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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-10-26 · 267 added, 510 removed, 186 unchanged (81% of the section changed)

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(“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:

Hasbro delivers engaging brand experiences for global audiences across 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.

Hasbro is guided by our 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 into 2022.

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.

Please see Part I, Item 1A.

Risk Factors and Part I, Item 1.

Business, in the Company's Form 10-K for the fiscal year ended December 26, 2021 for further information.

D&D Beyond Acquisition

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.

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%.

Recent Developments

Executive Leadership

On April 12, 2023, the Company announced the appointment of Gina Goetter as Chief Financial Officer, effective May 18, 2023, following the Company’s Annual Meeting of Shareholders.

Goetter joins Hasbro from Harley Davidson, Inc., where she served as Chief Financial Officer.

Prior to her time at Harley Davidson, Ms.

Goetter served in senior leadership roles at Tyson Foods, Inc.

and General Mills, Inc.

On April 12, 2023, the Company announced the appointment of Tim Kilpin as President, Toy, Licensing & Entertainment, effective April 24, 2023.

Kilpin joins Hasbro from PlayMonster Group, LLC, where he served as Executive Chairman and Chief Executive Officer.

Previously, Mr.

Kilpin held senior leadership positions within the toy and entertainment industry at companies that include Activision Blizzard, Inc., Mattel, Inc.

and The Walt Disney Company.

Strategic Review

On October 4, 2022, following a several months long strategic review of our business led by our CEO, we announced a go-forward strategic plan guided by our new Blueprint 2.0, a consumer-centric framework for bringing compelling and expansive brand experiences to audiences around the world.

Our Blueprint 2.0 strategy focuses on what has driven our business for the past one hundred years and will serve as our foundation going forward:

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

We are increasing strategic investment in our most valuable and profitable franchises across toys, games, entertainment and licensing, and exiting certain non-core aspects of the business.

Hasbro Transformation Office

Under our new strategic plan, we launched the Hasbro Transformation Office (HTO), a team of leaders dedicated to running a disciplined, purpose-built company that is simpler, more efficient and redesigned to drive long-term sustainable growth in markets in which we compete.

Our HTO aligns and delivers on our Operational Excellence program, an enterprise-wide cost-saving initiative intended to improve our business financially, operationally and culturally from our current state and designed to deliver $250 million to $300 million in run-rate cost savings by the end of 2025.

During the first quarter of 2023, we realized an additional $35 million of run-rate cost savings.

TV and Film Business

On November 17, 2022, we announced an authorization by Hasbro's Board of Directors to initiate a marketing process to explore a sale of parts of our eOne TV and film business that do not directly support the Company’s Branded Entertainment strategy.

In the event a transaction were to occur, Hasbro is expected to maintain the capability to develop and produce animation, digital shorts, scripted TV and theatrical films for audiences related to core Hasbro IP.

The family brands business, including the brands PEPPA PIG and PJ MASKS, is not expected to be part of any sale transaction

involving parts of the eOne film and television business.

The sale process was ongoing as of the close of the first quarter of 2023 however, there can be no assurance that the process will result in a sale.

Workforce Reduction

In alignment with the objectives of our Operational Excellence program, on January 26, 2023, we announced the undertaking of certain organizational changes which will result in the elimination of approximately 1,000 positions from our global workforce in 2023, or approximately 15% of global full-time employees.

Brand Portfolio Realignment

Effective for the first quarter 2023, we realigned our brand portfolios to correspond with the evolution of our Blueprint 2.0 strategy.

We are focusing on fewer, bigger, more profitable brands that showcase our leadership in preschool toys, action figures and accessories, games, arts & crafts, and outdoor action brands.

Our new product categories beginning in the first quarter of 2023 are as follows:

◦ Franchise Brands - A refreshed group of our most profitable brands that includes DUNGEONS & DRAGONS, Hasbro Gaming, MAGIC:

THE GATHERING, NERF, PEPPA PIG, PLAY-DOH, and TRANSFORMERS.

◦ Partner Brands - The Partner Brands category includes those brands we license from other parties such as Disney's STAR WARS and MARVEL as well as other partners, for which we develop toy and game products, with a focus on those key Partner Brands that give us the largest growth potential and where we can lead and innovate in the category.

◦ Portfolio Brands - Our Portfolio Brands category includes those brands we own or control which we feel have upside in revenue and profitability that have not yet grown to the significance of a franchise brand.

◦ Non-Hasbro Branded Film & TV - The Non-Hasbro Branded Film & TV category includes non-Hasbro-branded film, TV and other entertainment related revenues.

All Hasbro-branded content is included in the portfolios noted above.

During each of the periods presented in this Form 10-Q there were certain charges incurred which impacted operating segment results in the Company’s Consumer Products, Entertainment and Corporate and Other segments.

These charges are discussed below in Results of Operations - Consolidated.

First quarter 2023 highlights:

• First quarter net revenues of $1.0 billion decreased 14% compared to the first quarter of 2022 and included an unfavorable foreign currency translation of $15.8 million.

Absent the unfavorable impact of foreign currency exchange, first quarter net revenues decreased 13%.

• Consumer Products segment net revenues declined 23% to $520.4 million.

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

Wizards of the Coast and Digital Gaming segment net revenues increased 12% to $295.2 million;

and Entertainment segment net revenues declined 19% to $185.4 million.

• Net revenues from Franchise Brands decreased 12%;

Partner Brands net revenues decreased 5%;

Hasbro Gaming net revenues decreased 25%;

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;

• Net revenues from Franchise Brands declined 6%;

Partner Brands net revenues declined 36%;

Portfolio Brands net revenues declined 18%;

and Other Entertainment net revenues declined 16%.

• Operating profit was $17.9 million, or 1.8% of net revenue in the first quarter of 2023 compared to operating profit of $120.0 million, or 10.3% of net revenue, in the first quarter of 2022.

• Operating results in the Consumer Products segment decreased greater than 100% to an operating loss of $46.0 million;

Wizards of the Coast and Digital Gaming segment operating profit decreased 28% to $76.8 million;

Entertainment segment operating results decreased greater than 100% to an operating loss of $8.7 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 $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 decreased 1%;

Partner Brands net revenues increased 1%;

Hasbro Gaming net revenues decreased 15%;

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 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 $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.

and Corporate and Other operating losses improved 42% to an operating loss of $4.2 million.

• Certain charges impacting operating segment performance for the first quarter of 2023 and 2022, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, are discussed below in Results of Operations - Consolidated.

• The net loss attributable to Hasbro, Inc.

of $22.1 million, or $(0.16) per share, in the first quarter of 2023 compared to net earnings of $61.2 million, or $0.44 per diluted share, in the first quarter of 2022.

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 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

A summary of the results of operations is illustrated below for the quarters ended April 2, 2023 and March 27, 2022.

Quarter Ended

April 2, 2023 March 27, 2022

Net revenues $ 1,001.0 $ 1,163.1

Operating profit 17.9 120.0

Earnings before income taxes 165.6 323.4 425.7 494.0

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 attributable to Hasbro, Inc.

129.2 253.2 332.4 346.5

Diluted earnings per share 0.93 1.83 2.39 2.51

(Loss) earnings before income taxes (21.0) 80.2

Net (loss) earnings (21.7) 62.9

Net earnings attributable to noncontrolling interests 0.4 1.7

Net (loss) earnings attributable to Hasbro, Inc.

Diluted (loss) earnings per share (0.16) 0.44

RESULTS OF OPERATIONS – CONSOLIDATED

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

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 $3.3 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.

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

for the quarters ended April 2, 2023 and March 27, 2022 include certain charges as described below.

• Net charges of $13.3 million, or $0.10 per diluted share, of intangible amortization costs related to the intangible assets acquired in the eOne Acquisition.

These expenses are allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets.

• Net charges of $8.1 million, or $0.06 per diluted share, of Operational Excellence program related consultant and transformation office expenses included within Selling, Distribution and Administration within the Corporate and Other segment.

• Net charges of $1.7 million, or $0.01 per diluted share, 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 $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 $1.7 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 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 $0.28 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.

• Net charges of $15.9 million, or $0.11 per diluted share of intangible amortization costs related to the intangible assets acquired in the eOne acquisition.

These expenses are allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets.

• Net charges of $2.3 million, $0.02 per diluted share 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.

The quarters ended April 2, 2023 and March 27, 2022 were 14-week and 13-week periods, respectively.

Consolidated net revenues for the first quarter of 2023 declined 14% to $1,001.0 million from $1,163.1 million for the first quarter of 2022 and included an unfavorable $15.8 million impact from foreign currency translation as a result of weakening currencies, primarily in Europe.

Operating profit for the first quarter of 2023 was $17.9 million, or 1.8% of net revenues, compared to operating profit of $120.0 million, or 10.3% of net revenues, for the first quarter of 2022.

In addition to the charges described above, operating results in the first quarter of 2023 reflect lower revenue volumes, primarily within the Consumer Products segment and to a lesser extent, within the Entertainment segment, higher sales allowances and closeout sales to sell through inventory, higher product development costs due to increased investments within the Wizards of the Coast business, higher advertising costs associated with the release of the Dungeons & Dragons:

Honor Among Thieves motion picture and higher marketing and sales expenses.

These impacts to operating results were partially offset by lower royalty expenses as result of the decline of Partner Brand sales, during the first quarter of 2023 due in part to the Company's strategic decision to exit certain licenses.

The following table presents net revenues by product category for the quarters ended April 2, 2023 and March 27, 2022.

Quarter Ended

September 25, 2022 September 26, 2021 %

April 2, 2023 March 27, 2022 %

Franchise Brands $ 613.4 $ 650.4 -6 %

Partner Brands 132.7 206.5 -36 %

Hasbro Gaming 211.3 281.9 -25 %

Emerging Brands 123.4 134.4 -8 %

TV/Film/Entertainment 177.2 261.9 -32 %

Portfolio Brands 92.0 112.6 -18 %

Non-Hasbro Branded Film & TV

162.9 193.6 -16 %

Total $ 1,001.0 $ 1,163.1 -14 %

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 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.

Net revenues in the Franchise Brands portfolio decreased 6% in the first quarter of 2023 compared to the first quarter of 2022.

Drivers of the net revenue decrease include lower net revenues from NERF products, lower net revenues from certain Hasbro Gaming brands, most notably MONOPOLY, and to a lesser extent, lower net revenues from PLAY-DOH and PEPPA PIG products as retailers focused on reducing inventory.

These net revenue decreases were partially offset by higher net revenues from MAGIC:

THE GATHERING which grew 16% driven by the first quarter 2023 set release of Phyrexia:

All Will Be One , as well as from sustained demand for previously released sets, and to a lesser extent, higher net revenues from DUNGEONS & DRAGONS and TRANSFORMERS products.

PARTNER BRANDS:

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

Net revenues from the Partner Brands portfolio decreased 36% in the first quarter of 2023 compared to the first quarter of 2022.

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

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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 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 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 $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 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 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 %

Partner Brands 775.8 766.7 1 %

Hasbro Gaming 480.7 565.3 -15 %

Emerging Brands 291.8 297.2 -2 %

TV/Film/Entertainment 528.8 652.4 -19 %

Total $ 4,178.2 4,407.0 -5 %

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 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 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 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 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 $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 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 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.

During the first quarter of 2023, Partner Brands net revenue decreases were driven by lower sales of the Company's products for DISNEY FROZEN and DISNEY PRINCESS due to the expiration of the related license agreements in December 2022, lower net revenues from the Company's products for MARVEL compared to the first quarter of 2022, which benefited from a robust slate of entertainment releases without comparable releases in the first quarter of 2023, and to a lesser extent, lower net revenues from the Company's products for STAR WARS and BEYBLADE.

PORTFOLIO BRANDS:

Portfolio Brands net revenues decreased 18% in the first quarter of 2023 compared to the first quarter of 2022.

Lower net revenues from PJ MASKS and BABY ALIVE products as well as lower net revenues from certain other Portfolio Brands products were partially offset by higher net revenue from GI JOE products.

NON-HASBRO BRANDED FILM & TV :

Net revenues from Non-Hasbro Branded Film & TV decreased 16% in the first quarter of 2023 compared to the first quarter of 2022 driven by lower net revenues from film production deliveries reflecting fewer new entertainment releases in 2023 compared to 2022.

In addition, lower net revenues from unscripted programming, due to the timing of deliveries, contributed to the decrease in the first quarter of 2023 compared to the first quarter of 2022.

These decreases were partially offset by higher net revenues from scripted programming deliveries that include The Rookie season five, The Rookie:

Feds, and A Gentleman in Moscow.

SEGMENT RESULTS

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

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

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:

The following table presents net external revenues and operating profit (loss) for the Company's principal segments for the quarters ended April 2, 2023 and March 27, 2022:

Quarter Ended

September 25, 2022 September 26, 2021 %

April 2, 2023 March 27, 2022 %

Consumer Products $ 520.4 $ 672.8 -23 %

7 unchanged sentences

Consumer Products Segment

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.

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended April 2, 2023 and March 27, 2022.

Quarter Ended

September 25, 2022 September 26, 2021

April 2, 2023 March 27, 2022

North America $ 279.1 $ 405.2

3 unchanged sentences

Net revenues $ 520.4 $ 672.8

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.

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.

The Consumer Products segment net revenues declined 23% to $520.4 million for the first quarter of 2023 compared to $672.8 million for the first quarter of 2022 and included the impact of an unfavorable $8.4 million currency translation, most notably from the Company's European markets, reflecting efforts to reduce retail inventory levels.

Absent the impact of foreign currency exchange, Consumer Products segment net revenues declined $144.1 million or 21% during the first quarter of 2023.

Drivers of the net revenue decrease include lower sales of NERF and PLAY-DOH products, lower sales of the Company's products for DISNEY PRINCESS and DISNEY FROZEN, following the expiration of associated license agreements in December 2022, and lower sales of the Company's products for MARVEL and STAR WARS compared to the first quarter of 2022, which benefited from a variety of entertainment releases without a comparable slate in the first quarter of 2023.

To a lesser extent, lower net revenues from BEYBLADE and certain Hasbro Gaming tabletop products contributed to the decrease.

These net revenue decreases were partially offset by higher sales of TRANSFORMERS, GI JOE and DUNGEON & DRAGONS products, higher sales of the Company's products for GHOSTBUSTERS as well as the introduction of the Company's products for INDIANA JONES ahead of the film Indiana Jones and the Dial of Destiny , expected in June 2023.

Overall segment net revenue declines were primarily attributable to North America and to a lesser extent, the Company's European markets, partially offset by higher net revenues from the Company's Asia Pacific and Latin American markets during the first quarter of 2023.

The Consumer Products segment operating loss for the first quarter of 2023 was $46.0 million or 8.8% of segment net revenues, compared to segment operating profit of $8.6 million or 1.3% of segment net revenues, for the first quarter of 2022.

The decrease in operating results in the first quarter of 2023 was driven by lower net revenues, including higher levels of closeout sales and sales allowances combined with increased obsolescence charges associated with inventory management initiatives implemented primarily in North America and Europe.

These negative impacts were partially offset by savings realized from the Company's Operational Excellence program, lower royalty expenses reflecting the mix of products sold, lower advertising and promotion expense and lower freight costs during the first quarter of 2023, due to the trending improvements in global supply

chain and distribution, as well as overall improvements to managed expenses in the Company's Asia Pacific and Latin American regions.

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 September 25, 2022 and September 26, 2021.

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters ended April 2, 2023 and March 27, 2022.

Quarter Ended

September 25, 2022 September 26, 2021

April 2, 2023 March 27, 2022

Tabletop Gaming $ 217.9 $ 192.2

1 unchanged sentence

Net revenues $ 295.2 $ 262.8

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 , 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.

Wizards of the Coast and Digital Gaming segment net revenues increased 12% in the first quarter of 2023 to $295.2 million from $262.8 million in the first quarter of 2022 and included the impact of an unfavorable $3.1 million foreign currency translation.

Absent the impact of foreign currency exchange, Wizards of the Coast and Digital Gaming segment net revenues increased $35.5 million or 14% during the first quarter of 2023.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first quarter of 2023 was attributable to higher net revenues from Wizards of the Coast tabletop gaming products, most notably, MAGIC:

THE GATHERING, driven by the number and timing of set releases compared to the first quarter of 2022.

In addition, higher digital gaming net revenues contributed to the increase, primarily reflecting the addition of net revenues from D&D Beyond, acquired during the second quarter of 2022.

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

Dark Alliance , launched during the first half of 2021, and lower licensing net revenues from certain of the Company's licensed digital gaming brands.

Wizards of the Coast and Digital Gaming segment operating profit was $76.8 million, or 26.0% of segment net revenues for the first quarter of 2023, compared to operating profit of $106.4 million, or 40.5% of segment net revenues, for the first quarter of 2022.

The operating profit decrease during the first quarter of 2023 was driven by higher product development costs, higher administrative expenses and higher advertising expense as we continue to invest in Wizards of the Coast and Digital Gaming initiatives, including in talent, to support long-term growth within the segment.

In addition, higher product costs and intangible asset amortization expense related to the acquisition of D&D Beyond contributed to the operating profit decrease during the first quarter of 2023.

Entertainment Segment

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

The following table presents Entertainment segment net revenues by category for the quarters ended April 2, 2023 and March 27, 2022.

Quarter Ended

September 25, 2022 September 26, 2021

Film and TV $ 188.6 $ 255.4

Family Brands 13.6 60.5

Music and Other 9.4 11.2

Net revenues $ 211.6 $ 327.1

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 $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 %

Wizards of the Coast and Digital Gaming segment 986.1 1,008.7 -2 %

Entertainment segment *

624.3 772.5 -19 %

Operating Profit (Loss)

Consumer Products segment $ 138.9 $ 260.5 -47 %

Wizards of the Coast and Digital Gaming segment 434.2 462.3 -6 %

Entertainment segment *

(2.4) (74.3) 97 %

Corporate and Other (37.3) (56.7) 34 %

* 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 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

Europe 610.4 669.2

Asia Pacific 201.6 208.7

Latin America 224.0 188.8

Net Revenues $ 2,567.8 $ 2,625.8

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.

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 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

Digital and Licensed Gaming 185.8 248.6

Net revenues $ 986.1 $ 1,008.7

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.

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 .

Entertainment Segment

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

April 2, 2023 March 27, 2022

Film and TV $ 168.4 $ 190.2

2 unchanged sentences

Net revenues $ 185.4 $ 227.5

*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.

Entertainment segment net revenues declined 19% to $185.4 million for the first quarter of 2023, compared to $227.5 million for the first quarter of 2022 and included the impact of an unfavorable $4.3 million foreign currency translation.

Absent the impact of foreign currency exchange, Entertainment segment net revenues declined $37.6 million or 17% during the first quarter of 2023.

The net revenue decrease during the first quarter of 2023 was primarily the result of lower unscripted television net revenues due to the timing of deliveries compared to the first quarter of 2022, and lower film production net revenues reflecting fewer film deliveries in the first quarter of 2023 compared to the first quarter of 2022 which included films such as Deep Water and Clifford the Big Red Dog .

These net revenue declines were partially offset by higher scripted net revenues from deliveries that include, The Rookie season five;

and A Gentleman in Moscow.

In addition, lower entertainment content sales within the Family Brands category contributed to the decline in the first quarter of 2023, due to the renewal of certain multi-year content deals in the first quarter of 2022, with no comparable activity in 2023.

Entertainment segment operating losses were $8.7 million, or 4.7% of segment net revenues for the first quarter of 2023, compared to operating profit of $12.2 million, or 5.4% of segment net revenues for the first quarter of 2022.

The decrease in Entertainment segment operating results during the first quarter of 2023 primarily reflects lower net revenues, driven by the timing and volume of programming delivered, and higher advertising expense, driven by support for the theatrical release of Dungeons & Dragons:

Honor Among Thieves in March 2023.

These impacts to operating results were partially offset by lower royalty expense due to the decrease in entertainment deliveries during the first quarter of 2022.

Corporate and Other Segment

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.

The Corporate and Other segment operating losses were $4.2 million for the first quarter of 2023 compared to operating losses of $7.2 million for the first quarter of 2022.

The improvement in operating results in the first quarter of 2023 was primarily the result of lower administrative expenses, partially offset by Operational Excellence program related consultant fees and transformation office expenses associated with Company's cost-savings initiatives described above, as well as higher marketing and sales expenses within the segment.

OPERATING COSTS AND EXPENSES

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.

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended April 2, 2023 and March 27, 2022.

Quarter Ended

September 25, 2022 September 26, 2021

April 2, 2023 March 27, 2022

Cost of sales 28.5 % 28.6 %

4 unchanged sentences

Amortization of intangibles 2.3 % 2.3 %

Loss on assets held for sale 1.4 % — %

Selling, distribution and administration 31.7 % 26.4 %

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.

Cost of sales for the first quarter of 2023 was $285.3 million, or 28.5% of net revenues, compared to $333.1 million, or 28.6% of net revenues, for the first quarter of 2022.

The cost of sales decrease in dollars was driven primarily by lower sales volumes and cost savings realized from the Company's Operational Excellence Program, partially offset by the impact of higher closeout sales and higher sales allowances during the first quarter of 2023 compared to the first quarter of 2022.

Cost of sales remained consistent as a percent of net revenues.

Program cost amortization decreased to $122.5 million, or 12.2% of net revenues, for the first quarter of 2023 from $138.5 million, or 11.9% of net revenues, for the first quarter of 2022.

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 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.

The decrease in dollars during the first quarter of 2023 was driven by lower sales within the Entertainment segment, due primarily to the timing of deliveries compared to the first quarter of 2022.

As a percent of net revenues, the increase in program cost amortization during the first quarter of 2023 was driven by the mix of entertainment content delivered.

Royalty expense for the first quarter of 2023 decreased to $69.0 million, or 6.9% of net revenues, compared to $90.1 million, or 7.7% of net revenues, for the first quarter of 2022.

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

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.

The decrease in royalty expense during the first quarter of 2023 reflects lower sales of Partner Brands products, the exit of certain licenses and the lower number and mix of film and television deliveries compared to the first quarter of 2022.

Product development expense for the first quarter of 2023 was $83.3 million, or 8.3% of net revenues, compared to $69.6 million, or 6.0% of net revenues, for the first quarter of 2022.

The increase was driven by higher investments and costs to support the Company's Wizards of the Coast tabletop and digital gaming initiatives.

Advertising expense for the first quarter of 2023 was $82.8 million, or 8.3% of net revenues, compared to $77.6 million, or 6.7% of net revenues, for the first quarter of 2022.

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

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.

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 %

Program cost amortization 8.8 % 9.0 %

Royalties 8.0 % 8.9 %

Product development 5.5 % 5.2 %

Advertising 6.6 % 8.1 %

Amortization of intangibles 1.9 % 2.0 %

Loss on assets held for sale 0.6 % — %

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.

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.

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 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.

The advertising expense increase during the first quarter of 2023 was driven by advertising costs within the Entertainment and Wizards of the Coast and Digital Gaming segments, in support of the theatrical release of Dungeons & Dragons:

Honor Among Thieves and advertising costs associated with D&D Beyond, acquired during the second quarter of 2022, as well as higher advertising expense in support of certain other Wizards of the Coast and Digital

Gaming initiatives.

These increases were partially offset by lower advertising expenses within the Consumer Products segment, primarily due to lower revenues and mix of sales during the first quarter of 2023.

Amortization of intangible assets decreased to $23.1 million, or 2.3% of net revenues, for the first quarter of 2023, compared to $27.1 million, or 2.3% of net revenues, for the first quarter of 2022.

The decrease in 2023 reflects lower expense due to the partial impairment of the Company's definite-lived Power Rangers intangible assets during the fourth quarter of 2022, 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 increased to $317.1 million, or 31.7% of net revenues for the first quarter of 2023, from $307.1 million, or 26.4% of net revenues, for the first quarter of 2022.

The increase in selling, distribution and administration expenses primarily reflects consultant and transformation office charges totaling $10.6 million associated with the Company's Operational Excellence program.

In addition to these charges, higher personnel costs and higher marketing and sales costs within the Wizards of the Coast and Digital Gaming segment contributed to the increase.

These increases were partially offset by lower compensation expense combined with lower shipping costs compared to the first quarter of 2022 where costs were higher due to global supply chain disruptions.

NON-OPERATING EXPENSE (INCOME)

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.

Interest expense for the first quarter of 2023 totaled $46.3 million compared to $41.6 million in the first quarter of 2022.

The increase in interest expense during the first quarter of 2023 reflects higher interest expense related to borrowings from the Company's production financing credit facilities.

Interest income was $6.0 million for the first quarter of 2023 compared to $2.1 million in the first quarter of 2022.

Higher interest income in 2022 primarily reflects higher average interest rates in 2023 compared to 2022.

Other (income), net was $(1.4) million for the first quarter of 2023 compared to other expense, net of $0.3 million in the first quarter of 2022.

The increase in 2023 was driven primarily by the revaluation of certain contingent consideration liability balances and higher earnings from the Company's joint venture with Discovery, partially offset by higher foreign exchange losses during the first quarter of 2023 compared to the first quarter of 2022.

Income tax expense totaled $0.7 million on pre-tax loss of $21.0 million in the first quarter of 2023, compared to income tax expense of $17.3 million on pre-tax income of $80.2 million in the first quarter of 2022.

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

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.

During the first quarter of 2023, unfavorable discrete tax adjustments were a net expense of $3.3 million, compared to a net benefit of $2.3 million in the first quarter of 2022.

The unfavorable discrete tax adjustments for the first quarter of 2023 are primarily associated with stock-based compensation.

The favorable discrete tax adjustments for the first quarter of 2022 were primarily associated with the release of certain valuation allowances in the quarter.

Absent discrete items, the tax rates for the first quarter of 2023 and 2022 were 12.2% and 24.4%, respectively.

The decrease in the base rate of 12.2% for the first quarter of 2023 is primarily due to the mix of jurisdictions in which the Company earned its profits and lower overall earnings in the first quarter of 2023.

OTHER INFORMATION

Business Seasonality and Shipments

Within the retail sector, the Company’s revenue pattern from toys and games and licensed consumer products continues to show the second half of the year to be more significant to its overall business for the full year.

Within the retail sector, the Company’s revenue pattern from toys and games and licensed consumer products continues to indicate the second half of the year to be more significant to its overall business for the full year.

The Company expects that this concentration will continue.

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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.

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.

Quick response inventory management practices being used by retailers, along with growth in ecommerce result in the increasing trend of order placement for immediate delivery and fewer orders being placed well in advance of shipment.

Retailers prefer timing their orders for fulfillment 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 holiday selling season as they anticipate, their demand for additional product earlier in the following fiscal year could be curtailed, thus negatively impacting the Company’s future revenues.

In 2022, the Company's inventory levels and retailer order patterns reflected the impact of global consumer

demand as it 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.

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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.

However, during the second half of 2022, the effects of supply chain disruptions began to subside, most notably the U.S, and Europe, leading to higher inventory levels heading into fiscal 2023, as compared to prior years.

The Company is continuing to closely manage its inventory levels through closeout sales and by monitoring consumer purchase patterns, to ensure adequate supply of new product while clearing excess supply to mitigate the risk of inventory obsolescence.

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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Russian Sanctions

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.

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 paused all shipments and new content distribution into Russia.

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.

As of December 25, 2022, the Company had exhausted all locally held inventories, recovered all receivables and released all reserves in Russia.

Any longstanding disruptions may magnify the impact of other risks described in this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended December 25, 2022.

Accounting Pronouncement Updates

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

As of April 2, 2023, 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 25, 2022.

Recently Issued Accounting Pronouncements

In March of 2020, the FASB issued Accounting Standards Update No.

2020-04 (ASU 2020-04) Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The amendments in this update provide optional expedients and exceptions for applying U.S.

GAAP to contracts, hedging relationships, and other transactions, for a limited period of time, to ease the potential burden of recognizing the effects of reference rate reform on financial reporting.

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.

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

As of April 2, 2023, there were no recently issued accounting pronouncements that are expected to have a material impact on the Company's consolidated financial statements.

LIQUIDITY AND CAPITAL RESOURCES

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

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.

For more information on the Company's production financing facilities, including expected future repayments, see note 7 to the consolidated financial statements included in Part I of this Form 10-Q.

The Company expects to continue to fund its working capital needs primarily through available cash, cash flows from operations and from production financing facilities and, if needed, by issuing commercial paper or borrowing under its revolving credit agreement.

In the first three months of 2023 and 2022, 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 typically arranged on an individual production basis by using either the Company's revolving film and television production credit facility or through special purpose production subsidiaries.

For more information on the Company's production financing facilities, including expected future repayments, see note 7 to the consolidated financial statements included in Part I, Item 1.

Financial Statements , of this Form 10-Q.

During the remainder of 2023, the Company expects to continue to fund its working capital needs primarily through available cash, cash flows from operations and from production financing facilities and, if needed, by issuing commercial paper or borrowing under its revolving credit agreement.

In the event that the Company is not able to issue commercial paper, the Company intends to utilize its available lines of credit.

The Company believes that the funds available to it, including cash expected to be generated from operations, funds available through its commercial paper program or its available lines of credit and production financing, are adequate to meet its working capital needs for the remainder of 2022, including the repayment of the current portion of long-term debt of $122.6 million, as shown on the consolidated balance sheets, which represents the current portion of required quarterly principal amortization payments for our term loan facilities and other short-term production financing facilities, each as described below.

The Company believes that the funds available to it, including cash expected to be generated from operations, funds available through its commercial paper program or its available lines of credit and production financing, are adequate to meet its working capital needs for the remainder of 2023, including the repayment of the current portion of long-term debt of $109.0 million, as shown on the consolidated balance sheets which represents the current portion of required quarterly principal amortization payments for our term loan facilities and other production financing facilities, each as described below.

The Company may also issue debt or equity securities from time to time, to provide additional sources of liquidity when pursuing opportunities to enhance our long-term competitive position, while maintaining a strong balance sheet.

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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 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.

As of April 2, 2023, the Company's cash and cash equivalents totaled $386.2 million, of which $13.4 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.

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 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 of April 2, 2023, 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, Item 1.

Financial Statements, 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 September 25, 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 April 2, 2023 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.

September 25, 2022 September 26, 2021 % Change

April 2, 2023 March 27, 2022 % Change

Cash and cash equivalents (including restricted cash of $13.4 and $38.8) $ 386.2 $ 1,057.9 -63 %

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Other liabilities 585.2 633.6 -8 %

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, 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

Accounts receivable decreased 26% to $685.2 million as of April 2, 2023, compared to $931.7 million as of March 27, 2022.

The decrease in accounts receivable was driven by lower sales during the first three months of 2023.

Days sales outstanding decreased from 73 days at March 27, 2022 to 67 days at April 2, 2023.

Inventories increased 11% to $713.4 million as of April 2, 2023, compared to $644.3 million as of March 27, 2022.

The increase in during the first quarter of 2023 was driven primarily by higher inventory balances within the Wizards of the Coast and Digital Gaming segment, most notably in anticipation of several upcoming MAGIC:

THE GATHERING set releases, due to release schedule timing differences compared to the first quarter of 2022 and to a lesser extent, DUNGEONS & DRAGONS product as well as TRANSFORMERS product ahead of the Transformers:

Rise of the Beasts film expected in June 2023.

Prepaid expenses and other current assets increased 21% to $754.4 million as of April 2, 2023 from $621.4 million as of March 27, 2022.

The increase was driven by higher accrued royalty and licensing balances, primarily attributable to the Company's Entertainment business, as well as the reclassification of certain accrued income balances from long-term to current and higher indirect tax receivable balances for certain tax jurisdictions.

These increases were partially offset by lower accrued tax credit balances related to film and television production costs, due to decreased productions and timing of tax credit claims.

Other assets increased 25% to $1,604.3 million as of April 2, 2023 from $1,284.9 million as of March 27, 2022.

The increase was primarily driven by higher capitalized film and television production balances due to increased investments in productions compared to the first quarter of 2022, increased investments in film and television development as well as higher deferred tax balances and higher 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 distributions received during 2022.

Accounts payable and accrued liabilities decreased 7% to $1,653.9 million as of April 2, 2023 from $1,783.1 million as of March 27, 2022 driven by lower accounts payable balances associated with the Company's global cost savings initiatives and the timing of payments, lower accrued royalty balances as a result of partner brand product sales declines, including the

expiration of certain partner brand licensing agreements, lower accrued freight balances as a result of improved supply chain conditions compared to the first quarter of 2022 as well as lower accrued advertising and lower incentive bonus accrual balances.

These decreases were partially offset by higher severance accrual balances related to the Company's cost savings initiatives mentioned above.

Other liabilities decreased 8% to $585.2 million as of April 2, 2023 from $633.6 million as of March 27, 2022.

The decrease was primarily driven by a lower transition tax liability balance reflecting the reclassification of the 2022 installment payment due April 2023 and lower long-term pension liability balances.

These decreases were partially offset by an increase to the liability for uncertain tax positions and a higher long-term lease liability balance.

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the three-month periods ended April 2, 2023 and March 27, 2022.

April 2, 2023 March 27, 2022

Net cash provided by (utilized for):

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Financing activities (156.6) (77.5)

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.

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.

Net cash provided by operating activities in the first three months of 2023 was $88.8 million compared to $134.7 million in the first three months of 2022.

The $45.9 million decrease in net cash provided by operating activities was primarily attributable to lower earnings during the first quarter of 2023.

Net cash utilized for investing activities was $55.6 million in the first three months of 2023 compared to net cash utilized for investing activities of $23.9 million in the first three months of 2022.

Additions to property, plant and equipment were $53.2 million in the first three months of 2023 compared to $29.2 million in the first three months of 2022, reflecting increased investments in the Company's digital gaming initiatives within the Wizards of the Coast and Digital Gaming segment.

Net cash utilized for financing activities was $156.6 million in the first three months of 2023 compared to $77.5 million in the first three months of 2022.

Financing activities in the first three months of 2023 include a $30.0 million principal amortization payment toward the Five-Year Tranche loan described below, as well as drawdowns of $42.8 million and repayments of $54.8 million related to production financing loans.

Financing activities in the first quarter of 2022 include payments totaling $57.5 million related to the $1.0 billion in term loans consisting of $50.0 million principal and a quarterly principal amortization payment of $7.5 million toward the Five-Year Tranche loan, in addition to drawdowns of $112.2 million and repayments of $84.0 million, related to production financing loans.

Dividends paid in the first three months of 2023 totaled $96.7 million, compared to $94.5 million in the first three months of 2022 reflecting a higher dividend rate during the first three months of 2023.

Sources and Uses of Cash

The Company commits to inventory production, advertising and marketing expenditures in support of its consumer products business, prior to the peak fourth quarter retail selling season.

Accounts receivable typically increase during the third and fourth quarter as customers increase their purchases to meet consumer demand expected in the holiday selling season.

Accounts receivable increase during the third and fourth quarter as customers increase their purchases to meet expected consumer demand in the holiday selling season.

Due to the concentrated timeframe of this selling period, payments for these accounts receivable are generally not due until the fourth quarter or early in the first quarter of the subsequent year.

This timing difference between expenditures and cash collections on accounts receivable sometimes makes it necessary for the Company to borrow amounts during the latter part of the year.

In the Company's entertainment business, expenditures of cash for productions are often made well in advance of sale and delivery of the content produced.

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 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.

In the Company's entertainment business, cash expenditures for productions are often made well in advance of sale and delivery of the content produced whereas 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 three months of 2023 and 2022, 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 September 25, 2022, the Company had no outstanding borrowings related to the Program.

At April 2, 2023, 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 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.

The Company was in compliance with all covenants as of April 2, 2023.

The Company had no borrowings outstanding under its committed revolving credit facility as of April 2, 2023.

However, letters of credit outstanding under this facility as of April 2, 2023 were approximately $4.0 million.

Amounts available and unused under the committed line, at April 2, 2023 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 $12.2 million was utilized at April 2, 2023.

Of the amount utilized under, or supported by, the uncommitted lines, approximately $9.4 million and $2.8 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 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:

As of April 2, 2023, 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 $320.0 million in the following increments:

$22.5 million in 2020;

$180.0 million in 2021;

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.

$87.5 million in 2022;

and, $30.0 million during the first three months of 2023.

The Company is subject to certain financial covenants contained in this agreement and as of April 2, 2023, 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%;

and $900 million of notes due 2029 (the "2029 Notes") that bear interest at a fixed rate of 3.90%.

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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 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 $10.6 million and purchase commitments of approximately $357.4 million outstanding at September 25, 2022.

During the first three months of 2023, the Company had total drawdowns of $42.8 million and repayments of $54.8 million towards these production financing facilities.

As of April 2, 2023, the Company had outstanding production financing borrowings related to these facilities of $183.5 million, $49.0 million of

which are recorded within the current portion of long-term debt and $134.5 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 April 2, 2023 of $3.8 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $109.0 million is current at April 2, 2023 of which $60.0 million is related to principal amortization of the 5-year term loans due December 2024 and $49.0 million represents the Company's outstanding production financing facilities at April 2, 2023.

In addition to the early repayment of the 2022 Notes 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.

See note 7 to the Company’s consolidated financial statements in Part I of this Form 10-Q for additional information on long-term debt and long-term debt interest repayment, respectively.

The Company also had letters of credit and other similar instruments of approximately $13.4 million and purchase commitments of approximately $331.7 million outstanding at April 2, 2023.

Other contractual obligations and commercial commitments, as detailed in the Company's 2022 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.

The Company has a long history of returning cash to its shareholders through quarterly dividends and share repurchases.

Hasbro increased the quarterly dividend rate from $0.68 per share to $0.70 per share effective for the dividend paid in May 2022.

The Company also returns cash to shareholders through its share repurchase program.

Hasbro's next quarterly dividend of $0.70 per share is payable on May 15, 2023 to shareholders of record as of May 1, 2023.

In addition to the dividend, the Company periodically returns cash to shareholders through its share repurchase program.

As part of this initiative, since 2005 the Company's Board of Directors (the "Board") adopted numerous share repurchase authorizations with a cumulative authorized repurchase amount of $4.3 billion.

The most recent authorization was approved in May 2018 for $500 million.

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 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.

At April 2, 2023, $241.6 million remained available under these share repurchase authorizations.

There were no share repurchases made during the first quarter of 2023.

The Company has no obligation to repurchase shares under the authorization, and the timing, actual number, and value of the shares that are repurchased, if any, will depend on a number of factors, including the price of the Company’s stock and the Company's generation of, and uses for, cash.

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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.

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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dollar, Euro, British pound sterling, Canadian dollar, Japanese Yen, Brazilian real and Mexican peso and, to a lesser extent, other currencies in Latin American and Asia Pacific countries.

To manage this exposure, the Company has hedged a portion of its forecasted foreign currency transactions using foreign exchange forward contracts.

To manage this exposure, the Company has hedged a portion of its forecasted foreign currency transactions using foreign exchange forward contracts and foreign exchange option contracts.

The Company is also exposed to foreign currency risk with respect to its net cash and cash equivalents or short-term borrowing positions in currencies other than the U.S.

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The Company does not speculate in foreign currency exchange contracts.

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.

At April 2, 2023, these contracts had net unrealized losses of $2.0 million, of which $3.1 million of unrealized gains are recorded in prepaid expenses and other current assets, $0.1 million of unrealized gains are recorded in other assets and $5.2 million of unrealized losses are recorded in accrued liabilities.

Included in accumulated other comprehensive loss at April 2, 2023 are deferred losses, net of tax, of $4.0 million, related to these derivatives.

At April 2, 2023, the Company had fixed-rate long-term debt of $3.8 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.

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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 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.

The Company continues to monitor the impact of inflation to its business operations on an ongoing basis and may need to adjust its prices further to mitigate the impact of changes to the rate of inflation in future periods.

Included in accumulated other comprehensive loss at April 2, 2023 are deferred losses, net of tax, of $14.7 million related to these derivatives.

The Company's business operations for the periods presented have been impacted by inflationary pressures however, due to mitigating actions taken by the Company, such as price increases implemented during 2022, the impact of general price inflation on our financial position and results of operations has been reduced.

The Company continues to monitor the impact of inflation to its business operations on an ongoing basis and may need to adjust prices further to mitigate the impact of changes to the rate of inflation in future periods.

However, future volatility of general price inflation could affect consumer purchases of our products and spending on entertainment.

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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