What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-01 compared with 2023-08-04 · 356 added, 310 removed, 317 unchanged (68% of the section changed)

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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.

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

Prior to her time at Harley Davidson, Inc., Ms.

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

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

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

Previously, Mr.

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During our review, with the assistance of a third party consultant, 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.

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

Sale of Non-core Film and TV Business

On August 3, 2023, the Company announced it reached a definitive agreement with Lionsgate Entertainment Corp.

to sell its eOne Film and TV business for approximately $500.0 million, consisting of $375.0 million in cash, subject to certain purchase price adjustments, and the assumption by Lionsgate of production financing loans.

On August 3, 2023, the Company announced it reached a definitive agreement with Lions Gate Entertainment Corp.

("Lionsgate") to sell its non-core eOne Film and TV business for approximately $500.0 million, consisting of $375.0 million in cash, subject to certain purchase price adjustments including a net debt and working capital adjustment, and the assumption by Lionsgate of production financing loans.

The sale will include a team of talented employees, a content library of approximately 6,500 titles, active productions for certain non-Hasbro owned intellectual properties such as The Rookie and Yellow Jackets franchises, and the eOne unscripted television business, which will also include rights to produce certain Hasbro-based shows like Play-Doh Squished .

The pending transaction is subject to receipt of regulatory approvals and satisfaction of customary closing conditions and is expected to close before the end of fiscal 2023.

The pending transaction has received required regulatory approvals and remains subject to satisfaction of customary closing conditions.

The pending transaction is expected to close before the end of fiscal 2023.

The Company intends to use the net proceeds from the sale to retire floating rate debt and for other general corporate purposes.

Following the transaction, Hasbro will maintain the capability to develop and produce entertainment including animation, digital shorts, scripted TV and theatrical films related to core Hasbro IP.

The Family Brands business, including the brands PEPPA PIG and PJ MASKS, are not included in the sale transaction.

In connection with the expected sale, to reduce the carrying value of the assets and liabilities associated with the non-core eOne Film and TV business to their estimated fair values, the Company recorded a pre-tax non-cash loss on assets held for sale of $473.0 million within the Company’s Consolidated Statement of Operations, within the Entertainment segment for the three and nine months ended October 1, 2023.

In addition, for the quarter and nine month periods ended October 1, 2023, the Company recorded $16.2 million and $16.9 million, respectively, of charges associated with the sale process.

These charges were recorded in Selling Distribution and Administration expense, within the Corporate and Other segment.

Following the transaction, Hasbro will maintain Hasbro brand-based created content and the capability to develop and produce entertainment including animation, digital shorts, scripted TV and theatrical films related to core Hasbro IP.

Hasbro brands and the Family Brands business, including the brands PEPPA PIG and PJ MASKS, are not included in the sale transaction.

For additional information see note 15 to the consolidated financial statements included in Part I, Item 1.

Financial Statements, of this Form 10-Q.

Impairment of Film and TV Reporting Unit

During the second quarter of 2023, the Company determined that a triggering event occurred following a downward revision of the Company's financial forecast for its Film and TV business, driven by challenging industry conditions that include the ongoing strike by the Writers Guild of America.

As a result, the Company performed a quantitative impairment test and determined that the Film and TV reporting unit within the Company's Entertainment segment, was impaired.

During the second quarter of 2023, the Company recorded pre-tax non-cash impairment charges of $296.2 million as the carrying value of the Film and TV reporting unit exceeded its estimated fair value, as determined using a discounted cash flow model which is primarily based on management’s future revenue and cost estimates.

These impairment charges consisted of a $231.2 million goodwill impairment charge associated with goodwill assigned to the Company's Film and TV reporting unit, recorded within Impairment of Goodwill and a $65.0 million intangible asset impairment charge related to the Company's definite-lived intangible eOne Trademark, recorded in Selling, Distribution and Administration costs, within the Consolidated Statements of Operations for the quarter and six months ended July 2, 2023.

These impairment charges consisted of a $231.2 million goodwill impairment charge associated with goodwill assigned to the Company's Film and TV reporting unit, recorded within Impairment of Goodwill and a $65.0 million intangible asset impairment charge related to the Company's definite-lived intangible eOne Trademark, recorded in Selling, Distribution and Administration costs, during the second quarter 2023, within the Consolidated Statements of Operations.

Hasbro Transformation Office

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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 $250.0 million to $300.0 million in run-rate cost savings by the end of 2025.

During the first half of 2023, we realized an additional $84 million of cumulative gross cost savings.

During the first nine months of 2023, we realized an additional $154.0 million of cumulative gross cost savings.

Workforce Reduction

In alignment with the objectives of our Operational Excellence program as described in Note 1 of our consolidated financial statements, 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.

In alignment with the objectives of our Operational Excellence program as described in Note 1 of our consolidated financial statements, 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, or approximately 15% of global full-time employees.

For additional information see note 14 to the consolidated financial statements included in Part I, Item 1.

Financial Statements, of this Form 10-Q.

Brand Portfolio Realignment

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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 are as follows:

Our new brand portfolio categories are as follows:

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

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

Second quarter 2023 highlights :

• Second quarter net revenues of $1.2 billion decreased 10% compared to the second quarter of 2022 and included an unfavorable foreign currency translation of $3.5 million.

Absent the unfavorable impact of foreign currency exchange, second quarter net revenues decreased 9%.

Third quarter 2023 highlights :

• Third quarter net revenues of $1.5 billion decreased 10% compared to the third quarter of 2022 and included a favorable foreign currency translation of $22.6 million.

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

• Consumer Products segment net revenues declined 18% to $956.9 million;

Wizards of the Coast and Digital Gaming segment net revenues declined 11% to $375.6 million;

Wizards of the Coast and Digital Gaming segment net revenues increased 40% to $423.6 million;

and Entertainment segment net revenues declined 42% to $122.9 million.

• Net revenues from Franchise Brands declined 5%;

• Net revenues from Franchise Brands increased 8%;

Partner Brands net revenues declined 35%;

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and Non-Hasbro Branded Film and TV net revenues declined 47%.

• Operating losses were $188.6 million, or 15.6% of net revenue in the second quarter of 2023 compared to operating profit of $219.1 million, or 16.4% of net revenue, in the second quarter of 2022.

• Operating results in the Consumer Products segment increased greater than 100% to an operating profit of $11.4 million;

Wizards of the Coast and Digital Gaming segment operating profit decreased 37% to $142.3 million;

• Operating losses were $169.5 million, or 11.3% of net revenue in the third quarter of 2023 compared to operating profit of $194.3 million, or 11.6% of net revenue, in the third quarter of 2022.

• Operating results in the Consumer Products segment decreased 30% to an operating profit of $96.1 million;

Wizards of the Coast and Digital Gaming segment operating profit increased 99% to $203.4 million;

Entertainment segment operating results decreased greater than 100% to an operating loss of $468.5 million;

and Corporate and Other operating losses increased 27% to an operating loss of $18.1 million.

• Operating results in the second quarter of 2023 were negatively impacted by pre-tax non-cash impairment charges of $296.2 million ($279.9 million after tax) associated with the impairment review of the Company's Film and TV reporting unit, consisting of $231.2 million of goodwill impairment and $65.0 million ($48.7 million after tax) of intangible asset impairment related to the Company's definite-lived intangible eOne Trademark.

• Certain other charges impacting operating segment performance for the second 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.

and Corporate and Other operating results improved 97% to an operating loss of $0.5 million.

• Operating results in the third quarter of 2023 were negatively impacted by a loss on assets held for sale of $473.0 million ($369.0 million after-tax) related to the sale of the Company's non-core eOne Film and TV business, recorded within the Entertainment segment.

The assets and liabilities of these businesses were revalued and disclosed separately on the balance sheet.

• 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.

• Certain other charges impacting operating segment performance for the third 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.

was $235.0 million, or $(1.69) per share, in the second quarter of 2023 compared to net earnings of $142.0 million, or $1.02 per diluted share, in the second quarter of 2022.

First six months 2023 highlights :

• Net revenues decreased 12% to $2,211.0 million in first six months of 2023 compared to $2,502.3 million in the first six months of 2022.

The decrease in net revenues included $19.3 million of unfavorable foreign currency translation.

Absent the impact of foreign currency exchange, net revenues decreased 11%.

was $171.1 million, or $(1.23) per share, in the third quarter of 2023 compared to net earnings of $129.2 million, or $0.93 per diluted share, in the third quarter of 2022.

First nine months 2023 highlights :

• Net revenues decreased 11% to $3,714.4 million in the first nine months of 2023 compared to $4,178.2 million in the first nine months of 2022.

Foreign currency translation did not have a material impact to net revenues in the first nine months of 2023.

• Net revenues in the Consumer Products segment decreased 17% to $2,132.5 million;

Wizards of the Coast and Digital Gaming segment net revenues decreased 2% to $670.8 million;

Wizards of the Coast and Digital Gaming segment net revenues increased 11% to $1,094.4 million;

and Entertainment segment net revenues decreased 22% to $487.5 million.

• Net revenues from Franchise Brands decreased 5%;

• Net revenues from Franchise Brands remained flat;

Partner Brands net revenues decreased 31%;

Portfolio Brands net revenues decreased 19%;

and Non-Hasbro Branded Film and TV net revenues decreased 13% during the first six months of 2023.

• Operating losses were $170.7 million, or 7.7% of net revenues, in the first six months of 2023 compared to operating profit of $339.1 million, or 13.6% of net revenues, in the first six months of 2022.

• Operating results in the Consumer Products segment decreased greater than 100% to an operating loss of $34.6 million;

and Non-Hasbro Branded Film and TV net revenues decreased 25% during the first nine months of 2023.

• Operating losses were $340.2 million, or 9.2% of net revenues, in the first nine months of 2023 compared to operating profit of $533.4 million, or 12.8% of net revenues, in the first nine months of 2022.

• Operating results in the Consumer Products segment decreased 56% to an operating loss of $61.5 million;

Wizards of the Coast and Digital Gaming segment operating profit decreased 3% to $422.5 million;

Entertainment segment operating results decreased greater than 100% to an operating loss of $801.4 million;

and Corporate and Other operating losses increased by 4% to an operating loss of $22.3 million.

• Operating results in the first six months of 2023 were negatively impacted by pre-tax non-cash impairment charges of $296.2 million ($279.9 after tax) associated with the impairment review the Company's Film and TV reporting unit, consisting of $231.2 million of goodwill impairment and $65.0 million ($48.7 million after tax) of intangible asset impairment related to the Company's definite-lived intangible eOne Trademark.

• Certain other charges impacted operating segment performance for the first six months of 2023 and 2022, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results.

and Corporate and Other operating losses decreased by 39% to an operating loss of $22.8 million.

• Operating results in the first nine months of 2023 were negatively impacted by a loss on assets held for sale of $473.0 ($369.0 after-tax), within the Entertainment segment, related to the sale of the Company's non-core eOne Film and TV business.

The assets and liabilities of these businesses were revalued and disclosed separately on the balance sheet.

• 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.

• Operating results in the first nine months of 2023 were negatively impacted by pre-tax non-cash impairment charges of $296.2 million ($279.9 after tax) associated with the impairment review of the Company's Film and TV reporting unit, consisting of $231.2 million of goodwill impairment and $65.0 million ($48.7 million after tax) of intangible asset impairment related to the Company's definite-lived intangible eOne Trademark.

• Certain other charges impacted operating segment performance for the first nine months of 2023 and 2022, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results.

• The net loss attributable to Hasbro, Inc.

was $257.1 million, or $(1.85) per share, in the first six months of 2023 compared to net earnings attributable to Hasbro, Inc.

of $203.2 million, or $1.46 per diluted share, in the first six months of 2022.

was $428.2 million, or $(3.09) per share, in the first nine months of 2023 compared to net earnings attributable to Hasbro, Inc.

of $332.4 million, or $2.39 per diluted share, in the first nine months 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 six-month periods ended July 2, 2023 and June 26, 2022.

Quarter Ended Six Months Ended

July 2, 2023 June 26, 2022 July 2, 2023 June 26, 2022

A summary of the results of operations is illustrated below for the quarters and nine-month periods ended October 1, 2023 and September 25, 2022.

Quarter Ended Nine Months Ended

October 1, 2023 September 25, 2022 October 1, 2023 September 25, 2022

Net revenues $ 1,503.4 $ 1,675.9 $ 3,714.4 $ 4,178.2

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

for the quarters and six-month periods ended July 2, 2023 and June 26, 2022 include certain charges as described below.

• Net charges of $279.9 million or $2.01 per share for the quarter and six-month periods ended July 2, 2023, as a result of the Company's impairment review of its Film and TV reporting unit, consisting of a non-cash goodwill impairment charge of $231.2 million recorded in Impairment of Goodwill and intangible asset impairment charges of $48.7 million related to the Company's definite-lived intangible eOne Trademark, recorded within Selling, Distribution and Administration.

for the quarters and nine-month periods ended October 1, 2023 and September 25, 2022 include certain charges as described below.

• Net charges of $381.5 million, or $2.74 per diluted share, and $382.0 million, or $2.75 per diluted share, for the quarter and nine-month periods ended October 1, 2023, respectively, of Blueprint 2.0 implementation charges, consisting of:

◦ a Loss on assets held for sale of $369.0 million for the quarter and nine-month periods ended October 1, 2023 related to the sale of the non-core eOne Film and TV business within the Entertainment segment;

◦ charges of $12.5 million and $13.0 million, for the quarter and nine-month periods ended October 1, 2023, respectively, associated with the eOne Film & TV business sale process recorded in Selling, Distribution and Administration expense within the Corporate and Other segment.

• Net charges of $279.9 million or $2.01 per diluted share for the nine-month period ended October 1, 2023, recorded during the second quarter as a result of the Company's impairment review of its Film and TV reporting unit, consisting of a non-cash goodwill impairment charge of $231.2 million recorded in Impairment of Goodwill and intangible asset impairment charges of $48.7 million related to the Company's definite-lived intangible eOne Trademark, recorded within Selling, Distribution and Administration.

These charges were recorded within the Entertainment segment.

• Net charges of $14.3 million, or $0.10 per diluted share, and $27.6 million, or $0.20 per diluted share, for the quarter and six-month periods ended July 2, 2023, respectively, of intangible amortization costs related to certain intangible assets acquired in the eOne Acquisition.

• Net charges of $11.0 million, or $0.08 per diluted share, and $38.6 million, or $0.28 per diluted share, for the quarter and nine-month periods ended October 1, 2023, respectively, of intangible amortization costs related to certain 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 $8.0 million, or $0.06 per diluted share, and $16.1 million, or $0.12 per diluted share, for the quarter and six-month periods ended July 2, 2023, respectively, of Operational Excellence program related consultant and transformation office expenses included within Selling, Distribution and Administration within Corporate and Other.

• Net charges of $1.7 million, or $0.01 per diluted share for the six-month period ended July 2, 2023, associated with retention awards granted in connection with the eOne Acquisition.

These expenses were incurred during the first quarter of 2023 and are included within Selling, Distribution and Administration within the Corporate and Other.

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

• Net charges of $6.4 million, or $0.05 per diluted share, and $22.5 million, or $0.16 per diluted share, for the quarter and nine-month periods ended October 1, 2023, respectively, of Operational Excellence program related consultant and transformation office expenses included within Selling, Distribution and Administration within Corporate and Other.

• Net charges of $1.7 million, or $0.01 per diluted share for the nine-month period ended October 1, 2023, associated with retention awards granted in connection with the eOne Acquisition.

These expenses were incurred during the first quarter of 2023 and are included within Selling, Distribution and Administration within the Corporate and Other segment.

• Net 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 businesses 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.

• Net 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 certain 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 $3.3 million, $0.02 per diluted share and $5.6 million, or $0.04 per diluted share, for the quarter and six-month periods ended June 26, 2022, respectively, of expense associated with retention awards granted in connection with the eOne acquisition.

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

Second Quarter 2023

The quarters ended July 2, 2023 and June 26, 2022 were each 13-week periods.

Consolidated net revenues for the second quarter of 2023 declined 10% to $1,210.0 million from $1,339.2 million for the second quarter of 2022 and included an unfavorable $3.5 million impact from foreign currency translation as a result of weakening currencies, primarily in the Company's Asia Pacific markets, partially offset by favorable currency translation in Latin American markets.

The operating loss for the second quarter of 2023 was $188.6 million, or 15.6% of net revenues, compared to operating profit of $219.1 million, or 16.4% of net revenues, for the second quarter of 2022.

In addition to the charges described above, operating results in the second quarter of 2023 reflect lower revenue volumes, primarily within the Consumer Products segment and to a lesser extent, within the Wizards of the Coast and Digital Gaming segment, higher program amortization costs reflecting production asset impairment charges associated with Dungeons & Dragons:

Honor Among Thieves , and higher royalty expenses associated with the release of Lord of the Rings:

Tales of Middle-earth.

These impacts to operating results were partially offset by lower administrative costs and higher net revenues from licensed consumer products during the second quarter of 2023.

The following table presents net revenues by product category for the quarters ended July 2, 2023 and June 26, 2022.

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

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

Third Quarter 2023

The quarters ended October 1, 2023 and September 25, 2022 were each 13-week periods.

Consolidated net revenues for the third quarter of 2023 declined 10% to $1,503.4 million from $1,675.9 million for the third quarter of 2022 and included a favorable $22.6 million impact from foreign currency translation as a result of stronger currencies, primarily in Latin America and to a lesser extent, the Company's European markets.

The operating loss for the third quarter of 2023 was $169.5 million, or 11.3% of net revenues, compared to operating profit of $194.3 million, or 11.6% of net revenues, for the third quarter of 2022.

In addition to the charges described above, operating results in the third quarter of 2023 reflect the exit of certain non-core businesses during the fourth quarter of 2022 combined with lower net revenue volumes and higher closeout sales to sell through inventory within the Consumer Products segment.

In addition, lower net revenues within the Entertainment segment, reflecting the impact of writers' and actors' strikes, resulted in reduced content deliveries during the third quarter of 2023, partially offset by higher digital gaming net revenues and to a lesser extent, increased tabletop gaming net revenues within the Wizards of the Coast and Digital Gaming segment.

These impacts to operating results were partially offset by lower royalty expenses within the Consumer Products segment, driven by the decline of Partner Brand sales combined with the expiration of certain Partner Brand license agreements in December 2022, lower overall operating expenses as a result of the Company's ongoing cost savings initiatives, including improved supply chain management, as well as lower advertising expense and lower program amortization costs within the Entertainment segment, due to the impact of the writers' and actors' strikes.

The following table presents net revenues by product category for the quarters ended October 1, 2023 and September 25, 2022:

Quarter Ended

July 2, 2023 June 26, 2022 %

October 1, 2023 September 25, 2022 %

Franchise Brands $ 1,011.0 $ 939.8 8 %

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FRANCHISE BRANDS:

Net revenues in the Franchise Brands portfolio decreased 5% in the second quarter of 2023 compared to the second quarter of 2022.

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

THE GATHERING products due primarily to the timing of set releases during the second quarter of 2023 compared to the second quarter of 2022, lower net revenues NERF products and to a lesser extent, lower net revenues from PLAY-DOH products.

These net revenue decreases were partially offset by higher net revenues from TRANSFORMERS products, supported by the June 2023 theatrical release of Transformers:

Rise of the Beasts as well as higher net revenues from DUNGEONS & DRAGONS digital gaming products reflecting the addition of net revenues from D&D Beyond, acquired during the second quarter of 2022, as well as from the release of Dungeons & Dragons:

Honor Among Thieves .

Net revenues in the Franchise Brands portfolio increased 8% in the third quarter of 2023 compared to the third quarter of 2022.

The net revenue increase primarily reflects higher net revenues from DUNGEONS & DRAGONS digital gaming products, most notably Baldur's Gate 3, the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023, as well as higher net revenues from MAGIC:

THE GATHERING products, primarily due to the timing of set releases in the third quarter of 2023 compared to 2022, and to a lesser extent, higher net revenues from TRANSFORMERS products supported by the June 2023 theatrical release of Transformers:

Rise of the Beasts .

These net revenue increases were partially offset by lower net revenues from NERF products and to a lesser extent, lower net revenues from PEPPA PIG as well as lower net revenues from PLAY-DOH products compared to third quarter of 2022 which benefited from the release of Play-doh Squished programming.

PARTNER BRANDS:

Net revenues from the Partner Brands portfolio decreased 21% in the second quarter of 2023 compared to the second quarter of 2022.

Net revenues from the Partner Brands portfolio decreased 35% in the third quarter of 2023 compared to the third 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 second 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 STAR WARS and MARVEL compared to the second quarter of 2022, which benefited from a robust slate of entertainment releases without comparable releases in the second quarter of 2023.

During the third 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 and STAR WARS compared to the third quarter of 2022, which benefited from a robust slate of entertainment releases without comparable releases in the third quarter of 2023 and to a lesser extent, lower net revenues from BEY BLADE products.

These decreases were partially offset by net revenues from the introduction of the Company's products for INDIANA JONES supported by the June 2023 theatrical release of Indiana Jones and the Dial of Destiny.

PORTFOLIO BRANDS:

Portfolio Brands net revenues decreased 21% in the second quarter of 2023 compared to the second quarter of 2022.

Lower net revenues from FURREAL FRIENDS and PJ MASKS products and to a lesser extent, lower net revenues from MY LITTLE PONY products were partially offset by net revenue contributions from FURBY products following the Company's reintroduction of the brand and refreshed product line during the second quarter of 2023.

Portfolio Brands net revenues decreased 19% in the third quarter of 2023 compared to the third quarter of 2022.

Lower net revenues from FURREAL FRIENDS, MY LITTLE PONY, BABY ALIVE and PJ MASKS products were partially offset by net revenue contributions from FURBY products following the Company's reintroduction of the brand and refreshed product line during the second quarter of 2023.

NON-HASBRO BRANDED FILM & TV :

Net revenues from Non-Hasbro Branded Film & TV decreased 10% in the second quarter of 2023 compared to the second quarter of 2022 driven by lower net revenues from unscripted programming, due to the timing of deliveries and lower broadcast licensing revenues reflecting the lower number of new deliveries during the second quarter of 2023 compared to 2022.

These decreases were partially offset by higher net revenues from scripted programming deliveries, including A Gentleman in Moscow and The Recruit season two, as well as higher net revenues from film deliveries during the second quarter of 2023 .

First Six Months 2023

The six-month periods ended July 2, 2023 and June 26, 2022 were 27-week and 26-week periods, respectively.

For the first six months of 2023, consolidated net revenues decreased 12% compared to the first six months of 2022 and reflect an unfavorable variance of $19.3 million of foreign currency translation due to weaker currencies across the Company's European and Asia Pacific markets, partially offset by favorable currency translation in Latin American markets when compared to the first six months of 2022.

Operating losses for the first six months of 2023 were $170.7 million, or 7.7% of net revenues, compared to an operating profit of $339.1 million, or 13.6% of net revenues, for the first six months of 2022.

In addition to the charges to operating profit described above, the operating profit decrease was driven by lower revenue volumes and higher sales allowances and closeout sales to sell through inventory, higher program amortization costs due to production asset impairment charges of $25.0 million associated with Dungeons & Dragons:

Honor Among Thieves , higher marketing and sales expenses and higher advertising expenses associated with certain entertainment releases during the first six months of 2023.

These negative impacts to operating profit were partially offset by lower product costs and lower royalty expense as result of the decline of Partner Brand sales, driven by the expiration of certain license agreements in December 2022.

The following table presents net revenues by brand and entertainment portfolio for the first six months of 2023 and 2022.

Six Months Ended

July 2, 2023 June 26, 2022 %

Net revenues from Non-Hasbro Branded Film & TV decreased 47% in the third quarter of 2023 compared to the third quarter of 2022.

The net revenue declines were driven by lower scripted programming deliveries, reflecting the impact of the five-month long worker strike by the Writers Guild of America, which ended in September 2023, as well as the ongoing strike by the American actors' union, SAG-AFTRA, which began on July 14, 2023.

These actions impacted the timing of productions that include The Rookie, Rookie Feds, the Recruit, Yellowjackets and Cruel Summer .

To a lesser extent, lower net revenues from unscripted programming contributed to the decrease reflecting the lower number of new deliveries during the third quarter of 2023 compared to 2022.

These decreases were partially offset by net revenue increases from film deliveries, most notably, Ladybug and Cat Noir during the third quarter of 2023.

First Nine Months 2023

The nine-month periods ended October 1, 2023 and September 25, 2022 were 40-week and 39-week periods, respectively.

For the first nine months of 2023, consolidated net revenues decreased 11% compared to the first nine months of 2022 and reflect a favorable variance of $3.3 million of foreign currency translation due to stronger currencies across the Company's Latin American markets, partially offset by unfavorable foreign currency translation in the Company's Asia Pacific markets when compared to the first nine months of 2022.

Operating losses for the first nine months of 2023 were $340.2 million, or 9.2% of net revenues, compared to an operating profit of $533.4 million, or 12.8% of net revenues, for the first nine months of 2022.

In addition to the charges to operating profit described above, the operating profit decrease was driven by lower revenue volumes and higher closeout sales to sell through inventory, higher costs to attract and retain talent combined with investments in organized play during the first nine months of 2023.

These negative impacts to operating profit were partially offset by lower overall operating costs as a result of the Company's ongoing cost savings initiatives, including improved supply chain management and lower royalty expense.

Lower royalty expense was driven by the decline of Partner Brand sales combined with the expiration of certain Partner Brand license agreements in December 2022, partially offset by higher royalty expense associated with The Lord of the Rings:

Tales of Middle-earth card set.

The following table presents net revenues by brand and entertainment portfolio for the first nine months of 2023 and 2022:

Nine Months Ended

October 1, 2023 September 25, 2022 %

Franchise Brands $ 2,412.8 2,416.2 — %

4 unchanged sentences

FRANCHISE BRANDS:

Net revenues in the Franchise Brands portfolio decreased 5% in the first six months of 2023 compared to 2022.

The net revenue decrease was primarily driven by lower net revenues from NERF products and to a lesser extent, lower net revenues from PLAY-DOH products and lower net revenues from MAGIC:

THE GATHERING products, primarily due to the timing of set deliveries during the first six months of 2023 compared to the first six months of 2022, in addition to lower net revenues from certain other Hasbro Gaming brands products.

These decreases were partially offset by higher net revenues from TRANSFORMERS and DUNGEONS & DRAGONS products, supported by the June 2023 theatrical release of Transformers:

Rise of the Beasts and the March 2023 theatrical release of Dungeons & Dragons:

Honor Among Thieves.

Net revenues in the Franchise Brands portfolio remained flat in the first nine months of 2023 compared to 2022, reflecting higher net revenues from DUNGEONS & DRAGONS digital gaming products, most notably Baldur's Gate 3, the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023 , the theatrical release of Dungeons & Dragons:

Honor Among Thieves released in March 2023 and higher net revenues from D&D Beyond, acquired during the second quarter of 2022 .

In addition to these increases were higher net revenues from TRANSFORMERS products supported by the June 2023 theatrical release of Transformers:

Rise of the Beasts and to a lesser extent, higher net revenues from MAGIC:

THE GATHERING products, primarily due to the ongoing success of the Lord of the Rings:

Tales of Middle-earth card set released in June 2023.

These increases were offset by lower net revenues from NERF products and to a lesser extent, lower net revenues from PLAY-DOH products .

PARTNER BRANDS:

Net revenues from the Partner Brands portfolio decreased 28% during the first six months of 2023 compared to 2022.

Partner Brands net revenue decreases were primarily 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 STAR WARS and MARVEL compared to the second quarter of 2022, which benefited from a robust slate of entertainment releases without comparable releases in the second quarter of 2023, and to a lesser extent, lower net revenues from BEYBLADE products.

Net revenues from the Partner Brands portfolio decreased 31% during the first nine months of 2023 compared to 2022.

Partner Brands net revenue decreases were primarily 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 STAR WARS and MARVEL compared to the first nine months of 2022, which benefited from a robust slate of entertainment releases without comparable releases in the first nine months of 2023, and to a lesser extent, lower net revenues from BEYBLADE products.

These decreases were partially offset by net revenues from the introduction of the Company's products for INDIANA JONES, supported by the June 2023 theatrical release of Indiana Jones and the Dial of Destiny.

PORTFOLIO BRANDS:

Portfolio Brands net revenues decreased 20% for the first six months of 2023 compared to the first six months of 2022.

Net revenue declines during the first six months of 2023 were driven by lower sales of FURREAL FRIENDS and PJ MASKS products and to a lesser extent, lower sales of BABY ALIVE and MY LITTLE PONY products.

These decreases were partially offset by higher net revenues from GI JOE products as well as net revenue contributions from FURBY products following the Company's reintroduction of the brand and refreshed product line during the second quarter of 2023.

Portfolio Brands net revenues decreased 19% for the first nine months of 2023 compared to the first nine months of 2022.

Net revenue declines during the first nine months of 2023 were driven by lower sales of FURREAL FRIENDS products and to a lesser extent, lower sales of PJ MASKS, MY LITTLE PONY and BABY ALIVE products.

These decreases were partially offset by net revenues from FURBY products following the Company's reintroduction of the brand and refreshed product line during the second quarter of 2023, as well as higher net revenues from GI JOE products.

NON-HASBRO BRANDED FILM & TV:

Net revenues from the Non-Hasbro Branded Film & TV portfolio decreased 13% for the first six months of 2023 compared to the first six months of 2022.

In the first six months of 2023, net revenue declines were driven by lower unscripted television deliveries due primarily to the timing of deliveries in 2023 compared to 2022 and lower net revenues from film production deliveries reflecting fewer new entertainment releases in 2023 compared to 2022.

These decreases were partially offset by higher net revenues from scripted television programming deliveries during the first six months of 2023.

Net revenues from the Non-Hasbro Branded Film & TV portfolio decreased 25% for the first nine months of 2023 compared to the first nine months of 2022.

In the first nine months of 2023, net revenue declines were driven by lower scripted and unscripted television deliveries, as well as lower film deliveries in 2023 compared to 2022.

These decreases were due primarily to the impact of the writers' and actors' strikes mentioned above, which disrupted the number and timing of planned program productions and deliveries in 2023 compared to 2022.

SEGMENT RESULTS

Second Quarter 2023

The following table presents net external revenues and operating profit (loss) for the Company's principal segments for the quarters ended July 2, 2023 and June 26, 2022:

Third Quarter 2023

The following table presents net external revenues and operating profit (loss) for the Company's principal segments for the quarters ended October 1, 2023 and September 25, 2022:

Quarter Ended

July 2, 2023 June 26, 2022 %

October 1, 2023 September 25, 2022 %

Consumer Products $ 956.9 $ 1,160.8 -18 %

7 unchanged sentences

Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended July 2, 2023 and June 26, 2022.

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended October 1, 2023 and September 25, 2022:

Quarter Ended

July 2, 2023 June 26, 2022

October 1, 2023 September 25, 2022

North America $ 573.6 $ 693.3

3 unchanged sentences

Net revenues $ 956.9 $ 1,160.8

The Consumer Products segment net revenues declined 11% to $655.2 million for the second quarter of 2023 compared to $734.2 million for the second quarter of 2022 and included the impact of an unfavorable $1.1 million currency translation.

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 to a lesser extent, lower sales of the Company's products for STAR WARS compared to the second quarter of 2022, which benefited from a variety of entertainment releases without a comparable slate in the second quarter of 2022.

These net revenue decreases were partially offset by higher sales of TRANSFORMERS products supported by the theatrical release of Transformers:

Rise of Beasts in June 2023, sales of the Company's refreshed lineup of FURBY products subsequent

to the reintroduction of the brand during the second quarter of 2023, sales of the Company's products for INDIANA JONES following the June 2023 theatrical release of Indiana Jones and the Dial of Destiny and higher consumer products licensing revenues reflecting certain licensing agreements entered into during 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 Latin American markets during the second quarter of 2023.

Consumer Products segment operating profit for the second quarter of 2023 was $11.4 million or 1.7% of segment net revenues, compared to segment operating losses of $6.5 million or 0.9% of segment net revenues, for the second quarter of 2022.

The increase in operating profit in the second quarter of 2023 was driven by lower inventory costs and lower administrative expenses due to savings realized from the Company's Operational Excellence program, as well as lower advertising and promotion expense, lower royalty expenses and higher consumer products licensing revenue due to the mix of products sold during the second quarter of 2023 compared to the second quarter of 2022, where segment operating losses were driven by higher inventory obsolescence costs related to products in Russia and higher distribution costs as a result of global supply chain disruptions.

These benefits to operating profit were partially offset by lower overall segment net revenues, including higher levels of closeout sales and sales allowances during the second quarter of 2023.

The Consumer Products segment net revenues declined 18% to $956.9 million for the third quarter of 2023 compared to $1,160.8 million for the third quarter of 2022 reflecting a softer toy market in 2023 compared to 2022.

The Consumer Products segment included the impact of a favorable $18.1 million currency translation.

Drivers of the net revenue decrease include lower sales of NERF 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 to a lesser extent, lower sales of the Company's products for MARVEL and STAR WARS compared to the third quarter of 2022, which benefited from a variety of entertainment releases without a comparable slate in 2023, and lower sales of FURREAL FRIENDS and MY LITTLE PONY products.

These net revenue decreases were partially offset by higher sales of the Company's refreshed lineup of FURBY products following the reintroduction of the brand during the second quarter of 2023 and higher sales of TRANSFORMERS products supported by the theatrical release of Transformers:

Rise of Beasts in June 2023.

Overall segment net revenue declines were primarily attributable to North America and to a lesser extent, the Company's European and Asia Pacific markets during the third quarter of 2023.

Consumer Products segment operating profit for the third quarter of 2023 was $96.1 million or 10.0% of segment net revenues, compared to segment operating profit of $136.8 million or 11.8% of segment net revenues, for the third quarter of 2022.

The decrease in operating profit in the third quarter of 2023 was driven by lower overall segment net revenues, including higher levels of closeout sales and obsolescence charges during the third quarter of 2023, partially offset by lower advertising and promotion expenses and lower royalty expenses as a result of the decline of Partner Brands sales, due primarily to the expiration of certain licenses in December 2022.

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 July 2, 2023 and June 26, 2022.

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters ended October 1, 2023 and September 25, 2022:

Quarter Ended

July 2, 2023 June 26, 2022

October 1, 2023 September 25, 2022

Tabletop Gaming $ 290.5 $ 246.3

1 unchanged sentence

Net revenues $ 423.6 $ 303.5

Wizards of the Coast and Digital Gaming segment net revenues declined 11% in the second quarter of 2023 to $375.6 million from $419.8 million in the second quarter of 2022.

Foreign currency translation did not have a material impact on Wizards of the Coast and Digital Gaming segment net revenues during the second quarter of 2023.

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

THE GATHERING, driven by the timing of set releases compared to the second quarter of 2022, which included one additional set release during the quarter.

These decreases were partially offset by higher digital gaming net revenues, primarily reflecting a full quarter of net revenues from D&D Beyond in 2023, compared to a partial quarter in 2022 following the Company's May 2022 acquisition of the digital role-playing game toolset as well as higher net revenues from Magic:

The Gathering Arena .

Wizards of the Coast and Digital Gaming segment operating profit was $142.3 million, or 37.9% of segment net revenues for the second quarter of 2023, compared to operating profit of $225.6 million, or 53.7% of segment net revenues, for the second quarter of 2022.

The operating profit decrease during the second quarter of 2023 was driven by lower net revenues described above, higher royalty expenses associated with the Lord of the Rings:

Tales of Middle-earth set released in June 2023 and higher administrative expenses including costs to acquire and retain talent, increased rent expense and higher depreciation expense associated with capitalized digital gaming initiatives within the segment.

Wizards of the Coast and Digital Gaming segment net revenues increased 40% in the third quarter of 2023 to $423.6 million from $303.5 million in the third quarter of 2022 and included the impact of a favorable $3.1 million currency translation.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the third quarter of 2023 was primarily attributable to higher net revenues from DUNGEONS & DRAGONS digital gaming products, most notably Baldur's Gate 3, the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023 , and higher digital licensing net revenues, primarily attributable to the re-negotiation of the Company's digital gaming licensing agreement for MONOPOLY GO!

during the third quarter of 2023.

In addition, higher net revenues from Wizards of the Coast tabletop gaming products, most notably, MAGIC:

THE GATHERING, were driven by the incremental card set release during the third quarter of 2023, compared to the third quarter of 2022.

Wizards of the Coast and Digital Gaming segment operating profit was $203.4 million, or 48.0% of segment net revenues for the third quarter of 2023, compared to operating profit of $102.2 million, or 33.7% of segment net revenues, for the third quarter of 2022.

The operating profit increase during the third quarter of 2023 was driven by higher net revenues from high-margin products, most notably from Baldur's Gate 3 and MONOPOLY GO!

, partially offset by higher marketing and sales expenses in support of the Wizards of the Coast MagicCon event series and higher administrative expenses as we continue to invest in gaming initiatives and talent to support long-term growth in the segment.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the quarters ended July 2, 2023 and June 26, 2022.

The following table presents Entertainment segment net revenues by category for the quarters ended October 1, 2023 and September 25, 2022:

Quarter Ended

July 2, 2023 June 26, 2022

October 1, 2023 September 25, 2022

Film and TV $ 102.1 $ 188.6

2 unchanged sentences

Net revenues $ 122.9 $ 211.6

Entertainment segment net revenues declined 3% to $179.2 million for the second quarter of 2023, compared to $185.2 million for the second quarter of 2022 and included the impact of an unfavorable $2.1 million foreign currency translation.

The net revenue decrease during the second quarter of 2023 was primarily the result of the exit of certain non-core business during the fourth quarter of 2022, and to a lesser extent, lower unscripted television net revenues due to the timing of deliveries compared to the second quarter of 2022 and lower broadcast licensing revenues reflecting the lower number of new deliveries during the second quarter of 2023 compared to 2022.

These decreases were partially offset by higher net revenues from scripted programming deliveries including A Gentleman in Moscow and The Recruit season two, higher net revenues from film deliveries such as Dungeons & Dragons:

Honor Among Thieves and higher net revenues from the Company's Family Brands business, due to the renewal of certain streaming content agreements during the second quarter of 2023.

Entertainment segment operating losses were $324.2 million, or 180.9% of segment net revenues for the second quarter of 2023, compared to operating profit of $14.3 million, or 7.7% of segment net revenues for the second quarter of 2022.

The decrease in Entertainment segment operating results during the second quarter of 2023 was driven by a non-cash goodwill impairment charge of $231.2 million and intangible asset impairment charges of $65.0 million ($48.7 million after tax), associated with the impairment review of the Company's Film and TV reporting unit, as well as higher program amortization costs due to production asset impairment charges recorded during the second quarter of 2023 associated with Dungeons & Dragons:

Honor Among Thieves , and lower net revenues described above.

Entertainment segment net revenues declined 42% to $122.9 million for the third quarter of 2023, compared to $211.6 million for the third quarter of 2022 and included the impact of a favorable $1.3 million foreign currency translation.

The net revenue decrease during the third quarter of 2023 was driven by lower scripted programming deliveries, reflecting the impact of the five-month long worker strike by the Writers Guild of America, which ended in September 2023, as well as the ongoing strike by the American actors' union, SAG-AFTRA, which began on July 14, 2023.

These actions impacted the timing of productions that include The Rookie, Rookie Feds, the Recruit, Yellowjackets and Cruel Summer .

To a lesser extent, lower net revenues from unscripted programming contributed to the decrease reflecting the lower number of new deliveries during the third quarter of 2023 compared to 2022.

In addition, the exit of certain non-core businesses during the fourth quarter of 2022 contributed to the decrease during the third quarter of 2023.

These decreases were partially offset by net revenue increases from film deliveries, most notably Ladybug and Cat Noir , higher broadcast and licensing net revenues, primarily from Dungeons & Dragons:

Honor Among Thieves and higher net revenues from the Company's Family Brands business associated with the television series Power Rangers Cosmic Fury season 30, released on the Netflix streaming platform in September 2023.

Entertainment segment operating losses were $468.5 million, or greater than -100.0% of segment net revenues for the third quarter of 2023, compared to operating losses of $28.9 million, or 13.7% of segment net revenues for the third quarter of 2022.

The decrease in Entertainment segment operating results during the third quarter of 2023 was driven by a loss on assets held for sale of $473.0 million related to the sale of the non-core eOne Film and TV business, and to a lesser extent, the exit of certain non-core businesses during the fourth quarter of 2022 and lower segment net revenues as previously discussed.

These impacts to operating profit in the third quarter of 2023 were partially offset by lower program amortization costs reflecting lower content deliveries during the third quarter of 2023, and lower intangible asset amortization reflecting the discontinuation of amortization expense associated with certain assets classified as held for sale, and lower managed expenses including lower incentive compensation expenses.

Corporate and Other

Corporate and Other operating losses were $18.1 million for the second quarter of 2023 compared to operating losses of $14.3 million for the second quarter of 2022.

The operating loss increase the second quarter of 2023 was primarily the result of Operational Excellence program related consultant fees and transformation office expenses associated with Company's cost-savings initiatives described earlier, as well as higher royalty expense and higher marketing and sales expenses within the segment.

First Six Months 2023

The following table presents net revenues and operating profit (loss) for the Company's principal segments for each of the six-month periods ended July 2, 2023 and June 26, 2022.

Six Months Ended

July 2, 2023 June 26, 2022 %

Corporate and Other operating losses were $0.5 million for the third quarter of 2023 compared to operating losses of $15.8 million for the third quarter of 2022.

Operating results in the third quarter of 2023 reflect charges of $16.2 million associated with the eOne Film and TV business sale process, as well as lower administrative expenses compared to the third quarter of 2022.

In 2022, Corporate and Other operating losses were driven by severance and other employee charges associated with Company's strategic review and related cost-savings initiatives, and expense associated with retention awards granted in connection with the eOne Acquisition.

First Nine Months 2023

The following table presents net revenues and operating profit (loss) for the Company's principal segments for each of the nine-month periods ended October 1, 2023 and September 25, 2022:

Nine Months Ended

October 1, 2023 September 25, 2022 %

Consumer Products $ 2,132.5 $ 2,567.8 -17 %

7 unchanged sentences

Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the six-month periods ended July 2, 2023 and June 26, 2022.

Six Months Ended

July 2, 2023 June 26, 2022

The following table presents the Consumer Products segment net revenues by major geographic region for the nine-month periods ended October 1, 2023 and September 25, 2022:

Nine Months Ended

October 1, 2023 September 25, 2022

North America $ 1,234.7 $ 1,531.8

3 unchanged sentences

Net Revenues $ 2,132.5 $ 2,567.8

The Consumer Products segment net revenues decreased 16% to $1,175.6 million for the first six months of 2023 compared to $1,407.0 million for the first six months of 2022 and included the impact of an unfavorable $9.3 million currency translation.

Consumer Products net revenue declines during the first six months of 2023 were driven primarily by lower sales of the Company's Partner Brand 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 six months of 2022, which benefited from a variety of entertainment releases without a comparable slate in the first six months of 2023.

In addition, lower net revenues certain Franchise Brands products including NERF, and to a lesser extent, PLAY-DOH products as well as certain classic Hasbro Gaming products, contributed to the decrease.

The Consumer Products segment net revenues decreased 17% to $2,132.5 million for the first nine months of 2023 compared to $2,567.8 million for the first nine months of 2022 and included the impact of a favorable $8.7 million currency translation.

Consumer Products net revenue declines during the first nine months of 2023 were driven primarily by lower sales of NERF 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 to a lesser extent, lower sales of the Company's products for MARVEL and STAR WARS compared to the first nine months of 2022, which benefited from a variety of entertainment releases without a comparable slate in the first nine months of 2023.

In addition, lower net revenues from FURREAL FRIENDS products, contributed to the decrease.

These decreases were partially offset by net revenue increases from TRANSFORMERS products, supported by the theatrical release of Transformers:

Rise of Beasts in June 2023, and to a lesser extent, net revenue increases from GI JOE and DUNGEONS & DRAGONS products.

In addition to these increases, sales of the Company's refreshed lineup of FURBY products following the reintroduction of the brand during the second quarter of 2023 and sales of the Company's products for INDIANA JONES following the June 2023 theatrical release of Indiana Jones and the Dial of Destiny, and higher consumer products licensing revenues, reflecting certain licensing agreements entered during the first six months of 2023, contributed to segment net revenues.

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

Consumer Products segment operating losses for the first six months of 2023 were $34.6 million or 2.9% of segment net revenues, compared to segment operating profit of $2.1 million or 0.1% of segment net revenues, for the first six months of 2022.

The decrease in operating results in the first six months of 2023 was driven by lower sales volumes and higher sales allowances, primarily across North America and Europe, reflecting efforts to reduce retail inventory levels.

These impacts to operating profit were partially offset by lower product costs associated with inventory management described above, lower royalty expenses as a result of the decline of Partner Brands sales during the first six months of 2023, due primarily to the expiration of certain licenses in December 2022, as well as lower advertising and promotion costs and lower administrative expenses reflecting savings realized from the Company's Operational Excellence program.

Rise of Beasts in June 2023, and to a lesser extent, sales of the Company's refreshed lineup of FURBY products following the reintroduction of the brand during the second quarter of 2023.

In addition to these increases, net revenue increases from GI JOE products and higher consumer products licensing revenues, reflecting certain licensing agreements entered during the first nine months of 2023, contributed to segment net revenues.

Consumer Products segment operating profit for the first nine months of 2023 was $61.5 million or 2.9% of segment net revenues, compared to segment operating profit of $138.9 million or 5.4% of segment net revenues, for the first nine months of 2022.

The decrease in operating results in the first nine months of 2023 was driven by lower sales volumes and higher sales allowances and closeout sales, primarily across North America and Europe, reflecting efforts to reduce retail inventory levels.

These impacts to operating profit were partially offset by lower product costs associated with improved inventory management including supply chain improvements, lower royalty expenses as a result of the decline of Partner Brands sales during the first nine months of 2023, as well as lower advertising and promotion costs and lower product development and lower administrative expenses reflecting focused cost savings initiatives and savings realized from the Company's Operational Excellence program.

Wizards of the Coast and Digital Gaming Segment

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the six-month periods ended July 2, 2023 and June 26, 2022.

Six Months Ended

July 2, 2023 June 26, 2022

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the nine-month periods ended October 1, 2023 and September 25, 2022:

Nine Months Ended

October 1, 2023 September 25, 2022

Tabletop Gaming $ 806.9 $ 800.3

1 unchanged sentence

Net revenues $ 1,094.4 $ 986.1

Wizards of the Coast and Digital Gaming segment net revenues decreased 2% in the first six months of 2023 to $670.8 million from $682.6 million in the first six months of 2022 and included the impact of an unfavorable $3.5 million foreign currency translation.

The net revenue decrease in the Wizards of the Coast and Digital Gaming segment during the first six months of 2023 was driven primarily by lower net revenues from Wizards of the Coast tabletop gaming products, most notably, MAGIC:

THE GATHERING, due to the timing of card set releases compared to the first six months of 2022.

This net revenue decrease was partially offset by higher digital gaming net revenues from Magic:

The Gathering Arena and higher net revenues from D&D Beyond, reflecting a full six months of net revenues in 2023 compared to 2022, when it was acquired by the Company during the second quarter.

Wizards of the Coast and Digital Gaming segment operating profit was $219.1 million, or 32.7% of segment net revenues for the first six months of 2023, compared to operating profit of $332.0 million, or 48.6% of segment net revenues for the first six months of 2022.

The operating profit decrease during the first six months of 2023 was driven primarily by higher inventory costs, higher royalty expenses attributable the Lord of the Rings:

Tales of Middle-earth release, higher product development costs as we continue to invest in Wizards of the Coast and Digital Gaming initiatives, as well as higher administrative expenses including costs to attract and retain talent and higher marketing and sales expenses.

Wizards of the Coast and Digital Gaming segment net revenues increased 11% in the first nine months of 2023 to $1,094.4 million from $986.1 million in the first nine months of 2022.

Currency translation did not have a material impact on Wizards of the Coast and Digital Gaming segment net revenues during the first nine months of 2023.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first nine months of 2023 was driven by higher net revenues from Digital Gaming, most notably from Baldur's Gate 3, a DUNGEONS & DRAGONS-based digital game released during the third quarter 2023 , higher net revenues from D&D Beyond, reflecting a full nine months of net revenues in 2023 compared to a partial period in 2022 as it was acquired by the Company during the second quarter, and to a lesser extent, higher net revenues from certain other digital gaming initiatives.

In addition, higher digital licensing net revenues, and higher net revenues from MAGIC:

THE GATHERING tabletop gaming products, most notably, The Lord of the Rings:

Tales of Middle-earth card set released in June 2023, were partially offset by lower tabletop gaming sales in North America compared to the first nine months of 2022.

Wizards of the Coast and Digital Gaming segment operating profit was $422.5 million, or 38.6% of segment net revenues for the first nine months of 2023, compared to operating profit of $434.2 million, or 44.0% of segment net revenues for the first nine months of 2022.

The operating profit decrease during the first nine months of 2023 was driven primarily by higher product costs including higher inventory obsolescence charges, higher royalty expenses attributable the Lord of the Rings:

Tales of Middle-earth release, higher product development costs as the Company continues to invest in Wizards of the Coast and Digital Gaming initiatives, as well as higher administrative expenses including costs to attract and retain talent and higher marketing and sales expenses in support of D&D Beyond and the Wizards of the Coast MagicCon event series.

These impacts to operating profit were partially offset by a favorable mix of digital gaming products driven by Baldur's Gate 3 and certain other licensed digital gaming products.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the six-month periods ended July 2, 2023 and June 26, 2022.

Six Months Ended

July 2, 2023 June 26, 2022

The following table presents Entertainment segment net revenues by category for the nine-month periods ended October 1, 2023 and September 25, 2022:

Nine Months Ended

October 1, 2023 September 25, 2022

Film and TV $ 423.8 $ 527.0

2 unchanged sentences

Net revenues $ 487.5 $ 624.3

Entertainment segment net revenues for the six months ended July 2, 2023 decreased 12% to $364.6 million from $412.7 million for the six months ended June 26, 2022, and included the impact of an unfavorable $6.4 million foreign currency translation.

The segment net revenue decrease during the first six months of 2023 was driven by lower film deliveries, lower unscripted television content deliveries and lower net revenues from streaming content sales compared to the first six months of 2022.

To a lesser extent, the exit of certain non-core business during the fourth quarter of 2022 contributed to segment net revenue declines during the first six months of 2023.

These decreases were partially offset by higher net revenues from scripted programming deliveries that included A Gentleman in Moscow, The Rookie season five and The Recruit season two , as well as higher net revenues from film deliveries, most notably Dungeons & Dragons:

Honor Among Thieves, and higher net revenues from the Company's Family Brands business, due to the renewal of certain streaming content agreements during the first six months of 2023 related to programs featuring the Company's brands.

Entertainment segment operating losses were $332.9 million, or 91.3% of net revenues, for the six months ended July 2, 2023, compared to operating profit of $26.5 million, or 6.4% of segment net revenues, for the six months ended June 26, 2022.

The Entertainment segment operating loss during the first six months of 2023 was driven by a non-cash goodwill impairment charge of $231.2 million and intangible asset impairment charges of $65.0 million ($48.7 million after tax), associated with the impairment review of the Company's Film and TV reporting unit.

In addition, Entertainment segment operating losses were attributable to higher program amortization costs due to production asset impairment charges recorded during the second quarter of 2023 associated with Dungeons & Dragons:

Honor Among Thieves, as well as the mix of content delivered in the first six months of 2023 compared to the first six months of 2022, and higher advertising and promotional expenses.

These increases were partially offset by cost savings associated with the exit of certain non-core business during the fourth quarter of 2022 and lower royalty expenses within the Company's film and TV business due to the mix of content delivered during the first six months of 2023, compared to the first six months of 2022.

Entertainment segment net revenues for the nine months ended October 1, 2023 decreased 22% to $487.5 million from $624.3 million for the nine months ended September 25, 2022, and included the impact of an unfavorable $5.1 million foreign currency translation.

The segment net revenue decrease during the first nine months of 2023 was driven by lower scripted television content deliveries and lower film deliveries, due primarily to the impact of the writers' and actors' strikes mentioned above, which disrupted the number and timing of planned program productions and deliveries in 2023 compared to 2022.

To a lesser extent, lower net revenues from unscripted programming contributed to the decrease due to the lower number of new deliveries during the first nine months of 2023 compared to 2022, reflecting overall industry contraction.

To a lesser extent, the exit of certain non-core businesses during the fourth quarter of 2022 contributed to segment net revenue declines during the first nine months of 2023.

These decreases were partially offset by higher net revenues from the Company's Family Brands business, due to the renewal of certain streaming content agreements during the first nine months of 2023 related to programs featuring the Company's brands.

Entertainment segment operating losses were $801.4 million, or greater than -100% of net revenues, for the nine months ended October 1, 2023, compared to operating losses of $2.4 million, or 0.4% of segment net revenues, for the nine months ended September 25, 2022.

The Entertainment segment operating loss during the first nine months of 2023 was driven by a loss on assets held for sale of $473.0 million related to the sale of the non-core eOne Film and TV business, a non-cash goodwill impairment charge of $231.2 million and intangible asset impairment charges of $65.0 million, associated with the impairment review of the Company's Film and TV reporting unit.

In addition, Entertainment segment operating losses were attributable to lower segment net revenues as previously discussed and higher program amortization costs due to production asset impairment charges recorded during the third quarter of 2023 associated with Dungeons & Dragons:

Honor Among Thieves.

These increases were partially offset by lower operating expenses as a result of the exit of certain non-core businesses during the fourth quarter of 2022 and lower royalty expenses within the Company's film and TV business due to the volume and mix of content delivered during the first nine months of 2023, compared to the first nine months of 2022.

Corporate and Other

Operating losses in Corporate and Other for the first six months of 2023 were $22.3 million, compared to operating losses of $21.5 million for the first six months of 2022.

The increase in operating losses during the first six months of 2023 was the result of expense associated with the Company's Operational Excellence program, most notably consultant fees as well as transformation office expenses associated with Company's cost-savings initiatives described above.

These increases were partially offset by lower expense associated with retention awards granted in connection with the eOne Acquisition during the first six months of 2023 compared to the first six months of 2022.

Operating losses in Corporate and Other for the first nine months of 2023 were $22.8 million, compared to operating losses of $37.3 million for the first nine months of 2022.

Improved operating results in the third quarter of 2023 reflect lower administrative expenses, including lower compensation costs associated with headcount reductions, partially offset by Operational Excellence program related consultant and transformation office expenses of $29.4 million and charges of $16.9 million associated with the non-core eOne Film and TV business sale process as well as higher marketing and sales costs compared to the third quarter of 2022.

In the first nine months of 2022, Operating losses in Corporate and Other segment included severance and other employee charges associated with the Company's strategic review and expense associated with retention awards granted in connection with the eOne Acquisition.

OPERATING COSTS AND EXPENSES

Second Quarter 2023

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended July 2, 2023 and June 26, 2022.

Third Quarter 2023

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended October 1, 2023 and September 25, 2022.

Quarter Ended

July 2, 2023 June 26, 2022

October 1, 2023 September 25, 2022

Cost of sales 32.9 % 35.0 %

4 unchanged sentences

Amortization of intangible assets 1.3 % 1.6 %

Loss on assets held for sale

Selling, distribution and administration 23.4 % 21.8 %

Impairment of Goodwill 19.1 % — %

Cost of sales for the second quarter of 2023 was $352.2 million, or 29.1% of net revenues, compared to $411.5 million, or 30.7% of net revenues, for the second quarter of 2022.

Cost of sales for the third quarter of 2023 was $494.5 million, or 32.9% of net revenues, compared to $586.6 million, or 35.0% of net revenues, for the third quarter of 2022.

The cost of sales decrease in dollars was driven primarily by lower sales volumes and cost savings realized from the exit of certain non-core business within the Entertainment segment as well as cost savings from the Company's Operational Excellence Program.

These decreases were partially offset by the impact of higher closeout sales and higher sales allowances as well as higher inventory costs and higher expenses associated with digital gaming initiatives within the Wizards of the Coast and Digital Gaming segment during the second quarter of 2023 compared to the second quarter of 2022.

As a percent of net revenues, the cost of sales decrease was primarily the result of the mix of net revenues during the second quarter of 2023 compared to the second quarter of 2022.

Program cost amortization increased to $134.4 million, or 11.1% of net revenues, for the second quarter of 2023 from $80.7 million, or 6.0% of net revenues, for the second quarter of 2022.

These decreases were partially offset by the impact of higher closeout sales as well as higher inventory costs during the third quarter of 2023 compared to the third quarter of 2022.

As a percent of net revenues, the cost of sales decrease was primarily the result of the mix of net revenues, due to higher digital gaming revenues related to Baldur's Gate 3, partially offset by higher inventory obsolescence charges during the third quarter of 2023 compared to the third quarter of 2022.

Program cost amortization decreased to $68.4 million, or 4.5% of net revenues, for the third quarter of 2023 from $146.5 million, or 8.7% of net revenues, for the third 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 increase in dollars and as a percent of net revenues during the second quarter of 2023 was driven by production assets impairment charges of $25.0 million associated with Dungeons & Dragons:

Honor Among Thieves , as well as the volume and mix of entertainment content delivered during the second quarter of 2023, compared to the second quarter of 2022.

Royalty expense for the second quarter of 2023 decreased to $119.9 million, or 9.9% of net revenues, compared to $110.1 million, or 8.2% of net revenues, for the second quarter of 2022.

The decrease in dollars and as a percent of net revenues during the third quarter of 2023 was driven by the impact of the writers' and actors' strikes discussed previously, which disrupted the number and timing of planned productions and led to reduced deliveries during the third quarter of 2023, compared to the third quarter of 2022.

Royalty expense for the third quarter of 2023 decreased to $106.9 million, or 7.1% of net revenues, compared to $135.1 million, or 8.1% of net revenues, for the third quarter of 2022.

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

The increase in royalty expense in dollars and as a percent of net revenues during the second quarter of 2023 was driven by royalty rates associated with the release of the Lord of the Rings:

Tales of Middle-earth card set in June 2023, partially offset by lower sales of Partner Brands products in the second quarter of 2023, driven by the exit of certain license agreements in December 2022.

Product development expense for the second quarter of 2023 was $72.4 million, or 6.0% of net revenues, compared to $79.2 million, or 5.9% of net revenues, for the second quarter of 2022.

The decrease during the second quarter of 2023 was driven by lower costs, most notably within the Company's Consumer Products business, as a result of the focus on fewer, bigger, more profitable brands in alignment with the Company's consumer-centric Blueprint 2.0 strategy.

Advertising expense for the second quarter of 2023 was $85.1 million, or 7.0% of net revenues, compared to $84.2 million, or 6.3% of net revenues, for the second quarter of 2022.

The decrease in royalty expense in dollars and as a percent of net revenues during the third quarter of 2023 reflects lower sales of Partner Brands products, driven by the exit of certain license agreements in December 2022, partially offset by the impact of royalty rates associated with the release of the Lord of the Rings:

Tales of Middle-earth and Doctor Who card sets.

Product development expense for the third quarter of 2023 was $76.7 million, or 5.1% of net revenues, compared to $82.4 million, or 4.9% of net revenues, for the third quarter of 2022.

The decrease in product development expense during the third quarter of 2023 was driven by reduced costs, most notably lower personnel costs within the Company's Consumer Products segment as a result of the focus on fewer, bigger, more profitable brands in alignment with the Company's consumer-centric Blueprint 2.0 strategy.

Advertising expense for the third quarter of 2023 was $81.9 million, or 5.4% of net revenues, compared to $115.2 million, or 6.9% of net revenues, for the third quarter of 2022.

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

The advertising expense increase during the second 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.

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 second quarter of 2023.

Amortization of intangible assets decreased to $22.8 million, or 1.9% of net revenues, for the second quarter of 2023, compared to $27.2 million, or 2.0% of net revenues, for the second 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, as well as lower expense due to certain classic gaming properties becoming fully amortized during the first quarter of 2023.

decreases were 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 $380.6 million, or 31.5% of net revenues for the second quarter of 2023, from $327.2 million, or 24.4% of net revenues, for the second quarter of 2022.

The increase in selling, distribution and administration expenses primarily reflects $65.0 million of intangible asset impairment charges related to the Company's definite-lived intangible eOne Trademark, associated with the impairment review of the Company's Film and TV reporting unit, as well as consultant and transformation office charges totaling $10.4 million associated with the Company's Operational Excellence program.

In addition to these charges, 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 costs for professional services compared to the second quarter of 2022.

Impairment of goodwill of $231.2 million, or 19.1% of net revenues for the second quarter of 2023 reflects non-cash goodwill impairment charges, recorded within the Entertainment segment, associated with the impairment review of the Company's Film and TV reporting unit.

First Six Months 2023

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the six-month periods ended July 2, 2023 and June 26, 2022.

Six Months Ended

July 2, 2023 June 26, 2022

The advertising expense decrease during the third quarter of 2023 was driven by lower advertising expenses within the Consumer Products segment, primarily due to lower revenues in 2023.

Amortization of intangible assets decreased to $19.2 million, or 1.3% of net revenues, for the third quarter of 2023, compared to $26.9 million, or 1.6% of net revenues, for the third quarter of 2022.

The decrease in 2023 reflects the discontinuation of amortization expense associated with intangible assets classified as held for sale, lower expense due to the impairment of the Company's definite-lived intangible asset, eOne Trademark and lower expense due to the partial impairment of the Company's definite-lived POWER RANGERS intangible assets during the fourth quarter of 2022, as well as lower expense due to certain classic gaming properties becoming fully amortized during the first quarter of 2023.

The loss on assets held for sale in the third quarter of 2023 of $473.0 million, or 31.5% of net revenues, represents non-cash impairment charges and foreign currency translation losses reclassified from accumulated other comprehensive losses to current earnings, associated with the pending sale of the Company's non-core eOne Film and TV business within the Entertainment segment.

The loss on assets held for sale in the third quarter of 2022 of $23.1 million, or 0.6% of net revenues, represents non-cash impairment charges associated with the exit of other non-core businesses within the Entertainment segment.

Selling, distribution and administration expenses decreased to $352.3 million, or 23.4% of net revenues for the third quarter of 2023, from $365.8 million, or 21.8% of net revenues, for the third quarter of 2022.

The decrease in selling, distribution and administration expenses during the third quarter of 2023 primarily reflects lower administrative expenses due to savings realized from the Company's ongoing cost savings initiatives, lower costs for professional services and lower freight and warehousing expenses as a result of lower shipments during 2023, as well as lower severance and other employee charges compared to expenses recorded the third quarter of 2022 related to the Company's 2022 restructuring actions.

These decreases to selling, distribution and administration expense were partially offset by charges of $16.9 million associated with the non-core eOne Film and TV business sale process, consultant and transformation office charges totaling $8.4 million associated with the Company's Operational Excellence program, as well as higher marketing and sales costs within the Wizards of the Coast and Digital Gaming segment and higher expense for bad debt recorded during the third quarter of 2023.

First Nine Months 2023

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the nine-month periods ended October 1, 2023 and September 25, 2022.

Nine Months Ended

October 1, 2023 September 25, 2022

Cost of sales 30.5 % 31.9 %

4 unchanged sentences

Amortization of intangible assets 1.8 % 1.9 %

Selling, distribution and administration 31.6 % 25.3 %

Impairment of goodwill

Cost of sales for the six months ended July 2, 2023 decreased to $637.5 million, or 28.8% of net revenues, from $744.6 million, or 29.8% of net revenues for the six months ended June 26, 2022.

The cost of sales decrease was driven primarily by lower sales volumes and cost savings realized from the Company's Operational Excellence Program, as well as the exit of certain non-core business, partially offset by the impact of higher closeout sales and higher sales allowances, as well as higher product input costs, primarily within the Wizards of the Coast and Digital Gaming Segment during the first six months of 2023 compared to the first six months of 2022.

As a percent of net revenues, the cost of sales decrease was primarily the result of the mix of net revenues during the second quarter of 2023 compared to the second quarter of 2022.

Program cost amortization increased in the first six months of 2023 to $256.9 million, or 11.6% of net revenues, from $219.2 million, or 8.8% of net revenues, in the first six months of 2022.

The program cost amortization increase in dollars and as a percent of net revenues during the first six months of 2023, was driven by production asset impairment charges of $25.0 million associated with Dungeons & Dragons:

Honor Among Thieves , as well as the volume and mix of entertainment content delivered during the first six months of 2023 compared to the first six months of 2022.

Royalty expense for the six months ended July 2, 2023 was $188.9 million, or 8.5% of net revenues, compared to $200.2 million, or 8.0% of net revenues, for the six months ended June 26, 2022.

The decrease in royalty expense during the first six months of 2023 reflects lower sales of Partner Brands products and the exit of certain license agreements in December 2022, partially offset by royalty expense associated with the Lord of the Rings:

Tales of Middle-earth card set released in June 2023.

Product development expense for the six months ended July 2, 2023 was $155.7 million, or 7.0% of net revenues, compared to $148.8 million, or 5.9% of net revenues, for the six months ended June 26, 2022.

The increase in product development expense in the first six months of 2023 was driven by higher investments and costs to support the Company's Wizards of the Coast tabletop and digital gaming initiatives, partially offset by lower personnel costs with the Consumer Products segment.

Advertising expense for the six months ended July 2, 2023 was $167.9 million, or 7.6% of net revenues, compared to $161.8 million, or 6.5% of net revenues, for the six months ended June 26, 2022.

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

Loss on assets held for sale

Selling, distribution and administration 28.3 % 23.9 %

Cost of sales for the nine months ended October 1, 2023 decreased to $1,132.0 million, or 30.5% of net revenues, from $1,331.2 million, or 31.9% of net revenues for the nine months ended September 25, 2022.

The cost of sales decrease was driven primarily by lower sales volumes and lower product input costs, most notably within the Consumer Products segment as well as cost savings realized from the Company's Operational Excellence Program combined with the impact of the exit of certain non-core business.

These decreases were partially offset by higher closeout sales during the first nine months of 2023 compared to the first nine months of 2022.

As a percent of net revenues, the cost of sales decrease was primarily the result of the mix of net revenues, partially offset by higher inventory obsolescence charges during the third quarter of 2023 compared to the third quarter of 2022.

Program cost amortization decreased in the first nine months of 2023 to $325.3 million, or 8.8% of net revenues, from $365.7 million, or 8.8% of net revenues, in the first nine months of 2022.

The program cost amortization decrease during the first nine months of 2023 reflects the impact of the writers' and actors' strikes during 2023, which disrupted the number and timing of planned productions and led to reduced deliveries.

This decrease was partially offset by production asset impairment charges of $25.0 million associated with Dungeons & Dragons:

Honor Among Thieves, recorded during the second quarter of 2023.

Royalty expense for the nine months ended October 1, 2023 was $295.8 million, or 8.0% of net revenues, compared to $335.3 million, or 8.0% of net revenues, for the nine months ended September 25, 2022.

The decrease in royalty expense during the first nine months of 2023 reflects lower sales of Partner Brands products and the exit of certain license agreements in December 2022, partially offset by the impact of royalty rates associated with the 2023 card set releases, Lord of the Rings:

Tales of Middle-earth and Doctor Who .

Product development expense for the nine months ended October 1, 2023 was $232.4 million, or 6.3% of net revenues, compared to $231.2 million, or 5.5% of net revenues, for the nine months ended September 25, 2022.

Product development expense in the first nine months of 2023 was driven by continued investments and costs to support the Company's Wizards of the Coast tabletop and digital gaming initiatives, partially offset by lower personnel costs with the Consumer Products segment.

Advertising expense for the nine months ended October 1, 2023 was $249.8 million, or 6.7% of net revenues, compared to $277.0 million, or 6.6% of net revenues, for the nine months ended September 25, 2022.

The advertising expense decrease during the first nine months of 2023 was driven by lower expense within the Consumer Products segment, due to the volume and mix of product sales and timing of advertising expenditures during the first nine months of 2023, partially offset by higher expense 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.

These increases were partially offset by lower expense within the Consumer Products segment, due to the mix product sales and timing of advertising expenditures during the first six months of 2023.

Amortization of intangible assets was $45.9 million, or 2.1% of net revenues, for the six months ended July 2, 2023 compared to $54.3 million, or 2.2% of net revenues, in the first six months 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 as well as lower expense due to certain classic gaming properties becoming fully amortized during the first quarter of 2023.

Amortization of intangible assets was $65.1 million, or 1.8% of net revenues, for the nine months ended October 1, 2023 compared to $81.2 million, or 1.9% of net revenues, in the first nine months of 2022.

The decrease in 2023 reflects the discontinuation of amortization expense associated with intangible assets classified as held for sale, lower expense due to the impairment of the Company's definite-lived intangible asset, eOne Trademark, lower expense due to the partial impairment of the Company's definite-lived Power Rangers intangible assets during the fourth quarter of 2022, as well as lower expense due to certain classic gaming properties becoming fully amortized during the first quarter of 2023.

These decreases were 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 were $697.7 million, or 31.6% of net revenues for the six months ended July 2, 2023, compared to $634.3 million, or 25.3% of net revenues, for the six months ended June 26, 2022.

The increase in selling, distribution and administration expenses primarily reflects $65.0 million of intangible asset impairment charges related to the Company's definite-lived intangible eOne Trademark, associated with the impairment review of the Company's Film and TV reporting unit, as well as consultant and transformation office charges totaling $21.0 million associated with the Company's Operational Excellence program.

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

Impairment of goodwill of $231.2 million, or 10.5% of net revenues for the first six months of 2023 reflects non-cash goodwill impairment charges recorded during the second quarter, within the Entertainment segment, associated with the impairment review of the Company's Film and TV reporting unit.

Impairment of goodwill of $231.2 million, or 6.2% of net revenues for the first nine months of 2023 reflects non-cash goodwill impairment charges recorded during the second quarter, within the Entertainment segment, associated with the impairment review of the Company's Film and TV reporting unit.

The loss on assets held for sale in the first nine months of 2022 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 assets held for sale of $473.0 million, or 12.7% of net revenues, represents non-cash impairment charges and foreign currency translation losses reclassified from accumulated other comprehensive losses to current earnings, associated with the sale of the Company's non-core eOne Film and TV business within the Entertainment segment.

Selling, distribution and administration expenses were $1,050.0 million, or 28.3% of net revenues for the nine months ended October 1, 2023, compared to $1,000.1 million, or 23.9% of net revenues, for the nine months ended September 25, 2022.

During the first nine months of 2023, selling, distribution and administration expenses included $65.0 million of intangible asset impairment charges related to the Company's definite-lived intangible eOne Trademark, consultant and transformation office charges totaling $29.4 million related to the Company's Operational Excellence program, and charges totaling $16.9 million incurred by the Company associated with the process to sell the eOne Film and TV business.

In addition, higher marketing and sales costs, most notably within the Wizards of the Coast and Digital Gaming Segment in support of digital gaming and location based entertainment initiatives, were partially offset by lower compensation expense associated with workforce reductions, and lower freight and warehousing expenses during the first nine months of 2023.

NON-OPERATING EXPENSE (INCOME)

Interest expense for the second quarter and first six months of 2023 totaled $46.6 million and $92.9 million, respectively, compared to $41.7 million and $83.3 million in the second quarter and first six months of 2022, respectively.

The increase in interest expense for the second quarter and first six months of 2023 primarily reflects higher interest expense related to the Company's variable term loan facilities, due to higher interest rates in 2023 compared to 2022, and to a lesser extent, higher interest expense related to borrowings from the Company's production financing credit facilities.

Interest income was $5.8 million and $11.8 million for the second quarter and first six months of 2023, respectively, compared to $2.7 million and $4.8 million in the second quarter and first six months of 2022, respectively.

Interest expense for the third quarter and first nine months of 2023 totaled $47.1 million and $140.0 million, respectively, compared to $41.9 million and $125.2 million in the third quarter and first nine months of 2022, respectively.

The increase in interest expense for the third quarter and first nine months of 2023 primarily reflects higher interest expense related to the Company's variable term loan facilities, due to higher interest rates in 2023 compared to 2022, and to a lesser extent, higher interest expense related to borrowings from the Company's production financing credit facilities.

Interest income was $3.8 million and $15.6 million for the third quarter and first nine months of 2023, respectively, compared to $3.2 million and $8.0 million in the third quarter and first nine months of 2022, respectively.

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

Other income, net was $1.5 million and $2.9 million for the second quarter and first six months of 2023, respectively, compared to other expense, net of $0.2 million and $0.5 million in the second quarter and first six months of 2022, respectively.

The increase in other income during 2023 was driven primarily by the revaluation of certain contingent consideration liability balances and higher earnings from the Company's joint venture with Discovery during the first six months of 2023 compared to the first six months 2022.

These increases were partially offset by the impairment of an office building lease within the Entertainment segment.

Income tax expense totaled $7.0 million on pre-tax loss of $227.9 million in the second quarter of 2023 compared to income tax expense of $39.4 million on pre-tax income of $179.9 million in the second quarter of 2022.

For the six-month period, income tax expense totaled $7.7 million on pre-tax loss of $248.9 million compared to an income tax expense of $56.7 million on pre-tax income of $260.1 million in 2022.

Other expense (income), net was $2.2 million and $(0.7) million for the third quarter and first nine months of 2023, respectively, compared to other income, net of $10.0 million and $9.5 million in the third quarter and first nine months of 2022, respectively.

The decrease in other income during 2023 was driven primarily by foreign currency exchange losses in 2023 compared to foreign currency exchange gains in 2022.

Income tax benefit totaled $44.6 million on pre-tax loss of $215.0 million in the third quarter of 2023 compared to income tax expense of $37.4 million on pre-tax income of $165.6 million in the third quarter of 2022.

For the nine month period, the income tax benefit totaled $36.9 million on pre-tax loss of $463.9 million compared to an income tax expense of $94.1 million on pre-tax income of $425.7 million in 2022.

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

The second quarter and six-month periods of 2023 include an impairment of goodwill related to our Film and TV reporting unit in the amount of $231.2 million with no tax benefit.

During the first six months of 2023, exclusive of the goodwill impairment, favorable discrete tax adjustments recorded by the Company were a net benefit of $8.9 million compared to a net benefit of $3.2 million in the first six months of 2022.

The favorable discrete tax adjustments for the first six months of 2023 are primarily associated with a tax benefit on the impairment of trade names in the Entertainment segment, offset by stock-based compensation and net activity related to uncertain tax positions, primarily interest accruals.

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

Absent discrete items, the tax rates for the first six months of 2023 and 2022 were 35.3% and 23.0% respectively.

The increase in the base rate of 35.3% for the first six months of 2023 is primarily

due to the mix of jurisdictions where the Company earned its profits combined with the phasing of the Company's income earned throughout 2023.

The nine month period in 2023 includes an impairment of goodwill in the Film and TV reporting unit of $231.2 million, recorded during the second quarter, with no tax benefit.

During the first nine months of 2023, the Company recorded favorable discrete tax adjustments exclusive of the goodwill impairment of a net benefit

of $113.3 million compared to a net benefit of $6.7 million in the first nine months of 2022.

The favorable discrete tax adjustments for the first nine months of 2023 are primarily associated with tax benefits on the impairment of trade names in our Film and TV reporting unit, recorded in the second quarter, and the loss on assets held for sale of $473.0 million, recorded in the third quarter.

The favorable discrete tax adjustments for the first nine months of 2022 were 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.

Absent discrete items, the tax rates for the first nine months of 2023 and 2022 were 25.0% and 22.3% respectively.

The increase in the base rate of 25.0% for the first nine months of 2023 is primarily due to the mix of jurisdictions where the Company earned its profits combined with phasing of when the Company will earn its income throughout the year in 2023.

OTHER INFORMATION

13 unchanged sentences

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 has continued to closely manage its inventory levels through closeout sales and by monitoring consumer purchase patterns, resulting in lower inventory balances as of the second quarter of 2023, compared to the second quarter of 2022, while ensuring adequate supply of new product despite clearing excess supply to mitigate the risk of inventory obsolescence.

The Company has continued to closely manage its inventory levels through closeout sales and by monitoring consumer purchase patterns, resulting in lower inventory balances as of the third quarter of 2023, compared to the third quarter of 2022, while ensuring adequate supply of new product despite 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.

6 unchanged sentences

Accounting Pronouncement Updates

As of July 2, 2023, there were no recently adopted accounting standards that had a material effect on the Company’s financial statements.

As of October 1, 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

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

As of October 1, 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 six 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, borrowings under its commercial paper program and available lines of credit.

In the first nine 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, borrowings under its commercial paper program and 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.

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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 July 2, 2023, the Company's cash and cash equivalents totaled $216.6 million, of which $4.9 million is restricted under the Company’s production financing facilities.

As of October 1, 2023, the Company's cash and cash equivalents totaled $185.5 million, of which $1.1 million is restricted under the Company’s production financing facilities.

In connection with the planned sale of the Company's Film and TV business, as of October 1, 2023, $70.4 million of cash and cash equivalents attributable to non-core entertainment businesses were reclassified to assets held for sale on the Company's consolidated balance sheets included in Part I of this Form 10-Q.

Of the reclassified amount, $4.1 million is restricted under the Company’s production financing facilities.

The net cash attributable to the non-core entertainment business will be paid for by Lionsgate under the agreement between the Company and Lionsgate dated August 3, 2023 as part of the purchase price adjustment for net debt.

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.

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

As of July 2, 2023, the Company had a total liability of $103.3 million related to this tax, $45.9 million is reflected in current liabilities while the remaining long-term payable related to the Tax Act of $57.4 million is presented within other liabilities, non-current, on the consolidated balance sheets included in Part I, Item 1.

As of October 1, 2023, the Company had a total liability of $103.3 million related to this tax, $45.9 million is reflected in current liabilities while the remaining long-term payable related to the Tax Act of $57.4 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.

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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 July 2, 2023, are denominated in the U.S.

The majority of the Company’s cash and cash equivalents held outside of the United States as of October 1, 2023, are denominated in the U.S.

Due to 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.

July 2, 2023 June 26, 2022 % Change

October 1, 2023 *

September 25, 2022 % Change

Cash and cash equivalents (including restricted cash of $1.1 and $6.1)

$ 185.5 $ 551.6 -66 %

Accounts receivable, net 1,102.0 1,188.8 -7 %

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Other liabilities 438.2 545.1 -20 %

Accounts receivable increased 1% to $877.0 million as of July 2, 2023, compared to $870.5 million as of June 26, 2022.

The increase in accounts receivable was driven by the increase in days sales outstanding from 59 days at June 26, 2022 to 66 days at July 2, 2023, offset by lower sales during the first six months of 2023.

Inventories decreased 16% to $731.3 million as of July 2, 2023, compared to $867.5 million as of June 26, 2022.

The decrease during the first half of 2023 was driven primarily by lower inventory balances within the Consumer Products segment reflecting both reduced in transit times compared to 2022, and efforts to reduce retail inventory levels, most notably across Europe and to a lesser extent, in North America.

These decreases were partially offset by higher inventory balances within the Wizards of the Coast and Digital Gaming segment, due to release schedule timing differences compared to the first half of 2022, in anticipation of several MAGIC:

THE GATHERING set releases planned for the second half of 2023, and to a lesser extent, higher inventory balances for DUNGEONS & DRAGONS product.

Prepaid expenses and other current assets decreased 5% to $684.1 million as of July 2, 2023 from $719.2 million as of June 26, 2022.

The decrease was driven by lower accrued income balances due to reduced accrued royalty and licensing balances, primarily attributable to the Company's Entertainment business, as well as lower accrued tax credit balances related to film and television production costs, due primarily to timing of tax credit claims.

These decreases were partially offset by higher prepaid royalty balances, primarily associated with the timing of payments made within the Company's Consumer Products business.

Other assets increased 19% to $1,621.3 million as of July 2, 2023 from $1,367.6 million as of June 26, 2022.

The increase was primarily driven by higher capitalized film and television production balances due to increased investments in productions compared to the first six months 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 10% to $1,732.8 million as of July 2, 2023 from $1,923.2 million as of June 26, 2022 driven by lower accounts payable balances associated with the Company's global cost savings initiatives and the timing of payments, lower accrued freight balances as a result of improved supply chain conditions compared to the first six months 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, higher accrued expenses for investments in content and production assets and a higher short-term transition tax liability balance reflecting the increase to the Company's 2023 installment payment due April 2024.

Other liabilities decreased 9% to $520.6 million as of July 2, 2023 from $570.0 million as of June 26, 2022.

The decrease was primarily driven by a lower transition tax liability balance reflecting the reclassification of the 2023 installment payment due April 2024, lower long-term pension liability balances and lower long-term deferred tax balances reflecting the amortization of deferred tax liabilities.

These decreases were partially offset by a higher long-term lease liability balance attributable to a lease entered during the first six months of 2023 in support the Wizards of the Coast and Digital Gaming segment, in addition to an increase to the liability balance for uncertain tax positions.

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the six-month periods ended July 2, 2023 and June 26, 2022.

July 2, 2023 June 26, 2022

*During the third quarter of 2023, the Company reached a definitive agreement to sell its non-core eOne Film and TV business to Lionsgate.

Accordingly, the Company reclassified the related assets and liabilities within Assets Held for Sale and Liabilities Held for Sale, respectively, on the Consolidated Balance Sheets as of October 1, 2023.

For additional information on assets and liabilities held for sale, see note 15 to the consolidated financial statements included in Part I, Item 1.

Financial Statements, of this Form 10-Q.

Accounts receivable decreased 7% to $1,102.0 million as of October 1, 2023, compared to $1,188.8 million as of September 25, 2022.

The decrease in accounts receivable was driven primarily by the reclassification of $85.2 million of account receivable balances to assets held for sale during the third quarter of 2023.

Absent the impact of this reclassification, Account receivable balances were consistent with the third quarter of 2022.

Days sales outstanding increased from 65 days as of September 25, 2022 to 67 days as of October 1, 2023.

Inventories decreased 27% to $617.7 million as of October 1, 2023, compared to $844.5 million as of September 25, 2022.

The decrease during the first nine months of 2023 was driven primarily by lower inventory balances within the Consumer Products segment reflecting both reduced in transit times due to supply chain management improvements compared to 2022, and efforts to reduce retail inventory levels, most notably in North America and Europe.

In addition, $2.7 million of inventory balances were reclassified to assets held for sale during the third quarter of 2023.

These decreases were partially offset by higher inventory balances within the Wizards of the Coast and Digital Gaming segment.

Prepaid expenses and other current assets decreased 57% to $286.2 million as of October 1, 2023, from $658.8 million as of September 25, 2022.

The decrease was driven primarily by the reclassification of $402.6 million of prepaid expense and other current asset balances to assets to assets held for sale during the third quarter of 2023.

Absent the impact of this reclassification, Prepaid expenses and other current assets remained consistent with the first nine months of 2022, reflecting higher accrued income balances due to higher accrued royalty and licensing balances, primarily attributable to the Company's Entertainment business and higher prepaid royalty balances, primarily associated with the timing of payments made within the Company's Consumer Products business.

These increases were offset by lower unrealized gains on foreign exchange contracts during the first nine months of 2023.

Other assets decreased 48% to $731.6 million as of October 1, 2023, from $1,404.3 million as of September 25, 2022.

The decrease was primarily driven by the reclassification of $891.5 million of other assets balances to assets held for sale during the third quarter of 2023.

Absent the impact of this reclassification, Other assets remained consistent with the first nine months of 2022 and reflect higher deferred tax balances related to the capitalization of research and experimentation costs and the recognition of deferred tax assets associated with the partial impairment of the Company's definite-lived Power Rangers intangible asset.

These increases were offset by a lower balance for the Company's investment in Discovery Family Channel due to distributions received during the fourth quarter of 2022 and the first nine months of 2023.

Accounts payable and accrued liabilities decreased 35% to $1,356.8 million as of October 1, 2023, from $2,097.0 million as of September 25, 2022, driven by the reclassification of $404.4 million of accounts payable and accrued liability balances to liabilities held for sale during the third quarter of 2023.

Absent the impact of this reclassification, the decrease to Accounts payable and accrued liabilities was 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 sales declines of the Company's partner brands reflecting the expiration of certain partner brand licensing agreements, lower accrued income tax balances as

well as lower accrued advertising and incentive bonus accrual balances.

These decreases were partially offset by higher severance accrual balances related to the Company's cost savings initiatives mentioned above and a higher short-term transition tax liability balance reflecting the increase to the Company's 2023 installment payment due April 2024.

Other liabilities decreased 20% to $438.2 million as of October 1, 2023, from $545.1 million as of September 25, 2022.

The decrease was primarily driven by the reclassification of $52.1 million of other liability balances to liabilities held for sale during the third quarter of 2023.

Absent this reclassification, the decrease in Other liabilities was driven by a lower transition tax liability balance reflecting the reclassification of the 2023 installment payment due April 2024, lower long-term pension liability balances and lower long-term deferred tax balances reflecting the amortization of deferred tax liabilities.

These decreases were partially offset by a higher long-term lease liability balance attributable to a lease entered during the first nine months of 2023 in support of the Wizards of the Coast and Digital Gaming segment.

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the nine-month periods ended October 1, 2023 and September 25, 2022.

October 1, 2023 September 25, 2022

Net cash provided by (utilized for):

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Financing activities (418.0) (443.0)

Net cash provided by operating activities in the first six months of 2023 was $119.2 million compared to $147.8 million in the first six months of 2022.

The $28.6 million decrease in net cash provided by operating activities was primarily attributable to lower earnings, excluding non-cash charges, during the first six months of 2023.

Net cash utilized for investing activities was $115.8 million in the first six months of 2023 compared to net cash utilized for investing activities of $212.6 million in the first six months of 2022.

Additions to property, plant and equipment were $112.1 million in the first six months of 2023 compared to $75.8 million in the first six months of 2022, reflecting increased investments in the Company's digital gaming initiatives as well as right of use asset additions and leasehold improvements within the Wizards of the Coast and Digital Gaming segment.

Net cash provided by operating activities in the first nine months of 2023 was $334.9 million compared to $262.2 million in the first nine months of 2022.

The $72.7 million increase in net cash provided by operating activities after adjusting for non-cash items, was primarily attributable to lower investments in entertainment content and production during the first nine months of 2023.

Net cash utilized for investing activities was $162.6 million in the first nine months of 2023 compared to net cash utilized for investing activities of $265.8 million in the first nine months of 2022.

Additions to property, plant and equipment were $160.4 million in the first nine months of 2023 compared to $130.7 million in the first nine months of 2022, reflecting increased investments in the Company's digital gaming initiatives as well as right of use asset additions and leasehold improvements within the Wizards of the Coast and Digital Gaming segment.

In 2022, net cash utilized for investing activities reflects a cash payment of $146.3 million made during the second quarter, related to the D&D Beyond Acquisition.

Net cash utilized for financing activities was $296.2 million in the first six months of 2023 compared to $319.9 million in the first six months of 2022.

Financing activities in the first six months of 2023 include a $45.0 million of principal amortization payments toward the Five-Year Tranche loan described below, as well as drawdowns of $105.0 million and repayments of $142.5 million related to production financing loans.

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

Dividends paid in the first six months of 2023 totaled $193.8 million, compared to $191.9 million in the first six months of 2022.

Net cash utilized for financing activities was $418.0 million in the first nine months of 2023 compared to $443.0 million in the first nine months of 2022.

Financing activities in the first nine months of 2023 include $60.0 million of principal amortization payments toward the Five-Year Tranche loan described below, as well as drawdowns of $117.9 million and repayments of $162.0 million, related to production financing loans.

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

Dividends paid in the first nine months of 2023 totaled $290.9 million, compared to $288.6 million in the first nine months of 2022.

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

Accounts receivable typically increase during the third and fourth quarters 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.

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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 six months of 2023 and 2022, the Company primarily used cash from operations and, to a lesser extent, borrowings under its commercial program in addition to borrowings under its available lines of credit, in particular production financing vehicles, to fund its working capital.

During the first nine months of 2023 and 2022, the Company primarily used cash from operations and, to a lesser extent, borrowings under its commercial program in addition to borrowings under its 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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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.

During the second quarter of 2023, to meet certain of its short-term liquidity needs, the Company issued commercial paper notes under the Program, all of which were

repaid by the Company prior to the close of the second quarter.

At July 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.

During the second quarter of 2023, to meet certain of its short-term liquidity needs, the Company issued commercial paper notes under the Program, all of which were repaid by the Company prior to the close of the second quarter.

As of October 1, 2023, the Company had no outstanding borrowings related to the Program.

During September 2023, the Company entered into a third 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 $1.25 billion, effective as of September 5, 2023.

The Amended Revolving Credit Agreement also provides for a potential additional incremental commitment increase of up to $500.0 million subject to agreement of the lenders.

The Amended Revolving Credit Agreement contains certain financial covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility, including with respect to liens, mergers and incurrence of indebtedness.

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

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

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

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

Amounts available and unused under the committed line, at July 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 $9.8 million was utilized at July 2, 2023.

The Amended Revolving Credit Agreement was extended through September 5, 2028.

Prior to the September 2023 amendment, the Amended Revolving Credit Agreement provided for a $1.5 billion revolving credit facility.

The Company was in compliance with all covenants as of October 1, 2023.

The Company had no borrowings outstanding under its committed revolving credit facility as of October 1, 2023.

However, letters of credit outstanding under this facility as of October 1, 2023 were approximately $4.0 million.

Amounts available and unused under the committed line, at October 1, 2023 were approximately $1.25 billion, inclusive of borrowings under the Company’s commercial paper program.

The Company also has other uncommitted lines from various banks, of which approximately $9.3 million was utilized as of October 1, 2023.

Of the amount utilized under, or supported by, the uncommitted lines, the full $9.3 million represented letters of credit.

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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 July 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 $335.0 million in the following increments:

As of October 1, 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 $350.0 million in the following increments:

$22.5 million in 2020;

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$87.5 million in 2022;

and, $45.0 million during the first six months of 2023.

The Company is subject to certain financial covenants contained in this agreement and as of July 2, 2023, the Company was in compliance with these covenants.

and, $60.0 million during the first nine months of 2023.

The Company is subject to certain financial covenants contained in this agreement and as of October 1, 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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Borrowings under the RPCF are non-recourse to the Company's assets.

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

During the first six months of 2023, the Company had total drawdowns of $142.5 million and repayments of $105.0 million towards these production financing facilities.

As of July 2, 2023, the Company had outstanding production financing borrowings related to these facilities of $157.6 million, $9.4 million of which are recorded within the current portion of long-term debt and $148.2 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 July 2, 2023 of $3.8 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $69.4 million is current at July 2, 2023 of which $60.0 million is related to principal amortization of the 5-year term loans due December 2024 and $9.4 million represents the Company's

outstanding production financing facilities at July 2, 2023.

During the first nine months of 2023, the Company had total drawdowns of $117.9 million and repayments of $162.0 million towards these production financing facilities.

As of October 1, 2023, the Company had outstanding production financing borrowings related to these facilities of $150.9 million, all of which were reclassified to Liabilities held for sale in the Company's consolidated balance sheets, included in Part I of this Form 10-Q.

For additional information on Assets and Liabilities held for sale, see note 15 to the consolidated financial statements included in Part I, Item 1.

Financial Statements, of this Form 10-Q.

The Company has principal amounts of long-term debt as of October 1, 2023 of $3.7 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $68.2 million is current as of October 1, 2023 of which $60.0 million is related to principal amortization of the 5-year term loans due December 2024 and $8.2 million, which was reclassified to Liabilities held for sale, represents the Company's outstanding production financing facilities at October 1, 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 $13.8 million and purchase commitments of approximately $309.3 million outstanding at July 2, 2023.

The Company also had purchase commitments of approximately $240.9 million outstanding at October 1, 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.

In 2023 Hasbro maintained its quarterly dividend rate of $0.70 per share for the dividends paid in February and May and has declared a third cash dividend of $0.70 per share payable on August 15, 2023 to shareholders of record as of August 1, 2023.

In 2023 Hasbro maintained its quarterly dividend rate of $0.70 per share for the dividends paid in February, May and August and has declared a fourth cash dividend of $0.70 per share payable on November 15, 2023 to shareholders of record as of November 1, 2023.

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

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

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

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

At October 1, 2023, $241.6 million remained available under these share repurchase authorizations.

There were no share repurchases made during the first nine months 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 and income taxes.

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 and income taxes.

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

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The Company does not speculate in foreign currency exchange contracts.

At July 2, 2023, these contracts had net unrealized losses of $2.1 million, of which $3.9 million of unrealized gains are recorded in prepaid expenses and other current assets, $0.4 million of unrealized gains are recorded in other assets, $6.0 million of unrealized losses are recorded in accrued liabilities and $0.4 million of unrealized losses are recorded in other liabilities.

Included in accumulated other comprehensive loss at July 2, 2023 are deferred losses, net of tax, of $5.0 million, related to these derivatives.

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

As of October 1, 2023, these contracts had net unrealized gains of $6.1 million, of which $6.8 million of unrealized gains are recorded in prepaid expenses and other current assets, $1.4 million of unrealized gains are recorded in other assets and $2.1 million of unrealized losses are recorded in accrued liabilities.

Included in accumulated other comprehensive loss at October 1, 2023 are deferred gains, net of tax, of $2.7 million, related to these derivatives.

As of October 1, 2023, the Company had fixed-rate long-term debt of $3.7 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 July 2, 2023 are deferred losses, net of tax, of $14.6 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.

Included in accumulated other comprehensive loss at October 1, 2023 are deferred losses, net of tax, of $14.4 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 and specialized organizational cost-savings programs including supply chain management improvements, 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.

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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