2023
ANNUAL
REPORT
REIMAGINE EVERYDAY PL AY
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As we enter our 30th anniversary
year, we remain focused on executing
our long-term strategy. We continue
to make significant progress by
leveraging our deep expertise in
play and diversifying our portfolio
to unlock growth.”
Max Rangel, Global President & CEO
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 entertainment series.
Then, we levelled up to the mobile screen, acquiring two digital game studios to
create a trifecta of Toys, Entertainment and Digital Games. Over time, the Company
has grown through the development of its own intellectual property while also
completing numerous acquisitions. In 2024, Spin Master acquired Melissa & Doug®,
a well-known, trusted brand in early childhood play, the largest acquisition in our
history. Today, Spin Master is a leading children’s entertainment company, with three
thriving creative centres and a roster of amazing brands. Together, we inspire magical
play experiences for kids and their families around the world, every day.
1 Financial Highlights
4 Letter to Shareholders
2 Company Overview
8 Corporate Social Responsibility
3 Corporate Strategy
10 2023 Financial Review
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 spinmaster.com or from sedarplus.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, 2023, unless otherwise noted.
Financial Highlights
Revenue
2019
2020
2021
2022
2023
Net Income
2019
2020
2021
2022
2023
$64
$46
Toy Gross Product Sales1
$1,582
$1,571
$2,042
$2,020
$1,905
2019
2020
2021
2022
2023
Adjusted Net Income1
$93
$53
2019
2020
2021
2022
2023
$199
$261
$151
$1,691
$1,624
$1,962
$1,979
$1,787
$221
$244
$225
Adjusted EBITDA1
Adjusted EBITDA Margin1
2019
2020
2021
2022
2023
$219
$181
$414
$389
$419
2019
2020
2021
2022
2023
13.8%
11.5%
20.3%
19.3%
22.0%
Cash Provided by Operating Activities
Free Cash Flow1
$98
2019
2020
2021
2022
2023
$311
$419
$249
$227
2019
$5
2020
2021
2022
2023
$232
$340
$150
$123
$1,905M
Revenue
$151M
Net Income
$419M
Adjusted EBITDA1
$1,787M
Toy Gross
Product Sales1
$225M
Adjusted Net
Income1
22.0%
Adjusted EBITDA
Margin1
$227M
Cash Provided by
Operating Activities
$123M
Free Cash Flow1
1. Non-GAAP financial measure or ratio. Non-GAAP financial measures and ratios 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 (“MD&A”) dated February 28, 2024 for the three months and year ended December 31, 2023 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 2023, 2022 and 2021 reconciliations of Adjusted Net Income and Adjusted EBITDA are included on page 72, Adjusted EBITDA Margin on page 16, Free Cash
Flow on page 74 and Toy Gross Product Sales on page 75. The MD&A is available at sedarplus.com.
Spin Master Corp. 2023 Annual Report
| 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. 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
Activities, Games &
Puzzles and Plush
Wheels & Action
Outdoor
ENTERTAINMENT
DIGITAL GAMES
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.
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.
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| Spin Master Corp. 2023 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.
• Build and expand core portfolio
• Build new franchises
• Leverage Spin Master IP and
• Drive Spin Master franchises
• Expand PAW Patrol universe
• Build licensed partner portfolio
• Expand existing partnerships
• Accelerate new content for
direct to audience platforms
• Expand geographic &
retail footprint
• Pursue strategic Mergers
& Acquisitions (“M&A”)
and Ventures
• Expand Licensing &
Merchandising
• Pursue strategic M&A
and Ventures
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
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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. 2023 Annual Report
| 3
Letter to Shareholders
Fellow Shareholders,
In 2023, we ignited children’s imaginations through product innovation, exciting content
and exceptional digital play experiences. In doing so, we earned Spin Master’s portfolio
a place in the hearts and homes of families globally. Each of our three creative centres –
Toys, Entertainment and Digital Games – played a distinct, yet interrelated role in
achieving our long-term strategy.
Looking back at our performance in 2023, we are
pleased with how our team harnessed the power
of our three creative centres and navigated the
challenging retail environment. As expected, full-
year revenue declined year over year driven by a
decline in the toy segment. While revenue for 2023
was down 5.7% to $1.9 billion, our combination of
toys, entertainment and digital games helped us
finish the year in a strong position.
As a result of the macroeconomic environment and
a shift towards services and experiences post Covid,
2023 was a challenging global marketplace for Toys
with the global industry declining 7%. The industry
expected that holiday shopping would occur late
in season and restore category growth. However,
the extra shopping days unfortunately did not bring
about the expected surge, and consumption did
not increase despite deep discounting. This was
compounded by retailer caution. Retailers focused
on profitability rather than growth, which led to
reduced orders. Despite these headwinds, our Toys
portfolio showed strength and resilience, with a 4%
Point of Sale decline, ahead of the industry, allowing
us to retain our position as the fourth largest
toy manufacturer.1
Simultaneously, the strategic fortitude of our
diversified portfolio and complementary creative
centres approach was underscored with strong
performances in Entertainment and Digital
Games partially offsetting the decline in Toys.
Entertainment had a tremendous year with a 60%
increase in revenue, driven by the delivery of new
content including a very successful second PAW
Patrol movie and Unicorn Academy™, our new
fantasy adventure series. Digital Games also saw
increased revenue of 6.1%, driven by continued
engagement with Toca Life World™ and the launch
of our new subscription service, Piknik™.
Toys:
Building Everlasting Brands
Dedicated to igniting creativity and imagination, our
Toy creative centre injected inventive experiences
into timeless brands, celebrated fandom-fuelled
characters and introduced groundbreaking
innovations this past year.
Our preschool powerhouse, PAW Patrol, ended 2023
as the #9 property globally, up from #10 in 2022,
and maintained its position as the #1 preschool
toys property worldwide, holding the top position
since Q1 2020.2 Coinciding with the franchise’s
momentous 10-year anniversary and release of a
second feature film, we unleashed a compelling
true-to-film toy line. Among them, the PAW Patrol:
The Mighty Movie™ Themed Vehicles and the Aircraft
Carrier HQ™ claimed the #2 and #3 spots in the
fiercely competitive U.S. Preschool Toys segments
for Q4 2023.3 The latter earned the coveted Toy of
the Year Awards in the U.S. and Australia.
1. Sourcing: Circana Group/Retail Tracking Service/Projected, G11, Annual 2023.
2. Sourcing: Circana Group/Retail Tracking Service/Annual 2023.
3. Sourcing: Circana Group/Retail Tracking Service/U.S. December 2023.
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| Spin Master Corp. 2023 Annual Report
Pushing the boundaries of creativity, we
brought to market an entirely new play
experience that transformed the way kids
interact with the digital pet. Bitzee™, the
digital pet that you can touch, introduced
a new and disruptive play pattern. The
breakthrough toy earned numerous
awards for Most Innovative Toy of the
Year in several countries and earned
the award for U.S. Top Selling Toy by
Supercategory (Youth Electronics).1
Our licensed portfolio debuted a heroic-
sized playset for the iconic Batman®
franchise, brought the high jump action
of Monster Jam® to playrooms and
invited Gabby’s Dollhouse™ fans aboard
an epic cruise ship playset. Expanding
our distinguished portfolio of licensed
properties, we also announced two new
licensing agreements: a collection of
toys for the return of the groundbreaking
Latina heroine Dora on Paramount+ as
well as a portfolio of toys and learning
aids with YouTube sensation Ms. Rachel,
strengthening our position in early
childhood and developmental play.
Entertainment:
A Catalyst for Franchises
Our Entertainment creative centre had an
exceptional year launching several new
series and expanding existing favourites
with complementary licensing and
merchandising programs allowing fans to
engage more deeply with the franchises.
What started as a television series
has transpired into a worldwide
phenomenon. PAW Patrol returned to
the big screen with our second feature
film in association with Paramount and
Nickelodeon Movies, PAW Patrol: The
Mighty Movie. Universal love for our
pups is stronger than ever, with the film
opening as the #1 movie in 32 markets
and recording a total box office
surpassing $200 million worldwide, with
a third movie now greenlit for exclusive
theatrical release in 2026. Earlier in the
year, we launched our first spinoff series
for PAW Patrol, Rubble & Crew™, which
has been renewed for a second season
and continues to be one of the top five
preschool shows on Nickelodeon in its
age category.
Capitalizing on our success and
expertise in the creation of children’s
programming, we debuted an all-new
animated series, Vida the Vet™, following
10-year-old Vida, an animal doctor who
nurtures the charming and silly woodland
creatures who live outside her home.
The series premiered on children’s
broadcasters BBC’s CBeebies in the U.K.
and Corus Entertainment’s Treehouse in
Canada, in late 2023 and into 2024. This
year, Vida the Vet will appear on more
screens internationally with additional
broadcasting partners including Netflix
in the U.S. in March, ahead of the toy
launch in fall 2024.
Our new fantasy-adventure series
Unicorn Academy launched on Netflix
November 2nd and was an instant hit,
debuting as the #1 kids show globally.
With its diverse characters and magical
adventures, the series quickly captivated
audiences and racked up over 40 million
hours of watch time in the first three
weeks of streaming. Unicorn Academy
is our first full franchise launch,
with phased branded offerings and
experiences across each of our three
creative centres. Unicorn Academy
toys will launch this fall and the digital
game will launch in 2025. In addition to
our content, toys and the digital game,
we have been working on a licensing
program for a wide range of consumer
products in 2024 and beyond to meet
fan demand for deeper engagement with
the franchise.
With proven success building global
fandoms, Spin Master’s entertainment
series ignite and inspire fans, serving
as a catalyst – fuelling innovative toys,
digital games and a rich marketplace
of licensing opportunities bringing the
characters that kids love to multiple
touchpoints in their lives.
Digital Games:
Expanding Ecosystems
The overall mobile digital games market
declined by 2% in 2023;2 however,
our Digital Games creative centre
outperformed with over 6% revenue
growth, driven primarily by higher in-
game purchases in Toca Life World and
subscription growth from the newly
launched Piknik bundle. Toca Life World
ended the year with just over 62 million
monthly active users, up 4.3 million
compared to 2022. In 2023, Toca Life
World saw 98 million downloads, its
largest download volume year ever,
compared to 92 million in 2022 and
90 million in 2021. This demonstrates
Toca Life World’s ongoing popularity and
engagement with kids.
PAW Patrol Academy™, which is our
first in-house learning app for our
powerhouse franchise, is off to a
great start. Due to its high quality
and overall depth of play, it has been
named Google’s Best App of 2023
for Families and ended 2023 with
34,000 subscribers. The team is now in
full live service and continues to build
the overall experience.
Introduced in Q3, Piknik is our
subscription bundle that offers
unlimited access to a variety of our
Sago Mini and Toca Boca digital games
including Sago World™, Sago School™,
First Words™, Toca Boca Junior™, Hair
Salon™ and more. One subscription
streamlines multiple apps into a simple
and affordable service for parents and
provides endless ways to play and learn
for kids. The market reacted positively to
the bundle when it was launched, and
including PAW Patrol Academy and other
Originator Inc. apps, we ended 2023 at
just under 400,000 subscribers in total, a
growth of 68,000 subscribers over 2022.
In 2024, we will integrate the Originator
apps into Piknik, to increase bundle value
even further.
1. Sourcing: Circana Group/Retail Tracking Service/Value Sales, January-December 2023.
2. Sourcing: Data.ai Intelligence Digital Games Market.
Spin Master Corp. 2023 Annual Report
| 5
We are excited to be launching several
new digital games in 2024. This includes
Toca Days™, our first social multiplayer
game that will seek to expand the
existing player base of the Toca universe.
We are also launching Rubik’s Match™,
our casual mobile game that will deliver
a fresh take on the match-3 game genre,
to coincide with Rubik’s 50th anniversary.
Our teams are collaborating across
creative centres to make this a special
moment for Rubik’s fans. Designed for
the problem solver and perfect for those
who cherish mental gymnastics, the
game combines the joy of puzzle solving
with the creative potential of building
and personalization.
As more kids are spending their time in
online worlds and communities, we are
expanding our player ecosystem and
creating digital play experiences that
cater to multiple interests and age levels.
Transformative Acquisition:
Melissa & Doug
Strategic acquisitions have been
an important element in propelling
Spin Master’s growth over the past
30 years and in 2023 we announced
the acquisition of Melissa & Doug, the
largest in our history. As a trusted brand
of early childhood toys with an evergreen
portfolio, Melissa & Doug expands our
presence in new categories, providing
immediate revenue growth, broader
reach in all retail channels and market
coverage. With the addition of Melissa &
Doug we have established a foothold in
early learning, and this combination will
make us the market leader in the Infant,
Toddler and Preschool Supercategory.1
The acquisition of Melissa & Doug will
help us to shape the next chapter of
Spin Master’s journey and accelerate
our growth trajectory, supporting our
vision to reimagine everyday play. Plans
to bring the two companies together
are well underway and we are actively
implementing strategies to realize both
revenue growth opportunities and
cost synergies.
Our enthusiasm for growth, not only this year but in
the years ahead, remains unwavering, energized by a
transformational acquisition, strong core brands, new
intellectual property and growing licensed revenue all
supported by our longstanding culture of innovation.”
Visionary Leadership
The Executive Leadership Team
celebrated the retirement of two
longstanding leaders at Spin Master,
both who have been instrumental in
the Company’s strategic growth and
operational excellence. Spin Master’s
President of Toys, Chris Beardall, retired
in December 2023, having served as
a key member of the leadership team
for 23 years. Chris helped transform
Spin Master from a small private toy
company to one of the top five toy
manufacturers globally. Chris Harrs,
Spin Master’s EVP & General Counsel &
Corporate Secretary, announced his
retirement for the end of March 2024.
During his 20-year tenure, Chris has
been an integral part of negotiations
for more than 20 acquisitions including
Melissa & Doug, GUND, Rubik’s and
Toca Boca.
With their departures, we are excited to
welcome two exceptional successors
assuming key leadership roles. With
a focus on innovation and visionary
leadership, we celebrate Doug Wadleigh’s
promotion from Head of Global Toy
Brands to President of Toys, and our
newly appointed EVP & General Counsel,
Sachin Kanabar, who joined Spin Master
in January 2024.
Further bolstering the Toys creative
centre, we welcomed David Voss
to the Executive Leadership Team
as the Executive Vice President,
Global Toy Design & Development in
January 2024. Known in the toy industry
for our unwavering commitment to
innovation with never-seen-before
play experiences, the newly created
role builds on our commitment to
create disruptive play experiences
and highlights our plans to expand
toy innovation and elevate design for
continued growth.
Looking Forward
As we enter our 30th anniversary year,
we remain focused on executing our
long-term strategy. We continue to make
significant progress by leveraging our
deep expertise in play and diversifying
our portfolio to unlock growth. We also
recognize the challenges ahead that we
will have to mitigate, including continued
economic pressure on the consumer
and a shorter shopping period during
the holiday season. We’re highly focused
on developing toys that will spark
imaginations and provide consumers
with value at varied price points,
capturing the hearts of children through
compelling content and engaging them
in new digital experiences.
Our enthusiasm for growth, not only
this year but in the years ahead,
remains unwavering, energized by a
transformational acquisition, strong
core brands, new intellectual property
and growing licensed revenue all
supported by our longstanding culture
of innovation.
1. Sourcing: Circana Group/Retail Tracking Service/Projected, G11, Annual 2023.
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| Spin Master Corp. 2023 Annual Report
A Culture of Disruptive Innovation –
Spin Master’s entrepreneurial spirit fuels
our ambition, imagination and innovation.
We’re committed to fostering a culture
of disruptive innovation as we reimagine
everyday play across Toys, Entertainment
and Digital Games.
On behalf of the Board of Directors,
we thank our talented team members
globally for their contributions in
2023. As we begin 2024, we’re already
advancing against these key priorities
and are confident in the strength of our
diversified portfolio and our ability to
create long-term growth and shareholder
value creation.
Ronnen Harary
Chair & Co-Founder
Anton Rabie
Director & Co-Founder
Max Rangel
Global President & CEO
For 2024 we will be focusing on five
key themes:
A Transformative Acquisition – With
the acquisition of Melissa & Doug we
are bringing together two formidable
leaders in the toy industry driven by
a mutual passion to create magical
play experiences for children and
inspire imaginations. Melissa & Doug’s
complementary early childhood product
offerings strengthens our portfolio,
better positioning us to meet the needs
of children and parents today and into
the future.
Driving Core Brands & Franchises –
We have a strong foundation of core
brands and franchises across our three
creative centres. We continue to drive
performance and nurture these core
brands, capitalizing on the positive
momentum from the PAW Patrol movie
year and celebrating the iconic Rubik’s
Cube’s 50th anniversary. We’re also
developing toys from beloved brands
with proven play patterns for value
channels, an opportunity to grow share
with toys that are more affordable for
more price-conscious shoppers.
Maximizing New Intellectual
Property – Our new intellectual property
will help us continue to reach kids around
the world. Unicorn Academy and Vida
the Vet will ignite, engage and inspire
new fans, serving as catalysts fuelling
innovative toys, digital games and a rich
marketplace for licensing opportunities.
Launching New Licensing Revenue –
We’ll leverage our deep experience in
translating revered on-screen adventures
into toys that ignite imaginations and
inspire new play experiences, launching
and driving new license revenue with
Ms. Rachel and more to be announced.
Ronnen Harary
Chair & Co-Founder
Anton Rabie
Director & Co-Founder
Max Rangel
Global President & CEO
Spin Master Corp. 2023 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 and empower children to
grow and learn through play while acting as
responsible custodians of the world these
children will one day inherit.
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| Spin Master Corp. 2023 Annual Report
CSR STRATEGIC FOCUS AREASOUR PRODUCTSAs 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 PEOPLEOur 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 ENVIRONMENTWe 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. OUR COMMUNITIESWe 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. CSR PRIORITIES
AND GOALS
Fostering an inclusive culture where
everyone can thrive and grow
Helping children grow, learn
and explore through play
CSR Priority
2023 Result
CSR Priority
2023 Result
Set and meet employee
engagement targets (2030)
77% overall employee
engagement
Achieve and maintain
close to 100% pay equity
99% pay equity
Approximate 50-50 gender
split for all management
levels (2025)
Female representation at
40% senior management and
48% middle management
Report representation
survey results
Representation data
reported 2022 onwards
Impact 1/2 million
children (2022)
645,000 children
impacted
Report volunteer
hours (2022)
6,000+ volunteer
hours globally
Award 8 Future of
Play Scholarships
9 scholarships awarded
in 2023 and 24 students
supported since the
program launched
Producing the highest quality
goods and developing sustainable
production with our portfolio
CSR Priority
2023 Result
50% reduction of plastic
in our packaging (2025)
22.4% reduction in
plastic packaging
Utilize eco-friendly inks on
50% of packaging (2025)
23.7% of our inks were
eco-friendly in 2022,
on target to achieve goal
Develop 4 responsibly
made SKUs (2022)
21 sustainably minded
products launched since 2022
Doing our part to mitigate our environmental
impact and adapt to changing climate
CSR Priority
2023 Result
Develop a Climate Action
Plan (2022)
Developed and launched
Climate Action Plan in 2022
Achieve net-zero
reduction in Scope 1 + 2
emissions (2050)
Net-zero pathway mapped
with external consultants
70% reduction in Scope
1 + 2 emissions (2030)
On track, see CSR Report for
2023 emissions progress
In the interim, offset
100% of our self-
generated carbon
100% of Scope 1 + 2 emissions
covered by renewable energy
certificates or offsets
Sourcing production in a responsible
manner from suppliers who share our
values and commitment to integrity
Reducing waste through recycling,
reusing and reducing
CSR Priority
2023 Result
CSR Priority
2023 Result
Audit 100% factories
99% of factories
audited annually
Establish and enforce
Supplier Code of Conduct
(2020)
Supplier Code of
Conduct developed
and enforced
Establish product
takeback program (2021)
80% reduction in landfill
waste in owned/leased
facilities (2025)
Zero landfill waste in owned/
leased facilities (2035)
Conduct waste audits
in owned/leased facilities
(2022)
Established a partnership
with TerraCycle® that allows
U.S. customers to recycle toys
free of charge
Achieved 2025 landfill waste
reduction goal in 2023
Waste audit completed in 2022,
with 55% waste diversion
Spin Master Corp. 2023 Annual Report
| 9
DIVERSITY AND ENGAGEMENTPHILANTHROPY PRODUCT AND PACKAGINGCLIMATERESPONSIBLE SOURCINGWASTE 2023
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. 2023 Annual Report
Spin Master Corp.
Management's Discussion and Analysis of Financial Results
For the three months and year ended December 31, 2023
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 .........................................................................................
FORWARD-LOOKING STATEMENTS ..................................................................................................................
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INTRODUCTION
February 28, 2024
The following Management’s Discussion and Analysis (“MD&A”) for Spin Master Corp. and its subsidiaries
(“Spin Master” or the “Company”) is dated February 28, 2024 and provides information concerning the
Company’s financial condition, financial performance and cash flows for the three months and year ended
December 31, 2023, (“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, 2023, as well as its current Annual Information Form. These and additional
the Company's profile on SEDAR+ at
information relating
www.sedarplus.com.
the Company can be
found under
to
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”) as issued by the International Accounting Standards Board (“IASB”). 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. (TSX:TOY) is a leading global children's entertainment company, creating exceptional play
experiences through its three creative centres: Toys, Entertainment and Digital Games. With distribution in over
100 countries, Spin Master is best known for award-winning brands PAW Patrol®, Bakugan®, Kinetic Sand®,
Air Hogs®, Melissa & Doug®, 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 31 offices spanning
nearly 20 countries, Spin Master employs close to 3,000 team members globally.
1
Segment information
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.
Effective January 1, 2024, Spin Master has changed its product categories to align with the Company's product
offerings going forward: (1) Preschool, Dolls & Interactive, Infant and Toddler; (2) Activities, Games & Puzzles
and Plush; (3) Wheels & Action; and (4) Outdoor.
Entertainment
The Entertainment segment engages in the creation, development, production and distribution of multi-platform
content for children and families globally. 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. The Digital
Games segment 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 (such as certain employee compensation and professional
services expenses), foreign exchange and transaction 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 intellectual
property ("IP")
•
•
•
•
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
Key Strategic Focus
Enterprise Shared
Capabilities
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Build new franchises
Expand PAW Patrol
Universe
Accelerate new
content for direct to
audience platforms
Expand Licensing &
Merchandising
Pursue strategic M&A
and Ventures
Build and expand
core portfolio
Drive Spin Master
franchises
Build licensed partner
portfolio
Expand existing
partnerships
Expand geographic &
retail footprint
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 three and year ended
December 31, 2023 and 2022, which should be read in conjunction with the annual financial statements.
Consolidated Results
(US$ millions, except per share information)
Year Ended Dec 31,
2023
2022
2021
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 (CA$)
Weighted average number of shares (in millions)
Basic
Diluted
Selected Cash Flow Data
Cash provided by operating activities
Cash used in investing activities
Cash used in financing activities
Free Cash Flow2
Selected Balance Sheet Data
Cash and cash equivalents
Total assets3
Total liabilities3
1,904.9
188.9
2,020.3
343.3
2,042.4
272.2
9.9 %
288.7
15.2 %
151.4
225.2
418.8
17.0 %
321.2
15.9 %
261.3
244.3
389.4
13.3 %
302.2
14.8 %
198.6
221.3
414.1
22.0 %
19.3 %
20.3 %
1.46
1.43
2.18
2.13
0.24
2.54
2.45
2.37
2.30
0.12
1.94
1.89
2.16
2.10
—
103.5
105.7
102.9
106.4
102.3
105.3
227.0
(135.3)
(44.1)
122.9
Dec 31,
2023
705.7
1,989.7
570.6
249.3
(109.2)
(20.3)
149.9
Dec 31,
2022
644.3
1,805.1
553.3
419.1
(153.2)
(18.3)
339.6
Dec 31,
2021
562.7
1,736.7
684.3
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".
3 December 31, 2022 restated for the change in accounting policy (see Note 3 of the annual financial statements).
4
Executive Summary for the year ended December 31, 2023 as compared to December 31, 2022
•
•
•
Revenue was $1,904.9 million, down 5.7% from $2,020.3 million. Constant Currency Revenue1
decreased by 6.5% to $1,889.6 million from $2,020.3 million.
Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 of $15.6 million was
$1,889.3 million, a decrease of $131.0 million or 6.5% from $2,020.3 million.
Revenue by operating segment reflected a decline of 11.3% in Toys, partially offset by increases of
60.0% in Entertainment and 6.1% in Digital Games.
• Operating Income was $188.9 million compared to $343.3 million.
• Operating Margin was 9.9% compared to 17.0%.
•
Adjusted Operating Income1 was $288.7 million compared to $321.2 million. The decline in Adjusted
Operating Income1 was primarily driven by a decrease of $36.4 million in Toys, partially offset by
increases of $4.2 million in Digital Games and $1.6 million in Entertainment.
Adjusted Operating Margin1 was 15.2% compared to 15.9%.
Net Income was $151.4 million or $1.43 per share (diluted) compared to $261.3 million or $2.45 per
share (diluted).
Adjusted Net Income1 was $225.2 million or $2.13 per share (diluted) compared to $244.3 million or
$2.30 per share (diluted).
Adjusted EBITDA1 was $418.8 million compared to $389.4 million, an increase of $29.4 million or
7.6%. Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 was $403.2
million, an increase of $13.8 million or 3.5% from $389.4 million.
Adjusted EBITDA Margin1 was 22.0% compared to 19.3%. Adjusted EBITDA Margin, excluding PAW
Patrol: The Mighty Movie Distribution Revenue1 was 21.3%.
Cash provided by operating activities was $227.0 million compared to $249.3 million.
Free Cash Flow1 was $122.9 million compared to $149.9 million.
During the year ended December 31, 2023, the Company acquired certain assets from 4D Brands
International Inc. for total purchase consideration of $18.9 million and acquired the HEXBUG brand of
toys from Innovation First International, Inc., for total purchase consideration of $14.6 million.
During the year ended December 31, 2023, the Company incurred restructuring expenses of $18.1
million ($0.17 per diluted share) related to a reduction in the Company's global workforce and the
closure of its manufacturing facility in Calais, France.
During the year ended December 31, 2023, the Company repurchased and cancelled 397,700
subordinate voting shares through the Company's Normal Course Issuer Bid (the "NCIB") program for
$10.5 million.
•
•
•
•
•
•
•
•
•
•
• On January 2, 2024, the Company completed its previously announced acquisition of MND Holdings I
Corp ("Melissa & Doug") by acquiring all issued and outstanding capital stock. Melissa & Doug is a
leading brand in early childhood play with offerings of open-ended, creative, and developmental toys.
The acquisition will be reported in the Toys segment. Spin Master funded the $959.0 million preliminary
purchase price with $434.0 million cash and $525.0 million in debt. (Refer to Liquidity and Capital
Resources section for more details).
Subsequent to December 31, 2023, the Company declared a quarterly dividend of CA$0.06 per
outstanding subordinate voting share and multiple voting share, payable on April 12, 2024.
•
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
5
Toys
Segmented Results
(US$ millions)
Toy Gross Product Sales1
Toy revenue
Operating Income
Operating Margin2
Adjusted EBITDA1
Adjusted EBITDA Margin1
Cash Flow
Toys capital expenditures
Balance Sheet
Moulds, dies and tools, net carrying amount
Entertainment
(US$ millions)
Entertainment revenue
Operating Income
Operating Margin2
Adjusted Operating Income1
Adjusted Operating Margin1
Cash Flow
Entertainment capital expenditures
Balance Sheet
Entertainment content development, net carrying amount3
Digital Games
(US$ millions)
Digital Games revenue
Operating Income
Operating Margin2
Adjusted Operating Income1
Adjusted Operating Margin1
Cash Flow
Digital Games capital expenditures
Balance Sheet
Digital game and app development, net carrying amount
Year Ended Dec 31,
2023
1,787.2
1,540.9
101.0
6.6 %
212.4
13.8 %
2022
1,978.8
1,737.6
170.1
9.8 %
244.6
14.1 %
34.6
32.4
Dec 31
2023
Dec 31
2022
19.2
19.2
Year Ended Dec 31,
2023
2022
190.1
78.0
41.0 %
80.7
42.5 %
118.8
76.7
64.6 %
79.1
66.6 %
52.1
54.9
Dec 31
2023
Dec 31
2022
48.3
77.1
Year Ended Dec 31,
2023
2022
173.9
49.1
28.2 %
58.1
33.4 %
163.9
46.5
28.4 %
53.9
32.9 %
20.7
12.1
Dec 31,
2023
Dec 31,
2022
31.5
17.1
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
2 Operating Margin is calculated as segment Operating Income divided by segment Revenue.
3 December 31, 2022 restated for the change in accounting policy (see Note 4 of the consolidated financial statements).
6
FINANCIAL PERFORMANCE
Consolidated Results
The following table provides a summary of Spin Master’s consolidated results for the three months ended
December 31, 2023 compared to the same period in 2022:
(US$ millions)
Revenue
Cost of sales
Gross Profit
Selling, general and administrative expenses
Depreciation and amortization
Other expense, net
Foreign exchange loss, net
Operating Loss
Interest income
Interest expense
Loss before income tax recovery
Income tax recovery
Net Loss
Q4 2023
Q4 2022
$ Change
% Change
502.6
240.6
262.0
244.8
7.1
28.5
18.2
(36.6)
(7.0)
3.9
(33.5)
(3.4)
(30.1)
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)
36.8
7.2
29.6
7.0
—
21.8
13.4
(12.6)
(1.5)
0.1
(11.2)
5.1
(16.3)
7.9 %
3.1 %
12.7 %
2.9 %
— %
325.4 %
279.2 %
52.5 %
27.3 %
2.6 %
50.2 %
(60.0) %
118.1 %
The following tables provide a summary of Spin Master’s consolidated results for the year ended December 31,
2023 compared to the same period in 2022:
(US$ millions)
Revenue
Cost of sales
Gross Profit
Selling, general and administrative expenses
Depreciation and amortization
Other expense, net
Foreign exchange loss (gain), net
Operating Income
Interest income
Interest expense
Income before income tax expense
Income tax expense
Net Income
2023
1,904.9
866.5
1,038.4
775.7
25.4
33.7
14.7
188.9
(27.4)
15.1
201.2
49.8
151.4
Year Ended Dec 31,
2022
$ Change
% Change
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
(115.4)
(50.0)
(65.4)
(6.4)
(3.5)
22.8
76.1
(154.4)
(16.7)
1.5
(139.2)
(29.3)
(109.9)
(5.7) %
(5.5) %
(5.9) %
(0.8) %
(12.1) %
209.2 %
(123.9) %
(45.0) %
156.1 %
11.0 %
(40.9) %
(37.0) %
(42.1) %
7
Revenue as compared to the same period in 2022:
The following table provides a summary of Spin Master’s revenue by segment, for the three months ended
December 31, 2023 and 2022:
(US$ millions)
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
Q4 2023
Q4 2022
$ Change
% Change
406.8
55.2
40.6
502.6
396.7
31.2
37.9
465.8
10.1
24.0
2.7
36.8
2.5 %
76.9 %
7.1 %
7.9 %
Revenue was $502.6 million, an increase of 7.9% from $465.8 million due to a 76.9% increase in Entertainment
revenue, 2.5% increase in Toy revenue and 7.1% increase in Digital Games revenue. Constant Currency
Revenue1 was $493.9 million, an increase of 6.0%, from $465.8 million.
Toy revenue increased by $10.1 million or 2.5% to $406.8 million driven by an increase in Toy Gross Product
Sales1, partially offset by an increase in Sales Allowances. Toy Gross Product Sales1 increased $23.1 million or
4.8%, to $502.3 million from $479.2 million, which arose from higher order volumes compared to the prior year.
The increases in Wheels & Action and Preschool and Dolls & Interactive, were partially offset by a decrease in
Outdoor. Constant Currency Toy Gross Product Sales1 increased by $11.4 million or 2.4% to $490.6 million.
Entertainment revenue increased by $24.0 million or 76.9% to $55.2 million from higher distribution revenue
associated with content deliveries including Unicorn Academy, Rubble & Crew and Vida the Vet and from on-
going distribution revenue related to PAW Patrol: The Mighty Movie. Constant Currency Entertainment
Revenue1 increased by $24.1 million or 77.2% to $55.3 million, from $31.2 million.
Digital Games revenue increased by $2.7 million or 7.1% to $40.6 million driven by higher in-game purchases
in Toca Life World and higher subscription revenue from both the Piknik subscription bundle ("Piknik") and the
PAW Patrol Academy preschool learning app ("PAW Patrol Academy"). Constant Currency Digital Games
Revenue1 increased by $2.6 million or 6.9% to $40.5 million, from $37.9 million.
The following table provides a summary of Spin Master’s revenue by segment, for the year ended
December 31, 2023 and 2022:
(US$ millions)
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
Year Ended Dec 31,
2023
2022
1,540.9
190.1
173.9
1,904.9
1,737.6
118.8
163.9
2,020.3
$ Change
(196.7)
71.3
10.0
(115.4)
% Change
(11.3) %
60.0 %
6.1 %
(5.7) %
Revenue was $1,904.9 million, a decrease of 5.7% from $2,020.3 million due to an 11.3% decrease in Toy
revenue, partially offset by 60.0% increase in Entertainment revenue and 6.1% increase in Digital Games
revenue. Constant Currency Revenue1 was $1,889.6 million, a decrease of 6.5% from $2,020.3 million.
Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 of $15.6 million was $1,889.3 million,
a decrease of $131.0 million or 6.5% from $2,020.3 million.
Toy revenue decreased by $196.7 million or 11.3% to $1,540.9 million driven by a decrease in Toy Gross
Product Sales1, partially offset by an increase in Sales Allowances. Toy Gross Product Sales1 decreased by
$191.6 million or 9.7%, to $1,787.2 million from $1,978.8 million across all product categories as a result of
lower order volume due to macroeconomic pressures on consumer discretionary spending. Constant Currency
Toy Gross Product Sales1 decreased by $215.7 million or 10.9% to $1,763.1 million, down from $1,978.8
million.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"
8
Entertainment revenue increased by $71.3 million or 60.0% to $190.1 million. The increase was from higher
distribution revenue associated with new content deliveries including PAW Patrol: The Mighty Movie, Unicorn
Academy, Rubble & Crew and Vida the Vet as well as the Company's share of revenue from the PAW Patrol
series and the continued distribution of PAW Patrol: The Movie. Constant Currency Entertainment Revenue1
increased by $71.3 million or 60.0% to $190.1 million, up from $118.8 million.
Digital Games revenue increased by $10.0 million or 6.1% to $173.9 million. The increase was due to higher in-
game purchases in Toca Life World. Constant Currency Digital Games Revenue1 increased by $12.7 million or
7.7% to $176.6 million, from $163.9 million.
Gross Profit as compared to the same period in 2022:
(US$ millions)
Revenue
Gross Profit
Gross Margin
Q4 2023
Q4 2022
$ Change
% Change
502.6
262.0
52.1 %
465.8
232.4
49.9 %
36.8
29.6
7.9 %
12.7 %
2.2 %
For the three months ended December 31, 2023, Gross Profit increased by $29.6 million or 12.7% to $262.0
million. The increase was primarily due to improvements in the Toys segment, driven by higher Toy Gross
Product Sales1 and lower ocean freight costs, partially offset by higher sales allowances driven by markdowns
and promotional activity as a response to the pressure on consumer discretionary spending levels. In addition,
the Gross Profit increase included higher Entertainment revenue which was mostly offset by amortization of
production costs.
Gross Margin increased to 52.1% from 49.9%, primarily as a result of improved Gross Margin in the Toys
Segment, from lower ocean freight costs and favourable foreign exchange. The improvement was partially
offset by the dilutive effect of higher amortization from more content deliveries in the Entertainment segment.
(US$ millions)
Revenue
Gross Profit
Gross Margin
2023
1,904.9
1,038.4
Year Ended Dec 31,
2022
$ Change
% Change
2,020.3
1,103.8
(115.4)
(65.4)
(5.7) %
(5.9) %
(0.1) %
54.5 %
54.6 %
For the year ended December 31, 2023, Gross Profit decreased by $65.4 million or 5.9% to $1,038.4 million,
mainly from the Toys segment. Lower Toy Gross Product Sales1 due to order volume and higher sales
allowances, primarily driven by higher markdowns and promotional activity, caused by pressure on consumer
discretionary spending levels, were offset in part by lower ocean freight and favourable foreign exchange rates.
The decrease in Gross Profit was partially offset by higher Entertainment revenue.
Gross Margin remained stable at 54.5% compared to 54.6%. Gross Margin was negatively impacted by the
dilutive effect of content deliveries (including Unicorn Academy and PAW Patrol: The Mighty Movie) in the
Entertainment segment, offset by improvements in the Toys segment due to lower ocean freight costs and
favourable foreign exchange.
9
Selling, General and Administrative Expenses ("SG&A") as compared to the same period in 2022:
(US$ millions)
Administrative
Marketing
Selling
Distribution
Product development
SG&A
Q4 2023
Q4 2022
$ Change % Change
87.0
90.7
36.5
20.1
10.5
91.2
83.3
33.8
20.1
9.4
244.8
237.8
(4.2)
7.4
2.7
—
1.1
7.0
(4.6) %
8.9 %
8.0 %
— %
11.7 %
2.9 %
SG&A increased by $7.0 million or 2.9% to $244.8 million due to higher marketing and selling expenses
partially offset by lower administrative expenses. SG&A as a percentage of revenue decreased to 48.7% from
51.1% primarily driven by higher revenue.
Administrative expenses decreased by $4.2 million or 4.6% to $87.0 million. The decrease was primarily due to
lower compensation and personnel-related costs, and lower office and travel expenses, partially offset by
transaction costs incurred for the acquisition of Melissa & Doug. Administrative expenses as a percentage of
revenue decreased to 17.3% from 19.6% from lower costs and higher revenue.
Marketing expenses increased by $7.4 million or 8.9% to $90.7 million, due to higher media and video
production spend in the Entertainment segment to promote Unicorn Academy. Marketing expenses as a
percentage of revenue increased slightly to 18.0% from 17.9%.
Selling expenses increased by $2.7 million or 8.0% to $36.5 million primarily due to an increase in sales of
licensed brands. Selling expenses as a percentage of Toy revenue increased to 9.0% from 8.5%.
Distribution expenses were flat at $20.1 million. Lower outbound transportation costs were offset by higher
warehousing costs. Distribution expenses as a percentage of Toy revenue decreased slightly to 4.9% from
5.1% as a result of higher Toy revenue.
Product development expenses increased by $1.1 million or 11.7% to $10.5 million, due to higher development
and design activities in Toy products.
(US$ millions)
Administrative
Marketing
Selling
Distribution
Product development
SG&A
Year Ended Dec 31,
2023
2022
$ Change % Change
365.1
181.4
132.1
64.2
32.9
775.7
353.8
185.1
144.2
67.9
31.1
782.1
11.3
(3.7)
(12.1)
(3.7)
1.8
(6.4)
3.2 %
(2.0) %
(8.4) %
(5.4) %
5.8 %
(0.8) %
SG&A decreased by $6.4 million or 0.8% to $775.7 million due to lower selling, marketing and distribution
expenses partially offset by higher administrative expenses. SG&A as a percentage of revenue increased to
40.7% from 38.7% primarily driven by lower revenue.
Administrative expenses increased by $11.3 million or 3.2% to $365.1 million. The increase was primarily due
to higher restructuring costs and transaction costs incurred for the acquisition of Melissa & Doug, partially offset
by lower compensation and personnel related expenses. Administrative expenses as a percentage of revenue
increased to 19.2% from 17.5% as a result of higher expenses and lower revenue.
Marketing expenses decreased by $3.7 million or 2.0% to $181.4 million, due to lower media, market research
and sales marketing expenses in the Toys segment, partially offset by higher spend in the Entertainment
segment to promote Unicorn Academy. Marketing expenses as a percentage of revenue increased to 9.5%
from 9.2% as a result of a decrease in costs and lower revenue.
10
Selling expenses decreased by $12.1 million or 8.4% to $132.1 million due to a decline in the sales of licensed
brands. Selling expenses as a percentage of Toy revenue increased slightly to 8.6% from 8.3% due to higher
proportion of sales of partner licensed brands.
Distribution expenses decreased by $3.7 million or 5.4% to $64.2 million, due to lower warehousing and
outbound transportation costs from lower domestic sales volumes. Distribution expenses as a percentage of
Toy revenue increased to 4.2% from 3.9% due to lower Toy revenue.
Product development expenses increased by $1.8 million or 5.8% to $32.9 million, due to higher Digital Games
development expenses.
Adjusted SG&A1 as compared to the same period in 2022:
(US$ millions)
SG&A
Adjustments1:
Restructuring and other related (costs)
recovery2
Share based compensation3
Transaction costs4
Adjusted SG&A5
Revenue
Adjusted SG&A5 as a percentage of
revenue
Q4 2023
244.8
Q4 2022
237.8
$ Change
% Change
7.0
2.9 %
(3.8)
(4.8)
(3.8)
232.4
502.6
0.2
(4.7)
(0.2)
233.1
465.8
46.2 %
50.0 %
(4.0)
(0.1)
(3.6)
(0.7)
36.8
n.m.
2.1 %
n.m.
(0.3) %
7.9 %
(3.8) %
1 These adjustments relate to items recorded within Administrative expenses.
2 Restructuring expense in the current period relates to the reduction in the Company's global workforce and closure of its manufacturing facility in
Calais, France.
3 Related to non-cash expenses associated with long-term incentive plan and the mark to market (loss) gain related to DSUs.
4 Professional fees incurred relating to acquisitions (including Melissa & Doug) and other transactions.
5 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
Adjusted SG&A1 decreased by $0.7 million or 0.3% to $232.4 million as a result of lower administrative
expenses offset by higher marketing, selling and product development expenses. Adjusted SG&A1 as a
percentage of revenue decreased to 46.2% from 50.0%, due to lower administrative expenses and higher
revenue in the fourth quarter compared to the prior year.
Year Ended Dec 31,
(US$ millions)
SG&A
Adjustments1:
Restructuring and other related costs2
Share based compensation3
Transaction costs4
Adjusted SG&A5
Revenue
Adjusted SG&A5 as a percentage of
revenue
2023
775.7
(18.1)
(20.1)
(11.1)
726.4
2022
782.1
(4.9)
(17.6)
(1.0)
758.6
$ Change
% Change
(6.4)
(0.8) %
(13.2)
(2.5)
(10.1)
(32.2)
269.4 %
14.2 %
1,010.0 %
(4.2) %
(5.7) %
0.6 %
1,904.9
2,020.3
(115.4)
38.1 %
37.5 %
1 These adjustments relate to items recorded within Administrative expenses.
2 Restructuring expense in the current period relates to the reduction in the Company's global workforce and closure of its manufacturing facility in
Calais, France. Prior year comparison relates to changes in personnel.
3 Related to non-cash expenses associated with share option expense, long-term incentive plan, and the mark to market (loss) gain related to DSUs.
4 Professional fees incurred relating to acquisitions (including Melissa & Doug) and other transactions.
5 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
Adjusted SG&A1 decreased by $32.2 million or 4.2% to $726.4 million as a result of lower administrative,
selling, marketing and distribution expenses. Adjusted SG&A1 as a percentage of revenue increased slightly to
38.1% from 37.5%, due to lower revenue compared to the prior year.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
11
Depreciation and Amortization as compared to the same period in 2022:
(US$ 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 and app development, included in cost of sales
Computer software
Q4 2023
Q4 2022
$ Change
% Change
5.1
0.1
0.6
1.8
0.3
7.9
28.0
0.8
1.4
0.8
31.0
5.0
—
0.4
1.5
0.2
7.1
4.7
1.1
1.1
0.9
7.8
0.1
0.1
0.2
0.3
0.1
0.8
23.3
(0.3)
0.3
(0.1)
23.2
2.0 %
n.m.
50.0 %
20.0 %
50.0 %
11.3 %
495.7 %
(27.3) %
27.3 %
(11.1) %
297.4 %
Right-of-use assets
2.7
3.0
(0.3)
(10.0) %
Depreciation and amortization
41.7
17.9
23.8
133.0 %
(US$ millions)
Included in cost of sales
Included in expenses
Depreciation and amortization
Q4 2023
Q4 2022
$ Change
% Change
34.6
7.1
41.7
10.7
7.2
17.9
23.9
(0.1)
23.8
223.4 %
(1.4) %
133.0 %
For the three months ended December 31, 2023, depreciation and amortization expense increased by $23.8
million to $41.7 million primarily due to an increase in amortization of intangible assets (included in cost of
sales), as a result of more content deliveries in the current year including Vida the Vet, Rubble & Crew, Unicorn
Academy, and PAW Patrol: The Mighty Movie.
(US$ millions)
Property, plant and equipment
Year Ended Dec 31,
2023
2022
$ Change
% Change
Moulds, dies and tools, included in cost of sales
19.9
20.5
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 and app development, included in cost of sales
Computer software
1.9
2.4
4.7
1.0
0.1
1.7
5.6
0.8
29.9
28.7
77.7
3.1
5.1
2.6
88.5
14.4
5.1
4.3
3.5
27.3
(0.6)
1.8
0.7
(0.9)
0.2
1.2
63.3
(2.0)
0.8
(0.9)
61.2
(2.9) %
n.m
41.2 %
(16.1) %
25.0 %
4.2 %
439.6 %
(39.2) %
18.6 %
(25.7) %
224.2 %
Right-of-use assets
11.6
12.2
(0.6)
(4.9) %
Depreciation and amortization
130.1
68.2
61.9
90.8 %
(US$ millions)
Included in cost of sales
Included in expenses
Depreciation and amortization
Year Ended Dec 31,
2023
104.7
25.4
130.1
2022
$ Change
% Change
39.2
29.0
68.2
65.5
(3.6)
61.9
167.1 %
(12.4) %
90.8 %
12
For the year ended December 31, 2023, depreciation and amortization increased by $61.9 million to $130.1
million primarily due to higher amortization of entertainment intangible assets (included in cost of sales), from
more deliveries of content including PAW Patrol: The Mighty Movie ($13.4 million), Unicorn Academy, Rubble &
Crew and Vida the Vet.
Foreign Exchange Loss (Gain) as compared to the same period in 2022:
For the three months ended December 31, 2023, the Company recognized a net foreign exchange loss of
$18.2 million (comprised of an unrealized loss of $17.8 million and realized loss of $0.4 million) as compared to
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).
For the year ended December 31, 2023, the Company recognized a net foreign exchange loss of $14.7 million
(comprised of an unrealized loss of $26.1 million and realized gain of $11.4 million), compared to a foreign
exchange gain of $61.4 million (comprised of a realized gain of $21.1 million and an unrealized gain of $40.3
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 and also includes gains and losses related to the Company's hedging programs. 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.
Operating (Loss) Income and Adjusted Operating Income (Loss)1 as compared to the same period in
2022:
Operating Loss for the three months ended December 31, 2023 was $36.6 million compared to Operating Loss
of $24.0 million, an increase of $12.6 million. The increase was mainly as a result of higher Corporate and
Other costs of $16.1 million due to an increase in foreign exchange losses and a decline in Operating Income
from the Entertainment segment of $9.4 million, partially offset by a decrease in Operating Loss from the Toys
segment of $13.3 million. Adjusted Operating Income1 for the three months ended December 31, 2023 was
$23.2 million, an increase of $28.7 million from an Adjusted Operating Loss1 of $5.5 million.
Operating Income for the year ended December 31, 2023 was $188.9 million, a decrease of $154.4 million from
$343.3 million. Adjusted Operating Income1 for the year ended December 31, 2023 was $288.7 million, a
decrease of $32.5 million from $321.2 million. The decrease in Operating Income was primarily driven by a
decline in Operating Income from the Toys segment of $69.1 million and an increase in Operating Loss from
Corporate and Other of $89.2 million due to an increase in foreign exchange loss, restructuring and transaction-
related costs.
Adjusted EBITDA1 as compared to the same period in 2022:
Adjusted EBITDA1 for the three months ended December 31, 2023 increased to $64.9 million with Adjusted
EBITDA Margin1 of 12.9%, compared to $12.4 million and 2.7% respectively. The increase in Adjusted EBITDA1
was primarily driven by an increase in gross profit from higher Toys, Entertainment and Digital Games
segments and lower Adjusted SG&A1 expenses. Adjusted EBITDA Margin1 increased due to higher gross
margin and lower Adjusted SG&A1 expenses relative to revenue, from the Toys and Digital Games segments.
Adjusted EBITDA1 for the year ended December 31, 2023 was $418.8 million compared to $389.4 million.
Adjusted EBITDA Margin1 was 22.0% compared to 19.3%. Adjusted EBITDA, excluding PAW Patrol: The
Mighty Movie Distribution Revenue1 was $403.2 million, an increase of $13.8 million from $389.4 million.
Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue1 was 21.3%.
The increase in Adjusted EBITDA1 was primarily driven by lower Adjusted SG&A1 partially offset by lower gross
profit from the Toys segment. Adjusted EBITDA Margin1 increased due to higher gross margin from the Toys
and Entertainment segments partially offset by higher Adjusted SG&A1 relative to revenue.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
13
Interest Income and Interest Expense as compared to the same period in 2022:
Interest income includes interest earned on cash and cash equivalents held by the Company. Interest expense
includes bank fees, financing charges, interest and accretion expense and the amortization of Facility fees.
For the three months ended December 31, 2023, interest expense was $3.9 million, an increase of $0.1 million
from $3.8 million primarily due to higher bank fees and financing charges. Interest income was $7.0 million, an
increase of $1.5 million from $5.5 million from both higher cash deposit rates and higher cash balances held
during the year.
For the year ended December 31, 2023, interest expense was $15.1 million, an increase of $1.5 million from
$13.6 million primarily due to higher bank fees and financing charges. Interest income was $27.4 million, an
increase of $16.7 million from $10.7 million from both higher deposit rates and higher cash balances earning
interests.
Income Tax (Recovery) Expense as compared to the same period in 2022:
For the three months ended December 31, 2023, income tax recovery was $3.4 million compared to $8.5
million. The effective tax rate was 10.1% compared to 38.1%. For the three months ended December 31, 2023,
the Company had a one-time income tax expense of $5.7 million, with an impact on effective tax rate of 17.0%.
The effective income tax rate, excluding the one-time income tax expense, was 27.1%.
For the year ended December 31, 2023, income tax expense was $49.8 million compared to $79.1 million. The
effective tax rate was 24.8% compared to 23.2%. For the year ended December 31, 2023, the Company had a
one-time income tax recovery (net of one-time income tax expense of $5.7 million) of $0.9 million, with an
impact on effective tax rate of 0.4%. The effective income tax rate, excluding the net one-time income tax
recovery, was 25.2%.
Net (Loss) Income and Adjusted Net Income1 as compared to the same period in 2022:
Net Loss for the three months ended December 31, 2023 was $30.1 million or $(0.29) per share, an increase of
$16.3 million from Net Loss of $13.8 million or $(0.13) per share. The increase in Net Loss was primarily driven
by higher impairment expenses on intangible assets, foreign exchange loss and selling, general and
administrative expenses, partially offset by the increase in gross profit. Adjusted Net Income1 for the three
months ended December 31, 2023 was $20.5 million or $0.19 per share (diluted), an increase of $20.5 million
from $nil or $nil per share (diluted).
Net Income for the year ended December 31, 2023 was $151.4 million or $1.43 per share (diluted), a decrease
of $109.9 million from $261.3 million or $2.45 per share (diluted). The decrease in Net Income was primarily
driven by lower gross profit. Adjusted Net Income1 for the year ended December 31, 2023 was $225.2 million or
$2.13 per share (diluted), a decrease of $19.1 million from $244.3 million or $2.30 per share (diluted).
14
Segmented Results
The Company’s reportable segments are: Toys, Entertainment and Digital Games. The Company’s results from
operations by reportable segment for the three months ended December 31, 2023 and 2022 are as follows:
(US$ millions)
Q4 2023
Q4 2022
Revenue
Toys
406.8
Entertainment
55.2
Digital
Games
40.6
Corporate
& Other 1
—
Total
502.6
Toys
396.7
Entertainment
31.2
Digital
Games
37.9
Corporate
& Other 1
—
Total
465.8
(26.0)
(36.6)
(43.3)
19.1
10.1
(9.9)
(24.0)
3.8
(0.2)
Operating (Loss) Income
(30.0)
Restructuring and other
related costs (recovery)
Foreign exchange loss
Share based compensation
Impairment of goodwill
Impairment of property, plant
and equipment
Impairment of intangible
assets
Legal (recovery) settlement
expense
Acquisition related deferred
incentive compensation
Net unrealized loss on
investment
Acquisition related
contingent consideration
Transaction costs
3.3
—
3.2
25.7
0.7
5.4
—
0.6
—
(3.5)
—
9.7
0.1
—
0.3
—
—
0.4
—
—
—
—
—
9.7
0.4
—
0.7
—
—
—
—
1.0
—
—
18.2
0.6
—
—
—
18.2
4.8
25.7
0.7
5.8
(0.1)
(0.1)
—
0.2
1.6
0.2
(1.0)
(0.2)
(4.7)
—
3.8
3.8
—
3.3
—
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
5.4
10.8
10.5
23.2
(3.5)
1.3%
Adjusted Operating
Income (Loss)2
Adjusted Operating
Margin2
Depreciation and
amortization
Adjusted EBITDA2
12.4
Adjusted EBITDA Margin2
2.7%
1 Corporate & Other includes certain corporate costs, foreign exchange and merger and acquisition-related costs, as well as fair value gains and
losses.
2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
14.2
(2.7)
37.5% n.m.
13.0
(3.5)
32.0% n.m.
64.9
(24.4)
12.9% (6.2)%
26.6% n.m.
32.5% n.m.
36.1
65.4%
25.3
81.1%
4.6% (8.9)%
19.3
4.7%
(1.2)%
19.0%
65.7%
(35.5)
(2.8)
(5.5)
17.9
41.7
13.9
25.6
20.5
11.1
12.3
2.2
4.8
1.9
0.1
—
15
The Company’s results from operations by reportable segment for the year ended December 31, 2023 and
2022:
(US$ millions)
Revenue
Toys
1,540.9
Entertainment
190.1
2023
Digital
Games
173.9
Corporate
& Other1
—
2022
Total
Toys
1,904.9 1,737.6
Entertainment
118.8
Digital
Games
163.9
Corporate
& Other1
—
Total
2,020.3
Year Ended Dec 31,
Operating Income (Loss)
101.0
78.0
49.1
(39.2)
188.9
170.1
76.7
46.5
50.0
343.3
Restructuring and other
related costs
Foreign exchange loss
(gain)
Share based compensation
Impairment of goodwill
Impairment of property,
plant and equipment
Impairment of intangible
assets
Legal settlement recovery
Acquisition related deferred
incentive compensation
Net unrealized gain on
investment
Net realized gain on
investment
Loss on Minority interest
and other investments
Acquisition related deferred
consideration
Transaction costs
16.3
—
14.1
26.7
0.9
5.4
—
2.7
—
—
—
(5.6)
—
0.3
—
1.4
—
—
1.0
—
—
—
—
—
—
—
1.5
—
2.9
—
—
0.7
—
4.9
—
—
—
—
14.7
1.7
—
—
1.1
18.1
14.7
20.1
26.7
0.9
8.2
(0.6)
(0.6)
—
7.6
(0.1)
(0.1)
(0.1)
(0.1)
—
—
(1.0)
—
(0.2)
11.1
(6.8)
11.1
4.6
—
12.4
—
1.9
—
—
5.4
—
—
—
3.5
—
0.1
—
1.2
—
—
1.1
—
—
—
—
—
—
—
0.2
—
2.3
—
—
—
—
4.9
—
—
—
—
—
—
4.9
(61.4)
(61.4)
1.7
—
—
—
(0.5)
—
—
17.6
—
1.9
1.1
(0.5)
10.3
—
(0.1)
(0.1)
0.5
(0.9)
1.0
0.5
2.6
1.0
80.7
58.1
161.5
288.7
197.9
(11.6)
42.5%
10.5%
Adjusted Operating
Income (Loss)2
Adjusted Operating
Margin2
Depreciation and
amortization3
Adjusted EBITDA2
Adjusted EBITDA
Margin2
1 Corporate & Other includes certain corporate costs, foreign exchange and merger and acquisition-related costs, as well as fair value gains and
losses.
2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
15.2% 11.4%
22.0% 14.1%
36.9% n.m.
19.3%
15.9%
33.4%
38.1%
79.7%
13.8%
66.6%
79.0%
32.9%
(11.4)
321.2
389.4
212.4
418.8
151.5
130.1
244.6
(9.7)
(9.6)
n.m.
68.2
53.9
79.1
60.5
50.9
93.9
46.7
66.3
70.8
14.8
n/a
n/a
6.6
0.1
8.2
0.2
16
Toys Segment Results
The following table provides a summary of Toys segment operating results for the three months ended
December 31, 2023 and 2022:
(US$ millions)
Toy Gross Product Sales1, 2
Toy revenue
Operating Loss
Operating Margin
Adjusted EBITDA1
Adjusted EBITDA Margin1
Selected Cash Flow Data
Toys capital expenditures
Q4 2023
Q4 2022
$ Change
% Change
502.3
406.8
(30.0)
(7.4) %
19.3
4.7 %
479.2
396.7
(43.3)
(10.9) %
(24.4)
(6.2) %
23.1
10.1
13.3
43.7
4.8 %
2.5 %
(30.7) %
3.5 %
179.1 %
10.9 %
7.2
7.5
(0.3)
(4.0) %
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 increased by $10.1 million or 2.5% to $406.8 million resulting from an increase in Toy Gross
Product Sales1. Toy Gross Product Sales1 increased by $23.1 million or 4.8%, to $502.3 million from $479.2
million arising from higher order volumes. Toy Gross Product Sales1 in the fourth quarter of 2022 were lower
due to the acceleration of customer shipments into the first half of 2022 due to then anticipated global logistics
and supply chain issues. Constant Currency Toy Gross Product Sales1 increased by $11.4 million or 2.4% to
$490.6 million, compared to $479.2 million.
Operating Loss was $30.0 million compared to $43.3 million representing an improvement of $13.3 million.
Operating Margin was (7.4)% compared to (10.9)%. Adjusted EBITDA1 increased by $43.7 million to $19.3
million. Adjusted EBITDA Margin1 was 4.7% compared to (6.2)%. The improvement in Operating Margin and
Adjusted EBITDA Margin1 was due to higher gross margin due to lower ocean freight costs and favourable
foreign exchange, in addition to lower expenses and higher Toy revenue.
Toys capital expenditures decreased by $0.3 million to $7.2 million, primarily as a result of lower investments in
moulds, dies and tools.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
17
The following table provides a summary of the Toys segment's operating results for the year ended
December 31, 2023 and 2022:
(US$ 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,
2023
1,787.2
1,540.9
101.0
6.6 %
212.4
13.8 %
2022
1,978.8
1,737.6
170.1
9.8 %
244.6
14.1 %
$ Change
% Change
(191.6)
(196.7)
(69.1)
(32.2)
(9.7) %
(11.3) %
(40.6) %
(3.2) %
(13.2) %
(0.3) %
Toys capital expenditures
34.6
32.4
2.2
6.8 %
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,
2023
Dec 31,
2022
19.2
$ Change
% Change
—
— %
Toy revenue decreased by $196.7 million or 11.3% to $1,540.9 million driven by a decline in Toy Gross Product
Sales1. Toy Gross Product Sales1 decreased by $191.6 million or 9.7%, to $1,787.2 million from $1,978.8
million as a result of lower order volume due to macroeconomic pressures on consumer discretionary spending.
Constant Currency Toy Gross Product Sales1 decreased by $215.7 million or 10.9% to $1,763.1 million, down
from $1,978.8 million.
Operating Income decreased by $69.1 million or 40.6% to $101.0 million. Operating Margin was 6.6%
compared to 9.8%. Adjusted EBITDA1 decreased by $32.2 million to $212.4 million. Adjusted EBITDA Margin1
was 13.8% compared to 14.1%. The decline in Operating Margin and Adjusted EBITDA Margin1 was due to
lower Toy revenue relative to expenses partially offset by higher Gross Margin attributed to lower ocean freight
costs and favourable foreign exchange.
Toys capital expenditures increased by $2.2 million to $34.6 million, primarily as a result of an asset acquisition
of a games and puzzles company and moulds, dies and tools, partially offset by lower investments in building
and leasehold improvements.
Moulds, dies and tools, net carrying amount was flat at $19.2 million.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
18
Toy Revenue
For the three months ended December 31, 2023 as compared to the same period in 2022:
The following table provides a summary of Spin Master’s Toy revenue, including Toy Gross Product Sales1 by
product category, for the three months ended December 31, 2023 and 2022:
(US$ millions)
Preschool and Dolls & Interactive
Activities, Games & Puzzles and Plush
Wheels & Action
Q4 2023
Q4 2022
$ Change
% Change
204.7
160.6
113.3
201.7
160.6
90.0
3.0
—
23.3
1.5 %
— %
25.9 %
Outdoor
Toy Gross Product Sales1
Sales Allowances2
Sales Allowances % of Toy Gross Product Sales1
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.
17.2 %
19.0 %
(82.5)
(13.0)
(95.5)
502.3
479.2
396.7
406.8
(3.2)
23.7
26.9
23.1
10.1
(11.9) %
4.8 %
15.8 %
1.8 %
2.5 %
Preschool and Dolls & Interactive increased by $3.0 million or 1.5% to $204.7 million, primarily driven by Bitzee
and Gabby's Dollhouse, partially offset by PAW Patrol and Purse Pets
Activities, Games & Puzzles and Plush was flat at $160.6 million, increases in GUND and Kinetic Sand offset
by declines in Orbeez and Pixobitz.
Wheels & Action increased by $23.3 million or 25.9% to $113.3 million, primarily from increases in Monster Jam
and HEXBUG.
Outdoor decreased by $3.2 million or 11.9% to $23.7 million, primarily driven by SwimWays.
Sales Allowances increased by $13.0 million to $95.5 million. As a percentage of Toy Gross Product Sales1,
Sales Allowances increased to 19.0% from 17.2%, primarily driven by higher markdowns and promotional
activity, caused by pressure on consumer discretionary spending levels.
Revenue by Geographic Area
Toy Gross Product Sales1 by geographical area are based on the location of the customers. The following table
provides a summary of Spin Master’s Toy Gross Product Sales1 by geographic area for the three months ended
December 31, 2023 and 2022:
(US$ millions)
North America
Europe
Rest of World
International
Toy Gross Product Sales1
Sales Allowances
Toy revenue
Q4 2023
Q4 2022
Change
$
% of GPS
$
% of GPS
$
% of GPS
270.6
155.7
76.0
231.7
502.3
(95.5)
406.8
53.9 %
31.0 %
15.1 %
46.1 %
100.0 %
(19.0) %
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) %
9.9
11.2
2.0
13.2
23.1
(13.0)
10.1
(0.5) %
0.8 %
(0.3) %
0.5 %
(1.8) %
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
As a percentage of Toy Gross Product Sales1, North America decreased to 53.9% compared to 54.4%.
International sales, comprised of Europe and Rest of World, increased to 46.1% compared to 45.6%.
North America increased by $9.9 million or 3.8% to $270.6 million. The increase was driven primarily by
Monster Jam, GUND and Bitzee, partially offset by PAW Patrol, and Gabby's Dollhouse.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
19
Europe increased by $11.2 million or 7.8% to $155.7 million, which includes a favourable foreign exchange
impact of $8.0 million. The increase was mainly driven by Gabby's Dollhouse and Bitzee partially offset by a
decrease in Bakugan and Purse Pets.
Rest of World increased by $2.0 million or 2.7% to $76.0 million, which includes a favourable foreign exchange
impact of $3.7 million. The increase arose from Bitzee, Rubik's and Gabby's Dollhouse partially offset by Cool
Maker and Bakugan.
For the year ended December 31, 2023, as compared to the same period in 2022:
The following table provides a summary of Spin Master’s Toy revenue, including Toy Gross Product Sales1 by
product category, for the year ended December 31, 2023 and 2022:
(US$ millions)
Preschool and Dolls & Interactive
Activities, Games & Puzzles and Plush
Wheels & Action
Year Ended Dec 31,
2023
2022
$ Change
% Change
817.7
487.5
409.3
867.0
561.7
450.8
(49.3)
(74.2)
(41.5)
(5.7) %
(13.2) %
(9.2) %
Outdoor
Toy Gross Product Sales1
Sales Allowances2
Sales Allowances % of Toy Gross Product Sales1
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.
1,737.6
1,540.9
1,978.8
1,787.2
(196.7)
(241.2)
(246.3)
(191.6)
12.2 %
13.8 %
(26.6)
(5.1)
99.3
72.7
(26.8) %
(9.7) %
2.1 %
1.6 %
(11.3) %
Preschool and Dolls & Interactive decreased by $49.3 million or 5.7% to $817.7 million, due to PAW Patrol,
Purse Pets and Wizarding World, offset in part by Bitzee and Gabby's Dollhouse.
Activities, Games & Puzzles and Plush decreased by $74.2 million or 13.2% to $487.5 million, mainly due to
declines in the Games & Puzzles portfolio, Kinetic Sand, Cool Maker, Pixobitz and Orbeez, offset in part by
Rubik's.
Wheels & Action decreased by $41.5 million or 9.2% to $409.3 million, led by decreases in DC and Bakugan,
offset in part by an increase in Monster Jam and HEXBUG.
Outdoor declined by $26.6 million or 26.8% to $72.7 million, primarily driven by SwimWays.
Sales Allowances increased by $5.1 million to $246.3 million. As a percentage of Toy Gross Product Sales1,
Sales Allowances increased to 13.8% from 12.2%, primarily driven by higher markdowns and promotional
activity in the fourth quarter, caused by pressures on consumer discretionary spending.
Revenue by Geographic Area
The following table provides a summary of Spin Master’s Toy Gross Product Sales1 by geographic area for the
year ended December 31, 2023 and 2022:
(US$ millions)
North America
Europe
Rest of World
International
Toy Gross Product Sales1
Sales Allowances
Toy revenue
Year Ended Dec 31,
2023
% of GPS
2022
% of GPS
$ Change
Change in
% of GPS
1,012.1
505.9
269.2
775.1
56.6 %
28.3 %
15.1 %
43.4 %
1,189.8
525.0
264.0
789.0
1,787.2
100.0 %
1,978.8
(246.3)
1,540.9
13.8 %
(241.2)
1,737.6
60.1 %
26.5 %
13.3 %
39.9 %
100.0 %
12.2 %
(177.7)
(19.1)
5.2
(13.9)
(191.6)
(5.1)
(196.7)
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
(3.5) %
1.8 %
1.8 %
3.5 %
1.6 %
20
As a percentage of Toy Gross Product Sales1, North America decreased to 56.6% compared to 60.1%.
International sales, comprised of the Europe and Rest of World, increased to 43.4% compared to 39.9%.
Toy Gross Product Sales in North America declined by $177.7 million or 14.9% to $1,012.1 million, with an
unfavourable foreign exchange impact of $0.5 million. The decrease was driven by Gabby's Dollhouse, PAW
Patrol, the Games & Puzzles portfolio, DC, Bakugan, Kinetic Sand, Hatchimals and Purse Pets partially offset
by Bitzee, Rubble & Crew and HEXBUG.
Europe declined by $19.1 million or 3.6% to $505.9 million, with a favourable foreign exchange impact of $13.6
million. The decrease was driven by PAW Patrol, DC, Bakugan, Purse Pets, Wizarding World and Hatchimals
partially offset by Gabby's Dollhouse and Bitzee.
Rest of World increased by $5.2 million or 2.0% to $269.2 million, with a favourable foreign exchange impact of
$11.0 million. The increase was driven by Gabby's Dollhouse and Bitzee offset in part by DC and PAW Patrol.
Toys Segment Trend Analysis
(US$ 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
2023
502.3
406.8
(30.0)
Q3
2023
678.6
601.5
149.0
Q2
2023
390.0
346.3
23.8
Q1
2023
Q4
2022
216.3
186.3
(41.8)
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
(7.4)% 24.8%
6.9% (22.4)% (10.9)% 19.8% 14.3% 11.8%
19.3
4.7%
166.8
47.7
(21.4)
(24.4)
126.9
83.2
58.9
27.7% 13.8% (11.5)% (6.2)% 23.0% 19.0% 16.8%
Toys capital expenditures
Moulds, dies and tools, net carrying amount2
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
20.4
19.2
7.3
7.2
12.3
21.7
7.8
20.0
7.5
19.2
7.9
19.5
9.8
23.5
7.2
21.9
2 Net carrying amount represents balance as at end of the period.
Toy revenue seasonality factors cause the Company's operating results to fluctuate from quarter to quarter:
•
•
•
Toy revenue is historically concentrated in the third and fourth quarters of each fiscal year, with the
proportional Operating Income earned and cash flows generated during the same period.
In 2022, a higher proportion of Toy Gross Product Sales1 shifted into the first and second quarters from
the third and fourth quarters as retailers ordered earlier in the year to minimize the then anticipated
supply chain disruptions. The third and fourth quarters of 2022 were also pressured by the
macroeconomic environment, particularly from higher inflation compounded by foreign exchange
volatility and a carry-over of inventory at retailers 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 2022 annual Toy
Gross Product Sales1 compared to 30%-35% typically.
Toy Gross Product Sales1 in the first half of 2023 was lower than 2022 due to lower sales volumes as
retailers focused on decreasing their retail inventory carried over from Q4 2022.
21
Entertainment Segment Results
The following table provides a summary of the Entertainment segment's operating results for the three months
ended December 31, 2023 and 2022:
(US$ millions)
Entertainment revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Selected Cash Flow Data
Entertainment capital expenditures
Q4 2023
Q4 2022
$ Change
% Change
55.2
9.7
17.6 %
10.5
19.0 %
31.2
19.1
61.2 %
20.5
65.7 %
24.0
(9.4)
(10.0)
76.9 %
(49.2) %
(43.6) %
(48.8) %
(46.7) %
9.7
11.9
(2.2)
(18.5) %
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
Entertainment revenue increased by $24.0 million or 76.9% to $55.2 million, from higher distribution revenue
associated with content deliveries including Unicorn Academy, Rubble & Crew and Vida the Vet and from on-
going distribution revenue related to PAW Patrol: The Mighty Movie. Constant Currency Entertainment
Revenue1 increased by $24.1 million or 77.2% to $55.3 million, up from $31.2 million.
Operating Income decreased by $9.4 million or 49.2% to $9.7 million. Operating Margin was 17.6% compared
to 61.2%. Adjusted Operating Income1 was $10.5 million compared to $20.5 million. Adjusted Operating
Margin1 was 19.0% compared to 65.7%.
The decline in Operating Income, Adjusted Operating Income1, Operating Margin and Adjusted Operating
Margin1 was primarily due to the amortization of production costs and marketing related costs for Unicorn
Academy.
Entertainment capital expenditures decreased by $2.2 million to $9.7 million, primarily due to lower content
development production costs capitalized for PAW Patrol: The Mighty Movie and Unicorn Academy, offset by
higher production costs capitalized for Vida the Vet and Rubble & Crew.
The following table provides a summary of the Entertainment segment's operating results for the year ended
December 31, 2023 and 2022:
(US$ millions)
Entertainment revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Selected Cash Flow and Balance Sheet Data
Entertainment capital expenditures
Year Ended Dec 31,
2023
2022
$ Change
% Change
190.1
78.0
41.0 %
80.7
42.5 %
52.1
118.8
76.7
64.6 %
79.1
66.6 %
54.9
77.1
71.3
1.3
1.6
60.0 %
1.7 %
(23.6) %
2.0 %
(24.1) %
(2.8)
(5.1) %
(28.8)
(37.4) %
Entertainment content development, net carrying amount
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
48.3
Entertainment revenue increased by $71.3 million or 60.0% to $190.1 million, from higher distribution revenue
associated with new content deliveries including PAW Patrol: The Mighty Movie, Unicorn Academy, Rubble &
Crew and Vida the Vet as well as the Company's share of revenue from the PAW Patrol series and the
continued distribution of PAW Patrol: The Movie. Constant Currency Entertainment Revenue1 increased by
$71.3 million or 60.0% to $190.1 million, up from $118.8 million.
Operating Income increased by $1.3 million or 1.7% to $78.0 million. Adjusted Operating Income1 was $80.7
million compared to $79.1 million. Operating Income and Adjusted Operating Income1 increased due to higher
distribution revenue.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
22
Operating Margin decreased from 64.6% to 41.0%. Adjusted Operating Margin1 decreased from 66.6% to
42.5%. The decrease in both Operating Margin and Adjusted Operating Margin1 was driven primarily by the
amortization of production costs from additional content deliveries, including Unicorn Academy and $13.4
million for PAW Patrol: The Mighty Movie.
Entertainment capital expenditures decreased by $2.8 million to $52.1 million, primarily as a result of lower
content development production costs capitalized for Unicorn Academy, partially offset by higher production
costs capitalized for Rubble & Crew, Vida the Vet, the PAW Patrol series and PAW Patrol: The Mighty Movie.
Entertainment content development, net carrying amount decreased by $28.8 million to $48.3 million, primarily
as a result of amortization of production costs on delivered content, including $13.4 million for PAW Patrol: The
Mighty Movie.
Entertainment Segment Trend Analysis
(US$ millions)
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Entertainment revenue
55.2
63.41
33.9
37.6
31.2
37.0
28.4
22.2
Operating Income
Operating Margin
Adjusted Operating Income2
Adjusted Operating Margin2
Selected Cash Flow and Balance Sheet Data
9.7
15.7
23.3
11.2
17.6% 36.8% 46.3% 77.9% 61.2% 78.1% 61.6% 50.5%
11.4
10.5
19.0% 37.9% 48.1% 79.5% 65.7% 78.9% 63.4% 51.4%
18.0
17.5
16.3
28.9
29.9
19.1
24.0
29.2
29.3
20.5
Entertainment capital expenditures
Entertainment content development, net carrying
amount3
1 Includes Entertainment revenue associated with the theatrical release of PAW Patrol: The Mighty Movie.
2 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
3 Net carrying amount represents balance as at end of the period.
48.3
13.1
90.8
68.8
9.7
10.9
18.4
90.5
11.9
77.1
21.3
57.4
14.9
41.3
6.8
30.2
Entertainment segment results fluctuated from quarter to quarter due to the timing of content distribution, and
mix of revenue:
•
•
•
In Q3 2023, Entertainment revenue included $15.6 million of distribution revenue from the theatrical
release of PAW Patrol: The Mighty Movie. Operating Margin and Adjusted Operating Margin1 was
lower as a result of the dilutive effect of the amortization of production costs of $11.0 million.
In the first half of 2023, Entertainment content development, net carrying amount in intangibles assets
increased primarily due to the capitalized costs for the production of PAW Patrol: The Mighty Movie
and Unicorn Academy. These productions were delivered and amortized starting in the second half of
2023.
In Q1 2023 and Q3 2022, the Entertainment segment experienced higher Operating and Adjusted
Operating Margins1 from higher margin accretive licensing and merchandising revenue, as well as
lower costs due to fewer content deliveries compared to other quarters.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
23
Digital Games Segment Results
The following table provides a summary of the Digital Games segment's operating results for the three months
ended December 31, 2023 and 2022:
(US$ millions)
Digital Games revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Selected Cash Flow Data
Q4 2023
Q4 2022
$ Change
% Change
40.6
9.7
23.9 %
10.8
26.6 %
37.9
10.1
26.6 %
12.3
32.5 %
2.7
(0.4)
(1.5)
7.1 %
(4.0) %
(2.7) %
(12.2) %
(5.9) %
Digital Games capital expenditures
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
6.7
3.9
2.8
71.8 %
Digital Games revenue increased by $2.7 million or 7.1% to $40.6 million, primarily due to higher in-game
purchases in Toca Life World and higher subscription revenue from both Piknik and PAW Patrol Academy.
Constant Currency Digital Games Revenue increased by $2.6 million or 6.9% to $40.5 million, up from $37.9
million.
Operating Income decreased by $0.4 million or 4.0% to $9.7 million. Adjusted Operating Income1 decreased by
$1.5 million or 12.2% to $10.8 million from $12.3 million. The decrease in Operating Income and Adjusted
Operating Income1 was due to launch marketing costs for PAW Patrol Academy.
Operating Margin decreased from 26.6% to 23.9%. Adjusted Operating Margin1 decreased from 32.5% to
26.6%. Operating Margin and Adjusted Operating Margin1 decreased due to launch marketing costs for PAW
Patrol Academy.
Digital Games capital expenditures were $6.7 million compared to $3.9 million, an increase of $2.8 million or
71.8%, from higher development costs for Toca Days, PAW Patrol Academy, Rubik's, Toca Life World, and
Unicorn Academy.
The following table provides a summary of the Digital Games segment's operating results for the year ended
December 31, 2023 and 2022:
(US$ millions)
Digital Games revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Year Ended Dec 31,
2023
2022
$ Change
% Change
173.9
49.1
28.2 %
58.1
33.4 %
163.9
46.5
28.4 %
53.9
32.9 %
10.0
2.6
4.2
8.6
14.4
6.1 %
5.6 %
(0.2) %
7.8 %
0.5 %
71.1 %
84.2 %
Selected Cash Flow and Balance Sheet Data
Digital Games capital expenditures
20.7
12.1
Digital Games development, net carrying amount
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
31.5
17.1
Digital Games revenue increased by $10.0 million or 6.1% to $173.9 million, due to higher in-game purchases
in Toca Life World. Constant Currency Digital Games Revenue1 increased by $12.7 million or 7.7% to $176.6
million, up from $163.9 million.
Operating Income increased by $2.6 million or 5.6% to $49.1 million. Adjusted Operating Income1 increased by
$4.2 million or 7.8% to $58.1 million from $53.9 million. The increase in Operating Income and Adjusted
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
24
Operating Income1 are attributable to higher in-game purchases in Toca Life World, partially offset by higher
product development and personnel costs.
Operating Margin was 28.2% compared to 28.4%. Adjusted Operating Margin1 was 33.4% compared to 32.9%.
Operating Margin decreased due to higher restructuring costs and Adjusted Operating Margin1 increased due to
lower administrative and marketing expenses.
Digital Games capital expenditures were $20.7 million compared to $12.1 million, an increase of $8.6 million or
71.1%, from higher development costs for Toca Days, PAW Patrol Academy, Toca Life World, Rubik's Match
and Unicorn Academy.
Digital Games development, net carrying amount increased by $14.4 million to $31.5 million compared to $17.1
million, primarily as a result of higher development costs for Toca Days, PAW Patrol Academy, Toca Life
World, Rubik's Match and Unicorn Academy.
Digital Games Segment Trend Analysis
(US$ millions)
Digital Games revenue
Operating Income
Operating Margin
Adjusted Operating Income1
Adjusted Operating Margin1
Selected Cash Flow and Balance Sheet Data
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
40.6
45.3
40.5
47.5
37.9
34.6
40.3
51.1
9.6
9.7
13.6
16.2
19.8
23.9 % 30.0 % 23.7 % 34.1 % 26.6 % 23.7% 20.8% 38.7%
21.6
32.5 % 28.9% 24.8% 42.3%
19.0
26.6 % 34.2% 31.6% 40.0%
10.1
12.3
10.0
15.5
12.8
10.0
8.4
8.2
10.8
Digital Games capital expenditures
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 the end of the period.
6.7
31.5
5.0
25.3
5.1
22.0
3.9
19.4
3.9
17.1
2.9
14.6
2.8
14.2
2.5
13.6
Digital Games segment results fluctuated from quarter to quarter as a result of the following:
•
Digital Games revenue is typically higher during traditional vacation periods and when new content is
launched in each fiscal year, with proportionate Operating Income and cash flows generated during the
same period.
• Operating and Adjusted Operating Margins1 fluctuate between quarters due to the timing of product
development and personnel related costs. Quarters with higher Digital Games revenue will also drive
operating leverage, leading to higher Operating Margins.
In 2023, Digital Games capital expenditure and development costs as wells as the net carrying amount
of intangibles assets increased primarily due to the capitalized costs for the development of a number
of new games including Toca Days, Paw Patrol Academy, Toca Life World, Rubik's Match and Unicorn
Academy.
•
Corporate & Other for the three months and year ended December 31, 2023 as compared to the same
period in 2022:
For the three months ended December 31, 2023, Operating Loss for Corporate & Other was $26.0 million, an
increase of $16.1 million compared to an Operating Loss of $9.9 million, primarily related to foreign exchange
loss of $18.2 million compared to a foreign exchange loss of $4.8 million. Adjusted Operating Loss was $3.5
million compared to $2.7 million.
For the year ended December 31, 2023, Operating Loss was $39.2 million compared to an Operating Income
of $50.0 million, a change of $89.2 million primarily related to a foreign exchange loss of $14.7 million
compared to a foreign exchange gain of $61.4 million. Adjusted Operating Loss1 increased to $11.6 million
compared to $9.7 million.
25
INVESTMENTS AND ACQUISITIONS
Acquisition of Melissa & Doug
On January 2, 2024, the Company, through its subsidiaries, completed the acquisition of all of the issued and
outstanding capital stock in MND Holdings I Corp ("Melissa & Doug"). Melissa & Doug is a leading brand in
early childhood play with offerings of open-ended, creative, and developmental toys. The acquisition will be
reported in the Toys segment beginning from the date of acquisition.
The preliminary estimate of purchase consideration of $959.0 million, net of $32.7 million in estimated cash
acquired is comprised of $950.0 million of base consideration adjusted for an estimated $9.0 million for net
working capital and liabilities assumed. Spin Master funded the $959.0 million purchase price with $434.0
million cash and $525.0 million of debt. The debt was sourced through a partial drawdown of $300.0 million
from the Company's Facility and $225.0 million from the Acquisition Facility.
Given the timing of the transaction and measurement uncertainty with final purchase agreement consideration
adjustments, the purchase price allocation is ongoing and will be disclosed in the Company's first quarter 2024
condensed consolidated interim financial statements.
There were $10.1 million in transaction related costs included in administrative expenses in the Consolidated
statement of earnings and comprehensive income for the year ended December 31, 2023.
Current year acquisitions
Acquisition of certain assets from 4D Brands International Inc.
On January 17, 2023, the Company acquired certain assets from 4D Brands International Inc. and 4D
Cityscape Worldwide Limited, (collectively, the “Vendors”) creators of puzzle games. Management performed
an analysis 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 complements the Company’s existing
puzzle 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 total purchase consideration of $18.9 million is comprised of $14.6 million cash consideration and $4.1
million contingent consideration related to the estimated fair value of future royalties as well as certain
performance metrics. The contingent consideration is recorded in provisions and contingent liabilities in the
Consolidated statements of financial position.
Purchase consideration of $18.9 million has been allocated as follows: $8.5 million to intangible assets, $0.7
million to inventories and $0.4 million to prepaid and other assets, with the remainder of $9.3 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.
Acquisition of certain assets from Innovation First International, Inc.
On February 2, 2023, the Company acquired certain assets from Innovation First, Inc., Innovation First
International Inc., Innovation First Labs, Inc., Innovation First Logistics., Inc. Management performed an
analysis under 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 an opportunity for Spin Master to enter the niche market of robotic toys and grow the
HEXBUG brand. The acquired business has been reported in the Toys segment within the Wheels & Action
product category and included in the Wheels & Action CGU beginning from the date of acquisition.
The total purchase consideration of $14.6 million is comprised of $12.9 million cash consideration and $1.4
million contingent consideration related to the estimated fair value of future royalties. The contingent
consideration is recorded in provisions and contingent liabilities in the interim statements of financial position.
The total purchase consideration of $14.6 million has been allocated as follows: $7.7 million to intangible
assets, $2.9 million to inventories, $0.5 million to prepaid and other assets, and $0.4 million to property, plant
and equipment with the remainder of $3.1 million allocated to goodwill.
26
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.
Prior year 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 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. This acquisition complements the Company's existing
board games offering and is 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.
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.
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.
Spin Master Ventures
Spin Master Ventures ("SMV") 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, 2023, the Company has invested $12.4 million.
The SMV portfolio currently consists of the following investments:
Creative
Centre
Location
Acquisition
date
Initial
investment
Dec 31,
2023
Dec 31,
2022
Classified as FVTPL
Education technology company
Virtual reality gaming company
Content streaming platform1
Digital Games Canada
Q3 2021
Digital Games
U.K.
Q1 2022
Entertainment
U.S.A
Baby consumer product brand
Toys
U.S.A
Animation technology company
Entertainment
U.S.A
Q1 2022
Q2 2022 &
Q2 2023
Q4 2022 &
Q3 2023
Classified as FVTOCI
Mobile game development company2 Digital Games Sweden
U.S.A
Global publishing company
Entertainment
Q3 2021
Q4 2022
1.8
0.5
0.5
5.0
1.0
0.6
3.0
12.4
1.8
0.5
—
5.0
1.0
—
3.0
11.3
1.8
0.5
—
3.0
0.5
—
3.0
8.8
1 Fair value loss of $0.5 million recorded in Q2 2022 through the statement of earnings
2 Fair value gain of $0.1 million recorded in Q2 2022 through other comprehensive income. In Q3 2022, the Company acquired the remaining
ownership interest and control of the minority interest investment.
27
SELECTED QUARTERLY FINANCIAL INFORMATION
The following table provides selected historical information and other data, which should be read in conjunction
with the annual financial statements and current and past interim financial statements.
(in US$ millions, except EPS)
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Revenue
502.6
710.2
420.7
271.4
465.8
624.0
506.3
424.2
Operating (Loss) Income
Operating Margin
Adjusted Operating Income (Loss)1
Adjusted Operating Margin1
Net (Loss) Income
Basic EPS
Diluted EPS
Adjusted EBITDA1
Adjusted EBITDA Margin1
Adjusted Net Income1
Adjusted Basic EPS1
Adjusted Diluted EPS1
(36.6)
197.2
(7.3)% 27.8%
23.2
4.6%
190.2
26.8% 14.9%
34.4
8.2%
62.6
(6.1)
(24.0)
187.4
118.2
61.7
(2.2)% (5.2)% 30.0% 23.3% 14.5%
12.7
4.7%
(5.5)
151.8
97.6
77.3
(1.2)% 24.3% 19.3% 18.2%
(30.1)
$(0.29)
$(0.29)
155.4
$1.50
$1.45
28.0
$0.27
$0.26
(1.9)
(13.8)
$(0.02)
$(0.13)
$(0.02)
$(0.13)
141.4
$1.37
$1.33
88.1
$0.86
$0.83
45.6
$0.45
$0.43
64.9
234.9
88.4
30.6
12.9% 33.1% 21.0% 11.3%
12.4
2.7%
167.6
113.7
95.7
26.9% 22.5% 22.6%
20.5
$0.20
$0.19
143.6
$1.39
$1.34
48.80
$0.47
$0.45
12.3
$0.12
$0.12
—
$—
$—
114.4
$1.11
$1.08
72.4
$0.70
$0.68
57.5
$0.56
$0.55
Balance Sheet and Cash Flow
Cash and cash equivalents
705.7
650.7
554.9
Cash provided by (used in) operating
activities
Cash used in investing activities
Free Cash Flow1
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
(25.1)
(30.3)
(23.3)
144.3
118.9
(5.9)
19.1
67.9
44.3
569.3
(4.3)
(56.6)
(34.4)
644.3
(6.8)
(28.2)
(30.1)
674.9
207.3
(42.3)
175.3
558.1
111.6
(30.4)
84.1
493.1
(62.9)
(8.3)
(79.4)
The seasonality factors outlined in the Toys, Entertainment and Digital Games segment trend analysis have the
following impact on the Company's results from quarter to quarter:
•
•
Revenue, Operating Income (Loss), Net Income (Loss), and cash flows generated are significantly
affected by the seasonality factors of the Toys segment, with a higher concentration historically in the
third and fourth quarters of each fiscal year.
In 2022, a higher proportion of Toy Gross Product Sales1 shifted into the first and second quarters from
the third and fourth quarters as retailers ordered earlier in the year to minimize the then anticipated
supply chain disruptions. The third and fourth quarters of 2022 were also pressured by the
macroeconomic environment, particularly from higher inflation compounded by foreign exchange
volatility and a carry-over of inventory at retailers 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 2022 annual Toy
Gross Product Sales1 compared to 30%-35% typically.
• Quarters with higher cash used in investing activities reflect higher capital expenditures across the
operating segments as well as periods with investment or acquisition related activity.
◦
◦
In Q1 2023, the Company acquired certain assets from 4D Brands International Inc. for total
purchase considerations of $18.9 million which included $14.6 million of cash consideration
and acquired certain assets from Innovation First, Inc. for total purchase consideration of
$14.6 million ($12.9 million of cash consideration).
In the Q3 2022, the Company acquired certain assets from SolidRoots LLC for total purchase
considerations of $10.7 million ($8.5 million of cash consideration) and acquired the remaining
shares of Nørdlight Games AB for total purchase considerations of $3.2 million which included
$2.5 million of cash consideration.
28
LIQUIDITY AND CAPITAL RESOURCES
As at December 31, 2023, the Company had Cash and cash equivalents of $705.7 million (December 31, 2022
- $644.3 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 $1.8 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.
On November 20, 2023, the Company entered into a one-year non-revolving credit facility (the "Acquisition
Facility") in anticipation of the closing of the Melissa & Doug acquisition, with a borrowing capacity of $225.0
million which matures on November 19, 2024, and contains certain financial covenants. The Acquisition Facility
was used to fund the acquisition of Melissa & Doug LLC. Total financing costs of $1.0 million, which include
Facility arrangement and agency fees and related legal fees, are recognized in Other assets and are being
amortized over the term of the facility.
As at December 31, 2023, there were $1.5 million (December 31, 2022 - $1.4 million) in letters of credit
outstanding under the Facility. As at December 31, 2023, there was $nil drawn (December 31, 2022 - $nil)
under the Facility.
The Company has an uncommitted overdraft facility agreement (the "European Facility") for $15.9 million
(equivalent to €15.0 million). The European Facility will be used, if needed, to fund working capital requirements
in Europe. As at December 31, 2023, the outstanding balance was $nil (December 31, 2022 - $nil).
The Company has an uncommitted revolving credit facility to finance television and film production (the
"Production Facility"). The limit of the credit facility is $7.4 million (equivalent to CA$10.0 million). As at
December 31, 2023, the outstanding balance of the Production Facility was $nil (December 31, 2022 - $nil).
As at December 31, 2023, the Company had unutilized liquidity of $1,439.2 million, comprised of $705.7 million
in Cash and cash equivalents and $733.5 million under the Company's credit facilities.
On January 2, 2024, the Company utilized $434.0 million of cash and $525.0 million of debt comprised of
$300.0 million from the Facility and $225.0 million from the Acquisition Facility to finance the acquisition of
Melissa & Doug LLC.
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 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 third 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.
29
The Company expects that cash on hand, future operating cash flows and the amount available under its
committed credit facilities, are sufficient to finance capital expenditures and ongoing business requirements
over the next 12 months. The Company continually assesses its liquidity needs and may consider additional
financing related to the acquisition of Melissa & Doug (refer to Note 31 of the Consolidated financial
statements). In addition, 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
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
CA$1.0 billion of subordinate voting shares, preferred shares, debt securities, subscription receipts, warrants or
any combination thereof as a unit. This filing provides the Company with the flexibility to access debt and equity
markets on a timely basis.
Subsequent to December 31, 2023, the Company intends to file a short form base shelf prospectus during the
first quarter of 2024.
Capital and Investment Framework
Over the long term, the Company plans to use its cash on hand, cash from operations and its committed credit
facility to fund seasonal working capital requirements related to product sales, television shows, feature films,
short-form content, Digital Games development in addition to strategic acquisitions, minority investments, and
capital investments.
Spin Master primarily uses third parties to manufacture, warehouse and distribute its products. As a result, the
Company does not have to incur material investments in property, plant and equipment. The Company’s capital
expenditures are generally comprised of the purchase of tooling used in the manufacturing process of toys,
entertainment content production and digital games development.
CASH FLOW
The following table provides a summary of Spin Master’s consolidated cash flows for the three months ended
December 31, 2023 and 2022:
(US$ millions)
Q4 2023
Q4 2022
$ Change
Net cash flows provided by (used in) operating activities
Net cash flows used in investing activities
Net cash flows used in financing activities
Net increase (decrease) in cash and cash equivalents
(excluding the effect of foreign currency exchange rate
changes on cash and cash equivalents)
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
67.9
(23.3)
(8.2)
36.4
18.6
650.7
705.7
(6.8)
(28.2)
(8.5)
(43.5)
12.9
674.9
644.3
74.7
4.9
0.3
79.9
5.7
(24.2)
61.4
30
The following table provides a summary of Spin Master’s consolidated cash flows for the year ended
December 31, 2023 as compared to the same period in 2022:
(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 the year
Cash and cash equivalents, end of the year
Year Ended Dec 31,
2023
227.0
(135.3)
(44.1)
47.6
13.8
644.3
705.7
2022
249.3
(109.2)
(20.3)
119.8
(38.2)
562.7
644.3
$ Change
(22.3)
(26.1)
(23.8)
(72.2)
52.0
81.6
61.4
Operating Activities as compared to the same period in 2022:
Cash flows provided by operating activities were $67.9 million for the three months ended December 31, 2023
compared to cash flows used in operating activities of $6.8 million driven by the change in non-cash working
capital (an increase of $26.8 million as compared to a decrease of $1.9 million in the comparative period) and
higher Adjusted Operating Income1.
Cash flows provided by operating activities were $227.0 million for the year ended December 31, 2023
compared to $249.3 million driven by lower Adjusted Operating Income1 and the change in non-cash working
capital. Change in non-cash working capital increased $105.1 million as compared to an increase of $67.7
million.
The following table provides a summary of Spin Master’s net changes in non-cash working capital for the year
ended December 31, 2023 as compared to the same period in 2022:
(US$ millions)
(Increase) decrease in:
Trade receivables, net
Other receivables
Inventories, net
Prepaid expenses and other assets
Advances on royalties
Increase (decrease) in:
Trade payables and accrued liabilities
Deferred revenue
Provisions
Other
Net changes in non-cash working capital
Year Ended Dec 31,
2023
2022
$ Change
(111.9)
(13.0)
8.0
(16.5)
(2.3)
(135.7)
36.3
(0.5)
(5.5)
0.3
30.6
(105.1)
61.4
0.6
37.4
(12.7)
1.3
88.0
(157.3)
0.6
1.0
—
(155.7)
(67.7)
(173.3)
(13.6)
(29.4)
(3.8)
(3.6)
(223.7)
193.6
(1.1)
(6.5)
0.3
186.3
(37.4)
31
Net Working Capital1
The table below outlines key financial information pertaining to the Company's Net Working Capital1:
(US$ millions)
Trade receivables, net1
Other receivables2
Inventories, net3
Prepaid expenses and other assets
Current assets
Trade payables
Accrued liabilities4
Deferred revenue
Provisions
Dec 31,
2023
Dec 31,
2022
$ Change
414.4
60.0
98.0
40.9
613.3
189.2
196.2
11.0
32.1
311.0
49.5
105.1
22.3
487.9
153.0
186.4
11.5
30.7
103.4
10.5
(7.1)
18.6
125.4
36.2
9.8
(0.5)
1.4
46.9
78.5
Current liabilities
Net Working Capital1
1 Trade receivables are net of allowance for doubtful accounts and provisions for sales allowances. Refer to Note 12 of the annual financial
statements.
2 Other receivables include investment tax credits receivable, royalties, sales tax and other balances. Refer to Note 12 of the annual financial
statements.
106.3
428.5
184.8
381.6
3 Inventories are net of write-downs. Refer to Note 13 of the annual financial statements.
4 Accrued liabilities are comprised of payroll related liabilities, accrued royalties, commodity tax, dividends payable, accrued liability for the automatic
share purchase plan, restructuring liability and other balances. Refer to Note 18 of the annual financial statements.
Net Working Capital1 increased by $78.5 million to $184.8 million at December 31, 2023 from $106.3 million.
Excluding the impact of foreign exchange, total Net Working Capital1 increased by $105.1 million.
Trade receivables, net, increased by $103.4 million to $414.4 million at December 31, 2023 from $311.0 million,
arising from the timing of orders and shipments, change in geographic and customer mix of Toy revenue and
increased Entertainment revenue in the fourth quarter.
Other receivables increased by $10.5 million to $60.0 million at December 31, 2023 from $49.5 million, driven
by an increase in Entertainment related investment tax credits receivables.
Inventories, net, decreased by $7.1 million to $98.0 million at December 31, 2023 from $105.1 million, due to
the Company's continuing focus on optimizing inventory levels, lower freight costs and the closure of the
manufacturing facility in Calais, France.
Trade payables and accrued liabilities increased by $46.0 million to $385.4 million at December 31, 2023 from
$339.4 million, driven by the timing of purchasing activity and payments.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"
32
Investing Activities as compared to the same period in 2022:
The following table provides a summary of Spin Master’s consolidated cash flows used in investing activities for
the three months ended December 31, 2023 and 2022:
(US$ millions)
Property, plant and equipment
Tooling
Other
Total property, plant and equipment
Intangible assets
Entertainment content and Digital Games development
Computer software
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
Q4 2023
Q4 2022
$ Change
5.0
0.7
5.7
17.5
0.4
17.9
23.6
—
0.5
(0.8)
23.3
5.5
2.0
7.5
14.8
1.0
15.8
23.3
1.4
3.5
—
28.2
(0.5)
(1.3)
(1.8)
2.7
(0.6)
2.1
0.3
(1.4)
(3.0)
(0.8)
(4.9)
Cash used in investing activities was $23.3 million for the three months ended December 31, 2023 compared to
$28.2 million primarily as a result of decreases in cash used in minority interest and other investment and
business acquisitions.
The following table provides a summary of Spin Master’s consolidated cash flows used in investing activities for
the year ended December 31, 2023 as compared to the same period in 2022:
(US$ 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
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,
2023
2022
$ Change
20.6
7.4
28.0
73.1
3.0
3.3
79.4
107.4
26.5
2.2
(0.8)
135.3
23.0
7.4
30.4
63.7
4.8
0.5
69.0
99.4
11.6
7.4
(9.2)
109.2
(2.4)
—
(2.4)
9.4
(1.8)
2.8
10.4
8.0
14.9
(5.2)
8.4
26.1
For the year ended December 31, 2023, cash used in investing activities was $135.3 million compared to
$109.2 million. The increase was primarily related to the business acquisitions of 4D Brands International Inc.
and Innovation First for a total of $26.5 million and an asset acquisition from a games and puzzles company for
$3.3 million, compared to $11.6 million in the prior year related to the acquisition of remaining shares of
Nordlight Games AB for $2.1 million and asset acquisition from SolidRoots LLC for $8.5 million. In addition,
there were higher investments in Entertainment content and Digital Games development.
33
Financing Activities as compared to the same period in 2022:
Cash flows used in financing activities were $8.2 million for the three months ended December 31, 2023
compared to $8.5 million primarily from the payment of lease liabilities.
For the year ended December 31, 2023, cash flows used in financing activities were $44.1 million compared to
$20.3 million primarily from the payment of quarterly cash dividends for the full year of 2023 compared to a
partial year in 2022 when the dividend program was launched and the repurchase of subordinate voting shares
under the Company's NCIB program.
Free Cash Flow1 as compared to the same period in 2022:
The following table provides a reconciliation of Spin Master’s consolidated Free Cash Flow1 to cash from
operating activities and cash used in investing activities for the three months ended December 31, 2023 and
2022:
(US$ millions)
Q4 2023
Q4 2022
$ Change
Cash flows provided by (used in) operating activities
Cash flows used in investing activities
Add:
Business acquisitions, net of cash acquired
Advance paid for business acquisitions
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".
67.9
(23.3)
—
—
0.5
(0.8)
44.3
(6.8)
(28.2)
0.4
1.0
3.5
—
(30.1)
74.7
4.9
(0.4)
(1.0)
(3.0)
(0.8)
74.4
Free Cash Flow1 was $44.3 million for the three months ended December 31, 2023 compared to $(30.1) million,
an increase of $74.4 million. Free Cash Flow1 in creased due to the change in non-cash working capital (an
increase of $26.8 million as compared to a decrease of $1.9 million in the comparative period) and higher
Adjusted Operating Income1.
The following table provides a reconciliation of Spin Master’s consolidated Free Cash Flow1 to cash from
operating activities and cash used in investing activities for the year ended December 31, 2023 as compared to
the same period in 2022:
(US$ 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
Asset acquisition
Investment distribution income
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,
2023
227.0
(135.3)
26.5
—
3.3
(0.3)
2.5
(0.8)
2022
249.3
(109.2)
10.6
1.0
—
(0.1)
7.5
(9.2)
122.9
149.9
$ Change
(22.3)
(26.1)
15.9
(1.0)
3.3
(0.2)
(5.0)
8.4
(27.0)
For the year ended December 31, 2023, Free Cash Flow1 was $122.9 million compared to $149.9 million, a
decrease of $27.0 million. Free Cash Flow1 declined primarily due to lower Adjusted Operating Income1 and the
change in non-cash working capital.
1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".
34
OUTLOOK
The Company expects for 2024:
•
•
•
•
Toy Gross Product Sales, excluding Melissa & Doug1 to be in line with 2023.
Toy Gross Product Sales, excluding Melissa & Doug1 seasonality to be approximately 28% to 32% in
the first half.
Consolidated Revenue, excluding Melissa & Doug1, to be in line with 2023.
Adjusted EBITDA Margin, excluding Melissa & Doug and net cost synergies realized1 to be in line with
2023.
Incrementally, the Company expects for 2024:
• Melissa & Doug Toy Gross Product Sales1 to contribute between $420 million to $430 million.
• Melissa & Doug Toy Gross Product Sales1 seasonality to be approximately 20% to 25% in the first half.
• Melissa & Doug Revenue1 to contribute between $370 million to $375 million.
• Melissa & Doug Adjusted EBITDA Margin1 of approximately 19.5%.
•
To achieve in addition approximately $6 million in net cost synergies towards the target of
approximately $25 million to $30 million in run-rate net cost synergies by the end of 2026.
CONTRACTUAL OBLIGATIONS & COMMITMENTS
In the normal course of business, Spin Master enters into contractual arrangements to obtain and protect
Spin Master’s right to create and market certain products and intellectual properties to ensure availability and
timely delivery of future purchases of goods and services. These arrangements include commitments for future
services, purchases, commitments to settle foreign currency forward contracts and royalty payments pursuant
to licensing agreements. Certain of these commitments routinely contain provisions for guarantees or minimum
expenditures during the terms of the contracts. Additionally, Spin Master routinely enters into non-cancellable
lease agreements for premises and equipment, which contain minimum rental payments.
The following table summarizes Spin Master's contractual commitments and obligations as at December 31,
2023, which are primarily for the leasing of offices and related office equipment and minimum guarantees due
to licensors. The leases have been entered into with terms of between two and twelve years in length and
minimum guarantees to licensors are primarily due within 24 months.
(US$ millions)
<1 Year
1-5 Years
> 5 Years
Total
Lease obligations - undiscounted
Guaranteed payments due to licensors
Purchase obligations
Other
Total commitments
13.2
11.3
7.3
0.1
31.9
37.0
42.9
15.3
0.1
95.3
31.4
—
—
—
31.4
81.6
54.2
22.6
0.2
158.6
OFF-BALANCE SHEET ARRANGEMENTS
The Company 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 February 28, 2024, there were 103.8 million shares outstanding comprised of 68.7 million multiple voting
shares and 35.1 million subordinate voting shares.
As of February 28, 2024, 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 1.4 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.
35
The following table provides a summary of dividends declared and paid.
Declaration Date
Record Date
Payment Date
Rate per Share (CA$)
Dividends declared and
accrued (in US$ millions)
February 28, 2024
November 1, 2023
August 2, 2023
May 3, 2023
March 8, 2023
March 29, 2024
April 12, 2024
December 29, 2023
January 12, 2024
September 29, 2023
October 13, 2023
June 30, 2023
March 31, 2023
July 14, 2023
April 14, 2023
November 2, 2022
December 30, 2022
January 13, 2023
July 27, 2022
September 29, 2022
October 14, 2022
0.06
0.06
0.06
0.06
0.06
0.06
0.06
4.6
4.6
4.6
4.7
4.6
4.6
4.6
During the year ended December 31, 2023, dividends of $18.4 million (2022 - $4.6 million) were paid.
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 CA$61.0 million for the Selling Shareholder,
at a price of CA$32.10 per subordinate voting share and was completed on November 17, 2022. The Company
did not receive any proceeds from the Secondary Offering, and the underwriting fees and other expenses
related to the Secondary Offering were paid by the Selling Shareholder. To satisfy the sale under the
Secondary Offering, the Selling Shareholder converted 1,900,000 multiple voting shares into subordinate voting
shares on a one-for-one basis.
Normal Course Issuer Bid
On January 5, 2023, the Company launched, and the Toronto Stock Exchange ("TSX") accepted the notice to
launch an NCIB. Under the NCIB, the Company can repurchase its subordinate voting shares on the open
market at its discretion and subject to compliance with applicable securities laws. The NCIB period commenced
on January 9, 2023, and will end on the earlier of January 8, 2024, and the completion of purchases under the
NCIB, of up to 2,845,904 subordinate voting shares, which represented approximately 10% of the "public
float" (within the meaning of the rules of the TSX) upon launch of the NCIB.
The following table summarizes the Company’s activities under the NCIB for the year ended December 31,
2023:
(US$ millions)
Subordinate voting shares repurchased under the NCIB for cancellation (number of shares)
Cash consideration paid
Reduction in share capital
Premium paid on repurchased and cancelled shares recorded in retained earnings
Year Ended Dec 31,
2023
397,700
10.5
4.7
5.8
From time to time, the Company participates in an automatic share purchase plan (“ASPP”) with its designated
broker in order to facilitate the repurchase of subordinate voting shares. During the year ended December 31,
2023, 397,700 subordinate voting shares have been repurchased and cancelled at a cost of $10.5 million. On
April 14, 2023, upon the expiry of the ASPP commitment period, the Company derecognized the remaining
obligation for the outstanding repurchase commitment in trade payables and accrued liabilities.
36
Subsequent to December 31, 2023, the TSX has accepted the Company’s notice to launch a Normal Course
Issuer Bid (the “Bid”). Under the Bid, the Company may repurchase on the open market at its discretion and
subject to compliance with applicable securities laws, during the period commencing on March 4, 2024 and
ending on the earlier of March 3, 2025 and the completion of purchases under the Bid, up to 2,984,559
subordinate voting shares, representing approximately 10% of the “public float” (within the meaning of the rules
of the TSX), subject to the normal terms and limitations of such bids. Under the TSX rules, the average daily
trading volume of the subordinate voting shares on the TSX during the six months ended January 31, 2024 was
approximately 65,548 and, accordingly, daily purchases on the TSX pursuant to the Bid will be limited to 16,387
subordinate voting shares, other than purchases made pursuant to the block purchase exception. The actual
number of subordinate voting shares which may be purchased pursuant to the Bid and the timing of any such
purchases will be determined by the management of the Company, subject to applicable law and the rules of
the TSX.
Purchases are expected to be made through the facilities of TSX and/or alternative Canadian trading systems,
or by such other means as may be permitted by the Ontario Securities Commission or other applicable
Canadian Securities Administrators, at prevailing market prices. The Bid will be funded using existing cash
resources and draws on its credit facility, and any subordinate voting shares repurchased by the Company
under the Bid will be cancelled.
As of February 19, 2024, the Company had 35,058,092 issued and outstanding subordinate voting shares and
a “public float” (within the meaning of the rules of the TSX) of 29,845,990 subordinate voting shares.
The Company believes that the purchases are in the best interest of the Company and constitute a desirable
use of its funds. The program will be executed consistent with Spin Master’s capital allocation strategy of
prioritizing investment to grow the business over the long term.
Pursuant to a previous notice of intention to conduct a normal course issuer bid, under which the Company
sought acceptance of the TSX to purchase up to 2,845,904 subordinate voting shares and which was
announced by the Corporation on January 5, 2023 and expired on January 8, 2024, the Company repurchased
and cancelled 397,700 subordinate voting shares on the open market at an average purchase price of $36.51
per share.
The Company has also agreed to the form of an ASPP with a designated broker to allow for the purchase of
subordinate voting shares under the Bid at times when the Company would ordinarily not be permitted to
purchase shares due to regulatory restrictions or self-imposed blackout periods. The ASPP has been cleared
by the TSX and will be entered into in connection with the commencement of the Bid.
37
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.
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 consumer 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
38
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 several 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.
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, therefore, 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. The Company’s may not be able to renew its
licenses or licensors may seek to terminate Spin Master’s license. 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.
Spin Master is a party to several 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 ability to
license IP and the ability of its licensors to obtain, maintain and enforce its licensed IP, particularly 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.
39
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
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. 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 because 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, 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. In addition, geopolitical instability (such as the ongoing conflict
between Russia and Ukraine and the ongoing conflict in the Middle East involving Israel and Hamas) and
related sanctions could continue to have significant ramifications on global financial markets, including volatility
40
in the U.S. and global financial markets. 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 influence Spin Master’s sales. Any reduction in discretionary spending by consumers in the
face of macro-economic factors could unfavourably impact the Company’s future sales and materially and
adversely affect its financial performance and results of operations.
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,
Indonesia, Hungary, Poland and the Netherlands. 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:
•
•
•
•
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
41
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.
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 because 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 more than 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 present risks to the Company’s business and exposes it to risks associated with
international operations.
All of Spin Master’s products are manufactured by third-party manufacturers, most of which are 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 to
alternative sources, should such changes be necessary, the Company’s operations could be disrupted,
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potentially for a significant period of time, while alternative sources were secured, and significant capital
investments could be required to remediate the problem.
Given that all 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 to meet provincial climate targets), 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 several 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 using 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.
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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), the cost of transportation, or otherwise, have at
times adversely affected and could in the future adversely affect Spin Master business, financial condition, and
results of operations. Recently, the Panama Canal drought and Suez Canal attacks have, and could continue
to, adversely impact the reliability and cost of the Company’s export shipments to customers. 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 production or that Spin Master’s entertainment programming will generate product
sales.
The business of producing and distributing television programs is highly competitive. There are numerous
suppliers of entertainment content and Spin Master faces intense competition with other producers and
distributors, many of whom are substantially larger and have greater resources. Further, vertical integration of
the television broadcast industry worldwide and the creation and expansion of new networks, which create a
substantial portion of their own programming, has decreased access for programs produced by third-party
production companies. The Company competes with other television production companies for ideas and
storylines created by third parties as well as for access to animation studios, writers, producers, actors,
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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 way 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 Federal or Provincial 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
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.
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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 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. The risk of cyberattacks may increase as AI becomes more widespread. 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 the Company’s 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 the Company’s 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 IP 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 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
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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
because of bankruptcy, or significantly reduce the number of stores they operate, it could have a material
adverse effect on the Company’s business, financial condition, and performance. Spin Master’s credit
insurance may not cover all types of claims against customers and insurance levels for covered claims may not
be adequate to indemnify the Company against all liability, which could materially and adversely harm the
Company’s business, financial condition, and performance.
Failure to maintain existing relationships, or to develop new relationships, with inventors and
entertainment content collaborators could have a material adverse effect on Spin Master’s business,
financial condition, and performance.
Spin Master’s relationships with inventors are a critical aspect of the Company’s product development. A
significant portion of Spin Master’s product ideas have been sourced from inventors and developed by the
Company. If Spin Master fails to maintain existing relationships or to develop new relationships within the
inventor community or if the Company experiences an adverse change in the perception of the Company by
inventors, Spin Master may receive fewer product concepts from inventors. This would adversely impact Spin
Master’s ability to introduce new, innovative brands and products, which in turn would materially and adversely
harm its business, financial condition and performance.
including writers, content developers,
Spin Master’s relationships with entertainment collaborators,
broadcasters, and directors, are a critical aspect of the Company’s development of its entertainment properties,
brands and content. A portion of Spin Master’s entertainment properties, brands and content have been
sourced from external collaborators. If Spin Master fails to maintain existing relationships or to develop new
relationships with entertainment collaborators or if the Company experiences an adverse change in the
perception of the Company by these entertainment collaborators, Spin Master may receive fewer concepts.
This would adversely impact Spin Master’s ability to introduce new entertainment properties, brands, and
content, which in turn would materially and adversely harm its business, financial condition, and performance.
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
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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.
Spin Master’s business, financial condition, cash flows and results of operations are subject to risks
arising from the international scope of its operations.
Spin Master conducts a significant portion of its business outside the United States and Canada and may, in
the future, expand the portion of its business internationally and its operations into new countries, including
emerging markets. Spin Master sells its products in many countries around the world. All of Spin Master’s
foreign operations are subject to risks inherent in conducting business abroad, including, among other things:
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difficulties in coordinating and managing foreign operations, including ensuring that foreign operations
comply with foreign laws as well as Canadian and U.S. laws applicable to Canadian companies with
U.S. and foreign operations, such as export and sanctions laws and the FCPA, the Canadian
Corruption of Foreign Public Officials Act and other applicable worldwide anti-bribery laws;
price and currency exchange controls;
restrictions on the repatriation of funds;
scarcity of hard currency, including the U.S. dollar, which may require a transfer or loan of funds to the
operations in such countries, which they may not be able to repay on a timely basis;
political and economic instability;
ongoing uncertainties as a result of instability or changes in geopolitical conditions, including military or
political conflicts, such as those caused by the ongoing conflicts between Russia and Ukraine or Israel
and Hamas (the potential escalation or geographic expansion of which could heighten other risks
identified elsewhere in this “Risk Factors” section);
compliance with multiple regulatory regimes;
compliance with economic sanctions laws and other laws that apply to Spin Master’s activities in the
countries where Spin Master operates;
less established legal and regulatory regimes in certain jurisdictions, including as relates to
enforcement of anti-bribery and anti-corruption laws and the reliability of the judicial systems;
differing degrees of protection for intellectual property;
unexpected changes in foreign regulatory requirements, including quality standards and other
certification requirements;
new export license requirements;
adverse changes in tariff and trade protection measures;
differing labor regulations;
potentially negative consequences from changes in or interpretations of tax laws;
restrictive governmental actions;
possible nationalization or expropriation;
credit market uncertainty;
restrictions on business activities and other challenges associated with pandemics, including the
lingering COVID-19 pandemic, epidemics, outbreaks of an infectious disease or similar events;
differing local practices, customs and cultures, some of which may not align or comply with Spin
Master’s company practices and policies or Canadian or U.S. laws and regulations;
difficulties with licensees, contract counterparties, or other commercial partners; and
differing local product preferences, and product and packaging regulation which may lead to increased
costs.
As a result of changes to Canadian or U.S. policy, there may be changes to existing trade agreements and
greater restrictions on trade generally. In addition, support for protectionism and rising anti-globalization
sentiment in Canadian, the United States, and other countries may slow global growth. In particular, a
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protracted and wide-ranging trade conflict between the United States and China could adversely affect global
economic growth. Concerns also remain around the social, political and economic impacts of the changing
political landscape in Europe and elsewhere. In addition, there are growing concerns over an economic
slowdown in emerging markets in light of capital outflows in favor of developed markets and expected interest
rate increases. Broader geopolitical tensions remain high among the United States, Russia, China and across
the Middle East.
Given the international scope of Spin Master’s operations, any of the above factors, including sanctions, export
controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on Spin
Master’s business, financial condition, cash flows and results of operations and could cause the market value
of Spin Master’s Subordinate Voting Shares to decline. Similarly, adverse economic conditions impacting Spin
Master’s customers in these countries or uncertainty about global economic conditions could cause purchases
of Spin Master’s products to decline, which would adversely affect the Company’s revenues and operating
results. Moreover, Spin Master’s projected revenues and operating results are based on assumptions
concerning certain levels of customer spending. Any failure to attain Spin Master’s projected revenues and
operating results as a result of adverse economic or market conditions could have a material adverse effect on
Spin Master’s business, financial condition, cash flows and results of operations and could cause the market
value of Spin Master’s Subordinate Voting Shares to decline.
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
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.
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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
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
50
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 because of the conflicts
between Russia and Ukraine, 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, including the ongoing
conflicts between Russia and Ukraine or Israel and Hamas, 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.
Global climate change, evolving stakeholder regulations and 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 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, enforcement policies and regulatory reporting requirements. In
addition, as costs and taxes are imposed on fossil fuels, which are the inputs for resin and fuel for shipping, the
cost of production will increase, which could result in increased expenses to Spin Master, which may not be
offset by increased prices, if such increases cannot be passed on to consumers.
The effect of increased severity of extreme weather could affect the quality of the Company’s products and its
ability to distribute them in a timely fashion. For example, monsoons in South, Southeast and East Asia can
cause excessive moisture, which can affect or damage products and product packaging, leading to write-offs,
transport delays, and affect the Company’s ability to deliver on its retail customers' quality needs. 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
51
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. These 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, reporting obligations 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
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.
52
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 can
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.
Acquisitions also entail numerous other risks, including but not limited to:
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unanticipated costs and legal liabilities;
adverse effects on the Company’s existing business relationships with its suppliers and customers;
risk of entering markets in which the Company has limited or no prior experience;
amortizing any acquired intangible assets; and
difficulties in maintaining uniform standards, procedures, controls, and policies.
Some or all 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
53
Master designs, implements, and maintains adequate controls over its financial processes and reporting in the
future. Any failure to implement required new or improved controls, or difficulties encountered in their
implementation or operation, could harm the Company’s financial performance, or cause it to fail to meet its
financial reporting obligations. Inferior internal controls could also cause investors to lose confidence in the
Company’s reported financial information, which could have a material and adverse effect on the trading price
of its stock and its access to capital.
Spin Master is subject to tax and regulatory compliance in all the jurisdictions in which it operates and
may be subject to audits from time to time that could result in the assessment of additional taxes,
interest and penalties.
Spin Master conducts business globally and is subject to tax and regulatory compliance in the jurisdictions in
which it operates. These include those related to collection and payment of value added taxes at appropriate
rates and the appropriate application of value added taxes to each of the Company’s products, those designed
to ensure that appropriate levels of customs duties are assessed on the importation of its products, as well as
transfer pricing and other tax regulations designed to ensure that its intercompany transactions are
consummated at prices that have not been manipulated to produce a desired tax result, that appropriate levels
of income are reported as earned and that it is taxed appropriately on such transactions. International transfer
pricing is a subjective area of taxation and generally involves a significant degree of judgment.
Spin Master may be subject to audits that are at various levels of review, assessment, or appeal in a number of
jurisdictions involving various aspects of value added taxes, customs duties, transfer pricing, income taxes,
withholding taxes, sales and use and other taxes and related interest and penalties in material amounts. The
taxation authorities in the jurisdictions where the Company carries on business could challenge the Company’s
transfer pricing policies. In some circumstances, additional taxes, interest, and penalties may be assessed and
deposits required to be paid in order to challenge the assessments. When applicable, the Company reserves in
the consolidated financial statements an amount that it believes represents the most likely outcome of the
resolution of disputes, but if it is incorrect in its assessment, it may have to pay a different amount which could
potentially be material. Ultimate resolution of these matters can take several years, and the outcome is
uncertain. If the taxing authorities in any of the jurisdictions in which the Company operates were to
successfully challenge its transfer pricing practices or its positions regarding the payment of income taxes,
customs duties, value added taxes, withholding taxes, sales and use, and other taxes, it could become subject
to higher taxes and its revenue and earnings could be adversely affected.
Significant changes in currency exchange rates could have a material adverse effect on Spin Master’s
business, financial condition, and performance.
Spin Master’s global operations means business is transacted in many different currencies and financial
performance and cash flows are subject to changes in currency exchange rates and regulations. As the
Company’s financial results are reported in U.S. dollars, changes in the exchange rate between the U.S. dollar
and local currencies in which the Company operates may have an adverse effect / beneficial impact on the
Company’s U.S. dollar results. Furthermore, potential significant revaluation of the Chinese yuan, which may
result in an increase in the cost of producing products in China, could negatively affect Spin Master’s business.
Government action may restrict the Company’s ability to transfer capital across borders and may also impact
the fluctuation of currencies in the countries where the Company conducts business or has invested capital.
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, supply chain management
(such as the Fighting Against Forced Labour and Child Labour in Supply Chains Act and similar legislation
relating to modern slavery), 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
54
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
the Company’s 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, 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. 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.
In recent years, the Organisation for Economic Co-operation and Development (the “OECD”), with the support
of the G20, has developed proposals to address perceived base erosion and profit shifting (“BEPS”). BEPS
refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to
locations with low or no tax and little or no economic activity, for the purpose of reducing a multinational group’s
aggregate tax liability. In 2021, the OECD/G20 Inclusive Framework on BEPS published a statement updating
and finalizing the key components of a “two pillar” plan for global tax reform, as agreed among a number of
countries across the globe. Pillar I addresses tax nexus and the allocation of profits for tax purposes. Under
Pillar II, a global minimum tax at the rate of 15% would be imposed on certain companies whose revenues
exceed a threshold. In December 2022, the member states of the European Union unanimously voted to adopt
the OECD’s minimum tax rules and phase them into national law, and in February 2023 the OECD released
technical guidance on the global minimum tax which was agreed by consensus of the BEPS 2.0 (Pillars I and II)
signatory jurisdictions. Under the European Union’s minimum tax directive, member states are to adopt
domestic legislation implementing the minimum tax rules effective for periods beginning on or after December
31, 2023, with the “under-taxed profit rule” to take effect for periods beginning on or after December 31, 2024.
Legislatures in multiple countries outside of the European Union have also drafted legislation to implement the
OECD’s minimum tax proposal. The Canadian Department of Finance released its own Pillar II draft legislation
in 2023, but it was not substantively enacted as of December 31, 2023. As a result of these developments, the
tax laws of certain countries in which Spin Master and its affiliates do business could change on a prospective
or retroactive basis, and any such changes, including the adoption of the global minimum tax rules, could have
a material adverse effect on Spin Master’s aggregate tax liability and effective tax rate in the future.
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.
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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 mobile digital 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 technology-based play as well as analog 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 digital entertainment products and difficult economic
conditions may increase the risk of Spin Master not achieving sales sufficient to recover the increased
development costs associated with these products. Designing, developing, and producing sophisticated digital
games 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 mobile digital games, 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, Canada’s Personal Information Protection and Electronic Documents Act, the
California Consumer Protection Act, the California Consumer Privacy Rights Act, the Virginia Consumer Data
Protection Act, the Colorado Privacy Act, the Connecticut Data Privacy Rights Act, and the Utah Consumer
Privacy Act contain detailed requirements regarding collecting and processing personal information, and
impose certain limitations on how such information may be used, the length for which it may be stored, with
whom it may be shared, and the effectiveness of consumer consent. In addition to the comprehensive U.S.
state privacy laws and regulations that have or will be going into effect in 2024, similar laws are being proposed
elsewhere, which impose additional obligations such as additional rights processes, new contractual
requirements, opt outs for certain uses and disclosures of sensitive personal information, and opt outs from
sharing personal information for targeted advertising.
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
favourable compared to other companies’ policies, which could negatively impact Spin Master’s ability to hire
and retain 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.
Spin Master’s business, financial condition, and performance could be adversely affected by strikes or
other union job actions.
Any strike, prolonged or new, by, or lockout of, one or more of the unions that provide personnel essential to the
development, production or distribution of films or television programs, such as the five-months long strike by
the Writers Guild of America, which ended in September 2023, and the four-months long strike by the American
actors’ union SAG-AFTRA, which ended in November 2023, could delay or halt activities in the entertainment
industry which may effect third-party owners for IP which the Company licenses. Halts or delays, depending on
the length of time, could cause a delay or interruption in development, production and release of new films and
entertainment programs, for which the Spin Master licenses the IP and delay and/or lower the revenues the
Company expected to receive from entertainment related toys, games and other merchandise.
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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.
Expansion of social media platforms, resulting in negative publicity and product reviews or harmful
leaks of information 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 eliminated and may materially
and adversely impact its business, financial condition, and performance.The inappropriate use of certain social
media vehicles could cause also brand damage or information leakage or could lead to legal implications from
the improper collection and/or dissemination of personally identifiable information or the improper dissemination
of material non-public information (including violations of applicable securities laws). In addition, negative posts,
or comments about the Company and/or any of its key personnel on any social networking web site could
seriously damage the Company’s reputation. Further, the disclosure of non-public company sensitive
information through external media channels could lead to information loss as there might not be structured
processes in place to secure and protect information. If the Company’s non-public sensitive information is
disclosed or if its reputation or that of its key personnel is seriously damaged through social media, it could
have a material adverse effect on the Company’s business, financial condition, and results of operations.
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
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acts of vandalism. Despite any precautions the Company may take, the occurrence of a natural disaster or
other unanticipated problems at the Company’s hosting facilities could result in lengthy interruptions in its
services. Spin Master does not carry business interruption insurance sufficient to compensate it for losses that
may result from interruptions in its service because 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.
Rapid developments in artificial intelligence (“AI”) could adversely impact Spin Master’s business
AI capabilities are continuing to develop rapidly and are becoming more generally available, increasing the risk
that AI could become disruptive to the Company’s business. Failure to keep pace with the advancement of new
technologies such as AI could impact the Company’s competitive advantage and negatively affect the
Company’s business, financial condition, and results of operations.
Implementation and reliance on new technologies, including machine learning and generative AI, within the
Company and through third-party providers, increase the risk that flaws in algorithms, processes, or data may
result in inaccurate decisions and potentially increase the cost of operational or cybersecurity related
interruptions. Leveraging these new and rapidly evolving technologies may also increase other risks such as
risks relating to indirect infringement on intellectual property or privacy and could carry social or ethical
implications including unintended bias that could increase reputational risk and potentially result in regulatory
fines or penalties. Future legislative action limiting or otherwise regulating the use of these technologies could
also adversely impact the Company’s ability to operate using them, which, in turn, could negatively affect the
Company’s business, financial condition and results of operations.
There is also a risk that AI could be used to infringe upon the Company’s intellectual property, impersonate the
Company’s people, falsely represent Spin Master’s products, or be used in other ways that could result in
operational or reputational harm.
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.
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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 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.
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 Voting Shares
for cancellation in any 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.
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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 51.7% and 52.2% of consolidated Toy Gross Product Sales1 for the years
ended December 31, 2023 and 2022 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
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 three months and year ended December 31, 2023, 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 (2022 - $0.5 million) and $2.0 million (2022 - $1.3 million), respectively.
As at December 31, 2023, amounts payable to the director's law firm were $0.4 million (December 31, 2022 -
$0.4 million).
During the three months ended June 30, 2023, the Company paid incentive compensation related taxation
liabilities of $3.7 million on behalf of three members of the Company's Board of Directors. These amounts were
repaid by all three directors to the Company during the three months ended June 30, 2023.
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CRITICAL ACCOUNTING ESTIMATES
The Company’s material accounting policies are described in Note 2 of the Company's audited consolidated
financial statements and accompanying notes, which have been prepared in accordance with IFRS. The
preparation of financial statements requires management to make estimates, assumptions and judgments that
affect the reported amounts of assets and liabilities, related disclosures and the reported amounts of revenues
and expenses during the periods covered by the financial statements. Refer to Note 3 of the Company's
audited consolidated financial statements for additional information.
The Company has identified the following accounting policies under which significant judgments, estimates and
assumptions are made, where actual results may differ from these estimates under different assumptions and
conditions and which may materially affect financial results or the financial position in future periods.
Determination of cash-generating units
A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. Determining the impact of impairment
requires significant judgment in identifying which assets or groups of assets are CGUs of the Company.
Functional currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at
exchange rates as of the dates the transactions occur. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.
Determining the appropriate functional currencies for entities in the Group requires analysis of various factors,
including the currencies and country-specific factors that mainly influence sales prices, and the currencies that
mainly influence labour, materials and other costs of providing goods or services.
Useful life of property, plant and equipment and intangible assets with finite useful lives
The Company employs significant estimates to determine useful lives of property, plant and equipment and
intangible assets with finite useful lives, considering industry trends such as technological advancements, past
experience, expected use and review of asset lives.
Components of an item of property, plant and equipment may have different useful lives. The Company makes
estimates when determining depreciation methods, depreciation rates and useful lives, which require taking into
account industry trends and company-specific factors. The Company reviews depreciation methods, useful
lives and residual values annually or when circumstances change and adjusts, if necessary, its depreciation
methods and assumptions prospectively.
Impairment testing of goodwill and indefinite life intangible assets
Goodwill and indefinite life intangible assets are assessed for impairment at least annually, and whenever there
is an indication of impairment. The Company determines the fair value of its CGU groupings and indefinite life
intangible assets using discounted cash flow models corroborated by other valuation techniques.
The process of determining these fair values requires the Company to make estimates and assumptions of a
long-term nature regarding discount rates, projected revenues, royalty rates and margins derived from past
experience, actual operating results and budgets. These estimates and assumptions may change in the future
due to uncertain competitive and economic market conditions or changes in business strategies.
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.
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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.
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.
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CHANGES IN ACCOUNTING POLICIES
Standards, Amendments and Interpretations Issued and Adopted
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making
Materiality Judgements — Disclosure of Accounting Policies
The amendments to IAS 1 require that the Company discloses its material accounting policies instead of its
significant accounting policies. The amendments also clarify that accounting policies related to immaterial
transactions, other events or conditions are themselves immaterial and as such need not be disclosed, and not
all accounting policy information that relates to material transactions, other events or conditions is material to
the financial statements. Accounting policy information may be material because of the nature of the related
transactions, other events or conditions, even if the amounts are immaterial. Effective January 1, 2023, the
Company adopted the amendments to IAS 1 and IFRS Practice Statement 2. As a result of the adoption of
these amendments, there were no adjustments to the presentation or amounts recognized in these
Consolidated financial statements.
Amendments to IAS 8 Accounting Polices, Changes in Accounting Estimates and Errors — Definition
of Accounting Estimates
The amendments introduce a new definition for accounting estimates: clarifying that they are monetary
amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify
the relationship between accounting policies and accounting estimates by specifying that a company develops
an accounting estimate to achieve the objective set out by an accounting policy. Furthermore, the amendments
clarify that a change in accounting estimate that results from new information or new developments is not
correction of an error. Effective January 1, 2023, the Company adopted the changes to IAS 8 and the adoption
of these amendments did not have a material impact on these Consolidated financial statements.
Amendments to IAS 12 Income Taxes — Deferred Tax related to Assets and Liabilities arising from a
Single Transaction
The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions
that give rise to equal taxable and deductible temporary differences such as deferred taxes on leases and
decommissioning obligations. Effective January 1, 2023, the Company adopted the changes to IAS 12 and the
adoption of these amendments did not have a material impact on these Consolidated financial statements.
Amendments to IAS 12 Income Taxes — International Tax Reform — Pillar Two Model Rules
In May 2023, the IASB amended IAS 12 Income Taxes to include a temporary exception to the requirements to
recognize and disclose information about deferred tax assets and liabilities related to the new global minimum
tax regime ("Pillar Two"). The Company has applied this temporary exception.
Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions in which the Company
operates. Certain jurisdictions of the Organization for Economic Co-operation and Development (“OECD”) have
agreed to implement a new global minimum tax regime 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.
The Company has performed an assessment of its potential exposure to Pillar Two income taxes. The
assessment of the potential exposure to Pillar Two income taxes is based on the most recent tax filings,
country-by-country reporting and financial statements for the constituent entities in the Company. Based on the
assessment, the effective tax rates calculated in accordance with Pillar Two in most of the jurisdictions in which
the Company operates are above 15%. However, there are a limited number of jurisdictions where the
transitional safe harbour relief does not apply and effective tax rates calculated in accordance with the Pillar
Two are close to 15%. The Company does not expect a material exposure to Pillar Two income taxes in those
jurisdictions.
Standards, Amendments and Interpretations Issued but not yet Adopted
The following new standards, amendments and interpretations have been issued but are not effective for the
year ended December 31, 2023 and, accordingly, have not been adopted. The Company is currently assessing
the impact, if any, on the Consolidated financial statements.
Amendment to IFRS 16 Leases — Lease Liability in a Sale and Leaseback
The amendments to IFRS 16 add subsequent measurement requirements for sale and leaseback transactions
that satisfy the requirements in IFRS 15 to be accounted for as a sale. The amendments require the seller-
lessee to determine 'lease payments' or 'revised lease payments' such that the seller-lessee does not
recognize a gain or loss that relates to the right of use retained by the seller-lessee, after the commencement
date. The amendments are effective for annual reporting periods beginning on or after January 1, 2024. The
Company is currently assessing the impact of the standard on its consolidated financial statements.
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Amendments to IAS 1 Presentation of Financial Statements — Non-current Liabilities with Covenants
The amendments specify that only covenants that an entity is required to comply with on or before the end of
the reporting period affect the entity’s right to defer settlement of a liability for at least twelve months after the
reporting date (and therefore must be considered in assessing the classification of the liability as current or
non-current). Such covenants affect whether the right exists at the end of the reporting period, even if
compliance with the covenant is assessed only after the reporting date (e.g. a covenant based on the entity’s
financial position at the reporting date that is assessed for compliance only after the reporting date).
The IASB also specifies that the right to defer settlement of a liability for at least twelve months after the
reporting date is not affected if an entity only has to comply with a covenant after the reporting period. However,
if the entity’s right to defer settlement of a liability is subject to the entity complying with covenants within twelve
months after the reporting period, an entity discloses information that enables users of financial statements to
understand the risk of the liabilities becoming repayable within twelve months after the reporting period. This
would include information about the covenants (including the nature of the covenants and when the entity is
required to comply with them), the carrying amount of related liabilities and facts and circumstances, if any, that
indicate that the entity may have difficulties complying with the covenants.
The amendments are applied retrospectively for annual reporting periods beginning on or after January 1,
2024. The Company is currently assessing the impact of the standard on its consolidated financial statements.
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and
Joint Ventures—Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets
between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses
resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an
associate or a joint venture that is accounted for using the equity method, are recognized in the parent’s profit
or loss only to the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains
and losses resulting from the remeasurement of investments retained in any former subsidiary (that has
become an associate or a joint venture that is accounted for using the equity method) to fair value are
recognized in the former parent’s profit or loss only to the extent of the unrelated investors’ interests in the new
associate or joint venture. The effective date of the amendments has yet to be set by the IASB. The Company
is currently assessing the impact of the standard on its consolidated financial statements.
Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures—
Supplier Finance Arrangements
The amendments add a disclosure objective to IAS 7 stating that an entity is required to disclose information
about its supplier finance arrangements that enables users of financial statements to assess the effects of
those arrangements on the entity’s liabilities and cash flows. In addition, IFRS 7 was amended to add supplier
finance arrangements as an example within the requirements to disclose information about an entity’s exposure
to concentration of liquidity risk. The amendments, which contain specific transition reliefs for the first annual
reporting period in which an entity applies the amendments, are applicable for annual reporting periods
beginning on or after January 1, 2024. The Company is currently assessing the impact of the standard on its
consolidated financial statements.
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates—Lack of Exchangeability
The amendments clarify:
a.
b.
when a currency is exchangeable into another currency; and
how a company estimates a spot rate when a currency lacks exchangeability.
A currency is exchangeable into another currency when a company is able to exchange that currency for the
other currency at the measurement date and for a specified purpose. When a currency is not exchangeable, a
company needs to estimate a spot rate. When estimating a spot rate, a company can use an observable
exchange rate without adjustment or another estimation technique or another estimation technique. The
amendment also requires companies to provide new disclosures to help users assess the impact of using an
estimated exchange rate on the financial statements.The amendments apply for annual reporting periods
beginning on or after January 1, 2025. The Company is currently assessing the impact of the standard on its
consolidated 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, 2023, the Company is committed under outstanding foreign exchange contracts
representing a total net sell commitment of $74.7 million (December 31, 2022 - net sell commitment of $20.3
million). These foreign exchange contracts have maturity dates varying from March 2024 to March 2025. The
fair value of foreign exchange forward contracts at December 31, 2023 resulted in an unrealized gain of $4.1
million, which is recorded in Other assets (2022 - $1.7 million) and an unrealized loss of $2.3 million recorded in
accrued liabilities (2022 - $6.3 million). For the year ended December 31, 2023, net realized losses on the
Company’s matured foreign exchange contracts were $8.7 million (2022 - realized gains of $3.1 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, 2023 is recorded in Other assets at
$3.7 million (December 31, 2022 - $3.9 million) with $0.1 million of net unrealized gain (2022 - net unrealized
gain of $nil) recognized in Other expense, net in the Consolidated statements of earnings and comprehensive
income for the year ended December 31, 2023. For the year ended December 31, 2023, the Company
recognized $0.1 million (2022 - $0.1 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,
2023
3.0
8.3
11.3
2022
3.0
5.8
8.8
For the year ended December 31, 2023, there were no gains or losses (2022 - $0.5 million loss) recognized for
the 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, 2023, there were no gains or losses (2022 - $0.1 million gain) recognized for
Minority interest and other investments classified as FVTOCI in the Consolidated statements of earnings and
comprehensive income within Other comprehensive gain (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.
65
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, 2023 and have concluded that the Company's
DC&P was effective as at December 31, 2023.
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, 2023 and have concluded that the Company's ICFR
was effective as at December 31, 2023.
There have been no changes in the Company’s ICFR during the year ended December 31, 2023 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:
Toy Gross Product Sales, excluding Melissa & Doug
Adjusted EBITDA
Adjusted Operating Income (Loss)
Adjusted Net Income (Loss)
Free Cash Flow
Toy Gross Product Sales
•
•
•
•
•
• Melissa & Doug Toy Gross Product Sales
•
• Melissa & Doug Revenue
•
•
•
•
•
•
•
•
•
•
Consolidated Revenue, excluding Melissa & Doug
Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue
Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution Revenue
Constant Currency Toy Gross Product Sales
Constant Currency Sales Allowances
Constant Currency Digital Games Revenue
Constant Currency Entertainment 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:
•
•
•
•
•
•
•
•
•
•
•
•
• Melissa & Doug Adjusted EBITDA Margin
•
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 Entertainment Revenue
Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue
Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue
Adjusted EBITDA Margin, excluding Melissa & Doug
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.
67
Non-GAAP Financial Measures
Adjusted EBITDA is calculated as Operating Income before interest income and interest expense and
depreciation and amortization (EBITDA) excluding adjustments that do not necessarily reflect the Company’s
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 or loss
on investment, impairment of property, plant and equipment, legal settlement, transaction cost and gain on
disposal of asset. 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 (Loss) 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, advance paid for business
acquisitions, asset acquisitions, investment in limited partnership, Minority interest and other investments,
proceeds from sale of manufacturing operations and net of investment distribution income. Management uses
the Free Cash Flow metric to analyze the cash flows being generated by the Company’s business. 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 categories 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, 2023, and the "Reconciliation of Non-GAAP Financial Measures" section for the previous
eight fiscal quarters.
Melissa & Doug Toy Gross Product Sales represent Toy revenues contributed by Melissa & Doug, excluding the
impact of Sales Allowances, to measure the underlying financial performance of the business on a consistent
basis over time.
Toy Gross Product Sales, excluding Melissa & Doug represent Toy revenues, excluding Melissa & Doug Toy
Gross Product Sales and the impact of Sales Allowances, to measure the underlying financial performance of
the business on a consistent basis over time.
Melissa & Doug Revenue represent revenue contributed by Melissa & Doug, to measure the underlying
financial performance of the business on a consistent basis over time.
Consolidated Revenue, excluding Melissa & Doug is calculated as revenue excluding Melissa & Doug
Revenue, to measure the underlying financial performance of the business on a consistent basis over time.
68
Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue is calculated as revenue excluding
distribution revenue of $15.6 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 Mighty Movie Distribution Revenue is calculated as Adjusted
EBITDA excluding distribution revenue of $15.6 million related to PAW Patrol: The Mighty Movie. Adjusted
EBITDA, excluding PAW Patrol: The Mighty 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 Sales Allowances, Constant Currency Toy
Revenue, Constant Currency Entertainment Revenue, Constant Currency Digital Games Revenue, and
Constant Currency Revenue represent Toy Gross Product Sales, Sales Allowance, Toy revenue, Entertainment
revenue, Digital Games 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 Sales Allowances, Constant Currency Toy Revenue,
Constant Currency Entertainment Revenue, Constant Currency Digital Games 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, 2023 as compared to the same
period in 2022 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, 2023 as compared to the same
period in 2022 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 (Loss) by the weighted average number of
shares outstanding during the period. Adjusted Diluted EPS is calculated by dividing Adjusted Net Income
(Loss) by the weighted average number of common shares outstanding, assuming the conversion of all dilutive
69
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 a 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.
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 Sales Allowances is calculated by dividing the change in Sales
Allowances excluding the impact from changes in foreign currency exchange rates by the Sales Allowances of
the comparative period. Management uses Percentage change in Constant Currency Sales Allowances 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 Toy Revenue is calculated by dividing the change in Toy Revenue
excluding the impact from changes in foreign currency exchange rates by the Toy Revenue of the comparative
period. Management uses Percentage change in Constant Currency Toy 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 Entertainment Revenue is calculated by dividing the change in
Entertainment revenue excluding the impact from changes in foreign currency exchange rates by the
Entertainment revenue of the comparative period. Management uses Percentage change in Constant Currency
Entertainment 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 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.
Adjusted EBITDA Margin, excluding PAW Patrol: The Mighty Movie Distribution Revenue is calculated as
Adjusted EBITDA excluding PAW Patrol: The Mighty Movie Distribution Revenue divided by Revenue,
excluding PAW Patrol: The Mighty Movie Distribution Revenue. Management uses Adjusted EBITDA Margin
excluding PAW Patrol: The Mighty 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
Melissa & Doug Adjusted EBITDA Margin is calculated as Melissa & Doug Adjusted EBITDA divided by Melissa
& Doug Revenue. Melissa & Doug Adjusted EBITDA is calculated as Operating Income before interest income
and interest expense and depreciation and amortization (EBITDA) contributed by Melissa and Doug and
adjustments that do not necessarily reflect the Melissa & Doug's underlying financial performance. These
adjustments include restructuring and other related costs, foreign exchange gains or losses, share based
compensation expenses, impairment of intangible assets, impairment of goodwill, investment distribution
income, loss on investments, net unrealized gain or loss on investment, impairment of property, plant and
equipment, legal settlement, transaction cost and gain on disposal of asset. Management uses Melissa & Doug
Adjusted EBITDA Margin to measure the underlying financial performance of the business on a consistent
basis over time.
Adjusted EBITDA Margin, excluding Melissa & Doug is calculated as Adjusted EBITDA excluding Melissa &
Doug Adjusted EBITDA Margin, to measure the underlying financial performance of the business on a
consistent basis over time.
71
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, 2023, 2022 and 2021:
(in US$ millions)
Net income
Income tax expense
Interest (income) expense
Depreciation and amortization expenses
EBITDA
Operating income
Impairment of goodwill1
Share based compensation2
Restructuring and other related costs3
Foreign exchange loss (gain)4
Transaction costs5
Impairment of intangible assets6
Acquisition related deferred incentive compensation7
Loss on Minority interest and other investments8
Acquisition related contingent consideration9
Legal settlement recovery10
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 Mighty Movie in 2023 and
PAW Patrol: The Movie in 2021
Adjusted EBITDA, excluding PAW Patrol: The Mighty Movie Distribution
Revenue in 2023 and PAW Patrol: The Movie Distribution Revenue in 2021
Distribution revenue related to PAW Patrol: The Mighty Movie in 2023 and
PAW Patrol: The Movie in 2021
Income tax expense
Interest income (expense)
Depreciation and amortization
One-time income tax recovery15
Tax effect of adjustments16
Adjusted Net Income
Year Ended Dec 31,
2023
2022
2021
151.4
261.3
198.6
49.8
(12.3)
130.1
319.0
188.9
26.7
20.1
18.1
14.7
11.1
8.2
7.6
—
(6.8)
(0.6)
0.9
—
(0.1)
(0.1)
79.1
2.9
68.2
411.5
343.3
—
17.6
4.9
(61.4)
1.0
1.1
10.3
0.5
2.6
(0.5)
1.9
—
(0.1)
—
288.7
130.1
418.8
321.2
68.2
389.4
63.4
10.2
111.9
384.1
272.2
1.9
15.3
2.5
(2.9)
2.8
2.6
6.8
—
2.7
—
—
(0.2)
(0.6)
(0.9)
302.2
111.9
414.1
(15.6)
—
(26.0)
403.2
389.4
388.1
15.6
(49.8)
12.3
(130.1)
(0.9)
(25.1)
225.2
—
(79.1)
(2.9)
(68.2)
—
5.1
26.0
(63.4)
(10.2)
(111.9)
—
(7.3)
244.3
221.3
1 Impairment of goodwill associated with assets held for sale and three CGUs. See Note 17 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 Restructuring and other related costs in the current year relates to the reduction in the Company's global workforce and closure of
its manufacturing facility in Calais, France. Prior year's amounts relate to changes in personnel. See Note 8 of the Consolidated
financial statements
4 Includes foreign exchange losses (gains) generated by the translation and settlement of monetary assets/liabilities denominated in
a currency other than the functional currency of the applicable entity and losses (gains) related to the Company's hedging programs.
See Note 9 of the Consolidated financial statements.
5 Professional fees incurred relating to acquisitions (including Melissa & Doug) and other transactions.
6 Impairment of intangible assets related to content development projects, app development projects and components of computer
software. See Note 16 of the Consolidated financial statements
7 Deferred incentive compensation associated with acquisitions. See Note 6 of the Consolidated financial statements.
8 Fair value loss on the Minority interest and other investments classified as FVTPL.
9 (Recovery) expense for acquisition related contingent consideration. See Note 6 of the Consolidated financial statements.
10 Legal settlement in the first, second and fourth quarters of 2022. See Note 6 of the Consolidated financial statements.
11 Impairment of property plant and equipment related to Tooling. See Note 15 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 29 of the Consolidated financial statements.
14 Net unrealized gain related to investment in limited partnership. See Note 29 of the Consolidated financial statements.
15 Adjustment of one-time income tax recovery (net of one-time income tax expense).
16 Tax effect of adjustments (Footnotes 1-14). Adjustments are tax effected at the effective tax rate of the given period.
72
The following table provides reconciliations of Operating (Loss) Income to Adjusted Operating Income (Loss),
Adjusted EBITDA, Adjusted EBITDA excluding PAW Patrol: The Mighty Movie Distribution Revenue, and
Adjusted Net Income for the previous eight fiscal quarters:
(in US$ millions)
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Operating (Loss) Income
(36.6)
197.2
34.4
(6.1)
(24.0)
187.4
118.2
61.7
Share based compensation1
Foreign exchange loss (gain)2
Restructuring and other related costs
(recovery)3
Acquisition related deferred incentive
compensation4
Impairment of intangible assets5
Impairment of goodwill6
Transaction costs7
Impairment of property, plant and
equipment8
Legal settlement (recovery) expense
Net unrealized loss (gain) on
investment9
Net realized (gain) loss on investment10
Loss on Minority interest and other
investments11
Acquisition related contingent
consideration12
Adjusted Operating Income (Loss)
Depreciation and amortization
Adjusted EBITDA
Distribution revenue related to PAW
Patrol: The Mighty Movie13
Adjusted EBITDA, excluding PAW
Patrol: The Mighty Movie Distribution
Revenue
Income tax recovery (expense)
Interest income (expense)
Depreciation and amortization
One-time income tax expense
(recovery)14
Tax effect of normalization adjustments15
Adjusted Net Income
4.8
5.1
4.8
18.2
(19.2)
11.4
5.4
4.3
4.7
4.8
4.3
4.5
(43.5)
(32.3)
3.8
0.8
9.7
3.8
(0.2)
—
4.5
1.6
1.8
2.1
2.1
2.2
2.8
2.6
5.8
25.7
3.8
0.2
—
5.2
0.7
—
(0.1)
(0.7)
1.0
—
1.5
—
—
0.2
—
(0.3)
—
—
(0.2)
0.1
—
—
1.2
1.0
0.6
1.1
—
0.2
—
—
0.3
—
—
0.4
0.2
0.9
1.0
—
0.2
1.6
—
—
—
0.1
—
—
—
—
—
—
(0.1)
(0.1)
0.5
(0.6)
(1.5)
4.1
9.6
0.6
2.7
—
—
0.1
—
—
—
—
—
(4.7)
—
(2.1)
—
3.1
(0.5)
—
23.2
190.2
41.7
44.7
64.9
234.9
62.6
25.8
88.4
12.7
17.9
30.6
(5.5)
151.8
17.9
15.8
97.6
16.1
12.4
167.6
113.7
77.3
18.4
95.7
—
(15.6)
—
—
—
—
—
—
64.9
219.3
88.4
30.6
12.4
167.6
113.7
95.7
3.4
3.1
(44.2)
2.4
(9.6)
3.2
0.6
3.6
8.5
1.7
(45.6)
(27.8)
(14.2)
(0.4)
(2.3)
(1.9)
(41.7)
(44.7)
(25.8)
(17.9)
(17.9)
(15.8)
(16.1)
(18.4)
5.7
(6.6)
—
—
—
—
—
—
(14.9)
1.8
20.5
143.6
(7.4)
48.8
(4.6)
12.3
(4.7)
8.6
4.9
—
114.4
72.4
(3.7)
57.5
1 Related to non-cash expenses associated with the Company's share option expense and long-term incentive plan.
2 Includes foreign exchange losses (gains) generated by the translation and settlement of monetary assets/liabilities denominated in
a currency other than the functional currency of the applicable entity and losses (gains) related to the Company's hedging programs.
3 Restructuring expense in the current year relates to the reduction in the Company's global workforce and closure of its
manufacturing facility in Calais, France. Prior year's amounts relate to changes in personnel.
4 Deferred incentive compensation associated with acquisitions.
5 Impairment of intangible assets related to content development projects and computer software.
6 Impairment of goodwill associated with three CGUs.
7 Professional fees incurred relating to acquisitions (including Melissa & Doug) and other transactions.
8 Impairment of property plant and equipment related to tooling.
9 Net unrealized (gain) loss related to investment in limited partnership.
10 Net realized loss (gain) related to investment in limited partnership, net of distribution income.
11 Fair value loss on the Minority interest and other investments classified as FVTPL.
12 Expense associated with contingent consideration for acquisitions.
13 Distribution revenue related to PAW Patrol: The Mighty Movie recognized in Q3 2023 within Entertainment segment.
14 Adjustment of one-time income tax recovery (expense).
15 Tax effect of adjustments (Footnotes 1-13). Adjustments are tax effected at the effective tax rate of the given period.
73
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, 2023, 2022 and 2021:
(US$ millions)
Cash provided by operating activities
Cash used in investing activities
Year Ended Dec 31,
2023
2022
2021
227.0
(135.3)
249.3
(109.2)
419.1
(153.2)
2.5
10.6
26.5
Add:
Business acquisitions, net of cash acquired1
Minority interest and other investments2
Investment in limited partnership3
Advance paid for business acquisitions4
Investment in trademark license agreement
Proceeds from sale of investments5
Investment distribution income6
Free Cash Flow
1 Cash paid relating to acquisitions of 4D Brands International Inc. and Innovation First International Inc. in 2023 (2022 - SolidRoots and Nørdlight,
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 2023, 2022 and 2021.
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 in Calais, France in Q4 2023 (Tarboro, North Carolina in Q1 2022).
6 Distribution income earned relating to the investment in a limited partnership.
122.9
149.9
(0.3)
(9.2)
(0.1)
(0.8)
3.3
7.5
1.0
—
—
—
—
70.9
2.4
1.0
—
—
—
(0.6)
339.6
The following table provides reconciliations from Cash provided by (used in) operating activities and Cash used
in investing activities to Free Cash Flow for the previous eight fiscal quarters:
(in US$ millions)
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Cash provided by (used in) operating
activities
67.9
144.3
19.1
(4.3)
(6.8)
207.3
111.6
(62.9)
Cash used in investing activities
(23.3)
(25.1)
(30.3)
(56.6)
(28.2)
(42.3)
(30.4)
(8.3)
Add (Deduct):
—
—
—
0.4
26.5
10.2
—
—
—
—
—
—
—
—
3.3
Business acquisitions, net of cash
acquired1
Asset acquisition2
Advance paid for business acquisitions3
Investment distribution income4
Minority interest and other investments5
Proceeds from sale of manufacturing
operations6
Free Cash Flow
1 Cash paid relating to acquisitions of 4D Brands and HEXBUG, both in Q1 2023 (2022 - SolidRoots and Nørdlight, both in Q3 2022).
2 Cash paid for the assets acquired from a games and puzzles company.
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.
6 Cash received for the sale of manufacturing assets in Calais, France in Q4 2023 (Tarboro, North Carolina in Q1 2022).
118.9
175.3
(30.1)
(34.4)
44.3
(0.8)
(5.9)
(0.3)
2.0
3.5
1.0
0.5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(0.1)
84.1
3.0
—
1.0
(9.2)
—
—
—
—
(79.4)
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
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
502.3
678.6
390.0
216.3
479.2
617.7
484.4
397.5
(95.5)
(77.1)
(43.7)
(30.0)
(82.5)
(65.3)
(46.8)
(46.6)
406.8
601.5
346.3
186.3
396.7
552.4
437.6
350.9
55.2
40.6
63.4
45.3
33.9
40.5
37.6
47.5
31.2
37.9
37.0
34.6
28.4
40.3
22.2
51.1
502.6
710.2
420.7
271.4
465.8
624.0
506.3
424.2
The following table presents a reconciliation of Revenue to Revenue, excluding PAW Patrol: The Mighty Movie
Distribution Revenue for the previous eight fiscal quarters:
(in US$ millions)
Q4
2023
Q3
2023
Q2
2023
Q1
2023
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Revenue
502.6
710.2
420.7
271.4
465.8
624.0
506.3
424.2
Distribution revenue related to PAW
Patrol: The Mighty Movie
Revenue, excluding PAW Patrol: The
Mighty Movie Distribution Revenue
—
(15.6)
—
—
—
—
—
—
502.6
694.6
420.7
271.4
465.8
624.0
506.3
424.2
The following table presents a reconciliation of Revenue to Revenue, excluding PAW Patrol: The Mighty Movie
Distribution Revenue for the year ended December 31, 2023 and 2022:
(US$ millions)
Revenue
Distribution revenue related to PAW Patrol: The Movie
Revenue, excluding PAW Patrol: The Mighty Movie Distribution Revenue
Year Ended Dec 31,
2023
2022
1,904.9 $
2,020.3
(15.6)
—
1,889.3 $
2,020.3
$
$
75
The following tables present reconciliations of Revenue to Constant Currency Toy Gross Product Sales,
Revenue to Constant Currency Entertainment revenue and Revenue to Constant Currency Digital Games
Revenue for the three months and year ended December 31, 2023 and 2022:
Year Ended Dec 31,
(US$ millions)
Q4 2023
Q4 2022
Constant Currency Toy Gross Product Sales
Impact of foreign exchange
Toy Gross Product Sales
Constant Currency Sales Allowances
Impact of foreign exchange
Sales Allowances
Toy revenue
Constant Currency Entertainment revenue
Impact of foreign exchange
Entertainment revenue
Constant Currency Digital Games revenue
Impact of foreign exchange
Digital Games revenue
Constant Currency Revenue
Impact of foreign exchange
Revenue
490.6
11.7
502.3
(92.5)
(3.0)
(95.5)
406.8
55.3
(0.1)
55.2
40.5
0.1
40.6
493.9
8.7
502.6
498.3
(19.1)
479.2
(87.4)
4.9
(82.5)
396.7
33.2
(2.0)
31.2
40.1
(2.2)
37.9
484.2
(18.4)
465.8
2023
1,763.1
24.1
1,787.2
(240.2)
(6.1)
(246.3)
1,540.9
190.1
—
190.1
176.6
(2.7)
173.9
1,889.6
15.3
1,904.9
2022
2,030.6
(51.8)
1,978.8
(254.6)
13.4
(241.2)
1,737.6
123.2
(4.4)
118.8
171.9
(8.0)
163.9
2,071.1
(50.8)
2,020.3
The following tables present the composition of Percentage change in Constant Currency Toy Gross Product
Sales, Percentage change in Constant Currency Sales Allowance, Percentage change in Constant Currency
Entertainment Revenue, Percentage change in Percentage change in Constant Currency Digital Games
Revenue and Percentage change in Constant Currency Revenue for the three months and year ended
December 31, 2023 and 2022:
(US$ millions)
Q4 2023
Q4 2022
Toy Gross Product
Sales
Sales Allowances
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
502.3
(95.5)
406.8
55.2
40.6
502.6
479.2
(82.5)
396.7
31.2
37.9
465.8
Year Ended Dec 31,
(US$ millions)
2023
2022
$ Change
Impact of
foreign
exchange
As
reported
23.1
(11.7)
(13.0)
10.1
24.0
2.7
36.8
3.0
(8.7)
0.1
(0.1)
(8.7)
% Change
In
Constant
Currency
As
reported
In
Constant
Currency
11.4
(10.0)
1.4
24.1
2.6
28.1
4.8 %
15.8 %
2.5 %
76.9 %
7.1 %
7.9 %
2.4 %
12.1 %
0.4 %
77.2 %
6.9 %
6.0 %
$ Change
Impact of
foreign
exchange
As
reported
% Change
In
Constant
Currency
As
reported
In
Constant
Currency
Toy Gross Product
Sales
Sales Allowances
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
1,787.2
(246.3)
1,540.9
190.1
173.9
1,904.9
1,978.8
(241.2)
1,737.6
118.8
163.9
(191.6)
(24.1)
(215.7)
(5.1)
6.1
1.0
(9.7) %
2.1 %
(196.7)
(18.0)
(214.7)
(11.3) %
71.3
10.0
—
2.7
71.3
12.7
60.0 %
6.1 %
(5.7) %
2,020.3
(115.4)
(15.3)
(130.7)
(10.9) %
(0.4) %
(12.4) %
60.0 %
7.7 %
(6.5) %
76
ADDENDUM
Effective January 1, 2024, Spin Master has changed its product categories to align with the Company's product
offerings going forward. The following table restates 2023 Toy Gross Product Sales1 in the same format that the
Company presents Toy Gross Product Sales1 in 2024:
(US$ millions)
Preschool, Infant & Toddler and Plush
Activities, Games & Puzzles and Dolls & Interactive
Wheels & Action
Outdoor
Gross Product Sales1
Q1 2023
Q2 2023
Q3 2023
Q4 2023
Total
$
$
$
$
$
82.6 $
62.6 $
43.7 $
27.4 $
164.9 $
301.4 $
169.3 $
109.7 $
218.7 $
196.0 $
101.1 $
151.2 $
113.3 $
14.3 $
7.3 $
23.7 $
718.2
587.0
409.3
72.7
216.3 $
390.0 $
678.6 $
502.3 $ 1,787.2
77
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 acquisition of
Melissa & Doug, including its expected impact on the Company's business, financial performance and creation
of value; the Company's outlook for 2024; future financial performance and growth expectations, as well as the
drivers and trends in respect thereof; the Company's priorities, plans and strategies; content, digital game and
product pipeline and launches, as well as their impacts; deployment of cash; dividend policy and future
dividends; financial position, cash flows, liquidity and financial performance; the creation of long term
shareholder value; and the Company’s intention to commence the Bid, the timing, quantity and funding of any
purchases of subordinate voting shares under the Bid and the ASPP, and the expected facilities through which
any such purchases may be made.
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 will be able to successfully integrate the
acquisition; the Company will be able to successfully expand its portfolio across new channels and formats, and
internationally; achieve other expected benefits through this acquisition; management’s estimates and
expectations in relation to future economic and business conditions and other factors in relation to the
Company's financial performance in addition to the proposed transaction and resulting impact on growth in
various financial metrics; the realization of the expected strategic, financial and other benefits of the proposed
transaction in the timeframe anticipated; the absence of significant undisclosed costs or liabilities associated
with the proposed transaction; Melissa & Doug’s business will perform in line with the industry; there are no
material changes to Melissa & Doug’s core customer base; implementation of certain information technology
systems and other typical acquisition related cost savings; 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, maintain and renew broader
licenses from third parties for premiere children's properties consistent with past practices, and the success of
the licenses; 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; the Company will be able to continue to
develop and distribute entertainment content in the form of movies, TV shows and short form content; the
Company will be able to continue to design, develop and launch mobile digital games to be distributed globally
via app stores;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; the Company's key personnel will continue to be involved in the
Company products, mobile digital games and entertainment properties will be launched as scheduled; and the
availability of cash for dividends 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
78
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, risks relating to the inability to successfully
integrate the Melissa & Doug business; the potential failure to realize anticipated benefits from the proposed
transaction; concentration of manufacturing and geopolitical risks; uncertainty and adverse changes in general
economic conditions and consumer spending habits 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.sedarplus.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,including the expected performance of the Company and Melissa & Doug. 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, 2023 and December 31, 2022
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
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 - 55
Deloitte LLP
Bay Adelaide East
8 Adelaide Street West
Suite 200
Toronto ON M5H 0A9
Canada
Tel: 416-601-6150
Fax: 416-601-6151
www.deloitte.ca
Independent Auditor's Report
To the Shareholders 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, 2023 and 2022, and the consolidated statements of earnings and comprehensive
income, changes in shareholders' equity and cash flows for the years then ended, and notes to the consolidated financial statements,
including material accounting policy information (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, 2023 and 2022, 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
section of our
under those standards are further described in the
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, 2023. 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.
Provisions for sales allowances - Refer to Notes 2F, 3D and 12 to the financial statements
Key Audit Matter Description
The Company routinely enters into arrangements with its customers to provide sales incentives, support customer promotional
activities and provide compensation for defective merchandise. Such arrangements are considered variable consideration for revenue
recognition purposes, and the Company uses the expected value method to quantify the variable consideration. A sales allowance is
established to reflect amounts for programs which can be contractual or discretionary by nature. Contractual allowances are fixed and
determinable at the time of sale, which do not require management to make significant judgments. The determination of the
provisions for discretionary sales allowances are impacted by various current and forward-looking factors including customer sales
volumes, channel inventory positions, product performance at retail, historical performance, market conditions and other
considerations.
Given the significant judgments made by management to estimate the provisions for discretionary sales allowances, performing audit
procedures to evaluate their reasonableness required a high degree of auditor judgment and an increased extent of audit effort.
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to the determination of the provisions for discretionary sales allowances included the following
procedures, among others:
Evaluated management's methods 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
Toronto, Ontario
February 28, 2024
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
Non-current assets1
Intangible assets1
Goodwill
Right-of-use assets
Property, plant and equipment
Deferred income tax assets
Other assets
Total assets1
Liabilities
Current liabilities1
Trade payables and accrued liabilities
Provisions
Lease liabilities
Deferred revenue
Income tax payable1
Non-current liabilities
Deferred income tax liabilities
Lease liabilities
Provisions
Total liabilities1
Shareholders’ equity
Share capital
Retained earnings1
Contributed surplus
Accumulated other comprehensive income (loss)
Total shareholders’ equity1
Total liabilities and shareholders’ equity1
1 December 31, 2022 restated for the change in accounting policy (see Note 4).
Approved by the Board of Directors on February 28, 2024.
The accompanying notes on pages 8 to 55 are an integral part of these Consolidated financial statements.
1
Notes
Dec 31,
2023
Dec 31,
20221
11
12
12
13
14
16
17
26
15
10
14
18
21
26
19
10
10
26
21
22
705.7
414.4
60.0
98.0
40.9
1,319.0
281.3
165.9
53.6
32.6
110.8
26.5
670.7
1,989.7
385.4
32.1
11.4
11.0
6.6
446.5
59.1
50.7
14.3
124.1
570.6
783.4
604.5
27.4
3.8
1,419.1
1,989.7
644.3
311.0
49.5
105.1
22.3
1,132.2
279.8
179.0
62.9
36.0
94.7
20.5
672.9
1,805.1
339.4
30.7
16.3
11.5
29.7
427.6
55.7
54.9
15.1
125.7
553.3
754.7
477.4
40.7
(21.0)
1,251.8
1,805.1
4
Spin Master Corp.
Consolidated statements of earnings and comprehensive income
(in US$ millions, except earnings per share)
Notes
Year Ended Dec 31,
2023
2022
Revenue
Cost of sales
Gross profit
Expenses
Selling, general and administrative
Depreciation and amortization
Other expense, net
Foreign exchange loss (gain), net
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
Items that may be subsequently reclassified to Net Income
Foreign currency translation gain (loss)
Items that are not subsequently reclassified to Net Income
Gain on minority interest and other investments
Other comprehensive gain (loss)
Total comprehensive income
5
8
8
6
9
7
7
10
23
23
23
23
1,904.9
866.5
1,038.4
2,020.3
916.5
1,103.8
775.7
25.4
33.7
14.7
188.9
(27.4)
15.1
201.2
49.8
151.4
1.46
1.43
103.5
105.7
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
Year Ended Dec 31,
2023
151.4
2022
261.3
24.8
(79.8)
—
24.8
176.2
0.1
(79.7)
181.6
14, 29
The accompanying notes on pages 8 to 55 are an integral part of these Consolidated financial statements.
5
Spin Master Corp.
Consolidated statements of changes in shareholders' equity
(in US$ millions)
Balance at January 1, 2022
Change in accounting policy
Balance at January 1, 2022 (restated)1
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
Balance at January 1, 20231
Net Income
Other comprehensive income - foreign currency
translation
Share-based compensation
Dividends declared
Shares issued upon settlement of long-term
incentive plan
Subordinate voting shares purchased and cancelled
Note
4
22
22
22
22
22
22
22
22
Share
capital
Retained
earnings
Contributed
surplus
Accumulated
other
comprehensive
income (loss)
Total
736.9
216.0
—
736.9
—
—
—
—
—
9.3
225.3
261.3
—
—
—
(9.2)
40.8
—
40.8
—
—
—
17.6
—
0.2
—
(0.1)
17.6
754.7
—
477.4
754.7
—
—
—
—
33.4
(4.7)
477.4
151.4
—
—
(18.5)
—
(5.8)
(17.6)
40.7
40.7
—
—
20.1
—
(33.4)
—
27.4
58.7
1,052.4
—
9.3
58.7
1,061.7
—
261.3
(79.8)
0.1
—
—
—
(79.8)
0.1
17.6
(9.2)
0.1
—
(21.0)
—
1,251.8
(21.0)
1,251.8
—
151.4
24.8
—
—
—
—
24.8
20.1
(18.5)
—
(10.5)
3.8
1,419.1
Balance at December 31, 2023
1 Restated for the change in accounting policy (see Note 4)
783.4
604.5
The accompanying notes on pages 8 to 55 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
Notes
Year Ended Dec 31,
2022
2023
151.4
261.3
Income tax expense
Interest income
Depreciation and amortization
Loss on disposal of non-current assets
Interest and accretion expense
Amortization of Facility fee costs
Gain on investment in limited partnership, net
Impairment of non-current assets
Loss on minority interest and other investments
Unrealized foreign exchange loss (gain), net
Share-based compensation expense
Net changes in non-cash working capital
Net change in non-cash 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
Minority interest and other investments
Proceeds from sale of non-current assets
Cash used in investing activities
Financing activities
Payment of lease liabilities
Dividends paid
Proceeds from issuance of common shares from exercise of share options
Repurchase of subordinate voting shares under the NCIB
Payment of financing costs related to the Facility
Cash used in financing activities
10
7
8
15, 16, 26.
7
7
29
15, 16, 17
6
9
22
24
15
16
28
29
14
26
22
22
22
14, 20
49.8
(27.4)
130.1
1.1
5.1
0.5
(0.4)
35.8
—
26.1
20.1
(105.1)
(2.1)
(93.6)
7.8
27.8
227.0
(28.0)
(79.4)
(26.5)
—
0.3
(2.5)
0.8
(135.3)
(14.9)
(18.4)
—
(10.5)
(0.3)
(44.1)
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)
Effect of foreign currency exchange rate changes on cash and cash equivalents
13.8
(38.2)
Net increase in cash and cash equivalents during the year
Cash and cash equivalents, beginning of the year
Cash and cash equivalents, end of the year
61.4
644.3
705.7
81.6
562.7
644.3
The accompanying notes on pages 8 to 55 are an integral part of these Consolidated financial statements.
7
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
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 material accounting policies
(A) Statement of compliance and basis of preparation and measurement
The Consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board ("IASB").
All financial information is presented in millions of United States dollars ("US$") and has been rounded to the
nearest hundred thousand, except as otherwise indicated.
These Consolidated financial statements were approved and authorized for issuance by the Board of Directors on
February 28, 2024.
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
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality
Judgements — Disclosure of Accounting Policies
The amendments to IAS 1 require that the Company discloses its material accounting policies instead of its
significant accounting policies. The amendments also clarify that accounting policies related to immaterial
transactions, other events or conditions are themselves immaterial and as such need not be disclosed, and not all
accounting policy information that relates to material transactions, other events or conditions is material to the
financial statements. Accounting policy information may be material because of the nature of the related
transactions, other events or conditions, even if the amounts are immaterial. Effective January 1, 2023, the
Company adopted the amendments to IAS 1 and IFRS Practice Statement 2. As a result of the adoption of these
amendments, there were no adjustments to the presentation or amounts recognized in these Consolidated financial
statements.
Amendments to IAS 8 Accounting Polices, Changes in Accounting Estimates and Errors — Definition of Accounting
Estimates
The amendments introduce a new definition for accounting estimates: clarifying that they are monetary amounts in
the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship
between accounting policies and accounting estimates by specifying that a company develops an accounting
estimate to achieve the objective set out by an accounting policy. Furthermore, the amendments clarify that a
change in accounting estimate that results from new information or new developments is not correction of an error.
Effective January 1, 2023, the Company adopted the changes to IAS 8 and the adoption of these amendments did
not have a material impact on these Consolidated financial statements.
Amendments to IAS 12 Income Taxes — Deferred Tax related to Assets and Liabilities arising from a Single
Transaction
The amendments narrow the scope of the initial recognition exemption so that it does not apply to transactions that
give rise to equal taxable and deductible temporary differences such as deferred taxes on leases and
decommissioning obligations. Effective January 1, 2023, the Company adopted the changes to IAS 12 and the
adoption of these amendments did not have a material impact on these Consolidated financial statements.
8
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (continued)
Amendments to IAS 12 Income Taxes — International Tax Reform — Pillar Two Model Rules
In May 2023, the IASB amended IAS 12 Income Taxes to include a temporary exception to the requirements to
recognize and disclose information about deferred tax assets and liabilities related to the new global minimum tax
regime ("Pillar Two"). The Company has applied this temporary exception.
Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions in which the Company
operates. Certain jurisdictions of the Organization for Economic Co-operation and Development (“OECD”) have
agreed to implement a new global minimum tax regime 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.
The Company has performed an assessment of its potential exposure to Pillar Two income taxes. The assessment
of the potential exposure to Pillar Two income taxes is based on the most recent tax filings, country-by-country
reporting and financial statements for the constituent entities in the Company. Based on the assessment, the
effective tax rates calculated in accordance with Pillar Two in most of the jurisdictions in which the Company
operates are above 15%. However, there are a limited number of jurisdictions where the transitional safe harbour
relief does not apply and effective tax rates calculated in accordance with the Pillar Two are close to 15%. The
Company does not expect a material exposure to Pillar Two income taxes in those jurisdictions.
(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.
(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.
9
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (continued)
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value.
Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the
business less accumulated impairment, if any. Goodwill is measured as the excess of the sum of the consideration
transferred, over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities
assumed. For the purposes of impairment testing, goodwill is allocated to each of the Company’s cash generating
units ("CGUs") or groups of CGUs that are expected to benefit from the combination.
(E) Goodwill
A CGU to which goodwill has been allocated is tested for impairment annually, or 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
10
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (continued)
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.
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.
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 years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (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 impairment.
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, 2023 and 2022, 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 years ended December 31, 2023 and December 31, 2022
2.
Summary of material 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 impairment, 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 years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (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
Lesser of trademark and license term or 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 impairment, if any.
Amortization is recognized on a straight-line basis over the estimated useful life of the intangible assets. The
estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of
any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives, such as brands that are acquired separately are carried at cost less
accumulated impairment.
Intangible assets acquired in a business combination
Intangible assets acquired in a business combination and recognized separately from goodwill are initially
recognized at their fair values at the acquisition date (which is regarded as their initial cost).
Subsequent to initial recognition, intangible assets acquired in business combinations are reported at cost less
accumulated amortization if applicable and accumulated impairment, on the same basis as intangible assets that
are acquired separately.
14
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (continued)
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:
•
•
•
•
•
•
the technical feasibility of completing the intangible asset so that it will be available for use or sale;
the intention to complete the intangible asset for use or sale;
the ability to use or sell the intangible asset;
how the intangible asset will generate probable future economic benefits;
the availability of adequate technical, financial and other resources to complete the development and to use or
sell the intangible asset; and
the ability to measure reliably the expenditure attributable to the intangible asset during its development.
The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred
from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-
generated intangible asset can be recognized, development expenditures are recognized in profit or loss in the
period in which they are incurred.
Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated
amortization and accumulated impairment, 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 amortized and charged to amortization
expense. The consumption of entertainment content development assets is measured through amortization
expense with rates ranging from 25% to 100% at the time of delivery for a full season. Entertainment content
development assets which are not fully amortized upon delivery are amortized at rates ranging from 50% to 75% of
the remaining balance annually thereafter depending on the expected future benefit attributed to the entertainment
content development assets.
Deferred revenue related to entertainment content development assets arises as a result of consideration received
in advance of the Company fulfilling its obligations.
Please refer to Note 4 for the change in accounting for entertainment content development assets.
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 definite life tangible and intangible assets
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.
15
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (continued)
Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying
amount of the asset (or CGU) is reduced to its recoverable amount. An impairment equal to the difference between
the carrying and recorded amounts is recognized immediately in profit or loss.
When an impairment subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised
estimate of its recoverable amount, provided that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment been recognized for the asset (or CGU) in prior years.
A reversal of an impairment is recognized immediately in profit or loss.
(N) Advances on royalties
The Company enters into license agreements with inventors and licensors for the use of their intellectual properties
in its products. These agreements may call for payment in advance for a portion of minimum guaranteed amounts.
Amounts paid in advance are initially recorded as an asset and subsequently expensed to net income or loss as
revenue from the related products is recognized. If all or a portion of an advance does not appear to be recoverable
through future use of the rights obtained under license, the non-recoverable portion is expensed immediately in
profit or loss.
(O) Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined by the first-in, first-out
method. Cost includes the purchase price and other costs, such as import duties, taxes and transportation costs.
Trade discounts and rebates are deducted from the purchase price. Net realizable value represents the estimated
selling price for inventories in the ordinary course of business, less all estimated costs of completion and costs
necessary to make the sale. Reserves for excess and obsolete inventory are based upon quantities on hand,
projected volumes from demand forecast and net realizable value. The impact of changes in inventory reserves is
reflected in cost of sales.
(P) Provisions
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.
16
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (continued)
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
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 years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (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 impairment directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are offset against the allowance account. Changes in the carrying
amount of the allowance account are recognized in profit or loss. Loss allowances are based on the lifetime
expected credit losses that result from all possible default events over the expected life of the trade receivable,
using the simplified approach.
For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized,
the previously recognized impairment is reversed through profit or loss to the extent that the carrying amount of the
investment at the date the impairment is reversed does not exceed what the amortized cost would have been had
the impairment not been recognized.
(T) Financial liabilities and equity instruments
Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in
accordance with the substance of the contractual arrangements and the definitions of a financial liability and an
equity instrument.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of
its liabilities. Equity instruments issued by the Company are recognized as the proceeds received, net of direct
issue costs.
Other financial liabilities
Other financial liabilities (including loans and borrowings and trade payables and other liabilities) are initially
measured at fair value, net of transaction costs. Subsequently, other financial liabilities are measured at amortized
cost using the effective interest method.
18
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (continued)
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) 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, 2023 and have not been early adopted by
the Company.
The Company is currently assessing the impact, if any, on the Consolidated financial statements.
Amendment to IFRS 16 Leases — Lease Liability in a Sale and Leaseback
The amendments to IFRS 16 add subsequent measurement requirements for sale and leaseback transactions that
satisfy the requirements in IFRS 15 to be accounted for as a sale. The amendments require the seller-lessee to
determine 'lease payments' or 'revised lease payments' such that the seller-lessee does not recognize a gain or
loss that relates to the right of use retained by the seller-lessee, after the commencement date. The amendments
are effective for annual reporting periods beginning on or after January 1, 2024. The Company is currently
assessing the impact of the standard on its consolidated financial statements.
Amendments to IAS 1 Presentation of Financial Statements — Non-current Liabilities with Covenants
The amendments specify that only covenants that an entity is required to comply with on or before the end of the
reporting period affect the entity’s right to defer settlement of a liability for at least twelve months after the reporting
date (and therefore must be considered in assessing the classification of the liability as current or non-current).
Such covenants affect whether the right exists at the end of the reporting period, even if compliance with the
covenant is assessed only after the reporting date (e.g. a covenant based on the entity’s financial position at the
reporting date that is assessed for compliance only after the reporting date).
The IASB also specifies that the right to defer settlement of a liability for at least twelve months after the reporting
date is not affected if an entity only has to comply with a covenant after the reporting period. However, if the entity’s
right to defer settlement of a liability is subject to the entity complying with covenants within twelve months after the
reporting period, an entity discloses information that enables users of financial statements to understand the risk of
the liabilities becoming repayable within twelve months after the reporting period. This would include information
about the covenants (including the nature of the covenants and when the entity is required to comply with them),
the carrying amount of related liabilities and facts and circumstances, if any, that indicate that the entity may have
difficulties complying with the covenants.
The amendments are applied retrospectively for annual reporting periods beginning on or after January 1, 2024.
The Company is currently assessing the impact of the standard on its consolidated financial statements.
19
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
2.
Summary of material accounting policies (continued)
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint
Ventures — Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets
between an investor and its associate or joint venture. Specifically, the amendments state that gains or losses
resulting from the loss of control of a subsidiary that does not contain a business in a transaction with an associate
or a joint venture that is accounted for using the equity method, are recognized in the parent’s profit or loss only to
the extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting
from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint
venture that is accounted for using the equity method) to fair value are recognized in the former parent’s profit or
loss only to the extent of the unrelated investors’ interests in the new associate or joint venture. The effective date
of the amendments has yet to be set by the IASB. The Company is currently assessing the impact of the standard
on its consolidated financial statements.
Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures — Supplier Finance
Arrangements
The amendments add a disclosure objective to IAS 7 stating that an entity is required to disclose information about
its supplier finance arrangements that enables users of financial statements to assess the effects of those
arrangements on the entity’s liabilities and cash flows. In addition, IFRS 7 was amended to add supplier finance
arrangements as an example within the requirements to disclose information about an entity’s exposure to
concentration of liquidity risk. The amendments, which contain specific transition reliefs for the first annual reporting
period in which an entity applies the amendments, are applicable for annual reporting periods beginning on or after
January 1, 2024. The Company is currently assessing the impact of the standard on its consolidated financial
statements.
Amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates — Lack of Exchangeability
The amendments clarify:
a.
b.
when a currency is exchangeable into another currency; and
how a company estimates a spot rate when a currency lacks exchangeability.
A currency is exchangeable into another currency when a company is able to exchange that currency for the other
currency at the measurement date and for a specified purpose. When a currency is not exchangeable, a company
needs to estimate a spot rate. When estimating a spot rate, a company can use an observable exchange rate
without adjustment or another estimation technique or another estimation technique. The amendment also requires
companies to provide new disclosures to help users assess the impact of using an estimated exchange rate on the
financial statements.The amendments apply for annual reporting periods beginning on or after January 1, 2025.
The Company is currently assessing the impact of the standard on its consolidated financial statements.
3.
Significant accounting judgments and estimates
In the application of the Company’s accounting policies, management is required to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
As these estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant, actual results may differ. The estimates and underlying assumptions are reviewed on an
ongoing basis. Adjustments are recognized in the period in which the estimate is modified if the change affects only
that period, or in the period the estimate is modified and future periods if the revision affects both current and future
periods.
Critical judgments in applying accounting policies
The Company has identified the following judgments, apart from estimates, which management has made in the
process of applying the Company’s accounting policies and which have the most significant effect on the amounts
recognized in the Consolidated financial statements.
(A) Determination of CGUs
A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely
independent of the cash inflows from other assets or groups of assets. Determining the impact of impairment
requires significant judgment in identifying which assets or groups of assets are CGUs of the Company.
20
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
3.
Significant accounting judgments and estimates (continued)
(B) Functional currency
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at
exchange rates as of the dates the transactions occur. Monetary assets and liabilities denominated in foreign
currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.
Determining the appropriate functional currencies for entities in the Group requires analysis of various factors,
including the currencies and country-specific factors that mainly influence sales prices, and the currencies that
mainly influence labour, materials and other costs of providing goods or services.
Significant estimates and assumptions
The Company has identified the following accounting policies under which significant judgments, estimates and
assumptions are made, where actual results may differ from these estimates under different assumptions and
conditions, and which may materially affect the Company's financial results or financial position in future periods.
(A) Useful life of property, plant and equipment and intangible assets with finite useful lives
The Company employs significant estimates to determine useful lives of property, plant and equipment and
intangible assets with finite useful lives, considering industry trends such as technological advancements, past
experience, expected use and review of asset lives.
Components of an item of property, plant and equipment may have different useful lives. The Company makes
estimates when determining depreciation methods, depreciation rates and useful lives, which require taking into
account industry trends and company-specific factors. The Company reviews depreciation methods, useful lives
and residual values annually or when circumstances change and adjusts, if necessary, its depreciation methods
and assumptions prospectively.
(B) Impairment testing of goodwill and indefinite life intangible assets
Goodwill and indefinite life intangible assets are assessed for impairment at least annually, and whenever there is
an indication of impairment. The Company determines the fair value of its CGU groupings and indefinite life
intangible assets using discounted cash flow models corroborated by other valuation techniques.
The process of determining these fair values requires the Company to make estimates and assumptions of a long-
term nature regarding discount rates, projected revenues, royalty rates and margins derived from past experience,
actual operating results and budgets. These estimates and assumptions may change in the future due to uncertain
competitive and economic market conditions or changes in business strategies.
(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.
21
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
3.
Significant accounting judgments and estimates (continued)
(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.
4.
Change in accounting policy
Effective January 1, 2023, the Company adopted a voluntary change to its accounting policy for the determination
of the unit of account used for measuring the entertainment content development assets. The new measurement
basis changes the unit of account for the entertainment content assets from episodic to a full season. Previously,
the Company amortized the entertainment content development assets at the time of delivery of each episode or
film.
Management believes this change in unit of account results in more relevant and reliable information as the new
policy better reflects the consumption of the entertainment content development assets to reflect their anticipated
pattern of future economic benefits.
Under the new accounting policy, the consumption of entertainment content development assets will be measured
through amortization expense with rates ranging from 25% to 100% at the time of delivery for a full season.
Entertainment content development assets which are not fully amortized upon delivery will be amortized at rates
ranging from 50% to 75% of the remaining balance annually thereafter depending on the expected future benefit
attributed to the entertainment content development assets.
The change in accounting policy was applied retrospectively to all periods presented within the Company’s
Consolidated financial statements. The change impacted previously reported retained earnings and associated line
items within the statement of financial position. The net income impact of the change in accounting policy relating to
the prior period presented is immaterial and as such is not separately disclosed below.
(US$ millions)
Intangible assets
Income tax payable
Retained earnings
Previously
Reported
December 31, 2022
Change in
Policy
267.2
26.4
468.1
12.6
3.3
9.3
Restated
Balance
279.8
29.7
477.4
Retained earnings, as at January 1, 2022
216.0
9.3
225.3
22
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
5.
Revenue
The Company earns revenue from the following primary sources: Toys, Entertainment and Digital Games.
(US$ millions)
Toy revenue
Entertainment revenue
Digital Games revenue
Revenue
6.
Other expense, net
(US$ millions)
Impairment on non-current assets
Acquisition related deferred incentive compensation
Legal settlement (recovery)
Loss on minority interest and other investments
Net realized gain on investment
Net unrealized gain on investment
Acquisition related deferred consideration
Other
Other expense, net
Year Ended Dec 31,
2023
2022
1,540.9
1,737.6
190.1
173.9
118.8
163.9
1,904.9
2,020.3
Year Ended Dec 31,
2023
35.8
7.6
0.6
—
(0.1)
(0.1)
(6.8)
(3.3)
33.7
2022
3.0
10.3
(2.1)
0.5
(0.1)
—
2.6
(3.3)
10.9
Notes
15, 16, 17
28
14
29
29
21
Acquisition related deferred incentive compensation includes amounts that 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).
7. Interest expense and Interest income
(US$ millions)
Bank fees and financing charges
Interest on lease liabilities and accretion expense
Amortization of Facility fee costs
Interest expense
Interest income1
1 Interest income includes interest earned on cash and cash equivalents held by the Company.
Year Ended Dec 31,
2023
9.5
5.1
0.5
15.1
2022
7.7
5.5
0.4
13.6
(27.4)
(10.7)
23
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
8. Expenses
Expenses include selling, general and administrative expenses and depreciation and amortization.
Selling, general and administrative expenses
(US$ millions)
Administrative
Marketing
Selling
Distribution
Product development
Selling, general and administrative
Administrative expenses include the following:
(US$ millions)
Employee compensation and benefits1
Technology, property, travel and office costs
Professional services, recruiting and training
Other
Administrative expenses
Year Ended Dec 31,
2023
365.1
181.4
132.1
64.2
32.9
775.7
2022
353.8
185.1
144.2
67.9
31.1
782.1
Year Ended Dec 31,
2023
256.6
46.8
41.8
19.9
2022
250.6
44.8
43.8
14.6
365.1
353.8
1During the year ended December 31, 2023, the Company recognized restructuring expenses of $18.1 million, primarily related to
the reduction in the Company's global workforce and closure of its manufacturing facility in Calais, France. Please refer to Note
18 for the corresponding liability related to the unpaid portion of the restructuring expense.
Employee compensation and benefits
(US$ 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,
2023
2.2
0.6
2.8
2022
3.0
0.9
3.9
182.0
194.8
36.4
20.1
18.1
256.6
259.4
33.4
17.6
4.8
250.6
254.5
24
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
8. Expenses (continued)
Depreciation and amortization
(US$ millions)
Property, plant and equipment
Moulds, dies and tools, included in cost of sales
Building and leasehold improvements
Equipment
Computer hardware
Equipment, included in cost of sales
Intangible assets
Entertainment content development, included in cost of sales
Digital games and app development, included in cost of sales
Trademarks, licenses, IP & customer lists - definite life
Computer software
Right-of-use assets
Depreciation and amortization
(US$ millions)
Included in cost of sales
Included in expenses
Depreciation and amortization
9. Foreign exchange
(US$ millions)
Unrealized foreign exchange loss (gain), net
Realized foreign exchange gain, net
Foreign exchange loss (gain), net
Year Ended Dec 31,
2023
2022
19.9
20.5
4.7
2.4
1.0
1.9
5.6
1.7
0.8
0.1
29.9
28.7
77.7
5.1
3.1
2.6
88.5
14.4
4.3
5.1
3.5
27.3
11.6
12.2
130.1
68.2
Year Ended Dec 31,
2023
104.7
25.4
130.1
2022
39.2
29.0
68.2
Year Ended Dec 31,
2023
26.1
(11.4)
14.7
2022
(40.3)
(21.1)
(61.4)
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 and
also includes gains and losses related to the Company's hedging programs. The Company periodically enters into
derivative financial instruments such as foreign exchange forward contracts to manage foreign currency risk on
cash flows denominated in currencies other than the US dollar (see Note 29).
25
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
10. 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 (recovery) 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% (2022 - 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
Expense not deductible in determining taxable income
Recognition of previously unrecognized tax losses and other deferred tax
assets
Other
Income tax expense
Year Ended Dec 31,
2023
61.6
(11.8)
49.8
2022
69.8
9.3
79.1
Year Ended Dec 31,
2023
201.2
2022
340.4
53.3
26.5 %
90.2
26.5 %
(7.8)
0.7
1.8
(0.2)
2.0
49.8
(3.9) %
0.3 %
0.9 %
(0.1) %
1.1 %
24.8 %
(9.8)
1.1
0.8
—
(3.2)
79.1
(2.9) %
0.3 %
0.2 %
— %
(0.9) %
23.2 %
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, 2023, the Company had income tax payable of $6.6 million (2022 - $29.7 million).
Deferred income tax balances
The following is the analysis of deferred income tax assets and liabilities presented in the Consolidated statements
of financial position:
(US$ 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:
(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
2023
110.8
(59.1)
51.7
2022
94.7
(55.7)
39.0
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
26
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
10. 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
Foreign
currency
translation
5.5
(3.5)
5.4
0.3
(0.5)
4.6
11.8
—
0.4
0.5
—
—
—
0.9
2022
1.0
17.8
18.8
0.1
1.4
(0.1)
39.0
2023
6.5
14.7
24.7
0.4
0.9
4.5
51.7
As at December 31, 2023, the Company had unused tax losses of $9.1 million (2022 - $8.7 million). Unused tax
losses of $0.2 million will expire between 2024 and 2033, $4.3 million will expire beyond 2033 and $4.6 million may
be carried forward indefinitely. There were no unrecognized deductible temporary differences for the year ended
December 31, 2023 (2022 - $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, 2023 are $310.0 million (2022 - $338.2 million).
11. Cash and cash equivalents
(US$ millions)
Cash
Cash equivalents
Cash and cash equivalents
Dec 31,
2023
705.7
—
705.7
Dec 31,
2022
544.3
100.0
644.3
As at December 31, 2023, the Company held $nil (December 31, 2022 - $100.0 million) in short term investments
with a maturity date of 90 days or less.
Subsequent to December 31, 2023, the Company utilized $434.0 million of cash for the acquisition of Melissa &
Doug LLC. Please refer to Note 31 for more details.
12. Trade and other receivables, net
Trade receivables
(US$ millions)
Trade receivables
Provisions for sales allowances
Allowance for doubtful accounts
Trade receivables, net
Dec 31,
2023
660.1
(241.7)
(4.0)
414.4
Dec 31,
2022
514.7
(202.2)
(1.5)
311.0
Trade receivables disclosed above include any 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
Dec 31,
2023
6.4
0.7
9.0
16.1
Dec 31,
2022
8.0
3.7
11.1
22.8
27
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
12. Trade and other receivables, net (continued)
Movement in the allowance for doubtful accounts
(US$ millions)
Balance, beginning of year
Net impairment recognized
Amounts written off during the year as uncollectible
Foreign currency translation
Balance, end of year
Dec 31,
2023
Dec 31,
2022
1.5
3.7
(1.1)
(0.1)
4.0
0.7
0.8
(0.1)
0.1
1.5
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
Other
Other receivables
13. Inventories, net
(US$ millions)
Raw materials
Finished goods
Inventories, net
Dec 31,
Dec 31,
2023
48.9
4.1
7.0
60.0
2022
37.3
3.9
8.3
49.5
Dec 31,
2023
2.7
95.3
98.0
Dec 31,
2022
7.7
97.4
105.1
Inventories as at December 31, 2023 are net of $9.0 million for the provision of inventories to net realizable value
(December 31, 2022 - $8.8 million).
The cost of inventories recognized as an expense in cost of sales during the year ended December 31, 2023 was
$705.2 million (2022 - $819.2 million).
During the year ended December 31, 2023, included within cost of sales in the Consolidated statements of earnings
and comprehensive income was a cost of $7.4 million (2022 - $5.8 million) related to finished goods inventories
written down to net realizable value.
28
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
14.
Prepaid expenses and other assets
(US$ millions)
Prepaid expenses
Advances on royalties
Unrealized foreign exchange gain on financial instruments
Prepaid expenses and other assets
(US$ millions)
Minority interest and other investments
Investment in a limited partnership
Advances on royalties
Investment tax credits - non-current portion
Other
Other assets, non-current
Investment in a limited partnership
Notes
Notes
29
Dec 31,
2023
35.2
1.6
4.1
40.9
Dec 31,
2023
11.3
3.7
5.0
4.6
1.9
26.5
Dec 31,
2022
13.9
6.7
1.7
22.3
Dec 31,
2022
8.8
3.9
2.9
3.6
1.3
20.5
For the year ended December 31, 2023, the Company recognized a net unrealized gain in Other expense, net in
the Consolidated statements of earnings and comprehensive income of $0.1 million (2022 - $nil). The Company
recognized distribution income of $0.1 million in Other expense, for the year ended December 31, 2023 and 2022.
The Company has paid $2.8 million and is obligated to pay the remaining $0.2 million upon receiving capital calls
over the remaining term of the limited partnership agreement. The investment in a limited partnership is held for
medium to long-term strategic purposes (see Note 29).
Minority interest and other investments
Minority interest and other investments classified as FVTOCI is comprised 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.
During the year ended December 31, 2023, the Company invested $2.5 million in existing minority interest and
other investments classified as FVTPL.
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 FVTPL and
one classified as FVTOCI.
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 $0.7 million (see Note 28).
The carrying value of the seven minority interest and other investments held as at December 31, 2023
(December 31, 2022 - five investments) were as follows:
(US$ millions)
Minority interest and other investments classified as FVTOCI
Minority interest and other investments classified as FVTPL
Minority interest and other investments
Initial
investment
Carrying value at,
Dec 31,
2023
Dec 31,
2022
3.6
8.8
12.4
3.0
8.3
11.3
3.0
5.8
8.8
For the year ended December 31, 2023, the Company recognized $nil gains or losses (2022 - $0.5 million of losses
within Other expenses, net and $0.1 million of gain within Other comprehensive loss) for the minority interest and
other investments classified as FVTPL and FVTOCI, respectively in the Consolidated statements of earnings and
comprehensive income.
29
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
15.
Property, plant and equipment
(US$ millions)
Cost
Balance at December 31, 2021
Additions
Disposals
Impairment
Foreign currency translation
Balance at December 31, 2022
Additions
Disposals
Impairment
Assets recognized upon acquisition
Foreign currency translation
Balance at December 31, 2023
Accumulated depreciation and
impairment
Balance at December 31, 2021
Depreciation
Disposals
Impairment
Foreign currency translation
Balance at December 31, 2022
Depreciation
Disposals
Foreign currency translation
Balance at December 31, 2023
Net carrying amount
Balance at December 31, 2022
Balance at December 31, 2023
Moulds, dies
and tools
Equipment
Land, building
and leasehold
improvements
Computer
hardware
172.6
23.0
(7.0)
(1.6)
(10.9)
176.1
20.6
(38.3)
(0.9)
0.4
(2.2)
155.7
(151.4)
(20.5)
5.8
(0.3)
9.5
28.1
3.6
(0.4)
—
(1.1)
30.2
1.9
(5.5)
—
—
0.3
26.9
(22.3)
(1.8)
0.4
—
0.6
39.6
2.7
(0.8)
—
(1.8)
39.7
3.7
(3.0)
—
—
0.8
41.2
(27.4)
(5.6)
0.7
—
1.4
12.4
1.1
(0.5)
—
(0.4)
12.6
1.8
(0.6)
—
—
0.4
14.2
(11.8)
(0.8)
0.4
—
0.5
(156.9)
(23.1)
(30.9)
(11.7)
(19.9)
37.1
3.2
(4.3)
4.6
(0.4)
(4.7)
2.7
(0.6)
(1.0)
0.7
(0.2)
Total
252.7
30.4
(8.7)
(1.6)
(14.2)
258.6
28.0
(47.4)
(0.9)
0.4
(0.7)
238.0
(212.9)
(28.7)
7.3
(0.3)
12.0
(222.6)
(29.9)
45.1
2.0
(136.5)
(23.2)
(33.5)
(12.2)
(205.4)
19.2
19.2
7.1
3.7
8.8
7.7
0.9
2.0
36.0
32.6
At December 31, 2023, the Company assessed tangible assets for any indication of impairment and noted no
indicators with the exception of those related to certain tooling assets. Impairment are recorded when the carrying
amount of the asset exceeds its recoverable amount. For the year ended December 31, 2023, the Company
recorded impairment of $0.9 million (2022 $1.9 million), related to tooling in Other expense, net within the
Consolidated statements of earnings and comprehensive income.
30
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
16.
Intangible assets
(US$ millions)
Cost
Balance at December 31, 2021
Additions
Impairment
Assets acquired through
business combinations
Foreign currency translation
Balance at December 31, 2022
Additions1
Disposals
Impairment
Assets acquired through
business combinations
Foreign currency translation
Balance at December 31, 2023
28
28
Accumulated amortization
Balance at December 31, 2021
4
Amortization
Foreign currency translation
Balance at December 31, 2022
4
Amortization
Disposal
Foreign currency translation
Balance at December 31, 2023
Net carrying amount
Note
Brands -
indefinite
Trademarks,
licenses, IP
& customer
lists -
definite
Entertainment
content
development
Digital game
and app
development
Computer
software
Total
157.3
—
—
4.4
(2.0)
159.7
3.3
—
—
12.5
0.6
176.1
—
—
—
—
—
—
—
—
56.4
0.5
—
—
(0.8)
56.1
—
—
—
3.7
0.2
60.0
(32.1)
(5.1)
0.5
(36.7)
(3.1)
—
(0.8)
253.0
54.6
(1.1)
—
(15.7)
290.8
54.0
—
(6.4)
—
7.4
27.6
34.6
528.9
9.1
—
—
(1.9)
34.8
19.1
—
(0.7)
—
1.6
4.8
—
—
(2.5)
36.9
3.0
(0.1)
(1.1)
—
0.9
69.0
(1.1)
4.4
(22.9)
578.3
79.4
(0.1)
(8.2)
16.2
10.7
345.8
54.8
39.6
676.3
(213.0)
(14.4)
13.7
(213.7)
(77.7)
—
(6.1)
(14.8)
(29.2)
(289.1)
(4.3)
1.4
(3.5)
2.3
(27.3)
17.9
(17.7)
(30.4)
(298.5)
(5.1)
—
(0.5)
(2.6)
0.1
(0.7)
(88.5)
0.1
(8.1)
(40.6)
(297.5)
(23.3)
(33.6)
(395.0)
Balance at December 31, 2022
4
159.7
19.4
77.1
17.1
6.5
279.8
Balance at December 31, 2023
281.3
1 On April 14, 2023, the Company recorded an addition of $3.3 million in indefinite life brands as a result of the assets acquired
from a games & puzzles company.
176.1
31.5
48.3
19.4
6.0
Effective January 1, 2023, the Company adopted a voluntary change to its accounting policy for the determination
of the unit of account used for measuring the entertainment content development assets resulting in a restatement
of $12.6 million for the balance at December 31, 2021 (see Note 4).
The Company’s Entertainment content development and Digital Games development assets are comprised
primarily of internally generated intangible assets. As at December 31, 2023, the range of remaining useful life of
these definite life intangible assets based on their net carrying amount was one to five years.
At December 31, 2023, the Company assessed intangible assets for any indication of impairment. Impairment is
recorded when the carrying amount of the asset exceeds its recoverable amount. The Company recorded an
impairment of $8.2 million (2022 - $1.1 million) for the year ended December 31, 2023, related to content
development projects, app development projects and components of computer software in Other expense, net
within the Consolidated statements of earnings and comprehensive income.
During the year ended December 31, 2023, the Company amortized Entertainment content development costs in
the amount of $13.4 million for the delivered of PAW Patrol: The Mighty Movie.
31
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
16.
Intangible assets (continued)
Intangible asset impairment - definite life assets
For the year ended December 31, 2023, the Company recorded impairment of $6.4 million (2022 - $1.1 million)
related to entertainment content projects no longer in active development, $1.1 million (2022 - $nil) related to
computer software and $0.7 (2022 - $nil million) related to Digital Games app development within Other expense,
net in the Consolidated statements of earnings and comprehensive income.
Indefinite life brands
The carrying amount of indefinite life brands by CGU is as follows:
(US$ millions)
Games and Puzzles
Rubik's
Plush
SwimWays
Etch A Sketch
Wheels & Action
Meccano
Toys intangible assets
Digital Games intangible assets
Total
Dec 31,
2023
43.5
40.7
33.9
28.5
7.2
4.8
2.3
160.9
15.3
176.2
Dec 31,
2022
35.6
37.4
33.9
28.0
7.1
—
2.4
144.4
15.3
159.7
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. The recoverable amount of the CGUs for indefinite life brands
have been determined on the same basis and assumptions as goodwill (see Note 17).
For the year ended December 31, 2023, the Company completed its annual impairment tests for indefinite life
brands and did not recognized any impairment (2022 - $nil).
17. Goodwill
(US$ millions)
Balance, beginning of year
Additions during the year
Impairment 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
Rubik's
Digital Games
SwimWays
Plush
Toys
Wheels and Action
Other
Orbeez
Goodwill
Notes
28
Dec 31,
2023
179.0
12.4
(26.7)
1.2
165.9
Dec 31,
2023
61.5
23.0
22.6
22.4
20.3
7.5
3.1
5.5
—
Dec 31,
2022
173.1
7.2
—
(1.3)
179.0
Dec 31,
2022
51.3
23.0
22.6
40.1
20.3
7.5
—
6.2
8.0
165.9
179.0
32
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
17. Goodwill
Intangible asset impairment - goodwill and indefinite life brands
In assessing goodwill and indefinite life intangible assets for impairment at December 31, 2023 and 2022, 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 11.3% to 19.6% (2022 -14.8% to 23.0%).
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% (2022 - 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, 2023, there was $26.7 million (2022 - $nil million) of goodwill impairment
recognized for three CGUs representing the Company's product lines. Goodwill impairment charges of $17.7
million for the SwimWays CGU, reflecting the adverse impact of macroeconomic challenges and timing of certain
growth strategies on its future cash flow; $8.0 million for the Orbeez CGU, due to management's strategic decision
to change its business operations resulting in a change in its identification as a CGU; and $1.0 million for the
Meccano CGU, reflecting management's decision to close its manufacturing facility and the adverse impact on its
future cash flow were recognized within Other expense, net in the Consolidated statements of earnings and
comprehensive income (Please refer to Note 6).
18. Trade payables and accrued liabilities
(US$ millions)
Trade payables
Accrued liabilities
Trade payables and accrued liabilities
Dec 31,
2023
189.2
196.2
385.4
Dec 31,
2022
153.0
186.4
339.4
Accrued liabilities are comprised of payroll related liabilities, accrued royalties, commodity tax, dividends payable,
and other. As at December 31, 2023, $4.6 million of dividends payable is included in accrued liabilities
(December 31, 2022 - $4.6 million) (see Note 22).
As at December 31, 2023, a restructuring liability of $3.5 million, expected to be paid in 2024 (December 31, 2022 -
$0.4 million), related to the reduction in the Company's global workforce and closure of its manufacturing facility in
Calais, France, is included in accrued liabilities with a corresponding expense recorded in Selling, general and
administrative expenses in the Consolidated statements of earnings and comprehensive income (Please refer to
Note 8).
33
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
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, 2023, the Company had deferred revenue of $11.0 million
(December 31, 2022 - $11.5 million).
For the year ended December 31, 2023, the Company recognized revenue of $11.9 million (2022 - $8.3 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 $1.8 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.
On November 20, 2023, the Company entered into a one-year non-revolving credit facility (the "Acquisition Facility")
with a borrowing capacity of $225.0 million which matures on November 19, 2024, and contains certain financial
covenants. The Acquisition Facility will be used to assist in the funding of the acquisition of Melissa & Doug LLC.
Total financing costs of $0.8 million, which include Facility arranger fees, agency fees and related legal fees, are
recognized in Other assets and are being amortized over the term of the Acquisition Facility. Please refer to Note
31.
As at December 31, 2023, there were $1.5 million (December 31, 2022 - $1.4 million) in letters of credit outstanding
under the Facility. As at December 31, 2023, there was $nil drawn (December 31, 2022 - $nil) under the Facility. As
at December 31, 2023, Unamortized Facility fee costs in the amount of $1.7 million (December 31, 2022 - $1.2
million) recognized in Prepaid expenses and other assets 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, 2023 and December 31, 2022.
Bank overdraft facility
The Company has an uncommitted overdraft facility agreement (the "European Facility") for $15.9 million
(equivalent to €15.0 million). The European Facility will be used, if needed, to fund working capital requirements in
Europe. As at December 31, 2023, the outstanding balance was $nil (December 31, 2022 - $nil).
Secured Debt
Bank facilities
The Company has an uncommitted revolving credit facility to finance television and film production (the "Production
Facility"). The limit of the credit facility is $7.4 million (equivalent to CA$10.0 million). As at December 31, 2023, the
outstanding balance of the Production Facility was $nil (December 31, 2022 - $nil).
34
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
21.
Provisions
(US$ millions)
Deferred Consideration(i)
Defectives(ii)
Supplier liabilities(iii)
Provisions
Current
Non-current
Provisions
(US$ millions)
December 31, 2021
Provisions recognized
Accretion recognized
Payments
Revaluation of provisions
December 31, 2022
Provisions recognized
Accretion recognized
Payments
Revaluation of provisions
December 31, 2023
Dec 31,
2023
26.7
14.5
5.2
46.4
32.1
14.3
46.4
Deferred
consideration(i)
Defectives(ii)
Supplier
liabilities(iii)
23.3
12.5
1.3
(12.6)
2.2
26.7
14.2
1.2
(8.7)
(6.8)
26.7
9.9
11.4
—
(7.6)
(0.1)
13.6
9.7
—
(9.0)
0.2
14.5
5.9
2.0
—
(2.4)
—
5.5
1.5
—
(1.7)
—
5.2
Dec 31,
2022
26.7
13.6
5.5
45.8
30.7
15.1
45.8
Total
39.1
25.9
1.3
(22.6)
2.1
45.8
25.4
1.2
(19.4)
(6.6)
46.4
(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.
35
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
22.
Share capital
(a) Authorized as at December 31, 2023 and December 31, 2022
•
•
•
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
Subordinate voting shares purchased and cancelled
Outstanding, end of year
Shares issued and outstanding, end of year
Year Ended Dec 31,
Year Ended Dec 31,
2023
2022
Shares
(millions)
Amount
(US$ millions)
Shares
(millions)
Amount
(US$ millions)
68.7
—
68.7
34.2
1.2
—
(0.4)
35.0
103.7
350.5
—
350.5
404.2
33.4
—
(4.7)
432.9
783.4
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
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 repurchases its subordinate voting
shares on the open market at its discretion and subject to compliance with applicable securities laws and the rules
of the TSX. 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, of up to 2,845,904 subordinate voting shares, which represented
approximately 10% of the "public float" (within the meaning of the rules of the TSX) upon launch of the NCIB.
On March 10, 2023, the Company entered into an automatic share purchase plan ("ASPP") to effect the purchase
of subordinate voting shares under the NCIB for a period up to April 14, 2023. In 2023, the Company repurchased
and cancelled 397,700 subordinate voting shares at a cost of $10.5 million.
On April 14, 2023, upon the expiry of the ASPP commitment period, the Company derecognized the remaining
obligation for the outstanding repurchase commitment in trade payables and accrued liabilities.
36
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
22.
Share capital (continued)
The following table summarizes the Company’s activities under the NCIB for the year ended December 31, 2023:
(US$ millions)
Subordinate voting shares repurchased under the NCIB for cancellation (number of shares)
Cash consideration paid
Reduction in share capital
Premium paid on repurchased and cancelled shares recorded in retained earnings
Year Ended Dec 31
2023
397,700
10.5
4.7
5.8
The following table provides a summary of dividends declared and paid.
Declaration Date
Record Date
Payment Date
Rate per Share (CA$)
Dividends declared and
accrued (in US$ millions)
February 28, 2024
November 1, 2023
August 2, 2023
May 3, 2023
March 8, 2023
March 29, 2024
April 12, 2024
December 29, 2023
January 12, 2024
September 29, 2023
October 13, 2023
June 30, 2023
March 31, 2023
July 14, 2023
April 14, 2023
November 2, 2022
December 30, 2022
January 13, 2023
July 27, 2022
September 29, 2022
October 14, 2022
0.06
0.06
0.06
0.06
0.06
0.06
0.06
4.6
4.6
4.6
4.7
4.6
4.6
4.6
During the year ended December 31, 2023, dividends of $18.4 million (2022 - $4.6 million) were paid.
During the year ended December 31, 2023, the Company implemented a Dividend Reinvestment Plan (the "DRIP").
The DRIP provides the Company’s eligible shareholders with the opportunity to have all or a portion of the cash
dividends declared on their subordinate voting shares or multiple voting shares automatically reinvested into
additional subordinate voting shares of the Company on an ongoing basis.
(b) Share-based plans
The total expense recognized for employee services received during the year ended for December 31, 2023 equity-
settled transactions is shown in the following table:
(US$ millions)
Equity-settled RSUs and PSUs
Share purchase options
Share based compensation expense
Year Ended Dec 31,
2023
20.1
—
20.1
2022
17.5
0.1
17.6
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 Restricted Stock Units ("RSUs") and
Performance Share Units ("PSUs"), stock appreciation rights, restricted stock and any other equity based awards.
As at December 31, 2023, 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, 2022 - 9,669,599). As at December 31, 2023,
2,952,265 (December 31, 2022 - 3,656,929) subordinate voting shares remained reserved for issuance under the
LTIP.
The Company settled vested LTIP grants during the year ended December 31, 2023 through the issuance of
shares. The settlements resulted in a transfer of $33.4 million (2022 - $17.6 million) from contributed surplus to
share capital.
37
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
22.
Share capital (continued)
Restricted Stock Units and Performance Share Units
RSUs and PSUs are granted to Eligible Persons by the Company’s Board. The Board determines the Grant Value
and Valuation Date for each Grant. RSUs and PSUs vest from the date of grant in accordance with the vesting
schedule determined by the Board and set out in the applicable Grant Agreement for each Eligible Person.
Below is a summary of the activity related to RSUs outstanding as at December 31, 2023 and December 31, 2022.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Dec 31,
2023
1,082,423
676,978
Dec 31,
2022
942,931
412,676
(562,775)
(214,456)
(50,599)
(58,728)
1,146,027
1,082,423
Below is a summary of the activity related to PSUs outstanding as at December 31, 2023 and December 31, 2022.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Forfeited
Outstanding, end of year
Deferred Share Units ("DSUs")
Dec 31,
2023
Dec 31,
2022
1,006,332
1,091,862
404,009
276,410
(665,519)
(318,179)
(22,198)
(43,761)
722,624
1,006,332
DSUs are an incentive program for Board members of the Company, whereby Board members may elect to receive
remuneration in the form of DSUs, cash or combination thereof. The DSUs vest immediately upon grant but cannot
be exercised until the Company's Board of Director departs the Company.
Below is a summary of the activity related to the DSUs outstanding as at December 31, 2023 and December 31,
2022.
(number of units)
Outstanding, beginning of year
Granted
Exercised
Outstanding, end of year
Dec 31,
2023
187,864
72,506
(3,690)
Dec 31,
2022
157,293
55,479
(24,908)
256,680
187,864
The fair value of the DSUs is determined to be the share price on the grant date. Share based compensation
expense of $1.9 million (2022 - $1.7 million) was recorded for the year ended December 31, 2023.
A mark to market loss of $0.1 million on DSUs outstanding (2022 - gain of $1.7 million) was recorded for the year
ended December 31, 2023.
The share based compensation and mark to market loss or 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.
The total share based compensation expense of $20.1 million (2022 - $17.6 million) includes the equity-settled RSU
and PSU share based compensation of $20.0 million (2022 - $19.3 million) and the mark to market loss on DSUs of
$0.1 million (2022 - gain of $1.7 million).
38
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
22.
Share capital (continued)
Share Purchase Options (“Options”)
The Company has one share option plan for key employees, which forms part of their LTIP. Under this plan, the
exercise price of each option equals the market price of the Company’s shares on the date of grant and the Options
have a maximum term of ten years. The Options vest ratably over a four-year vesting period.
The Company did not issue any Options in 2023 and 2022. As at December 31, 2023, 476,224 (December 31, 2022
- 483,426) Options were outstanding with a weighted average exercise price of CA$34.78 (December 31, 2022 -
CA$34.97).
Dec 31,
2023
Dec 31,
2022
Outstanding, beginning of year
Exercised
Forfeited and/or expired
Outstanding, end of year
Exercisable options
Number of
share
options
483,426
—
(7,202)
476,224
476,224
Weighted
average
exercise
price (CAD)
Number of
share
options
34.97
—
47.52
34.78
34.78
497,733
(4,157)
(10,150)
483,426
425,749
Number of Share
Options Outstanding
Dec 31,
2023
Weighted average
remaining contractual
life (years)
Number of Share
Options Outstanding
179,069
125,516
86,185
—
85,454
476,224
2.3
3.2
5.1
0
4.2
3.4
179,069
125,516
87,570
5,817
85,454
483,426
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.
Weighted
average
exercise
price (CAD)
35.22
37.96
46.02
35.22
33.96
Dec 31,
2022
Weighted average
remaining contractual
life (years)
3.3
4.2
6.1
0.3
5.2
4.3
Year Ended Dec 31,
2022
2023
261.3
151.4
103.5
2.2
105.7
1.46
1.43
102.9
3.5
106.4
2.54
2.45
39
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
24. Net changes in non-cash working capital
(US$ millions)
(Increase) decrease in assets:
Trade receivables, net
Other receivables
Inventories, net
Prepaid expenses and other assets
Increase (decrease) in liabilities:
Trade payables and accrued liabilities
Deferred revenue
Provisions
Other
Net changes in non-cash working capital
25. Related party transactions
Year Ended Dec 31,
2023
2022
(111.9)
(13.0)
8.0
(18.8)
(135.7)
36.3
(0.5)
(5.5)
0.3
30.6
(105.1)
61.4
0.6
37.4
(11.3)
88.1
(157.3)
0.6
1.0
—
(155.7)
(67.7)
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, 2023, related party transactions were included in administrative expenses in the
Consolidated statements of earnings and comprehensive income of the Company in the amount of $2.0 million
(2022 - $1.3 million). As at December 31, 2023, amounts payable to the director's law firm were $0.4 million
(December 31, 2022 - $0.4 million).
During the three months ended June 30, 2023, the Company paid incentive compensation related liabilities of $3.7
million on behalf of three members of the Company's Board of Directors. These amounts were repaid by all three
directors to the Company in the second quarter of 2023.
Compensation of key management personnel
The compensation of directors and other key management personnel for the years ended December 31, 2023 and
December 31, 2022 were as follows:
(US$ millions)
Salaries, wages and bonuses
Share-based compensation
Employee benefits
Total compensation of key management personnel
Year Ended Dec 31,
2023
5.8
8.6
0.3
14.7
2022
5.7
3.3
0.3
9.3
40
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
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 for both classes is 11 years
(2022 - 11 years). The carrying value of right-of-use assets and depreciation by class of underlying assets are as
follows:
(US$ millions)
January 1, 2022
Additions
Modifications
Depreciation
Foreign currency translation
December 31, 2022
Additions
Disposals
Modifications
Depreciation
Foreign currency translation
December 31, 2023
(US$ millions)
January 1, 2022
Additions
Modifications
Interest expense
Lease payments
Foreign currency translation
December 31, 2022
(US$ millions)
Additions
Disposals
Modifications
Interest expense
Lease payments
Foreign currency translation
December 31, 2023
(US$ millions)
Lease liabilities, current
Lease liabilities, non-current
Total lease liabilities
Building
Equipment Right-of-use assets
63.9
12.0
0.5
(11.5)
(2.8)
62.1
0.6
(3.0)
3.5
(11.1)
0.9
53.0
1.3
0.3
0.1
(0.7)
(0.2)
0.8
0.5
(0.3)
0.1
(0.5)
—
0.6
65.2
12.3
0.6
(12.2)
(3.0)
62.9
1.1
(3.3)
3.6
(11.6)
0.9
53.6
Lease liabilities
73.0
12.3
0.6
4.2
(15.8)
(3.1)
71.2
Lease liabilities
1.0
(3.6)
3.5
3.9
(14.9)
1.0
62.1
Dec 31,
2022
16.3
54.9
71.2
Dec 31,
2023
11.4
50.7
62.1
Extension and termination options are included in a number of building and equipment leases across the Company.
These terms are used to maximize operational flexibility in terms of managing contracts. Extension and termination
options are exercisable only by the Company and not by the respective lessor.
41
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
26.
Leases (continued)
Amounts recognized in the Consolidated statements of earnings and comprehensive income
(US$ millions)
2023
2022
Depreciation expense on right-of-use assets
Interest expense on lease liabilities
Loss on disposal of right-of-use assets
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
27. Commitments for expenditures
11.6
3.9
0.4
1.6
8.0
25.5
12.2
4.2
—
1.9
4.6
22.9
Licensing and similar agreements in effect at December 31, 2023 that contain provisions for future minimum
payments, include the following:
As at December 31, 2023
(US$ millions)
Lease liabilities - undiscounted
Guaranteed payments due to licensors
Purchase obligations
Other
Total commitments
Less than 1 year to greater than 5 years
< 1 Year
1-5 Years
> 5 Years
Total
13.2
11.3
7.3
0.1
31.9
37.0
42.9
15.3
0.1
95.3
31.4
—
—
—
31.4
81.6
54.2
22.6
0.2
158.6
42
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
28.
Business acquisitions
Acquisition of certain assets from 4D Brands International Inc
On January 17, 2023, the Company acquired certain assets from 4D Brands International Inc. and 4D Cityscape
Worldwide Limited, (collectively, the “Vendors”) creators of puzzle 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 accounted for the transaction as a business combination using the acquisition method of
accounting. This acquisition complements the Company’s existing games and puzzles 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 Company incurred $0.2 million in transaction related costs which were included in administrative expenses in
the Consolidated statements of earnings and comprehensive income.
The tables below summarize the allocation of the total of purchase consideration of $18.9 million:
Assets acquired at the date of acquisition
(US$ millions)
Assets acquired
Intangible assets
Inventories
Prepaid expenses and other assets
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Cash consideration
Purchase price adjustment
Fair 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
Less: Advance paid in 2022
Net cash outflow on acquisition
Fair value as at January 17, 2023
8.5
0.7
0.4
9.6
14.6
0.2
4.1
18.9
9.6
9.3
14.6
0.5
14.1
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, $9.3 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 $4.1 million in deferred payments for future royalties recorded in
provisions in the Consolidated statements of financial position. 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 $7.4 million.
Impact of acquisition on the results of the Company
Included in the Company's financial results for the year ended December 31, 2023 is $7.7 million in revenue
attributable to the acquisition.
For the year ended December 31, 2023, the Company recognized $1.8 million of gain relating to contingent
considerations in Other expense, net in the Consolidated statements of earnings and comprehensive income.
43
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
28.
Business acquisitions (continued)
Acquisition of certain assets from Innovation First International, Inc.
On February 2, 2023, the Company acquired certain assets from Innovation First, Inc., Innovation First International
Inc., Innovation First Labs, Inc., Innovation First Logistics., Inc. Management performed an analysis under 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 an opportunity
for Spin Master to enter the niche market of robotic toys and grow the HEXBUG brand. The acquired business has
been reported in the Toys segment within the Wheels & Action product category and included in the Wheels &
Action cash generating unit (“CGU”) beginning from the date of acquisition.
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.
The tables below summarize the allocation of the total of purchase consideration of $14.6 million:
Assets acquired at the date of acquisition
(US$ millions)
Assets acquired
Inventories
Property, plant, and equipment
Intangible assets
Prepaid and other assets
Fair value of identifiable net assets acquired
Goodwill arising on acquisition
Cash consideration
Purchase price adjustment
Fair 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
Less: Advance paid in 2022
Net cash outflow on acquisition
Fair value as at February 2, 2023
2.9
0.4
7.7
0.5
11.5
12.9
0.3
1.4
14.6
11.5
3.1
12.9
0.5
12.4
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, $3.1 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 $1.4 million in deferred payments for future royalties. The contingent
consideration is recorded in provisions in the Consolidated statements of financial position. The future royalties are
payable to the vendor upon the achievement of key performance indicators over a seven-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 $3.7 million.
Impact of acquisition on the results of the Company
Included in the Company's financial results for the year ended December 31, 2023 is $15.5 million in revenue
attributable to the acquisition.
For the year ended December 31, 2023, the Company recognized no gain or loss relating to contingent
considerations in Other expense, net in the Consolidated statements of earnings and comprehensive income.
44
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
28.
Business acquisitions (continued)
Summary of prior year 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 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. This acquisition complements the Company's existing board games offering and
is 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 was 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.
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.
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 $nil in the total purchase consideration.
Assets acquired and liabilities recognized at the date of acquisition
(US$ millions)
Assets acquired
Cash
Other receivables
Intangible assets
Inventories
Prepaid expenses and other assets
Liabilities assumed
Trade payables and accrued liabilities
Fair value of identifiable net assets acquired
SolidRoots, LLC
Nørdlight Games AB
Fair value as at
August 2, 2022
Fair value as at
August 8, 2022
—
—
4.4
2.0
0.1
6.5
—
6.5
0.4
0.1
—
—
—
0.5
0.2
0.3
45
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
28.
Business acquisitions (continued)
Goodwill arising on acquisition
Cash consideration
Fair value of contingent 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
29. Financial instruments and risk management
Capital management
Management includes the following items in its definition of capital:
(US$ millions)
Share capital
Retained earnings1
Contributed surplus
Capital
1 December 31, 2022 restated for the change in accounting policy (see Note 4).
SolidRoots, LLC
Nørdlight Games AB
8.5
2.2
—
10.7
6.5
4.2
2.5
—
0.7
3.2
0.3
2.9
SolidRoots, LLC
Nørdlight Games AB
8.5
—
8.5
2.5
0.4
2.1
Dec 31,
2023
783.4
604.5
27.4
Dec 31,
2022
754.7
477.4
40.7
1,415.3
1,272.8
The Company makes adjustments to its capital structure based on the funds available to the Company in
supporting the operations of the business and to ensure that the subsidiaries of the Company will be able to
continue on a going concern basis.
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
the Company launched a NCIB in the first quarter of 2023, as described in Note 22.
The Facility and Acquisition Facility require the Company to comply with certain financial covenants. As at
December 31, 2023, 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.
46
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
29. Financial instruments and risk management (continued)
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, 2023, the Company is committed under outstanding foreign exchange contracts representing a
total net sell commitment of $74.7 million (December 31, 2022 - net sell commitment of $20.3 million). These
foreign exchange contracts have maturity dates varying from March 2024 to March 2025. For the year ended
December 31, 2023, net realized losses on the Company’s matured foreign exchange contracts were $8.7 million
(2022 - realized gains of $3.1 million) and are included in the Consolidated statements of earnings and
comprehensive income.
As at December 31, 2023
(in millions)
Foreign exchange contracts
Buy US$
Buy US$
Buy US$
Buy US$
Sell US$
Sell US$
Sell US$
Total
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
(Sell)/Buy
Notional value:
US$
Unrealized
gain (loss): US$
GBP
EUR
MXN
AUD
CAD
JPY
HKD
(14.5)
(46.5)
(311.5)
(5.5)
212.9
320.7
25.7
(17.6)
(50.9)
(15.7)
(3.7)
157.1
2.2
3.3
74.7
(0.8)
(0.7)
(2.0)
(0.1)
4.0
0.1
—
0.5
Notional value:
foreign currency
(Sell)/Buy
Notional value:
US$
Unrealized
(loss) gain: US$
EUR
GBP
MXN
CAD
AUD
(60.5)
(17.5)
(655.0)
186.6
(4.5)
66.2
22.0
31.1
(142.6)
3.0
(20.3)
0.9
0.9
(1.9)
(4.4)
(0.1)
(4.6)
Foreign currency risk - sensitivity analysis
The Company is mainly exposed to the Canadian dollar, the Great Britain pound sterling, the Mexican peso, the
Euro, Swedish krona and Australian dollar. The following table details the Company's sensitivity to a 5.0% change in
currency units against the US$. The sensitivity analysis includes all outstanding foreign currency denominated
current monetary assets and liabilities and adjusts their translation as at the end of the reporting period for a 5.0%
change in foreign currency rates. A positive number below indicates an increase in a foreign exchange gain where
the currency unit changes 5.0% against US$.
47
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
29. Financial instruments and risk management (continued)
(US$ millions)
Canadian dollar
Great Britain pound sterling
Mexican peso
Euro
Swedish krona
Australian dollar
Currency unit strengthens by 5%
Currency unit weakens by 5%
Dec 31,
2023
Dec 31,
2022
Dec 31,
2023
Dec 31,
2022
(6.6)
0.8
1.7
2.6
(0.5)
0.5
(6.4)
0.5
2.0
1.0
(0.5)
0.5
5.9
(0.7)
(1.6)
(2.3)
0.4
(0.4)
5.8
(0.4)
(1.8)
(0.9)
0.4
(0.5)
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, 2023, with all other variables held constant, a 50-basis point decrease in interest
rates would have resulted in a decrease to interest income of $3.2 million for the year (2022 - a decrease to interest
income of $2.8 million). A 50-basis point increase in interest rates would have resulted in an increase to interest
income of $3.9 million for the year (2022 - an increase to interest income of $2.8 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, 2023.
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, 2023, approximately 44.9% (2022 - 48.6%) of the Company’s trade receivables are due from
three major retail customers which represent approximately 51.7% of Toy gross product sales for the year ended
December 31, 2023 (2022 - 52.2%).
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.
48
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
29. Financial instruments and risk management (continued)
The Company's contractual maturities are as follows:
As at December 31, 2023 (US$ millions)
< 1 year
1-5 years
Total
Derivative financial liabilities
Foreign exchange forward contracts
Non-derivative financial liabilities
Trade payables and accrued liabilities
Financing facilities
(US$ millions)
Bank loan facilities
Amount undrawn
Bank loan facilities
Fair value measurements
156.0
7.4
163.4
385.4
541.4
—
7.4
385.4
548.8
Dec 31,
2023
733.5
733.5
Dec 31,
2022
533.5
533.5
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, net
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,
2023
Dec 31,
2022
705.7
414.4
60.0
11.3
3.7
4.6
4.1
1,203.8
644.3
311.0
49.5
8.8
3.9
3.6
1.7
1,022.8
385.4
385.4
339.4
339.4
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, 2023 resulted in an unrealized gain of $4.1
million, which is recorded in Other assets (December 31, 2022 - $1.7 million) and an unrealized loss of $2.3 million
recorded in accrued liabilities (December 31, 2022 - $6.3 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.
49
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
29. Financial instruments and risk management (continued)
The fair value of the investment in a limited partnership as at December 31, 2023 is recorded in Other assets at
$3.7 million (December 31, 2022 - $3.9 million). For the year ended December 31, 2023 and 2022, the Company
recognized $0.1 million (2022 - $nil) in net unrealized gain and $0.1 million (2022 - $0.1 million) in net realized gain
in Other expense, net. During the year ended December 31, 2023, the Company received $0.3 million (2022 - $nil)
of distribution income in net realized gain related to the investment.
This fair value is categorized within Level 3 of the fair value hierarchy. The fair value of the investment in a limited
partnership is estimated using various valuations techniques through the partnership based on the type of
investment held by the fund. The quantitative unobservable inputs used in the fair value measurement are not
developed by the Company and include assumptions regarding long-term revenue growth rates and discount rates,
among others. The investment in a limited partnership is held for medium to long-term strategic purposes.
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,
2023
3.0
8.3
11.3
2022
3.0
5.8
8.8
For the year ended December 31, 2023, there were no gains or losses (2022 - $0.5 million loss) was recognized for
the 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, 2023, there were no gains or losses (2022 - $0.1 million gain) 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.
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 Chief Operating Decision Maker ("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.
50
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
30.
Segment information (continued)
The Company’s results from operations by reportable operating segment for the year ended December 31, 2023
and December 31, 2022 are as follows:
(US$ millions)
Toys
Year Ended Dec 31, 2023
Digital
Games
Corporate &
Other
Entertainment
Total
Revenue
1,540.9
190.1
173.9
—
1,904.9
Operating Income (Loss)
Adjustments:
Restructuring and other related costs
Foreign exchange loss
Share based compensation
Impairment of goodwill
Impairment of property, plant and equipment
Impairment of intangible assets
Legal settlement recovery
Acquisition related deferred incentive
compensation
Net unrealized gain on investment
Net realized gain on investment
Acquisition related deferred consideration
Transaction costs
Depreciation and amortization
Adjusted EBITDA
101.0
78.0
49.1
(39.2)
188.9
16.3
—
14.1
26.7
0.9
5.4
—
2.7
—
—
(5.6)
—
50.9
212.4
0.3
—
1.4
—
—
1.0
—
—
—
—
—
—
70.8
151.5
1.5
—
2.9
—
—
0.7
—
4.9
—
—
(1.0)
—
8.2
66.3
—
14.7
1.7
—
—
1.1
(0.6)
—
(0.1)
(0.1)
(0.2)
11.1
0.2
(11.4)
18.1
14.7
20.1
26.7
0.9
8.2
(0.6)
7.6
(0.1)
(0.1)
(6.8)
11.1
130.1
418.8
(US$ millions)
Year Ended Dec 31, 2023
Capital expenditures
34.6
52.1
20.7
—
107.4
Toys
Entertainment
Digital
Games
Corporate &
Other
Total
51
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
30.
Segment information (continued)
(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
Adjustments:
Restructuring and other related costs
Foreign exchange gain
Share based compensation
Impairment of property, plant and equipment
Impairment of intangible assets
Legal settlement recovery
Acquisition related deferred incentive
compensation
Net realized gain on investment
Acquisition related deferred consideration
Fair value loss on Venture investments
Transaction costs
Depreciation and amortization
Adjusted EBITDA
170.1
76.7
46.5
50.0
343.3
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
—
(61.4)
1.7
—
—
(0.5)
—
(0.1)
(0.9)
0.5
1.0
0.1
(9.6)
4.9
(61.4)
17.6
1.9
1.1
(0.5)
10.3
(0.1)
2.6
0.5
1.0
68.2
389.4
(US$ millions)
Toys
Year Ended Dec 31, 2022
Digital
Games
Corporate &
Other
Entertainment
Total
Capital expenditures
32.4
54.9
12.1
—
99.4
52
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
30.
Segment information (continued)
Revenue reported by segment above represents revenue generated from external customers. There was 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 year ended December 31, 2023 and December 31, 2022:
(US$ millions)
Revenue from reportable segments
Adjusted EBITDA
Adjusting Items:
Depreciation and amortization
Restructuring and other related costs
Foreign exchange (loss) gain
Share based compensation
Impairment of goodwill
Impairment of property, plant and equipment
Impairment of intangible assets
Legal settlement recovery
Acquisition related deferred incentive compensation
Net unrealized gain on investment
Net realized gain on investment
Loss on minority interest and other investments
Acquisition related contingent consideration
Transaction costs
Operating Income
Add (Deduct):
Interest income
Interest expense
Income before income tax expense
Year Ended Dec 31
2023
2022
1,904.9
2,020.3
418.8
389.4
(130.1)
(18.1)
(14.7)
(20.1)
(26.7)
(0.9)
(8.2)
0.6
(7.6)
0.1
0.1
—
6.8
(11.1)
188.9
27.4
(15.1)
201.2
(68.2)
(4.9)
61.4
(17.6)
—
(1.9)
(1.1)
0.5
(10.3)
—
0.1
(0.5)
(2.6)
(1.0)
343.3
10.7
(13.6)
340.4
53
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
30.
Segment information (continued)
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
Year Ended Dec 31,
2023
817.7
487.5
409.3
72.7
2022
867.0
561.7
450.8
99.3
1,787.2
1,978.8
(246.3)
(241.2)
1,540.9
1,737.6
190.1
173.9
118.8
163.9
2,020.3
Revenue
1Toy gross product sales represent sales of the Company’s products to customers, excluding sales allowances.
1,904.9
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, Greece, Portugal and Spain. The Rest of World is 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,
2023
2022
1,012.1
1,189.8
505.9
269.2
525.0
264.0
1,787.2
1,978.8
(246.3)
(241.2)
1,540.9
1,737.6
190.1
173.9
118.8
163.9
1,904.9
2,020.3
Toy gross product sales for North America include amounts attributable to the United States of $0.9 million (2022 -
$1,093.3 million) and Canada of $0.1 million (2022 - $96.5 million) for the year ended December 31, 2023.
54
Spin Master Corp.
Consolidated financial statements for the years ended December 31, 2023 and December 31, 2022
30.
Segment information (continued)
Non-current assets by major geographic region are detailed as follows:
(US$ millions)
Non-current assets
North America
Europe
Rest of World
Non-current assets
Other
Total non-current assets
Dec 31,
2023
Dec 31,
2022
422.8
85.6
26.7
535.1
135.6
670.7
404.1
79.0
18.7
501.8
158.5
660.3
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 $157.5 million as at December 31,
2023 (December 31, 2022 - $164.5 million).
Major customers
Sales to the Company's three largest customers accounted for 51.7% (2022 - 52.2%) of Toy gross product sales for
the year ended December 31, 2023. The Toys segment sells products to each of the Company’s three largest
customers. Other than the top three customers, which have remained the same as compared to the comparative
period, no other single customer contributed 10% or more to Toy gross product sales for the year ended
December 31, 2023 and 2022.
(US$ millions)
Toy gross product sales
Customer 1
Customer 2
Customer 3
Total
31.
Subsequent events
Year Ended Dec 31,
2023
2022
356.9
307.1
260.6
924.6
422.0
333.3
277.5
1,032.8
On January 2, 2024, the Company, through its subsidiaries, completed the acquisition of all of the issued and
outstanding capital stock in MND Holdings I Corp ("Melissa & Doug"). Melissa & Doug is a leading brand in early
childhood play with offerings of open-ended, creative, and developmental toys. The acquisition will be reported in
the Toys segment beginning from the date of acquisition.
The preliminary estimate of purchase consideration of $959.0 million, net of $32.7 million in estimated cash
acquired is comprised of $950.0 million of base consideration adjusted for an estimated $9.0 million for net working
capital and liabilities assumed. Spin Master funded the $959.0 million purchase price with $434.0 million cash and
$525.0 million of debt. The debt was sourced through a partial drawdown of $300.0 million from the Company's
Facility and $225.0 million from the Acquisition Facility.
Given the timing of the transaction and measurement uncertainty with final purchase agreement consideration
adjustments, the purchase price allocation is ongoing and will be disclosed in the Company's first quarter 2024
condensed consolidated interim financial statements.
There were $10.1 million in transaction related costs included in administrative expenses in the Consolidated
statement of earnings and comprehensive income for the year ended December 31, 2023.
55
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 R. 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
Max Rangel
Director, Global President &
Chief Executive Officer
Mark Segal
Executive Vice President &
Chief Financial Officer
Doug Wadleigh
President, Toys
Jennifer Dodge
President, Entertainment
Fredrik Loving
President, Digital Games
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
David Voss
Executive Vice President, Toy Design &
Development
Jason Wilson
Executive Vice President &
Chief Information Officer
Head Office
225 King Street West, Suite 200
Toronto, ON M5V 3M2
Toronto Stock
Exchange Listing
Trading symbol: TOY
Securities listed: Subordinate
Voting Shares
Auditor
Deloitte LLP
8 Adelaide Street West, Suite 200
Toronto, ON M5H 0A9
Registrar &
Transfer Agent
Computershare Investor Services Inc.
100 University Avenue, 8th Floor
Toronto, ON M5J 2Y1
Annual Meeting
of Shareholders
May 8, 2024
Investor Contact
Information
Email:
investor.relations@spinmaster.com
Spin Master’s financial reports, regulatory
filings and news releases are available
at sedarplus.com and on our website
at spinmaster.com/en-US/corporate/
investor-relations.
The trademarks contained in this report are owned by Spin Master Corp. or by its subsidiaries.
Trademarks that are not owned by Spin Master Corp. are used with permission.
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Spin Master Corp.
225 King Street West, Suite 200, Toronto, ON M5V 3M2
Tel. (416) 364-6002 Fax (416) 364-5097
spinmaster.com