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Item 2. Management’s Discussion and Analysis

2022-10-26 compared with 2022-07-26 · 404 added, 374 removed, 292 unchanged (73% of the section changed)

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EXECUTIVE SUMMARY

(“Hasbro”) is a global play and entertainment company committed to Creating the World’s Best Play and Entertainment Experiences and making the world a better place for all children, fans and families.

Hasbro delivers immersive brand experiences for global audiences through consumer products, including toys and games;

gaming, led by the team at Wizards of the Coast, an award-winning developer of tabletop and digital games;

and entertainment through Entertainment One (“eOne”), our independent studio.

The Company’s unparalleled portfolio of approximately 1,500 brands includes MAGIC:

THE GATHERING, NERF, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, MONOPOLY, BABY ALIVE, DUNGEONS & DRAGONS, POWER RANGERS, PEPPA PIG and PJ MASKS, as well as premier partner brands.

For the past decade, we have been consistently recognized for our corporate citizenship, including being named one of the 100 Best Corporate Citizens by 3BL Media and one of the World’s Most Ethical Companies by Ethisphere Institute.

Our strategic plan is centered around the Hasbro Brand Blueprint, a framework for bringing compelling and expansive brand experiences to consumers and audiences around the world.

Our brands are story-led consumer franchises brought to life through a wide array of consumer products, digital gaming and compelling content offered across a multitude of platforms and media.

Our commitment to disciplined, strategic investments across the Brand Blueprint over the long-term has built a differentiated business with diversified capabilities to drive profitable growth and enhance shareholder value.

As we continue to evolve our strategy, our teams are driving focus and scale in gaming, multi-generational brands, entertainment creation and direct to consumer.

Hasbro's purpose of making the world a better place for all children, fans and families sits at the center of the Hasbro Brand Blueprint and is a key driver of our brands and content.

The value of Hasbro is fully activated when we can take a brand across multiple elements of the Brand Blueprint – consumer products;

Wizards of the Coast and digital gaming;

and entertainment.

The ability to build a brand in any of our segments and leverage in-house capabilities to create multiple categories of engagement with consumers and fans is unique to Hasbro and optimizes our economics today and in the future.

During each of the periods presented in this Form 10-Q there were certain charges incurred which impacted operating results.

These charges are detailed below in the Results of Operations - Consolidated.

(“Hasbro”) is a global branded entertainment leader whose mission is to entertain and connect generations of fans through the wonder of storytelling and exhilaration of play.

We deliver engaging brand experiences for global audiences through gaming, consumer products and entertainment, with a portfolio of iconic brands including MAGIC:

THE GATHERING, DUNGEONS & DRAGONS, Hasbro Gaming, NERF, TRANSFORMERS, PLAY-DOH and PEPPA PIG, as well as premier partner brands.

Hasbro is guided by its purpose to create joy and community for all people around the world, one game, one toy, one story at a time.

For more than a decade, we have been consistently recognized for our corporate citizenship, including being named one of the 100 Best Corporate Citizens by 3BL Media, one of the World’s Most Ethical Companies by Ethisphere Institute and one of the 50 Most Community-Minded Companies in the U.S.

by the Civic 50.

Blueprint 2.0 and Operational Excellence

On October 4, 2022, following a nine-month strategic review of our business, we announced a new go-forward strategic plan guided by our new Blueprint 2.0, a framework for bringing compelling and expansive brand experiences to consumers and audiences around the world.

This consumer-centric approach focuses on fewer, bigger brands, expanded licensing, Hasbro branded entertainment, and driving high-margin growth in games, digital and direct to consumer.

In our review, we identified opportunities to focus and scale our business, enhance operational excellence, including through organizational and supply chain programs, and drive growth and profit.

We plan to focus investment on our most valuable and profitable franchises across toys, games, entertainment and licensing, and to exit certain non-core aspects of the business.

Under this plan, we plan to deliver annual run-rate cost savings of $250 million to $300 million by the end of 2025.

To achieve these savings, we expect to incur approximately $200 million in cash charges through 2024, with approximately $20 million paid in 2022, $120 million paid in 2023, and the balance of $60 million paid in 2024.

A pre-tax charge of $55.3 million was recorded in the third quarter of 2022 associated with the program, primarily from a loss on assets held for sale as well as severance and other employee charges.

Coronavirus Pandemic

Since the onset of the novel coronavirus (COVID-19) pandemic in early 2020, our business has been adversely impacted by the challenges and risks associated with both the initial, and the continuing effects of the spread of the virus worldwide.

Certain effects of the COVID-19 pandemic, including difficulties in shipping and distributing products due to ongoing constraints in port capacity, shipping containers and truck transportation, have continued through the first six months of 2022 and are expected to continue through the remainder of the year.

These and other disruptions have led to higher costs for both ocean and air freight and delays in the availability of products, which can result in delayed sales and, in some cases, lost sales.

In response to these and other challenges, we have developed and continue to evaluate and execute plans to mitigate the negative impacts of COVID-19 to our business.

For example, we implemented certain price increases in the first half of 2022 and in 2021, to mitigate product input and freight cost increases.

The Company continues to review the impact of increasing costs and implemented further price increases in its Wizards of the Coast tabletop business in July 2022.

We believe these mitigating actions will help manage the adverse impacts to our financial results for fiscal year 2022.

The COVID-19 outbreak continues to be fluid and it is difficult to forecast the impact it could have on our future operations.

These and other disruptions led to higher costs for both ocean and air freight and delays in the availability of products, which can result in delayed sales and, in some cases, lost sales.

In response to these and other challenges, we have developed and continue to evaluate and execute plans to mitigate the negative impacts of COVID-19 to our business, which we believe will help manage the adverse impacts to our financial results for fiscal year 2022.

For example, the Company implemented certain price increases during the first nine months of 2022 and in 2021, to mitigate product input and freight cost increases.

Additionally, during the first half of 2022, the Company accelerated certain inventory purchases to ensure sufficient finished goods and raw material availability, ahead of expected periods of high consumer demand due to supply chain constraints, driving higher inventory balances within certain markets as compared to prior year.

The Company plans to launch incremental year-over-year advertising and promotional activity behind key holiday toy and game items to drive our newest innovation while reducing inventory on hand at Hasbro and at retail.

The effect of COVID-19 on our business continues to be fluid and it is difficult to forecast the impact it could have on our future operations.

However, since the initial outbreak, we have maintained sufficient liquidity and access to capital resources and we continue to closely monitor customer health and collectability of receivables.

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D&D Beyond Acquisition

During the second quarter of 2022, the Company completed the strategic, complementary acquisition of D&D Beyond ("D&D Beyond Acquisition"), the premier digital content platform for DUNGEONS & DRAGONS, in an all-cash transaction for a purchase price of $146.3 million.

D&D Beyond Acquisition is expected to substantially accelerate direct-to-fans capability for DUNGEONS & DRAGONS in physical and digital play .

During the second quarter of 2022, the Company completed the strategic, complementary acquisition of D&D Beyond (the "D&D Beyond Acquisition"), the premier digital content platform for DUNGEONS & DRAGONS, in an all-cash transaction for a purchase price of $146.3 million.

The D&D Beyond Acquisition is expected to substantially accelerate direct-to-fans capability for DUNGEONS & DRAGONS in physical and digital play .

See note 1 to the consolidated financial statements included in Part I of this Form 10-Q for further discussion.

Second quarter 2022 highlights:

• Second quarter net revenues of $1.3 billion increased 1% compared to the second quarter of 2021 and included an unfavorable foreign currency translation of $32.7 million.

Absent the unfavorable impact of foreign currency exchange, first quarter net revenues increased 4%.

• Consumer Products segment net revenues increased 7% to $734.2 million.

Wizards of the Coast and Digital Gaming segment net revenues increased 3% to $419.8 million;

During each of the periods presented in this Form 10-Q there were certain charges incurred which impacted operating results.

These charges are detailed below in the Results of Operations - Consolidated.

Third quarter 2022 highlights:

• Third quarter net revenues of $1.7 billion decreased 15% compared to the third quarter of 2021 and included an unfavorable foreign currency translation of $53.7 million.

Absent the unfavorable impact of foreign currency exchange, third quarter net revenues decreased 12%.

• Consumer Products segment net revenues declined 10% to $1,160.8 million.

Wizards of the Coast and Digital Gaming segment net revenues declined 16% to $303.5 million;

and Entertainment segment net revenues declined 35% to $211.6 million.

• Net revenues from Franchise Brands increased 10%;

Partner Brands net revenues increased 3%;

Emerging Brands net revenues increased 3%;

• Net revenues from Franchise Brands decreased 12%;

Partner Brands net revenues decreased 5%;

Hasbro Gaming net revenues decreased 25%;

and TV/Film/Entertainment portfolio net revenues decreased 19%, reflecting the sale of eOne Music which represented $33.4 million of TV/Film/Entertainment portfolio net revenues in the second quarter of 2021.

• Operating profit was $219.1 million, or 16.4% of net revenue, in the second quarter of 2022 compared to operating profit of $76.6 million, or 5.8% of net revenue, in the second quarter of 2021.

• Operating Profit in the Wizards of the Coast and Digital Gaming segment increased 17% to $225.6 million;

Entertainment segment operating profit increased >100% to $14.3 million;

Consumer Products segment operating results decreased >100% to an operating loss of $6.5 million;

and Corporate and Other operating results decreased 30% to an operating loss of $14.3 million.

• Second quarter 2021 operating profit was negatively impacted by a pre-tax non-cash impairment charge of $101.8 million and pre-tax cash transaction expenses of $9.5 million ($7.3 million after-tax) associated with the sale of eOne Music.

• Certain other charges impacted operating segment performance for the second quarter of 2022 and 2021, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results.

Emerging Brands net revenues decreased 8%;

and TV/Film/Entertainment portfolio net revenues decreased 32%.

• Operating profit was $194.3 million, or 11.6% of net revenue, in the third quarter of 2022 compared to operating profit of $367.9 million, or 18.7% of net revenue, in the third quarter of 2021.

• Operating Profit in the Consumer Products segment decreased 35% to $136.8 million;

Wizards of the Coast and Digital Gaming segment operating profit decreased 36% to $102.2 million;

Entertainment segment operating results decreased greater than 100% to an operating loss of $28.9 million;

and Corporate and Other operating losses improved by 35% to an operating loss of $15.8 million.

• Operating profit in the third quarter of 2022 was negatively impacted by charges totaling $55.3 million ($49.4 million after-tax) related to the Company's operational excellence program comprised of charges related to the exit of certain non-core businesses and discontinued projects within the Entertainment segment combined with severance and other employee charges and consultant fees within the Corporate and Other segment.

These charges resulted from the Company's nine-month strategic review.

See Results of Operations - Consolidated below for details of these charges.

• Certain other charges impacted operating segment performance for the third quarter of 2022 and 2021, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results.

• Net earnings attributable to Hasbro, Inc.

of $142.0 million, or $1.02 per diluted share, in the second quarter of 2022 compared to net losses of $22.9 million, or $0.17 per diluted share, in the second quarter of 2021.

The net loss in the second quarter of 2021 included the loss on assets held for sale from the Music business, as discussed above.

First six months 2022 highlights:

• Net revenues increased 3% to $2,502.3 million in first six months of 2022 compared to $2,437.0 million in the first six months of 2021.

The increase in net revenues included $50.1 million of unfavorable foreign currency translation.

Absent the impact of foreign currency exchange, net revenues increased 5%.

• Net revenues in the Consumer Products segment increased 5% to $1,407.0 million;

Wizards of the Coast and Digital Gaming segment net revenues increased 5% to $682.6 million;

of $129.2 million, or $0.93 per diluted share, in the third quarter of 2022 compared to net earnings of $253.2 million, or $1.83 per diluted share, in the third quarter of 2021.

First nine months 2022 highlights:

• Net revenues decreased 5% to $4,178.2 million in first nine months of 2022 compared to $4,407.0 million in the first nine months of 2021.

The decrease in net revenues included $103.8 million of unfavorable foreign currency translation.

Absent the impact of foreign currency exchange, net revenues decreased 3%.

• Net revenues in the Consumer Products segment decreased 2% to $2,567.8 million;

Wizards of the Coast and Digital Gaming segment net revenues decreased 2% to $986.1 million;

and Entertainment segment net revenues decreased 19% to $624.3 million.

• Net revenues from Franchise Brands increased 7%;

• Net revenues from Franchise Brands decreased 1%;

Partner Brands net revenues increased 1%;

Emerging brands net revenues increased 3%;

Hasbro Gaming net revenues decreased 15%;

and Entertainment segment net revenues decreased 10% during the first six months of 2022.

• Operating profit was $339.1 million, or 13.6% of net revenues, in the first six months of 2022 compared to operating profit of $223.9 million, or 9.2% of net revenues, in the first six months of 2021.

• Operating profit in the Wizards of the Coast and Digital Gaming segment increased 10% to $332.0 million;

Entertainment segment operating profit increased >100% to $26.5 million;

Consumer Products segment operating profit decreased 96% to $2.1 million;

Emerging brands net revenues decreased 2%;

and TV/Film/Entertainment portfolio net revenues decreased 19% during the first nine months of 2022.

• Operating profit was $533.4 million, or 12.8% of net revenues, in the first nine months of 2022 compared to operating profit of $591.8 million, or 13.4% of net revenues, in the first nine months of 2021.

• Operating profit in the Consumer Products segment decreased 47% to $138.9 million;

Wizards of the Coast and Digital Gaming segment operating profit decreased 6% to $434.2 million;

Entertainment segment operating results improved 97% to an operating loss of $2.4 million;

and Corporate and Other operating losses improved by 34% to an operating loss of $37.3 million.

• Operating profit in the first half of 2021 was negatively impacted by a pre-tax non-cash impairment charge of $101.8 million and pre-tax cash transaction expenses of $9.5 million ($7.3 million after-tax) associated with the sale of eOne Music.

• Certain other charges impacted operating segment performance for the first six months of 2022 and 2021, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results.

• Operating profit in the first nine months of 2022 was negatively impacted by charges totaling $55.3 million ($49.4 million after-tax) related to the Company’s operational excellence program comprised of charges related to the exit of certain non-core businesses and discontinued projects within the Entertainment segment combined with severance and other employee charges and consultant fees within the Corporate and Other segment.

These charges resulted from the Company's nine-month strategic review.

See Results of Operations - Consolidated below for details of these charges.

• Operating profit in the first nine months of 2021 was negatively impacted by a pre-tax non-cash impairment charge of $101.8 million and pre-tax cash transaction expenses of $9.5 million ($7.3 million after-tax) associated with the sale of eOne Music.

• Certain other charges impacted operating segment performance for the first nine months of 2022 and 2021, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results.

• Net earnings attributable to Hasbro, Inc.

was $203.2 million, or $1.46 per diluted share, in the first six months of 2022 compared to net earnings attributable to Hasbro, Inc.

of $93.3 million, or $0.68 per diluted share, in the first six months of 2021.

The net earnings in the first six months of 2021 included the loss on assets held for sale from the Music business, as discussed above.

was $332.4 million, or $2.39 per diluted share, in the first nine months of 2022 compared to net earnings attributable to Hasbro, Inc.

of $346.5 million, or $2.51 per diluted share, in the first nine months of 2021.

The net earnings in the first nine months of 2021 included the loss on assets held for sale from the Music business, as discussed above.

The impact of changes in foreign currency exchange rates used to translate the consolidated statements of operations is quantified by translating the current period revenues at the prior period exchange rates and comparing this amount to the prior period reported revenues.

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SUMMARY OF FINANCIAL PERFORMANCE

A summary of the results of operations is illustrated below for the quarters and six-month periods ended June 26, 2022 and June 27, 2021.

Quarter Ended Six Months Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

A summary of the results of operations is illustrated below for the quarters and nine-month periods ended September 25, 2022 and September 26, 2021.

Quarter Ended Nine Months Ended

September 25, 2022 September 26, 2021 September 25, 2022 September 26, 2021

Net revenues $ 1,675.9 $ 1,970.0 $ 4,178.2 $ 4,407.0

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Earnings before income taxes 165.6 323.4 425.7 494.0

Net earnings (loss) 140.5 (21.9) 203.4 95.6

Net earnings 128.2 254.9 331.6 350.5

Net (loss) earnings attributable to noncontrolling interests (1.0) 1.7 (0.8) 4.0

Net earnings (loss) attributable to Hasbro, Inc.

Net earnings attributable to Hasbro, Inc.

129.2 253.2 332.4 346.5

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Net earnings and diluted earnings per share attributable to Hasbro, Inc.

for the quarters and six-month periods ended June 26, 2022 and June 27, 2021 include certain charges as described below.

• After-tax charges of $15.3 million, or $0.11 per diluted share and $31.2 million, or $0.22 per diluted share, of intangible amortization costs for the quarter and six-month periods ended June 26, 2022, respectively, related to the intangible assets acquired in the eOne acquisition.

for the quarters and nine-month periods ended September 25, 2022 and September 26, 2021 include certain charges as described below.

• After-tax charges of $49.4 million, or $0.36 per diluted share for both the quarter and nine-month periods ended September 25, 2022 consisting of:

◦ a Loss on Assets Held for Sale of $21.1 million comprised of a non-cash goodwill impairment loss of $11.8 million and other asset impairments of $9.3 million, related to the exit of non-core businesses within the Entertainment segment.

The assets and liabilities of these business were revalued and disclosed separately on the balance sheet;

◦ asset impairment charges of $3.7 million related to projects discontinued as part of the Company's strategic review included in Program Cost Amortization within the Entertainment segment;

◦ severance and other employee charges of $19.1 million associated with cost-savings initiatives across the Company included within Selling, Distribution and Administration within the Corporate and Other segment;

◦ program related consultant fees of $5.5 million included within Selling, Distribution and Administration within the Corporate and Other segment.

• After-tax charges of $14.3 million, or $0.10 per diluted share and $45.5 million, or $0.33 per diluted share, of intangible amortization costs for the quarter and nine-month periods ended September 25, 2022, respectively, related to the intangible assets acquired in the eOne Acquisition.

Beginning in 2022, these intangible amortization costs have been allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets.

• After-tax charges of $3.2 million, $0.02 per diluted share and $5.6 million, or $0.04 per diluted share, for the quarter and six-month periods ended June 26, 2022, respectively, of expense associated with retention awards granted in connection with the eOne acquisition.

• After-tax charges of $3.3 million, $0.02 per diluted share and $8.9 million, or $0.06 per diluted share, for the quarter and nine-month periods ended September 25, 2022, respectively, of expense associated with retention awards granted in connection with the eOne Acquisition.

These expenses are included within Selling, Distribution and Administration within the Corporate and Other segment.

• After-tax charges of $18.2 million, or $0.13 per diluted share and $38.7 million, or $0.28 per diluted share, of intangible amortization costs for the quarter and six-month periods ended June 27, 2021, respectively, related to the intangible assets acquired in the eOne acquisition.

• After-tax charges of $16.3 million, or $0.12 per diluted share and $55.0 million, or $0.40 per diluted share, of intangible amortization costs for the quarter and nine-month periods ended September 26, 2021, respectively, related to the intangible assets acquired in the eOne Acquisition.

In 2021, these intangible amortization costs were recorded within the Entertainment segment.

• After-tax charges of $1.6 million, $0.01 per diluted share and $3.3 million, or $0.02 per diluted share, for the quarter and six-month periods ended June 27, 2021, respectively, of expense associated with retention awards granted in connection with the eOne acquisition.

• After-tax charges of $1.7 million, $0.01 per diluted share and $5.0 million, or $0.04 per diluted share, for the quarter and nine-month periods ended September 26, 2021, respectively, of expense associated with retention awards granted in connection with the eOne Acquisition.

These expenses are included within Selling, Distribution and Administration within the Corporate segment.

• After-tax charge of $109.1 million, or $0.79 per diluted share for quarter and six-month periods ended June 27, 2021, comprised of a non-cash goodwill impairment charge of $101.8 million and transaction expenses of $7.3 million, associated with the sale of eOne Music.

• After-tax charge of $109.1 million, or $0.79 per diluted share for the nine-month period ended September 26, 2021, comprised of a non-cash goodwill impairment charge of $101.8 million and transaction expenses of $7.3 million, associated with the sale of eOne Music.

The goodwill impairment charge of $101.8 million was based on revalued assets and liabilities of eOne Music as of the second quarter of 2021.

• A net charge of $39.4 million, or $0.29 per diluted share, for quarter and six-month periods ended June 27, 2021, of income tax expense as a result of revaluation of Hasbro’s UK tax attributes in accordance with the Finance Act 2021 enacted by the United Kingdom on June 10, 2021.

Second Quarter 2022

The quarters ended June 26, 2022 and June 27, 2021 were each 13-week periods.

Consolidated net revenues for the second quarter of 2022 grew 1% to $1,339.2 million from $1,322.2 million for the second quarter of 2021 and included an unfavorable $32.7 million impact from foreign currency translation as a result of weakening currencies, primarily in Europe.

Operating profit for the second quarter of 2022 was $219.1 million, or 16.4% of net revenues, compared to operating profit of $76.6 million, or 5.8% of net revenues, for the second quarter of 2021.

The operating profit increase was primarily driven by the impact to the prior year of the pre-tax non-cash impairment charge of $101.8 million and lower advertising and administrative costs in the second quarter of 2022, in each case as a result of the sale of eOne Music in 2021.

In addition, the operating profit increase in the second quarter of 2022 was the result of lower program amortization costs within the Entertainment segment, reflecting the mix and timing of entertainment deliveries in the quarter compared to the second quarter of 2021, lower compensation expense, and lower advertising and depreciation costs within the Wizards of the Coast and Digital Gaming segment, due to digital gaming launches in the second quarter of 2021.

These decreases were partially offset by higher costs of sales due to higher product input and freight costs as a result of rising costs and supply chain disruptions, as well as higher obsolescence charges in Russia and higher costs for consulting and other professional services associated with the annual shareholder meeting.

The following table presents net revenues by brand and entertainment portfolio for the quarters ended June 26, 2022 and June 27, 2021.

• A net charge of $39.4 million, or $0.28 per diluted share, for quarter and nine-month periods ended September 26, 2021, of income tax expense as a result of revaluation of Hasbro’s UK tax attributes in accordance with the Finance Act 2021 enacted by the United Kingdom on June 10, 2021.

Third Quarter 2022

The quarters ended September 25, 2022 and September 26, 2021 were each 13-week periods.

Consolidated net revenues for the third quarter of 2022 declined 15% to $1,675.9 million from $1,970.0 million for the third quarter of 2021 and included an unfavorable $53.7 million impact from foreign currency translation as a result of weakening currencies, primarily in Europe.

Operating profit for the third quarter of 2022 was $194.3 million, or 11.6% of net revenues, compared to operating profit of $367.9 million, or 18.7% of net revenues, for the third quarter of 2021.

In addition to the charges to operating profit described above, the operating profit decrease in the third quarter of 2022 was the result of lower revenue volumes and a reduction in gross margin driven by increased product costs and higher sales allowances, most notably within the Consumer Products segment, partially offset by lower program cost amortization related to lower revenues within the Entertainment segment.

Also contributing to the decrease in operating profit were increased inventory obsolescence charges associated with higher inventory levels, as well as higher marketing and sales expense.

These impacts to operating profit were partially offset by lower advertising expense and lower royalty expense reflecting the mix and timing of entertainment deliveries in the quarter compared to the third quarter of 2021.

The following table presents net revenues by brand and entertainment portfolio for the quarters ended September 25, 2022 and September 26, 2021.

Quarter Ended

June 26, 2022 June 27, 2021 %

September 25, 2022 September 26, 2021 %

Franchise Brands $ 814.1 $ 925.1 -12 %

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Total $ 1,675.9 $ 1,970.0 -15 %

Brand portfolio net revenues for the second quarter of 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, effective for the first quarter of 2022.

As a result, second quarter 2021 net revenues of $27.3 million were reclassified from Emerging Brands to Franchise Brands.

Brand portfolio net revenues for the third quarter of 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, effective for the first quarter of 2022.

As a result, third quarter 2021 net revenues of $43.1 million were reclassified from Emerging Brands to Franchise Brands.

FRANCHISE BRANDS:

Net revenues in the Franchise Brands portfolio increased 10% in the second quarter of 2022 compared to the second quarter of 2021.

Drivers of the net revenue increase include higher net revenues from MAGIC:

THE GATHERING products reflecting a favorable set release cadence during the second quarter of 2022, led by sales of the Commander Legends:

Battle for Baldur's Gate and Double Masters set releases, as well as higher net revenues from PLAY-DOH products and higher net revenues from PEPPA PIG, driven by the third quarter 2021 launch of the Company's first line of PEPPA PIG products.

To a lesser extent, higher sales of MY LITTLE PONY products, following the September 2021 release of the feature length film, MY LITTLE PONY:

A NEW GENERATION and the associated product line, drove growth in the second quarter of 2022.

These net revenue increases were partially offset by lower net revenues from TRANSFORMERS and MONOPOLY products.

Net revenues in the Franchise Brands portfolio decreased 12% in the third quarter of 2022 compared to the third quarter of 2021.

Drivers of the net revenue decrease include lower net revenues from MAGIC:

THE GATHERING products, reflecting a shift in set release cadence during the third quarter of 2022 compared to the third quarter of 2021, as well as lower net revenues from NERF and MONOPOLY products.

In addition, the decrease in Franchise Brands net revenues includes lower sales of MY LITTLE PONY content compared to the third quarter of 2021, which benefited from the September 2021 release of MY LITTLE PONY:

A NEW GENERATION and the associated product line.

These net revenue decreases were partially offset by higher net revenues from PLAY-DOH and PEPPA PIG products.

PARTNER BRANDS:

Net revenues from the Partner Brands portfolio increased 3% in the second quarter of 2022 compared to the second quarter of 2021.

Net revenues from the Partner Brands portfolio decreased 5% in the third quarter of 2022 compared to the third quarter of 2021.

Within the Partner Brands portfolio, there are a number of brands which are reliant on related entertainment, including television and movie releases.

As such, net revenues from partner brands fluctuate depending on entertainment popularity, release dates and related product line offerings and success.

As such, net revenues from partner brands fluctuate depending on entertainment popularity, release dates and related product line offerings.

Historically these entertainment-based brands experience higher revenues during years in which new content is released in theaters, for broadcast, and on streaming platforms.

During the second quarter of 2022, Partner Brands net revenue increases were driven by the Company's products for MARVEL, primarily from momentum in the SPIDER-MAN franchise which benefited from entertainment releases including Marvel Studios' SPIDER-MAN:

NO WAY HOME, released in December 2021 and the children’s animated television series Marvel's SPIDEY and HIS AMAZING FRIENDS.

In addition, the Company's products for Marvel's AVENGERS benefited from the release of Marvel Studios' DOCTOR STRANGE in the MULTIVERSE of MADNESS , in May 2022 and THOR:

LOVE AND THUNDER, ahead of the July 2022 release.

To a lesser extent, net revenues from the Company's line of STAR WARS products increased as a result of the entertainment lineup from Lucasfilms including, THE BOOK of BOBA FETT, released in the first fiscal quarter of 2022 and the launch of the STAR WARS series OBI-WAN KENOBI series during the second quarter of 2022, both streaming on Disney+.

These increases were partially offset by net revenue declines from BEYBLADE and DISNEY FROZEN products during the second quarter of 2022.

During the third quarter of 2022, Partner Brands net revenue decreases were driven by lower sales of the Company's products for BEYBLADE and GHOSTBUSTERS as well as lower sales of the Company's products for DISNEY FROZEN and DISNEY PRINCESS.

These net revenue decreases were partially offset by higher net revenues from the Company's line of STAR WARS products supported by the entertainment lineup from Lucasfilms including, THE BOOK of BOBA FETT, released in the first fiscal quarter of 2022 and the launch of the STAR WARS series OBI-WAN KENOBI series during the second quarter of 2022, both streaming on Disney+.

In addition, higher net revenues from the Company's products for MARVEL benefited ahead of the release of BLACK PANTHER:

WAKANDA FOREVER , expected in November 2022 and reflect momentum in the SPIDER-MAN franchise which benefited from entertainment releases including the children’s animated television series, Marvel's SPIDEY and HIS AMAZING FRIENDS and Marvel Studios' SPIDER-MAN:

NO WAY HOME, released in December 2021 .

To a lesser extent, the Company's products for Marvel's AVENGERS benefited from the July 2022 release of THOR:

LOVE AND THUNDER.

HASBRO GAMING:

Net revenues in the Hasbro Gaming portfolio decreased 14% in the second quarter of 2022 compared to the second quarter of 2021 driven primarily by net revenue decreases from the Dungeons & Dragons:

Dark Alliance digital game launched during the second quarter 2021, with no comparable release in 2022 and, to a lesser extent, net revenue decreases from DUEL MASTERS products.

These net revenue decreases were partially offset by higher net revenues from AVALON HILL'S HeroQuest products and certain classic games.

Net revenues in the Hasbro Gaming portfolio decreased 25% in the third quarter of 2022 compared to the third quarter of 2021 driven primarily by net revenue decreases from JENGA, LIFE and certain other Hasbro Gaming products.

These net revenue decreases were partially offset by higher net revenues from Avalon Hill and DUNGEON & DRAGONS.

Net revenues for Hasbro’s total gaming category, including the Hasbro Gaming portfolio as reported above and all other gaming revenue, most notably revenues from MAGIC:

THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, totaled $528.3 million for the second quarter of 2022, an increase of 2%, as compared to $519.4 million in the second quarter of 2021.

THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, totaled $508.6 million for the third quarter of 2022, a decrease of 23%, as compared to $658.6 million in the third quarter of 2021.

EMERGING BRANDS:

Net revenues from the Emerging Brands portfolio increased 3% during the second quarter of 2022 compared to the second quarter of 2021.

Net revenue increases during the second quarter of 2022 were driven by POWER RANGERS and FURREAL FRIENDS products, partially offset by lower net revenues from GI JOE and certain other EMERGING BRANDS products.

Net revenues from the Emerging Brands portfolio decreased 8% during the third quarter of 2022 compared to the third quarter of 2021.

Net revenue decreases were primarily driven by PJ MASKS, core PLAYSKOOL and GI JOE products, partially offset by higher net revenues from EASY BAKE products.

TV/FILM/ENTERTAINMENT:

Net revenues from the TV/Film/Entertainment portfolio decreased 19% compared to the second quarter of 2021.

The second quarter 2022 net revenue decrease was driven by the sale of the eOne Music business at the start of the third quarter 2021, which represented $33.4 million or 17% of TV, Film and Entertainment portfolio net revenues during the second quarter 2021.

In addition, lower scripted deliveries, primarily related to the delivery timing of CRUEL SUMMER season two which is expected in the third quarter of 2022, as compared to CRUEL SUMMER season one, which was delivered in the second quarter of 2021, contributed to the decrease.

These decreases were partially offset by higher net revenues from THE ROOKIE television series, higher film revenues and higher unscripted television production revenues during the second quarter of 2022, compared to the second quarter of 2021.

First Six Months of 2022

The six-month periods ended June 26, 2022 and June 27, 2021 were each 26-week periods.

For the first six months of 2022, consolidated net revenues increased 3% compared to the first six months of 2021 and reflect an unfavorable variance of $50.1 million as a result of foreign currency translation due to weaker currencies across the Company's European and, to a lesser extent, Asia Pacific markets when compared to the first six months of 2021.

Operating profit for the first six months of 2022 was $339.1 million, or 13.6% of net revenues, compared to an operating profit of $223.9 million, or 9.2% of net revenues, for the first six months of 2021.

The operating profit increase was primarily driven by the impact to the prior year of the pre-tax non-cash impairment charge of $101.8 million and lower administrative costs as a result of the sale of eOne Music in 2021.

In addition, the operating profit increase was due to higher net revenues in 2022, combined with lower advertising and depreciation costs within the Wizards of the Coast and Digital Gaming segment due to digital gaming launches in the first six months of 2021, as well as lower royalty expenses in 2022.

These benefits were partially offset by higher costs of sales due to higher product input and freight costs as a result of rising costs and supply chain disruptions and higher program amortization costs within the Entertainment segment, reflecting the mix of programming deliveries during the first six months, and to a lesser extent, higher marketing and sales costs.

The following table presents net revenues by product category for the first six months of 2022 and 2021.

Six Months Ended

June 26, 2022 June 27, 2021 %

Net revenues from the TV/Film/Entertainment portfolio decreased 32% compared to the third quarter of 2021.

The third quarter 2022 net revenue decrease was driven by lower third quarter 2022 film deliveries compared to the third quarter of 2021, which included film deliveries such as Come From Away and Finch, with no comparable film deliveries during the third quarter of 2022.

Lower unscripted deliveries in the third quarter of 2022, primarily due to production timing also contributed to the decline.

These decreases were partially offset by scripted production deliveries in the third quarter of 2022 that include Cruel Summer season two , The Rookie season five and The Rookie:

Feds season one.

First Nine Months of 2022

The nine-month periods ended September 25, 2022 and September 26, 2021 were each 39-week periods.

For the first nine months of 2022, consolidated net revenues decreased 5% compared to the first nine months of 2021 and reflect an unfavorable variance of $103.8 million as a result of foreign currency translation due to weaker currencies across the Company's European and, to a lesser extent, Asia Pacific markets when compared to the first nine months of 2021.

Operating profit for the first nine months of 2022 was $533.4 million, or 12.8% of net revenues, compared to an operating profit of $591.8 million, or 13.4% of net revenues, for the first nine months of 2021.

In addition to the charges to operating profit described above, the operating profit decrease was primarily driven by lower revenue volumes and a reduction in gross margin driven by increased product costs and higher sales allowances, most notably within the Consumer Products segment.

Also contributing to the decrease in operating profit were higher freight costs and to a lesser extent, higher marketing and sales and warehousing costs.

These negative impacts to operating profit were partially offset by lower program amortization costs within the Entertainment segment, reflecting the mix of programming deliveries during the first nine months, lower royalty expenses, lower advertising costs and reduced administration expenses

The following table presents net revenues by brand and entertainment portfolio for the first nine months of 2022 and 2021.

Nine Months Ended

September 25, 2022 September 26, 2021 %

Franchise Brands $ 2,101.1 2,125.4 -1 %

4 unchanged sentences

Total $ 4,178.2 4,407.0 -5 %

Brand portfolio net revenues for first six months of 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, effective for the first quarter of 2022.

As a result, first six months of 2021 net revenues of $58.9 million were reclassified from Emerging Brands to Franchise Brands.

Brand portfolio net revenues for first nine months of 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, effective for the first quarter of 2022.

As a result, net revenues of $102.0 million from the first nine months of 2021 were reclassified from Emerging Brands to Franchise Brands.

FRANCHISE BRANDS:

Net revenues in the Franchise Brands portfolio increased 7% in the first six months of 2022 compared to 2021.

The net revenue increase was primarily driven by higher net revenues from MAGIC:

THE GATHERING products reflecting record sales from the Kamigawa:

Neon Dynasty, Commander Legends:

Battle for Baldur's Gate and Double Masters set releases during the first six months of 2022 .

In addition, higher net revenues from PEPPA PIG, driven by the third quarter 2021 launch of the Company's first line of PEPPA PIG products, higher net revenues from PLAY-DOH products and higher net revenues from MY LITTLE PONY, following the September 2021 release of the feature length film, MY LITTLE PONY:

A NEW GENERATION, drove growth during the first six months of 2022.

These net revenue increases were partially offset by lower net revenues from MONOPOLY products, and to a lesser extent, lower net revenues from TRANSFORMERS and NERF products during the first six months of 2022.

Net revenues in the Franchise Brands portfolio decreased 1% in the first nine months of 2022 compared to 2021.

The net revenue decrease was primarily driven by lower net revenues from MONOPOLY and NERF products and to a lesser extent, lower net revenues from TRANSFORMERS and BABY ALIVE products.

These decreases were partially offset by higher net revenues from PLAY-DOH and PEPPA PIG products.

PARTNER BRANDS:

Net revenues from the Partner Brands portfolio increased 6% during the first six months of 2022 compared to 2021.

During the first six months of 2022, Partner Brands net revenue increases were driven by the Company's products for MARVEL, primarily from momentum in the SPIDER-MAN franchise which benefited from entertainment releases including Marvel Studios' SPIDER-MAN:

NO WAY HOME and the children’s animated television series Marvel's SPIDEY and HIS AMAZING FRIENDS while the Company's products for Marvel's AVENGERS benefited from the release of Marvel Studios' DOCTOR STRANGE in the MULTIVERSE of MADNESS .

Net revenues from the Partner Brands portfolio increased 1% during the first nine months of 2022 compared to 2021.

Partner Brands net revenue increases were primarily driven by the Company's products for MARVEL, led by momentum in the SPIDER-MAN franchise which benefited from entertainment releases including the children’s animated television series, Marvel's SPIDEY and HIS AMAZING FRIENDS as well as Marvel Studios' SPIDER-MAN:

NO WAY HOME, released in December 2021, while the Company's products for Marvel's AVENGERS benefited from the release of Marvel Studios' THOR:

LOVE AND THUNDER , in July 2022, the May 2022 release of DOCTOR STRANGE in the MULTIVERSE of MADNESS and from sales of the Company's products for BLACK PANTHER, ahead of the release of BLACK PANTHER:

WAKANDA FOREVER , expected in November 2022.

To a lesser extent, net revenues from the Company's line of STAR WARS products increased as a result of the lineup of new entertainment from Lucasfilms including THE BOOK of BOBA FETT and the STAR WARS series OBI-WAN KENOBI , both streaming on Disney+.

In addition, Partner Brands net revenues benefited from the introduction of the Company's line of FORTNITE action figures during the first six months of 2022.

These increases were partially offset by net revenue declines from DISNEY FROZEN and BEYBLADE products and to a lesser extent, DISNEY PRINCESS and TROLLS products during the first half of 2022.

In addition, Partner Brands net revenues benefited from the introduction of the Company's line of FORTNITE action figures during the first nine months of 2022.

These increases were partially offset by net revenue declines from the Company's products for DISNEY FROZEN and DISNEY PRINCESS as well as net revenue declines from BEYBLADE, and to a lesser extent, GHOSTBUSTERS and TROLLS products during the first nine months of 2022.

HASBRO GAMING:

Net revenues in the Hasbro Gaming portfolio decreased 5% in the first six months of 2022 compared to the first six months of 2021 driven primarily by lower net revenues from the Dungeons & Dragons:

Dark Alliance digital game launched during the second quarter 2021 with no comparable release in 2022.

Net revenues in the Hasbro Gaming portfolio decreased 15% in the first nine months of 2022 compared to the first nine months of 2021 driven primarily by lower net revenues from the Dungeons & Dragons:

Dark Alliance digital game launched during the second quarter 2021 with no comparable release in 2022, as well as lower net revenues from JENGA, LIFE and certain other Hasbro Gaming products.

These decreases were partially offset by higher net revenues from AVALON HILL'S HeroQuest products during the first nine months of 2022.

Net revenues for Hasbro’s total gaming category, including the Hasbro Gaming portfolio as reported above and all other gaming revenue, most notably from MAGIC:

THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, were $907.1 million, an increase of 3%, in the first six months of 2022 versus $884.7 million in the first six months of 2021.

THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, were $1,415.7 million, a decrease of 8%, in the first nine months of 2022 versus $1,543.3 million in the first nine months of 2021.

EMERGING BRANDS:

Net revenues from the Emerging Brands portfolio grew 3% for the first six months of 2022 compared to the first six months of 2021.

Net revenue increases during the first half of 2022 were driven by POWER RANGERS products and to a lesser extent, PJ MASKS and FURREAL FRIENDS products, partially offset by lower net revenues from G.I.

JOE and SUPER SOAKER products.

Net revenues from the Emerging Brands portfolio declined 2% for the first nine months of 2022 compared to the first nine months of 2021.

Net revenue declines during the first nine months of 2022 were driven by lower sales of GI JOE products and to a lesser extent, core PLAYSKOOL and PJ MASKS products, partially offset by higher net revenues from POWER RANGERS products.

TV/FILM/ENTERTAINMENT:

Net revenues from the TV/Film/Entertainment portfolio decreased 10% for the first six months of 2022 compared to the first six months of 2021.

Lower net revenues in 2022 were driven by the sale of eOne Music at the start of the third quarter 2021, which represented $65.2 million or 17% of TV, Film and Entertainment portfolio net revenues during the first six months of 2021.

In the first six months of 2022, higher net revenues from unscripted television deliveries, compared to the first six months of 2021 where deliveries were limited or delayed due to the impact of the COVID-19 pandemic, and higher film revenues, were offset by lower scripted television net revenues due primarily to the timing of deliveries during the first six months of 2022.

Net revenues from the TV/Film/Entertainment portfolio decreased 19% for the first nine months of 2022 compared to the first nine months of 2021.

Lower net revenues in 2022 were driven by the sale of eOne Music in the first nine months of 2021, which represented $65.2 million or 10% of TV, Film and Entertainment portfolio net revenues during the first nine months of 2021.

In the first nine months of 2022, net revenue declines were driven by lower film deliveries compared to the third quarter of 2021, as well as lower scripted television deliveries, primarily due to timing of deliveries during the first nine months of 2022.

These decreases were partially offset by higher net revenues from unscripted television as a result of increased television production in North America and the U.K.

compared to the first nine months of 2021, where deliveries were limited or delayed due to the impact of the COVID-19 pandemic.

SEGMENT RESULTS

1 unchanged sentence

In 2021, comparable intangible amortization costs were recorded within the Entertainment segment.

Second Quarter 2022

The following table presents net external revenues and operating profit (loss) data for the Company's principal segments for the quarters ended June 26, 2022 and June 27, 2021:

Third Quarter 2022

The following table presents net external revenues and operating profit (loss) for the Company's principal segments for the quarters ended September 25, 2022 and September 26, 2021:

Quarter Ended

June 26, 2022 June 27, 2021 %

September 25, 2022 September 26, 2021 %

Consumer Products $ 1,160.8 $ 1,282.7 -10 %

1 unchanged sentence

Entertainment 211.6 327.1 -35 %

185.2 226.7 -18 %

Operating Profit (Loss)

2 unchanged sentences

Entertainment (28.9) 22.4 >-100%

14.3 (113.7) >100%

Corporate and Other (15.8) (24.3) 35 %

* Entertainment segment net revenues and operating loss, for the quarter ended June 27, 2021 include $33.4 million and ($94.9) million, respectively, from eOne Music, which was sold at the beginning of the third quarter of 2021.

Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended June 26, 2022 and June 27, 2021.

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended September 25, 2022 and September 26, 2021.

Quarter Ended

June 26, 2022 June 27, 2021

September 25, 2022 September 26, 2021

North America $ 693.3 805.0

3 unchanged sentences

Net revenues $ 1,160.8 $ 1,282.7

The Consumer Products segment net revenues increased 7% to $734.2 million for the second quarter of 2022 compared to $689.2 million for the second quarter of 2021 and included the impact of an unfavorable $19.1 million currency translation, most notably from the Company's European markets.

Drivers of the net revenue increase include higher sales of the Company's products for MARVEL, higher sales of PLAY-DOH and PEPPA PIG products, and higher sales of POWER RANGERS, PJ

MASKS and MY LITTLE PONY products.

Partially offsetting these increases were lower sales of MONOPOLY products and lower sales of the Company's products for DISNEY FROZEN, as well as lower sales of BEYBLADE, TRANSFORMERS and GI JOE products.

Net revenues increased in North America and in Latin American markets during the second quarter of 2022.

Absent the unfavorable foreign currency exchange impact of $14.9 million in Europe, and to a lesser extent, $2.8 million in Asia Pacific, net revenues remained relatively flat in the Company's Europe and Asia Pacific regions.

Consumer Products segment operating losses for the second quarter of 2022 were $6.5 million or 0.9% of segment net revenues, compared to segment operating profit of $17.8 million or 2.6% of segment net revenues, for the second quarter of 2021.

As noted above, to align with the revenue generated from the assets acquired in the eOne acquisition, Consumer Products segment operating profit in the second quarter of 2022 includes $9.6 million of intangible asset amortization costs.

The Consumer Products segment net revenues declined 10% to $1,160.8 million for the third quarter of 2022 compared to $1,282.7 million for the third quarter of 2021 and included the impact of an unfavorable $40.0 million currency translation, most notably from the Company's European markets, and to a lesser extent, the Company's Asia Pacific and Latin American markets.

Absent the impact of foreign currency exchange, Consumer Products segment net revenues declined $81.9 million or 6% during the third quarter of 2022.

Drivers of the net revenue decrease include lower sales of Hasbro Gaming products, primarily from the Company's tabletop gaming brands such as JENGA, LIFE, OPERATION and certain other Hasbro Gaming brands, lower sales of NERF and MONOPOLY products, and lower sales of the Company's products for BEYBLADE, DISNEY PRINCESS and DISNEY FROZEN.

These net revenue decreases were partially offset by higher sales of PEPPA PIG and PLAY-DOH products, and higher sales of the Company's products for STAR WARS and MARVEL.

Overall segment net revenue declines were primarily attributable to North America and to a lesser extent, the Company's European markets during the third quarter of 2022.

Consumer Products segment operating profit for the third quarter of 2022 was $136.8 million or 11.8% of segment net revenues, compared to segment operating profit of $210.4 million or 16.4% of segment net revenues, for the third quarter of 2021.

As noted above, to align with the revenue generated from the assets acquired in the eOne Acquisition, Consumer Products segment operating profit in the third quarter of 2022 includes $9.0 million of intangible asset amortization costs.

In 2021, the comparable costs were reported in the Entertainment segment results.

This allocation of intangible amortization drove a 1.3% decline in operating margin for the Consumer Products segment.

The remaining operating profit decrease in the second quarter of 2022 was driven by higher product costs, including higher inventory obsolescence costs related to products in Russia and higher distribution costs as a result of global supply chain disruptions.

These negative impacts were partially offset by price increases implemented during the second half of 2021 and the first quarter of 2022.

The remaining operating profit decrease in the third quarter of 2022 was driven by lower net revenues and higher sales allowances and obsolescence charges, as well as higher levels of closeout sales.

These negative impacts were partially offset by price increases implemented during the second half of 2021 and the first nine months of 2022 combined with lower advertising and promotion expense.

Wizards of the Coast and Digital Gaming Segment

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters ended June 26, 2022 and June 27, 2021.

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters ended September 25, 2022 and September 26, 2021.

Quarter Ended

June 26, 2022 June 27, 2021

September 25, 2022 September 26, 2021

Tabletop Gaming $ 246.3 $ 269.4

1 unchanged sentence

Net revenues $ 303.5 $ 360.2

Wizards of the Coast and Digital Gaming segment net revenues increased 3% in the second quarter of 2022 to $419.8 million from $406.3 million in the second quarter of 2021 and included the impact of an unfavorable $8.2 million foreign currency translation.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the second quarter of 2022 was attributable to net revenue increases from Wizards of the Coast tabletop gaming products, most notably, MAGIC:

THE GATHERING, driven by sales of the Commander Legends:

Battle for Baldur's Gate and Double Masters set releases, and, to a lesser extent, higher licensed digital gaming net revenues.

These increases were partially offset by lower digital gaming net revenues from the mobile version of Magic:

Wizards of the Coast and Digital Gaming segment net revenues declined 16% in the third quarter of 2022 to $303.5 million from $360.2 million in the third quarter of 2021 and included the impact of an unfavorable $8.7 million foreign currency translation.

Absent the impact of foreign currency exchange, Wizards of the Coast and Digital Gaming segment net revenues declined $48.0 million or 13% during the third quarter of 2022.

The net revenue decrease in the Wizards of the Coast and Digital Gaming segment during the third quarter of 2022 was attributable to lower net revenues from Wizards of the Coast tabletop gaming products, most notably, MAGIC:

THE GATHERING, driven by release timing compared to the third quarter of 2021, and lower digital and licensed gaming net revenues, primarily from Magic:

The Gathering Arena and from Dungeons & Dragons:

Dark Alliance , released during the second quarter of 2021.

Wizards of the Coast and Digital Gaming segment operating profit was $225.6 million, or 53.7% of segment net revenues for the second quarter of 2022, compared to operating profit of $192.9 million, or 47.5% of segment net revenues, for the second quarter of 2021.

The operating profit increase during the second quarter of 2022 was the result of higher sales combined with lower product development costs, lower advertising costs and lower depreciation , compared to second quarter 2021 costs in support of the launch of Dungeons & Dragons:

Dark Alliance.

These cost decreases in the second quarter of 2022 were partially offset by higher product input costs associated with tabletop gaming and higher freight costs.

Dark Alliance , launched during the first half of 2021.

Wizards of the Coast and Digital Gaming segment operating profit was $102.2 million, or 33.7% of segment net revenues for the third quarter of 2022, compared to operating profit of $159.4 million, or 44.3% of segment net revenues, for the third quarter of 2021.

The operating profit decrease during the third quarter of 2022 was the result of lower sales combined with higher product development costs as we continue to invest in digital gaming initiatives and talent to support long-term growth within the segment, as well as higher royalty expenses related to the release of Magic:

The Gathering Universes Beyond:

Warhammer 40,000, and higher intangible asset amortization expense related to the acquisition of D&D Beyond.

These cost increases were partially offset by lower depreciation expenses and reduced advertising and promotion costs during the third quarter of 2022.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the quarters ended June 26, 2022 and June 27, 2021.

The following table presents Entertainment segment net revenues by category for the quarters ended September 25, 2022 and September 26, 2021.

Quarter Ended

June 26, 2022 June 27, 2021

September 25, 2022 September 26, 2021

Film and TV $ 188.6 $ 255.4

2 unchanged sentences

Net revenues $ 211.6 $ 327.1

*Music and Other category net revenues for the quarter ended June 27, 2021 includes $33.4 million related to eOne Music, which was sold at the beginning of the third quarter of 2021.

Entertainment segment net revenues declined 18% to $185.2 million for the second quarter of 2022, compared to $226.7 million for the second quarter of 2021 and included the impact of an unfavorable $5.4 million foreign currency translation.

The net revenue decrease during the second quarter of 2022 was driven by the sale of eOne Music business in the third quarter of 2021 which accounted for $33.4 million or 14.7% of segment net revenues in the second quarter of 2021.

In addition, the net revenue decrease in the second quarter of 2022 was primarily due to the timing of scripted television deliveries, most notably, CRUEL SUMMER season two expected in the third quarter of 2022, compared to CRUEL SUMMER season one which was delivered in the second quarter of 2021.

These decreases were partially offset by higher net revenues from unscripted television deliveries compared to the second quarter of 2021, and higher film licensing revenues.

Entertainment segment operating profit was $14.3 million, or 7.7% of segment net revenues for the second quarter of 2022 compared to operating losses of $113.7 million, or 50.2% of segment net revenues for the second quarter of 2021.

The operating profit increase during the second quarter of 2022 was primarily driven by the second quarter 2021 non-cash impairment charge of $101.8 million associated with the sale of eOne Music.

Absent the impact of the loss on the Music sale, the second quarter 2022 operating profit increase was driven by lower program amortization costs reflecting the mix of

programming delivered during the second quarter of 2022, lower advertising and administrative costs and the allocation of $9.6 million of intangible asset amortization costs to the Consumer Products segment in 2022, as described above.

Entertainment segment net revenues declined 35% to $211.6 million for the third quarter of 2022, compared to $327.1 million for the third quarter of 2021 and included the impact of an unfavorable $5.0 million foreign currency translation.

Absent the impact of foreign currency exchange, Entertainment segment net revenues declined $110.5 million or 34% during the third quarter of 2022.

The net revenue decrease during the third quarter of 2022 was primarily the result of lower film deliveries compared to the third quarter of 2021, which included films such as Come From Away and Finch, with no comparable film deliveries during the third quarter of 2022, and lower net revenues from streaming content sales compared to the third quarter of 2021 which benefited from the September 2021 release of MY LITTLE PONY:

A NEW GENERATION.

Additionally, lower transactional and licensing net revenues on acquired films, and lower net revenues from unscripted television deliveries compared to the third quarter of 2021 contributed to the decline.

Entertainment segment operating losses were $28.9 million, or 13.7% of segment net revenues for the third quarter of 2022 compared to operating profit of $22.4 million, or 6.8% of segment net revenues for the third quarter of 2021.

The decrease in Entertainment segment operating results during the third quarter of 2022 primarily reflect lower net revenues driven by the mix of programming delivered, as well as the loss on assets held for sale of $23.1 million and asset impairment charges of $3.7 million, recorded during the third quarter of 2022 related to the exit of certain non-core businesses within the Entertainment segment as part of the Company's strategic review.

In addition, Entertainment segment operating results reflect the allocation of $9.0 million of intangible asset amortization costs to the Consumer Products segment in 2022, as described above.

These impacts to operating results were partially offset by lower advertising and administrative costs and lower royalty expense during the third quarter of 2022.

Corporate and Other Segment

The Corporate and Other segment operating losses were $14.3 million for the second quarter of 2022 compared to operating losses of $20.4 million for the second quarter of 2021.

The decline in operating losses in the second quarter of 2022 was primarily the result of lower administrative expenses.

Operating losses in 2021 included $9.5 million of transaction costs associated with the sale of eOne Music.

First Six Months 2022

The following table presents net revenues and operating profit (loss) for the Company's principal segments for each of the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021 %

The Corporate and Other segment operating losses were $15.8 million for the third quarter of 2022 compared to operating losses of $24.3 million for the third quarter of 2021.

The improvement in operating results in the third quarter of 2022 was primarily the result of lower administrative expenses and lower advertising costs, offset by severance and other employee charges and consultant fees associated with Company's strategic review and related cost-savings initiatives described above.

First Nine Months 2022

The following table presents net revenues and operating profit (loss) for the Company's principal segments for each of the nine-month periods ended September 25, 2022 and September 26, 2021.

Nine Months Ended

September 25, 2022 September 26, 2021 %

Consumer Products segment $ 2,567.8 $ 2,625.8 -2 %

8 unchanged sentences

Corporate and Other (37.3) (56.7) 34 %

* Entertainment segment net revenues and operating loss, for the six-month period ended June 27, 2021 include $65.2 million and ($91.8) million, respectively, from eOne Music, which was sold at the beginning of the third quarter of 2021.

* Entertainment segment net revenues and operating loss, for the nine-month period ended September 26, 2021 include $65.2 million and ($91.8) million, respectively, from eOne Music, which was sold at the beginning of the third quarter of 2021.

Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021

The following table presents the Consumer Products segment net revenues by major geographic region for the nine-month periods ended September 25, 2022 and September 26, 2021.

Nine Months Ended

September 25, 2022 September 26, 2021

North America $ 1,531.8 $ 1,559.1

3 unchanged sentences

Net Revenues $ 2,567.8 $ 2,625.8

The Consumer Products segment net revenues increased 5% to $1,407.0 million for the first six months of 2022 compared to $1,343.1 million for the first six months of 2021 and included the impact of an unfavorable $32.6 million currency translation.

The drivers of the net revenue increase include higher sales of the Company's Partner Brands for MARVEL, as well as higher sales of PEPPA PIG and PLAY-DOH products.

To a lesser extent, higher sales of MY LITTLE PONY, POWER RANGERS and PJ MASKS products and higher sales of the Company's Partner Brands for STAR WARS contributed to the increase.

Partially offsetting these increases were lower sales of certain Partner Brands, notably, the Company's products for DISNEY FROZEN and BEYBLADE and lower sales of MONOPOLY and TRANSFORMERS products.

Net revenues increased in North America and in Latin American markets during the first six months of 2022 while net revenues declined in the Asia Pacific.

In Europe, absent the unfavorable foreign currency exchange impact of $26.9 million, net revenues remained relatively flat.

Consumer Products segment operating profit for the first six months of 2022 was $2.1 million or 0.1% of segment net revenues, compared to segment operating profit of $50.1 million or 3.7% of segment net revenues, for the first six months of 2021.

As noted above, in alignment with the revenue generated from the assets acquired in the eOne acquisition, Consumer Products segment operating profit for the first six months of 2022 includes $19.9 million of intangible amortization, which in 2021 was reported within the Entertainment segment results.

The Consumer Products segment net revenues decreased 2% to $2,567.8 million for the first nine months of 2022 compared to $2,625.8 million for the first nine months of 2021 and included the impact of an unfavorable $72.6 million currency translation.

Absent the impact of foreign currency exchange, Consumer Products segment net revenues increased $14.5 million or 1%.

In the first nine months of 2022, the Consumer Products segment benefited from higher sales of the Company's Partner Brands for MARVEL and STAR WARS, as well as higher sales of PEPPA PIG and PLAY-DOH products.

To a lesser extent, higher sales of MY LITTLE PONY, POWER RANGERS and PJ MASKS products contributed to the increase.

Offsetting these increases were lower sales of certain Partner Brands, notably, the Company's products for DISNEY FROZEN, DISNEY PRINCESS and BEYBLADE and lower sales of MONOPOLY, NERF, TRANSFORMERS and certain Hasbro Gaming products.

Net revenue declines in North America and, to a lesser extent, in Asia Pacific markets were partially offset by higher net revenues in Latin American markets during the first nine months of 2022.

In Europe, absent the unfavorable foreign currency exchange impact of $58.0 million, net revenues remained flat.

Consumer Products segment operating profit for the first nine months of 2022 was $138.9 million or 5.4% of segment net revenues, compared to segment operating profit of $260.5 million or 9.9% of segment net revenues, for the first nine months of 2021.

The decrease in operating profit in the first nine months of 2022 was driven by lower sales volumes and higher sales allowances combined with increased obsolescence charges related to higher inventory balances, primarily across Europe and North America.

In addition, the operating profit decrease was the result of increased marketing and sales costs, increased warehouse expenses and higher product costs, including higher distribution costs driven by increased freight costs, primarily in Europe.

As noted above, in alignment with the revenue generated from the assets acquired in the eOne Acquisition, Consumer

Products segment operating profit for the first nine months of 2022 includes $28.9 million of intangible amortization, which was reported in 2021 within the Entertainment segment results.

This allocation of intangible amortization drove a 1.1% decline in operating margin for the Consumer Products segment.

The remaining operating profit decrease in the first six months of 2022 was driven by higher product costs, including higher inventory reserves related to Russia, higher distribution costs driven by increased freight costs as a result of global supply chain, disruptions as well as higher marketing and sales costs.

These negative impacts were partially offset by price increases implemented during the second half 2021 and during the first half of 2022.

These negative impacts were partially offset by price increases implemented during the second half 2021 and during the first nine months of 2022 and lower advertising and promotion costs as the Company aligned consumer products advertising closer to key holiday and retailer planned promotional periods.

Wizards of the Coast and Digital Gaming Segment

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the nine-month periods ended September 25, 2022 and September 26, 2021.

Nine Months Ended

September 25, 2022 September 26, 2021

Tabletop Gaming $ 800.3 $ 760.1

1 unchanged sentence

Net revenues $ 986.1 $ 1,008.7

Wizards of the Coast and Digital Gaming segment net revenues increased 5% in the first six months of 2022 to $682.6 million from $648.5 million in the first six months of 2021 and included the impact of an unfavorable $11.1 million foreign currency translation.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first six months of 2022 was driven primarily by higher net revenues from Wizards of the Coast table-top gaming products, most notably, MAGIC:

Wizards of the Coast and Digital Gaming segment net revenues decreased 2% in the first nine months of 2022 to $986.1 million from $1,008.7 million in the first nine months of 2021 and included the impact of an unfavorable $19.9 million foreign currency translation.

Absent the impact of foreign currency exchange, Wizards of the Coast and Digital Gaming Segment net revenues were relatively flat.

Net revenues in the Wizards of the Coast and Digital Gaming segment during the first nine months of 2022 were driven primarily by higher net revenues from Wizards of the Coast tabletop gaming products, most notably, MAGIC:

THE GATHERING, due to the number of strong performing card set releases.

In addition to the net revenue increases from the Company's Wizards of the Coast table-top gaming business, the segment benefited from growth in certain of the Company's licensed digital games.

These net revenue increases were partially offset by lower digital gaming net revenues from Dungeons & Dragons:

Dark Alliance and the mobile version of Magic:

The Gathering , released during the second quarter of 2021.

Wizards of the Coast and Digital Gaming segment operating profit was $332.0 million, or 48.6% of segment net revenues for the first six months of 2022, compared to operating profit of $302.9 million, or 46.7% of segment net revenues for the first six months of 2021.

The operating profit increase during the first six months of 2022 was the result of higher sales volumes as described above, lower advertising expenses and depreciation costs, compared to the first six months of 2021, where the Company incurred higher costs associated with the launch of the mobile version of Magic:

These net revenue increases were offset by lower DUNGEONS & DRAGONS tabletop gaming net revenues and lower digital gaming net revenues from Magic:

The Gathering Arena and Dungeons & Dragons:

Dark Alliance , released during 2021 without comparable releases in 2022.

Wizards of the Coast and Digital Gaming segment operating profit was $434.2 million, or 44.0% of segment net revenues for the first nine months of 2022, compared to operating profit of $462.3 million, or 45.8% of segment net revenues for the first nine months of 2021.

The operating profit decrease during the first nine months of 2022 was the result of higher inventory costs and higher royalty expenses attributable to sales of Magic:

The Gathering Universes Beyond:

Warhammer 40,000 , and higher product development costs.

These increases were partially offset by lower advertising expenses and lower depreciation costs compared to the first nine months of 2021, where the Company incurred higher costs associated with the launch of the mobile version of Magic:

The Gathering Arena and Dungeons & Dragons:

Dark Alliance .

These increases to operating profit were partially offset by higher freight costs and higher product costs.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021

The following table presents Entertainment segment net revenues by category for the nine-month periods ended September 25, 2022 and September 26, 2021.

Nine Months Ended

September 25, 2022 September 26, 2021

Film and TV $ 527.0 $ 586.1

2 unchanged sentences

Net revenues $ 624.3 $ 772.5

*Music and Other category net revenues for the six-month period ended June 27, 2021 includes $65.2 million from eOne Music, which was sold at the beginning of the third quarter of 2021.

Entertainment segment net revenues for the six months ended June 26, 2022 decreased 7% to $412.7 million from $445.4 million for the six months ended June 27, 2021 and included the impact of an unfavorable $6.4 million foreign currency translation.

The segment net revenue decrease was driven by the sale of eOne Music business in the third quarter of 2021 which

accounted for $65.2 million or 14.6% of segment net revenues in the first six months of 2021.

During the first six months of 2022, higher net revenues from live shows, unscripted programming deliveries and higher net revenues from streaming content sales related to programming featuring the Company's brands were partially offset by lower net revenues from scripted television deliveries.

The Entertainment segment operating profit was $26.5 million, or 6.4% of net revenues, for the six months ended June 26, 2022, compared to operating losses of $96.7 million, or 21.7% of segment net revenues, for the six months ended June 27, 2021.

The operating profit increase during the first six months of 2022 was driven by the second quarter 2021 non-cash impairment charge of $101.8 million associated with the sale of eOne Music.

Absent the impact of the loss on the Music sale, the operating profit increase in the first six months of 2022 was driven by the allocation of $19.9 million of intangible asset amortization costs to the Consumer Products segment in the first six months of 2022, as described above and lower royalty and advertising and promotion expenses.

These increases to operating profit were partially offset by the sale of eOne Music combined with higher program amortization costs reflecting the mix of programming delivered during the first six months of 2022.

*Music and Other category net revenues for the nine-month period ended September 26, 2021 includes $65.2 million from eOne Music, which was sold at the beginning of the third quarter of 2021.

Entertainment segment net revenues for the nine months ended September 25, 2022 decreased 19% to $624.3 million from $772.5 million for the nine months ended September 26, 2021, and included the impact of an unfavorable $11.4 million foreign currency translation.

Absent the impact of foreign currency exchange, Entertainment segment net revenues declined $136.8 million or 18% during the third quarter of 2022.

The segment net revenue decrease during the first nine months of 2022 was driven by the sale of eOne Music business in the third quarter of 2021 which accounted for $65.2 million or 8.4% of segment net revenues in the first nine months of 2021.

addition, lower film deliveries, the timing of certain scripted television content deliveries and lower net revenues from streaming content sales compared to the third quarter of 2021 which benefited from the September 2021 release of MY LITTLE PONY:

A NEW GENERATION .

These decreases were partially offset by higher net revenues from unscripted programming deliveries and higher net revenues from touring live shows during the first nine months of 2022.

Entertainment segment operating losses were $2.4 million, or 0.4% of net revenues, for the nine months ended September 25, 2022, compared to operating losses of $74.3 million, or 9.6% of segment net revenues, for the nine months ended September 26, 2021.

The improved operating results during the first nine months of 2022 were driven by the second quarter 2021, non-cash impairment charge of $101.8 million associated with the sale of eOne Music, the allocation of $28.8 million of intangible asset amortization costs to the Consumer Products segment during the first nine months of 2022, as well as lower royalty expenses and lower program amortization costs, reflecting the mix of programming delivered during the first nine months of 2022.

These impacts to segment operating results were partially offset by a loss on assets held for sale of $23.1 million and asset impairment charges of $3.7 million recorded during the third quarter of 2022 related to the implementation of the Company's Operational Excellence program, as well as the impact of the sale of the eOne Music business described above.

Corporate and Other Segment

Operating losses in the Corporate and Other Segment for the first six months of 2022 were $21.5 million, compared to operating losses of $32.4 million for the first six months of 2021.

The decline in operating losses during the first six months of 2022 was the result of lower royalty expense, partially offset by higher product development costs and higher administrative expenses.

Operating losses in 2021 included $9.5 million of transaction costs associated with the sale of eOne Music and retention costs of $3.8 million in relation to the eOne acquisition.

Operating losses in the Corporate and Other Segment for the first nine months of 2022 were $37.3 million, compared to operating losses of $56.7 million for the first nine months of 2021.

The decline in operating losses during the first nine months of 2022 was the result of lower royalty and administrative expenses and lower advertising costs, partially offset by severance and other employee related charges and consultant fees associated with Company's strategic review and related cost-savings initiatives described above.

Operating losses in 2021 included transaction costs associated with the sale of eOne Music described above.

OPERATING COSTS AND EXPENSES

Second Quarter 2022

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended June 26, 2022 and June 27, 2021.

Third Quarter 2022

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended September 25, 2022 and September 26, 2021.

Quarter Ended

June 26, 2022 June 27, 2021

September 25, 2022 September 26, 2021

Cost of sales 35.0 % 30.9 %

4 unchanged sentences

Amortization of intangibles 1.6 % 1.4 %

Selling, distribution and administration 24.4 % 26.8 %

Loss on assets held for sale 1.4 % — %

Cost of sales for the second quarter of 2022 was $411.5 million, or 30.7% of net revenues, compared to $345.0 million, or 26.1% of net revenues, for the second quarter of 2021.

The cost of sales increase in dollars and as a percent of net revenues was driven by higher sales volumes and higher product costs, including higher freight costs, and higher inventory obsolescence charges including reserves related to inventory in Russia.

Program cost amortization decreased to $80.7 million, or 6.0% of net revenues, for the second quarter of 2022 from $110.7 million, or 8.4% of net revenues, for the second quarter of 2021.

Selling, distribution and administration 21.8 % 18.4 %

Cost of sales for the third quarter of 2022 was $586.6 million, or 35.0% of net revenues, compared to $609.5 million, or 30.9% of net revenues, for the third quarter of 2021.

The cost of sales decrease in dollars was driven primarily by lower sales volumes during the third quarter of 2022 compared to the third quarter of 2021.

The cost of sales increase as a percent of net revenues was the result of higher inventory obsolescence charges and higher product costs, most notably in the Company's Consumer Products business.

Program cost amortization decreased to $146.5 million, or 8.7% of net revenues, for the third quarter of 2022 from $187.9 million, or 9.5% of net revenues, for the third quarter of 2021.

Program costs are capitalized as incurred and amortized primarily using the individual-film-forecast method which matches costs to the related recognized revenue.

The decrease in dollars and as a percent of net revenues during the second quarter of 2022 was driven by lower sales volume within the Entertainment segment, due primarily to the timing of deliveries and the mix of content delivered, compared to the second quarter of 2021.

Royalty expense for the second quarter of 2022 decreased to $110.1 million, or 8.2% of net revenues, compared to $111.5 million, or 8.4% of net revenues, for the second quarter of 2021.

The decrease in dollars and as a percent of net revenues during the third quarter of 2022 was driven by lower sales volume within the Entertainment segment, due primarily to the timing of deliveries and the mix of content delivered, compared to the third quarter of 2021.

These decreases were partially offset by $3.7 million of asset impairment charges recorded during the third quarter of 2022, related to discontinued projects associated with the exit of non-core business within the Entertainment segment.

Royalty expense for the third quarter of 2022 decreased to $135.1 million, or 8.1% of net revenues, compared to $171.8 million, or 8.7% of net revenues, for the third quarter of 2021.

Fluctuations in royalty expense are generally related to the volume of content releases and deliveries and entertainment-driven products sold.

Royalty expense during the second quarter of 2022 was consistent with the second quarter of 2021, including lower expense due to the impact of the sale of eOne Music during 2021 and the mix of Film and TV deliveries during the quarter.

These declines were offset by higher expense in the Consumer Products segment driven by an increase in partner brand revenues.

Product development expense for the second quarter of 2022 was $79.2 million, or 5.9% of net revenues, compared to $87.2 million, or 6.6% of net revenues, for the second quarter of 2021.

The decrease was primarily related to lower costs within Wizards digital gaming due to the launch of games in the second quarter of 2021.

Advertising expense for the second quarter of 2022 was $84.2 million, or 6.3% of net revenues, compared to $105.4 million, or 8.0% of net revenues, for the second quarter of 2021.

The decrease in royalty expense during the third quarter

of 2022 reflects lower sales of Partner Brands and the mix of Film and TV deliveries during the quarter, partially offset by higher royalty expenses related to the release of Magic:

The Gathering Universes Beyond:

Warhammer 40,000 .

Product development expense for the third quarter of 2022 was $82.4 million, or 4.9% of net revenues, compared to $80.1 million, or 4.1% of net revenues, for the third quarter of 2021.

The increase was primarily related to higher investments and costs to support the Company's Wizards of the Coast tabletop and digital gaming initiatives, partially offset by lower product development costs within the Consumer Products segment.

Advertising expense for the third quarter of 2022 was $115.2 million, or 6.9% of net revenues, compared to $163.3 million, or 8.3% of net revenues, for the third quarter of 2021.

Advertising spend is generally impacted by revenue mix and the number and type of entertainment releases delivered.

The advertising expense decrease during the second quarter of 2022 was driven by lower expense within the Entertainment segment, as well as lower expense within the Wizards of the Coast and Digital Gaming segment, compared to the second quarter 2021, where advertising expense was driven by support for the launch of the mobile version of Magic:

The Gathering Arena and Dungeons & Dragons:

Dark Alliance, with no comparable releases in 2022.

Amortization of intangible assets decreased to $27.2 million, or 2.0% of net revenues, for the second quarter of 2022, compared to $29.7 million, or 2.2% of net revenues, for the second quarter of 2021.

The decrease in 2022 is related to the discontinuation of amortization related to the eOne Music intangible assets following the sale of eOne Music in the third quarter of 2021, partially offset by additional expense associated with assets acquired through the D&D Beyond Acquisition during the second quarter of 2022.

Selling, distribution and administration expenses decreased to $327.2 million, or 24.4% of net revenues for the second quarter of 2022, from $354.3 million, or 26.8% of net revenues, for the second quarter of 2021.

The decrease in selling, distribution and administration expenses reflects lower incentive compensation accruals and lower depreciation expense in 2022 compared to depreciation expense in the second quarter of 2021 associated with the launch of Dungeons & Dragons:

The advertising expense decrease during the third quarter of 2022 was driven by lower expense within the Consumer Products and Entertainment segments.

In the Consumer Products segment, advertising and promotion costs declined as the Company managed its consumer products advertising closer to key holiday and retailer planned promotional periods.

In the Entertainment segment, higher advertising expense during the third quarter 2021 was driven by support for the September 2021 release of MY LITTLE PONY:

A NEW GENERATION, with no comparable releases in 2022.

Amortization of intangible assets decreased to $26.9 million, or 1.6% of net revenues, for the third quarter of 2022, compared to $27.7 million, or 1.4% of net revenues, for the third quarter of 2021.

The decrease in 2022 reflects the impact of certain intangible assets which were fully amortized during 2021, partially offset by additional expense associated with assets acquired through the D&D Beyond Acquisition during the second quarter of 2022.

The loss on assets held for sale of $23.1 million, or 1.4% of net revenues, represents non-cash impairment charges associated with the exit of certain non-core businesses within the Entertainment segment.

Selling, distribution and administration expenses increased to $365.8 million, or 21.8% of net revenues for the third quarter of 2022, from $361.8 million, or 18.4% of net revenues, for the third quarter of 2021.

The increase in selling, distribution and administration expenses primarily reflects charges totaling $28.5 million related to the exit of certain non-core businesses within the Entertainment segment, consisting of $21.3 million of severance charges and $7.2 million of consultant fees.

In addition to these charges, higher marketing and sales costs, most notably within the Consumer Products segment, contributed to the increase.

These increases were partially offset by lower compensation expense combined with lower depreciation expense in the third quarter of 2022 compared to the third quarter of 2021, associated with the launch of Dungeons & Dragons:

Dark Alliance.

These decreases were partially offset by increased costs associated with consulting and other professional services for the Company's annual shareholder meeting.

The loss on assets held for sale of $101.8 million, or 7.7% of net revenues during the second quarter of 2021, represents a non-cash impairment charge associated with the disposition of eOne Music.

First Six Months of 2022

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021

First Nine Months of 2022

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the nine-month periods ended September 25, 2022 and September 26, 2021.

Nine Months Ended

September 25, 2022 September 26, 2021

Cost of sales 31.9 % 28.2 %

4 unchanged sentences

Amortization of intangibles 1.9 % 2.0 %

Selling, distribution and administration 25.3 % 26.4 %

Loss on assets held for sale 0.6 % — %

Cost of sales for the six months ended June 26, 2022 increased to $744.6 million, or 29.8% of net revenues, from $634.9 million, or 26.1% of net revenues for the six months ended June 27, 2021.

The cost of sales increase in dollars and as a percent of net revenues was due to higher sales volumes and higher product input costs, including higher freight and material costs, as well as higher inventory obsolescence charges.

Program cost amortization increased in the first six months of 2022 to $219.2 million, or 8.8% of net revenues, from $208.2 million, or 8.5% of net revenues, in the first six months of 2021.

The program cost amortization increase in dollars and as a percent of net revenues during the first six months of 2022, was driven by the volume and mix of both scripted and unscripted programming revenues during the first half of 2022 compared to the first half of 2021.

Royalty expense for the six months ended June 26, 2022 was $200.2 million, or 8.0% of net revenues, compared to $220.4 million, or 9.0% of net revenues, for the six months ended June 27, 2021.

The decrease in royalty expense in dollars was driven by the impact of the sale of eOne Music and the mix of Film and TV deliveries during the first six months of 2022.

Loss on disposal of a business — % 2.3 %

Selling, distribution and administration 23.9 % 22.8 %

Cost of sales for the nine months ended September 25, 2022 increased to $1,331.2 million, or 31.9% of net revenues, from $1,244.4 million, or 28.2% of net revenues for the nine months ended September 26, 2021.

The cost of sales increase in dollars and as a percent of net revenues was due to higher product input costs, including higher freight and material costs and higher inventory obsolescence charges to address excess inventory, most notably within Europe and the U.S.

Program cost amortization decreased in the first nine months of 2022 to $365.7 million, or 8.8% of net revenues, from $396.1 million, or 9.0% of net revenues, in the first nine months of 2021.

The program cost amortization decrease during the first nine months of 2022, was driven by the volume and mix of programming revenues during the first nine months of 2022 compared to the first nine months of 2021, partially offset by $3.7 million of asset impairment charges recorded during the third quarter of 2022, related to discontinued projects associated with the exit of non-core business within the Entertainment segment.

Royalty expense for the nine months ended September 25, 2022 was $335.3 million, or 8.0% of net revenues, compared to $392.2 million, or 8.9% of net revenues, for the nine months ended September 26, 2021.

The decrease in royalty expense in dollars was driven by the impact of the sale of eOne Music and the mix of Film and TV deliveries during the first nine months of 2022.

In addition, certain licensing agreements acquired through the eOne Acquisition expired, which carried higher royalty expenses in prior periods.

The decrease in royalty expense as a percent of net revenues during the first six months of 2022 was the result of a higher percentage of product sales that do not carry significant royalty expenses.

Product development expense for the six months ended June 26, 2022 was $148.8 million, or 5.9% of net revenues, from $149.0 million, or 6.1% of net revenues, for the six months ended June 27, 2021.

Product development expense in the first six months of 2022 was consistent with the first six months of 2021, reflecting the Company’s continued investment in innovation and anticipated growth across our brand and entertainment portfolios.

Advertising expense for the six months ended June 26, 2022 was $161.8 million, or 6.5% of net revenues, compared to $193.3 million, or 7.9% of net revenues, for the six months ended June 27, 2021.

The advertising expense decrease during the first six months of 2022 was driven by lower expense within the Entertainment segment related to the sale of the eOne Music business combined with a shift in the type of entertainment releases delivered, as well as lower expense within the Wizards of the Coast and Digital Gaming segment, compared to the first half of 2021, where advertising expense was driven by support for the launch of the mobile version of Magic:

These decreases were partially offset by higher royalty expenses related to the release of Magic:

The Gathering Universes Beyond:

Warhammer 40,000 .

The decrease in royalty expense as a percent of net revenues during the first nine months of 2022 was the result of a higher percentage of product sales that do not carry significant royalty expenses.

Product development expense for the nine months ended September 25, 2022 was $231.2 million, or 5.5% of net revenues, from $229.1 million, or 5.2% of net revenues, for the nine months ended September 26, 2021.

Product development expense in the first nine months of 2022 was consistent with the first nine months of 2021, reflecting the Company’s continued investment in innovation and anticipated growth across our brand and entertainment portfolios.

Advertising expense for the nine months ended September 25, 2022 was $277.0 million, or 6.6% of net revenues, compared to $356.6 million, or 8.1% of net revenues, for the nine months ended September 26, 2021.

The advertising expense decrease during the first nine months of 2022 was driven by lower expense within the Entertainment segment related to the sale of the eOne Music business combined with a shift in the type of entertainment releases delivered and higher advertising expense during the third quarter 2021, driven by support for the September 2021 release of MY LITTLE PONY:

A NEW GENERATION with no comparable releases in 2022.

In addition, the advertising expense decrease was the result of lower expense within the Wizards of the Coast and Digital Gaming segment, compared to the first nine months of 2021, where advertising expense was driven by support for the launch of the mobile version of Magic:

The Gathering Arena and Dungeons & Dragons:

Dark Alliance, with no comparable releases in 2022.

Amortization of intangible assets was $54.3 million, or 2.2% of net revenues, for the six months ended June 26, 2022 compared to $62.6 million, or 2.6% of net revenues, in the first six months of 2021.

Additionally, in 2022 the Company managed its consumer products advertising programs closer to key holiday and retailer planned promotional periods which contributed the decrease during the first nine months of 2022.

Amortization of intangible assets was $81.2 million, or 1.9% of net revenues, for the nine months ended September 25, 2022 compared to $90.3 million, or 2.0% of net revenues, in the first nine months of 2021.

The decrease in 2022 is related to the discontinuation of amortization related to the eOne Music intangible assets following the sale of eOne Music in the third quarter of 2021.

This decline was slightly offset by additional expense associated with assets acquired through the D&D Beyond Acquisition during the second quarter of 2022.

For the six months ended June 26, 2022, the Company's selling, distribution and administration expenses decreased to $634.3 million, or 25.3% of net revenues, from $642.9 million, or 26.4% of net revenues, for the six months ended June 27, 2021.

The decrease in selling, distribution and administration expenses reflects lower depreciation expense, primarily related to the Company's digital gaming business compared to the first six months of 2021, lower compensation accruals and lower administrative costs as a result of the sale of eOne Music during 2021.

These decreases were partially offset by higher marketing and sales costs within the Consumer Products segment, consistent with the increase in net revenues during the first six months of 2022.

The loss on disposal of business of $101.8 million, or 4.2% of net revenues during the first six months of 2021, represents a non-cash impairment charge associated with the disposition of eOne Music.

This decline was partially offset by additional expense associated with assets acquired through the D&D Beyond Acquisition during the second quarter of 2022.

For the nine months ended September 25, 2022, the Company's selling, distribution and administration expenses remained relatively flat at $1,000.1 million, or 23.9% of net revenues compared to $1,004.7 million, or 22.8% of net revenues, for the nine months ended September 26, 2021.

Selling, distribution and administration expenses in the first nine months of 2022 includes charges of $28.5 million related to the exit of certain non-core businesses within the Entertainment segment consisting of $21.3 million of severance charges and $7.2 million of consultant fees.

In addition to these charges, the 2022 expense reflects higher marketing and sales costs, most notably within the Consumer Products segment, partially offset by lower depreciation expense during the first nine months of 2022 compared to the first nine months of 2021, associated with the launch of Dungeons & Dragons:

Dark Alliance.

The loss on assets held for sale of $23.1 million, or 0.6% of net revenues, represents non-cash impairment charges associated with the exit of certain non-core businesses within the Entertainment segment.

The loss on disposal of business of $101.8 million, or 2.3% of net revenues during the first nine months of 2021, represents a non-cash impairment charge associated with the disposition of eOne Music.

NON-OPERATING EXPENSE (INCOME)

Interest expense for the second quarter and first six months of 2022 totaled $41.7 million and $83.3 million, respectively, compared to $46.1 million and $94.0 million in the second quarter and first six months of 2021, respectively.

The decrease in interest expense during the second quarter and first half of 2022 primarily reflects long-term debt repayments made throughout 2021 and during the first half of 2022, related to borrowings utilized for the eOne acquisition.

Interest income was $2.7 million and $4.8 million for the second quarter and first six months of 2022, respectively, compared to $1.2 million and $2.4 million in the second quarter and first six months of 2021, respectively.

Higher average interest rates in 2022 compared to 2021 contributed to the increase for the three and six-month periods.

Other expense, net was $0.2 million and $0.5 million for the second quarter and first six months of 2022, respectively, compared to other income, net of $9.4 million and $38.3 million in the second quarter and first six months of 2021, respectively.

The decline in 2022 was primarily driven by a $26.7 million gain from a legal settlement realized during the first six months of 2021 with no comparable gain in 2022, lower earnings from the Company's joint venture with Discovery and foreign exchange losses during the first six months of 2022 compared to gains during the first half of 2021.

I ncome tax expense totaled $39.4 million on pre-tax income of $179.9 million in the second quarter of 2022 compared to income tax expense of $63.0 million on pre-tax income of $41.1 million in the second quarter of 2021.

For the six-month periods, income tax expense totaled $56.7 million on pre-tax income of $260.1 million in 2022, compared to an income tax expense of $75.0 million on pretax income of $170.6 million in 2021.

Interest expense for the third quarter and first nine months of 2022 totaled $41.9 million and $125.2 million, respectively, compared to $43.3 million and $137.3 million in the third quarter and first nine months of 2021, respectively.

The decrease in interest expense during the third quarter and first nine months of 2022 primarily reflects long-term debt repayments made during the fourth quarter of 2021 and the first nine months of 2022, related to borrowings utilized for the eOne Acquisition.

Interest income was $3.2 million and $8.0 million for the third quarter and first nine months of 2022, respectively, compared to $1.8 million and $4.2 million in the third quarter and first nine months of 2021, respectively.

Higher average interest rates in 2022 compared to 2021 contributed to the increase for the three and nine-month periods.

Other (income), net was $(10.0) million and $(9.5) million for the third quarter and first nine months of 2022, respectively, compared to other expense (income), net of $3.0 million and $(35.3) million in the third quarter and first nine months of 2021, respectively.

The decrease in 2022 was primarily driven by a $26.7 million gain from a legal settlement realized during the first nine months of 2021 with no comparable gain in 2022 and lower earnings from the Company's joint venture with Discovery, partially offset by foreign exchange gains during the first nine months of 2022 compared to losses during the first nine months of 2021.

Other income during the third quarter of 2022 reflects the $9.1 million expense in the third quarter of 2021 for debt extinguishment costs in connection with the early repayment of the Company's $300.0 million of 2.6% notes, with no

comparable cost in 2022 and foreign exchange gains during the third quarter of 2022 compared to losses during the third of 2021.

Income tax expense totaled $37.4 million on pre-tax income of $165.6 million in the third quarter of 2022 compared to income tax expense of $68.5 million on pre-tax income of $323.4 million in the third quarter of 2021.

For the first nine months of 2022, income tax expense totaled $94.1 million on pre-tax income of $425.7 million, compared to an income tax expense of $143.5 million on pretax income of $494.0 million for the first nine months of 2021.

Both periods were impacted by discrete tax events including the accrual of potential interest and penalties on uncertain tax positions.

During the first six months of 2022, favorable discrete tax adjustments were a net benefit of $3.2 million compared to a net expense of $17.4 million in the first six months of 2021.

The favorable discrete tax adjustments for the first six months of 2022 primarily relate to the release of certain valuation allowances during the first quarter.

The unfavorable discrete tax adjustments for the first six months of 2021 were primarily associated with the revaluation of net deferred tax liabilities as a result of the United Kingdom's ("UK") enactment of Finance Act 2021 during the second quarter, which will increase the UK corporate income tax rate from 19% to 25% as of April 1, 2023.

This was reduced by the release of a valuation allowance on net operating losses that offset income received from a one-time legal settlement and certain tax benefits, including the reversal of uncertain tax positions that resulted from statutes of limitations expiring in certain jurisdictions and operational tax planning during the second quarter.

In addition, included in the second quarter of 2021 was an impairment expense on assets held for sale from which there was no

corresponding tax benefit.

Absent discrete items, the tax rates for the first six months of 2022 and 2021 were 23.0% and 22.6% respectively.

The increase in the base rate of 23.0% for the first six months of 2022 is primarily due to the mix of jurisdictions where the Company earned its profits.

During the first nine months of 2022, favorable discrete tax adjustments were a net benefit of $6.7 million compared to a net expense of $8.8 million in the first nine months of 2021.

The favorable discrete tax adjustments for the first nine months of 2022 are primarily associated with (i) the release of certain valuation allowances during the first quarter;

(ii) the decrease to our liability for uncertain tax positions that resulted from statutes of limitations expiring in certain jurisdictions;

and (iii) a benefit on the loss on assets held for sale in the third quarter.

The unfavorable discrete tax adjustments for the first nine months of 2021 were primarily associated with (i) the revaluation of net deferred tax liabilities as a result of the United Kingdom's ("UK") enactment of Finance Act 2021 during the second quarter, which increases the UK corporate income tax rate from 19% to 25% as of April 1, 2023;

(ii) a one-time tax charge related to an ongoing tax audit;

(iii) a release of a valuation allowance on net operating losses that offsets income received from a one-time legal settlement;

and (iv) certain tax benefits, including the reversal of uncertain tax positions and operational tax planning.

In addition, included in first nine months of 2021 is a goodwill impairment charge on the sale of eOne Music, recorded in the second quarter of 2021 for which there is no corresponding tax benefit.

Absent discrete items, the tax rates for the first nine months of 2022 and 2021 were 22.3% and 23.3% respectively.

The decrease in the base rate to 22.3% for the first nine months of 2022 is primarily due to the mix of jurisdictions where the Company earned its profits.

On August 16, 2022, President Biden signed into law the Inflation Reduction Act, which included various tax provisions.

The two main tax provisions, a 15% alternative corporate minimum tax based on financial statement income and a 1% excise tax on corporate stock buy backs, are not expected to have a material impact to the Company.

OTHER INFORMATION

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Larger retailers generally maintain lower inventories throughout the year and purchase a greater percentage of product within or close to the fourth quarter holiday consumer buying season, which includes Christmas.

Quick response inventory management practices being used by retailers as well as growth in ecommerce result in orders increasingly placed for immediate delivery and fewer orders placed well in advance of shipment.

Retailers are timing their orders so that they are filled by suppliers closer to the time of purchase by consumers.

To the extent that retailers do not sell as much of their year-end inventory purchases during the current holiday selling season as they had anticipated, their demand for additional product earlier in the following fiscal year may be curtailed, thus negatively impacting the Company’s future revenues.

However, more recently the Company's inventory levels reflect ongoing global supply chain disruptions, which began in late 2020 as economies slowly recovered from COVID-19 shutdowns, while consumer demand began to outpace the capacity of the global supply chain infrastructure.

Supply chain constraints, including overcrowding of cargo ports and shipping container and truck transportation shortages have also led to higher costs for ocean, air and over the road freight and delays in the availability of products, as inventory remains in transit for extended periods of time.

These and other disruptions are expected to continue throughout 2022.

During the first six months of 2022, the Company accelerated certain inventory purchases, to ensure sufficient finished goods and raw material availability ahead of expected periods of high consumer demand.

As a result, the Company expects inventory shipments to peak earlier in 2022 as compared to the historical timeline of August to December.

Prior to the onset of the COVID-19 pandemic, quick response inventory management practices being used by retailers, along with growth in ecommerce resulted in the increasing trend of order placement for immediate delivery and fewer orders being placed well in advance of shipment.

Retailers preferred timing their orders for fulfillment by suppliers closer to the time of purchase by consumers.

To the extent that retailers did not sell as much of their year-end inventory purchases during the holiday selling season as they had anticipated, their demand for additional product earlier in the following fiscal year could be curtailed, thus negatively impacting the Company’s future revenues.

However, more recently the Company's inventory levels and retailer order patterns reflect the impact of global supply chain disruptions, which began in late 2020 as economies slowly recovered from COVID-19 shutdowns, while consumer demand began to outpace the capacity of the global supply chain infrastructure.

Supply chain constraints, including overcrowding of cargo ports and shipping container and truck transportation shortages led to higher costs for ocean, air and over the road freight and delays in the availability of products, due to extended inventory transit times.

These and other disruptions continued to some extent through the third quarter of 2022.

During the first half of 2022, the Company accelerated certain inventory purchases, to ensure sufficient finished goods and raw material availability ahead of expected periods of high consumer demand.

However, during the third quarter of 2022, the effects of supply chain disruptions began to subside, most notably the U.S, and Europe, leading to higher inventory levels as compared to prior years.

As a result, the Company is launching incremental year-over-year promotional activity behind key holiday toy and game items to reduce inventory on hand and at retail.

Unlike the Company's retail sales patterns, revenue patterns from the Company's entertainment businesses fluctuate based on the timing and popularity of television, film, streaming and digital content releases.

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As a result of the military conflict in Ukraine, which has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, the Company has paused all shipments and new content distribution into Russia.

The Company’s consolidated financial statements reflect certain reserves as of June 26, 2022, primarily related to inventory and accounts receivable, and will be impacted by a loss of revenue and operating profit in the second half of 2022.

The impact to the Company’s operating results includes a loss of both revenue and operating profit.

As of the nine-month period ended September 25, 2022, the Company has exhausted all locally held inventories, recovered all receivables and released all reserves in Russia.

For the full year 2021, our revenue in Russia was $115 million, with approximately 70% earned in the second half of the year.

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Accounting Pronouncement Updates

As of June 27, 2022, there were no recently adopted accounting standards that had a material effect on the Company’s financial statements.

As of September 25, 2022, there were no recently adopted accounting standards that had a material effect on the Company’s financial statements.

The Company's significant accounting policies are summarized in note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 26, 2021.

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The amendments in this update apply to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to the global transition away from LIBOR and certain other interbank offered rates.

An entity may elect to apply the amendments provided by this update

beginning March 12, 2020 through December 31, 2022.

An entity may elect to apply the amendments provided by this update beginning March 12, 2020 through December 31, 2022.

The change from LIBOR to an alternate rate has not had a material impact on the Company's consolidated financial statements.

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The Company has historically generated a significant amount of cash from operations.

In the first six months of 2022 and 2021, the Company primarily funded its operations and liquidity needs through cash on hand and from cash flows from operations, and when needed, used borrowings under its available lines of credit.

In the first nine months of 2022 and 2021, the Company primarily funded its operations and liquidity needs through cash on hand and from cash flows from operations, and when needed, used borrowings under its available lines of credit.

In addition, the Company’s Entertainment operating segment used production financing to fund certain of its television and film productions which are arranged on an individual production basis using either the Company's revolving film and television production credit facility or through special purpose production subsidiaries.

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Although the Company believes the risk of nonperformance by the counterparties to its financial facilities is not significant, in times of severe economic downturn in the credit markets, it is possible that one or more sources of external financing may be unable or unwilling to provide funding to the Company.

As of June 26, 2022, the Company's cash and cash equivalents totaled $628.2 million, of which $41.9 million is restricted under the Company’s production financing facilities.

As of September 25, 2022, the Company's cash and cash equivalents totaled $551.6 million, of which $6.1 million is restricted under the Company’s production financing facilities.

Prior to 2017, deferred income taxes had not been provided on the majority of undistributed earnings of international subsidiaries as such earnings were indefinitely reinvested by the Company.

Accordingly, such international cash balances were not available to fund cash requirements in the United States unless the Company was to change its reinvestment policy.

Accordingly, such international cash balances were

not available to fund cash requirements in the United States unless the Company was to change its reinvestment policy.

The Company has maintained sufficient sources of cash in the United States to fund cash requirements without the need to repatriate any funds.

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income tax on unrepatriated earnings by imposing a one-time mandatory deemed repatriation tax on undistributed foreign earnings.

As of June 26, 2022, the Company had a total liability of $137.7 million related to this tax, $34.4 million is reflected in current liabilities while the remaining long-term payable related to the Tax Act of $103.3 million is presented within other liabilities, non-current on the consolidated balance sheets included in Part I of this Form 10-Q.

As of September 25, 2022, the Company had a total liability of $137.7 million related to this tax, $34.4 million is reflected in current liabilities while the remaining long-term payable related to the Tax Act of $103.3 million is presented within other liabilities, non-current on the consolidated balance sheets included in Part I of this Form 10-Q.

As permitted by the Tax Act, the Company will pay the transition tax in annual interest-free installments through 2025.

As a result, in the future, the related earnings in foreign jurisdictions will be made available with greater investment flexibility.

The majority of the Company’s cash and cash equivalents held outside of the United States as of June 26, 2022 are denominated in the U.S.

The majority of the Company’s cash and cash equivalents held outside of the United States as of September 25, 2022 are denominated in the U.S.

Because of the seasonality in the Company's cash flow, management believes that on an interim basis, rather than discussing only its cash flows, a better understanding of its liquidity and capital resources can be obtained through a discussion of the various balance sheet categories.

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The table below outlines key financial information (in millions of dollars) pertaining to our consolidated balance sheets including the period-over-period changes.

June 26, 2022 June 27, 2021 % Change

September 25, 2022 September 26, 2021 % Change

Cash and cash equivalents (including restricted cash of $6.1 and $94.9) $ 551.6 $ 1,181.2 -53 %

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Other liabilities 545.1 722.5 -25 %

Accounts receivable increased 1% to $870.5 million at June 26, 2022, compared to $865.9 million at June 27, 2021.

Absent the unfavorable foreign currency exchange impact of $27.8 million, accounts receivable increased 4% or $32.5 million.

The increase in accounts receivable was driven by higher sales during the first six months of 2022, partially offset by improved collections.

Days sales outstanding decreased from 60 days at June 27, 2021 to 59 days at June 26, 2022.

Inventories increased 74% to $867.5 million as of June 26, 2022, compared to $499.6 million at June 27, 2021.

Absent the unfavorable foreign currency exchange impact of $36.2 million, inventories increased 81% or $404.1 million.

The increase in 2022 inventory balances reflects accelerated inventory purchases in the first half of 2022 in an effort to mitigate the impact of certain global supply chain challenges, including increased lead-times and higher freight-in costs, most notably in the U.S.

and Europe, attributable to the Company's Consumer Products and Wizards of the Coast tabletop gaming businesses.

Prepaid expenses and other current assets increased 32% to $719.2 million at June 26, 2022 from $543.2 million at June 27, 2021.

Accounts receivable decreased 19% to $1,188.8 million at September 25, 2022, compared to $1,476.6 million at September 26, 2021.

The decrease in accounts receivable was driven by lower sales and improved collections during the first nine months of 2022.

Days sales outstanding decreased from 68 days at September 26, 2021 to 65 days at September 25, 2022.

Inventories increased 55% to $844.5 million as of September 25, 2022, compared to $544.1 million at September 26, 2021.

The increase in 2022 inventory balances reflects accelerated inventory purchases attributable to the Company's Consumer Products and Wizards of the Coast businesses, to mitigate the impact of certain global supply chain challenges experienced throughout 2021 and into 2022.

Beginning in the third quarter of 2022, certain global supply chain constraints began to subside, most notably in the U.S.

and Europe, which also contributed to the Company's higher inventory levels at September 25, 2022.

Prepaid expenses and other current assets increased 25% to $658.8 million at September 25, 2022 from $528.5 million at September 26, 2021.

The increase was driven by higher accrued tax credit balances related to film and television production costs, due to increased productions and timing of tax credit claims, as well as higher accrued royalty and licensing balances, primarily attributable to the Company's Entertainment business and higher unrealized gains on foreign exchange contracts.

These increases were partially offset by lower prepaid royalty balances in relation to the Company’s MARVEL, POWER RANGERS and DISNEY PRINCESS royalty agreements and from lower prepaid tax balances during the second quarter 2022.

Other assets increased 1% to $1,367.6 million at June 26, 2022 from $1,350.5 million at June 27, 2021.

The increase was driven by higher long-term accrued income balances related to certain of the Company's content distribution arrangements and increased non-current receivable balances within the Entertainment segment.

These increases were partially offset by a lower balance for the Company's investment in Discovery Family Channel, due to an impairment charge recorded in the fourth quarter of 2021 and distributions received in the first six months of 2022, and from certain content and production assets sold in connection with the sale of eOne Music during the third quarter of 2021.

Accounts payable and accrued liabilities increased 8% to $1,923.2 million at June 26, 2022 from $1,778.9 million at June 27, 2021 driven by higher account payable balances due to increased inventory purchases, higher accrued freight balances due to increased costs as a result of supply chain disruptions, higher accrued royalty balances due to higher sales of partner brand products, as well as higher participations and residuals and higher accrued tax balances.

These increases were partially offset by lower deferred revenue balances due to the timing of certain scripted television content deliveries, lower accounts payable and accrued liabilities balances associated with the sale of eOne Music, lower incentive compensation accruals and lower severance accruals from payments made in relation to restructuring actions taken in 2020.

Other liabilities decreased 24% to $570.0 million at June 26, 2022 from $753.0 million at June 27, 2021.

The decrease was driven by lower long-term lease liability balances, lower long-term deferred tax liability balances due to the sale of eOne Music during the third quarter of 2021, a lower transition tax liability balance reflecting the reclassification of the 2022 installment payment due April 2023, a lower Discovery option agreement balance due to a revaluation of the Discovery Family Channel investment during the fourth quarter of 2021, and lower deferred revenue balances.

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the six-month periods ended June 26, 2022 and June 27, 2021.

June 26, 2022 June 27, 2021

These increases were partially offset by lower prepaid royalty balances in relation to the Company’s MARVEL, POWER RANGERS and DISNEY PRINCESS royalty agreements, the reclassification of certain Entertainment assets as Assets Held for Sale in relation to the exit of certain non-core businesses within the Entertainment segment and from lower prepaid tax balances during the third quarter 2022.

Other assets decreased 2% to $1,404.3 million at September 25, 2022 from $1,428.4 million at September 26, 2021.

The decrease was primarily driven by a lower balance for the Company's investment in Discovery Family Channel, due to an impairment charge recorded in the fourth quarter of 2021 and distributions received in the first nine months of 2022, partially offset by higher deferred tax balances and higher non-current receivable balances within the Entertainment segment.

Accounts payable and accrued liabilities decreased 7% to $2,097.0 million at September 25, 2022 from $2,261.9 million at September 26, 2021 driven by lower incentive bonus accruals, lower accrued advertising balances reflecting lower levels of

expense in 2022, lower accrued freight balances due to improving supply chain conditions within certain markets, as well as the reclassification of certain Entertainment liabilities as Liabilities Held for Sale, in relation to the exit of certain non-core businesses within the Entertainment segment.

These decreases were partially offset by higher accrued royalty balances related to sales of partner brand products during the first nine months of 2022.

Other liabilities decreased 25% to $545.1 million at September 25, 2022 from $722.5 million at September 26, 2021.

The decrease was driven by lower long-term deferred tax balances reflecting the amortization of deferred tax liabilities and the impact of foreign exchange revaluation, primarily related to the British Pound, lower long-term lease liability balances, a lower transition tax liability balance reflecting the reclassification of the 2022 installment payment due April 2023, and a lower Discovery option agreement balance due to a revaluation of the Discovery Family Channel investment during the fourth quarter of 2021.

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the nine-month periods ended September 25, 2022 and September 26, 2021.

September 25, 2022 September 26, 2021

Net cash provided by (utilized for):

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Financing activities (443.0) (1,223.5)

Net cash provided by operating activities in the first six months of 2022 was $147.8 million compared to $577.1 million in the first six months of 2021.

The $429.3 million decrease in net cash provided by operating activities was primarily attributable to higher working capital requirements, including higher inventory costs, higher incentive bonus payments, higher royalty payments and higher freight costs due to ongoing supply chain constraints.

Net cash utilized for investing activities was $212.6 million in the first six months of 2022 compared to $66.3 million in the first six months of 2021.

Net cash provided by operating activities in the first nine months of 2022 was $262.2 million compared to $685.6 million in the first nine months of 2021.

The $423.4 million decrease in net cash provided by operating activities was primarily attributable to higher working capital requirements, including higher inventory spend and cash utilized for payables and accrued liabilities.

Net cash utilized for investing activities was $265.8 million in the first nine months of 2022 compared to net cash provided by investing activities of $277.5 million in the first nine months of 2021.

The increase in cash used reflects a cash payment of $146.3 million related to the D&D Beyond Acquisition during the second quarter of 2022.

Additions to property, plant and equipment were $75.8 million in the first six months of 2022 compared to $63.1 million in the first six months of 2021.

Net cash utilized for financing activities was $319.9 million in the first six months of 2022 compared to $718.4 million in the first six months of 2021.

Financing activities in the first six months of 2022 include payments totaling $57.5 million related to the $1.0 billion in term loans described below, consisting of a $50.0 million principal and quarterly principal amortization payment of $7.5 million toward the Five-Year Tranche loan, as well as drawdowns of $137.7 million and repayments of $133.3 million related to production financing loans and cash payments of $124.0 million to repurchases the Company's common stock.

Financing activities in the first six months of 2021 included the repayment of $300.0 million aggregate principal amount of 3.15% Notes and payments totaling $265.0 million related to the $1.0 billion in term loans consisting of $250.0 million towards the principal balance of the Three-Year Tranche loans and quarterly principal payments totaling $15.0 million.

In addition, the Company had drawdowns of $114.7 million and repayments of $70.2 million related to production financing loans.

Dividends paid in the first six months of 2022 totaled $191.9 million, compared to $187.5 million in the first six months of 2021 reflecting a higher dividend rate commencing with the May 2022 dividend payment.

Beginning with employee stock incentive awards granted in 2022, the payment of cash dividends to shareholders also results in the crediting of Dividend Equivalent Units (“DEUs”) to holders of restricted stock units ("RSUs") and contingent stock performance awards ("PSUs") granted under the Company’s Restated 2003 Stock Incentive Plan, as amended, for employees as described in Note 14 in the Company's Annual Report on Form 10-K for the year ended December 26, 2021.

The DEUs will be credited as additional RSUs or PSUs and settled concurrently with the vesting of associated awards.

Investing activities in 2021 include $379.2 million of proceeds, net of cash sold, from the sale of eOne Music.

Additions to property, plant and equipment were $130.7 million in the first nine months of 2022 compared to $98.1 million in the first nine months of 2021.

Net cash utilized for financing activities was $443.0 million in the first nine months of 2022 compared to $1,223.5 million in the first nine months of 2021.

Financing activities in the first nine months of 2022 include payments totaling $72.5 million related to the $1.0 billion in term loans described below, consisting of a $50.0 million principal and quarterly principal amortization payment of $22.5 million toward the Five-Year Tranche loan, as well as drawdowns of $204.5 million and repayments of $189.2 million related to production financing loans and cash payments of $125.0 million to repurchases the Company's common stock.

Financing activities in the first nine months of 2021 include:

• early repayment of $300.0 million aggregate principal of 2.60% Notes due 2022 and related debt extinguishment costs of $9.1 million during the third quarter;

• repayment of $300.0 million aggregate principal amount of 3.15% Notes due 2021, during the first quarter;

• payments totaling $372.5 million related to the $1.0 billion in term loans described below consisting of $300.0 million for the remaining principal balance of the Three-Year Tranche loans and $50.0 million principal and quarterly principal amortization payments totaling $22.5 million toward the Five-Year Tranche loan;

• drawdowns of $127.6 million and repayments of $89.6 million related to production financing loans.

Dividends paid in the first nine months of 2022 totaled $288.6 million, compared to $280.7 million in the first nine months of 2021 reflecting a higher dividend rate commencing with the May 2022 dividend payment.

Sources and Uses of Cash

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Trading card and digital gaming revenues have shorter collection periods, but product development expense often occurs years prior to release and revenue generation.

During the first six months of 2022 and 2021, the Company primarily used cash from operations and, to a lesser extent, borrowings under available lines of credit, in particular production financing vehicles, to fund its working capital.

During the first nine months of 2022 and 2021, the Company primarily used cash from operations and, to a lesser extent, borrowings under available lines of credit, in particular production financing vehicles, to fund its working capital.

The Company has an agreement with a group of banks which provides for a commercial paper program (the "Program").

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The maturities of the notes may vary but may not exceed 397 days.

The notes are sold under customary terms in the commercial paper market and are issued at

a discount to par, or alternatively, sold at par and bear varying interest rates based on a fixed or floating rate basis.

The notes are sold under customary terms in the commercial paper market and are issued at a discount to par, or alternatively, sold at par and bear varying interest rates based on a fixed or floating rate basis.

The interest rates vary based on market conditions and the ratings assigned to the notes by the credit rating agencies at the time of issuance.

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If, for any reason, the Company is unable to access the commercial paper market, the Company intends to use the revolving credit agreement to meet the Company's short-term liquidity needs.

At June 26, 2022, the Company had no outstanding borrowings related to the Program.

At September 25, 2022, the Company had no outstanding borrowings related to the Program.

The Company has a second amended and restated revolving credit agreement with Bank of America, N.A., as administrative agent, swing line lender and a letter of credit issuer and lender and certain other financial institutions, as lenders thereto (the "Amended Revolving Credit Agreement"), which provides the Company with commitments having a maximum aggregate principal amount of $1.5 billion.

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The Amended Revolving Credit Agreement extends through September 20, 2024.

The Company was in compliance with all covenants as of June 26, 2022.

The Company had no borrowings outstanding under its committed revolving credit facility as of June 26, 2022.

However, letters of credit outstanding under this facility as of June 26, 2022 were approximately $3.1 million.

Amounts available and unused under the committed line at June 26, 2022 were approximately $1.5 billion, inclusive of borrowings under the Company’s commercial paper program.

The Company also has other uncommitted lines from various banks, of which approximately $10.5 million was utilized at June 26, 2022.

The Company was in compliance with all covenants as of September 25, 2022.

The Company had no borrowings outstanding under its committed revolving credit facility as of September 25, 2022.

However, letters of credit outstanding under this facility as of September 25, 2022 were approximately $3.1 million.

Amounts available and unused under the committed line at September 25, 2022 were approximately $1.5 billion, inclusive of borrowings under the Company’s commercial paper program.

The Company also has other uncommitted lines from various banks, of which approximately $8.3 million was utilized at September 25, 2022.

Of the amount utilized under, or supported by, the uncommitted lines, approximately $7.5 million and $0.8 million represent letters of credit and outstanding short-term borrowings, respectively.

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On December 30, 2019, the Company completed the acquisition of eOne and on that date, borrowed the full amount of $1.0 billion under the Term Loan Facilities.

As of June 26, 2022, the Company has fully repaid the Three-Year Tranche $400.0 million principal term loan, and of the Five-Year Tranche $600.0 million principal balance, the Company has repaid a total of $260.0 million in the following increments:

As of September 25, 2022, the Company has fully repaid the Three-Year Tranche $400.0 million principal term loan, and of the Five-Year Tranche $600.0 million principal balance, the Company has repaid a total of $275.0 million in the following increments:

$22.5 million in 2020;

$180.0 million in 2021;

and, $57.5 million in the first six months of 2022 consisting of $50.0 million principal and a quarterly principal amortization payment of $7.5 million.

The Company is subject to certain financial covenants contained in this agreement and as of June 26, 2022, the Company was in compliance with these covenants.

and, $72.5 million in the first nine months of 2022 consisting of $50.0 million principal and a quarterly principal amortization payment of $22.5 million.

The Company is subject to certain financial covenants contained in this agreement and as of September 25, 2022, the Company was in compliance with these covenants.

The terms of the Term Loan Facilities are described in note 7 to the consolidated financial statements included in Part I of this Form 10-Q.

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$300 million of notes due 2022 (the "2022 Notes") that bear interest at a fixed rate of 2.60%;

$500 million of notes due 2024 (the "2024 Notes") that bear interest at a fixed rate of 3.00%;

$500 million of notes due 2024 (the "2024 Notes") that

bear interest at a fixed rate of 3.00%;

$675 million of notes due 2026 (the "2026 Notes") that bear interest at a fixed rate of 3.55%;

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The Company expects to utilize the revolving production financing facility for the majority of its future production financing needs.

During the first six months of 2022, the Company had total drawdowns of $137.7 million and repayments of $133.3 million towards these production financing facilities.

As of June 26,

2022, the Company had outstanding production financing borrowings related to these facilities of $175.0 million, $77.0 million of which are recorded within the current portion of long-term debt and $98.0 million are recorded within short-term borrowings in the Company's consolidated balance sheets, included in Part I of this Form 10-Q.

The Company has principal amounts of long-term debt as of June 26, 2022 of $3.9 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $137.0 million is current at June 26, 2022 of which $60.0 million is related to principal amortization of the 5-year term loans due December 2024 and $77.0 million represents the Company's outstanding production financing facilities described above.

During the first nine months of 2022, the Company had total drawdowns of $204.5 million and repayments of $189.2 million towards these production financing facilities.

As of September 25, 2022, the Company had outstanding production financing borrowings related to these facilities of $184.9 million, $62.6 million of which are recorded within the current portion of long-term debt and $122.3 million are recorded within short-term borrowings in the Company's consolidated balance sheets, included in Part I of this Form 10-Q.

The Company has principal amounts of long-term debt as of September 25, 2022 of $3.9 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $122.6 million is current at September 25, 2022 of which $60.0 million is related to principal amortization of the 5-year term loans due December 2024 and $62.6 million represents the Company's outstanding production financing facilities described above.

During the first quarter of 2021, the Company repaid in full its 3.15% Notes in the aggregate principal amount of $300.0 million due in May 2021, including accrued interest.

All of the Company’s other long-term borrowings have contractual maturities that occur subsequent to the third quarter of 2024, with the exception of certain of the Company’s production financing facilities discussed above.

The Company also had letters of credit and other similar instruments of approximately $12.8 million and purchase commitments of approximately $413.3 million outstanding at June 26, 2022.

The Company also had letters of credit and other similar instruments of approximately $10.6 million and purchase commitments of approximately $357.4 million outstanding at September 25, 2022.

Other contractual obligations and commercial commitments, as detailed in the Company's 2021 Form 10-K, did not materially change outside of certain payments made in the normal course of business and as otherwise set forth in this report.

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Following the Company's acquisition of eOne, the Company temporarily suspended its share repurchase program to prioritize deleveraging.

In April 2022, given the Company's progress towards reducing debt, the Company resumed its share repurchase activity and repurchased approximately 1.4 million shares at a total cost of $124.0 million and at an average price of $87.48 per share.

At June 26, 2022, the Company had $242.6 million remaining under these share repurchase authorizations.

In April 2022, given the Company's progress towards reducing debt, the Company resumed its share repurchase activity and has since repurchased approximately 1.4 million shares at a total cost of $125.0 million and at an average price of $87.46 per share.

At September 25, 2022, the Company had $241.6 million remaining under these share repurchase authorizations.

Share repurchases are subject to market conditions, the availability of funds and other uses of funds.

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These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented.

The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company's reported financial results include film and television production costs, recoverability of goodwill and intangible assets, income taxes and business combinations.

and intangible assets, income taxes and business combinations.

Additionally, the Company identified the valuation of the Company’s equity method investment in Discovery Family Channel as a significant accounting estimate.

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The Company does not hedge against translation impacts of foreign exchange.

From time to time, affiliates of the

Company may make or receive intercompany loans in currencies other than their functional currency.

From time to time, affiliates of the Company may make or receive intercompany loans in currencies other than their functional currency.

The Company manages this exposure at the time the loan is made by using foreign exchange contracts.

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The Company does not speculate in foreign currency exchange contracts.

At June 26, 2022, these contracts had net unrealized gains of $19.0 million, of which $19.3 million of unrealized gains are recorded in prepaid expenses and other current assets, $0.5 million of unrealized gains are recorded in other assets and $0.8 million of unrealized losses are recorded in accrued liabilities.

Included in accumulated other comprehensive loss at June 26, 2022 are deferred gains, net of tax, of $15.8 million, related to these derivatives.

At June 26, 2022, the Company had principal amounts of long-term debt of $3.9 billion.

At September 25, 2022, these contracts had net unrealized gains of $38.4 million, of which $36.9 million of unrealized gains are recorded in prepaid expenses and other current assets, $1.8 million of unrealized gains are recorded in other assets and $0.3 million of unrealized losses are recorded in accrued liabilities.

Included in accumulated other comprehensive loss at September 25, 2022 are deferred gains, net of tax, of $22.4 million, related to these derivatives.

At September 25, 2022, the Company had principal amounts of long-term debt of $3.9 billion.

In May 2014, the Company issued an aggregate $600.0 million of long-term debt which consisted of $300.0 million of 3.15% Notes, subsequently repaid in 2021, and $300.0 million of 5.10% Notes due 2044.

3 unchanged sentences

At the date of issuance, the Company terminated these swap agreements and their fair value at the date of issuance was recorded in accumulated other comprehensive loss and is being amortized through the consolidated statements of operations using an effective interest rate method over the life of the related debt.

Included in accumulated other comprehensive loss at June 26, 2022 are deferred losses, net of tax, of $15.2 million related to these derivatives.

The impact of inflation on the Company's business operations has been significant during the first six months of 2022 compared to prior years.

Included in accumulated other comprehensive loss at September 25, 2022 are deferred losses, net of tax, of $15.0 million related to these derivatives.

The impact of inflation on the Company's business operations has been significant during the first nine months of 2022 compared to prior years.

However, due to mitigating actions taken by the Company, such as price increases where deemed necessary, the impact of general price inflation on our financial position and results of operations has been reduced.

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis