1.7)
3.8
Balance at December 31, 2021
(151.4)
(22.3)
(27.4)
(11.8)
(212.9)
Net carrying amount
Balance at December 31, 2020
Balance at December 31, 2021
21.9
21.2
9.7
5.8
18.3
12.2
3.5
0.6
53.4
39.8
The Company assessed tangible assets for any indication of impairment. Impairments are recorded when the
carrying amount of the asset exceeds its recoverable amount. The recoverable amount is based on the asset's
value in use. For the year ended December 31, 2021, the Company recorded no impairments (2020 - $0.5 million)
within Other expenses, net in the Consolidated statements of earnings and comprehensive income.
31
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
15.
Intangible assets
(US$ millions)
Cost
Note
Brands -
indefinite
Trademarks,
licenses, IP
& customer
lists -
definite
Entertainment
content
development
App
development
Computer
software
Total
Balance at December 31, 2019
115.7
27
27
Additions
Disposals
Asset impairments
Assets acquired through
business combinations
Foreign currency translation
Balance at December 31, 2020
Additions
Disposals
Asset impairments
Assets acquired through
business combinations
Foreign currency translation
Transfer to intangible assets
Balance at December 31, 2021
Accumulated amortization
December 31, 2019
Amortization
Disposal
Foreign currency translation
Balance at December 31, 2020
Amortization
Foreign currency translation
Balance at December 31, 2021
Net carrying amount
Balance at December 31, 2020
Balance at December 31, 2021
—
—
—
—
1.8
117.5
—
—
—
39.7
0.1
—
157.3
—
—
—
—
—
—
—
—
51.7
1.2
—
—
2.4
(0.5)
54.8
1.0
—
—
0.8
(0.2)
—
56.4
(18.5)
(7.7)
—
—
(26.2)
(6.1)
0.2
(32.1)
158.9
43.6
—
—
—
8.6
211.1
43.9
—
(2.1)
—
0.1
—
5.6
7.0
—
(0.4)
—
0.9
13.1
5.6
—
(0.5)
6.7
0.5
2.2
25.9
357.8
5.9
(0.2)
—
—
1.1
57.7
(0.2)
(0.4)
2.4
11.9
32.7
429.2
1.8
—
—
—
0.1
—
52.3
—
(2.6)
47.2
0.6
2.2
253.0
27.6
34.6
528.9
(131.7)
(38.2)
—
(6.5)
(176.4)
(47.7)
(1.5)
(225.6)
(5.0)
(3.5)
—
(0.7)
(9.2)
(5.8)
0.2
(20.2)
(175.4)
(4.6)
0.2
(0.8)
(54.0)
0.2
(8.0)
(25.4)
(237.2)
(3.9)
0.1
(63.5)
(1.0)
(14.8)
(29.2)
(301.7)
117.5
157.3
28.6
24.3
34.7
27.4
3.9
12.8
7.3
5.4
192.0
227.2
Intangible assets recognized upon acquisition include $37.4 million and $2.3 million for indefinite life brand assets
relating to Rubik's and Originator Inc., respectively, $0.7 million and $0.1 million for customer relationships relating
to Rubik's and Originator Inc., respectively, and $6.7 million for app development relating to Originator Inc., as
described in Note 27. These balances have been included in the Company's impairment assessment.
During the year ended December 31, 2021, the Company delivered completed content for an entertainment
production, and accordingly, amortized previously capitalized entertainment content costs in the amount of $23.0
million.
The Company holds intellectual property relating to the Games and Puzzles CGU. The carrying amount of $5.1
million at December 31, 2021 (2020 - $5.7 million) will be fully amortized in five years.
32
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
15.
Intangible assets (continued)
The carrying amount of indefinite life brands by CGU is as follows:
(US$ millions)
Rubik's
Games and Puzzles
GUND
SwimWays
Digital Games1
Etch A Sketch
Meccano
Total
1 In the fourth quarter of 2021, the "Toca Boca" CGU was renamed "Digital Games".
Dec 31,
2021
37.4
33.5
33.9
27.8
15.3
7.2
2.2
Dec 31,
2020
—
33.4
33.9
27.8
13.0
7.2
2.2
157.3
117.5
Intangible asset impairment - indefinite life brands
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.
In assessing indefinite life intangible assets for impairment at December 31, 2021 and 2020, the Company
compared the aggregate recoverable amount of the assets included in CGUs to their respective carrying amounts.
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, projected revenues and margins.
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 12.0% to 29.5% (2020 - 10% to 18%).
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% (2020 - 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, 2021, the Company completed its annual impairment tests for indefinite life
intangible assets and concluded there was no impairment (2020 - $nil).
Intangible asset impairment - definite life assets
The Company recorded impairments of $2.1 million (2020 - $nil) related to entertainment content projects no longer
in active development and $0.5 million (2020 - $0.4 million) related to app development within Other expenses, net
in the Consolidated statements of earnings and comprehensive income.
33
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
16. Goodwill
(US$ millions)
Balance, beginning of year
Additions during the year
Assets reclassified as held for sale
Impairments recognized in the year
Foreign currency translation
Measurement period adjustment
Proceeds from sale during the year
Balance, end of year
The carrying amount of goodwill was allocated to these CGUs as follows:
(US$ millions)
Games and Puzzles
SwimWays
Rubik's
GUND
Digital Games1
Orbeez
Toy
Other
Goodwill
1 In the fourth quarter of 2021, the "Toca Boca" CGU was renamed "Digital Games".
Notes
27
13
13
Dec 31,
2021
138.0
38.3
(1.1)
(1.9)
(0.2)
—
—
173.1
Dec 31,
2020
138.8
—
—
—
0.2
(0.7)
(0.3)
138.0
Dec 31,
2021
48.3
40.1
22.6
20.3
19.7
8.0
7.5
6.6
Dec 31,
2020
48.5
42.1
—
20.3
11.5
8.0
—
7.6
173.1
138.0
The company tests goodwill for impairment in accordance with the Company's policy. In assessing goodwill for
impairment at December 31, 2021 and 2020, the Company compared the aggregate recoverable amount of the
assets included in CGUs to their respective carrying amounts. 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 15)
with the exception of the goodwill associated with the disposal group noted in note 13.
For the year ended December 31, 2021, there were $1.9 million (2020 - $nil) of impairments recognized with
respect to goodwill in respect of assets held for sale (see note 13) and one other CGU, within Other expenses, net
in the Consolidated statements of earnings and comprehensive income.
17.
Trade payables and accrued liabilities
(US$ millions)
Trade payables
Accrued liabilities
Trade payables and accrued liabilities
Dec 31,
2021
274.7
201.7
476.4
Dec 31,
2020
161.4
153.0
314.4
Accrued liabilities are comprised of payroll related liabilities, accrued royalties, commodity tax and other balances.
As at December 31, 2021, a restructuring liability of $1.4 million is included in accrued liabilities (December 31,
2020 - $1.1 million).
34
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
18.
Deferred revenue
Deferred revenue is comprised of advances on contracts relating to Entertainment and Licensing revenue and
subscription revenue relating to Digital Games revenue, which arise as a result of consideration received in
advance of the Company fulfilling its performance obligations. As at December 31, 2021, the Company had
deferred revenue of $10.9 million (December 31, 2020 - $25.3 million).
For the year ended December 31, 2021, the Company recognized revenue of $22.9 million (2020 - $5.6 million)
relating to amounts previously deferred.
19.
Loans and borrowings
Unsecured Debt
Bank Facilities
(i) On September 28, 2021, the Company entered into an agreement to amend and restate its existing $510.0 million
secured five-year revolving credit facility (the "Facility"). Under the terms of the amended and restated agreement,
the Facility is now unsecured, matures on September 28, 2026 and contains certain financial covenants. The
Facility also has an option which permits the Company to increase the total capital available by an additional $200.0
million. Total financing costs of $1.7 million, which include Facility amendment fees and related legal fees, are
recognized in Other assets and will be amortized over the term of the amended and restated agreement.
As at December 31, 2021, there were $0.4 million (December 31, 2020 - $0.4 million) in letters of credit utilized
under the Facility and no amounts drawn (December 31, 2020 - $nil) under this Facility.
This facility is subject to the maintenance of certain financial covenants. The Company was in compliance with all
financial covenants as at December 31, 2021 and December 31, 2020.
Bank Overdraft Facility
(ii) The Company has an uncommitted Overdraft Facility Agreement (the "European Facility") for €15.0 million (US$17.0
million). The European Facility will be used to fund working capital requirements in Europe. As at December 31,
2021, the outstanding balance was $nil (December 31, 2020 - $nil).
Secured Debt
Bank Facilities
(iii) The Company has a Revolving Credit Facility to finance television and film production. The limit of the credit facility
(the "Production Facility") is CAD$10.0 million (US$7.9 million). As at December 31, 2021, the outstanding balance
of the Production Facility was $nil (December 31, 2020 - $nil).
20.
Provisions and contingent liabilities
(US$ millions)
Defectives(i)
Supplier liabilities(ii)
Contingent consideration, acquisitions(iii)
Provisions and contingent liabilities
Current
Non-current
Provisions and contingent liabilities
Dec 31,
2021
9.9
5.9
23.3
39.1
25.1
14.0
39.1
Dec 31,
2020
13.0
5.6
15.8
34.4
29.2
5.2
34.4
35
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
20.
Provisions and contingent liabilities (continued)
December 31, 2019
Provisions recognized
Accretion recognized
Payments
December 31, 2020
Provisions recognized
Accretion recognized
Payments
Revaluation of provisions
December 31, 2021
Provisions
Defectives(i)
Supplier
liabilities(ii)
Contingent
consideration,
acquisitions(iii)
13.8
12.8
—
(13.6)
13.0
7.9
—
(11.0)
—
9.9
4.9
5.7
—
(5.0)
5.6
1.9
—
(1.6)
—
5.9
16.5
3.7
1.0
(5.4)
15.8
10.6
1.6
(7.4)
2.7
23.3
Total
35.2
22.2
1.0
(24.0)
34.4
20.4
1.6
(20.0)
2.7
39.1
(i) Defectives occur 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 revenue figure in the Consolidated statements 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 statements of earnings and comprehensive income.
(iii) Certain business combinations include agreement terms associated with royalty payables or deferred
incentive compensation and is based on the achievement of certain financial performance criteria and/or
continued employment. The accretion of the royalty is recorded in Finance costs in the Consolidated
statements of earnings and comprehensive income. Accrued deferred incentive compensation of $6.8
million (2020 - $nil) is recorded in Other expenses, net in the Consolidated statements of earnings and
comprehensive income. Subsequent reviews of financial performance may result in the recording of
additional considerations or reductions of the existing provision. For the year ended December 31, 2021,
$2.7 million was recorded relation to additional contingent consideration for previous acquisitions (2020 -
$3.7 million) in Other expenses, net in the Consolidated statements of earnings and comprehensive
income.
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.
36
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
21.
Share capital
(a) Authorized as at December 31, 2021 and December 31, 2020
•
•
•
Unlimited number of multiple voting shares with no par value;
Unlimited number of subordinate voting shares with no par value; and
Unlimited number of preferred shares issuable in series with no par value.
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.
Year Ended Dec 31
Year Ended Dec 31
2021
2020
Shares
(millions)
Amount
(US$ millions)
Shares
(millions)
Amount
(US$ millions)
Multiple voting shares:
Outstanding, beginning and end of year
70.6
360.5
70.6
360.5
Subordinate voting shares:
Outstanding, beginning of year
Issuance of subordinate voting shares
Forfeiture/cancellation of subordinate voting shares
Outstanding, end of year
Shares issued and outstanding, end of year
31.4
0.4
—
31.8
102.4
364.3
12.1
—
376.4
736.9
31.6
0.2
(0.4)
31.4
102.0
354.0
11.4
(1.1)
364.3
724.8
As at December 31, 2021, the Company does not hold any of its outstanding shares (2020 - $nil).
(b) Share-based plans
The total expense recognized for employee services received during the year for equity-settled transactions is
shown in the following table:
(US$ millions)
Equity-settled RSUs and PSUs
Equity-settled Participation Arrangement transactions
Share purchase options
Share based compensation expense
Year Ended Dec 31
2021
14.6
0.2
0.5
15.3
2020
9.9
1.5
0.8
12.2
Share based compensation expense of $15.3 million (2020 - $12.2 million) is recorded in administrative expenses
in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021. A
corresponding amount was recorded in contributed surplus.
37
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
21.
Share capital (continued)
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 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, restricted stock and any other equity based awards. As at December 31, 2021, the total number of
subordinate voting shares reserved for issuance under the LTIP is 9,669,599 (2020 - 9,669,599).
The Company settled vested LTIP grants during the year ended December 31, 2021 through the issuance of
shares. The settlements resulted in a transfer of $8.6 million (2020 - $3.2 million) from contributed surplus to share
capital.
Restricted Stock Units ("RSUs")
Below is a summary of the activity related to RSUs outstanding as at December 31, 2021 and December 31, 2020.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Performance Share Units ("PSUs")
Dec 31,
2021
826,116
388,693
Dec 31,
2020
260,662
716,845
(252,763)
(103,044)
(19,115)
(48,347)
942,931
826,116
Below is a summary of the activity related to PSUs outstanding as at December 31, 2021 and December 31, 2020.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Dec 31,
2021
918,929
285,463
Dec 31,
2020
453,246
702,053
(62,815)
(157,810)
(49,715)
(78,560)
1,091,862
918,929
Share based compensation expense of $14.6 million (2020 - $9.9 million) relating to RSUs and PSUs is recorded in
administrative expenses in the Consolidated statements of earnings and comprehensive income for the year ended
December 31, 2021 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, 2021 and December 31, 2020.
(number of units)
Outstanding, beginning of year
Granted
Outstanding, end of year
Dec 31,
2021
121,771
35,522
Dec 31,
2020
78,311
43,460
157,293
121,771
Share based compensation expense of $1.2 million (2020 - $0.7 million) and a mark to market expense of $2.0
million (2020 - gain of $0.4 million) relating to DSUs is recorded in administrative expenses in the Consolidated
statements of earnings and comprehensive income for the year ended December 31, 2021. A corresponding
amount was recorded in accrued liabilities.
38
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
21.
Share capital (continued)
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 a four-year vesting period.
Dec 31,
2021
Weighted
average
exercise
price (CAD)
34.42
25.87
37.96
35.22
33.96
Number of
share
options
545,322
(46,924)
(665)
497,733
425,749
Number of
share
options
836,596
—
(291,274)
545,322
390,507
Dec 31,
2020
Weighted
average
exercise
price (CAD)
34.60
—
34.95
34.42
31.30
Dec 31,
Number outstanding
216,651
2020
Weighted average
remaining contractual
life (years)
5.2
5.2
6.9
1.3
5.9
5.3
134,858
96,794
5,817
91,202
545,322
5.9
7.9
2.3
6.9
6.1
Dec 31,
2021
Weighted average
remaining contractual
life (years)
4.2
Outstanding, beginning of year
Exercised
Forfeited and/or expired
Outstanding, end of year
Exercisable options
Exercise price
$22.94
$37.64
$37.96
$49.80
$52.20
Total
Number outstanding
179,069
125,516
96,129
5,817
91,202
497,733
Share based compensation expense of $0.5 million (2020 - $0.8 million) relating to Options is recorded in
administrative expenses in the Consolidated statements of earnings and comprehensive income for the year ended
December 31, 2021.
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
Public Offering of the Company. 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 Public
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 Public
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 Public
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.
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, 2021, there are no subordinate voting shares outstanding relating to the
Participation Arrangements (December 31, 2020 - 151,993 subordinate voting shares with a weighted average
grant date fair value of $2.1 million).
Share based compensation expense of $0.2 million (2020 - $1.5 million) relating to Participation Arrangements is
recorded in administrative expenses in the Consolidated statements of earnings and comprehensive income for the
year ended December 31, 2021.
39
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
22. Earnings per share
(Number of shares
in millions)
Basic
Diluted
2021
Weighted average
number of shares
102.3
105.3
Per share amount
(US$)
1.94
1.89
2020
Weighted average
number of shares
102.0
104.2
Per share amount
(US$)
0.45
0.44
Year Ended Dec 31
The Participation Arrangements issued to employees upon the Initial Public Offering are anti-dilutive as subordinate
voting shares resulted in the issuance of fewer multiple voting shares to the principal shareholders. Accordingly,
they are not included in the computation of diluted earnings per share.
23. Net changes in non-cash working capital
(US$ millions)
Decrease (increase) in:
Trade receivables
Other receivables
Inventories
Prepaid expenses and other assets
Assets reclassified as held for sale
(Decrease) increase in:
Trade payables and accrued liabilities
Deferred revenue
Provisions and contingent liabilities
Other
Total net changes in non-cash working capital
24.
Related party transactions
Year Ended Dec 31
2021
2020
(48.7)
8.3
(31.7)
6.4
(5.7)
(71.4)
147.4
(14.5)
(9.9)
(1.7)
121.3
49.9
97.5
(23.5)
82.3
12.7
—
169.0
(29.7)
17.8
0.1
(4.2)
(16.0)
153.0
In the normal course of operations, the Company engaged the services of a law firm whose managing partner is
also a member of the Company's Board of Directors, which have been made on terms equivalent to those that
prevail in arm's length transactions.
For the year ended December 31, 2021, related party transactions were included in administrative expenses in the
Consolidated statements of earnings and comprehensive income of the Company in the amount of $1.3 million
(2020 - $1.6 million). As at December 31, 2021, amounts payable to the director's law firm were $0.2 million (2020 -
$0.8 million).
Compensation of key management personnel
The compensation of directors and other key management personnel during the years were as follows:
(US$ millions)
Salaries, wages and bonuses
Share-based compensation
Employee benefits
Total compensation of key management personnel
2021
6.7
3.3
0.1
10.1
2020
3.2
0.6
0.1
3.9
40
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
25.
Leases
Amounts recognized in the Consolidated statements of financial position
Leased office buildings represented approximately 87% of the right-of-use assets with the remainder comprised of
leases of distribution centres, information technology ("IT") equipment, and vehicles.
The Company has categorized classes 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 (2020 - 11 years).
The carrying value of right-of-use assets and depreciation by class of underlying assets are as follows:
(US$ millions)
January 1, 2020
Additions
Disposals
Depreciation and amortization
Foreign currency translation
December 31, 2020
Additions
Assets recognized upon acquisition (Note 27)
Modifications
Depreciation and amortization
Foreign currency translation
December 31, 2021
(US$ millions)
January 1, 2020
Additions
Disposals
Accretion
Lease payments
Foreign currency translation
December 31, 2020
Additions
Liabilities recognized upon acquisition (Note 27)
Modifications
Accretion
Lease payments
Foreign currency translation
December 31, 2021
(US$ millions)
Lease liabilities, current
Lease liabilities, non-current
Total lease liabilities
Building
Equipment
Right-of-use assets
75.4
0.7
(0.1)
(12.0)
1.0
65.0
0.5
0.6
10.9
(12.1)
(1.0)
63.9
2.9
0.4
—
(1.3)
—
2.0
0.5
—
—
(1.1)
(0.1)
1.3
78.3
1.1
(0.1)
(13.3)
1.0
67.0
1.0
0.6
10.9
(13.2)
(1.1)
65.2
Lease liabilities
82.7
1.1
(0.1)
4.6
(15.2)
1.3
74.4
1.0
0.7
10.9
4.4
(17.6)
(0.8)
73.0
Dec 31,
2021
13.3
59.7
73.0
Dec 31,
2020
15.4
59.0
74.4
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. Extension and termination
options are exercisable only by the Company and not by the respective lessor.
41
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
25.
Leases (continued)
Amounts recognized in the Consolidated statements of earnings and comprehensive income
(US$ millions)
Depreciation expense on right-of-use assets
Accretion expense on lease liabilities
Expense relating to leases of short term and low value assets
Expense relating to variable lease payments not included in measurement of lease liability
Total
2021
2020
13.2
4.4
1.1
5.9
24.6
13.3
4.6
1.2
3.8
22.9
The total cash outflows for leases for the year end December 31, 2021 was $24.6 million (2020 - $20.2 million).
26. Commitments for expenditures
Licensing and similar agreements in effect at December 31, 2021 that contain provisions for future minimum
payments, include the following:
As at December 31, 2021
(US$ millions)
Lease liabilities - undiscounted
Guaranteed payments due to licensors
Total commitments
Less than 1 year to greater than 5 years
< 1 Year
1-5 Years
> 5 Years
Total
15.0
15.1
30.1
38.7
14.0
52.7
45.4
2.0
47.4
99.1
31.1
130.2
27. Business acquisitions
Acquisition of Originator Inc.
On June 14, 2021, the Company acquired 100% of the shares of Originator Inc., which qualifies as a business
under IFRS 3, Business Combinations ("IFRS 3"). Originator Inc. is a developer and publisher of education focused
mobile apps for kids and families and was acquired to complement Sago Mini's edutainment digital games offering.
The acquisition has been reported in the Digital Games CGU and its revenue is included within Digital Games
revenue from the date of acquisition.
The total purchase consideration was comprised of $15.0 million of cash consideration. The total purchase
consideration has been allocated to identifiable intangible assets based on their estimated fair values of $9.1
million (related to brands, customer relationships and app development), tangible assets of $0.6 million and
assumed liabilities of $2.9 million with the remainder allocated to goodwill. The purchase price allocation was
finalized in the Company's third quarter of 2021.
The purchase agreement also includes deferred consideration of $4.0 million which is contingent on meeting certain
performance metrics and has been allocated a fair value of $nil in the total purchase consideration.
The Company incurred $0.4 million in transaction related costs which were included in administrative expenses in
the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021,
respectively.
42
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
27. Business acquisitions (continued)
Assets acquired and liabilities recognized at the date of acquisition
(US$ millions)
Assets acquired
Cash
Trade receivables
Intangible assets
Liabilities assumed
Trade payables and accrued liabilities
Deferred income tax liabilities
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Cash consideration
Fair value of identifiable net assets acquired
Goodwill arising from transaction
Net cash outflow on acquisition
Cash consideration
Less: cash balance acquired
Net cash outflow on acquisition
Fair value as at June 14, 2021
Fair value as at June 14, 2021
0.2
0.4
9.1
9.7
0.4
2.5
2.9
6.8
15.0
6.8
8.2
15.0
0.2
14.8
Goodwill arose on the acquisition as the consideration paid effectively included amounts for the benefit of expected
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. Goodwill recognized is not expected to be
deductible for income tax purposes.
The purchase agreement includes total deferred consideration of $10.0 million which is contingent on the continued
employment of key principals as well as certain performance metrics, over a five-year period. These payments are
considered an incentive-related remuneration expense and are accrued over the five-year period. Deferred
remuneration expense of $2.5 million is included in Other expenses, net in the Consolidated statements of earnings
and comprehensive income for the year ended December 31, 2021, and in provisions and contingent liabilities in
the Consolidated statements of financial position.
Impact of acquisition on the results of the Company
Included in the Company's financial results for the year ended December 31, 2021 is $2.2 million in revenue
attributable to Originator Inc.
Acquisition of certain assets from a product invention and development company
On April 16, 2021, the Company acquired assets and assumed liabilities of a product invention and development
company which constitutes a business under IFRS 3. Included in the acquisition is an assembled workforce to
complement the Company's toy innovation and development capabilities. The acquisition has been reported in the
Toy CGU from the date of acquisition.
The total purchase consideration was comprised of $7.5 million of cash consideration and has been allocated as
$0.7 million of tangible assets and $0.7 million of assumed liabilities with the remainder allocated to goodwill.
The Company had pre-existing licensing arrangements for the acquired intellectual property. No gain/loss from the
settlement of the pre-existing relationship was generated from this transaction.
The Company incurred $0.2 million in transaction related costs which were included in administrative expenses in
the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021.
43
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
27. Business acquisitions (continued)
Assets acquired and liabilities recognized at the date of acquisition
(US$ millions)
Assets acquired
Property, plant and equipment
Right-of-use assets
Liabilities assumed
Lease liabilities
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Cash consideration
Fair value of identifiable net assets acquired
Goodwill arising from transaction
Net cash outflow on acquisition
Cash consideration
Net cash outflow on acquisition
Fair value as at April 16, 2021
0.1
0.6
0.7
0.7
0.7
—
7.5
—
7.5
7.5
7.5
Goodwill arose on the acquisition as the consideration paid effectively included amounts for the benefit of expected
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. As at the date of acquisition, $7.5 million
of goodwill is expected to be deductible for income tax purposes and is being amortized for tax purposes over 15
years.
The purchase agreement includes deferred consideration of $14.5 million which is contingent on continued
employment of key principals over a five-year period. These payments are considered an incentive-remuneration
expense and are accrued over the five-year period. Deferred remuneration expense of $4.3 million is included in
Other expenses, net in the Consolidated statements of earnings and comprehensive income for the year ended
December 31, 2021, and in provisions and contingent liabilities in the Consolidated statements of financial position.
Acquisition of Rubik's Brand Limited
On January 4, 2021, the Company completed the acquisition of Rubik's Brand Limited by acquiring 100% of the
shares of its holding company, Rubiks Malta Holding Company Limited (“Rubik’s”). Rubik’s is a licensor and
distributor of various editions of the Rubik’s product lines and qualifies as a business under IFRS 3. The Company
secured the global intellectual property for the Rubik’s portfolio and the ability to sell, market and license for further
penetration directly to wholesale customers or continue to sell indirectly through distributors into markets as well as
expansion into new territories. The brand has been reported in the Activities, Games & Puzzles and Plush product
category and included in the Rubik's CGU beginning from the date of acquisition.
The total purchase consideration of $55.2 million was comprised of $51.4 million of cash consideration plus $3.8
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 $38.1 million (related to brands and
customer relationships), tangible assets of $6.5 million and assumed liabilities of $12.0 million with the remainder
allocated to goodwill.
The Company incurred transaction related costs of $1.1 million. $0.9 million was recorded in administrative
expenses in the Consolidated statements of earnings and comprehensive income for the year ended December 31,
2020 and $0.2 million was recorded in administrative expenses in the Consolidated statements of earnings and
comprehensive income for the year ended December 31, 2021.
44
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
27. Business acquisitions (continued)
Assets acquired and liabilities recognized at the date of acquisition
(US$ millions)
Assets acquired
Cash
Trade receivables
Inventories
Prepaid expenses
Property, plant and equipment
Intangible assets
Liabilities assumed
Trade payables and accrued liabilities
Deferred income tax liabilities
Income tax payable
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Cash consideration
Purchase price adjustment
Present value of future royalties
Total purchase consideration
Fair value of identifiable net assets acquired
Goodwill arising from transaction
Net cash outflow on acquisition
Cash consideration
Less: cash balance acquired
Total net cash outflow
Less: advance paid in 2020
Net cash outflow on acquisition
Fair value as at January 4, 2021
1.1
4.0
0.7
0.5
0.2
38.1
44.6
4.4
7.2
0.4
12.0
32.6
52.6
(1.2)
3.8
55.2
32.6
22.6
52.6
1.1
51.5
3.0
48.5
Trade receivables acquired of $4.1 million have a fair value of $4.0 million.
Goodwill arose on the acquisition of Rubik’s 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. Goodwill recognized is
not expected to be deductible for income tax purposes.
The total purchase consideration includes $3.8 million in deferred payments for future royalties. The future royalties
are payable to the vendor upon the achievement of key performance indicators over a six-year period. The potential
undiscounted amount of all future payments that the Company could be required to make under this contingent
consideration arrangement is between $nil and $5.7 million. Based on a subsequent review of financial
performance of the existing contingent consideration provision at year end, an additional $0.7 million was recorded
for the year ended December 31, 2021 for the total contingent consideration of $4.5 million.
Impact of acquisition on the results of the Company
Included in the Company's financial results for the year ended December 31, 2021 is $25.2 million respectively in
revenue attributable to Rubik's.
45
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
28. Financial instruments and risk management
Capital management
Management includes the following items in its definition of capital:
(US$ millions)
Share capital
Contributed surplus
Retained earnings
Capital
Dec 31,
2021
736.9
40.8
216.0
993.7
Dec 31,
2020
724.8
36.6
17.4
778.8
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.
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, 2021.
The Company is subject to capital requirements under the credit facility agreement, as described in Note 19. As at
December 31, 2021, 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, 2021, the Company is committed under outstanding foreign exchange contracts representing a
total net purchase commitment of $11.5 million (December 31, 2020 - $11.3 million). These foreign exchange
contracts have maturity dates varying from January 2022 to April 2023. For the year ended December 31, 2021,
realized gain on the Company’s matured hedges were $0.8 million (2020 - realized losses of $2.6 million) and is
included in the Consolidated statements of earnings and comprehensive income.
46
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
28. Financial instruments and risk management (continued)
As at December 31, 2021
(in millions)
Foreign exchange contracts
Buy US$
Buy US$
Buy US$
Sell US$
Sell US$
Total
As at December 31, 2020
(in millions)
Foreign exchange contracts
Buy US$
Buy US$
Buy US$
Sell US$
Total
Notional value:
foreign currency
Notional value:
US$
Unrealized
gain (loss): US$
40.4 EUR
20.1 GBP
515.0 MXN
(109.5) CAD
(242.0) JPY
(48.5)
(28.0)
(24.5)
87.3
2.1
(11.6)
2.5
0.8
(0.2)
(0.8)
—
2.3
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)
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
Dec 31,
2021
(7.6)
0.4
1.4
(0.2)
Dec 31,
2020
(9.9)
0.5
1.7
2.2
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 mainly relating to interest income on its cash and cash equivalents
balances and interest expense on loans and borrowings. 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, 2021, with all other variables held constant, a 50 basis point decrease in interest
rates would decrease interest income by $1.0 million for the year (2020 - $nil). A 50 basis point increase in interest
rates would increase interest income by $2.2 million (2020 - increase interest income by $1.2 million). These
amounts are determined by considering the impact of the interest rates on the Company’s loans and borrowings
and cash and cash equivalents balances as at December 31, 2021.
47
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
28. Financial instruments and risk management (continued)
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 fulfil their financial obligations.
This risk is mitigated through financial arrangements such as cash in advance of shipment, letters of credit or bank
or parental guarantees. In addition, the Company purchases Accounts Receivables insurance for our global
customer base, who are not covered by other financial arrangements. This process, in conjunction with an
established credit limit and payment term, mitigates the Company’s risk of loss. The financial arrangements,
insurance policies and customer credit limits are reviewed each year.
As at December 31, 2021, approximately 52.0% (2020 - 44.8%) of the Company’s trade receivables are due from
three major retail customers which represent approximately 52.6% of gross product sales for the year ended
December 31, 2021 (2020 - 50.3%).
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.
The Company's contractual maturities are as follows:
As at December 31, 2021
< 1 year
1-5 years
> 5 years
Total
Trade payables and accrued liabilities
476.4
476.4
—
—
—
—
476.4
476.4
As at December 31, 2020
< 1 year
1-5 years
> 5 years
Total
Trade payables and accrued liabilities
314.4
314.4
—
—
—
—
314.4
314.4
Financing facilities
(US$ millions)
Bank loan facilities
Amount undrawn
Bank loan facilities
Fair value measurements
Dec 31,
2021
534.9
534.9
Dec 31,
2020
536.2
536.2
The following table presents the fair value of financial assets and financial liabilities. The carrying values of the
Company’s financial instruments approximate their fair values with the exception of foreign exchange forward
contracts, Investment in a limited partnership and Minority interest investments which are recorded at fair value.
48
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
28. Financial instruments and risk management (continued)
(US$ millions)
Financial assets
Cash and cash equivalents
Trade receivables
Other receivables
Deposit related to acquisition of Rubik's
Investment in a limited partnership
Minority interest investments
Investment tax credits - non-current portion
Financial assets
Financial liabilities
Trade payables and accrued liabilities
Financial liabilities
Dec 31,
2021
Dec 31,
2020
562.7
327.9
66.7
—
3.9
2.4
2.7
320.6
277.2
59.2
3.0
3.0
—
2.2
966.3
665.2
476.4
476.4
314.4
314.4
With the exception of foreign exchange forward contracts, Investment in a limited partnership and Minority interest
investments described below, all other financial instruments are categorized within Level 1 of the fair value
hierarchy.
The fair value of foreign exchange forward contracts at December 31, 2021 resulted in an unrealized gain of $3.4
million, which is recorded in other receivables (2020 - $3.7 million) and an unrealized loss of $1.0 million recorded
in accrued liabilities (2020 - $7.2 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.
The fair value of the investment in a limited partnership as at December 31, 2021 is recorded in other assets at $3.9
million (2020 - $3.0 million) with a net unrealized gain for the year ended December 31, 2021 recognized in Other
expenses, net in the Consolidated statements of earnings and comprehensive income of $0.9 million (2020 - $nil),
respectively. This fair value is categorized within Level 3 of the fair value hierarchy. The fair value of the investment
in a limited partnership is estimated using various valuations techniques through the partnership based on the type
of investment held by the fund. The quantitative unobservable inputs used in the fair value measurement are not
developed by the Company and include assumptions regarding long-term revenue growth rates and discount rates,
among others.
The fair value of the minority interest investments recorded in other assets are as follows:
(US$ millions)
Hoot Reading
Nørdlight
Minority interest investments
Dec 31,
Dec 31,
2021
2020
1.8
0.6
2.4
—
—
—
There were no gains or losses recognized for the year ended December 31, 2021 recognized in Other expenses,
net in the Consolidated statements of earnings and comprehensive income for these minority interest investments.
These investments are categorized within Level 3 of the fair value hierarchy. The fair value of these investments is
estimated using various valuation techniques. The quantitative unobservable inputs used in the fair value
measurement are not developed by the Company, and include assumptions regarding long-term revenue growth
rates and discount rates, among others.
49
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
29.
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 four major product categories as follows:
(i) Preschool and Dolls & Interactive
(ii) Activities, Games & Puzzles and Plush
(iii) Wheels & Action
(iv) Outdoor
In the fourth quarter of 2021, the "Preschool and Girls" product category was renamed "Preschool and Dolls &
Interactive" and the "Boys" product category was renamed "Wheels & Action".
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, and all other
areas of the world serviced by the Company’s third party distribution network.
Segment revenue and results
The Company’s revenue 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
Toy revenue
Entertainment and Licensing revenue
Digital Games revenue
Revenue
Segment income before tax expense (recovery)
North America
Europe
Rest of World
Total segment income before tax expense (recovery)
Corporate and other
Income before income tax expense (recovery)
Year Ended Dec 31,
2021
2020
1,197.3
530.7
234.4
983.4
451.0
189.3
1,962.4
1,623.7
(230.6)
(208.1)
1,731.8
1,415.6
135.8
174.8
78.2
76.8
2,042.4
1,570.6
195.9
46.1
32.5
274.5
(12.5)
262.0
(12.1)
17.2
—
5.1
4.3
9.4
Revenues for North America include revenues attributable to Canada of $162.8 million (2020 - $127.3 million) for
the year ended December 31, 2021.
Revenue reported by segment above represents revenue generated from external customers. There were no inter-
segment sales in the current year (2020 - $nil).
50
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
29.
Segment information (continued)
The accounting policies of the reportable segments are the same as the Company’s accounting policies described
in Note 2. This measure is reported to the CODM for the purposes of resource allocation and assessment of
segment performance.
Segment assets
(US$ 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)
Non-current assets
North America
Europe
Rest of World
Total segment non-current assets
Corporate and other
Total non-current assets
Dec 31,
2021
1,162.6
307.0
118.5
1,588.1
148.6
1,736.7
Dec 31,
2020
971.4
217.6
111.3
1,300.3
41.8
1,342.1
Dec 31,
2021
Dec 31,
2020
388.9
83.2
18.6
490.7
126.3
617.0
429.3
33.2
19.9
482.4
73.3
555.7
Non-current assets for North America include assets attributable to Canada of $134.5 million as at December 31,
2021 (December 31, 2020 - $139.3 million).
Segment liabilities
(US$ millions)
North America
Europe
Rest of World
Total segment liabilities
Corporate and other
Total liabilities
Dec 31,
2021
492.8
110.3
48.9
652.0
32.3
684.3
Dec 31,
2020
410.7
84.9
39.4
535.0
(35.8)
499.2
51
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
29.
Segment information (continued)
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.
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
Year Ended Dec 31,
2021
61.6
7.0
10.9
79.5
2020
66.8
5.3
6.6
78.7
Year Ended Dec 31,
2021
92.0
10.9
4.7
107.6
4.3
111.9
2020
82.3
11.4
4.7
98.4
4.6
103.0
The Company recorded impairments of $3.5 million (2020 - $0.4 million) in North America and $1.0 million (2020 -
$0.5 million) in Europe.
Revenue from major product categories
The Company’s revenues based on its major product categories are as follows:
(US$ millions)
Preschool and Dolls & Interactive
Activities, Games & Puzzles and Plush
Wheels & Action
Outdoor
Gross product sales
Sales allowances
Toy revenue
Entertainment and Licensing revenue
Digital Games revenue
Revenue
Year Ended Dec 31,
2021
809.6
587.8
445.6
119.4
2020
609.5
534.8
388.3
91.1
1,962.4
1,623.7
(230.6)
(208.1)
1,731.8
1,415.6
135.8
174.8
78.2
76.8
2,042.4
1,570.6
52
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2021 and December 31, 2020
29.
Segment information (continued)
Major customers
Sales to the Company's three largest customers accounted for 52.6% (2020 - 50.3%) of gross product sales for the
year ended December 31, 2021. 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,
2021 (2020 - $nil).
(US$ millions)
Gross product sales
Customer 1
Customer 2
Customer 3
Total
30.
Prior year comparatives
Year Ended Dec 31,
2021
2020
423.9
346.6
261.2
1,031.7
363.1
273.1
180.2
816.4
Certain prior year comparatives have been reclassified to conform with current year presentation.
53
Corporate
Directory
Board of Directors
Senior Management
Ronnen Harary
Chair & Co-Founder
Anton Rabie
Director & Co-Founder
Ed Clark C.M.
Deputy Chair
Charles Winograd
Lead Director
Jeffrey I. Cohen
Director
Reggie Fils-Aimé
Director
Kevin Glass
Director
Dina Howell
Director
Christina Miller
Director
Max Rangel
Director, Global President &
Chief Executive Officer
Todd Tappin
Director
Ben Varadi
Director, Executive Vice President &
Chief Creative Officer
Max Rangel
Global President &
Chief Executive Officer
Mark L. Segal
Executive Vice President &
Chief Financial Officer
Chris Beardall
President, Toys
Jennifer Dodge
President, Entertainment
Fredrick Loving
President, Digital Games
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 Varadi
Director, Executive Vice President &
Chief Creative Officer
Head Office
225 King Street West, Suite 200
Toronto, ON M5V 3M2
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
Registrar & Transfer Agent
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 5, 2022
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