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REIMAGINE EVERYDAY PLAY
2022 ANNUAL REPORT SPIN MASTER CORP.
ABOUT SPIN MASTER
It started with a few grass seeds and an
idea, providing the launchpad to become an
internationally renowned toy innovator. From
disrupting the sandbox with innovative toys,
Spin Master expanded to the small screen
with its first TV show. Then, we levelled up
to the mobile screen, acquiring two digital
game studios to create a trifecta of Toys,
Entertainment and Digital Games.
Today, Spin Master is a leading children’s
entertainment company. With three thriving
creative centres and a roster of amazing
brands, we inspire magical play experiences
for kids and their families around the world,
every day.
We continue to pursue our long-term strategy
of leveraging our intellectual property across
all three creative centres, growing our global
footprint, making meaningful acquisitions and
delivering magical experiences for children
and their families.
Max Rangel, Global President & CEO
Financial Highlights 1
| Company Overview 2
| Corporate Strategy 3
Letter to Shareholders 4
| Corporate Social Responsibility 8
| 2022 Financial Review 10
This Annual Report is intended to provide shareholders and other interested persons with information concerning Spin Master Corp. (the “Company”). 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. For the convenience of readers, portions of
this Annual Report may be extracted and made available separately as standalone documents. However, in all cases, such extracts should be considered to be
part of this Annual Report as a whole. All figures mentioned in this report are in U.S. dollars, in millions, and as of December 31, 2022, unless otherwise noted.
Financial Highlights
Revenue
2018
2019
2020
2021
2022
Toy Gross Product Sales1
$1,632
$1,582
$1,571
$2,042
$2,020
2018
2019
2020
2021
2022
Net Income2
Adjusted Net Income1,2
2018
2019
2020
2021
2022
$155
$64
$46
2018
2019
2020
2021
2022
$199
$261
$164
$93
$53
$1,708
$1,691
$1,624
$1,962
$1,979
$221
$244
Adjusted EBITDA1,2
Adjusted EBITDA Margin1,2
2018
2019
2020
2021
2022
$304
$219
$181
$414
$389
2018
2019
2020
2021
2022
13.8%
11.5%
18.6%
20.3%
19.3%
Cash Provided by Operating Activities
Free Cash Flow1
2018
2019
2020
2021
2022
$193
$98
$311
$419
$249
2018
2019
$5
2020
2021
2022
$110
$150
$232
$340
$2,020M
Revenue
$261M
Net Income2
$389M
Adjusted EBITDA1,2
$1,979M
Toy Gross
Product Sales1
$244M
Adjusted Net
Income1,2
$19.3%
Adjusted EBITDA
Margin1,2
$249M
Cash Provided by
Operating Activities
$150M
Free Cash Flow1
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 March 8, 2023 for the three months and year ended December 31, 2022 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 which is incorporated by reference herein. The 2022, 2021 and 2020 reconciliations of
Adjusted Net Income and Adjusted EBITDA are included on page 71, Free Cash Flow on page 73 and Toy Gross Product Sales on page 75. 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. 2022 Annual Report
Spin Master Corp. 2022 Annual Report
| 1
| 1
Company Overview
REIMAGINING EVERYDAY PLAY
At Spin Master, we find ideas and develop new concepts, compelling stories and innovative
experiences to surprise and delight kids and their families globally. We are wherever children
play and understand these moments in kids’ lives better than anyone. Our understanding of play
allows us to anticipate how kids’ activity patterns are evolving, and we leverage our rich insights
to deliver memorable experiences across physical and digital worlds.
CREATIVE CENTRES
Toys
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.
Preschool, Dolls & Interactive
Wheels & Action
Activities, Games & Puzzles and Plush
Outdoor
Entertainment
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.
Digital Games
Spin Master 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.
2
| Spin Master Corp. 2022 Annual Report
CORPORATE STRATEGY
TOYS
ENTERTAINMENT
DIGITAL GAMES
Be a global leader in Toys by
creating play experiences that
spark creativity and imagination
in kids and families globally.
Be a leading global creator of
children’s entertainment, igniting
imaginations and deep character
connections.
Create exceptional digital
play experiences for kids of
all ages around the world.
I
N
O
S
V
I
• Build and expand core portfolio
• Build new franchises
• Drive Spin Master franchises
• Expand PAW Patrol universe
S
E
I
G
E
T
A
R
T
S
• Build licensed partner portfolio
• Expand existing partnerships
• Expand geographic & retail
footprint
• Pursue strategic Mergers &
Acquisitions (“M&A”) and Ventures
• Accelerate new content for
direct to audience platforms
• Expand Licensing & Merchandising
• Pursue strategic M&A and Ventures
• Leverage Spin Master IP and
rapidly prototype new digital games
• Deepen consumer insights to
create robust player ecosystems
• Expand digital games portfolio
to capture kids of all ages
• Pursue strategic M&A and Ventures
Enterprise Shared Capabilities
Franchise &
Brand Development
Develop brands’ DNA
anchored in target
audience, understanding
and insights, creating
aspirational and distinctive
brand promises that
enable evergreen, timeless
franchises
Consumer and
Parent Data &
Insights
Put the customer at
the heart of everything
we do – centralizing
our insights to build
next-generation
know-how
Licensing &
Merchandising
Broaden scope of
IP extension efforts
beyond toy properties
to all creative centres,
creating must-have
consumer products
Omni-Channel
Digital Engagement
& Commerce
Accelerate global
digital innovation,
creating seamless,
personalized and
targeted omni-channel
experiences
Mergers &
Acquisitions
Acquire new brands
and companies
with greater speed,
collaboration and
coordination
Spin Master Corp. 2022 Annual Report
| 3
Letter to
Shareholders
Fellow Shareholders,
Innovation, creativity and imagination are at the heart of our vision across our
three creative centres – Toys, Entertainment and Digital Games – as we reimagine
everyday play. We remain focused on this vision to drive future growth and
profitability. In 2022, despite being faced with external market pressures, we grew
our Revenue and Constant Currency Toy Gross Product Sales1, a positive result in
difficult economic circumstances.
From a creative centre perspective, Toys had
an exceptionally strong first half, building on
the positive momentum from 2021 and driven
by retailers bringing in toys earlier in the year to
minimize anticipated supply chain disruptions in
the fall. Toy revenue in the second half was
pressured by changes in the macroeconomic
environment, including inflationary pressure and
higher interest rates. These factors resulted in
reduced discretionary spending and lowered
demand, having an adverse effect on the launch
of new products. This was further compounded
by foreign exchange volatility. While historically
more resilient during recessionary environments,
the toy industry was impacted, ultimately resulting
in a carry-over of inventory at retail at the end of
2022. Nevertheless, we grew Constant Currency Toy
Gross Product Sales1 by 3.5%, driven by the growth
of core brands Rubik’s Cube and Tech Deck™, and
our strong license portfolio, including Gabby’s
Dollhouse™ and Monster Jam®. Over the past few
years, we have significantly expanded our licensed
toy portfolio, bringing in popular entertainment
franchises with built-in fan bases. Our licensed
business has grown 86%2 since 2019 and now
comprises 31%2 of our point-of-sale (POS) compared
to 19%2 in 2019, reflecting how we’ve become a
partner of choice for some of the biggest licensors.
In Entertainment, we grew our content development
and licensing and merchandising programs. In
addition to continuing to create PAW Patrol content,
we launched two new properties: Sago Mini Friends™
on Apple TV+, marking the first cross-creative centre
collaboration with our Digital Games creative centre;
and we started delivery of Rubble & Crew™, our first
PAW Patrol spinoff series, airing on Nick Jr. We also
have two entirely new series launching in 2023, Vida
the Vet™ and Unicorn Academy™, as well as a second
feature film for our PAW Patrol franchise, Paw Patrol:
The Mighty Movie™, which will debut in theatres
September 2023 in association with Nickelodeon
Movies and distributed by Paramount Pictures.
Our Digital Games creative centre, lapping
unprecedented growth during the pandemic,
experienced a slight revenue decline in 2022.
Despite this decline, we retained player engagement
with 58 million monthly active users (MAU) in Toca
Life World™ and just under 300,000 subscribers in
Sago Mini.3 We acquired Nørdlight Games AB during
the year to expand our digital games ecosystem,
levelling up for exciting future digital experiences.
In 2023, we are launching new digital games,
including one for Rubik’s Cube, our first entry
into the casual gaming genre, and PAW
Patrol Academy™, timed to launch with
the second PAW Patrol movie.
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
March 8, 2023 for the three months and year ended December 31, 2022 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 which is incorporated by reference
herein. The reconciliation of Toy Gross Product Sales is included on page 75 and Constant Currency
Toy Gross Product Sales is included on page 76. The MD&A is available at www.sedar.com.
2. Sourcing: Circana Group/Retail Tracking Service/G11/Excl. Brazil, Russia/Projected USD/2022.
3. As at December 31, 2022.
4
| Spin Master Corp. 2022 Annual Report
Toys, Entertainment and Digital Games
each have a distinct and interrelated
role to play in driving us forward. We
continue to pursue our long-term
strategy of leveraging our intellectual
property across all three creative centres,
growing our global footprint, making
meaningful acquisitions and delivering
magical experiences for children and
their families.
Toys:
Building Everlasting Brands
With innovation at the core, our Toys
creative centre is focused on delivering
play experiences that spark creativity
and imagination. In 2022, we continued
to enhance our portfolio, growing
recently launched brands such as
Purse Pets™ and expanding our core
properties with new play experiences
within Kinetic Sand, Hatchimals and
Bakugan. Our preschool franchise PAW
Patrol, which remains the top1 preschool
property globally in the Infant/Toddler/
Preschool (ITPS) Category, introduced
new toy themes as excitement mounted
for what’s to come in 2023: the
franchise’s 10-year anniversary. We also
demonstrated Spin Master’s innovation
capability with the iconic Rubik’s brand
through the development of the Rubik’s
Phantom™, a Rubik’s Cube that features
thermochromic technology, which
quickly sold out. All of our efforts resulted
in Spin Master ending the year as the
#41 toy manufacturer globally, up from
#51 in 2021.
Spin Master toys held seven top-selling
items in their respective classes, among
them Rubik’s Cube 3x3 (Brainteasers),
Purse Pets (Fashion Roleplay & Dress up),
Tech Deck 96mm Fingerboard Assortment
(Finger/Extreme Vehicle/Accessories)
and Kinetic Sand 2lb Color Assortment
(Reusable Compounds), and most notably
Gabby’s Dollhouse Purrfect Playset™,
which was the #1 selling toy in the U.S. for
the ITPS Super Category.1
Our deep licensing partnerships with
Universal Brand Development and Feld
Entertainment exemplify Spin Master’s
expertise in applying innovation to
beloved licensed brands. Our licensed
portfolio POS was up 36%1 for 2022
over the prior year in the U.S., primarily
driven by Gabby’s Dollhouse, Wizarding
World® and Monster Jam. Our trusted
stewardship and ability to innovate
earned us two additional licenses for
2023: global master toy licensee for
Disney’s new animated series Firebuds™
and Sony Interactive Media’s PlayStation®
brand and titles, entrusting us to deliver
innovation to their fanbases.
As part of our long-term growth strategy,
we’re focused on finding companies
with strong IP to acquire that will further
expand our presence in key categories
of play, as well as broaden our reach and
connection with consumers globally.
We announced three acquisitions of
IP in 2022: 4D Brands, an innovative
disruptor in puzzle model construction;
the independent game studio SolidRoots;
and HEXBUG®, a line of creatures and
playsets featuring robotic technology.
International expansion is a core
growth strategy for Spin Master, and
we expanded our global footprint with
the establishment of direct operations
in Spain, where we began to sell directly
to leading Spanish retailers in early
2022. As a result of increasing global
geo-political tensions due to the Russia/
Ukraine conflict, we ceased all business
operations in Russia and closed our office
in the country in mid-2022.
Entertainment:
A Catalyst for Franchises
With proven success and expertise
in children’s programming, our
Entertainment creative centre is focused
on igniting imaginations and developing
deep character connections to serve
as a catalyst for growth and innovation
in Toys and Digital Games – ultimately
creating evergreen franchises.
In 2022, the Entertainment creative
centre announced an impressive
content pipeline, planting the seed for
new franchises including our first major
collaboration between the Digital Games
and Entertainment creative centres.
Leveraging the award-winning Sago
Mini app, our entertainment team further
brought the characters to life, delving
into their stories and reaching kids in
an all-new format and platform for
Apple TV+.
1. Sourcing: Circana Group/Retail Tracking Service/G11/Excl. Brazil, Russia/Projected USD/2022.
PAW Patrol continues to reign as one
of the top-ranked preschool properties.
The 2021 debut of the pups’ first feature
film delivered more than $150 million
in global box office, and momentum
continued throughout 2022, with fresh
new content and themes engaging
preschoolers globally. 2023 marks the
franchise’s 10th anniversary, a huge
feat that will be celebrated with a
second feature film and spinoff series,
Rubble & Crew. The new series features
fan-favourite pup Rubble and his
family of builders with new characters
and exciting adventures that lean into
construction play patterns – opening the
PAW Patrol world to a whole new way to
play starting in February 2023.
Capitalizing on our proven success in the
preschool space, we announced a new
animated series, Vida the Vet, launching
in fall 2023. With beautiful 2D artwork
and engaging stories infused with a
sense of play, the property will extend
across all aspects of children’s lives with
a global franchise rollout starting in 2024
with toys and continuing with consumer
products, cross-category licensing and
other partnerships. We also announced
the launch of a new fantasy-adventure
franchise: Unicorn Academy. Beginning
with a new series on Netflix in fall 2023,
Unicorn Academy will see us deliver
fully branded experiences across Toys,
Entertainment and Digital Games as
part of our strategic vision to build
new franchises. Kids will be enchanted
by the immersive entertainment
experience of this magical series that
will incite a robust consumer product
offering including new licensing and
merchandising opportunities.
By creating entertainment franchises
that ignite and inspire new fans, we are
activating a growing consumer products
enterprise. With fresh new properties,
our licensing and merchandising
opportunities will bring the characters
that kids love to multiple touchpoints in
their lives through worldwide strategic
partnerships and promotions.
Spin Master Corp. 2022 Annual Report
| 5
Digital Games:
Expanding Ecosystems
Over the past two years our Digital
Games creative centre experienced
explosive growth, sparked by a
combination of our award-winning
content converging with pandemic-
related circumstances that saw major
increases in screen time. In the second
half of 2022, the environment started to
normalize as kids went back to school
and began to spend more time outdoors.
Our approach remains consistent as
we focus on creating exceptional play
experiences for our existing digital
games led by Toca Life World and Sago
Mini, while expanding our mobile digital
games ecosystem to leverage our
portfolio of IP.
The establishment of our in-house game
studio Noid in Sweden in 2021, and our
recent acquisitions of game studios
Originator Inc. in 2021 and Nørdlight
Games AB in 2022, strengthen our
capabilities to develop and build new
digital games. Our Nørdlight team, based
in Stockholm, is developing the world-
famous Rubik’s brand into the casual
gaming space with a mobile game set to
launch in 2023. We are also developing
a new PAW Patrol mobile game that will
launch in conjunction with the second
movie in September 2023. With San
Francisco-based Originator studio at the
helm, the PAW Patrol Academy game will
invite preschoolers to join missions and
games with content designed to blend
story and interactivity with educational
and emotional learning.
These new digital experiences for
beloved brands will allow us to expand
our digital games ecosystem, engaging
with existing fans in new ways and
welcoming new audiences.
Capital Allocation Strategy
We have the capital to pursue
opportunities and to continue to drive
growth. As a company we have a strong
focus on cash flow generation and we
continue to assess how to allocate cash
in the most effective manner, balancing
capital allocation between internal
investments across creative centres,
towards M&A and to shareholders.
6
| Spin Master Corp. 2022 Annual Report
Spin Master creates magical play experiences
for children and their families. We foster an
inclusive culture, empower children to grow
and learn through play while acting as
responsible custodians of the world these
children will one day inherit.
We were pleased to announce
two significant developments for
shareholders with the establishment
of a quarterly dividend, the first of
which was declared in Q3 2022, and
we announced a Normal Course Issuer
Bid (NCIB) as we continue to focus on a
total return mindset to drive long-term
shareholder value.
Acquisitions
Between 2022 and early 2023, we
announced four strategic acquisitions
that include strong brands that we can
innovate and grow globally and bolster
our studio capabilities in the digital
games space.
Following an initial investment from
Spin Master Ventures, in August 2022,
we acquired Nørdlight Games AB, a
digital games studio in Stockholm,
Sweden. This acquisition supports our
plan to grow digital games revenue and
acquire key talent, as well as our strategy
to leverage our proprietary IP across all
three creative centres.
We further diversified our Games &
Puzzles offering in 2022 with two
acquisitions. In August, we purchased IP
from Oklahoma-based SolidRoots, LLC, a
creator of family board games including
the popular game Mind the Gap™. And,
early in 2023, we acquired 4D puzzles
from Toronto-based 4D Brands, opening
up new opportunities to inject innovation
into our puzzle portfolio, with new form
factors and licenses.
Finally, within the Toys creative centre we
announced the purchase of the HEXBUG
brand from Texas-based Innovation First
International, Inc, which will strengthen
our robotic toy offering. This acquisition
marked our 28th since Spin Master was
founded in 1994 and the 18th since our
public offering in 2015. We continue to
look for accretive acquisition targets to
further diversify our overall portfolio,
stay on the leading edge of children’s
entertainment and drive growth.
Spin Master Ventures
We continue to build on our capital
deployment options with our Ventures
strategic initiative, which we use to
accelerate growth within our three
creative centres. Against the backdrop
of a rapidly changing children’s
entertainment space, we made several
strategic minority investments in start-
ups and early-stage companies with
promising ideas through an infusion of
seed or growth capital.
These investments are expected to
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.
Corporate Social Responsibility
We began our corporate social
responsibility (CSR) journey in 2019 and
are incredibly proud of the progress we’ve
made since. In addition to expanding our
efforts, we’ve increased transparency,
added new targets and enhanced
governance. As we’ve advanced our
work, we’ve taken the opportunity to
refine our CSR vision to: Reimagine Play
for Future Generations. This new vision
ladders into our corporate strategy and
reflects the maturity of our commitments
within our four key areas of focus: our
products, our people, our communities
and our environment.
Grounded in the belief that all children
deserve the opportunity to grow, learn
and explore through play, we partnered
with leading children’s charities to
deliver programming to help kids tap
into their own creativity and develop
new skills. From teaching students to
solve the Rubik’s Cube to challenging
kids to develop their own inventions,
we are inspiring and enabling kids to
become the next generation of inventors,
artists, animators and developers. In
2022, we extended our reach, donating
more than 450,000 toys to children on
a global scale through initiatives like
The Toy Movement and our signature
Caring & Sharing events. Collectively,
our philanthropy programs positively
impacted 610,000 children, made
possible through the generosity of our
employees, who recorded more than
5,000 volunteer hours this past year.
Intertwined with our commitment to
the well-being of children is a sense
of responsibility to ensure that we
protect the world that they will one day
inherit. We have developed our first-
ever climate action plan designed to
reduce our carbon footprint and overall
impact on the environment. We have
set targets to reduce our Scope 1 and 2
carbon emissions by 70% by 2030 and
to achieve net zero by 2050. Our product
development and packaging teams have
also been hard at work reducing our
use of virgin plastic and incorporating
sustainable design into our toy portfolio,
and in 2022, we launched seven new
toys, including a 100% recycled Baby
GUND line. More information regarding
our progress can be found in our 2022
CSR Report.
Looking Forward
We expect the macroeconomic
environment to be challenging in 2023
and are taking actions to ensure we
position Spin Master to continue to thrive.
We remain very excited about our growth
prospects for 2023 and beyond. This
entails expanding our core toy portfolio
with innovation, driving our global
franchises and building our licensed
partner portfolio. We continue to invest
in our diversified entertainment slate
with exciting premieres in 2023, which
is planned to be our biggest year ever for
content releases and which will establish
multiple franchise platforms for 2024 and
beyond. Building on our existing digital
games, and with the introduction of new
digital games experiences, we expect to
attract new fans to join our established
and highly engaged user base. We
continue to seek accretive acquisition
and venture opportunities and balance
investments designed to deliver on
our long-term business strategy, while
also effectively managing our costs
and navigating retailer and consumer
dynamics to deliver profitable growth
and long-term shareholder value.
On behalf of the Board of Directors and
management, we thank our talented
team members globally for their
contributions in 2022. As we begin 2023,
we see even greater potential to create
and engage with kids and families as
we reimagine everyday play across
Toys, Entertainment and Digital
Games. We look forward to creating
a long-lasting legacy for Spin Master
as the global leader in the children’s
entertainment industry.
Ronnen Harary
Chair & Co-Founder
Anton Rabie
Director & Co-Founder
Max Rangel
Global President & CEO
Ronnen Harary
Chair & Co-Founder
Anton Rabie
Director & Co-Founder
Max Rangel
Global President & CEO
Spin Master Corp. 2022 Annual Report
| 7
CSR at Spin Master
CSR VISION
Spin Master creates magical play experiences for children and
their families. We foster an inclusive culture, empower children
to grow and learn through play while acting as responsible
custodians of the world these children will one day inherit.
CSR STRATEGIC FOCUS AREAS
OUR PRODUCTS
As a leading children’s entertainment company,
we are committed to producing safe, high-quality
and responsibly sourced products. We are striving
to incorporate responsible product materials and
packaging to provide consumers with more
sustainable options.
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 in-kind
donations, investments in educational programming,
local community engagement and employee
volunteerism, we are helping children harness
their creativity and develop skills to achieve
things they thought unimaginable.
OUR ENVIRONMENT
We are committed to minimizing the impact
of our operations on the planet to ensure we
protect the world for children and families
today and for generations to come.
8
| Spin Master Corp. 2022 Annual Report
2022 Performance
PRODUCTS
COMMUNITY
214M
toys and games
produced
7
sustainably
designed toys
released
Zero
recalls in over
15 years
99.2%
of manufacturing
facilities underwent
an IETP/Ethical Toy
Program audit, or
equivalent
$3.01M
in cash donations1
610,000
children positively impacted
through our philanthropy efforts
450,000
toys donated
5,000+
employee volunteer hours
PEOPLE
ENVIRONMENT
87%
of employees
indicated they are
proud to work at
Spin Master
98%
gender pay equity
achieved
60%
reduction in Scope 1
and 2 emissions
(from 20192)
63%
reduction in waste
from owned and
leased facilities
(from 20202)
50/50
female/male employee ratio
1. Cash donations include monetary contributions to registered charities, cost of goods of donated products and direct operational costs associated with donations.
2. Subject to external verification.
Spin Master Corp. 2022 Annual Report
| 9
2022
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
10
| Spin Master Corp. 2022 Annual Report
Spin Master Corp.
Management's Discussion and Analysis of Financial Results
For the three months and year ended December 31, 2022
TABLE OF CONTENTS
INTRODUCTION .........................................................................................................................................................
BASIS OF PRESENTATION ....................................................................................................................................
BUSINESS OVERVIEW .............................................................................................................................................
FINANCIAL PERFORMANCE ..................................................................................................................................
CONSOLIDATED RESULTS ...........................................................................................................................................
SEGMENTED RESULTS ..................................................................................................................................................
INVESTMENTS AND ACQUISITIONS ...................................................................................................................
SELECTED QUARTERLY FINANCIAL INFORMATION ....................................................................................
LIQUIDITY AND CAPITAL RESOURCES .............................................................................................................
CASH FLOW ...............................................................................................................................................................
OUTLOOK ....................................................................................................................................................................
CONTRACTUAL OBLIGATIONS & COMMITMENTS .........................................................................................
OFF-BALANCE SHEET ARRANGEMENTS .........................................................................................................
CAPITALIZATION ......................................................................................................................................................
RISKS RELATING TO SPIN MASTER'S BUSINESS .........................................................................................
FINANCIAL RISK MANAGEMENT .........................................................................................................................
RELATED PARTY TRANSACTIONS .....................................................................................................................
CRITICAL ACCOUNTING ESTIMATES .................................................................................................................
FINANCIAL INSTRUMENTS ....................................................................................................................................
DISCLOSURE CONTROLS AND PROCEDURES ...............................................................................................
INTERNAL CONTROL OVER FINANCIAL REPORTING ..................................................................................
LIMITATIONS OF AN INTERNAL CONTROL SYSTEM .....................................................................................
NON-GAAP FINANCIAL MEASURES AND RATIOS .........................................................................................
ADDENDUM ................................................................................................................................................................
FORWARD-LOOKING STATEMENTS ..................................................................................................................
1
1
1
7
7
16
29
32
33
35
39
39
39
39
40
62
62
62
64
66
66
66
67
77
79
March 8, 2023
INTRODUCTION
The following Management’s Discussion and Analysis (“MD&A”) for Spin Master Corp. and its subsidiaries
(“Spin Master” or the “Company”) is dated March 8, 2023 and provides information concerning the Company’s
financial condition, financial performance and cash flows for the year ended December 31, 2022 and the three
months ended December 31, 2022, (“fourth quarter”, “the quarter”, “Q4”). This MD&A should be read in
conjunction with the Company’s audited Consolidated financial statements and accompanying notes (“annual
financial statements”) for the year ended December 31, 2022, as well as its Annual Information Form ("AIF")
dated March 25, 2022. 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 annual 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 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.
1
Segment information
Effective January 1, 2022, the Company revised its reportable operating segments to align with its current
business structure and how the Company’s new Chief Operating Decision Maker (“CODM”) reviews operations
and makes decisions.
The Company has three reportable operating segments: Toys, Entertainment and Digital Games.
Toys
The Toys segment engages in the creation, design, manufacturing, licensing, and marketing of consumer
products. Spin Master’s Toys segment is organized into four product categories: (1) Activities, Games &
Puzzles and Plush; (2) Wheels & Action; (3) Outdoor; and (4) Preschool and Dolls & Interactive and are sold in
three geographic regions: (1) North America, (2) Europe and (3) Rest of World.
Entertainment
The Entertainment segment engages in the creation, development, production and distribution of multi-platform
content for children and families around the world. The Entertainment segment also licenses Spin Master’s
brands for use in non-toy consumer products, including apparel and other consumer goods, publishing, and live
entertainment.
Digital Games
The Digital Games segment engages in the creation of digital play experiences for players globally. Digital
Games develops, markets and delivers digital games, which are distributed via third-party platform providers
and monetized through subscriptions or in-app purchases.
Corporate & Other
Corporate & Other includes certain corporate costs, foreign exchange and merger and acquisition-related
costs, as well as fair value gains and losses and distribution income on minority investments.
2
Strategy
Spin Master’s principal strategies to drive the Company’s continued growth include:
1
Toys
Entertainment
Digital Games
Vision
Be a global leader in Toys
by creating play
experiences that spark
creativity and imagination
in kids and families
globally
Be a leading global
creator of children’s
entertainment, igniting
imaginations and deep
character connections
Create exceptional digital
play experiences for kids
of all ages around the
world
Primary Role
Provide a stable base of
Revenue/Adjusted
EBITDA1/Free Cash Flow1
to build brands & innovate
Create content and build
evergreen franchises that
kids love, across physical
and digital platforms
Create digital games and
play-to-learn platforms
using both new and
existing IP
Key Strategic Focus
Enterprise Shared
Capabilities
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Build and expand
core portfolio
Drive Spin Master
franchises
Build licensed partner
portfolio
Expand existing
partnerships
Expand geographic &
retail footprint
Pursue strategic
Mergers &
Acquisitions and
Ventures
Build new franchises
Expand PAW Patrol
Universe
Accelerate new
content for direct to
audience platforms
Expand Licensing &
Merchandising
Pursue strategic
Mergers &
Acquisitions and
Ventures
•
•
•
•
Leverage Spin
Master IP and rapidly
prototype new digital
games
Deepen consumer
insights to create
robust player
ecosystems
Expand digital games
portfolio to capture
kids of all ages
Pursue strategic
Mergers &
Acquisitions ("M&A")
and Ventures
Grow Franchise and Brand Developments
Build Consumer and Parent Data and Insights
Expand Licensing and Merchandising
Accelerate Omni-Channel Engagement and Commerce
Pursue M&A opportunities
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
3
Selected Financial Information
The following provides selected key performance metrics of the Company for the year ended December 31,
2022 and 2021, which should be read in conjunction with the annual financial statements.
Consolidated Results
(US$ millions, except per share information)
Year Ended Dec 31
2022
2021
2020
Revenue
Operating Income
Operating Margin1
Adjusted Operating Income2
Adjusted Operating Margin2
Net Income
Adjusted Net Income2
Adjusted EBITDA2
Adjusted EBITDA Margin2
Earnings Per Share ("EPS")
Basic EPS
Diluted EPS
Adjusted Basic EPS2
Adjusted Diluted EPS2
Cash dividends declared per share (CAD)
Selected Cash Flow Data
Cash provided by operating activities
Cash used in investing activities
Free Cash Flow2
Selected Balance Sheet Data
Cash and cash equivalents
Total assets
Total liabilities
1 Operating Margin is calculated as Operating Income divided by Revenue.
2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2,020.3
343.3
2,042.4
272.2
17.0 %
321.2
15.9 %
261.3
244.3
389.4
13.3 %
302.2
14.8 %
198.6
221.3
414.1
1,570.6
21.5
1.4 %
77.6
4.9 %
45.5
53.4
180.6
19.3 %
20.3 %
11.5 %
2.54
2.45
2.37
2.30
0.12
249.3
(109.2)
149.9
Dec 31,
2022
644.3
1,792.5
550.0
1.94
1.89
2.16
2.10
—
419.1
(153.2)
339.6
Dec 31,
2021
562.7
1,736.7
684.3
0.45
0.44
0.52
0.51
—
310.8
(84.9)
232.1
Dec 31
2020
320.6
1,342.1
499.2
4
Executive Summary for the year ended December 31, 2022 as compared to December 31, 2021
•
•
Revenue was $2,020.3 million, down 1.1% from $2,042.4 million. Constant Currency Revenue1
increased by 1.4% to $2,071.1 million from $2,042.4 million. Constant Currency Revenue excluding
PAW Patrol: The Movie Distribution Revenue1 increased by 2.7%.
The decline in Revenue was driven by decreases in Entertainment revenue of 12.5% and Digital
Games revenue of 6.2%, offset by a slight increase in Toy revenue of 0.3%.
•
•
•
•
•
• Operating Income was $343.3 million compared to $272.2 million, an increase of $71.1 million or
26.1%. Operating Margin was 17.0% compared to 13.3%. The increase in Operating Income was
primarily driven by a favourable foreign exchange gain of $61.4 million, as compared to $2.9 million.
Adjusted Operating Income1 was $321.2 million compared to $302.2 million, an increase of $19.0
million or 6.3%. Adjusted Operating Margin1 was 15.9% compared to 14.8%.
Adjusted EBITDA1 was $389.4 million compared to $414.1 million, a decrease of $24.7 million or 6.0%.
Adjusted EBITDA, excluding PAW Patrol: The Movie1 recognized in 2021 was up by $1.3 million.
Adjusted EBITDA Margin1 was 19.3% compared to 20.3%. Adjusted EBITDA Margin, excluding PAW
Patrol: The Movie Distribution Revenue1 was up by 0.1% compared to 19.2%.
During the year ended December 31, 2022, the Company acquired certain assets from SolidRoots
LLC, a creator of family board games and the Company also acquired all of the remaining shares of
Nørdlight Games AB, a digital game studio in which the Company had previously acquired a minority
interest.
Subsequent to the year end, the Company acquired certain assets of 4D Brands International Inc. on
January 17, for total purchase consideration of $20.2 million and the HEXBUG brand of toys from
Innovation First International, Inc., on February 1, for total purchase consideration of $16.0 million.
These acquisitions will be reported in the Activities, Games & Puzzles and Plush and Wheels & Action
product categories within the Toy operating segment, respectively.
During the fourth quarter of 2022, the Company, through Spin Master Ventures, acquired a minority
interest in two privately-held entities for a total of $3.5 million.
Subsequent to year end, the Company declared a quarterly dividend of 0.06 CAD per outstanding
subordinate voting share and multiple voting share in respect of the first quarter of 2023, payable April
14, 2023.
In connection with efforts to effectively manage the Company’s cost structure, in the first quarter of
2023, the Company committed to a planned reduction to its global workforce and also announced the
intention to close its manufacturing facility in Calais, France inherited through the acquisition of
Meccano in 2013. As a result, in 2023 the Company expects to incur a restructuring charge of
approximately $9.0M related to severance, employee-related costs, professional fees and closure
costs.
•
•
•
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"
5
Segmented Results
(US$ millions)
Toys
Toy Gross Product Sales2
Toy revenue
Operating Income
Operating Margin1
Adjusted EBITDA2
Adjusted EBITDA Margin2
Cash Flow
Toys capital expenditures
Balance Sheet
Moulds, dies and tools, net carrying amount
Entertainment
Entertainment revenue
Operating Income
Operating Margin1
Adjusted Operating Income2
Adjusted Operating Margin2
Cash Flow
Entertainment capital expenditures
Balance Sheet
Entertainment content development, net carrying amount
Digital Games
Digital Games revenue
Operating Income
Operating Margin1
Adjusted Operating Income2
Adjusted Operating Margin2
Cash Flow
Digital Games capital expenditures
Balance Sheet
Digital Games development, net carrying amount
1 Operating Margin is calculated as segment Operating Income divided by segment Revenue.
2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
Year Ended Dec 31
2022
2021
1,978.8
1,737.6
170.1
9.8 %
244.6
14.1 %
1,962.4
1,731.8
159.0
9.2 %
239.7
13.8 %
32.4
26.8
Dec 31
2022
Dec 31
2021
19.2
21.2
Year Ended Dec 31
2022
2021
118.8
76.7
64.6 %
79.1
66.6 %
135.8
53.4
39.3 %
55.9
41.2 %
54.9
44.0
Dec 31
2022
Dec 31
2021
64.5
27.4
Year Ended Dec 31
2022
2021
163.9
46.5
28.4 %
53.9
32.9 %
174.8
67.5
38.6 %
72.2
41.3 %
12.1
8.7
Dec 31
2022
Dec 31
2021
17.1
12.8
6
FINANCIAL PERFORMANCE
Consolidated Results
The following tables provide a summary of Spin Master’s consolidated results for the three months ended
December 31, 2022 compared to the same period in 2021:
(US$ millions)
Revenue
Cost of sales
Gross Profit
Selling, general and administrative expenses
Depreciation and amortization
Other expense, net
Foreign exchange loss (gain)
Operating (Loss) Income
Interest income
Interest expense
(Loss) Income before income tax
(recovery) expense
Income tax (recovery) expense
Net (Loss) Income
Q4 2022
Q4 2021
$ Change
% Change
465.8
233.4
232.4
237.8
7.1
6.7
4.8
(24.0)
(5.5)
3.8
(22.3)
(8.5)
(13.8)
620.5
297.2
323.3
267.4
7.9
9.6
(0.7)
39.1
(0.4)
3.5
36.0
9.5
26.5
(154.7)
(63.8)
(90.9)
(29.6)
(0.8)
(2.9)
5.5
(63.1)
(5.1)
0.3
(58.3)
(18.0)
(40.3)
(24.9) %
(21.5) %
(28.1) %
(11.1) %
(10.1) %
(30.2) %
(785.7) %
(161.4) %
1,275.0 %
8.6 %
(161.9) %
(189.5) %
(152.1) %
The following tables provide a summary of Spin Master’s consolidated results for the year ended December 31,
2022 compared to the same period in 2021:
(US$ millions)
Revenue
Cost of sales
Gross Profit
Selling, general and administrative expenses
Depreciation and amortization
Other expense, net
Foreign exchange gain
Operating Income
Interest income
Interest expense
Income before income tax expense
Income tax expense
Net Income
2022
2,020.3
916.5
1,103.8
782.1
28.9
10.9
(61.4)
343.3
(10.7)
13.6
340.4
79.1
261.3
Year Ended Dec 31
2021
$ Change
% Change
2,042.4
985.8
1,056.6
742.5
33.5
11.3
(2.9)
272.2
(1.1)
11.3
262.0
63.4
198.6
(22.1)
(69.3)
47.2
39.6
(4.6)
(0.4)
(58.5)
71.1
(9.6)
2.3
78.4
15.7
62.7
(1.1) %
(7.0) %
4.5 %
5.3 %
(13.7) %
(3.5) %
2,017.2 %
26.1 %
872.7 %
20.4 %
29.9 %
24.8 %
31.6 %
7
Revenue as compared to the same period in 2021:
The following table provides a summary of Spin Master’s revenue by segment, for the three months ended
December 31, 2022 and 2021:
(US$ millions)
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
Q4 2022
Q4 2021
$ Change
% Change
396.7
31.2
37.9
465.8
542.0
28.5
50.0
620.5
(145.3)
2.7
(12.1)
(154.7)
(26.8) %
9.5 %
(24.2) %
(24.9) %
Revenue was $465.8 million, a decrease of 24.9% from $620.5 million primarily due to a decrease in Toy
revenue of 26.8% and Digital Games revenue of 24.2%, offset by an increase in Entertainment revenue of
9.5%. Constant Currency Revenue1 was $484.2 million, a decrease of 22.0%, from $620.5 million.
Toy revenue decreased by $145.3 million or 26.8% to $396.7 million driven by a decrease in Toy Gross Product
Sales1 and an increase in Sales Allowances as a percentage of Toy Gross Product Sales1. Toy Gross Product
Sales1 decreased by $148.3 million or 23.6%, to $479.2 million from $627.5 million. Constant Currency Toy
Gross Product Sales1 decreased by $129.2 million or 20.6% to $498.3 million.
Entertainment revenue increased by $2.7 million or 9.5% to $31.2 million driven by higher distribution revenue
and licensing and merchandising revenue.
Digital Games revenue decreased by $12.1 million or 24.2% to $37.9 million. Constant Currency Digital Games
Revenue1 decreased by $9.9 million or 19.8% to $40.1 million, down from $50.0 million. The decrease was
primarily due to lower in-app revenue in Toca Life World.
The following table provides a summary of Spin Master’s revenue by segment, for the year ended
December 31, 2022 and 2021:
(US$ millions)
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
Year Ended Dec 31
2022
2021
$ Change
% Change
1,737.6
118.8
163.9
2,020.3
1,731.8
135.8
174.8
2,042.4
5.8
(17.0)
(10.9)
(22.1)
0.3 %
(12.5) %
(6.2) %
(1.1) %
Revenue was $2,020.3 million, a decline of 1.1% from $2,042.4 million driven by decreases in Entertainment
revenue and Digital Games revenue, offset by a slight increase in Toy revenue. Constant Currency Revenue1
increased by 1.4% to $2,071.1 million from $2,042.4 million. Constant Currency Revenue excluding PAW
Patrol: The Movie Distribution Revenue1 in 2021 increased by 2.7%.
Toy revenue increased by $5.8 million or 0.3% to $1,737.6 million driven by an increase in Toy Gross Product
Sales1 offset by an increase in Sales Allowances as a percentage of Toy Gross Product Sales1. Toy Gross
Product Sales1 increased by $16.4 million or 0.8%, to $1,978.8 million from $1,962.4 million. Constant Currency
Toy Gross Product Sales1 increased by $68.2 million or 3.5% to $2,030.6 million, up from $1,962.4 million.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"
8
Entertainment revenue decreased by $17.0 million or 12.5% to $118.8 million. The decline was due to lower
distribution revenue related to PAW Patrol: The Movie released in 2021, partially offset by higher licensing &
merchandising revenue.
Digital Games revenue decreased by $10.9 million or 6.2% to $163.9 million. Constant Currency Digital Games
Revenue1 decreased by $2.9 million or 1.7% to $171.9 million, down from $174.8 million. The decrease was
due to lower in-game app revenue in Toca Life World.
Gross Profit as compared to the same period in 2021:
(US$ millions)
Revenue
Gross Profit
Gross Margin
Q4 2022
Q4 2021
$ Change
% Change
465.8
232.4
49.9 %
620.5
323.3
52.1 %
(154.7)
(90.9)
(24.9) %
(28.1) %
(2.2) %
For the three months ended December 31, 2022, Gross Profit decreased by $90.9 million or 28.1% to $232.4
million, primarily driven by a 26.8% decrease in Toy Revenue and 24.2% decrease in Digital Games Revenue,
offset by a 9.5% increase in Entertainment Revenue.
Gross Margin decreased to 49.9% from 52.1% as compared to the same period in 2021, as a result of higher
Sales Allowances as a percentage of Toy Gross Product Sales1 due to markdowns, as consumers in the fourth
quarter were more price sensitive given global inflationary pressure, an increase in closeout sales and
unfavourable impact of foreign exchange. These factors were partially offset by price increases in the Toys
segment implemented to offset inflation on product costs and lower ocean freight costs.
In the fourth quarter, supply chain pressure eased compared to the prior year with greater availability of ocean
containers. The Company continues to focus on optimizing productivity and efficiency.
Gross Margin was also positively impacted by fewer Entertainment content deliveries resulting in lower
amortization.
(US$ millions)
Revenue
Gross Profit
Gross Margin
2022
2,020.3
1,103.8
Year Ended Dec 31
2021
$ Change
% Change
2,042.4
1,056.6
(22.1)
47.2
(1.1) %
4.5 %
2.9 %
54.6 %
51.7 %
For the year ended December 31, 2022, Gross Profit increased by $47.2 million or 4.5% to $1,103.8 million,
primarily driven by price increases in Toy Revenue implemented to mitigate inflation on product costs partially
offset by lower Digital Games revenue.
Gross Margin increased to 54.6% from 51.7%, as a result of changes in Toy product mix, price increases
implemented to mitigate inflation on product costs, fewer Entertainment content deliveries resulting in lower
amortization and a higher proportion of licensing and merchandising revenue. In addition, Gross Margin was
lower in the prior year due to the dilutive effect of PAW Patrol: The Movie (distribution revenue less
amortization of production costs). Gross Margin, excluding PAW Patrol: The Movie1 in 2021 was 52.3%.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"
9
Selling, General and Administrative Expenses ("SG&A") as compared to the same period in 2021:
(US$ millions)
Administrative
Selling
Marketing
Distribution
Product development
SG&A
Q4 2022
Q4 2021
$ Change % Change
91.2
33.8
83.3
20.1
9.4
103.8
(12.6)
41.3
92.0
22.9
7.4
(7.5)
(8.7)
(2.8)
2.0
237.8
267.4
(29.6)
(12.1) %
(18.2) %
(9.5) %
(12.2) %
27.0 %
(11.1) %
Administrative expenses decreased by $12.6 million or 12.1% to $91.2 million. The decrease was primarily due
to lower incentive compensation and favourable foreign exchange, partially offset by higher personnel related,
technology and travel costs. Administrative expenses as a percentage of consolidated revenue increased to
19.6% from 16.7%.
Selling expenses decreased by $7.5 million or 18.2% to $33.8 million primarily due to a decrease in sales of
partner licensed brands, as a result of an overall decline in sales in the fourth quarter. Selling expenses as a
percentage of Toy revenue increased to 8.5% from 7.6% due to the higher proportion of Toy revenue from
partner licensed brands and a shift in mix.
Marketing expenses decreased by $8.7 million or 9.5% to $83.3 million, due to lower media and commercial
production spend in response to the anticipated lower volume in the fourth quarter. Marketing expenses as a
percentage of consolidated revenue increased to 17.9% from 14.8%.
Distribution expenses decreased by $2.8 million or 12.2% to $20.1 million, primarily due to lower warehousing
and outbound transportation costs from lower domestic sales volume. Distribution expenses as a percentage of
Toy revenue increased to 5.1% from 4.2%, primarily due to fixed warehousing costs.
Product development expenses increased by $2.0 million or 27.0% to $9.4 million, due to higher development
and design spend on Toy products.
(US$ millions)
Administrative
Selling
Marketing
Distribution
Product development
SG&A
Year Ended Dec 31
2022
2021
$ Change % Change
353.8
144.2
185.1
67.9
31.1
782.1
330.3
133.8
179.7
71.3
27.4
742.5
23.5
10.4
5.4
(3.4)
3.7
39.6
7.1 %
7.8 %
3.0 %
(4.8) %
13.5 %
5.3 %
Administrative expenses increased by $23.5 million or 7.1% to $353.8 million. The increase was primarily due
to higher personnel related, travel, technology and property costs, partially offset by favourable foreign
exchange and lower incentive compensation. Administrative expenses as a percentage of consolidated
revenue increased to 17.5% from 16.2%.
Selling expenses increased by $10.4 million or 7.8% to $144.2 million and selling expenses as a percentage of
Toy revenue increased to 8.3% from 7.7%. Both Selling expenses and Selling expenses as a percentage of Toy
revenue increased due to the higher proportion of Toy revenue from partner licensed brands and a shift in mix.
Marketing expenses increased by $5.4 million or 3.0% to $185.1 million, due to higher media spend and trade
show expenses. Marketing expenses as a percentage of consolidated revenue increased to 9.2% from 8.8%.
10
Distribution expenses decreased by $3.4 million or 4.8% to $67.9 million, due to lower warehousing and
outbound transportation costs driven by lower domestic sales volume. Distribution expenses as a percentage of
Toy revenue declined to 3.9% from 4.1% driven by lower domestic sales volume.
Product development expenses increased by $3.7 million or 13.5% to $31.1 million, due to higher development
and design spend on Toy products.
Adjusted SG&A1 as compared to the same period in 2021:
(US$ millions)
Q4 2022
Q4 2021
$ Change
% Change
0.2
267.4
237.8
(29.6)
SG&A
Adjustments1:
Restructuring and other related costs2
Share based compensation3
Transaction costs4
Adjusted SG&A5
1 These adjustments relate to items recorded within Administrative expenses.
2 Restructuring and other related costs primarily relates to changes in personnel.
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 Professional fees incurred relating to acquisitions and other transactions.
5 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
(114.3) %
(11.1) %
(90.5) %
(10.3) %
17.5 %
(26.8)
233.1
259.9
(4.7)
(1.4)
(0.2)
(4.0)
(0.7)
(2.1)
1.6
1.9
Adjusted SG&A1 decreased by $26.8 million or 10.3% to $233.1 million primarily as a result of lower
administrative, selling and marketing costs. Adjusted SG&A1 as a percentage of consolidated revenue
increased to 50.0% from 41.9%, due to lower revenue in the fourth quarter compared to the prior period.
(US$ millions)
2022
2021
$ Change
% Change
Year Ended Dec 31
39.6
(4.9)
742.5
782.1
SG&A
Adjustments1:
Restructuring and other related costs2
Share based compensation3
Transaction costs4
Adjusted SG&A5
1 These adjustments relate to items recorded within Administrative expenses.
2 Restructuring and other related costs primarily relates to changes in personnel.
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 22 of the Consolidated financial statements.
4 Professional fees incurred relating to acquisitions and other transactions.
5 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
(64.3) %
96.0 %
15.0 %
(15.3)
(17.6)
721.9
758.6
5.1 %
5.3 %
(2.5)
(1.0)
(2.8)
(2.3)
(2.4)
36.7
1.8
Adjusted SG&A1 increased by $36.7 million or 5.1% to $758.6 million primarily as a result of higher
administrative and selling costs. Adjusted SG&A1 as a percentage of consolidated revenue increased to 37.5%
from 35.3%.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
11
Depreciation and Amortization as compared to the same period in 2021:
(US$ millions)
Property, plant and equipment
Moulds, dies and tools, included in cost of sales
Equipment, included in cost of sales
Equipment
Building and leasehold improvements
Computer hardware
Intangible assets
Entertainment content development, included in cost of sales
Trademarks, licenses, IP & customer lists - definite
Digital Games development, included in cost of sales
Computer software
Q4 2022
Q4 2021
$ Change
% Change
5.0
—
0.4
1.5
0.2
7.1
4.7
1.1
1.1
0.9
7.8
7.2
0.1
0.6
1.5
0.2
9.6
6.2
1.5
1.6
1.1
10.4
(2.2)
(0.1)
(0.2)
—
—
(30.6) %
(100.0) %
(33.3) %
— %
— %
(2.5)
(26.0) %
(1.5)
(0.4)
(0.5)
(0.2)
(2.6)
(24.2) %
(26.7) %
(31.3) %
(18.2) %
(25.0) %
Right-of-use assets
3.0
3.0
—
— %
Depreciation and amortization
17.9
23.0
(5.1)
(22.2) %
(US$ millions)
Included in cost of sales
Included in expenses
Depreciation and amortization
Q4 2022
Q4 2021
$ Change
% Change
10.7
7.2
17.9
15.1
7.9
23.0
(4.4)
(0.7)
(5.1)
(29.1) %
(8.9) %
(22.2) %
For the three months ended December 31, 2022, depreciation and amortization expense decreased by $5.1
million to $17.9 million due to a decline in property, plant and equipment and intangibles assets.
Depreciation and amortization related to property, plant and equipment decreased by $2.5 million or 26.0%,
primarily due to lower depreciation for equipment and moulds, dies and tools.
Depreciation and amortization related to intangible assets decreased by $2.6 million or 25.0%, as a result of
fewer content deliveries in the current quarter.
12
(US$ millions)
Property, plant and equipment
Year Ended Dec 31
2022
2021
$ Change
% Change
Moulds, dies and tools, included in cost of sales
20.5
24.5
Equipment, included in cost of sales
Equipment
Building and leasehold improvements
Computer hardware
0.1
1.7
5.6
0.8
0.4
2.9
6.2
1.2
28.7
35.2
(4.0)
(0.3)
(1.2)
(0.6)
(0.4)
(6.5)
Intangible assets
Entertainment content development, included in cost of sales1
Trademarks, licenses, IP & customer lists - definite
Digital Games development, included in cost of sales
Computer software
14.4
5.1
4.3
3.5
27.3
47.7
(33.3)
6.1
5.8
3.9
(1.0)
(1.5)
(0.4)
63.5
(36.2)
(16.3) %
(75.0) %
(41.4) %
(9.7) %
(33.3) %
(18.5) %
(69.8) %
(16.4) %
(25.9) %
(10.3) %
(57.0) %
Right-of-use assets
12.2
13.2
(1.0)
(7.6) %
Depreciation and amortization
68.2
111.9
(43.7)
(39.1) %
(US$ millions)
Included in cost of sales1
Included in expenses
Year Ended Dec 31
2022
39.2
29.0
2021
$ Change
% Change
78.4
33.5
(39.2)
(4.5)
(50.0) %
(13.4) %
Depreciation and amortization
(39.1) %
1Prior year comparative includes the entertainment content development amortization related to the delivery of PAW
Patrol: The Movie.
111.9
68.2
(43.7)
For the year ended December 31, 2022, depreciation and amortization decreased by $43.7 million to $68.2
million primarily due to lower depreciation and amortization related to intangibles.
Depreciation and amortization related to property, plant and equipment decreased by $6.5 million or 18.5%,
primarily due to lower depreciation for moulds, dies and tools and equipment.
Depreciation and amortization related to intangible assets decreased by $36.2 million or 57.0%, due to lower
entertainment content development amortization primarily related to the PAW Patrol: The Movie in 2021 and
fewer content deliveries in the current year.
13
Foreign Exchange Loss (Gain) as compared to the same period in 2021:
For the three months ended December 31, 2022, the Company recognized a net foreign exchange loss of $4.8
million (comprised of an unrealized loss of $17.4 million and realized gain of $12.6 million) due to fluctuations in
foreign currency denominated monetary assets and liabilities, primarily in the Canadian dollar, as well as the
Swedish krona, Great Britain pound sterling and Russian ruble, as compared to a foreign exchange gain of
$0.7 million (comprised of an unrealized gain of $0.7 million and realized gain of $nil).
For the year ended December 31, 2022, the Company recognized a foreign exchange gain of $61.4 million
(comprised of an unrealized gain of $40.3 million and realized gain of $21.1 million), due to fluctuations in
foreign currency denominated monetary assets and liabilities, primarily in the Canadian dollar, as well as the
Swedish krona, Euro and Great Britain pound sterling, compared to a foreign exchange gain of $2.9 million
(comprised of a realized gain of $2.5 million and an unrealized gain of $0.4 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 periodically enters into derivative financial instruments such as foreign
exchange forward contracts to manage its foreign currency risk on cash flows denominated in currencies other
than US dollar.
Operating (Loss) Income and Adjusted Operating (Loss) Income1 as compared to the same period in
2021:
Operating Loss for the three months ended December 31, 2022, was $24.0 million compared to Operating
Income of $39.1 million, representing a variance of $63.1 million. Adjusted Operating Loss1 for the three
months ended December 31, 2022 was $5.5 million, a variance of $60.8 million from an Adjusted Operating
Income1 of $55.3 million. The decrease in Operating Income was primarily driven by decreases in Toys
Operating Income of $57.9 million, Digital Games Operating Income of $7.2 million, and Corporate & Other
Operating Income of $5.0 million, offset partially by an increase in Entertainment Operating Income of $7.0
million.
Operating Income for the year ended December 31, 2022 was $343.3 million, an increase of $71.1 million from
$272.2 million. Adjusted Operating Income1 for the year ended December 31, 2022 was $321.2 million, an
increase of $19.0 million from $302.2 million. The increase in Operating Income was primarily driven by an
increase in Entertainment Operating Income of $23.3 million and Toys Operating Income of $11.1 million.
Adjusted EBITDA1 as compared to the same period in 2021:
Adjusted EBITDA1 for the three months ended December 31, 2022 decreased to $12.4 million with Adjusted
EBITDA Margin1 of 2.7%, compared to $78.3 million and 12.6% respectively. The decrease in Adjusted
EBITDA1 was primarily driven by lower Gross Profit partially offset by lower administrative, marketing and
selling expenses. Adjusted EBITDA Margin1 declined due to higher marketing and administrative expenses as a
percentage of revenue and lower Toys gross margin.
Adjusted EBITDA1 for the year ended December 31, 2022 was $389.4 million compared to $414.1 million.
Adjusted EBITDA Margin1 was 19.3% compared to 20.3%. The decrease in Adjusted EBITDA1 was primarily
driven by higher administrative, selling and marketing expenses partially offset by higher Gross Profit. Adjusted
EBITDA Margin1 decreased due to higher administrative, selling and marketing expenses as a percentage of
revenue, partially offset by higher Toys gross margin. Adjusted EBITDA Margin excluding PAW Patrol: The
Movie Distribution Revenue1 increased slightly to 19.3% compared to 19.2%.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
14
Interest Income and Interest Expense as compared to the same period in 2021:
Interest expense includes bank fees and financing charges, accretion expense and the amortization of Facility
fee cost.
For the three months ended December 31, 2022, interest expense was $3.8 million, an increase of $0.3 million
from $3.5 million due to higher bank fees and financing charges.
For the three months ended December 31, 2022, interest income was $5.5 million, an increase of $5.1 million
from $0.4 million as a result of higher interest earned on cash and cash equivalents.
For the year ended December 31, 2022, interest expense was $13.6 million, an increase of $2.3 million from
$11.3 million due to higher bank fees and financing charges.
For the year ended December 31, 2022, interest income was $10.7 million, an increase of $9.6 million from
$1.1 million as a result of higher interest earned on cash and cash equivalents.
Income Tax (Recovery) Expense as compared to the same period in 2021:
For the three months ended December 31, 2022, income tax recovery was $8.5 million compared to an income
tax expense of $9.5 million. The effective tax rate was 38.1% compared to 26.4%.
For the year ended December 31, 2022, income tax expense was $79.1 million compared to $63.4 million. The
effective tax rate was 23.2% compared to 24.2%.
Net (Loss) Income and Adjusted Net Income1 as compared to the same period in 2021:
Net loss for the three months ended December 31, 2022 was $13.8 million, a decrease of $40.3 million from
Net Income of $26.5 million. Adjusted Net Income1 for the three months ended December 31, 2022 was $nil, a
decrease of $38.7 million.
Net Income for the year ended December 31, 2022 was $261.3 million, an increase of $62.7 million from
$198.6 million. Adjusted Net Income1 for the year ended December 31, 2022 was $244.3 million, an increase of
$23.0 million from $221.3 million.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
15
Segmented Results
The Company revised its reportable segments effective January 1, 2022. The Company’s reportable segments
are: Toys, Entertainment and Digital Games. The Company’s results from operations by reportable segment for
the three months ended December 31, 2022 and 2021 are as follows:
(US$ millions)
Q4 2022
Q4 2021
Revenue
Toys
396.7
Entertainment
31.2
Digital
Games
37.9
Corporate
& Other
—
Total
465.8
Toys
542.0
Entertainment
28.5
Digital
Games
50.0
Corporate
& Other
—
Total
620.5
19.1
10.1
(9.9)
(24.0)
14.6
12.1
17.3
(4.9)
Operating (Loss) Income
Restructuring and other
related costs
(43.3)
(0.2)
Foreign exchange loss (gain) —
3.3
Share based compensation
—
Impairment of goodwill
Impairment of property, plant
and equipment
Impairment of intangible
assets
Legal settlement
Acquisition related deferred
incentive compensation
Net unrealized loss on
investment
Acquisition related
contingent consideration
Transaction costs
0.9
—
—
0.7
—
3.1
—
—
—
0.3
—
—
1.1
—
—
—
—
—
—
—
0.7
—
—
—
—
1.5
—
—
—
—
4.8
0.4
—
—
—
1.6
—
0.1
—
0.2
(0.2)
4.8
4.7
—
0.9
1.1
1.6
2.2
0.1
3.1
0.2
20.5
(35.5)
Adjusted Operating (Loss)
Income1
Depreciation and
amortization
Adjusted EBITDA1
Adjusted EBITDA Margin1
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
14.2
(2.7)
37.5% n.m.
(24.4)
(6.2)%
25.3
81.1%
(2.8)
(5.5)
17.9
12.3
11.1
1.9
4.8
0.1
12.4
40.8
2.7% 7.5%
1.2
—
3.5
1.9
—
—
—
1.5
—
3.4
—
26.1
14.7
—
—
0.1
—
—
1.2
—
—
—
—
—
0.2
—
0.4
—
—
—
—
1.1
—
—
—
39.1
1.4
—
(0.7)
(0.7)
—
—
—
—
—
—
0.3
—
2.1
4.0
1.9
—
1.2
—
2.6
0.3
3.4
2.1
13.4
19.0
(3.2)
55.3
6.3
2.0
—
23.0
19.7
69.1%
21.0
(3.2)
42.0% n.m.
78.3
12.6%
16
The Company’s results from operations by reportable segment for the year ended December 31, 2022 and
2021:
(US$ millions)
Revenue
Toys
1,737.6
Entertainment
118.8
2022
Digital
Games
163.9
Corporate
& Other
—
2021
Total
Toys
2,020.3 1,731.8
Entertainment
135.8
Digital
Games
174.8
Corporate
& Other
—
Total
2,042.4
Year Ended Dec 31
Operating Income
170.1
76.7
46.5
50.0
343.3
159.0
53.4
67.5
(7.7)
272.2
Restructuring and other
related costs
Foreign exchange gain
Share based compensation
4.6
—
12.4
Impairment of goodwill
Impairment of property,
plant and equipment
Impairment of intangible
assets
Legal settlement
Acquisition related deferred
incentive compensation
Net unrealized gain on
investment
Investment distribution
income
Loss on Minority interest
and other investments
Acquisition related deferred
consideration
Transaction costs
Gain on disposal of asset
—
1.9
—
—
5.4
—
—
—
3.5
—
—
0.1
—
1.2
—
—
1.1
—
—
—
—
—
—
—
—
0.2
—
2.3
—
—
—
—
4.9
—
—
—
—
—
—
—
4.9
2.3
(61.4)
1.7
(61.4) —
13.4
17.6
—
—
—
(0.5)
—
—
—
1.9
1.1
(0.5)
10.3
—
(0.1)
(0.1)
0.5
(0.9)
1.0
—
0.5
2.6
1.0
—
1.9
—
—
—
4.3
—
—
—
2.7
—
(0.2)
—
—
0.4
—
—
2.1
—
—
—
—
—
—
—
—
0.2
—
1.5
—
—
0.5
—
2.5
—
—
—
—
—
—
—
(2.9)
—
—
—
—
—
—
2.5
(2.9)
15.3
1.9
—
2.6
—
6.8
(0.9)
(0.9)
(0.6)
(0.6)
—
—
2.8
—
79.1
53.9
197.9
Adjusted Operating
Income1
Depreciation and
amortization2
Adjusted EBITDA1
Adjusted EBITDA
Margin1
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2 Prior year comparative includes the entertainment content development amortization related to the delivery of PAW Patrol: The Movie.
19.3% 13.8%
36.9%
79.0%
14.1%
76.7%
183.4
321.2
244.6
239.7
389.4
104.1
(9.7)
(9.6)
n.m.
14.8
46.7
55.9
68.2
72.2
79.6
93.9
60.5
48.2
56.3
45.5% n.m.
(9.3)
(9.3)
6.6
0.1
7.4
—
—
2.7
2.8
(0.2)
302.2
111.9
414.1
20.3%
17
Toys Segment Results
The following table provides a summary of Toys segment operating results for the three months ended
December 31, 2022 and 2021:
(US$ millions)
Toy Gross Product Sales1, 2
Toy revenue
Operating (Loss) Income
Operating Margin
Adjusted EBITDA1
Adjusted EBITDA Margin1
Selected Cash Flow Data
Toys capital expenditures
Q4 2022
Q4 2021
$ Change
% Change
479.2
396.7
(43.3)
(10.9) %
(24.4)
(6.2) %
627.5
542.0
14.6
2.7 %
40.8
7.5 %
(148.3)
(145.3)
(57.9)
(23.6) %
(26.8) %
(396.6) %
(13.6) %
(65.2)
(159.8) %
(13.7) %
7.5
3.8
3.7
97.4 %
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2 Toy Gross Product Sales represents Toy revenue excluding Sales Allowances.
Toy revenue decreased by $145.3 million or 26.8% to $396.7 million primarily driven by a decrease in Toy
Gross Product Sales1 and an increase in Sales Allowances as a percentage of Toy Gross Product Sales1. Toy
Gross Product Sales1 decreased by $148.3 million or 23.6%, to $479.2 million from $627.5 million as a result of
lower customer orders as consumer demand was negatively impacted by the pressure of higher inflation, which
in turn reduced consumer discretionary spending, as well as the unfavorable impact of foreign exchange. Toy
Gross Product Sales1 were positively impacted by price increases implemented to mitigate inflation on product
costs and ocean freight. In addition, Toy Gross Product Sales1 in the fourth quarter of 2021 were supported by
shipments due to the theatrical releases of Paw Patrol: The Movie and DC Comics The Batman. Sales
allowances increased primarily due to higher markdowns, as consumers were more price sensitive given global
inflationary pressure.
Constant Currency Toy Gross Product Sales1 decreased by $129.2 million or 20.6% to $498.3 million, down
from $627.5 million.
Operating Loss was $43.3 million compared to Operating Income of $14.6 million representing a variance of
$57.9 million. Operating Margin was (10.9)% compared to 2.7%. Adjusted EBITDA1 decreased by $65.2 million
to $(24.4) million. Adjusted EBITDA Margin1 was (6.2)% compared to 7.5%. The decrease in Operating Margin
is due to higher administrative and marketing expenses as a percentage of revenue driven by lower Toy
revenue. This was partially offset by improved gross margin from changes in product mix and price increases
implemented to offset inflation on product costs and ocean freight. Adjusted EBITDA Margin1 declined as a
result of lower Operating Margin.
Toys capital expenditures increased by $3.7 million to $7.5 million, primarily as a result of higher investments in
moulds, dies and tools.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
18
Toys Segment Results
The following table provides a summary of the Toys segment's operating results for the year ended
December 31, 2022 and 2021:
(US$ millions)
Toy Gross Product Sales1, 2
Toy revenue
Operating Income
Operating Margin
Adjusted EBITDA1
Adjusted EBITDA Margin1
Selected Cash Flow and Balance Sheet Data
Year Ended Dec 31
2022
1,978.8
1,737.6
170.1
9.8 %
244.6
14.1 %
2021
1,962.4
1,731.8
159.0
9.2 %
239.7
13.8 %
$ Change
% Change
16.4
5.8
11.1
4.9
0.8 %
0.3 %
7.0 %
0.6 %
2.0 %
0.3 %
Toys capital expenditures
32.4
26.8
5.6
20.9 %
Moulds, dies and tools, net carrying amount
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2 Toy Gross Product Sales represents Toy revenue excluding Sales Allowances.
19.2
Dec 31,
2022
Dec 31,
2021
21.2
$ Change
% Change
(2.0)
(9.4) %
Toy revenue increased by $5.8 million or 0.3% to $1,737.6 million driven by an increase in Toy Gross Product
Sales1, offset by an increase in Sales Allowances as a percentage of Toy Gross Product Sales1. Toy Gross
Product Sales1 increased by $16.4 million or 0.8%, to $1,978.8 million from $1,962.4 million as a result of
changes in sales mix and price increases implemented to mitigate inflation on product and ocean freight costs,
offset by unfavorable foreign exchange. Sales allowances increased primarily due to higher markdowns, as
consumers were more price sensitive given global inflationary pressure.
Constant Currency Toy Gross Product Sales1 increased by $68.2 million or 3.5% to $2,030.6 million, up from
$1,962.4 million.
Toy Revenue increased in first half of 2022 due to strong customer demand and the positive momentum carried
forward from 2021. The higher Toy Revenue in the first half of 2022 was also positively impacted by the
Company's successful management of the global supply chain volatility, as retailers ordered earlier in the year
to minimize anticipated supply chain disruptions. While historically more resilient during recessionary
environments, Toy Revenue in the second half was pressured by changes in the macroeconomic environment,
including inflationary pressure and higher interest rates. These factors resulted in reduced discretionary
spending and demand.
Operating Income increased by $11.1 million or 7.0% to $170.1 million. Operating Margin was 9.8% compared
to 9.2%. The improvement in Operating Margin was driven primarily by higher revenues and improved gross
margin from changes in product mix, price increases to partially offset inflation on product costs and ocean
freight and lower administrative and distribution expenses as a percentage of revenue, offset in part by higher
selling and marketing expenses as a percentage of revenue. Adjusted EBITDA1 increased by $4.9 million to
$244.6 million. Adjusted EBITDA Margin1 was 14.1% compared to 13.8%. Adjusted EBITDA Margin1 improved
as a result of higher Operating Margin. We are taking a balanced approach to pricing and promotions, investing
in innovative marketing to remain competitive and maintain our profitability.
Toys capital expenditures increased by $5.6 million to $32.4 million, primarily as a result of higher investments
in moulds, dies and tools.
Moulds, dies and tools, net carrying amount was $19.2 million compared to $21.2 million.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
19
Toy Revenue
For the three months ended December 31, 2022 as compared to the same period in 2021:
The following table provides a summary of Spin Master’s Toy revenue, including Toy Gross Product Sales1 by
product category, for the three months ended December 31, 2022 and 2021:
(US$ millions)
Preschool and Dolls & Interactive
Activities, Games & Puzzles and Plush
Wheels & Action
Q4 2022
Q4 2021
$ Change
% Change
201.7
160.6
90.0
251.8
206.5
146.1
(50.1)
(45.9)
(56.1)
(19.9) %
(22.2) %
(38.4) %
Outdoor
Toy Gross Product Sales 1
Sales Allowances2
Sales Allowances % of GPS
Toy revenue
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2 The Company 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.
(148.3)
(145.3)
17.2 %
13.6 %
(85.5)
(82.5)
542.0
479.2
627.5
396.7
(3.0)
26.9
23.1
3.8
16.5 %
(23.6) %
(3.5) %
(26.8) %
Preschool and Dolls & Interactive decreased by $50.1 million or 19.9% to $201.7 million, primarily from a
decrease in sales of PAW Patrol, Hatchimals, Peek-A-Roo and Present Pets, offset by an increase in Gabby's
Dollhouse.
Activities, Games & Puzzles and Plush decreased by $45.9 million or 22.2% to $160.6 million, mainly due to a
decrease in the Games & Puzzles portfolio and Kinetic Sand, offset by an increase in Rubik's.
Wheels & Action decreased by $56.1 million or 38.4% to $90.0 million, due to decreases in DC, Monster Jam
and Bakugan.
Outdoor increased by $3.8 million or 16.5% to $26.9 million.
Sales Allowances decreased by $3.0 million to $82.5 million. As a percentage of Toy Gross Product Sales1,
Sales Allowances increased to 17.2% from 13.6%, primarily driven by higher markdowns, as consumers were
more price sensitive given global inflationary pressure.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
20
Revenue by Geographic Area
Toy Gross Product Sales1 by geographical area are based on the location of the customers. The following table
provides a summary of Spin Master’s Toy Gross Product Sales1 by geographic area for the three months ended
December 31, 2022 and 2021:
(US$ millions)
North America
Europe
Rest of World
International
Toy Gross Product Sales1
Sales Allowances
Toy revenue
Q4 2022
% of GPS
Q4 2021
% of GPS
$ Change
260.7
144.5
74.0
218.5
479.2
(82.5)
396.7
54.4 %
30.2 %
15.4 %
45.6 %
100.0 %
(17.2) %
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) %
(101.1)
(43.0)
(4.2)
(47.2)
(148.3)
3.0
(145.3)
Change in
% of GPS
(3.2) %
0.3 %
2.9 %
3.2 %
(3.6) %
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
As a percentage of Toy Gross Product Sales1, the North America segment decreased 3.2% to 54.4% compared
to 57.6%. International sales, comprised of the Europe and Rest of World segments, increased 3.2% to 45.6%
compared to 42.4%.
North America decreased by $101.1 million or 27.9% to $260.7 million. The decrease was driven by DC, Kinetic
Sand, the Games & Puzzles portfolio, Monster Jam RC, and PAW Patrol, partially offset by an increase from
Rubik's and Gabby's Dollhouse.
Europe decreased by $43.0 million or 22.9% to $144.5 million, which includes an unfavourable foreign
exchange impact of $18.8 million. The decrease was mainly driven by PAW Patrol, Bakugan, Peek-A-Roo and
Air Hogs, partially offset by an increase from Gabby's Dollhouse.
Rest of World decreased by $4.2 million or 5.4% to $74.0 million, which includes an unfavourable foreign
exchange impact of $0.2 million. The decrease arose from PAW Patrol, DC and Peek-A-Roo, partially offset by
an increase from Gabby's Dollhouse.
21
For the year ended December 31, 2022, as compared to the same period in 2021:
The following table provides a summary of Spin Master’s Toy revenue, including Toy Gross Product Sales1 by
product category, for the year ended December 31, 2022 and 2021:
(US$ millions)
Preschool and Dolls & Interactive
Activities, Games & Puzzles and Plush
Year Ended Dec 31
2022
867.0
561.7
2021
$ Change
% Change
809.6
587.8
57.4
(26.1)
7.1 %
(4.4) %
99.3
450.8
445.6
Wheels & Action
Outdoor1
Toy Gross Product Sales2
Sales Allowances3
Sales Allowances % of GPS
Toy revenue
1,737.6
1 Outdoor includes $20.8 million in 2021 Gross Product Sales related to certain brands associated with divestiture of manufacturing assets in Q1
2022.
2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
3 The Company 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.
12.2 %
11.8 %
1,978.8
1,962.4
1,731.8
(241.2)
(230.6)
(20.1)
119.4
16.4
10.6
5.2
5.8
1.2 %
(16.8) %
0.8 %
4.6 %
0.3 %
Preschool and Dolls & Interactive increased by $57.4 million or 7.1% to $867.0 million, from sales of Gabby's
Dollhouse, Purse Pets and Wizarding World, offset by a decline in PAW Patrol and Present Pets.
Activities, Games & Puzzles and Plush decreased by $26.1 million or 4.4% to $561.7 million, mainly due to
lower sales of the Games & Puzzles portfolio, Kinetic Sand and Cool Maker, offset in part by Rubik's and
Pixobitz.
Wheels & Action increased by $5.2 million or 1.2% to $450.8 million, led by increases in Tech Deck, DC and
Monster Jam, offset in part by Air Hogs.
Outdoor declined by $20.1 million or 16.8% to $99.3 million, primarily driven by SwimWays. Outdoor includes
$1.1 million for 2022 and $20.8 million from 2021 related to certain brands associated with the divestiture of
manufacturing assets in Q1 2022. Excluding the divestiture, Outdoor remained flat year-over-year.
Sales Allowances increased by $10.6 million to $241.2 million. As a percentage of Toy Gross Product Sales1,
Sales Allowances increased to 12.2% from 11.8%, primarily driven by higher markdowns in the fourth quarter of
2022, as consumers were more price sensitive given global inflationary pressure.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
22
Revenue by Geographic Area
The following table provides a summary of Spin Master’s Toy Gross Product Sales1 by geographic area for the
year ended December 31, 2022 and 2021:
(US$ millions)
North America
Europe
Rest of World
International
Toy Gross Product Sales1
Sales Allowances
Toy revenue
Year Ended Dec 31
2022
% of GPS
2021
% of GPS
$ Change
Change in
% of GPS
1,189.8
525.0
264.0
789.0
60.1 %
26.5 %
13.3 %
39.9 %
1,197.3
530.7
234.4
765.1
1,978.8
100.0 %
1,962.4
(241.2)
1,737.6
12.2 %
(230.6)
1,731.8
61.0 %
27.0 %
11.9 %
39.0 %
100.0 %
11.8 %
(7.5)
(5.7)
29.6
23.9
16.4
(10.6)
5.8
(0.9) %
(0.5) %
1.4 %
0.9 %
0.4 %
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
As a percentage of total Toy Gross Product Sales1, the North America segment decreased 0.9% to 60.1%
compared to 61.0%. International sales, comprised of the Europe and Rest of World segments, increased 0.9%
to 39.9% compared to 39.0%.
North America declined by $7.5 million or 0.6% to $1,189.8 million. The decrease was driven by PAW Patrol,
the Games & Puzzles portfolio, Monster Jam RC and SwimWays partially offset by Gabby's Dollhouse.
Europe declined by $5.7 million or 1.1% to $525.0 million, with an unfavourable foreign exchange impact of
$49.3 million. The decrease was driven by PAW Patrol partially offset by Purse Pets and Gabby's Dollhouse.
Rest of World increased by $29.6 million or 12.6% to $264.0 million, with an unfavourable foreign exchange
impact of $1.7 million. The increase was driven by Gabby's Dollhouse, Monster Jam, Rubik's, Wizarding World,
offset in part by Hatchimals, Present Pets and Cool Maker.
Toys Segment Trend Analysis
(US$ millions)
Toy Gross Product Sales1
Toy revenue
Operating (Loss) Income
Operating Margin
Adjusted EBITDA1
Adjusted EBITDA Margin1
Selected Cash Flow and Balance Sheet Data
Q4
2022
479.2
396.7
(43.3)
Q3
2022
617.7
552.4
109.4
Q2
2022
484.4
437.6
62.6
Q1
2022
397.5
350.9
41.4
(10.9)% 19.8% 14.3% 11.8%
(24.4)
126.9
83.2
58.9
(6.2)% 23.0% 19.0% 16.8%
Q4
2021
627.5
542.0
14.6
2.7%
40.8
7.5%
Q3
2021
681.2
607.8
128.0
21.1%
146.5
Q2
2021
359.0
326.4
28.5
8.7%
47.3
Q1
2021
294.7
255.6
(12.1)
(4.7)%
5.1
24.1% 14.5%
2.0%
Toys capital expenditures
Moulds, dies and tools, net carrying amount2
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
19.2
19.5
7.5
7.9
2 Net carrying amount represents balance as at end of the period.
9.8
23.5
7.2
21.9
3.8
21.2
9.1
23.6
8.7
23.6
5.2
20.6
23
Entertainment Segment Results
The following table provides a summary of the Entertainment segment's operating results for the three months
ended December 31, 2022 and 2021:
(US$ millions)
Entertainment revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Selected Cash Flow Data
Entertainment capital expenditures
Q4 2022
Q4 2021
$ Change
% Change
31.2
19.1
61.2 %
20.5
65.7 %
28.5
12.1
42.5 %
13.4
47.0 %
2.7
7.0
7.1
9.5 %
57.9 %
18.7 %
53.0 %
18.7 %
11.9
12.1
(0.2)
(1.7) %
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
Entertainment revenue increased by $2.7 million or 9.5% to $31.2 million, driven by higher distribution revenue
and licensing and merchandising revenue.
Operating Income increased by $7.0 million or 57.9% to $19.1 million. Operating Margin was 61.2% compared
to 42.5%. Adjusted Operating Income1 was $20.5 million compared to $13.4 million. Adjusted Operating
Margin1 was 65.7% compared to 47.0%.
The increase in Operating Income, Adjusted Operating Income1, and Adjusted Operating Margin1 was primarily
a result of higher licensing and merchandising revenue as well as lower costs due to fewer content deliveries
compared to prior year.
Entertainment capital expenditures decreased by $0.2 million to $11.9 million.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
24
The following table provides a summary of the Entertainment segment's operating results for the year ended
December 31, 2022 and 2021:
(US$ millions)
Entertainment revenue
Operating Income
Operating Margin
Adjusted Operating Income2
Adjusted Operating Margin2
Selected Cash Flow and Balance Sheet Data
Year Ended Dec 31
2022
2021
$ Change
% Change
118.8
76.7
64.6 %
79.1
66.6 %
135.8
53.4
39.3 %
55.9
41.2 %
(17.0)
23.3
23.2
(12.5) %
43.6 %
25.3 %
41.5 %
25.4 %
Entertainment capital expenditures
54.9
44.0
10.9
24.8 %
Dec 31
2022
Dec 31
2021
$ Change
% Change
Entertainment content development, net carrying amount
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
64.5
27.4
37.1
135.4 %
Entertainment revenue decreased by $17.0 million or 12.5% to $118.8 million, due to lower distribution revenue
related to PAW Patrol: The Movie released in 2021, partially offset by higher licensing & merchandising
revenue.
Operating Income increased by $23.3 million or 43.6% to $76.7 million. Adjusted Operating Income1 was $79.1
million compared to $55.9 million. Operating Income and Adjusted Operating Income1 increased due to lower
Entertainment amortization expenses due to fewer content deliveries in the current year as well as higher
licensing and merchandising revenue.
Operating Margin was 64.6% compared to 39.3%. Operating Margin, excluding PAW Patrol: The Movie1 in the
prior period was 45.9%. Adjusted Operating Margin1 was 66.6% compared to 41.2%. Adjusted Operating
Margin excluding PAW Patrol: The Movie1 in the prior period,1 was 48.2%.
The increase in both Operating Margin and Adjusted Operating Margin1 was driven primarily by the dilutive
effect of PAW Patrol: The Movie (distribution revenue less amortization of content development costs) in the
prior year and fewer Entertainment content deliveries in the current period, which resulted in lower amortization
expense.
Entertainment capital expenditures increased by $10.9 million to $54.9 million, primarily as a result of higher
content development costs driven by production of PAW Patrol: The Mighty Movie, Rubble and Crew, and Vida
the Vet.
Entertainment content development, net carrying amount increased by $37.1 million to $64.5 million, primarily
as a result of content production costs on series and films, including PAW Patrol series, PAW Patrol: The
Mighty Movie and other projects in production.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
25
Entertainment Segment Trend Analysis
(US$ millions)
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Entertainment revenue
31.2
37.0
28.4
22.2
28.5
52.9
27.5
26.9
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Selected Cash Flow and Balance Sheet Data
19.1
17.5
28.9
11.2
12.5
61.2 % 78.1 % 61.6 % 50.5 % 42.5 % 34.4% 45.5%
11.4
12.6
65.7 % 78.9% 63.4% 51.4%
11.6
47.0 % 34.6% 45.8% 43.1%
10.6
0.4
12.1
13.4
18.3
18.0
18.2
29.2
20.5
Entertainment capital expenditures
Entertainment content development, net carrying
amount2
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2 Net carrying amount represents balance as at end of the period.
3 Includes Entertainment content development costs associated with PAW Patrol: The Movie.
11.9
64.5
21.3
57.4
14.9
41.3
6.8
30.2
12.1
27.4
8.5
20.1³
14.9
39.1
8.5
35.2
Digital Games Segment Results
The following table provides a summary of the Digital Games segment's operating results for the three months
ended December 31, 2022 and 2021:
(US$ millions)
Digital Games revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Selected Cash Flow Data
Q4 2022
Q4 2021
$ Change
% Change
37.9
10.1
26.6 %
12.3
32.5 %
50.0
17.3
34.6 %
19.0
38.0 %
(12.1)
(7.2)
(6.7)
(24.2) %
(41.6) %
(8.0) %
(35.3) %
(5.5) %
Digital Games capital expenditures
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
3.9
2.9
1.0
34.5 %
Digital Games revenue decreased by $12.1 million or 24.2% to $37.9 million. Constant Currency Digital Games
Revenue1 decreased by $9.9 million or 19.8% to $40.1 million, down from $50.0 million. The decrease in Digital
Games revenue and Constant Currency Digital Games Revenue1 were due to lower in-app revenue in Toca
Life World.
Operating Income decreased by $7.2 million or 41.6% to $10.1 million. Adjusted Operating Income1 decreased
by $6.7 million or 35.3% to $12.3 million from $19.0 million. The decline in Operating Income and Adjusted
Operating Income1 was from lower revenue from in-app purchases in Toca Life World and higher product
development and personnel costs related to the investment in future products.
Operating Margin was 26.6% compared to 34.6%. Adjusted Operating Margin1 was 32.5% compared to 38.0%.
Operating Margin decreased due to higher product development and personnel costs related to the investment
in future products. Adjusted Operating Margin1 decreased due to a decrease in Operating Margin partially offset
by an increase in adjustments related to acquisition related deferred incentive compensation.
Digital Games capital expenditures were $3.9 million compared to $2.9 million, an increase of $1.0 million or
34.5%, primarily as a result of higher Digital Games development costs related to both current and future digital
games.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
26
The following table provides a summary of the Digital Games segment's operating results for the year ended
December 31, 2022 and 2021:
(US$ millions)
Digital Games revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Year Ended Dec 31
2022
2021
$ Change
% Change
163.9
46.5
28.4 %
53.9
32.9 %
174.8
67.5
38.6 %
72.2
41.3 %
(10.9)
(21.0)
(18.3)
(6.2) %
(31.1) %
(10.2) %
(25.3) %
(8.4) %
Selected Cash Flow and Balance Sheet Data
Digital Games capital expenditures
12.1
8.7
3.4
39.1 %
Digital Games development, net carrying amount
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
17.1
Dec 31
2022
Dec 31
2021
12.8
$ Change
% Change
4.3
33.6 %
Digital Games revenue decreased by $10.9 million or 6.2% to $163.9 million. Constant Currency Digital Games
Revenue1 decreased by $2.9 million or 1.7% to $171.9 million, down from $174.8 million. The decrease in
Digital Games revenue and Constant Currency Digital Games Revenue1 were due to lower in-game app
revenue in Toca Life World.
Operating Income decreased by $21.0 million or 31.1% to $46.5 million. Adjusted Operating Income1
decreased by $18.3 million or 25.3% to $53.9 million from $72.2 million. The declines in Operating Income and
Adjusted Operating Income1 are attributable to higher product development investments in future digital games
and personnel costs, as well as higher marketing costs to acquire users, and lower in-app purchases in Toca
Life World.
Operating Margin was 28.4% compared to 38.6%. Adjusted Operating Margin1 was 32.9% compared to 41.3%.
Digital Games capital expenditures were $12.1 million compared to $8.7 million, an increase of $3.4 million or
39.1%, primarily as a result of higher Digital Games development costs related to both current and future digital
games.
Digital Games development, net carrying balance was $17.1 million compared to $12.8 million.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
27
Digital Games Segment Trend Analysis
(US$ millions)
Digital Games revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Selected Cash Flow and Balance Sheet Data
Digital Games capital expenditures
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
37.9
34.6
40.3
51.1
50.0
53.8
36.9
34.1
10.1
8.2
8.4
19.8
13.2
26.6 % 23.7 % 20.8 % 38.7 % 34.6 % 45.0% 34.7% 38.7%
13.5
38.0 % 48.3% 37.1% 39.6%
21.6
32.5 % 28.9% 24.8% 42.3%
17.3
19.0
13.7
12.8
26.0
10.0
10.0
24.2
12.3
3.9
17.1
2.9
14.6
2.8
14.2
2.5
13.6
2.9
12.8
2.4
11.9³
1.6
9.2
1.8
3.3
Digital Games development, net carrying amount2
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2 Net carrying amount represents balance as at end of the period.
3 Includes Digital Games development related to Originator Inc. acquired in Q2 2021.
Corporate & Other for the three months and year ended December 31, 2022 as compared to the same
period in 2021:
For the three months ended December 31, 2022, Operating Loss for Corporate & Other increased by $5.0
million to $9.9 million as a result of foreign exchange losses due to fluctuations in foreign currency denominated
monetary assets and liabilities, primarily in the Canadian dollar, as well as the Swedish krona, Great Britain
pound sterling and Russian ruble. Adjusted Operating Loss1 was $2.8 million compared to $3.2 million. For the
year ended December 31, 2022, Operating Income was $50.0 million compared to an Operating Loss of $7.7
million a change of $57.7 million as a result of higher foreign exchange gains due to fluctuations in foreign
currency denominated monetary assets and liabilities, primarily in the Canadian dollar, as well as the Swedish
krona, Euro and Great Britain pound sterling. Adjusted Operating Loss1 increased to $9.7 million compared to
$9.3 million.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
28
INVESTMENTS AND ACQUISITIONS
Acquisition of certain assets from SolidRoots, LLC
On August 2, 2022, the Company acquired certain assets from SolidRoots, LLC (“SolidRoots”), a creator of
family board games. Management performed an analysis under IFRS 3, Business Combinations ("IFRS 3") and
has determined that the assets and processes acquired comprised a business and therefore, accounted for the
transaction as a business combination using the acquisition method of accounting. This acquisition is expected
to complement the Company's existing board games offering and has been reported in the Toys segment within
the Activities, Games & Puzzles and Plush product category and included in the Games and Puzzles cash
generating unit ("CGU") beginning from the date of acquisition.
The purchase consideration of $10.7 million is comprised of $8.5 million of cash consideration and $2.2 million
of contingent consideration related to the estimated fair value of future royalties. The purchase agreement also
included total deferred incentive compensation of $1.0 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 a remuneration expense and are accrued over the related service period. Deferred incentive
compensation of less than $0.1 million is included in Other expense, net in the Consolidated statements of
earnings and comprehensive income for the year ended December 31, 2022. The contingent consideration and
deferred incentive compensation are recorded in provisions in the Consolidated statements of financial position.
Purchase consideration of $10.7 million has been allocated as follows: $4.4 million to intangible assets (related
to the brand), $2.0 million to inventories and $0.1 million to prepaid expenses and other assets, with the
remainder of $4.2 million allocated to goodwill.
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, 2022.
Acquisition of the remaining shares of Nørdlight Games AB
On August 24, 2021, the Company acquired 18.53% of the shares in Nørdlight Games AB (“Nørdlight”), a
company that creates and develops digital games, based in Sweden. On August 8, 2022, the Company
acquired the remaining 81.47% of the shares of Nørdlight, resulting in ownership and control of 100% of the
voting shares in Nørdlight. This investment was classified in 2021 as an equity instrument measured at
FVTOCI. Management performed an analysis under IFRS 3 and determined that the assets and processes
acquired comprised a business and therefore, accounted for the transaction as a business combination using
the acquisition method of accounting. The acquisition has been reported under the Digital Games segment and
CGU beginning from the date of acquisition.
The Company paid cash consideration of $2.5 million. The total purchase consideration has been allocated to
the identifiable assets of $0.5 million, and liabilities of $0.2 million, with the remainder $2.9 million allocated to
goodwill.
The purchase agreement includes total deferred incentive compensation of $7.8 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 related
service period. Deferred incentive compensation of $1.4 million is included in Other expense, net in the
Consolidated statements of earnings and comprehensive income for the year ended December 31, 2022. The
deferred incentive compensation is recorded in provisions in the Consolidated statements of financial position.
The purchase agreement also includes contingent consideration of $4.9 million which is payable on achieving
certain performance metrics and has been allocated a fair value of $nil in the total purchase consideration.
The Company incurred $0.1 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, 2022.
29
Prior year 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. 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 Toys segment within
the Activities, Games & Puzzles and Plush product category and included in the Rubik's CGU beginning from
the date of acquisition.
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.
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 Toys segment and CGU from the date of acquisition.
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 purchase agreement also included deferred incentive compensation 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.
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 digital games 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 segment and CGU and its revenue is included within Digital Games
revenue from the date of acquisition.
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 Digital Games development), tangible assets of $0.6
million and assumed liabilities of $2.9 million with the remainder allocated to goodwill.
The purchase agreement also included total deferred incentive compensation 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.
30
Spin Master Ventures
On October 19, 2021, the Company announced the creation of Spin Master Ventures ("SMV"). SMV’s focus is
to accelerate growth by making minority investments in companies operating in each of the Company’s three
creative centres comprising Toys, Entertainment and Digital Games. Spin Master has initially allocated $100
million of capital to SMV, to be funded from existing internal resources. As at December 31, 2022, the Company
has invested $9.9 million.
In 2022, the Company acquired minority interests in privately-held entities for a total of $7.5 million.
In the third quarter of 2022, the Company acquired the remaining ownership interest of Nørdlight, a Minority
interest investment classified as FVTOCI. As part of the step acquisition to 100% ownership of the entity, the
prior investment was deemed to be disposed of and reacquired at fair value of $0.7 million. The Company
accounted for this transaction as a business combination.
The SMV portfolio currently consists of the following investments:
Creative
Centre
Location
Acquisition
date
Initial
investment
Dec 31,
2022
Dec 31,
2021
Classified as FVTPL
Education technology company
Virtual reality gaming company
Content streaming platform1
Baby consumer product brand
Digital Games Canada
Q3 2021
Digital Games
Entertainment
Toys
U.K.
U.S.A
U.S.A
U.S.A
Q1 2022
Q1 2022
Q2 2022
Q4 2022
Q3 2021
Q4 2022
Animation technology company
Entertainment
Classified as FVTOCI
Mobile game development company2 Digital Games Sweden
U.S.A
Global publishing company
Entertainment
1.8
0.5
0.5
3.0
0.5
0.6
3.0
9.9
1.8
0.5
—
3.0
0.5
—
3.0
8.8
1.8
—
—
—
—
0.6
—
2.4
1 Fair value loss of $0.5 million recorded in Q2 2022 through the statement of earnings
2 Fair value gain of $0.1 million recorded in Q2 2022 through other comprehensive income, and disposed of in Q3 2022 at a value of $0.7 million.
31
SELECTED QUARTERLY FINANCIAL INFORMATION
The following table provides selected historical information and other data, which should be read in conjunction
with the annual financial statements and current and past interim financial statements.
(in US$ millions, except EPS)
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Revenue
465.8
624.0
506.3
424.2
620.5
714.5
390.8
316.6
Operating (Loss) Income
(24.0)
187.4
118.2
61.7
Operating Margin
Adjusted Operating (Loss) Income1
Adjusted Operating Margin1
(5.2)% 30.0% 23.3% 14.5%
(5.5)
151.8
97.6
77.3
(1.2)% 24.3% 19.3% 18.2%
39.1
6.3%
55.3
8.9%
26.5
$0.26
$0.25
179.5
46.9
25.1% 12.0%
175.6
57.7
24.6% 14.8%
135.4
$1.32
$1.29
33.5
$0.33
$0.32
6.7
2.1%
13.6
4.3%
3.2
$0.03
$0.03
(13.8)
$(0.13)
$(0.13)
141.4
$1.37
$1.33
88.1
$0.86
$0.83
45.6
$0.45
$0.43
12.4
2.7%
—
$—
$—
167.6
113.7
95.7
78.3
217.3
81.8
36.7
26.9% 22.5% 22.6% 12.6% 30.4% 20.9% 11.6%
114.4
$1.11
$1.08
72.4
$0.70
$0.68
57.5
$0.56
$0.55
38.7
$0.38
$0.37
132.6
$1.30
$1.26
41.6
$0.41
$0.40
8.4
$0.08
$0.08
Net (Loss) Income
Basic EPS
Diluted EPS
Adjusted EBITDA1
Adjusted EBITDA Margin1
Adjusted Net Income1
Adjusted Basic EPS1
Adjusted Diluted EPS1
Balance Sheet and Cash Flow
Cash and cash equivalents
644.3
674.9
558.1
Cash (used in) provided by operating
activities
Cash used in investing activities
Free Cash Flow1
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
(30.4)
(42.3)
(30.1)
(28.2)
207.3
175.3
111.6
(6.8)
84.1
493.1
(62.9)
(8.3)
(79.4)
562.7
230.1
(19.6)
211.3
360.5
85.8
310.7
94.2
(22.7)
(46.9)
65.8
69.0
262.3
9.0
(64.0)
(6.5)
Seasonality factors cause the Company's operating results to fluctuate 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.
Toy Gross Product Sales1 volume was pulled forward from the third quarter into the first and second quarters of
2022 as retailers ordered earlier in the year to minimize supply chain disruptions. In addition, the third and
fourth quarters of 2022 were pressured by the macroeconomic environment, particularly from higher inflation
compounded by foreign exchange volatility and a carry-over of inventory at retail from the first half of 2022.
These factors resulted in a strong first half of 2022 with Toy Gross Product Sales1 representing 45 percent of
the annual Toy Gross Product Sales1. The Company expects Toy Gross Product Sales1 seasonality to return to
historical trends of 30 percent to 35 percent in the first and second quarter cumulatively, as compared to 2022.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
32
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2022, the Company had cash and cash equivalents of $644.3 million (December 31, 2021
- $562.7 million).
The Company has an unsecured five-year revolving credit facility (the "Facility") with a borrowing capacity of
$510.0 million which 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 are being amortized over the term of the amended and restated agreement.
As at December 31, 2022, there were $1.4 million (December 31, 2021 - $$0.4 million) in letters of credit
outstanding under the Facility. As at December 31, 2022, there was $nil drawn (December 31, 2021 - $nil)
under the Facility.
The Company has an uncommitted Overdraft Facility Agreement (the "European Facility") for €15.0 million
(US$16.1 million). The European Facility will be used to fund working capital requirements in Europe. As at
December 31, 2022, the outstanding balance was $nil (December 31, 2021 - $nil).
The Company has an uncommitted Revolving Credit Facility to finance television and film production. The limit
of the credit facility (the "Production Facility") is 10.0 million CAD (US$7.4 million). As at December 31, 2022,
the outstanding balance of the Production Facility was $nil (December 31, 2021 - $nil).
As at December 31, 2022, the Company had unutilized liquidity of $1,154.3 million, comprised of $644.3 million
in Cash and cash equivalents and $510.0 million under the Company's credit facilities.
The Company’s primary source of liquidity is cash flow from operations. The Company’s primary capital needs
are related to inventory financing, accounts payable funding, and capital expenditures for Toys tooling,
Entertainment content creation and production, Digital Games development and to fund strategic acquisitions
and minority investments. 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, however, may be
impacted by the factors discussed below.
The Company paid its first quarterly dividend in the third quarter of 2022. The declaration and payment of
dividends on the Company’s subordinate voting shares and multiple voting shares and the amount thereof are
at the discretion of the Company’s Board of Directors, which considers the Company’s financial results, capital
requirements, available cash flow, future prospects of the Company’s business and other factors considered
relevant from time to time.
Cash flows from operations could be negatively impacted by lower demand for the Company’s products, which
may result from factors such as adverse economic conditions and changes in 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.
33
The Company expects that cash on hand, future operating cash flows and the amount available under its
committed credit facility, are sufficient to finance capital expenditures and ongoing business requirements over
the next 12 months. However, in order to manage its capital allocation, the Company may adjust the amount of
dividends paid to shareholders or whether dividends are paid at all, purchase shares for cancellation under its
Normal Course Issuer Bid (the "NCIB") program, issue new shares or issue or repay borrowings to ensure
sufficient liquidity is available to support its financial obligations, and to execute its operating and strategic plan.
The Company may also adjust its capital structure in light of changes in economic conditions, utilize short-term
funding sources to manage its seasonal working capital requirements and long-term funding sources to
manage the long-term capital investments of the business.
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 1.0
billion CAD 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 750.0 million CAD,
expired during the third quarter of 2021.
Capital and Investment Framework
Over the long term, the Company plans to use its cash on hand, cash from operations and its committed credit
facility 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 of toys,
entertainment content production and digital games development.
34
CASH FLOW
The following table provide a summary of Spin Master’s consolidated cash flows for the three months ended
December 31, 2022 and 2021:
(US$ millions)
Q4 2022
Q4 2021
$ Change
Net cash flows (used in) provided by operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net (decrease) 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
(6.8)
(28.2)
(8.5)
(43.5)
12.9
674.9
644.3
230.1
(19.6)
(3.5)
207.0
(4.8)
360.5
562.7
(236.9)
(8.6)
(5.0)
(250.5)
17.7
314.4
81.6
The following table provides a summary of Spin Master’s consolidated cash flows for the year ended
December 31, 2022 as compared to the same period in 2021:
(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
Year Ended Dec 31
2022
249.3
(109.2)
(20.3)
119.8
(38.2)
562.7
644.3
2021
419.1
(153.2)
(18.3)
247.6
(5.5)
320.6
562.7
$ Change
(169.8)
44.0
(2.0)
(127.8)
(32.7)
242.1
81.6
Cash from Operating Activities as compared to the same period in 2021:
Cash flows used in operating activities were $6.8 million for the three months ended December 31, 2022
compared to cash flows provided by operating activities of $230.1 million driven by the change in net working
capital (a decrease of $1.9 million as compared to an increase of $167.3 million in the comparative period) and
lower Operating Income as a result of customers ordering earlier in the current year.
Cash flows provided by operating activities were $249.3 million for the year ended December 31, 2022
compared to $419.1 million driven by the change in net working capital (a decrease of $67.7 million as
compared to an increase of $49.9 million in the comparative period) and higher income taxes paid, offset by
higher Operating Income.
35
The following table provides a summary of Spin Master’s net changes in non-cash working capital for the year
ended December 31, 2022 as compared to the same period in 2021:
(US$ 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
Net changes in non-cash working capital
Net Working Capital1
Year Ended Dec 31
2022
2021
$ Change
61.4
0.6
37.4
(11.4)
—
88.0
(157.3)
0.6
1.0
(155.7)
(67.7)
(48.7)
8.3
(31.7)
4.7
(5.7)
(73.1)
147.4
(14.5)
(9.9)
123.0
49.9
110.1
(7.7)
69.1
(16.1)
5.7
161.1
(304.7)
15.1
10.9
(278.7)
(117.6)
The table below outlines key financial information pertaining to the Company's net working capital:
(US$ millions)
Trade receivables, net1,5
Other receivables2,5
Inventories, net3
Prepaid expenses and other assets
Current assets
Trade payables
Accrued liabilities4
Deferred revenue
Provisions
Current liabilities
Dec 31,
2022
Dec 31,
2021
$ Change
311.0
49.5
105.1
22.3
487.9
153.0
186.4
11.5
30.7
381.6
352.4
38.8
137.4
19.5
548.1
274.7
201.7
10.9
25.1
512.4
(41.4)
10.7
(32.3)
2.8
(60.2)
(121.7)
(15.3)
0.6
5.6
(130.8)
70.6
Net working capital
1 Trade receivables are net of allowance for doubtful accounts and provisions for sales allowances. Refer to Note 11 of the annual financial
statements.
2 Other receivables include investment tax credits receivable, royalties, sales tax and other balances. Refer to Note 11 of the annual financial
statements.
106.3
35.7
3 Inventories are net of write-downs. Refer to Note 12 of the annual financial statements.
4 Accrued liabilities are comprised of payroll related liabilities, accrued royalties, commodity tax, dividends payable and other balances. Refer to Note
18 of the annual financial statements.
5 Certain Entertainment receivables totaling $24.5 million from the prior year have been reclassified from Other receivables to Trade receivables to
conform with current year presentation.
Total net working capital increased by $70.6 million to $106.3 million at December 31, 2022 from $35.7 million.
Excluding the impact of foreign exchange, total net working capital increased by $67.7 million.
Trade receivables, net, decreased by $41.4 million to $311.0 million at December 31, 2022 from $352.4 million,
driven by lower sales in the second half of 2022 compared to the prior year attributable to customers ordering
earlier in the current year.
Other receivables increased by $10.7 million to $49.5 million at December 31, 2022 from $38.8 million, driven
by an increase in investment tax credits receivables and royalty receivables.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"
36
Inventories decreased by $32.3 million to $105.1 million at December 31, 2022 from $137.4 million, due to the
Company's focus on optimizing inventory levels as well as lower in-transit inventory resulting from an easing of
supply chain restrictions and delays.
Trade payables and accrued liabilities decreased by $137.0 million to $339.4 million at December 31, 2022
from $476.4 million, driven by the timing of payments in line with the seasonality of the business.
Investing Activities as compared to the same period in 2021:
The following table provide a summary of Spin Master’s consolidated cash flows used in investing activities for
the three months ended December 31, 2022 and 2021:
(US$ millions)
Property, plant and equipment
Tooling
Other
Total property, plant and equipment
Intangible assets
Entertainment content and Digital Games development
Computer software
Brands, licenses and trademark acquisitions
Total intangible assets
Total capital expenditures
Business acquisitions, net of cash acquired
Minority interest and other investments, net of investment
distribution income
Cash used in investing activities
Q4 2022
Q4 2021
$ Change
5.5
2.0
7.5
14.8
1.0
—
15.8
23.3
1.4
3.5
28.2
4.3
(1.1)
3.2
14.6
0.5
0.5
15.6
18.8
0.7
0.1
19.6
1.2
3.1
4.3
0.2
0.5
(0.5)
0.2
4.5
0.7
3.4
8.6
Cash used in investing activities was $28.2 million for the three months ended December 31, 2022 compared to
$19.6 million primarily as a result of higher investments related to Minority interest and other investments in the
current year and investments in Tooling.
The following table provides a summary of Spin Master’s consolidated cash flows used in investing activities for
the year ended December 31, 2022 as compared to the same period in 2021:
(US$ millions)
Property, plant and equipment
Tooling
Other
Total property, plant and equipment
Intangible assets
Entertainment content and Digital Games development
Computer software
Brands, licenses and trademark acquisitions
Total intangible assets
Total capital expenditures
Business acquisitions, net of cash acquired
Minority interest and other investments, net of investment
distribution income
Proceeds from sale of manufacturing operations
Cash used in investing activities
Year Ended Dec 31
2022
2021
$ Change
23.0
7.4
30.4
63.7
4.8
0.5
69.0
99.4
11.6
7.4
(9.2)
109.2
22.8
3.6
26.4
50.3
1.8
1.0
53.1
79.5
70.9
2.8
—
153.2
0.2
3.8
4.0
13.4
3.0
(0.5)
15.9
19.9
(59.3)
4.6
(9.2)
(44.0)
For the year ended December 31, 2022, cash used in investing activities was $109.2 million compared to
$153.2 million. The decline was primarily related to a $59.3 million decrease in Business acquisitions, net of
cash acquired in the current year for certain assets of SolidRoots and Nørdlight compared to the acquisitions of
Rubik's, Originator and certain assets from a product invention and development company in the prior year,
offset in part by higher investments in Entertainment content and Digital Games development.
37
Financing Activities as compared to the same period in 2021:
Cash flows used in financing activities were $8.5 million for the three months ended December 31, 2022
compared to $3.5 million primarily from the payment of cash dividends, offset by lower payment of lease
liabilities.
For the year ended December 31, 2022, cash flows used in financing activities were $20.3 million compared to
$18.3 million due to the payment of cash dividends, offset by lower payment of lease liabilities.
Free Cash Flow1 as compared to the same period in 2021:
The following table provides a reconciliation of Spin Master’s consolidated Free Cash Flow1 to cash from
operating activities and cash used in investing activities for the three months ended December 31, 2022 and
2021:
(US$ millions)
Q4 2022
Q4 2021
$ Change
Cash flows (used in) 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
Minority interest and other investments
Free Cash Flow1
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
(6.8)
(28.2)
0.4
—
1.0
3.5
230.1
(19.6)
0.7
0.1
—
—
(236.9)
(8.6)
(0.3)
(0.1)
1.0
3.5
(30.1)
211.3
(241.4)
Free Cash Flow1 was $(30.1) million for the three months ended December 31, 2022 compared to $211.3
million, a decrease of $241.4 million. Free Cash Flow1 decreased primarily due to lower revenue and
collections in the current quarter as a result of customer shifts towards earlier quarters in the current year
compared to the prior year.
The following table provide a reconciliation of Spin Master’s consolidated Free Cash Flow1 to cash from
operating activities and cash used in investing activities for the year ended December 31, 2022 as compared to
the same period in 2021:
(US$ 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 distribution income
Investment in limited partnership
Minority interest and other investments
Proceeds from sale of manufacturing operations
Free Cash Flow1
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
Year Ended Dec 31
2022
249.3
(109.2)
10.6
1.0
(0.1)
—
7.5
(9.2)
2021
419.1
(153.2)
70.9
—
(0.6)
1.0
2.4
—
$ Change
(169.8)
44.0
(60.3)
1.0
0.5
(1.0)
5.1
(9.2)
149.9
339.6
(189.7)
For the year ended December 31, 2022, Free Cash Flow1 was $149.9 million compared to $339.6 million, a
decrease of $189.7 million. Free Cash Flow1 decreased primarily due to lower cash flows provided by operating
activities, which was in turn driven by the increase in net working capital.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
38
OUTLOOK
The Company expects 2023 Toy Gross Product Sales1 to be flat to slightly down compared to 2022.
The Company expects 2023 Toy Gross Product Sales1 seasonality to return to historical averages of 30%-35%
in the first half of the year.
The Company expects 2023 Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 to be in
line with 2022.
The Company expects 2023 Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution
Revenue1 to be flat to slightly up compared to 2022.
CONTRACTUAL OBLIGATIONS & COMMITMENTS
In the normal course of business, Spin Master enters into contractual arrangements to obtain and protect
Spin Master’s right to create and market certain products and to ensure availability and timely delivery of future
purchases of goods and services. These arrangements include commitments for future services, purchases,
commitments to settle foreign currency forward contracts and royalty payments pursuant to licensing
agreements. Certain of these commitments routinely contain provisions for guarantees or minimum
expenditures during the terms of the contracts. Additionally, Spin Master routinely enters into non-cancellable
lease agreements for premises and equipment, which contain minimum rental payments.
The following table summarizes Spin Master's contractual commitments and obligations as at December 31,
2022, which are primarily for the leasing of offices and related office equipment and minimum guarantees due
to licensors. The leases have been entered into with terms of between two and twelve years in length and
minimum guarantees to licensors are primarily due within 24 months.
(US$ millions)
<1 Year
1-5 Years
> 5 Years
Total
Lease obligations - undiscounted
Guaranteed payments due to licensors
Other
Total commitments
14.8
21.0
6.2
42.0
39.6
27.6
13.9
81.1
39.2
—
—
39.2
93.6
48.6
20.1
162.3
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.
CAPITALIZATION
Share Capital
As at March 8, 2023, there were 102.9 million shares outstanding comprised of 68.7 million multiple voting
shares and 34.2 million subordinate voting shares.
As of March 8, 2023, pursuant to grants under the Company's Long-Term Incentive Plan, 1.1 million
subordinate voting shares were issuable under outstanding Restricted Stock Units, up to 2.0 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.
Dividends in the amount of $4.6 million were paid on October 14, 2022 to shareholders of record at the close of
business on September 30, 2022. Dividends in the amount of $4.6 million were accrued on December 31, 2022
and paid on January 13, 2023 to shareholders of record at the close of business on December 30, 2022.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
39
On March 8, 2023, the Company’s Board of Directors declared a dividend of 0.06 CAD per outstanding
subordinate voting share and multiple voting share, payable on April 14, 2023 to shareholders of record at the
close of business on March 31, 2023.
Secondary Offering
On November 10, 2022, the Company announced a secondary offering (the “Secondary Offering”) on a bought
deal basis of its subordinate voting shares through a secondary sale of shares by an entity owned and or
controlled by a Director of the Company (the “Selling Shareholder”). The Secondary Offering of 1,900,000
subordinate voting shares raised gross proceeds of approximately 61.0 million CAD for the Selling Shareholder,
at a price of 32.10 CAD per subordinate voting share and was completed on November 17, 2022. The
Company did not receive any proceeds from the Secondary Offering, and the underwriting fees and other
expenses related to the Secondary Offering were paid by the Selling Shareholder. To satisfy the sale under the
Secondary Offering, the Selling Shareholder converted 1,900,000 multiple voting shares into subordinate voting
shares on a one-for-one basis.
Normal Course Issuer Bid
On January 5, 2023, the Company launched, and the Toronto Stock Exchange ("TSX") accepted the notice to
launch a Normal Course Issuer Bid (the "NCIB"). Under the NCIB, the Company may repurchase its
subordinate voting shares on the open market at its discretion and subject to compliance with applicable
securities laws. The NCIB period commenced on January 9, 2023, and will end on the earlier of January 8,
2024 and the completion of purchases under the NCIB, up to 2,845,904 subordinate voting shares, which
represents approximately 10% of the "public float" (within the meaning of the rules of the TSX). Under the TSX
rules, daily purchases on the TSX pursuant to the NCIB will be limited to 20,814 subordinate voting shares,
other than purchases made pursuant to the block purchase exception. As at March 8, 2023, no shares have
been purchased under the NCIB.
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 MD&A (as
updated by subsequent interim MD&A) and those risks set out in the Company’s most recently filed
Annual Information Form 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. 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. These factors are also currently, and in the future may be, amplified by
the global economic or geopolitical climate and additional or unforeseen circumstances,
developments, or risks, including pandemics or other public health crises. 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, entertainment
properties, and digital games products 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, entertainment properties, and
digital games products 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, entertainment properties, and digital games
products. If the Company is unable to anticipate consumer preferences, its products, brands, entertainment
properties, and digital games products may not be accepted by children, parents, or families, demand for the
Company’s products, brands, entertainment properties, and digital games products could decrease and Spin
Master’s business, financial condition and performance could be materially and adversely affected.
40
Spin Master’s business and financial performance depend largely upon the appeal of its products, brands,
entertainment properties, and digital games products. Failure to anticipate, identify and react to changes in
children’s interests and consumer preferences could significantly lower sales of its products, brands,
entertainment properties, and digital games products 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 from year to year and season to season and are difficult to
anticipate. Significant, sudden shifts in demand are caused by customer preferences, technologies and trends,
which are often unpredictable and can result in short consumer life cycles. 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, entertainment properties, and digital games products or
the failure of Spin Master’s original products, brands, entertainment properties, and digital games products 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 games 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.
41
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
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.
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 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
42
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.
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, inflation, rising interest rates and
mortgage rates, 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, inflation, rising interest rates and mortgage rates, 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.
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.
During periods of increased cost inflation, Spin Master has increased prices of certain products, and may in the
future need to increase prices further in order to cover increased costs of goods sold, which may reduce
demand for products. There can be no guarantee that Spin Master will be able to successfully increase prices
in the future or that the price increases Spin Master has already taken will offset the entirety of additional costs
it has incurred and may incur in the future. The inability to adequately increase prices to offset increased costs
and inflationary pressures, or otherwise mitigate the impact of these macro-economic conditions and market
disruptions, may also increase costs and/or decrease profit margins.
While historically the Company’s sales have been resilient to recessionary environments, there is no assurance
that this historical trend will continue, or that increased inflation or price sensitivity on the part of retailers or
consumers will not have an effect on Spin Master’s sales. Any reduction in discretionary spending by
consumers in the face of macroeconomic factors could unfavourably impact the Company’s future sales and
materially and adversely affect its financial performance and results of operations.
43
Disruptions in Spin Master’s manufacturing operations or supply chain due to political instability, civil
unrest, future pandemic or other public health crises, or earthquakes or other natural disasters outside
of Spin Master’s control, and actions taken by governments, businesses, and individuals in response
to such events have adversely affected and could further adversely affect Spin Master’s business,
financial position, sales, and results of operations.
Spin Master’s business and operations could be materially and adversely affected by political instability, civil
unrest, future pandemics or other public health crises, earthquakes, natural disasters, and other natural or man-
made economic, political, or environmental disruptions. Disruptions, and government responses to any
disruption, could adversely affect Spin Master’s business, financial position, sales, and results of operations
and may vary based on the length and severity of the disruption. For example, the COVID-19 pandemic and the
actions taken by governments, businesses, and individuals in response thereto affected how Spin Master and
its suppliers and partners operated their businesses, caused supply chain disruption and retail store closures,
and adversely affected Spin Master’s operating results. While the impact of the COVID-19 pandemic has
largely subsided, the impact of any new outbreaks of COVID-19, other variants, or other public health crises on
Spin Master’s business and financial results will depend on future developments, which are highly uncertain
and cannot be predicted.
The Company 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.
Furthermore, a catastrophic event where Spin Master or its third-party manufacturers and suppliers has
important operations, such as an earthquake, tsunami, flood, typhoon, fire, power outage or other natural or
manmade disaster, including as a result of climate change, could disrupt Spin Master’s operations or those of
its business partners and impair production or distribution of its products, damage inventory, interrupt critical
functions, or otherwise affect its business negatively.
The impact of these events could further result in:
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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 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; and
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.
Any one of these factors, or a combination thereof, could impact Spin Master’s ability to meet demand for its
products or could increase the costs of 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. Insurance for certain disruptions may not be available or affordable. Such
disruptions in the markets in which Spin Master, its employees, consumers, customers, business 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, liquidity, financial position, sales, and results of
operations. In addition, the contingency plans the Company has developed to help mitigate the impact of
disruptions in its operations, have not and may not prevent its business, financial position, sales, and results of
operations from being adversely affected by a significant disruption to its operations, suppliers or demand for
the Company’s products.
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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.
Spin Master’s business is subject to seasonality factors, and therefore its annual financial performance
depends, in large part, on its sales relating to the holiday seasons and the timing of its product
launches. 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.
Typically, a large percentage of the Company’s Toy revenue is concentrated in the third and fourth quarters,
with a large percentage of retail sales occurring during the period from September through December in
anticipation of the traditional 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, wars or other conflicts, 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.
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.
45
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 the Company’s 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 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, including the impacts of climate change (which have resulted in rolling blackouts in China in
previous years), 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
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:
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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.
46
Significant increases in the price of commodities, transportation, or labour, if not offset by declines in
other input costs, or a reduction or interruption in the delivery of raw materials, components, and
finished products from Spin Master’s vendors, could adversely affect Spin Master’s business, financial
condition, and results of operations.
Cost increases, whether resulting from rising costs of materials, transportation, services, labour, or compliance
with existing or future regulatory requirements, impact the profit margins realized by Spin Master on the sale of
its products. Because of market conditions, timing of pricing decisions, and other factors, there can be no
assurance that Spin Master will be able to offset any of these increased costs by adjusting the prices of its
products. Increases in prices of Spin Master’s products may not be sustainable and could 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 its suppliers and internal manufacturing capacity. Additionally,
as Spin Master cannot guarantee the stability of its major suppliers, major suppliers may stop manufacturing
components at any time with little or no notice. If Spin Master is required to use alternative sources, it may be
required to redesign some aspects of the affected products, which may involve delays and additional expense.
Reductions or interruptions in supplies or in the delivery of finished products, whether resulting from more
stringent regulatory requirements, disruptions in transportation, port delays, labour strikes or disputes, lockouts,
loss or impairment of key manufacturing facilities, discontinuity or disruptions in information technology
systems, changes in trade policy, an outbreak of a severe public health crisis, natural disasters, including
severe weather due to climate change or otherwise, the occurrence or threat of wars or other conflicts, or a
significant increase in the price of one or more supplies (or an inability to procure sufficient supplies), such as
fuel or resin (which is an oil-based product used in plastics), or otherwise, have at times adversely affected and
could in the future adversely affect Spin Master business, financial condition, and results of operations.
Additionally, the Company is looking to reduce the amount of virgin plastic it uses and to use sustainable
alternatives where available. The availability, efficacy and cost effectiveness of these materials is essential to
the future of Spin Master’s business, and an inability to continue to source these sustainable alternatives could
in the future adversely affect Spin Master business, financial condition, and results of operations.
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
47
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
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.
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
48
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, 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.
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,
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 or the compromise of
our source code and games assets. Cyberattacks could also include supply chain attacks, which could cause a
delay in the manufacturing of the Company’s products. Such incidents could also lead to product source codes
and game distribution platform exploitation, should undetected viruses, spyware, or other malware be inserted
into our products, services, or networks. 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. 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
and digital games business, 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.
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. If Spin Master does not allocate and effectively manage the resources necessary
to build and sustain the proper technology infrastructure, it could be subject to transaction errors, processing
inefficiencies, loss of customers, business disruptions, or loss of or damage to intellectual property through
security breach. Many of these systems are managed by third-party service providers. The Company relies on
such third parties to provide services on a timely and effective basis, but the Company ultimately does not
49
control their performance. The Company is critically dependent on the integrity, security and consistent
operations of these systems and related back-up systems. In addition, Spin Master’s distributors, suppliers, and
other external business partners utilize their own information technology systems that are subject to similar
risks to Spin Master as described above. Their failure to perform as expected or as required by contract, or a
cyber-attack on them that disrupts their systems, could result in significant disruptions and costs to Spin
Master’s operations or, in the case of third- party service providers, a penetration of Spin Master’s 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 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.
50
Spin Master’s relationships with entertainment collaborators,
including writers, content developers,
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.
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.
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
51
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, which could result in liability to the
Company or reputational harm among the Company’s customers.
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
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
52
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.
Political developments, including trade relations, and the threat or occurrence of war or terrorist
activities, and/or trade actions could adversely impact Spin Master, its personnel and facilities, its
customers and suppliers, retail and financial markets, and general economic conditions.
Spin Master’s business is worldwide in scope, and can be directly and indirectly impacted in a negative way by
geopolitical tensions. Political instability, civil unrest, the deterioration of the political, economic, or social
situation in a country in which Spin Master has significant sales or operations, or 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 implemented certain trade actions directed at China, including imposing increased tariffs on certain
goods imported into the U.S. from China. China has also implemented various trade actions directed at the
United States. Further trade actions by the United States or China could result in diverting more production to,
or sourcing from, countries other than China, and could cause customers in some countries or regions, such as
China, to seek domestic or non-U.S. sources for products that Spin Master sells, or to be pressured or
incentivized by foreign governments not to purchase goods of U.S. or Canadian companies, all of which could
harm Spin Master’s future sales in these markets.
In addition, the United States, United Kingdom, and European Union, among other jurisdictions, have each
imposed export controls, as well as financial and economic sanctions, currency controls, and other trade
actions, on certain products, technologies, industry sectors, and parties in Russia as a result of the Russia-
Ukraine war, which have resulted and could further result in retaliatory measures and actions by Russia. Any
increased trade barriers or restrictions on global trade imposed by the U.S., or further retaliatory trade
measures taken by China, Russia or other countries in response, could adversely affect Spin Master’s
business, financial condition and performance.
The occurrence of war or hostilities between countries or threat of terrorist activities, and the responses to and
results of these activities, could adversely impact Spin Master, its personnel and facilities, its customers and
suppliers, retail and financial markets, and general economic conditions.
53
Global climate change, evolving stakeholder expectations for corporate responsibility matters, and
Spin Master’s related goals present challenges to its business and reputation that could adversely
affect Spin Master.
The effects of global climate change create financial, operational, and reputational risks to Spin Master’s
business, both directly and indirectly. There is a general consensus that greenhouse gas (“GHG”) emissions
are linked to global climate change, and that these emissions must be reduced dramatically to avert the worst
effects of climate change. Spin Master’s operations may be vulnerable to the adverse effects of climate change,
which are predicted to increase the frequency and severity of weather events and other natural cycles such as
wildfires, heatwaves, floods, and droughts. The effects of climate change may cause disruptions in Spin
Master’s operations, including its supply chain and the productivity of its third-party manufacturers, increase
Spin Master’s production costs, impose capacity restraints, and impact the types of products that consumers
purchase, including for example an increased focus on eco-friendly toys, all of which may cause Spin Master to
suffer losses and additional costs to maintain or resume operations. Spin Master may be subject to decreased
availability or less favorable pricing for certain commodities that are necessary for Spin Master’s products. In
addition, Spin Master may incur capital expenditures, compliance costs, and other costs to comply with
increasingly stringent environmental laws and enforcement policies.
There are also certain areas, for example, the Pearl River Delta in southern China, which are major areas for
toy manufacturing, but are also subject to severe flood threats from watershed floods, sea level rise and storm
surges. Increased heat could cause working conditions to deteriorate for those employed in physical labour in
the Company’s supply chains. Increased heat has also led to blackouts and brownouts in certain parts of the
world, which would also impact the ability of the Company’s employees and supply chains to be productive or
to access the Company’s systems. Droughts or inadequate water supply in certain parts of the world could also
have a negative impact on the Company’s manufacturing facilities, for example in France, where the facilities
are powered by nuclear energy which requires water to cool. Similarly, in areas where the Company may be
powered by hydroelectric energy, such as in Canada or in certain parts of China, inadequate water supply could
lead to a lack of energy production. This could be a risk in the medium and long-term for the Company.
A variety of stakeholders, including regulators, investors, advisory firms, rating agencies, and customers, are
establishing laws, regulations, expectations, and/or assessments reflecting their expectations for corporate
practices related to climate change and other corporate responsibility matters. In 2022, Spin Master announced
its intention to develop and release a climate action plan. Spin Master has previously purchased offsets relating
to Scope 1 and 2 GHG emissions, as well as some of the Company’s Scope 3 GHG emissions. The Company
has also planned for a 50% reduction in plastic packaging by 2025 and utilizing eco-friendly inks on 50% of
packaging by 2025. Spin Master has subsequently established additional goals related to environmental,
social, and governance (“ESG”) matters, some of which is detailed in the Company’s Corporate Social
Responsibility reports, available on its website. Such goals are based on management’s current assumptions
related to scientific or technological developments, carbon markets, the workforce and hiring market, and other
matters that are subject to change in the future, as well as standards for measuring progress that are still in
development, and subject to a number of significant risks and uncertainties. Spin Master’s efforts to be
responsive to climate change, to reduce its carbon footprint, and regarding other ESG matters cannot provide
assurance that Spin Master will successfully achieve its ESG goals, that related costs may not be higher than
expected, that proposed regulation or deregulation related to climate change and other ESG matters will not be
more aggressive than Spin Master’s measures and result in higher costs (or require additional resources), or
that any investments Spin Master makes in furtherance of achieving such goals will meet expectations or any
applicable binding or non-binding legal standards, any one of which could have an adverse effect on Spin
Master’s financial condition, results of operations, or reputation.
Spin Master’s failure, or perceived failure, to achieve its goals regarding climate change or other ESG matters
could damage its reputation, causing investors, consumers, and other stakeholders to lose confidence in Spin
Master and its brands, and negatively impact Spin Master’s operations. Climate-related litigation has increased
in recent years, including claims involving the failure of organizations to mitigate their impacts on climate
change, the failure of organizations to adapt to climate change, and the insufficiency of disclosure around
material financial risks or inaccuracy of climate-related disclosure. Additionally, as consumers and customers
continue to put an increased priority on purchasing products that are sustainably manufactured and packaged,
Spin Master may need to incur increased costs in order to effectively source materials that are more
sustainable, as well as increased costs for additional transparency, due diligence, and reporting. If Spin
Master’s ESG practices do not meet, or are not viewed as meeting, investor or other stakeholder expectations
and standards (which are continually evolving and may emphasize different priorities than the ones Spin Master
chooses to focus on), or if Spin Master does not or appears not to achieve its ESG goals, then Spin Master’s
brand, reputation, and employee retention may be negatively impacted. Furthermore, if regulators disagree with
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the Company’s ESG disclosures, for example because they believe them to be incomplete or misleading, the
Company may face regulatory enforcement action, and its business or reputation could be adversely affected.
There is also a risk that a significant reorientation in the market following the implementation of measures
relating to ESG disclosure requirements could be adverse to the Company’s business if the Company is
perceived to be presenting a product or business as having green or sustainable characteristics where this is
not, in fact, the case (i.e., “greenwashing”). Additionally, compliance with any new regulations or laws generally
increases the Company’s regulatory burden and could make compliance more difficult and expensive, thereby
adversely impacting the Company’s financial position.
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, systems,
technological, personnel or financial problems associated with the integration of acquired businesses. The need
to integrate the operations, systems, technologies, products and personnel of each acquired company, the
inefficiencies and lack of control that may result if such integration is delayed or not implemented, and
unforeseen difficulties and expenditures that may arise in connection with integration. 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. Acquisitions of
businesses and brands could also be adversely affected by changes in Spin Master’s business strategy. 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.
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Acquisitions also entail numerous other risks, including but not limited to:
• 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
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
56
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.
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, screen time, cybersecurity and privacy and data
protection, as well as other administrative and regulatory restrictions. In addition, as Spin Master enters into
new areas of investment, product development, or other business activities, it will have to learn to navigate the
regulatory framework surrounding those areas, which may be continuing to develop. The steps Spin Master
takes to comply with these laws, regulations, and policies do not ensure that Spin Master will be in compliance
in the future. Compliance with these various laws, regulations, and policies imposes significant costs on Spin
Master’s business, and failure to comply could result in monetary liabilities and other penalties and could lead
to negative media attention and consumer dissatisfaction, which could have an adverse effect on Spin Master’s
business, financial condition, and results of operations.
Many foreign countries have laws that permit governmental entities to restrict or prohibit marketing or
distribution of interactive entertainment software products (and similar legislation has been introduced at one
time or another at the federal and state levels in the U.S., including legislation that attempts to impose
additional taxes based on content). In addition, certain jurisdictions have laws that restrict or prohibit marketing
or distribution of interactive entertainment software products with random digital item mechanics, which some of
our online games and services include, or subject such products to additional regulation and oversight, such as
reporting to regulators, mandatory disclosure to consumers of item drop rates, and higher age ratings for
products that contain such mechanics.
In addition, changes in laws or regulations may lead to increased costs, changes in the Company’s effective tax
rate, including with respect to changes related to the a new global minimum tax regime (“Pillar Two”), 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.
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In addition, increases in import and excise duties and/or sales or value added taxes in the jurisdictions in which
Spin Master operates could affect the affordability of Spin Master’s products and, therefore, reduce demand.
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
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.
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 Games creative centres.
The loss of services of any of the Company’s key personnel could harm its business. Labour shortages and
increased labour costs as a result of increased competition for qualified talent, higher employee turnover rates,
increases in employee benefit costs, wage inflation, strikes, or other employee-related disruptions to Spin
Master’s workforce can negatively impact its business. In addition, changes to Spin Master’s current and future
work environments may not meet the needs or expectations of its employees or be perceived as less favorable
compared to other companies’ policies, which could negatively impact Spin Master’s ability to hire and retain
58
qualified personnel. Recruiting and retaining skilled personnel is costly and highly competitive around the world.
If the Company fails to retain, hire, train and integrate qualified employees and contractors, it may not be able
to maintain and expand its business.
Natural disasters or other catastrophic events out of Spin Master’s control may damage its operations,
facilities or those of its contractors and could materially and adversely affect the Company’s business,
financial condition and performance.
A catastrophic event where Spin Master has operations, offices or manufacturing facilities, such as an
earthquake, tsunami, flood, typhoon, fire or other natural or manmade disaster, terrorist attacks, wars and other
conflicts, or an outbreak of a public health pandemic could disrupt the Company’s operations or those of its
contractors and impair production or distribution of its products, damage inventory, interrupt critical functions, or
otherwise affect its business negatively, and could materially and adversely affect the Company’s business,
financial condition and performance.
Increases in interest rates, the lack of availability of credit and Spin Master’s inability to meet the debt
covenant coverage requirements in its credit facility could negatively impact the Company’s ability to
conduct its business operations.
Increases in interest rates, both domestically and internationally, could negatively affect Spin Master’s cost of
financing its operations and investments. Adverse credit market conditions could limit the Company’s ability to
refinance its existing credit facility and raise additional debt that may be needed to fund the Company’s
operations. Additionally, Spin Master’s ability to issue or borrow long-term debt and obtain seasonal financing or
pay dividends could be adversely affected by factors such as an inability to meet certain debt covenant
requirements and ratios. In the past, the Company’s business has required and will continue to require capital
expenditures and available resources to finance acquisitions. Accordingly, Spin Master’s ability to maintain its
current credit facility and its ability to issue or borrow long-term debt and raise seasonal financing are critical for
the success of Spin Master’s business. The Company’s ability to conduct operations could be materially and
adversely impacted should these or other adverse conditions affect the Company’s sources of liquidity.
Negative publicity and product reviews may negatively impact Spin Master’s business, financial
condition and performance.
There has been a marked increase in the use of social media platforms and similar channels, including weblogs
(blogs), social media websites and other forms of Internet-based communications that provide individuals with
access to a broad audience of consumers and other interested persons. The availability and impact of
information on social media platforms is virtually immediate and the accuracy of such information is not
independently verified. The opportunity for dissemination of information, including inaccurate information, is
seemingly limitless and readily available. Information concerning Spin Master or one or more of its products or
employees may be posted on such platforms at any time. Information posted may be adverse to Spin Master’s
interests or may be inaccurate, each of which may harm the Company’s reputation and business. The harm
may be immediate without affording Spin Master an opportunity for redress or correction. Ultimately, the risks
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
59
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 it fails 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.
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.
The decision to pay dividends on the subordinate voting shares and multiple voting shares and the
amount of such dividends is subject to the discretion of Spin Master’s board of directors based on
numerous factors and may vary from time to time.
Although the Company currently pays quarterly cash dividends on its outstanding subordinate voting shares
and multiple voting shares, these cash dividends may be reduced or suspended. The amount of cash available
to the Company to pay dividends, if any, can vary significantly from period to period for a number of reasons,
including, among other things: the Company’s operational and financial performance; fluctuations in market
prices; the amount of cash required or retained for debt service or repayment; amounts required to fund capital
expenditures and working capital requirements; access to capital markets; foreign currency exchange rates and
interest rates; and the other risk factors set forth herein.
The decision whether or not to pay dividends and the amount of any such dividends are subject to the
discretion of the board of directors of the Company, which quarterly evaluates proposed dividend payments and
the solvency test requirements of the Business Corporations Act (Ontario). In addition, the level of dividends
per subordinate voting share and multiple voting share will be affected by the number of outstanding
subordinate voting shares and multiple voting shares and other securities that may be entitled to receive cash
dividends or other payments. Dividends may be increased, reduced or suspended depending on the
Company’s operational success. The market value of subordinate voting shares may deteriorate if the
Company is unable to meet dividend expectations in the future, and that deterioration may be material.
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The market price of the subordinate voting shares has been volatile.
Volatility in the Company’s business can result in significant subordinate voting share price and volume
fluctuations. Factors such as changes in the Company’s operating results, announcements by the Company’s
customers, competitors or other events affecting companies in the toy, entertainment or digital games
industries, currency fluctuations, general market fluctuations, macro-economic conditions, and public health
crises may cause the market price of the subordinate voting shares to decline. In addition, if the Company’s
operating results do not meet the expectations of securities analysts or investors, the price of the subordinate
voting share could decline. Furthermore, the existence of the Company’s NCIB may cause the subordinate
voting share price to be higher than it would be in the absence of such a program, and repurchases under the
NCIB expose the Company to risks resulting from a reduction in the size of its “public float”, which may reduce
the Company’s trading volume as well as its subordinate voting share price.
There can be no assurance that the Company will repurchase subordinate voting shares for
cancellation.
Although the Company currently has an NCIB in effect, whether the Company repurchases subordinate voting
shares under such NCIB for cancellation, and the amount and timing of any such repurchases, is subject to
capital availability and periodic determinations by management and the board of directors that subordinate
voting share repurchases are in the best interest of the Company’s shareholders and are in compliance with all
applicable laws and agreements. Any future permitted subordinate voting share repurchases, including their
timing and amount, may be affected by, among other factors: the Company’s views on potential future capital
requirements for strategic transactions, including acquisitions; changes to applicable tax laws or corporate
laws; and changes to the Company’s business model. In addition, the amount the Company spends and the
number of subordinate voting shares the Company is able to repurchase for cancellation under any NCIB or
substantial issuer bid may further be affected by a number of other factors, including the price of the
subordinate voting shares and blackout periods in which the Company is restricted from repurchasing
subordinate voting shares (other than pursuant to an automatic share repurchase plan). The Company’s
subordinate voting share repurchases may change from time to time, and the Company cannot provide
assurance that it will repurchase any or, if commenced, continue to repurchase any subordinate for cancellation
in any particular amounts or at all. Once commenced, a reduction in or elimination of the Company’s
subordinate voting share repurchases could have a negative effect on the price of the subordinate voting
shares.
Pillar Two rules potential impact on Spin Master.
Certain jurisdictions of the Organization for Economic Co-operation and Development have agreed to
implement a new global minimum tax regime ("Pillar Two") based on model rules. The proposed Pillar Two
rules are intended to ensure that large multinational enterprises pay a minimum tax of 15% on the income
arising in each jurisdiction in which they operate. These rules may come into effect in 2024. Canada has
announced its intention to implement Pillar Two and is expected to release domestic legislation later in 2023.
We are actively monitoring future developments and any potential impact on the Company.
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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 or 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 periodically enters into derivative financial instruments such as foreign exchange forward
contracts to manage its foreign currency risk on cash flows denominated in currencies other than the US$.
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 may be exposed to interest rate risk should it borrow under its
credit facilities 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 52.2% and 52.6% of consolidated Toy Gross Product Sales1 for the years
ended December 31, 2022 and 2021 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 annually.
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. For the three months and year ended December 31, 2022, related party
transactions were included in administrative expenses in the Consolidated statements of earnings and
comprehensive income of the Company in the amount of $0.5 million (2021 - $0.3 million) and $1.3 million
(2021 - $1.3 million). As at December 31, 2022, amounts payable to the director's law firm were $0.4 million
(December 31, 2021 - $0.2 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.
62
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.
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
63
depending on future outcomes such as nature of the product, 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 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
28 of the Consolidated financial statements for further details on acquisitions.
National Instrument 51-107 Disclosure of Climate-related Matters
The Canadian Securities Administrators have issued a proposed National Instrument 51-107 Disclosure of
Climate-related Matters which details the additional reporting requirements for reporting issuers in Canada with
the proposed effective date for periods ending December 31, 2023. Emissions, carbon and other regulations
impacting climate and climate related matters are constantly evolving. With respect to environmental, social
and governance ("ESG") and climate reporting, the International Sustainability Standards Board has issued an
IFRS Sustainability Disclosure Standard with the goal to develop sustainability disclosure standards that are
globally consistent, comparable and reliable. The Company continues to monitor progress on these reporting
requirements and assess their impact on the Company's financial statements.
64
FINANCIAL INSTRUMENTS
Foreign exchange forward contracts
The Company periodically enters into derivative financial instruments such as foreign exchange forward
contracts to manage its foreign currency risk on cash flows denominated in currencies other than the US dollar.
As at December 31, 2022, the Company is committed under outstanding foreign exchange contracts
representing a total net sell commitment of $20.3 million (December 31, 2021 - net purchase commitment of
$11.6 million). These foreign exchange contracts have maturity dates varying from January 2023 to April 2024.
The fair value of foreign exchange forward contracts at December 31, 2022 resulted in an unrealized gain of
$1.7 million, which is recorded in Other assets (2021 - $3.4 million) and an unrealized loss of $6.3 million
recorded in accrued liabilities (2021 - $1.0 million). For the year ended December 31, 2022, realized gains on
the Company’s matured hedges were $3.1 million (2021 - realized gain of $0.8 million) and are included in the
Consolidated statements of earnings and comprehensive income.
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.
Investment in a limited partnership
The fair value of the investment in a limited partnership as at December 31, 2022 is recorded in Other assets at
$3.9 million (December 31, 2021 - $3.9 million) with $nil of net unrealized losses (2021 - net unrealized gain of
$0.9 million) recognized in Other expense, net in the Consolidated statements of earnings and comprehensive
income for the year ended December 31, 2022. For the year ended December 31, 2022, the Company
recognized $0.1 million (2021 - $0.6 million) of distribution income in Other expense, net, 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 valuation 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.
From inception, the Company has paid $2.9 million and is obligated to pay the remaining $0.1 million upon
receiving capital calls over the remaining term of the limited partnership agreement. The investment in a limited
partnership is held for medium to long-term strategic purposes.
Minority interest and other investments
The fair value of the Minority interest and other investments recorded in other assets are as follows:
(US$ millions)
Minority interest and other investments classified as FVTOCI
Minority interest and other investments classified as FVTPL
Minority interest and other investments
Dec 31,
Dec 31,
2022
3.0
5.8
8.8
2021
0.6
1.8
2.4
For the year ended December 31, 2022, a fair value loss of $0.5 million (2021 - $nil), was recognized for
Minority interest and other investments classified as FVTPL in Other expense, net in the Consolidated
statements of earnings and comprehensive income.
For the year ended December 31, 2022, there were gains of $0.1 million, respectively (2021 - $nil) recognized
for Minority interest and other investments classified as FVTOCI in the Consolidated statements of earnings
and comprehensive income within Other comprehensive loss.
65
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.
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, 2022 and have concluded that the Company's
DC&P was effective as at December 31, 2022.
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, 2022 and have concluded that the Company's ICFR
was effective as at December 31, 2022.
There have been no changes in the Company’s ICFR during the year ended December 31, 2022 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.
66
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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Adjusted EBITDA
Adjusted Operating Income (Loss)
Adjusted Net Income (Loss)
Free Cash Flow
Toy Gross Product Sales
Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue
Revenue, excluding PAW Patrol: The Movie Distribution Revenue
Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue
Constant Currency Toy Gross Product Sales
Constant Currency Digital Games Revenue
Constant Currency Revenue, excluding PAW Patrol: The Movie Distribution Revenue
Constant Currency Revenue
Adjusted Selling, General and Administration Expenses ("Adjusted SG&A")
Net Working Capital
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 Operating Margin
Adjusted Basic EPS
Adjusted Diluted EPS
Sales Allowance as a percentage of Toy Gross Product Sales
Adjusted SG&A as a percentage of Revenue
Percentage change in Constant Currency Toy Gross Product Sales
Percentage change in Constant Currency Digital Games Revenue
Percentage change in Constant Currency Revenue
Percentage change in Constant Currency Revenue, excluding PAW Patrol: The Movie Distribution
Revenue
• Gross Margin, excluding PAW Patrol: The Movie Distribution Revenue
• Operating Margin, excluding PAW Patrol: The Movie Distribution Revenue
•
•
•
Adjusted Operating Margin, excluding PAW Patrol: The Movie Distribution Revenue
Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue
Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue
Non-GAAP financial ratios are ratios or percentages that are calculated using a Non-GAAP financial measure.
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
Adjusted EBITDA is calculated as Net Income (Loss) before finance costs, income tax expense (recovery) and
depreciation and amortization (EBITDA) excluding adjustments that do not necessarily reflect the Company’s
67
underlying financial performance. These adjustments include restructuring and other related costs, foreign
exchange gains or losses, share based compensation expenses, acquisition related contingent consideration,
impairment of intangible assets, impairment of goodwill, investment distribution income, loss on Minority
interest and other investments, 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 Operating Income (Loss), the closest IFRS measure.
Adjusted Operating Income (Loss) is calculated as Operating Income (Loss) excluding adjustments (as defined
in Adjusted EBITDA). Adjusted Operating Income (Loss) 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 Operating Income (Loss), 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. 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 Operating Income (Loss), the closest IFRS measure.
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 interest and other investments, net of investment distribution income. Management uses the Free
Cash Flow metric to analyze the cash flows being generated by the Company’s business. In the third quarter of
2021, 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.
Toy Gross Product Sales represent Toy revenues, excluding the impact of Sales Allowances. As Sales
Allowances are generally not associated with individual products, the Company uses Toy Gross Product Sales
to provide meaningful comparisons across product category and geographical results to highlight trends in Spin
Master’s business. For a reconciliation of Toy Gross Product Sales to Revenue, the closest IFRS measure,
refer to the "Revenue" section within the "Financial Performance" section for the three and year ended
December 31, 2022, and the "Reconciliation of Non-GAAP Financial Measures" section for the previous eight
fiscal quarters.
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.
Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue is calculated as revenue excluding
distribution revenue of $17.0 million related to PAW Patrol: The Mighty Movie. Revenue, excluding PAW Patrol:
The Mighty 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.
Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue is calculated as Adjusted
EBITDA excluding distribution revenue of $17.0 million related to PAW Patrol: The Mighty Movie. Adjusted
68
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.
Constant Currency Toy Gross Product Sales, Constant Currency Digital Games Revenue, Constant Currency
Revenue, excluding PAW Patrol: The Movie Distribution Revenue and Constant Currency Revenue represent
Toy Gross Product Sales, Digital Games revenue, Revenue, excluding PAW Patrol: The Movie Distribution
Revenue 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 Toy Gross Product
Sales, Constant Currency Digital Games Revenue, Constant Currency Revenue, excluding PAW Patrol: The
Movie Distribution Revenue 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 and
other related costs, share based compensation expenses, transaction costs and bad debt recovery. Refer to
the Adjusted SG&A table for the three months and year ended December 31, 2022 as compared to the same
period in 2021 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, 2022 as compared to the same
period in 2021 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.
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 Operating Margin is calculated as Adjusted Operating Income (Loss) divided by Revenue.
Management uses Adjusted Operating 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 Allowances as a percentage of Toy Gross Product Sales is calculated by dividing Sales Allowances by
Toy Gross Product Sales. Management uses Sales Allowance as percentage of Toy 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.
69
Percentage change in Constant Currency Toy Gross Product Sales is calculated by dividing the change in Toy
Gross Product Sales excluding the impact from changes in foreign currency exchange rates by the Toy Gross
Product Sales of the comparative period. Management uses Percentage change in Constant Currency Toy
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 Digital Games Revenue is calculated by dividing the change in Digital
Games revenue excluding the impact from changes in foreign currency exchange rates by the Digital Games
revenue of the comparative period. Management uses Percentage change in Constant Currency Digital Games
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.
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.
Percentage change in Constant Currency Revenue, excluding PAW Patrol: The Movie Distribution Revenue is
calculated by dividing the change in Revenue, excluding PAW Patrol: The Movie Distribution Revenue
excluding the impact from changes in foreign currency exchange rates by the Revenue of the comparative
period. Management uses Constant Currency Revenue, excluding PAW Patrol: The Movie Distribution
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, excluding PAW Patrol:
The Movie Distribution 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.
Gross Margin, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Gross Profit excluding
PAW Patrol: The Movie Distribution Revenue divided by Revenue, excluding PAW Patrol: The Movie
Distribution Revenue. Management uses Gross 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.
Operating Margin, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Operating Income
excluding PAW Patrol: The Movie Distribution Revenue divided by Revenue, excluding PAW Patrol: The Movie
Distribution Revenue. Management uses Operating 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.
Adjusted Operating Margin, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Adjusted
Operating Income excluding PAW Patrol: The Movie Distribution Revenue divided by Revenue, excluding PAW
Patrol: The Movie Distribution Revenue. Management uses Adjusted Operating 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.
70
Reconciliation of Non-GAAP Financial Measures
The following table presents a reconciliation of Operating income to Adjusted Operating Income, Adjusted
EBITDA, Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue and Adjusted Net Income
for the years ended December 31, 2022, 2021 and 2020:
(in US$ millions)
Net income
Income tax expense (recovery)
Finance costs
Depreciation and amortization expenses
EBITDA
Operating income
Adjustments
Foreign exchange gain1
Share based compensation2
Acquisition related deferred incentive compensation3
Transaction costs4
Loss on Minority interest and other investments5
Acquisition related contingent consideration6
Impairment of intangible assets7
Restructuring and other related costs8
Impairment of goodwill9
Legal settlement10
Impairment of property, plant and equipment11
Gain on disposal of asset12
Investment distribution income13
Net unrealized gain on investment14
Adjusted Operating Income
Depreciation and amortization
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
Tax effect of adjustments15
Adjusted Net Income
Year Ended Dec 31
2022
2021
2020
261.3
198.6
79.1
2.9
68.2
411.5
343.3
(61.4)
17.6
10.3
1.0
0.5
2.6
1.1
4.9
—
(0.5)
1.9
—
(0.1)
—
321.2
68.2
389.4
—
389.4
—
(79.1)
(2.9)
63.4
10.2
111.9
384.1
272.2
45.5
(36.1)
12.1
103.0
124.5
21.5
(2.9)
15.3
27.6
12.2
6.8
2.8
—
2.7
2.6
2.5
1.9
—
—
(0.2)
(0.6)
(0.9)
302.2
111.9
414.1
(26.0)
388.1
26.0
(63.4)
(10.2)
—
0.9
—
3.7
0.4
5.3
—
5.5
0.5
—
—
—
77.6
103.0
180.6
—
180.6
—
36.1
(12.1)
(68.2)
(111.9)
(103.0)
5.1
244.3
(7.3)
221.3
(14.9)
53.4
1 Includes foreign exchange (gains) losses generated by the translation and settlement 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.
2 Related to non-cash expenses associated with the Company's share option expense and long-term incentive plan. See Note 22 of
the Consolidated financial statements.
3 Deferred incentive compensation associated with acquisitions. See Note 5 of the Consolidated financial statements.
4 Professional fees incurred relating to acquisitions and other transactions.
5 Fair value loss on the Minority interest and other investments classified as FVTPL.
6 Expense associated with contingent consideration for acquisitions. See Note 5 of the Consolidated financial statements.
7 Impairment of intangible assets related to entertainment content. See Note 5 of the Consolidated financial statements.
8 Restructuring and other related costs primarily relates to changes in personnel. Restructuring and other related costs in the prior
year includes costs related to changes in senior leadership. See Note 7 of the Consolidated financial statements.
9 Impairment of goodwill associated with assets held for sale and one other CGU. See Note 5 of the Consolidated financial
statements.
10 Legal settlement in the first, second and fourth quarters of 2022. See Note 5 of the Consolidated financial statements.
11 Impairment of property plant and equipment related to Tooling. See Note 5 of the Consolidated financial statements.
12 Gain on disposal of intangible asset in 2021.
13 Distribution income related to investment in limited partnership. See Note 5 of the Consolidated financial statements.
14 Net unrealized gain related to investment in limited partnership. See Note 5 of the Consolidated financial statements.
15 Tax effect of adjustments (Footnotes 1-14). Adjustments are tax effected at the effective tax rate of the given period.
71
The following table provides reconciliations of Operating (Loss) Income to Adjusted Operating (Loss) Income,
Adjusted EBITDA, Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue and Adjusted Net
Income for the previous eight fiscal quarters:
(in US$ millions)
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Operating (Loss) Income
(24.0)
187.4
118.2
61.7
39.1
179.5
46.9
Restructuring and other related costs1
Foreign exchange loss (gain)2
Share based compensation3
Impairment of goodwill4
Impairment of property, plant and
equipment5
Impairment of intangible assets6
Legal settlement7
Acquisition related deferred incentive
compensation8
Net unrealized loss (gain) on
investment9
Investment distribution income10
Loss on Minority interest and other
investments11
Acquisition related contingent
consideration12
Transaction costs13
Gain on disposal of asset14
Adjusted Operating (Loss) Income
Depreciation and amortization
Adjusted EBITDA
Distribution revenue related to PAW
Patrol: The Movie15
Adjusted EBITDA, excluding PAW
Patrol: The Movie Distribution Revenue
Distribution revenue related to PAW
Patrol: The Movie15
Income tax recovery (expense)
Finance costs
Depreciation and amortization
Tax effect of normalization adjustments16
Adjusted Net Income
(0.2)
4.8
4.7
—
—
4.5
(43.5)
(32.3)
4.3
—
4.5
—
—
—
0.9
1.0
1.1
1.6
—
—
0.6
9.6
4.1
—
—
—
1.4
0.4
(0.7)
(10.8)
4.0
1.9
—
1.2
—
4.1
—
—
—
—
—
4.9
4.0
—
—
0.5
—
(0.6)
(1.5)
2.2
2.8
2.6
2.7
2.6
2.7
1.5
6.7
0.7
3.7
3.2
—
—
0.9
—
—
0.1
—
—
—
—
—
(0.1)
(0.1)
0.5
—
—
—
0.3
—
(0.3)
(0.9)
—
—
(0.2)
(0.4)
—
—
—
—
3.1
(0.5)
—
—
3.4
—
—
(0.7)
0.2
—
0.3
—
(5.5)
151.8
17.9
15.8
0.4
—
97.6
16.1
12.4
167.6
113.7
0.1
—
77.3
18.4
95.7
2.1
—
0.1
(0.2)
55.3
175.6
23.0
41.7
78.3
217.3
0.6
—
57.7
24.1
81.8
—
—
13.6
23.1
36.7
—
—
—
—
—
(26.0)
—
—
12.4
167.6
113.7
95.7
78.3
191.3
81.8
36.7
—
—
—
—
—
26.0
—
—
8.5
1.7
(45.6)
(27.8)
(14.2)
(0.4)
(2.3)
(1.9)
(9.5)
(3.1)
(41.8)
(11.1)
(2.3)
(2.3)
(1.0)
(2.5)
(17.9)
(15.8)
(16.1)
(18.4)
(23.0)
(41.7)
(24.1)
(23.1)
(4.7)
8.6
4.9
—
114.4
72.4
(3.7)
57.5
(4.0)
1.1
38.7
132.6
(2.7)
41.6
(1.7)
8.4
1 Restructuring and other related costs primarily relates to changes in personnel. Restructuring and other related costs in the prior
year includes costs related to changes in senior leadership.
2 Includes foreign exchange (gains) losses generated by the translation and settlement 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.
3 Related to non-cash expenses associated with the Company's share option expense and long-term incentive plan.
4 Impairment of goodwill associated with assets held for sale and one other CGU.
5 Impairment of property plant and equipment related to tooling.
6 Impairment of intangible assets related to entertainment content.
7 Legal settlement in the first, second and fourth quarters of 2022.
8 Deferred incentive compensation associated with acquisitions.
9 Net unrealized gain related to investment in limited partnership.
10 Distribution income related to investment in limited partnership.
11 Fair value loss on the Minority interest and other investments classified as FVTPL.
12 Expense associated with contingent consideration for acquisitions.
13 Professional fees incurred relating to acquisitions and other transactions.
14 Gain on disposal of intangible asset.
15 Distribution revenue related to PAW Patrol: The Movie recognized in Q3 2021 within Entertainment revenue.
16 Tax effect of adjustments (Footnotes 1-15). Adjustments are tax effected at the effective tax rate of the given period.
72
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, 2022, 2021 and 2020:
(US$ millions)
Cash provided by operating activities
Cash used in investing activities
Year Ended Dec 31
2022
2021
2020
249.3
(109.2)
419.1
(153.2)
310.8
(84.9)
7.5
70.9
10.6
Add:
Business acquisitions, net of cash acquired1
Minority interest and other investments2
Investment in limited partnership3
Advance paid for business acquisitions4
Proceeds from sale of investments5
Investment distribution income6
Free Cash Flow
1 Cash paid relating to acquisitions of SolidRoots and Nørdlight in 2022 (2021 - Rubik's, Originator Inc. and a product invention and development
company).
2 Cash paid in relation to the Minority interest and other investments during 2021 and 2022.
3 Cash paid to fund capital calls relating to the Investment in a limited partnership in 2021.
4 Cash advance paid in 2022 relating to the acquisition of 4D Brands International Inc., and Innovation First, Inc.
5 Cash received for the sale of manufacturing assets located in Tarboro, North Carolina in Q1 2022.
6 Distribution income earned relating to the investment in a limited partnership.
149.9
339.6
(9.2)
(0.1)
(0.6)
1.0
1.0
2.4
—
—
—
(0.7)
—
1.8
3.0
(0.3)
—
232.1
73
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:
(in US$ millions)
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Cash (used in) provided by operating
activities
(6.8)
207.3
111.6
(62.9)
230.1
85.8
94.2
9.0
Cash used in investing activities
(28.2)
(42.3)
(30.4)
(8.3)
(19.6)
(22.7)
(46.9)
(64.0)
Add (Deduct):
—
—
—
48.5
0.7
0.4
10.2
21.7
—
—
—
—
—
—
—
—
—
0.1
1.0
0.9
Business acquisitions, net of cash
acquired1
Investment in limited partnership2
Advance paid for business acquisitions3
Investment distribution income4
Minority interest and other investments5
Proceeds from sale of manufacturing
operations6
Free Cash Flow
(6.5)
1 Cash paid relating to acquisitions of SolidRoots and Nørdlight, both in Q3 2022 (2021 - Rubik's in Q1 2021, Originator Inc. in Q2 2021 and a product
invention and development company in Q2 2021).
2 Cash paid to fund capital calls relating to the Investment in a limited partnership in 2021.
3 Cash advance paid in 2022 relating to the acquisition of 4D Brands International Inc., and Innovation First, Inc.
4 Distribution income earned relating to the investment in a limited partnership.
5 Cash paid in relation to the Minority interest and other investments during 2021 and 2022.
6 Cash received for the sale of manufacturing assets located in Tarboro, North Carolina in Q1 2022.
175.3
211.3
(79.4)
(30.1)
65.8
84.1
69.0
(9.2)
(0.1)
(0.6)
2.4
3.0
3.5
1.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
74
The following table provides reconciliations of Toy Gross Product Sales to revenue for the previous eight fiscal
quarters:
(in US$ millions)
Toy Gross Product Sales
Sales Allowances
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
479.2
617.7
484.4
397.5
627.5
681.2
359.0
294.7
(82.5)
(65.3)
(46.8)
(46.6)
(85.5)
(73.4)
(32.6)
(39.1)
396.7
552.4
437.6
350.9
542.0
607.8
326.4
255.6
31.2
37.9
37.0
34.6
28.4
40.3
22.2
51.1
28.5
50.0
52.9
53.8
27.5
36.9
26.9
34.1
465.8
624
506.3
424.2
620.5
714.5
390.8
316.6
The following table presents a reconciliation of Revenue to Revenue, excluding PAW Patrol: The Movie
Distribution Revenue for the previous eight fiscal quarters:
(in US$ millions)
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Revenue
465.8
624.0
506.3
424.2
620.5
714.5
390.8
316.6
Distribution revenue related to PAW
Patrol: The Movie
Revenue, excluding PAW Patrol: The
Movie Distribution Revenue
—
—
—
—
—
(26.0)
—
—
465.8
624.0
506.3
424.2
620.5
688.5
390.8
316.6
The following table presents a reconciliation of Revenue to Revenue, excluding PAW Patrol: The Movie
Distribution Revenue for the year ended December 31, 2022 and 2021:
(US$ millions)
Revenue
Distribution revenue related to PAW Patrol: The Movie
Revenue, excluding PAW Patrol: The Movie Distribution Revenue
Year Ended Dec 31
2022
2021
2,020.3 $
2,042.4
—
(26.0)
2,020.3 $
2,016.4
$
$
75
The following tables present reconciliations of Revenue to Constant Currency Toy Gross Product Sales,
Revenue to Constant Currency Digital Games revenue and Revenue to Constant Currency Revenue for the
three months and year ended December 31, 2022 and 2021:
(US$ millions)
Q4 2022
Q4 2021
Constant Currency Toy Gross Product Sales
Impact of foreign exchange
Toy Gross Product Sales
Sales Allowances
Toy revenue
Entertainment revenue
Constant Currency Digital Games Revenue
Impact of foreign exchange
Digital Games revenue
Constant Currency Revenue
Impact of foreign exchange
Revenue
498.3
(19.1)
479.2
(82.5)
396.7
31.2
40.1
(2.2)
37.9
484.2
(18.4)
465.8
629.0
(1.5)
627.5
(85.5)
542.0
28.5
50.7
(0.7)
50.0
622.1
(1.6)
620.5
Year Ended Dec 31
2022
2,030.6
(51.8)
1,978.8
(241.2)
1,737.6
118.8
171.9
(8.0)
163.9
2,071.1
(50.8)
2,020.3
2021
1,950.1
12.3
1,962.4
(230.6)
1,731.8
135.8
172.5
2.3
174.8
2,025.2
17.2
2,042.4
The following tables present the composition of Percentage change in Constant Currency Toy Gross Product
Sales, Percentage change in Constant Currency Digital Games Revenue, Percentage change in Constant
Currency Revenue and Percentage change in Constant Currency Revenue, excluding PAW Patrol: The Movie
Distribution Revenue for the three months and year ended December 31, 2022 and 2021:
(US$ millions)
Toy Gross Product
Sales
Digital Games revenue
Revenue
(US$ millions)
Toy Gross Product
Sales
Digital Games revenue
Revenue
Revenue excluding
PAW Patrol: The
Movie Distribution
Revenue
Q4 2022
Q4 2021
$ Change
Impact of
foreign
exchange
As
reported
% Change
In
Constant
Currency
As
reported
In
Constant
Currency
479.2
37.9
465.8
627.5
$ (148.3) $
19.1 $ (129.2)
50.0
$
(12.1) $
2.2 $
(9.9)
620.5
$ (154.7) $
18.4 $ (136.3)
(23.6) %
(24.2) %
(24.9) %
(20.6) %
(19.8) %
(22.0) %
Year Ended Dec 31
2022
2021
$ Change
Impact of
foreign
exchange
As
reported
% Change
In
Constant
Currency
As
reported
In
Constant
Currency
1,978.8
163.9
2,020.3
1,962.4
174.8
2,042.4
$
$
$
16.4 $
51.8 $
(10.9) $
8.0 $
(22.1) $
50.8 $
68.2
(2.9)
28.7
0.8 %
(6.2) %
(1.1) %
3.5 %
(1.7) %
1.4 %
2,020.3
2,016.4
$
3.9 $
50.8 $
54.7
0.2 %
2.7 %
76
ADDENDUM
Effective January 1, 2022, the Company revised its reportable operating segments to align with its current
business structure and how the Company’s new CODM reviews operations and makes decisions. The following
table presents 2021 segments in the same format that the Company presents its operating segments in 2022.
(US$ millions)
Revenue
Year Ended December 31, 2021
Digital
Games
Corporate &
Other
Entertainment
Total
Toys
1,731.8
Operating Income
Restructuring and other related costs
Foreign exchange gain
Share based compensation
Impairment of goodwill
Impairment of intangible assets
Acquisition related deferred incentive compensation
Net unrealized gain on investment
Investment distribution income
Acquisition related contingent consideration
Transaction costs
Gain on disposal of asset
Adjusted Operating Income
Depreciation and amortization
Adjusted EBITDA
159.0
2.3
—
13.4
1.9
—
4.3
—
—
2.7
—
(0.2)
183.4
56.3
239.7
135.8
174.8
— 2,042.4
53.4
67.5
(7.7)
272.2
—
—
0.4
—
2.1
—
—
—
—
—
—
0.2
—
1.5
—
0.5
2.5
—
—
—
—
—
55.9
48.2
104.1
72.2
7.4
79.6
—
(2.9)
—
—
—
—
(0.9)
(0.6)
—
2.8
—
(9.3)
—
(9.3)
2.5
(2.9)
15.3
1.9
2.6
6.8
(0.9)
(0.6)
2.7
2.8
(0.2)
302.2
111.9
414.1
(US$ millions)
Revenue
Operating Income (Loss)
Restructuring and other related costs
Foreign exchange loss
Share based compensation
Impairment of intangible assets
Net unrealized gain on investment
Acquisition related contingent consideration
Adjusted Operating Income (Loss)
Depreciation and amortization
Adjusted EBITDA
Toys
Entertainment
Q1 2021
Digital
Games
Corporate &
Other
Total
255.6
26.9
34.1
—
316.6
(12.1)
10.6
13.2
0.7
—
2.8
—
—
(0.7)
(9.3)
14.4
5.1
—
—
0.1
0.9
—
—
11.6
6.6
18.2
—
—
0.3
—
—
—
13.5
2.1
15.6
(5.0)
—
3.7
—
—
(0.9)
—
(2.2)
—
(2.2)
6.7
0.7
3.7
3.2
0.9
(0.9)
(0.7)
13.6
23.1
36.7
77
(US$ millions)
Revenue
Toys
Entertainment
Q2 2021
Digital
Games
Corporate &
Other
Total
326.4
27.5
36.9
—
390.8
Operating Income
Foreign exchange loss
Share based compensation
Impairment of intangible assets
Acquisition related deferred incentive compensation
Net unrealized gain on investment
Investment distribution income
Transaction costs
Adjusted Operating Income
Depreciation and amortization
Adjusted EBITDA
28.5
12.5
12.8
—
3.7
—
1.3
—
—
—
33.5
13.8
47.3
—
0.1
—
—
—
—
—
12.6
8.4
21.0
—
0.2
0.5
0.2
—
—
—
13.7
1.9
15.6
(6.9)
4.9
—
—
—
(0.3)
(0.4)
0.6
(2.1)
—
(2.1)
46.9
4.9
4.0
0.5
1.5
(0.3)
(0.4)
0.6
57.7
24.1
81.8
(US$ millions)
Revenue
Toys
Entertainment
Q3 2021
Digital
Games
Corporate &
Other
Total
607.8
52.9
53.8
—
714.5
Operating Income
Restructuring and other related costs
Foreign exchange gain
Share based compensation
Acquisition related deferred incentive compensation
Investment distribution income
Transaction costs
Gain on disposal of asset
Adjusted Operating Income
Depreciation and amortization
Adjusted EBITDA
128.0
18.2
24.2
0.4
—
3.4
1.5
—
—
(0.2)
133.1
13.4
146.5
—
—
0.1
—
—
—
—
18.3
26.9
45.2
—
—
0.6
1.2
—
—
—
26.0
1.4
27.4
9.1
—
179.5
0.4
(10.8)
(10.8)
—
—
(0.2)
0.1
—
4.1
2.7
(0.2)
0.1
(0.2)
(1.8)
175.6
—
41.7
(1.8)
217.3
(US$ millions)
Revenue
Toys
Entertainment
Q4 2021
Digital
Games
Corporate &
Other
Total
542.0
28.5
50.0
—
620.5
Operating Income
Restructuring and other related costs
Foreign exchange gain
Share based compensation
Impairment of goodwill
Impairment of intangible assets
Acquisition related deferred incentive compensation
Net unrealized loss on investment
Acquisition related contingent consideration
Transaction costs
Adjusted Operating Income
Depreciation and amortization
Adjusted EBITDA
14.6
1.2
—
3.5
1.9
—
1.5
—
3.4
—
26.1
14.7
40.8
12.1
—
17.3
0.2
—
0.1
—
1.2
—
—
—
—
13.4
6.3
19.7
—
0.4
—
—
1.1
—
—
—
19.0
2.0
21.0
(4.9)
—
(0.7)
—
—
—
—
0.3
—
2.1
(3.2)
—
(3.2)
39.1
1.4
(0.7)
4.0
1.9
1.2
2.6
0.3
3.4
2.1
55.3
23.0
78.3
78
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 2023 (see “Outlook”); future growth expectations in 2023 and beyond; the Company's dividend policy;
drivers and trends for such growth and financial performance; the successful execution of its strategies for
growth; the integration of and benefits from acquisitions; the Company's SMV initiative; content and product
pipeline; financial position, cash flows, purchases under the NCIB, 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: the Company’s dividend payments being subject to the
discretion of the Board of Directors and dependent on a variety of factors and conditions existing from time to
time; seasonality; 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, and the factors discussed in the Company's
disclosure materials, including the Annual or subsequent, most recent interim MD&A and the Company's most
recent Annual Information Form, filed with the securities regulatory authorities in Canada and available under
the Company's profile on SEDAR (www.sedar.com). These risk factors are not intended to represent a
complete list of the factors that could affect the Company and investors are cautioned to consider these and
other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking
statements.
There can be no assurance that forward-looking statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such statements. Forward-looking statements are
provided for the purpose of providing information about management’s expectations and plans relating to the
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.
79
Spin Master Corp.
Consolidated financial statements
For the years ended December 31, 2022 and December 31, 2021
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
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 - 54
Deloitte LLP
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Canada
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Independent Auditor’s Report
To the Shareholders and the Board of Directors 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, 2022 and 2021, 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, 2022 and 2021, 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, 2022. This matter was addressed in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.
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 is 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.
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 Mark Bernardi.
/s/ Deloitte LLP
Chartered Professional Accountants
Licensed Public Accountants
March 8, 2023
3
Spin Master Corp.
Consolidated statements of financial position
(in US$ millions)
Assets
Current assets
Cash and cash equivalents
Trade receivables, net
Other receivables
Inventories, net
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
Income tax payable
Lease liabilities
Non-current liabilities
Provisions
Deferred income tax liabilities
Lease liabilities
Total liabilities
Shareholders’ equity
Share capital
Retained earnings
Contributed surplus
Accumulated other comprehensive (loss) income
Total shareholders’ equity
Total liabilities and shareholders’ equity
Approved by the Board of Directors on March 8, 2023.
Notes
Dec 31,
2022
Dec 31,
2021
10
11
11
12
13
14
16
17
26
15
9
13
18
19
21
9
26
21
9
26
22
644.3
311.0
49.5
105.1
22.3
—
1,132.2
267.2
179.0
62.9
36.0
94.7
20.5
660.3
1,792.5
339.4
11.5
30.7
26.4
16.3
424.3
15.1
55.7
54.9
125.7
550.0
562.7
352.4
38.8
137.4
19.5
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
754.7
468.1
40.7
(21.0)
1,242.5
1,792.5
736.9
216.0
40.8
58.7
1,052.4
1,736.7
The accompanying notes on pages 8 to 54 are an integral part of these Consolidated financial statements.
4
Spin Master Corp.
Consolidated statements of earnings and comprehensive income
(in US$ millions, except earnings per share)
Notes
Year Ended Dec 31,
2022
2021
Revenue
Cost of sales
Gross profit
Expenses
Selling, general and administrative
Depreciation and amortization
Other expense, net
Foreign exchange gain
Operating Income
Interest income
Interest expense
Income before income tax expense
Income tax expense
Net Income
Earnings per share
Basic
Diluted
Weighted average number of shares (in millions)
Basic
Diluted
(in US$ millions)
Net Income
4
7
7
5
8
6
6
9
23
23
23
23
Items that may be subsequently reclassified to Net Income
Foreign currency translation loss
Items that are not subsequently reclassified to Net Income
Gain on Minority interest and other investments
13, 29
Other comprehensive loss
Total comprehensive income
2,020.3
2,042.4
916.5
985.8
1,103.8
1,056.6
782.1
28.9
10.9
(61.4)
343.3
(10.7)
13.6
340.4
79.1
261.3
2.54
2.45
102.9
106.4
742.5
33.5
11.3
(2.9)
272.2
(1.1)
11.3
262.0
63.4
198.6
1.94
1.89
102.3
105.3
Year Ended Dec 31,
2022
261.3
2021
198.6
(79.8)
(5.4)
0.1
(79.7)
181.6
—
(5.4)
193.2
The accompanying notes on pages 8 to 54 are an integral part of these Consolidated financial statements.
5
Spin Master Corp.
Consolidated statements of changes in shareholders' equity
Note
Share
capital
Retained
earnings
Contributed
surplus
Accumulated
other
comprehensive
income (loss)
(in US$ millions)
Balance at January 1, 2021
Net Income
Other comprehensive loss - foreign currency
translation
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
Balance at January 1, 2022
Net Income
Other comprehensive loss - foreign currency
translation
Other comprehensive income - other
Share-based compensation
Dividends declared
Share options exercised and common shares
issued
Shares issued upon settlement of long-term
incentive plan
Balance at December 31, 2022
724.8
—
17.4
198.6
—
—
2.2
1.3
8.6
—
—
—
—
—
736.9
216.0
736.9
—
216.0
261.3
—
—
—
—
0.2
17.6
754.7
—
—
—
(9.2)
—
—
468.1
36.6
—
—
15.3
(2.2)
(0.3)
(8.6)
40.8
40.8
—
—
—
17.6
—
(0.1)
(17.6)
40.7
22
22
22
22
22
22
22
22
64.1
—
(5.4)
—
—
—
—
Total
842.9
198.6
(5.4)
15.3
—
1.0
—
58.7
1,052.4
58.7
—
1,052.4
261.3
(79.8)
0.1
—
—
—
—
(79.8)
0.1
17.6
(9.2)
0.1
—
(21.0)
1,242.5
The accompanying notes on pages 8 to 54 are an integral part of these Consolidated financial statements.
6
Spin Master Corp.
Consolidated statements of cash flows
(in US$ millions)
Operating activities
Net Income
Adjustments to reconcile Net Income to cash provided by operating activities
Income tax expense
Interest income
Depreciation and amortization
Loss 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 non-current assets
Loss on Minority interest and other investments
Unrealized foreign exchange gain, net
Share-based compensation expense
Net changes in non-cash working capital
Net change in provisions and other assets
Income taxes paid
Income taxes received
Interest received
Cash provided by operating activities
Investing activities
Investment in property, plant and equipment
Investment in intangible assets
Business acquisitions, net of cash acquired
Advance paid for business acquisitions
Investment distribution income
Investment in limited partnership
Minority interest and other investments
Proceeds from sale of manufacturing operations
Cash used in investing activities
Financing activities
Payment of lease liabilities
Dividends paid
Proceeds from issuance of common shares from exercise of share options
Payment of financing costs related to Facility
Cash used in financing activities
Notes
Year Ended Dec 31,
2021
2022
261.3
198.6
9
6
7
14, 15
6
6
29
15, 16
5
8
22
24
15
16
28
5
13
13, 29
14
26
22
22
13, 20
79.1
(10.7)
68.2
1.5
5.5
0.4
—
3.0
0.5
(40.3)
17.6
(67.7)
1.0
(83.6)
4.5
9.0
249.3
(30.4)
(69.0)
(10.6)
(1.0)
0.1
—
(7.5)
9.2
(109.2)
(15.8)
(4.6)
0.1
—
(20.3)
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)
Effect of foreign currency exchange rate changes on cash and cash equivalents
(38.2)
(5.5)
Net increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
81.6
562.7
644.3
242.1
320.6
562.7
The accompanying notes on pages 8 to 54 are an integral part of these Consolidated financial statements.
7
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
1.
Description of business
Spin Master Corp. was formed by the amalgamation of Spin Master Corp. (formerly SML Investments Inc. which
was incorporated on June 9, 2004 under the Business Corporations Act (Ontario)), SML Investments 2008 Inc. and
Varadi Bee Corp. pursuant to the filing of articles of amalgamation under the Business Corporations Act (Ontario)
on July 29, 2015. The Company is a leading global children's entertainment company, creating exceptional play
experiences through its three creative centres: Toys, Entertainment and Digital Games. Its head and 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: Toys, Entertainment and Digital Games (see Note 30).
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
March 8, 2023.
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
Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37)
IAS 37 has been amended to specify the costs to be included in the cost of fulfilling a contract. This amendment is
applicable to annual reporting periods beginning on or after January 1, 2022. The Company has assessed this
change and has determined that the impact is immaterial.
Annual Improvements to IFRS Standards 2018–2020
Changes have been made to the following standards:
Standard
IFRS 1 - Amendment
IFRS 9 - Amendment
IFRS 16 - Amendment
IAS 41 - Amendment
Description
First Time Adoption of IFRS
Financial Instruments
Leases
Agriculture
These changes are applicable to annual reporting periods beginning on or after January 1, 2022. The Company has
assessed these changes and has determined that the impact is immaterial.
Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16)
IAS 16 has been amended to prohibit certain treatment of proceeds from the cost of property, plant and equipment
(“PPE”) being sold. The amendment is applicable beginning on or after January 1, 2022. The Company has
assessed these changes and has determined that the impact is immaterial.
Reference to the Conceptual Framework (Amendments to IFRS 3)
Certain outdated references to the Conceptual Framework in IFRS 3 have been updated without significantly
changing the requirements in the standard. These updates are applicable beginning on or after January 1, 2022.
The Company has assessed these changes and has determined that the impact is immaterial.
8
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(C) Basis of preparation
The Consolidated financial statements incorporate the financial statement accounts of the Company and entities
controlled by the Company and its subsidiaries (the “Group”). Control is achieved when the Company:
•
•
•
has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.
The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are
changes to one or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the
Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of
during the year are included in the Consolidated 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.
Segment information
Effective January 1, 2022, the Company revised its reportable operating segments to align with its current business
structure and how the Company’s new Chief Operating Decision Maker (“CODM”) reviews operations and makes
decisions. The revision of the reportable operating segments did not change the Company’s previously reported
consolidated revenue, net income or earnings per share. See Note 30 for more information on the Company’s 2022
segment information.
The Company has three reportable operating segments: Toys, Entertainment and Digital Games.
(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 to 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. Other contingent consideration is remeasured to fair value at subsequent
reporting dates with changes in fair value recognized in profit or loss.
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.
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.
9
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(E) Goodwill
A CGU to which goodwill has been allocated is tested for impairment annually, or quarterly 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 customers who are retailers or
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 the customer inventory position, purchase
levels, customer performance of specified promotional activities and other specified factors, as agreed to with
customers as well as the nature of the product.
Toy 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 sales allowances, defective products, 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 revenue
Entertainment revenues are comprised of distribution revenues and licensing and merchandising revenues.
Distribution revenues are primarily generated through the sale of entertainment content produced by the Company,
in accordance with the relevant agreements. Such 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
entertainment 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
entertainment 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 entertainment
content.
Licensing and merchandising revenues are generated through licensing the Company’s brands and other
intellectual property. The license agreements relating to 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 merchandising and/or content distribution, are recorded in deferred revenue
until all of the foregoing revenue recognition conditions have been met.
10
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(F) Revenue recognition (continued)
Digital Games revenue
The Company develops digital games which are distributed via third-party platform providers. The Company
controls most aspects of the digital games delivered to the end user. The third-party platform providers are
providing the service of distributing digital games 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 digital games is recognized when control is
transferred. This condition is typically met when the end-user purchases and downloads the digital games 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 digital games to the third-party platform
providers or the delivery of the item purchased within the digital games.
The Company also generates recurring subscription revenue from certain digital games. 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 Toys, Entertainment and Digital Games. 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 depicts how the nature, amount,
timing and uncertainty of revenue and cash flows are affected by economic factors. See Note 30 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.
The Company considers the lease term to be the noncancellable period of the lease, including any extension
options where the Company is reasonably certain to exercise the option, and any termination options where the
Company is reasonably certain not to exercise the option.
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.
11
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(G) Leases (continued)
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.
(H) Foreign currencies
The Company reports its financial results in United States dollars. The functional currency of Spin Master Corp. is
the Canadian dollar ("CAD"). The functional currency of the Company's consolidated subsidiaries is typically the
economic currency in the associated jurisdiction. At December 31, 2022 and 2021, the functional currencies of the
Company's subsidiaries included the US dollar, the Canadian dollar, the Euro, the Great Britain pound sterling, the
Hong Kong dollar, the Mexican peso, the Chinese yuan, the Vietnamese dong, the Japanese yen, the Swedish
krona, the Australian dollar, the Indian rupee, the Polish zloty, and the Russian ruble.
For the purposes of presenting these Consolidated financial statements, the Company's monetary assets and
liabilities denominated in foreign currencies are translated using the closing exchange rate at the balance sheet
date. Non-monetary items carried at fair value that are denominated in a foreign currency are translated at the rate
prevailing when the fair value was determined. Non-monetary items denominated in a foreign currency that are
measured at historical cost are translated using the exchange rate at the date of the transaction. Foreign currency
exchange gains or losses are recognized in profit or loss.
Assets and liabilities of the Company’s consolidated subsidiaries whose functional currency is other than the
presentation currency are translated into US$ using the closing exchange rate at the balance sheet date. Income
and expenses are translated using the average exchange rate for the period. The resulting foreign exchange gains
and losses are recognized in the foreign currency translation adjustment as part of other comprehensive income.
Realized gains and losses are recognized in profit or loss at the time of settlement.
12
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(I) Earnings per share
Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares
outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted
average number of common shares outstanding, assuming the conversion of all dilutive securities were exercised
during the period. Securities refer to all outstanding share options, Restricted Stock Units ("RSUs") and
Performance Share Units ("PSUs").
(J) Income taxes
Income tax expense or recovery represents the sum of the taxes currently payable or receivable and deferred
taxes.
Current tax
For each entity in the Group, the tax currently payable is based on taxable income for the year. Taxable income
differs from “income before income tax expense (recovery)” as reported on the Consolidated 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 a maturity date of 90 days or less.
(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.
13
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(L) Property, plant and equipment (continued)
The following are the estimated useful lives for the major classes of property, plant and equipment:
Classes
Land
Buildings
Moulds, dies and tools
Office equipment
Leasehold improvements
Computer hardware
Machinery and equipment
Estimated Useful Life
Indefinite
30 years
2 years
3 years
Lesser of lease term or 5 years
3 years
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:
Classes
Brands
Trademarks and licenses
Customer lists
Intellectual property ("IP")
Digital Games development
Entertainment content development
Computer software
Computer software - other
Estimated Useful Life
Indefinite
5 years
5 years
10 years
1-5 years
1-5 years
30% declining balance
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.
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 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:
14
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(M) Intangible assets (continued)
•
•
•
•
•
•
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 and television 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.
Digital Games development
Digital Games development includes digital games 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 digital game.
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).
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.
15
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(M) Intangible assets (continued)
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
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.
Deferred 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.
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
The Company has a Long-Term Incentive Plan (“LTIP”) which provides for the issuance of securities under which
grants may be made by the Company to employees. The Company, at the discretion of the Board of Directors,
grants options to purchase subordinate voting shares, share units (in the form of RSUs and PSUs), stock
appreciation rights, shares of restricted stock and any other equity based awards. These awards may be settled in
cash or issued shares, or a combination of both at the discretion of the Board of Directors. LTIP liabilities are
recorded in shareholders equity and not marked to market.
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 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 in
administrative expenses over the vesting period of each award, with a corresponding increase to contributed
16
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(Q) Share-based payments (continued)
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) Dividends
The Company has a policy of declaring dividends at the discretion of the Board of Directors. Dividends declared are
payable to the Company's shareholders and recognized as a liability in the Consolidated statements of financial
position in the period in which the dividends are approved by the Company's Board of Directors.
(S) 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.
The Company has made the following classifications:
Cash and cash equivalents
Trade receivables
Other receivables
Other assets
Investment in a limited partnership
Minority interest and other investments
Trade payables and accrued liabilities
Loans and borrowings
Interest payable
Foreign exchange forward contracts
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)
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.
17
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(S) Financial assets (continued)
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
expense, net) or OCI.
Financial assets at fair value - Investment in a limited partnership and Minority interest and other investments
The Company measures the Investment in a limited partnership and Minority interest and other investments
(collectively, "investments") at fair value.
For investments in equity instruments that are not held for trading, FVTPL or FVTOCI 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 expense, net when the
Company’s right to receive payments is established, irrespective of fair value designation.
Impairment of financial assets
Financial assets, other than those classified as FVTPL, are assessed for indicators of impairment at the end of each
reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of
one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows
of the investment have been decreased.
The carrying amount of the financial asset is reduced by the 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.
18
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
2.
Summary of significant accounting policies (continued)
(T) Financial liabilities and equity instruments (continued)
Other financial liabilities
Other financial liabilities (including loans and borrowings and trade payables and other liabilities) are initially
measured at fair value, net of transaction costs. Subsequently, other financial liabilities are measured at amortized
cost using the effective interest method.
The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating
interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated
future cash payments (including all fees and points paid or received that form an integral part of the effective
interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or
(where appropriate) a shorter period, to the net carrying amount on initial recognition.
(U) Derivative financial instruments
The Company enters into foreign exchange forward contracts to manage its exposure to foreign exchange rate
risks.
Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are
subsequently re-measured at their fair value at the end of each reporting period. The resulting gain or loss is
recognized in profit or loss.
(V) Fair value hierarchy and liquidity risk disclosure
Fair value measurements are classified using a fair value hierarchy that reflects the significance of inputs used in
making the measurements. The fair value hierarchy has the following levels:
•
•
Level 1 - valuation based on quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 - valuation techniques based on inputs other than quoted prices included in Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - valuation techniques using inputs for the asset or liability that are not based on observable market
data (unobservable inputs).
•
The fair value of short-term financial instruments approximates their carrying amounts due to the relatively short
period to maturity. These include cash 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 yet effective for periods beginning on or after January 1, 2022 and have not been early adopted by
the Company.
The Company is currently assessing the impact, if any, on the Consolidated financial statements.
•
•
•
•
•
•
•
IFRS 17 Insurance Contracts
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2)
Definition of Accounting Estimates (Amendments to IAS 8)
Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12)
Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
Lease Liability in a Sale and Leaseback (Amendment to IFRS 16)
Non-current Liabilities with Covenants (Amendments to IAS 1)
19
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
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.
20
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
3.
Significant accounting judgments and estimates (continued)
(B) Impairment testing of goodwill and indefinite life intangible assets
Goodwill and indefinite life intangible assets are assessed for impairment at least annually, and whenever there is
an indication of impairment. The Company determines the fair value of its CGU groupings and indefinite life
intangible assets using discounted cash flow models corroborated by other valuation techniques.
The process of determining these fair values requires the Company to make estimates and assumptions of a long-
term nature regarding discount rates, projected revenues, royalty rates and margins derived from past experience,
actual operating results and budgets. These estimates and assumptions may change in the future due to uncertain
competitive and economic market conditions or changes in business strategies.
(C) Provision for inventories
Inventories are stated at the lower of cost and estimated net realizable value. The Company estimates net
realizable value as the amount at which inventories are expected to be sold, taking into consideration fluctuations in
retail prices due to seasonality less estimated costs required to sell. Inventories are written down to net realizable
value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage or declining
selling prices.
(D) Sales allowances
A sales allowance is established to reflect amounts for programs which can be contractual or discretionary by
nature, and can include negotiated discounts, customer audits, defective products and refund of costs incurred by
customers to sell the Company’s products. Contractual allowances are fixed and determinable at the time of sale
and are recorded at the time of sale as a reduction to revenue. Discretionary allowances can vary depending on
future outcomes such as nature of the product, 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 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 28 for further details
on acquisitions.
21
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
4.
Revenue
The Company earns revenue from the following primary sources: Toy, Entertainment and Digital Games revenue.
(US$ millions)
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
5.
Other expense, net
(US$ millions)
Acquisition related deferred incentive compensation
Acquisition related deferred consideration expense
Impairment of non-current assets
Loss on Minority interest and other investments
Investment distribution income
Net unrealized gain on investment
Legal settlement
Other
Other expense, net
Year Ended Dec 31,
2022
2021
1,737.6
1,731.8
118.8
163.9
135.8
174.8
2,020.3
2,042.4
Year Ended Dec 31,
2022
10.3
2.6
3.0
0.5
(0.1)
—
(0.5)
(4.9)
10.9
2021
6.8
2.7
4.5
—
(0.6)
(0.9)
—
(1.2)
11.3
Notes
28
21
16
13
29
29
Acquisition related deferred incentive compensation includes amounts related to the acquisition of certain assets of
SolidRoots LLC and Nørdlight Games AB, both in August 2022, the acquisition of Originator Inc. in June 2021, and
to the acquisition of certain assets from a product invention and development company in April 2021. These
amounts are contingent on the continued employment of key principals as well as the achievement of certain
performance metrics, over their respective requisite service periods (see Note 28).
6. Interest expense and Interest income
(US$ millions)
Bank fees and financing charges
Accretion expense
Amortization of Facility fee costs
Interest expense
Interest income
Year Ended Dec 31,
2022
7.7
5.5
0.4
13.6
2021
4.9
6.0
0.4
11.3
(10.7)
(1.1)
22
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
7. Expenses
Expenses include selling, general and administrative expenses and depreciation and amortization.
Selling, general and administrative expenses
(US$ millions)
Administrative
Selling
Marketing
Distribution
Product development
Selling, general and administrative
Administrative expenses include the following:
(US$ millions)
Employee compensation and benefits
Professional services, recruiting and training
Technology, property, travel and office costs
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
Employee benefits
Share-based compensation
Restructuring expense
Employee compensation and benefits in administrative expenses
Employee compensation and benefits
Year Ended Dec 31,
2022
353.8
144.2
185.1
67.9
31.1
782.1
2021
330.3
133.8
179.7
71.3
27.4
742.5
Year Ended Dec 31,
2022
250.6
43.8
44.8
14.6
2021
239.0
42.6
32.3
16.4
353.8
330.3
Year Ended Dec 31,
2022
3.0
0.9
3.9
2021
5.5
1.1
6.6
194.8
192.3
33.4
17.6
4.8
250.6
254.5
28.9
15.3
2.5
239.0
245.6
23
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
7. Expenses (continued)
Depreciation and amortization
(US$ millions)
Property, plant and equipment
Moulds, dies and tools, included in cost of sales
Equipment, included in cost of sales
Equipment
Building and leasehold improvements
Computer hardware
Intangible assets
Entertainment content development, included in cost of sales
Trademarks, licenses, IP & customer lists - definite
Digital Games development, included in cost of sales
Computer software
Right-of-use assets
Depreciation and amortization
(US$ millions)
Included in cost of sales
Included in expenses
Depreciation and amortization
Year Ended Dec 31,
2022
2021
20.5
24.5
0.1
1.7
5.6
0.8
0.4
2.9
6.2
1.2
28.7
35.2
14.4
5.1
4.3
3.5
27.3
47.7
6.1
5.8
3.9
63.5
12.2
13.2
68.2
111.9
Year Ended Dec 31,
2022
39.2
29.0
68.2
2021
78.4
33.5
111.9
During the year ended December 31, 2021, the Company delivered PAW Patrol: The Movie, and accordingly,
amortized Entertainment content development costs in the amount of $23.0 million.
8. Foreign exchange
(US$ millions)
Unrealized foreign exchange gain, net
Realized foreign exchange gain, net
Foreign exchange gain, net
Year Ended Dec 31,
2022
(40.3)
(21.1)
(61.4)
2021
(0.4)
(2.5)
(2.9)
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 29).
24
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
9. Income tax
The income tax expense recognized in the Consolidated statements of earnings and comprehensive income
comprises of the following:
(US$ millions)
Current income tax expense
Deferred income tax expense
Income tax expense
The income tax expense is calculated as follows:
(US$ millions)
Income before income tax expense
Income tax expense at Canadian statutory tax rate of 26.5% (2021 - 26.5%)
Effect of:
Different tax rates of subsidiaries operating in other jurisdictions
Unused tax losses and tax attributes not recognized as deferred tax assets
Expenses not deductible in determining taxable income
Other
Income tax expense
Year Ended Dec 31,
2022
2021
69.8
9.3
79.1
52.3
11.1
63.4
Year Ended Dec 31,
2022
340.4
2021
262.0
90.2
26.5 %
69.4
26.5 %
(9.8)
(2.9) %
(9.0)
1.1
0.8
(3.2)
79.1
0.3 %
0.2 %
(0.9) %
23.2 %
3.5
0.2
(0.7)
63.4
(3.4) %
1.3 %
0.1 %
(0.3) %
24.2 %
The tax rates used for the reconciliations above are the Canadian statutory tax rates of Spin Master Corp., 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, 2022, the Company had income tax payable of $26.4 million (2021 - $36.2 million).
Deferred income tax balances
The following is the analysis of deferred income tax assets and liabilities presented in the Consolidated statements
of financial position:
(US$ millions)
Deferred income tax assets
Deferred income tax liabilities
Deferred income tax assets, net of deferred income tax liabilities
The sources of deferred income tax balances are as follows:
2022
94.7
(55.7)
39.0
2021
97.0
(48.7)
48.3
(US$ millions)
Property, plant and equipment
Intangible assets
Provisions
Allowance for doubtful accounts
Benefits of tax loss carryforwards
Other temporary differences
Deferred income tax assets, net of deferred income tax liabilities
Recognized
in
net income
Recognized
on business
combination
(3.7)
(8.3)
(0.5)
0.4
(3.2)
4.2
—
(9.7)
—
—
—
—
(11.1)
(9.7)
2020
7.0
42.2
16.1
(0.3)
7.6
(3.5)
69.1
2021
3.3
24.2
15.6
0.1
4.4
0.7
48.3
25
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
9. Income tax (continued)
(US$ millions)
Property, plant and equipment
Intangible assets
Provisions
Allowance for doubtful accounts
Benefits of tax loss carryforwards
Other temporary differences
Deferred income tax assets, net of income tax liabilities
Unused tax losses
Recognized
in
net income
(2.3)
(6.4)
3.2
—
(3.0)
(0.8)
(9.3)
2021
3.3
24.2
15.6
0.1
4.4
0.7
48.3
2022
1.0
17.8
18.8
0.1
1.4
(0.1)
39.0
As at December 31, 2022, the Company had unused tax losses of $8.7 million (2021 - $8.4 million). Unused tax
losses of $0.4 million will expire between 2023 and 2032, $3.7 million will expire beyond 2032 and $4.6 million may
be carried forward indefinitely. There were no unrecognized deductible temporary differences for the year ended
December 31, 2022 (2021 - $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, 2022 are $338.2 million (2021 - $315.0 million).
10. Cash and cash equivalents
(US$ millions)
Cash
Cash equivalents
Cash and cash equivalents
Dec 31,
2022
544.3
100.0
644.3
Dec 31,
2021
562.7
—
562.7
As at December 31, 2022, the Company held $100.0 million (2021 - $nil) in short term investments with a maturity
date of 90 days or less.
11. Trade and other receivables, net
Trade receivables
(US$ millions)
Trade receivables1
Provisions for sales allowances
Allowance for doubtful accounts
Trade receivables, net
Dec 31,
2022
514.7
(202.2)
(1.5)
311.0
Dec 31,
2021
517.6
(164.5)
(0.7)
352.4
1 Certain Entertainment receivables totaling $24.5 million from the prior year have been reclassified from Other
receivables to Trade receivables to conform with current year presentation as a result of the Company's revised
reportable operating segments.
26
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
11. Trade and other receivables, net (continued)
Trade receivables disclosed above include amounts that are past due as at the end of the reporting period.
Trade receivables past due but not impaired
(US$ 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,
2022
Dec 31,
2021
8.0
3.7
11.1
22.8
7.3
2.6
5.5
15.4
Dec 31,
2022
Dec 31,
2021
0.7
0.8
(0.1)
0.1
1.5
3.2
(0.5)
(2.1)
0.1
0.7
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 receivables
Sales tax receivables
Digital Games receivables
Entertainment receivables1
Other1
Other receivables
Dec 31,
Dec 31,
2022
37.3
3.9
0.6
0.2
7.5
2021
27.3
6.3
0.2
0.1
4.9
49.5
38.8
1 Certain Entertainment receivables totaling $24.5 million from the prior year have been reclassified from Other
receivables to Trade receivables to conform with current year presentation as a result of the Company's revised
reportable operating segments.
12. Inventories, net
(US$ millions)
Raw materials
Finished goods
Inventories, net
Dec 31,
Dec 31,
2022
7.7
97.4
105.1
2021
6.8
130.6
137.4
Inventories recorded as at December 31, 2022 are net of $8.8 million that was recorded for the write-down of
finished goods inventories to net realizable value (December 31, 2021 - $6.6 million).
The cost of inventories recognized as an expense in cost of sales during the year ended December 31, 2022 was
$819.2 million (2021 - $845.3 million).
During the year ended December 31, 2022, included within cost of sales in the Consolidated statements of earnings
and comprehensive income was a cost of $5.8 million (2021 - $0.9 million) related to finished goods inventories
written down to net realizable value.
27
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
13.
Prepaid expenses and other assets
(US$ millions)
Prepaid expenses
Advances on royalties
Unrealized foreign exchange gain
Prepaid expenses and other assets
(US$ millions)
Advances on royalties
Investment in a limited partnership
Investment tax credits - non-current portion
Minority interest and other investments
Other
Other assets, non-current
Minority interest and other investments
Notes
Notes
29
Dec 31,
2022
13.9
6.7
1.7
22.3
Dec 31,
2021
9.0
7.1
3.4
19.5
Dec 31,
2022
Dec 31,
2021
2.9
3.9
3.6
8.8
1.3
20.5
4.1
3.9
2.7
2.4
1.6
14.7
In 2022, the Company acquired minority interests in privately-held entities for a total of $7.5 million. The
investments are held for medium to long term strategic purposes. Four investments are classified as fair value
through profit or loss ("FVTPL") and one classified as fair value through other comprehensive income ("FVTOCI").
Minority interest and other 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.
In the third quarter of 2022, the Company acquired the remaining ownership interest and control of a Minority
interest investment classified as FVTOCI. As part of the step acquisition to 100% ownership of the entity, the
existing investment was deemed to be disposed and reacquired at fair value of $0.7 million (see Note 28).
The carrying value of the five Minority interest and other investments held as at December 31, 2022 (December 31,
2021 - two investments) were as follows:
(US$ millions)
Minority interest and other investments classified as FVTOCI
Minority interest and other investments classified as FVTPL
Minority interest and other investments
Initial
investment
3.6
6.3
9.9
Carrying value at,
Dec 31,
2022
Dec 31,
2021
3.0
5.8
8.8
0.6
1.8
2.4
For the year ended December 31, 2022, there were losses of $0.5 million (2021 - $nil) recognized for Minority
interest and other investments classified as FVTPL in the Consolidated statements of earnings and comprehensive
income within Other expense, net.
For the year ended December 31, 2022, there were gains of $0.1 million (2021 - $nil) recognized for Minority
interest and other investments classified as FVTOCI in the Consolidated statements of earnings and
comprehensive income within Other comprehensive loss.
28
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
14.
Assets held for sale
On February 7, 2022, the Company divested manufacturing assets located in Tarboro, North Carolina and certain
related brands associated with its Outdoor business for proceeds of $9.2 million. Upon closing of the sale, a loss on
disposal of $0.1 million was recognized in Other expense, net in the Consolidated statements of earnings and
comprehensive income. As at December 31, 2021, these assets, which included inventories of $5.7 million,
property, plant and equipment of $2.1 million and goodwill of $1.1 million were classified as "Assets held for sale"
and were presented separately in the Consolidated statements of financial position.
15. Property, plant and equipment
(US$ millions)
Cost
Balance at December 31, 2020
Additions
Disposals
Assets acquired through business
combinations
Foreign currency translation
Transfer to intangible assets
Assets reclassified as held for sale
14
Balance at December 31, 2021
Additions
Disposals
Asset impairments
Foreign currency translation
Balance at December 31, 2022
Accumulated depreciation
Balance at December 31, 2020
Depreciation
Disposals
Foreign currency translation
Assets reclassified as held for sale
14
Balance at December 31, 2021
Depreciation
Disposals
Asset Impairments
Foreign currency translation
Balance at December 31, 2022
Net carrying amount
Balance at December 31, 2021
Balance at December 31, 2022
Note
Moulds, dies
and tools
Equipment
Land, building
and leasehold
improvements
Computer
hardware
152.5
22.8
(4.3)
0.1
2.6
—
(1.1)
172.6
23.0
(7.0)
(1.6)
(10.9)
176.1
(130.6)
(24.5)
4.3
(1.6)
1.0
(151.4)
(20.5)
5.8
(0.3)
9.5
31.2
2.0
(0.2)
0.3
(0.6)
—
(4.6)
28.1
3.6
(0.4)
—
(1.1)
30.2
(21.5)
(3.3)
0.2
(0.4)
2.7
(22.3)
(1.8)
0.4
—
0.6
40.1
0.3
(0.4)
—
(0.2)
—
(0.2)
39.6
2.7
(0.8)
—
(1.8)
39.7
(21.8)
(6.2)
0.4
0.1
0.1
(27.4)
(5.6)
0.7
—
1.4
15.0
1.3
(0.7)
—
(1.0)
(2.2)
—
12.4
1.1
(0.5)
—
(0.4)
12.6
(11.5)
(1.2)
0.7
0.2
—
(11.8)
(0.8)
0.4
—
0.5
Total
238.8
26.4
(5.6)
0.4
0.8
(2.2)
(5.9)
252.7
30.4
(8.7)
(1.6)
(14.2)
258.6
(185.4)
(35.2)
5.6
(1.7)
3.8
(212.9)
(28.7)
7.3
(0.3)
12.0
(156.9)
(23.1)
(30.9)
(11.7)
(222.6)
21.2
19.2
5.8
7.1
12.2
8.8
0.6
0.9
39.8
36.0
At December 31, 2022, the Company assessed tangible assets for any indication of impairment and noted no
indicators with the exception of those related to certain tooling assets. Impairments are recorded when the carrying
amount of the asset exceeds its recoverable amount. For the year ended December 31, 2022, the Company
recorded impairments of $1.9 million (2021 - $nil) related to tooling in the Consolidated statements of earnings and
comprehensive income
29
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
16.
Intangible assets
(US$ millions)
Cost
Balance at December 31, 2020
Additions
Asset impairments
Assets acquired through
business combinations
Foreign currency translation
Transfer from property, plant and
equipment
Balance at December 31, 2021
Additions
Asset impairments
Assets acquired through
business combinations
Foreign currency translation
Balance at December 31, 2022
Accumulated amortization
Balance at December 31, 2020
Amortization
Foreign currency translation
Balance at December 31, 2021
Amortization
Foreign currency translation
Balance at December 31, 2022
Net carrying amount
Balance at December 31, 2021
Balance at December 31, 2022
Note
Brands -
indefinite
Trademarks,
licenses, IP
& customer
lists -
definite
Entertainment
content
development
Digital game
and app
development
Computer
software
Total
28
28
117.5
—
—
39.7
0.1
—
157.3
—
—
4.4
(2.0)
159.7
—
—
—
—
—
—
—
54.8
1.0
—
0.8
(0.2)
—
56.4
0.5
—
—
(0.8)
56.1
(26.2)
(6.1)
0.2
(32.1)
(5.1)
0.5
(36.7)
211.1
43.9
(2.1)
—
0.1
—
253.0
54.6
(1.1)
—
(15.7)
290.8
(176.4)
(47.7)
(1.5)
(225.6)
(14.4)
13.7
(226.3)
13.1
5.6
(0.5)
6.7
0.5
2.2
27.6
9.1
—
—
(1.9)
34.8
32.7
429.2
1.8
—
—
0.1
52.3
(2.6)
47.2
0.6
—
2.2
34.6
528.9
4.8
—
—
(2.5)
36.9
69.0
(1.1)
4.4
(22.9)
578.3
(9.2)
(5.8)
0.2
(25.4)
(237.2)
(3.9)
0.1
(63.5)
(1.0)
(14.8)
(29.2)
(301.7)
(4.3)
1.4
(3.5)
2.3
(27.3)
17.9
(17.7)
(30.4)
(311.1)
157.3
159.7
24.3
19.4
27.4
64.5
12.8
17.1
5.4
6.5
227.2
267.2
The Company’s Entertainment content development and Digital Games development assets are comprised
primarily of internally generated intangible assets.
As at December 31, 2022, the weighted-average remaining useful lives of definite life intangible assets based on
their net carrying amount was one to five years.
During the year ended December 31, 2021, the Company delivered PAW Patrol: The Movie, and accordingly,
amortized Entertainment content development costs in the amount of $23.0 million.
30
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
16.
Intangible assets (continued)
The carrying amount of indefinite life brands by CGU is as follows:
(US$ millions)
Rubik's
Games and Puzzles
GUND
SwimWays
Etch A Sketch
Meccano
Toys intangible assets
Digital Games1 intangible assets
Total
1 In the fourth quarter of 2021, the "Toca Boca" CGU was renamed "Digital Games".
Dec 31,
2022
37.4
35.6
33.9
28.0
7.1
2.4
144.4
15.3
159.7
Dec 31,
2021
37.4
33.5
33.9
27.8
7.2
2.2
142.0
15.3
157.3
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, 2022 and 2021, 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 14.8% to 23.0% (2021 -12.0% to 29.5%).
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% (2021 - 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, 2022, the Company completed its annual impairment tests for indefinite life
intangible assets and concluded there was no impairment (2021 - $nil).
Intangible asset impairment - definite life assets
For the year ended December 31, 2022, the Company recorded impairments of $1.1 million (2021 - $2.1 million)
related to entertainment content projects no longer in active development and $nil (2021 - $0.5 million) related to
Digital Games app development within Other expense, net in the Consolidated statements of earnings and
comprehensive income.
31
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
17. Goodwill
(US$ millions)
Balance, beginning of year
Additions during the year
Assets reclassified as held for sale
Impairments recognized in the year
Foreign currency translation
Balance, end of year
The carrying amount of goodwill was allocated to these CGUs as follows:
(US$ millions)
Games and Puzzles
SwimWays
Rubik's
Digital Games1
GUND
Orbeez
Toys
Other
Goodwill
1 In the fourth quarter of 2021, the "Toca Boca" CGU was renamed "Digital Games".
Notes
28
14
Dec 31,
2022
173.1
7.2
—
—
(1.3)
Dec 31,
2021
138.0
38.3
(1.1)
(1.9)
(0.2)
179.0
173.1
Dec 31,
2022
51.3
40.1
23.0
22.6
20.3
8.0
7.5
6.2
Dec 31,
2021
48.3
40.1
22.6
19.7
20.3
8.0
7.5
6.6
179.0
173.1
The company tests goodwill for impairment in accordance with the Company's policy. In assessing goodwill for
impairment at December 31, 2022 and 2021, 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 16)
with the exception of the goodwill associated with the disposal group noted in Note 14.
For the year ended December 31, 2022, there were $nil (2021 - $1.9 million in respect of assets held for sale (see
Note 14) and one other CGU) of impairments recognized with respect to goodwill, within Other expense, net in the
Consolidated statements of earnings and comprehensive income.
32
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
18.
Trade payables and accrued liabilities
(US$ millions)
Trade payables
Accrued liabilities
Trade payables and accrued liabilities
Dec 31,
2022
153.0
186.4
339.4
Dec 31,
2021
274.7
201.7
476.4
Accrued liabilities are comprised of payroll related liabilities, accrued royalties, commodity tax, dividends payable
and other. As at December 31, 2022, $4.6 million of dividends payable is included in accrued liabilities
(December 31, 2021 - $nil) (see Note 22 (a)).
As at December 31, 2022, a restructuring liability of $0.4 million (December 31, 2021 - $1.4 million) is included in
accrued liabilities.
19.
Deferred revenue
Deferred revenue is comprised of advances on contracts relating to Entertainment revenue and subscriptions
relating to Digital Games revenue. These amounts represent consideration received in advance of the Company
fulfilling its performance obligations. As at December 31, 2022, the Company had deferred revenue of $11.5 million
(December 31, 2021 - $10.9 million).
For the year ended December 31, 2022, the Company recognized revenue of $8.3 million (2021 - $22.9 million)
relating to amounts previously deferred.
20.
Loans and borrowings
Unsecured Debt
Bank Facilities
The Company has an unsecured five-year revolving credit facility (the "Facility") with a borrowing capacity of $510.0
million which 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 are being amortized over the term of the amended and restated agreement.
As at December 31, 2022, there were $1.4 million (December 31, 2021 - $0.4 million) in letters of credit outstanding
under the Facility. As at December 31, 2022, there was $nil drawn (December 31, 2021 - $nil) under the Facility. As
at December 31, 2022, Unamortized Facility fee costs in the amount of $1.2 million (December 31, 2021 - $1.6
million) recognized in the Consolidated statements of financial position.
This Facility is subject to the maintenance of certain financial covenants. The Company was in compliance with all
financial covenants as at December 31, 2022 and December 31, 2021.
Bank Overdraft Facility
The Company has an uncommitted Overdraft Facility Agreement (the "European Facility") for €15.0 million
(US$16.1 million). The European Facility will be used to fund working capital requirements in Europe. As at
December 31, 2022, the outstanding balance was $nil (December 31, 2021 - $nil).
Secured Debt
Bank Facilities
The Company has an uncommitted Revolving Credit Facility to finance television and film production. The limit of
the credit facility (the "Production Facility") is 10.0 million CAD (US$7.4 million). As at December 31, 2022, the
outstanding balance of the Production Facility was $nil (December 31, 2021 - $nil).
33
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
21.
Provisions
(US$ millions)
Deferred Consideration(i)
Defectives(ii)
Supplier liabilities(iii)
Provisions
Current
Non-current
Provisions
(US$ millions)
December 31, 2020
Provisions recognized
Accretion recognized
Payments
Revaluation of provisions
December 31, 2021
Provisions recognized
Accretion recognized
Payments
Revaluation of provisions
December 31, 2022
Dec 31,
2022
26.7
13.6
5.5
45.8
30.7
15.1
45.8
Deferred
consideration(i)
Defectives(ii)
Supplier
liabilities(iii)
15.8
10.6
1.6
(7.4)
2.7
23.3
12.5
1.3
(12.6)
2.2
26.7
13.0
7.9
—
(11.0)
—
9.9
11.4
—
(7.6)
(0.1)
13.6
5.6
1.9
—
(1.6)
—
5.9
2.0
—
(2.4)
—
5.5
Dec 31,
2021
23.3
9.9
5.9
39.1
25.1
14.0
39.1
Total
34.4
20.4
1.6
(20.0)
2.7
39.1
25.9
1.3
(22.6)
2.1
45.8
(i) Certain business combinations include agreement terms associated with royalty payables or deferred
incentive compensation and are based on the achievement of certain financial performance criteria and/
or continued employment. The accretion of the royalties is recorded in Interest expense in the
Consolidated statements of earnings and comprehensive
incentive
compensation is recorded in Other expense, 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 and are recorded in Other expense, net
in the Consolidated statements of earnings and comprehensive income.
income. Accrued deferred
(ii) 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.
(iii) Supplier liabilities represent the estimated amounts to be paid to suppliers for lower than expected
volumes purchased, resulting in the supplier having excess raw material and/or finished goods inventory.
While such payments are not legally required, the Company may 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/or finished goods inventory. The provision for supplier obligations is
recorded in cost of sales 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.
34
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
22.
Share capital
(a) Authorized as at December 31, 2022 and December 31, 2021
•
•
•
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.
Multiple voting shares:
Outstanding, beginning of year
Conversion to subordinate voting shares
Outstanding, end of year
Subordinate voting shares:
Outstanding, beginning of year
Issuance of subordinate voting shares
Conversion from multiple voting shares
Outstanding, end of year
Shares issued and outstanding, end of period
Year Ended Dec 31,
Year Ended Dec 31,
2022
2021
Shares
(millions)
Amount
(US$ millions)
Shares
(millions)
Amount
(US$ millions)
70.6
(1.9)
68.7
31.8
0.5
1.9
34.2
102.9
360.2
(9.7)
350.5
376.7
17.8
9.7
404.2
754.7
70.6
—
70.6
31.4
0.4
—
31.8
102.4
360.5
(0.3)
360.2
364.3
12.1
0.3
376.7
736.9
As at December 31, 2022, the Company does not hold any of its outstanding shares (December 31, 2021 - $nil).
On November 10, 2022, the Company announced a secondary offering (the “Secondary Offering”) on a bought deal
basis of its subordinate voting shares through a secondary sale of shares by an entity owned and or controlled by a
Director of the Company (the “Selling Shareholder”). The Secondary Offering of 1,900,000 subordinate voting
shares raised gross proceeds of approximately 61.0 million CAD for the Selling Shareholder, at a price of 32.10
CAD per subordinate voting share and was completed on November 17, 2022. The Company did not receive any
proceeds from the Secondary Offering, and the underwriting fees and other expenses related to the Secondary
Offering were paid by the Selling Shareholder. To satisfy the sale under the Secondary Offering, the Selling
Shareholder converted 1,900,000 multiple voting shares into subordinate voting shares on a one-for-one basis.
On January 5, 2023, the Company launched, and the Toronto Stock Exchange ("TSX") accepted the notice to
launch a Normal Course Issuer Bid (the "NCIB"). Under the NCIB, the Company may repurchase its subordinate
voting shares on the open market at its discretion and subject to compliance with applicable securities laws. The
NCIB period commenced on January 9, 2023, and will end on the earlier of January 8, 2024 and the completion of
purchases under the NCIB, up to 2,845,904 subordinate voting shares, which represents approximately 10% of the
"public float" (within the meaning of the rules of the TSX). Under the TSX rules, daily purchases on the TSX
pursuant to the NCIB will be limited to 20,814 subordinate voting shares, other than purchases made pursuant to
the block purchase exception. As at March 8, 2023, no shares have been purchased under the NCIB.
35
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
22.
Share capital (continued)
As at December 31, 2022, the Company had dividends declared of $9.2 million at a rate of 0.06 CAD per
outstanding subordinate voting share and multiple voting share of Spin Master. Dividends in the amount of $4.6
million were paid on October 14, 2022 to shareholders of record at the close of business on September 30, 2022.
Dividends in the amount of $4.6 million were accrued on December 31, 2022 and paid on January 13, 2023 to
shareholders of record at the close of business on December 30, 2022.
On March 8, 2023, the Company’s Board of Directors declared a dividend of 0.06 CAD per outstanding subordinate
voting share and multiple voting share, payable on April 14, 2023 to shareholders of record at the close of business
on March 31, 2023.
(b) Share-based plans
The total expense recognized for employee services received during the year ended for December 31, 2022 equity-
settled transactions is shown in the following table:
(US$ millions)
Equity-settled RSUs and PSUs
Equity-settled Participation Arrangement transactions
Share purchase options
Share based compensation expense
Year Ended Dec 31,
2022
17.5
—
0.1
17.6
2021
14.6
0.2
0.5
15.3
Share based compensation expense is recorded in administrative expenses in the Consolidated statements of
earnings and comprehensive income with a corresponding amount recorded in contributed surplus.
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, 2022, the aggregate number of
subordinate voting shares that may be issued pursuant to grants under the LTIP may not exceed 9,669,599
(December 31, 2021 - 9,669,599). As at December 31, 2022, 3,656,929 (December 31, 2021 - 4,142,665)
subordinate voting shares remained reserved for issuance under the LTIP.
The Company settled vested LTIP grants during the year ended December 31, 2022 through the issuance of
shares. The settlements resulted in a transfer of $17.8 million (2021 - $8.6 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, 2022 and December 31, 2021.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Dec 31,
2022
942,931
412,676
Dec 31,
2021
826,116
388,693
(214,456)
(252,763)
(58,728)
(19,115)
1,082,423
942,931
36
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
22.
Share capital (continued)
Performance Share Units ("PSUs")
Below is a summary of the activity related to PSUs outstanding as at December 31, 2022 and December 31, 2021.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Deferred Share Units ("DSUs")
Dec 31,
2022
1,091,862
276,410
(318,179)
(43,761)
Dec 31,
2021
918,929
285,463
(62,815)
(49,715)
1,006,332
1,091,862
Below is a summary of the activity related to the DSUs outstanding as at December 31, 2022 and December 31,
2021.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Outstanding, end of year
Dec 31,
2022
Dec 31,
2021
157,293
121,771
55,479
(24,908)
35,522
—
187,864
157,293
Share based compensation expense of $1.7 million (2021 - $1.2 million) was recorded for the year ended
December 31, 2022.
A mark to market gain of $1.7 million on DSUs outstanding (2021 - loss of $2.0 million) was recorded for the year
ended December 31, 2022, respectively.
The share based compensation and mark to market gain related to DSUs are reflected in administrative expenses
in the Consolidated statements of earnings and comprehensive income. A corresponding amount was recorded in
accrued liabilities.
Share Purchase Options (“Options”)
The Company has one share option plan for key employees, which forms part of their LTIP. Under this plan, the
exercise price of each option equals the market price of the Company’s shares on the date of grant and the Options
have a maximum term of ten years. The Options vest ratably over a four-year vesting period.
The Company did not issue any Options in 2022 and 2021. As at December 31, 2022, 483,426 (December 31, 2021
- 497,733) Options were outstanding with a weighted average exercise price of 34.97 CAD (December 31, 2021 -
35.22 CAD).
Outstanding, beginning of year
Exercised
Forfeited and/or expired
Outstanding, end of year
Exercisable options
Dec 31,
2022
Weighted
average
exercise
price (CAD)
35.22
37.96
46.02
34.97
34.82
Number of
share
options
497,733
(4,157)
(10,150)
483,426
460,496
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
37
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
22.
Share capital (continued)
Number of Share
Options Outstanding
179,069
125,516
87,570
5,817
85,454
483,426
Dec 31,
2022
Weighted average
remaining contractual
life (years)
3.3
Dec 31,
2021
Weighted average
remaining contractual
life (years)
4.2
5.2
6.9
1.3
5.9
5.3
Number outstanding
179,069
125,516
96,129
5,817
91,202
497,733
4.2
6.1
0.3
5.2
4.3
Exercise price
$22.94
$37.64
$37.96
$49.80
$52.20
Total
23. Earnings per share
(US$ millions, except per share amounts)
Net Income
Weighted average number of shares (in millions)
Dilutive effect of equity1
Diluted weighted average number of shares (in millions)
Basic earnings per share
Diluted earnings per share
1 The dilutive effect of equity includes equity instruments which comprise of employee stock options.
24. 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
Net changes in non-cash working capital
Year Ended Dec 31,
2021
2022
198.6
261.3
102.9
3.5
106.4
2.54
2.45
102.3
3.0
105.3
1.94
1.89
Year Ended Dec 31,
2022
2021
61.4
0.6
37.4
(11.4)
—
88.0
(157.3)
0.6
1.0
(155.7)
(67.7)
(48.7)
8.3
(31.7)
4.7
(5.7)
(73.1)
147.4
(14.5)
(9.9)
123.0
49.9
38
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
25.
Related party transactions
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, 2022, 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
(2021 - $1.3 million). As at December 31, 2022, amounts payable to the director's law firm were $0.4 million
(December 31, 2021 - $0.2 million).
Compensation of key management personnel
The compensation of directors and other key management personnel during the years were as follows:
(US$ millions)
Salaries, wages and bonuses
Share-based compensation
Employee benefits
Total compensation of key management personnel
2022
5.7
3.3
0.3
9.3
2021
6.7
3.3
0.1
10.1
39
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
26.
Leases
Amounts recognized in the Consolidated statements of financial position
Leased office buildings represented approximately 90% 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 (2021 - 11 years).
The carrying value of right-of-use assets and depreciation by class of underlying assets are as follows:
(US$ millions)
January 1, 2021
Additions
Assets recognized upon acquisition (Note 28)
Modifications
Depreciation and amortization
Foreign currency translation
December 31, 2021
(US$ millions)
Additions
Modifications
Depreciation and amortization
Foreign currency translation
December 31, 2022
(US$ millions)
January 1, 2021
Additions
Liabilities recognized upon acquisition (Note 28)
Modifications
Accretion
Lease payments
Foreign currency translation
December 31, 2021
(US$ millions)
Additions
Modifications
Accretion
Lease payments
Foreign currency translation
December 31, 2022
(US$ millions)
Lease liabilities, current
Lease liabilities, non-current
Total lease liabilities
Building
Equipment Right-of-use assets
65.0
0.5
0.6
10.9
(12.1)
(1.0)
63.9
2.0
0.5
—
—
(1.1)
(0.1)
1.3
67.0
1.0
0.6
10.9
(13.2)
(1.1)
65.2
Building
Equipment Right-of-use assets
12.0
0.5
(11.5)
(2.8)
62.1
0.3
0.1
(0.7)
(0.2)
0.8
12.3
0.6
(12.2)
(3.0)
62.9
Lease liabilities
74.4
1.0
0.7
10.9
4.4
(17.6)
(0.8)
73.0
Lease liabilities
12.3
0.6
4.2
(15.8)
(3.1)
71.2
Dec 31,
2021
13.3
59.7
73.0
Dec 31,
2022
16.3
54.9
71.2
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.
40
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
26.
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
2022
2021
12.2
4.2
1.9
4.6
22.9
13.2
4.4
1.1
5.9
24.6
The total cash outflows for leases for the year ended December 31, 2022 was $22.9 million (2021 - $24.6 million).
27. Commitments for expenditures
Licensing and similar agreements in effect at December 31, 2022 that contain provisions for future minimum
payments, include the following:
As at December 31, 2022
(US$ millions)
Lease liabilities - undiscounted
Guaranteed payments due to licensors
Other
Total commitments
Less than 1 year to greater than 5 years
< 1 Year
1-5 Years
> 5 Years
Total
14.8
21.0
6.2
42.0
39.6
27.6
13.9
81.1
39.2
—
—
39.2
93.6
48.6
20.1
162.3
28.
Business acquisitions
Acquisition of certain assets from SolidRoots, LLC
On August 2, 2022, the Company acquired certain assets from SolidRoots, LLC (“SolidRoots”), a creator of family
board games. Management performed an analysis under IFRS 3, Business Combinations ("IFRS 3") and has
determined that the assets and processes acquired comprised a business and therefore, accounted for the
transaction as a business combination using the acquisition method of accounting. This acquisition is expected to
complement the Company's existing board games offering and has been reported in the Toys segment within the
Activities, Games & Puzzles and Plush product category and included in the Games and Puzzles CGU beginning
from the date of acquisition.
The purchase consideration of $10.7 million is comprised of $8.5 million of cash consideration and $2.2 million of
contingent consideration related to the estimated fair value of future royalties. The purchase agreement also
included total deferred incentive compensation of $1.0 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 a
remuneration expense and are accrued over the related service period. Deferred incentive compensation of less
than $0.1 million is included in Other expense, net in the Consolidated statements of earnings and comprehensive
income for the year ended December 31, 2022. The contingent consideration and deferred incentive compensation
are recorded in provisions in the Consolidated statements of financial position.
Purchase consideration of $10.7 million has been allocated as follows: $4.4 million to intangible assets (related to
the brand), $2.0 million to inventories and $0.1 million to prepaid expenses and other assets, with the remainder of
$4.2 million allocated to goodwill.
The Company incurred $0.2 million in transaction related costs which were included in administrative expenses in
the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2022.
41
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
28.
Business acquisitions (continued)
Assets acquired and liabilities recognized at the date of acquisition
(US$ millions)
Assets acquired
Intangible assets
Inventories
Prepaid expenses and other assets
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Cash consideration
Present value of contingent consideration
Total purchase 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 August 2, 2022
4.4
2.0
0.1
6.5
8.5
2.2
10.7
6.5
4.2
8.5
8.5
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, $4.2 million
of goodwill is expected to be deductible for income tax purposes and is being amortized for tax purposes over 15
years.
The total purchase consideration includes $2.2 million in deferred payments for future royalties. The future royalties
are payable to the vendor upon the achievement of key performance indicators over a five-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 $3.1 million.
Impact of acquisition on the results of the Company
Included in the Company's financial results for the year ended December 31, 2022 is $1.6 million in revenue
attributable to the acquisition.
42
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
28.
Business acquisitions (continued)
Acquisition of the remaining shares of Nørdlight Games AB
On August 24, 2021, the Company acquired 18.53% of the shares in Nørdlight Games AB (“Nørdlight”), a company
that creates and develops digital games, based in Sweden. On August 8, 2022, the Company acquired the
remaining 81.47% of the shares of Nørdlight, resulting in ownership and control of 100% of the voting shares in
Nørdlight. This investment was classified in 2021 as an equity instrument measured at FVTOCI. Management
performed an analysis under IFRS 3 and determined that the assets and processes acquired comprised a business
and therefore, accounted for the transaction as a business combination using the acquisition method of accounting.
The acquisition has been reported under the Digital Games segment and CGU beginning from the date of
acquisition.
The Company paid cash consideration of $2.5 million. The total purchase consideration has been allocated to the
identifiable assets of $0.5 million, and liabilities of $0.2 million, with the remainder $2.9 million allocated to goodwill.
The purchase agreement also includes contingent consideration of $4.9 million which is payable on achieving
certain performance metrics and has been allocated a fair value of $nil in the total purchase consideration.
The Company incurred $0.1 million in transaction related costs which were included in administrative expenses in
the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2022.
Assets acquired and liabilities recognized at the date of acquisition
(US$ millions)
Assets acquired
Cash
Other receivables
Liabilities assumed
Trade payables and accrued liabilities
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Cash consideration
Fair value of previously held equity interest
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
Net cash outflow on acquisition
Fair value as at August 8, 2022
0.4
0.1
0.5
0.2
0.2
0.3
2.5
0.7
3.2
0.3
2.9
2.5
0.4
2.1
43
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
28.
Business acquisitions (continued)
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 incentive compensation of $7.8 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 related service
period. Deferred incentive compensation of $1.4 million is included in Other expense, net in the Consolidated
statements of earnings and comprehensive income for the year ended December 31, 2022. The deferred incentive
compensation is recorded in provisions in the Consolidated statements of financial position.
Summary of prior year 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. 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 Toys segment within the Activities, Games &
Puzzles and Plush product category and included in the Rubik's CGU beginning from the date of acquisition.
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.
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
Toys segment and CGU from the date of acquisition.
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 purchase agreement also included deferred incentive compensation 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.
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 digital games 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 segment and CGU and its revenue is included within Digital Games revenue from the
date of acquisition.
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 Digital Games development), tangible assets of $0.6 million and
assumed liabilities of $2.9 million with the remainder allocated to goodwill.
44
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
28.
Business acquisitions (continued)
The purchase agreement also included total deferred incentive compensation of $10.0 million, which is contingent
on the continued employment of key principals as well as certain performance metrics, over a five-year period.
These payments are considered an incentive-related remuneration expense and are accrued over the five-year
period.
Assets acquired and liabilities recognized at the date of acquisition
(US$ millions)
Assets acquired
Cash
Trade receivables
Inventories
Prepaid expenses and other assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Liabilities assumed
Trade payables and accrued liabilities
Lease 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
Rubik's Brand
Limited
Product invention
and development
company Originator Inc.
Fair value as at
January 4, 2021
Fair value as at
April 16, 2021
Fair value as at
June 14, 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
—
—
—
—
0.1
0.6
—
0.7
—
0.7
—
—
0.7
—
0.2
0.4
—
—
—
—
9.1
9.7
0.4
—
2.5
—
2.9
6.8
Rubik's Brand
Limited
Product invention
and development
company Originator Inc.
52.6
(1.2)
3.8
55.2
32.6
22.6
7.5
—
—
7.5
—
7.5
15.0
—
—
15.0
6.8
8.2
Rubik's Brand
Limited
Product invention
and development
company Originator Inc.
52.6
1.1
51.5
3.0
48.5
7.5
—
7.5
—
7.5
15.0
0.2
14.8
—
14.8
45
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
29. 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,
2022
754.7
40.7
468.1
1,263.5
Dec 31,
2021
736.9
40.8
216.0
993.7
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.
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. The Company declared a quarterly dividend beginning with the third quarter of 2022 and
subsequent to year-end, the Company launched a NCIB, as described in Note 22.
The Facility requires the Company to comply with certain financial covenants. As at December 31, 2022, the
Company was in compliance with such 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 or 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 periodically enters into derivative financial instruments such as foreign exchange forward contracts to
manage its foreign currency risk on cash flows denominated in currencies other than the US dollar.
As at December 31, 2022, the Company is committed under outstanding foreign exchange contracts representing a
total net sell commitment of $20.3 million (December 31, 2021 - net purchase commitment of $11.6 million). These
foreign exchange contracts have maturity dates varying from January 2023 to April 2024. For the year ended
December 31, 2022, realized gains on the Company’s matured hedges were $3.1 million (2021 - realized gain of
$0.8 million) and are included in the Consolidated statements of earnings and comprehensive income.
As at December 31, 2022
(in millions)
Foreign exchange contracts
Buy US$
Buy US$
Buy US$
Sell US$
Buy US$
Total
Notional value:
foreign currency
Notional value:
US$
Unrealized
gain (loss): US$
60.5 EUR
17.5 GBP
655.0 MXN
(186.6) CAD
4.5 AUD
(66.2)
(22.0)
(31.1)
142.6
(3.0)
20.3
0.9
0.9
(1.9)
(4.4)
(0.1)
(4.6)
46
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
29. 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
Notional value:
foreign currency
Notional value:
US$
Unrealized
(loss) gain: 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
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$. The
sensitivity analysis includes all outstanding foreign currency denominated current monetary assets and liabilities
and adjusts their translation as at the end of the reporting period for a 5.0% change in foreign currency rates. A
positive number below indicates an increase in a foreign exchange gain where the currency unit strengthens 5.0%
against US$.
(US$ millions)
Canadian dollar
Great Britain pound sterling
Mexican peso
Euro
Australian dollar
Dec 31,
Dec 31,
2022
(6.4)
0.5
2.0
1.0
0.5
2021
(7.6)
0.4
1.4
(0.2)
0.4
Interest rate risk - management
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 may be exposed to interest rate risk should it borrow under its credit
facilities 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.
For the year ended December 31, 2022, with all other variables held constant, a 50-basis point decrease in interest
rates would have resulted in a decrease to interest income of $2.8 million for the year (2021 - a decrease to interest
income of $1.0 million). A 50-basis point increase in interest rates would have resulted in an increase to interest
income of $2.8 million for the year (2021 - an increase to interest income of $2.2 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, 2022.
47
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
29. 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 annually.
As at December 31, 2022, approximately 48.6% (2021 - 52.0%) of the Company’s trade receivables are due from
three major retail customers which represent approximately 52.2% of Toy gross product sales for the year ended
December 31, 2022 (2021 - 52.6%).
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, 2022 (US$ millions)
< 1 year
1-5 years
> 5 years
Total
Derivative financial liabilities
Foreign exchange forward contracts
Non-derivative financial liabilities
Trade payables and accrued liabilities
254.7
14.0
339.4
594.1
—
14.0
—
—
—
268.7
339.4
608.1
Financing facilities
(US$ millions)
Bank loan facilities
Amount undrawn
Bank loan facilities
Dec 31,
2022
533.5
533.5
Dec 31,
2021
534.9
534.9
48
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
29. Financial instruments and risk management (continued)
Fair value measurements
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 and other investments which are recorded at fair
value.
(US$ millions)
Financial assets
Cash and cash equivalents
Trade receivables
Other receivables
Other assets:
Minority interest and other investments
Investment in a limited partnership
Investment tax credits - non-current portion
Unrealized foreign exchange gain
Financial assets
Financial liabilities
Trade payables and accrued liabilities
Financial liabilities
Dec 31,
2022
Dec 31,
2021
644.3
311.0
49.5
8.8
3.9
3.6
1.7
1,022.8
339.4
339.4
562.7
352.4
38.8
2.4
3.9
2.7
3.4
966.3
476.4
476.4
With the exception of foreign exchange forward contracts, Investment in a limited partnership and Minority interest
and other 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, 2022 resulted in an unrealized gain of $1.7
million, which is recorded in Other assets (December 31, 2021 - $3.4 million) and an unrealized loss of $6.3 million
recorded in accrued liabilities (December 31, 2021 - $1.0 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, 2022 is recorded in Other assets at
$3.9 million (December 31, 2021 - $3.9 million) with $nil of net unrealized losses (2021 - net unrealized gain of $0.9
million) recognized in Other expense, net in the Consolidated statements of earnings and comprehensive income
for the year ended December 31, 2022. For the year ended December 31, 2022, the Company recognized $0.1
million (2021 - $0.6 million) of distribution income in Other expense, net, 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.
49
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
29. Financial instruments and risk management (continued)
From inception, the Company has paid $2.9 million and is obligated to pay the remaining $0.1 million upon
receiving capital calls over the remaining term of the limited partnership agreement. The investment in a limited
partnership is held for medium to long-term strategic purposes.
The fair value of the Minority interest and other investments recorded in other assets are as follows:
(US$ millions)
Minority interest and other investments classified as FVTOCI
Minority interest and other investments classified as FVTPL
Minority interest and other investments
Dec 31,
Dec 31,
2022
3.0
5.8
8.8
2021
0.6
1.8
2.4
For the year ended December 31, 2022, a fair value loss of $0.5 million (2021 - $nil), was recognized for Minority
interest and other investments classified as FVTPL in Other expense, net in the Consolidated statements of
earnings and comprehensive income.
For the year ended December 31, 2022, there were gains of $0.1 million, respectively (2021 - $nil) recognized for
Minority interest and other investments classified as FVTOCI in the Consolidated statements of earnings and
comprehensive income within Other comprehensive loss.
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.
30.
Segment information
Spin Master is a global children's entertainment company with a portfolio that includes children’s products, brands,
and entertainment content spanning toys, games, licensed products, film and television programming and digital
games.
Effective January 2021, the Company appointed a new Global President, who also assumed the role of Chief
Executive Officer ("CEO") in April 2021, and identifying the role as CODM. A President was appointed to each of the
three creative centres who report directly to the Global President & CEO. As a result of Spin Master’s
reorganization, financial reporting, performance management, approval of allocations for capital and growth
strategies and opportunities were aligned to this new organizational structure effective January 1, 2022.
The Company has three reportable operating segments, which are as follows:
(i) Toys
(ii) Entertainment
(iii) Digital Games
The Toys segment engages in the creation, design, manufacturing, licensing, and marketing of toys, games, and
products around the world. The Entertainment segment engages in the creation and production of multi-platform
content, stories and characters in original shows, short-form series and films. The Digital Games segment engages
in the creation of digital games which include subscription services. The Company also presents Corporate & Other
which includes certain corporate costs, foreign exchange and merger and acquisition-related costs, as well as fair
value gains and losses and distribution income on Minority interest and other investments.
The CODM measures total segment performance based on Adjusted EBITDA, as reported internally to
management. The accounting policies of the reportable segments are the same as the Company’s accounting
policies described in Note 2. Reclassifications of certain prior year segment results and account balances have
been made to conform to the current-year presentation. None of the segment changes impact the Company's
previously reported consolidated revenue, net income or earnings per share.
50
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
30.
Segment information (continued)
The Company’s results from operations for Toys, Entertainment, and Digital Games reportable operating segments
and Corporate & Other segment for the years end December 31, 2022 and December 31, 2021 are as follows:
(US$ millions)
Toys
Year Ended Dec 31, 2022
Digital
Games
Corporate &
Other
Entertainment
Total
Revenue
1,737.6
118.8
163.9
—
2,020.3
Operating Income
170.1
76.7
46.5
Restructuring and other related costs
Foreign exchange gain
Share based compensation
Impairment of property, plant and equipment
Impairment of intangible assets
Legal settlement
Acquisition related deferred incentive
compensation
Investment distribution income
Loss on Minority interest and other
investments
Acquisition related deferred consideration
Transaction costs
Depreciation and amortization
Adjusted EBITDA
(US$ millions)
4.6
—
12.4
1.9
—
—
5.4
—
—
3.5
—
0.1
—
1.2
—
1.1
—
—
—
—
—
—
0.2
—
2.3
—
—
—
4.9
—
—
—
—
46.7
244.6
14.8
93.9
6.6
60.5
Year Ended Dec 31, 2022
Toys
Entertainment
Digital
Games
Corporate &
Other
Capital expenditures
32.4
54.9
12.1
—
(US$ millions)
Toys
Year Ended Dec 31, 2021
Digital
Games
Corporate &
Other
Entertainment
Revenue
1,731.8
135.8
174.8
—
2,042.4
Operating Income
159.0
53.4
67.5
Restructuring and other related costs
Foreign exchange gain
Share based compensation
Impairment of goodwill
Impairment of intangible assets
Acquisition related deferred incentive
compensation
Net unrealized gain on investment
Investment distribution income
Acquisition related deferred consideration
Transaction costs
Gain on disposal of asset
Depreciation and amortization
Adjusted EBITDA
(US$ millions)
2.3
—
13.4
1.9
—
4.3
—
—
2.7
—
(0.2)
56.3
239.7
—
—
0.4
—
2.1
—
—
—
—
—
—
0.2
—
1.5
—
0.5
2.5
—
—
—
—
—
48.2
104.1
7.4
79.6
Toys
Entertainment
Year Ended Dec 31, 2021
Digital
Games
Corporate &
Other
Capital expenditures
26.8
44.0
8.7
—
79.5
51
50.0
—
(61.4)
1.7
—
—
(0.5)
—
(0.1)
0.5
(0.9)
1.0
0.1
(9.6)
(7.7)
—
(2.9)
—
—
—
—
(0.9)
(0.6)
—
2.8
—
—
(9.3)
343.3
4.9
(61.4)
17.6
1.9
1.1
(0.5)
10.3
(0.1)
0.5
2.6
1.0
68.2
389.4
Total
99.4
Total
272.2
2.5
(2.9)
15.3
1.9
2.6
6.8
(0.9)
(0.6)
2.7
2.8
(0.2)
111.9
414.1
Total
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
30.
Segment information (continued)
Revenue reported by segment above represents revenue generated from external customers. There were no inter-
segment revenue in any year.
The following table provides a reconciliation of the Company's consolidated Adjusted EBITDA to Income before
income tax expense for the years end December 31, 2022 and December 31, 2021:
(US$ millions)
Adjusted EBITDA
Adjusting Items:
Depreciation and amortization
Restructuring and other related costs
Foreign exchange gain
Share based compensation
Impairment of goodwill
Impairment of property, plant and equipment
Impairment of intangible assets
Legal settlement
Acquisition related deferred incentive compensation
Net unrealized gain on investment
Investment distribution income
Loss on Minority interest and other investments
Acquisition related contingent consideration
Transaction costs
Gain on disposal of asset
Operating Income
Add (Deduct):
Interest income
Interest expense
Income before income tax expense
Revenue from major product categories
Spin Master’s Toys segment is organized into four major product categories as follows:
(i) Preschool and Dolls & Interactive
(ii) Activities, Games & Puzzles and Plush
(iii) Wheels & Action
(iv) Outdoor
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
Toy gross product sales1
Sales allowances
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
1Toy gross product sales represent sales of the Company’s products to customers, excluding sales allowances.
2,020.3
Year Ended Dec 31,
2022
389.4
2021
414.1
(68.2)
(4.9)
61.4
(17.6)
—
(1.9)
(1.1)
0.5
(10.3)
—
0.1
(0.5)
(2.6)
(1.0)
—
(111.9)
(2.5)
2.9
(15.3)
(1.9)
—
(2.6)
—
(6.8)
0.9
0.6
—
(2.7)
(2.8)
0.2
343.3
272.2
10.7
(13.6)
340.4
1.1
(11.3)
262.0
Year Ended Dec 31,
2022
867.0
561.7
450.8
99.3
2021
809.6
587.8
445.6
119.4
1,978.8
1,962.4
(241.2)
(230.6)
1,737.6
1,731.8
118.8
163.9
135.8
174.8
2,042.4
52
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
30.
Segment information (continued)
Geographical information
Revenue by geographical area is based on the location of the customers and non-current assets are based on
geographic location of the entity which holds the assets. The North American geographic area is comprised of the
United States and Canada. The European geographic area is comprised of the United Kingdom, France, Italy, the
Netherlands, Germany, Austria, Switzerland, Belgium, Luxembourg, Slovakia, Hungary, Romania, Czech Republic,
Poland, Turkey, Russia, Greece and Spain. The Rest of World 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. Entertainment and Digital Games revenue are tracked on a global basis
and are presented as such in the table below.
The Company's revenues are derived from the following geographical areas:
(US$ millions)
North America
Europe
Rest of World
Toy gross product sales
Sales allowances
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
Year Ended Dec 31,
2022
2021
1,189.8
1,197.3
525.0
264.0
530.7
234.4
1,978.8
1,962.4
(241.2)
(230.6)
1,737.6
1,731.8
118.8
163.9
135.8
174.8
2,020.3
2,042.4
Toy gross product sales for North America include amounts attributable to the United States of $1,093.3 million
(2021 - $1,105.6 million) and Canada of $96.5 million (2021 - $91.7 million) for the year ended December 31, 2022.
Non-current assets by major geographic region are detailed as follows:
(US$ millions)
Non-current assets
North America
Europe
Rest of World
Non-current assets
Other
Total non-current assets
Dec 31,
2022
Dec 31,
2021
404.1
79.0
18.7
501.8
158.5
660.3
388.9
83.2
18.6
490.7
126.3
617.0
Other includes non-current assets not directly attributable to a specific geographic area.
Non-current assets for North America include assets attributable to Canada of $164.5 million as at December 31,
2022 (December 31, 2021 - $134.5 million).
53
Spin Master Corp.
Consolidated financial statements for the year ended December 31, 2022 and December 31, 2021
30.
Segment information (continued)
Major customers
Sales to the Company's three largest customers accounted for 52.2% (2021 - 52.6%) of Toy gross product sales for
the year ended December 31, 2022. The Toys segment sells products to each of the Company’s three largest
customers. Other than the top three customers, which have remained the same as compared to the comparative
period, no other single customer contributed 10% or more to Toy gross product sales for the year ended
December 31, 2022 and 2021.
(US$ millions)
Toy gross product sales
Customer 1
Customer 2
Customer 3
Total
Year Ended Dec 31,
2022
2021
422.0
333.3
277.5
423.9
346.6
261.2
1,032.8
1,031.7
31. Subsequent events
Acquisition of certain assets from 4D Brands International Inc
On November 8, 2022, the Company entered into an agreement with 4D Brands International Inc., and 4D
Cityscape Worldwide Limited, (collectively, the “Vendors”) to acquire certain assets of the Vendors. The transaction
closed on January 17, 2023. The acquisition will be reported in the Activities, Games & Puzzles and Plush product
category.
Given the proximity of the transaction to the reporting date, the Company is in the process of determining the fair
values of the assets acquired and liabilities assumed. The estimated purchase allocation will be disclosed in the
Company's first quarter of 2023 condensed consolidated interim financial statements.
Acquisition of certain assets from Innovation First, Inc
On December 21, 2022, the Company entered into an agreement with Innovation First, Inc., Innovation First
International, Inc., Innovation First Labs, Inc. and Innovation First Logistics, Inc. (collectively, the “Vendors”) to
acquire certain assets of the Vendors (including the HEXBUG brand). The transaction closed on February 1, 2023.
The acquisition will be reported in the Activities, Games & Puzzles and Plush product category.
Given the proximity of the transaction to the reporting date, the Company is in the process of determining the fair
values of the assets acquired. The estimated purchase allocation will be disclosed in the Company's first quarter of
2023 condensed consolidated interim financial statements.
32.
Prior year comparatives
Certain prior year comparatives have been reclassified to conform with current year presentation.
54
Corporate
Directory
Board of Directors
Leadership
Ronnen Harary
Chair & Co-Founder
Anton Rabie
Director & Co-Founder
Ed Clark C.M.
Deputy Chair
Charles Winograd
Lead Director
Michael Blank
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
Christi Strauss
Director
Ben Varadi
Director, Executive Vice President &
Chief Creative Officer
Brian Whipple
Director
Max Rangel
Director, Global President &
Chief Executive Officer
Mark Segal
Executive Vice President &
Chief Financial Officer
Chris Beardall
President, Toys
Jennifer Dodge
President, Entertainment
Fredrik Loving
President, Digital Games
Paul Blom
Executive Vice President, Global
Operations & Supply Chain
Tara Deakin
Executive Vice President &
Chief People Officer
Christopher Harrs
Executive Vice President & General
Counsel, Corporate Secretary
Jeremy Tucker
Executive Vice President &
Global Chief Marketing Officer
Ben Varadi
Director, Executive Vice President &
Chief Creative Officer
Jason Wilson
Executive Vice President &
Chief Information Officer
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.
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
Annual Meeting
of Shareholders
May 4, 2023
Investor Contact
Information
Email:
investor.relations@spinmaster.com
Spin Master Corp.’s financial reports,
regulatory filings and news releases
are available at sedar.com and on our
website at spinmaster.com/en-US/
corporate/investor-relations.
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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