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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-07-31 · 193 added, 176 removed, 246 unchanged (60% of the section changed)

13 unchanged sentences

In addition, during 2023, we made the difficult decision to take additional headcount reductions and accelerate the process of certain organizational structure changes in an effort to strengthen our foundation and position Hasbro for growth.

During 2024, the Company experienced declines in revenue from $1,210.0 million and $2,211.0 million for the three and six months ended July 2, 2023, respectively, to $995.3 million and $1,752.6 million for the three and six months ended June 30, 2024, respectively, driven primarily by the sale of eOne Film and TV business and by broader industry trends, exited businesses, shifts in product mix, a lighter entertainment slate in the current year, and reduced closeout sales in the Consumer Products business, partially offset by increases in our Wizards of the Coast and Digital Gaming segment driven by higher digital licensing revenue and contributions from MAGIC:

Summary of Quarter and Year to Date Results

During 2024, the Company experienced declines in revenue from $1,503.4 million and $3,714.4 million for the three and nine months ended October 1, 2023, respectively, to $1,281.3 million and $3,033.9 million for the three and nine months ended September 29, 2024, respectively.

The decline in revenue for the three months ended September 29, 2024 from three months ended October 1, 2023 is driven primarily by the sale of eOne Film and TV business and by broader industry trends, exited businesses, shifts in product mix, a lighter entertainment slate in the current year, reduced closeout sales in the Consumer Products business, and the decrease in our Wizards of the Coast and Digital Gaming revenues, mainly from the higher digital licensing of Baldur's Gate 3 that was launched within the three months ended October 1, 2023 with no comparable releases in 2024.

The decline in revenue for the nine months ended September 29, 2024 from nine months ended October 1, 2023is driven primarily by the sale of eOne Film and TV business and by broader industry trends, exited businesses, shifts in product mix, a lighter entertainment slate in the current year, and reduced closeout sales in the Consumer Products business, partially offset by increases in our Wizards of the Coast and Digital Gaming revenues driven by higher digital licensing revenue primarily due to MONOPOLY GO!

as well as contributions from MAGIC:

THE GATHERING.

The Company has made strong progress towards its ongoing turnaround efforts while achieving an operating profit of $212.1 million and $328.3 million during the three and six months ended June 30, 2024, respectively, as compared to an operating loss of $188.6 million and $170.7 million for the three and six months ended July 2, 2023, respectively.

The Company has made strong progress towards its ongoing turnaround efforts while achieving an operating profit of $301.9 million and $630.2 million during the three and nine months ended September 29, 2024, respectively, as compared to an operating loss of $169.5 million and $340.2 million for the three and nine months ended October 1, 2023, respectively.

See the below discussion for the consolidated and segment results of operations.

RESULTS OF OPERATIONS

The following table presents the consolidated results of operations for the three months ended June 30, 2024 and July 2, 2023:

The following table presents the consolidated results of operations for the three months ended September 29, 2024 and October 1, 2023:

Three Months Ended

June 30, 2024 July 2, 2023

September 29, 2024 October 1, 2023

Amount % of Net Revenues Amount % of Net Revenues

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Amortization of intangibles 17.1 1.3 % 19.2 1.3 %

Impairment of goodwill — — % 231.2 19.1 %

Loss on disposal of business — — % 473.0 31.5 %

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Earnings (loss) before income taxes 290.3 22.7 % (215.0) (14.3) %

Income tax expense 44.4 4.5 % 7.0 0.6 %

Income tax expense (benefit) 67.0 5.2 % (44.6) (3.0) %

Net earnings (loss) 223.3 17.4 % (170.4) (11.3) %

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Diluted $ 1.59 $ (1.23)

Net revenues - Net revenues for the second quarter of 2024 declined 18% to $995.3 million from $1,210.0 million for the second quarter of 2023 primarily driven by a $160.4 million, or 90%, decline in the Entertainment driven by the sale of the eOne Film and TV business, and a $130.7 million, or 20%, decline in the Consumer Products segment, partially offset by a $76.4 million, or 20%, increase in the Wizards of the Coast and Digital Gaming segment.

Net revenues - Net revenues for the third quarter of 2024 declined 15% to $1,281.3 million from $1,503.4 million for the third quarter of 2023 primarily driven by a $105.7 million, or 86%, decline in the Entertainment driven by the sale of the eOne Film and TV business, a $96.8 million, or 10%, decline in the Consumer Products segment, and a $19.6 million, or 5%, decrease in the Wizards of the Coast and Digital Gaming segment.

See the Segment Results discussion below for further details.

The following table presents net revenues by brand portfolio category for the three months ended June 30, 2024 and July 2, 2023:

The following table presents net revenues by brand portfolio category for the three months ended September 29, 2024 and October 1, 2023:

Three Months Ended

September 29,

2024 October 1,

Franchise Brands $ 941.6 $ 1,011.0 (7) %

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Non-Hasbro Branded Film & TV (1)

— 93.6 (100) %

Total $ 1,281.3 $ 1,503.4 (15) %

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FRANCHISE BRANDS:

Net revenues in the Franchise Brands portfolio decreased $1.8 million in the second quarter of 2024, compared to the second quarter of 2023.

The net revenue decrease primarily reflects lower net revenues from NERF and TRANSFORMERS products.

Net revenues from TRANSFORMERS products in the second quarter of 2023 were supported by the June 2023 theatrical release of TRANSFORMERS:

Rise of the Beasts.

The lower net revenues from NERF and TRANSFORMERS products were partially offset by higher net revenues from MONOPOLY GO!

Net revenues in the Franchise Brands portfolio decreased $69.4 million in the third quarter of 2024, compared to the third quarter of 2023.

The net revenue decrease primarily reflects lower net revenues from NERF and DUNGEONS & DRAGONS products, partially offset by higher net revenues from MONOPOLY GO!

, along with MAGIC:

THE GATHERING products, primarily due to strong demand for Modern Horizons 3 and strong early interest for Bloomburrow .

THE GATHERING products.

PARTNER BRANDS:

Net revenues from the Partner Brands portfolio decreased $48.3 million, or 28%, in the second quarter of 2024, compared to the second quarter of 2023.

Net revenues from the Partner Brands portfolio decreased $38.1 million, or 17%, in the third quarter of 2024, compared to the third quarter of 2023.

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 2024, Partner Brands net revenue decreases were driven by lower net revenues from the Company's products for STAR WARS and MARVEL which benefited from a broader slate of entertainment releases in prior years without a more recent entertainment release to support revenue in the second quarter of 2024.

Additionally, revenue in the second quarter of 2023 was higher due to the Company's products for INDIANA JONES supported by the June 2023 theatrical release of Indiana Jones and the Dial of Destiny .

During the third quarter of 2024, Partner Brands net revenue decreases were driven by lower net revenues from the Company's products for STAR WARS and MARVEL which benefited from a broader slate of entertainment releases in prior years without a more recent entertainment release to support revenue in the third quarter of 2024.

This was partially offset by higher net revenues from BEY BLADE following the Company's reintroduction of the brand.

Additionally, revenue in the third quarter of 2023 was higher due to 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 $23.8 million, or 22%, in the second quarter of 2024 compared to the second quarter of 2023.

Lower net revenues from POWER RANGERS, BABY ALIVE, and PJ MASKS products were partially offset by revenue contributions from FURBY products following the Company's reintroduction of the brand and refreshed product line during the second quarter of 2023, along with revenue contributions from GI JOE products.

Portfolio Brands net revenues decreased $21.0 million, or 12%, in the third quarter of 2024 compared to the third quarter of 2023.

Lower net revenues from POWER RANGERS, BABY ALIVE, GI JOE and PJ MASKS products were partially offset by revenue contributions from MY LITTLE PONY trading card products.

NON-HASBRO BRANDED FILM & TV :

Net revenues from Non-Hasbro Branded Film & TV decreased $140.8 million in the second quarter of 2024 compared to the second quarter of 2023.

Net revenues from Non-Hasbro Branded Film & TV decreased $93.6 million in the third quarter of 2024 compared to the third quarter of 2023.

Net revenues from the Company's Non-Hasbro-branded Film and TV portfolio were associated with the eOne Film and TV business sold during the fourth quarter of 2023.

Effective in the first quarter of 2024, the Company moved the remaining Non-Hasbro Branded Film & TV brands into Portfolio Brands to align with the Company's Brand Strategy.

For comparability, net revenues for three months ended July 2, 2023, has been reclassified to reflect the movement, resulting in a change of $0.8 million.

For comparability, net revenues for three months ended October 1, 2023, has been reclassified to reflect the movement, resulting in a change of $0.3 million.

OPERATING COSTS AND EXPENSES

Cost of sales - Cost of sales for the second quarter of 2024 was $237.7 million, or 23.9% of net revenues, compared to $352.2 million, or 29.1% of net revenues, for the second quarter of 2023.

The Cost of sales decrease in dollars was driven primarily by lower sales volumes, cost savings from the Company's Operational Excellence Program, and a non-recurring $26.7 million benefit related to a historical over-accrual of vendor commitment liabilities as discussed in Note 1 to the consolidated financial statements.

Program cost amortization - Program cost amortization decreased to $8.5 million, or 0.9% of net revenues, for the second quarter of 2024 from $134.4 million, or 11.1% of net revenues, for the second quarter of 2023.

Cost of sales - Cost of sales for the third quarter of 2024 was $378.9 million, or 29.6% of net revenues, compared to $494.5 million, or 32.9% of net revenues, for the third quarter of 2023.

The Cost of sales decrease in dollars and as a percent of net revenues was driven primarily by lower sales volumes, supply chain productivity, and cost savings initiatives.

Program cost amortization - Program cost amortization decreased to $7.9 million, or 0.6% of net revenues, for the third quarter of 2024 from $68.4 million, or 4.5% of net revenues, for the third quarter of 2023.

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

The decrease in dollars and as a percent of net revenues during the second quarter of 2024 was driven by the impact of the sale of the eOne Film and TV business during the fourth quarter of 2023 as prior year Program costs were primarily associated with the eOne Film and TV business.

Royalties - Royalty expense for the second quarter of 2024 decreased to $55.3 million, or 5.6% of net revenues, compared to $119.9 million, or 9.9% of net revenues, for the second quarter of 2023.

The decrease in dollars and as a percent of net revenues during the third quarter of 2024 was driven by the impact of the sale of the eOne Film and TV business during the fourth quarter of 2023 as prior year Program costs were primarily associated with the eOne Film and TV business.

Royalties - Royalty expense for the third quarter of 2024 decreased to $98.0 million, or 7.6% of net revenues, compared to $106.9 million, or 7.1% of net revenues, for the third quarter of 2023.

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

The decrease in Royalty expense in dollars and as a percent of net revenues during the second quarter of 2024 directly reflects the impact of the sale of the eOne Film and TV business.

Product development - Product development expense for the second quarter of 2024 was $70.4 million, or 7.1% of net revenues, compared to $72.4 million, or 6.0% of net revenues, for the second quarter of 2023.

The decrease in Product

development expense during the second quarter of 2024 was driven by the Company's Operational Excellence Program along with phasing of product releases.

Advertising - Advertising expense for the second quarter of 2024 was $60.4 million, or 6.1% of net revenues, compared to $85.1 million, or 7.0% of net revenues, for the second quarter of 2023.

The Advertising expense decrease during the second quarter of 2024 was primarily driven by the sale of the eOne Film and TV business, along with declines in advertising expense in the Consumer Products segment associated with lower net revenues.

Amortization of intangibles - Amortization of intangible assets decreased to $17.1 million, or 1.7% of net revenues, for the second quarter of 2024, compared to $22.8 million, or 1.9% of net revenues, for the second quarter of 2023.

The decrease in Royalty expense during the third quarter of 2024 directly reflects the impact of the sale of the eOne Film and TV business.

Product development - Product development expense for the third quarter of 2024 was $76.3 million, or 6.0% of net revenues, compared to $76.7 million, or 5.1% of net revenues, for the third quarter of 2023.

The decrease in Product development expense during the third quarter of 2024 was primarily due to the Company's cost savings initiatives, along with phasing of product releases.

Advertising - Advertising expense for the third quarter of 2024 was $101.9 million, or 8.0% of net revenues, compared to $81.9 million, or 5.4% of net revenues, for the third quarter of 2023.

The Advertising expense increase during the third quarter of 2024 was primarily driven by the sale initiatives in Consumer Products segment.

Amortization of intangibles - Amortization of intangible assets decreased to $17.1 million, or 1.3% of net revenues, for the third quarter of 2024, compared to $19.2 million, or 1.3% of net revenues, for the third quarter of 2023.

The decrease in 2024 reflects lower definite lived intangible assets due to the sale of the eOne Film and TV business and impairments taken in 2023.

See further detail of impairments taken in 2023 in Note 6 of the 2023 Annual Report.

Impairment of goodwill - There were no goodwill impairment charges in the second quarter of 2024.

During the second quarter of 2023, the Company recorded $231.2 million of goodwill impairment charges associated with goodwill assigned to the Company's Film and TV reporting unit.

See further details in the 2023 Annual Report.

Selling, distribution and administration - Selling, distribution and administration expenses decreased to $318.5 million, or 32.0% of net revenues for the second quarter of 2024, from $380.6 million, or 31.5% of net revenues, for the second quarter of 2023.

The decrease in Selling, distribution and administration expenses during the second quarter of 2024 primarily reflects lower administrative expenses due to cost savings from the Company's Operational Excellence Program and a prior year intangible asset impairment charge of $65.0 million related to the Company's eOne trademark intangible asset, partially offset by a non-recurring $31.1 million expense related to historical environmental exposures as discussed in Note 1 to the consolidated financial statements.

Operating Profit (Loss) - The operating profit for the second quarter of 2024 was $212.1 million, or 21.3% of net revenues, compared to an operating loss of $188.6 million, or 15.6% of net revenues, for the second quarter of 2023 driven by the factors discussed above.

Selling, distribution and administration - Selling, distribution and administration expenses decreased to $299.3 million, or 23.4% of net revenues for the third quarter of 2024, from $352.3 million, or 23.4% of net revenues, for the third quarter of 2023.

The decrease in Selling, distribution and administration expenses during the third quarter of 2024 primarily reflects lower administrative expenses due to cost savings initiatives.

Operating Profit (Loss) - The operating profit for the third quarter of 2024 was $301.9 million, or 23.6% of net revenues, compared to an operating loss of $169.5 million, or 11.3% of net revenues, for the third quarter of 2023 driven by the factors discussed above.

NON-OPERATING EXPENSE (INCOME)

Interest expense - Interest expense for the second quarter of 2024 totaled $43.0 million compared to $46.6 million in the second quarter of 2023.

The decrease in Interest expense for the second quarter of 2024 primarily reflects lower average outstanding borrowings in the second quarter of 2024 as compared to second quarter of 2023 due to the assumption of the production financing borrowings by Lionsgate as part of the eOne Film and TV business and due to the retirement of the Company's variable-rate Five-Year term loan using proceeds from the sale of the eOne Film and TV business, both occurring during the fourth quarter of 2023, partially offset by the issuance of the 2034 Notes (see Liquidity and Capital Resources discussion below for further information including description of the 2034 Notes).

Interest income - Interest income was $13.0 million for the second quarter of 2024, compared to $5.8 million in the second quarter of 2023.

Interest expense - Interest expense for the third quarter of 2024 totaled $46.2 million compared to $47.1 million in the third quarter of 2023.

The decrease in Interest expense for the third quarter of 2024 primarily reflects lower average outstanding borrowings in the third quarter of 2024 as compared to third quarter of 2023 due to the assumption of the production financing borrowings by Lionsgate as part of the eOne Film and TV business and due to the retirement of the Company's variable-rate Five-Year term loan using proceeds from the sale of the eOne Film and TV business, both occurring during the fourth quarter of 2023, partially offset by the issuance of the 2034 Notes (see Liquidity and Capital Resources discussion below for further information including description of the 2034 Notes).

Interest income - Interest income was $14.7 million for the third quarter of 2024, compared to $3.8 million in the third quarter of 2023.

Higher Interest income in 2024 primarily reflects higher average interest rates in 2024 compared to 2023, along with the Company's investment in short-term treasury bills in connection with the issuance of the 2034 Notes (see Liquidity and Capital Resources discussion below for further information including description of the 2034 Notes).

Other income, net - Other income, net was $0.8 million for the second quarter of 2024, compared to Other income, net of $1.5 million in the second quarter of 2023.

The change in Other income, net during 2024 was driven primarily by an increase in foreign currency exchange losses the second quarter of 2024 as compared to the second quarter of 2023.

Income tax expense totaled $44.4 million on pre-tax income of $182.9 million in the second quarter of 2024 compared to income tax expense of $7.0 million on pre-tax loss of $227.9 million in the second quarter of 2023.

Other income, net - Other income, net was $19.9 million for the third quarter of 2024, compared to Other income, net of $2.2 million in the third quarter of 2023.

The change in Other income, net during 2024 was driven primarily by an increase in foreign currency exchange gains the third quarter of 2024 as compared to the third quarter of 2023.

Income tax expense totaled $67.0 million on pre-tax income of $290.3 million in the third quarter of 2024 compared to income tax benefit of $44.6 million on pre-tax loss of $215.0 million in the third quarter of 2023.

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

During the second quarter of 2024, the Company recorded a $15.3 million unfavorable adjustment to the 2023 Loss on Sale of the Film & TV reporting unit with no corresponding tax benefit.

The second quarter of 2023 includes an impairment of goodwill related to the Film & TV reporting unit of $231.2 million with no tax benefit.

During the second quarter of 2024, exclusive of the Loss on Sale adjustment, the Company recorded favorable net discrete tax adjustments of $1.1 million compared to a net benefit exclusive of the goodwill impairment of $12.2 million in the second quarter of 2023.

The favorable net discrete tax adjustments for the second quarter of 2024 are primarily associated with the release of various uncertain tax positions.

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

Absent discrete items, the tax rates for the second quarter of 2024 and 2023 were 22.9% and 28.2%, respectively.

The decrease in the base rate of 22.9% for the second quarter of 2024, relative to the second quarter 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.

During the third quarter of 2024, the Company recorded net discrete tax expense of $1.1 million compared to a net discrete tax benefit of $104.4 million in the third quarter of 2023.

The net unfavorable discrete tax expense for the third quarter of 2024 are primarily associated with interest accruals on uncertain tax positions.

The net favorable discrete tax benefit for the third quarter of 2023 is primarily associated with a tax benefit on the loss on assets held for sale of $473.0 million, offset by stock compensation and activity related to uncertain tax benefits, primarily interest accruals.

Absent discrete items, the tax rates for the third quarter of 2024 and 2023 were 22.7% and 23.2%, respectively.

The decrease in the base rate of 22.7% for the third quarter of 2024, relative to the third quarter of 2023, is primarily due to the mix of jurisdictions where the Company earned its profits combined with the timing of income recognition during 2023.

SEGMENT RESULTS

The following table presents net external revenues and operating profit (loss) for the Company's reportable segments for the three months ended June 30, 2024 and July 2, 2023:

The following table presents net external revenues and operating profit (loss) for the Company's reportable segments for the three months ended September 29, 2024 and October 1, 2023:

Three Months Ended

September 29,

2024 October 1,

Net revenues:

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Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the three months ended June 30, 2024 and July 2, 2023:

The following table presents the Consumer Products segment net revenues by major geographic region for the three months ended September 29, 2024 and October 1, 2023:

Three Months Ended

September 29,

2024 October 1,

North America $ 526.8 $ 573.6 (8) %

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Net revenues $ 860.1 $ 956.9 (10) %

The Consumer Products segment net revenues decreased 20% to $524.5 million for the second quarter of 2024 compared to $655.2 million for the second quarter of 2023 primarily driven by broader industry trends, exited businesses, including out-licensing certain brands, shifts in product mix, and reduced closeout sales as a result of last year's inventory clean up initiatives.

The net revenue decrease primarily reflects lower net revenues from NERF, TRANSFORMERS, MARVEL and STAR WARS products.

Net revenues from TRANSFORMERS products in the second quarter of 2023 were supported by the June 2023 theatrical release of TRANSFORMERS:

Rise of the Beasts.

The net revenue decrease was driven by lower net revenues from the Company's products for STAR WARS and MARVEL which benefited from a robust slate of entertainment releases in prior years without a more recent release entertainment release to support revenue in the second quarter of 2024.

Consumer Products segment operating loss for the second quarter of 2024 was $9.3 million or 1.8% of segment net revenues, compared to a segment operating profit of $11.4 million or 1.7% of segment net revenues, for the second quarter of 2023.

The decrease in operating profit in the second quarter of 2024 was driven by lower net revenue, partially offset by savings realized

from the Company's Operational Excellence program, lower royalty expenses reflecting the mix of products sold, lower advertising and promotion expense and lower freight costs, associated with the lower sales volumes.

The Consumer Products segment net revenues decreased 10% to $860.1 million for the third quarter of 2024 compared to $956.9 million for the third quarter of 2023 primarily driven by broader industry trends, exited businesses, including out-licensing certain brands, shifts in product mix, and reduced closeout sales as a result of last year's inventory clean up initiatives.

The net revenue decrease primarily reflects lower net revenues from NERF, MARVEL and STAR WARS products.

STAR WARS and MARVEL products benefited from a slate of entertainment releases in prior years without a more recent release entertainment release to support revenue in the third quarter of 2024.

These declines in revenue were partially offset by revenue growth from BEY BLADE and TRANSFORMERS products and licensing revenue from MY LITTLE PONY.

Consumer Products segment operating profit for the third quarter of 2024 was $121.0 million or 14.1% of segment net revenues, compared to a segment operating profit of $96.1 million or 10.0% of segment net revenues, for the third quarter of 2023.

The increase in operating profit in the third quarter of 2024 was driven by favorable product mix, and savings realized from the Company's cost savings initiatives, lower royalty expenses reflecting the mix of products sold, and lower freight costs, associated with the lower sales volumes.

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 three months ended June 30, 2024 and July 2, 2023:

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the three months ended September 29, 2024 and October 1, 2023:

Three Months Ended

September 29,

2024 October 1,

Tabletop Gaming $ 296.8 $ 290.5 2 %

1 unchanged sentence

Net revenues $ 404.0 $ 423.6 (5) %

Wizards of the Coast and Digital Gaming segment net revenues increased 20.3% in the second quarter of 2024 to $452.0 million from $375.6 million in the second quarter of 2023.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the second quarter of 2024 was primarily attributable to revenue contributions from higher digital licensing of Baldur's Gate 3 , the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023, and MONOPOLY GO!

Tabletop Gaming revenue increased 3.0% behind growth in MAGIC:

THE GATHERING primarily due to strong demand for Modern Horizons 3 and strong early interest for Bloomburrow .

Wizards of the Coast and Digital Gaming segment operating profit was $247.1 million, or 54.7% of segment net revenues for the second quarter of 2024, compared to operating profit of $142.3 million, or 37.9% of segment net revenues, for the second quarter of 2023.

The operating profit increase during the second quarter of 2024 was driven by increased net revenues, contributions from higher digital licensing revenue mix, lower royalty expense, and cost savings initiatives.

Wizards of the Coast and Digital Gaming segment net revenues decreased 4.6% in the third quarter of 2024 to $404.0 million from $423.6 million in the third quarter of 2023.

The net revenue decrease in the Wizards of the Coast and Digital Gaming segment during the third quarter of 2024 was primarily attributable to revenue contributions from higher digital licensing of Baldur's Gate 3 , the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023 with no comparable release during the third quarter 2024.

The net revenue decrease from Baldur's Gate 3 was partially offset by net revenue increase from MONOPOLY GO!

and Tabletop Gaming revenue which increased 2.2% behind growth in MAGIC:

THE GATHERING primarily due to strong demand for Bloomburrow , Duskmourn , and Festival in a Box.

Wizards of the Coast and Digital Gaming segment operating profit was $181.2 million, or 44.9% of segment net revenues for the third quarter of 2024, compared to operating profit of $203.4 million, or 48.0% of segment net revenues, for the third quarter of 2023.

The operating profit decrease during the third quarter of 2024 was driven by decreased net revenues and lower digital licensing revenue mix, partially offset from the benefit of, cost savings initiatives.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the three months ended June 30, 2024 and July 2, 2023:

The following table presents Entertainment segment net revenues by category for the three months ended September 29, 2024 and October 1, 2023:

Three Months Ended

September 29,

2024 October 1,

Film and TV $ 1.6 $ 102.1 (98) %

1 unchanged sentence

Net revenues $ 17.2 $ 122.9 (86) %

Entertainment segment net revenues decreased 90% to $18.8 million for the second quarter of 2024, compared to $179.2 million for the second quarter of 2023.

The net revenue decrease in the Entertainment segment during the second quarter of 2024 was driven by lower net revenues as a result of the sale of the eOne Film and TV business during the fourth quarter of 2023.

Entertainment segment operating loss was $1.0 million, or 5.3% of segment net revenues for the second quarter of 2024, compared to an operating loss of $324.2 million, or 181% of segment net revenues for the second quarter of 2023.

The increase in Entertainment segment operating results during the second quarter of 2024 was driven by a non-cash goodwill impairment charge of $231.2 million and intangible asset impairment charges of $65.0 million recorded during the second quarter of 2023, associated with the impairment review of the Company's Film and TV reporting unit.

Entertainment segment net revenues decreased 86% to $17.2 million for the third quarter of 2024, compared to $122.9 million for the third quarter of 2023.

The net revenue decrease in the Entertainment segment during the third quarter of 2024 was driven by lower net revenues as a result of the sale of the eOne Film and TV business during the fourth quarter of 2023.

Entertainment segment operating profit was $9.8 million, or 57.0% of segment net revenues for the third quarter of 2024, compared to an operating loss of $468.5 million, or 381% of segment net revenues for the third quarter of 2023.

The increase in Entertainment segment operating results during the third quarter of 2024 was driven by recording of a loss on assets held for sale of $473.0 million in the third quarter that related to the sale of the eOne Film and TV business.

Corporate and Other

Corporate and Other operating loss was $24.7 million for the second quarter of 2024 compared to an operating loss of $18.1 million for the second quarter of 2023.

The increase in operating loss in the second quarter of 2024 as compared to the second quarter of 2023 primarily reflects the net impact of the two prior period non-recurring adjustments recorded during the second quarter of 2024.

Refer to Note 1 to the consolidated financial statements for further information on the two non-recurring adjustments.

Corporate and Other operating loss was $10.1 million for the third quarter of 2024 compared to an operating loss of $0.5 million for the third quarter of 2023.

The increase in operating loss in the third quarter of 2024 as compared to the third quarter of 2023 primarily reflects costs for certain retained liabilities associated with the eOne Film and TV business.

RESULTS OF OPERATIONS

The following table presents the consolidated results of operations for the six months ended June 30, 2024 and July 2, 2023:

Six Months Ended

June 30, 2024 July 2, 2023

The following table presents the consolidated results of operations for the nine months ended September 29, 2024 and October 1, 2023:

Nine Months Ended

September 29, 2024 October 1, 2023

Amount % of Net Revenues Amount % of Net Revenues

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Earnings (loss) before income taxes 554.2 18.3 % (463.9) (12.5) %

Income tax expense 66.3 3.8 % 7.7 0.3 %

Income tax expense (benefit) 133.3 4.4 % (36.9) (1.0) %

Net earnings (loss) 420.9 13.9 % (427.0) (11.5) %

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Diluted $ 3.00 $ (3.09)

Net revenues - Net revenues for the first six months of 2024 decreased 21% to $1,752.6 million from $2,211.0 million for the first six months of 2023 primarily driven by a $317.8 million, or 87%, decline in the Entertainment segment and a $238.1 million, or 20%, decline in the Consumer Products segment, partially offset by a $97.5 million, or 15%, increase in the Wizards of the Coast and Digital Gaming segment.

Net revenues - Net revenues for the first nine months of 2024 decreased 18% to $3,033.9 million from $3,714.4 million for the first nine months of 2023 primarily driven by a $423.5 million, or 87%, decline in the Entertainment segment and a $334.9 million, or 16%, decline in the Consumer Products segment, partially offset by a $77.9 million, or 7%, increase in the Wizards of the Coast and Digital Gaming segment.

See the Segment Results discussion below for further details.

The following table presents net revenues by brand portfolio category for the six months ended June 30, 2024 and July 2, 2023:

Six Months Ended

The following table presents net revenues by brand portfolio category for the nine months ended September 29, 2024 and October 1, 2023:

Nine Months Ended

September 29,

2024 October 1,

Franchise Brands $ 2,334.7 $ 2,412.8 (3) %

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Non-Hasbro Branded Film & TV (1)

— 397.2 (100) %

Total $ 3,033.9 $ 3,714.4 (18) %

1 unchanged sentence

FRANCHISE BRANDS:

Net revenues in the Franchise Brands portfolio decreased $8.7 million in the first six months of 2024, compared to the first six months of 2023.

Net revenues in the Franchise Brands portfolio decreased $78.1 million, or 3%, in the first nine months of 2024, compared to the first nine months of 2023.

The net revenue decrease primarily reflects lower net revenues from NERF and TRANSFORMERS products.

Net revenues from TRANSFORMERS products in the first six months of 2023 were supported by the June 2023 theatrical release of TRANSFORMERSs:

Net revenues from TRANSFORMERS products in the first nine months of 2023 were supported by the June 2023 theatrical release of TRANSFORMERS:

Rise of the Beasts.

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, along with MAGIC:

THE GATHERING products, primarily due to strong demand for Modern Horizons 3 and strong early interest for Bloomburrow .

THE GATHERING products.

PARTNER BRANDS:

Net revenues from the Partner Brands portfolio decreased $93.3 million, or 31%, in the first six months of 2024, compared to the first six months of 2023.

During the first six months of 2024, Partner Brands net revenue decreases were driven by lower net revenues from the Company's products for STAR WARS and MARVEL which benefited from a broader slate of entertainment releases in prior years without a more recent release entertainment release to support revenue in the first six months of 2024.

Additionally, revenue in the first six months of 2023 was higher due to the Company's products for INDIANA JONES supported by the June 2023 theatrical release of Indiana Jones and the Dial of Destiny .

Net revenues from the Partner Brands portfolio decreased $131.4 million, or 25%, in the first nine months of 2024, compared to the first nine months of 2023.

During the first nine months of 2024, Partner Brands net revenue decreases were driven by lower net revenues from the Company's products for STAR WARS and MARVEL which benefited from a broader slate of entertainment releases in prior years without a more recent release entertainment release to support revenue in the first nine months of 2024.

Additionally, revenue in the first nine months of 2023 was higher due to 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 $52.8 million, or 26%, in the first six months of 2024 compared to the first six months of 2023.

Lower net revenues from POWER RANGERS, MY LITTLE PONY, and PJ MASKS products were partially offset by 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 $73.8 million, or 20%, in the first nine months of 2024 compared to the first nine months of 2023.

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

NON-HASBRO BRANDED FILM & TV :

Net revenues from Non-Hasbro Branded Film & TV decreased $303.6 million in the first six months of 2024 compared to the first six months of 2023.

Net revenues from Non-Hasbro Branded Film & TV decreased $397.2 million in the first nine months of 2024 compared to the first nine months of 2023.

Net revenues from the Company's Non-Hasbro-branded Film and TV portfolio were associated with the eOne Film and TV business sold during the fourth quarter of 2023.

Effective in the first quarter of 2024, the Company moved the remaining Non-Hasbro Branded Film & TV brands into Portfolio Brands to align with the Company's Brand Strategy.

For comparability, net revenues for six months ended July 2, 2023, has been reclassified to reflect the movement, resulting in a change of $0.9 million.

For comparability, net revenues for nine months ended October 1, 2023, has been reclassified to reflect the movement, resulting in a change of $1.2 million.

OPERATING COSTS AND EXPENSES

Cost of sales - Cost of sales for the first six months of 2024 was $441.9 million, or 25.2% of net revenues, compared to $637.5 million, or 28.8% of net revenues, for the first six months of 2023.

Program cost amortization - Program cost amortization decreased to $16.6 million, or 0.9% of net revenues, for the first six months of 2024 from $256.9 million, or 11.6% of net revenues, for the first six months of 2023.

The decrease in dollars and as a percent of net revenues during the first six months of 2024 was driven by the impact of the sale of the eOne Film and TV business during the fourth quarter of 2023 as prior year Program costs were primarily associated with the eOne Film and TV business.

Royalties - Royalty expense for the first six months of 2024 decreased to $106.2 million, or 6.1% of net revenues, compared to $188.9 million, or 8.5% of net revenues, for the first six months of 2023.

The decrease in Royalty expense in dollars and as a percent of net revenues during the first six months of 2024 directly reflects the impact of the sale of the eOne Film and TV business.

Product development - Product development expense for the first six months of 2024 was $135.9 million, or 7.8% of net revenues, compared to $155.7 million, or 7.0% of net revenues, for the first six months of 2023.

The decrease in Product development expense during the first six months of 2024 was driven by the Company's Operational Excellence Program along with phasing of product releases.

Advertising - Advertising expense for the first six months of 2024 was $111.9 million, or 6.4% of net revenues, compared to $167.9 million, or 7.6% of net revenues, for the first six months of 2023.

The Advertising expense decrease during the first six months of 2024 was primarily driven by the sale of the eOne Film and TV business, along with declines in the advertising expense in the Consumer Products segment due to lower net revenues.

Amortization of intangibles - Amortization of intangible assets decreased to $34.1 million, or 1.9% of net revenues, for the first six months of 2024, compared to $45.9 million, or 2.1% of net revenues, for the first six months of 2023.

Cost of sales - Cost of sales for the first nine months of 2024 was $820.8 million, or 27.1% of net revenues, compared to $1,132.0 million, or 30.5% of net revenues, for the first nine months of 2023.

The Cost of sales decrease in dollars and as a percent of net revenues was driven primarily by lower sales volumes, supply chain productivity, and cost savings initiatives, and a non-recurring $26.7 million benefit related to a historical over-accrual of vendor commitment liabilities as discussed in Note 1 to the consolidated financial statements.

Program cost amortization - Program cost amortization decreased to $24.5 million, or 0.8% of net revenues, for the first nine months of 2024 from $325.3 million, or 8.8% of net revenues, for the first nine months of 2023.

The decrease in dollars and as a percent of net revenues during the first nine months of 2024 was driven by the impact of the sale of the eOne Film and TV business during the fourth quarter of 2023 as prior year Program costs were primarily associated with the eOne Film and TV business.

Royalties - Royalty expense for the first nine months of 2024 decreased to $204.2 million, or 6.7% of net revenues, compared to $295.8 million, or 8.0% of net revenues, for the first nine months of 2023.

The decrease in Royalty expense in dollars and as a percent of net revenues during the first nine months of 2024 directly reflects the impact of the sale of the eOne Film and TV business.

Product development - Product development expense for the first nine months of 2024 was $212.2 million, or 7.0% of net revenues, compared to $232.4 million, or 6.3% of net revenues, for the first nine months of 2023.

The decrease in Product development expense during the first nine months of 2024 was driven by cost savings initiatives from cost savings initiatives, along with phasing of product releases.

Advertising - Advertising expense for the first nine months of 2024 was $213.8 million, or 7.0% of net revenues, compared to $249.8 million, or 6.7% of net revenues, for the first nine months of 2023.

The Advertising expense decrease during the first nine months of 2024 was primarily driven by the sale of the eOne Film and TV business, along with declines in the advertising expense in the Consumer Products segment due to lower net revenues.

Amortization of intangibles - Amortization of intangible assets decreased to $51.2 million, or 1.7% of net revenues, for the first nine months of 2024, compared to $65.1 million, or 1.8% of net revenues, for the first nine months of 2023.

The decrease in 2024 reflects lower definite lived intangible assets due to the sale of the eOne Film and TV business and impairments taken in 2023.

See further detail of impairments taken in 2023 in Note 6 of the 2023 Annual Report.

Impairment of goodwill - There were no goodwill impairment charges during the first six months of 2024.

During the first six months of 2023, the Company recorded $231.2 million of goodwill impairment charges associated with goodwill assigned to the Company's Film and TV reporting unit.

Impairment of goodwill - There were no goodwill impairment charges during the first nine months of 2024.

During the first nine months of 2023, the Company recorded $231.2 million of goodwill impairment charges associated with goodwill assigned to the Company's Film and TV reporting unit.

See further details in the 2023 Annual Report.

Selling, distribution and administration - Selling, distribution and administration expenses decreased to $553.3 million, or 31.6% of net revenues for the first six months of 2024, from $697.7 million, or 31.6% of net revenues, for the first six months of 2023.

The decrease in Selling, distribution and administration expenses during the first six months of 2024 primarily reflects lower administrative expenses due to cost savings from the Company's Operational Excellence Program, a prior year intangible asset impairment charge of $65.0 million related to the Company's eOne trademark intangible asset, along with a non-recurring stock-compensation adjustment of $18.1 million recorded during the first quarter of 2024, partially offset by a non-recurring $31.1 million expense related to historical environmental exposures as discussed in Note 1 to the consolidated financial statements.

Operating Profit (Loss) - The operating profit for the first six months of 2024 was $328.3 million, or 18.7% of net revenues, compared to an operating loss of $170.7 million, or 7.7% of net revenues, for the first six months of 2023 driven by the factors discussed above.

Selling, distribution and administration - Selling, distribution and administration expenses decreased to $852.6 million, or 28.1% of net revenues for the first nine months of 2024, from $1,050.0 million, or 28.3% of net revenues, for the first nine months of 2023.

The decrease in Selling, distribution and administration expenses in dollars and as a percent of net revenues during the first nine months of 2024 primarily reflects lower administrative expenses due to cost savings from cost savings initiatives, a prior year intangible asset impairment charge of $65.0 million related to the Company's eOne trademark intangible asset, along with a non-recurring stock-compensation adjustment of $18.1 million recorded during the first quarter of 2024, partially offset by a non-recurring $31.1 million expense related to historical environmental exposures as discussed in Note 1 to the consolidated financial statements.

Operating Profit (Loss) - The operating profit for the first nine months of 2024 was $630.2 million, or 20.8% of net revenues, compared to an operating loss of $(340.2) million, or 9.2% of net revenues, for the first nine months of 2023 driven by the factors discussed above.

NON-OPERATING EXPENSE (INCOME)

Interest expense - Interest expense for the first six months of 2024 totaled $81.5 million compared to $92.9 million in the first six months of 2023.

The decrease in Interest expense for the first six months of 2024 primarily reflects lower average outstanding borrowings in the first six months of 2024 as compared to first six months of 2023 due to the assumption of the production financing borrowings by Lionsgate as part of the eOne Film and TV business and due to the retirement of the Company's variable-rate Five-Year term loan using proceeds from the sale of the eOne Film and TV business, both occurring during the fourth quarter of 2023, partially offset by the issuance of the 2034 Notes (see Liquidity and Capital Resources discussion below for further information including description of the 2034 Notes).

Interest income - Interest income was $21.3 million for the first six months of 2024, compared to $11.8 million in the first six months of 2023.

Interest expense - Interest expense for the first nine months of 2024 totaled $127.7 million compared to $140.0 million in the first nine months of 2023.

The decrease in Interest expense for the first nine months of 2024 primarily reflects lower average outstanding borrowings in the first nine months of 2024 as compared to first nine months of 2023 due to the assumption of the production financing borrowings by Lionsgate as part of the eOne Film and TV business and due to the retirement of the Company's variable-rate Five-Year term loan using proceeds from the sale of the eOne Film and TV business, both occurring during the fourth quarter of 2023, partially offset by the issuance of the 2034 Notes (see Liquidity and Capital Resources discussion below for further information including description of the 2034 Notes).

Interest income - Interest income was $36.0 million for the first nine months of 2024, compared to $15.6 million in the first nine months of 2023.

Other expense (income), net - Other expense, net was $4.2 million for the first six months of 2024, compared to Other income, net of $2.9 million in the first six months of 2023.

The change in Other expense (income), net during 2024 was driven primarily by an increase in foreign currency exchange losses the first six months of 2024 as compared to the first six months of 2023.

Income tax expense totaled $66.3 million on pre-tax income of $263.9 million in the first six months of 2024 compared to income tax expense of $7.7 million on pre-tax loss of $248.9 million in the first six months of 2023.

Other income, net - Other income, net was $15.7 million for the first nine months of 2024, compared to Other income, net of $0.7 million in the first nine months of 2023.

The change in Other income, net during 2024 was driven primarily by an increase in foreign currency exchange gains the first nine months of 2024 as compared to the first nine months of 2023.

Income tax expense totaled $133.3 million on pre-tax income of $554.2 million in the first nine months of 2024 compared to an income tax benefit of $36.9 million on pre-tax loss of $463.9 million in the first nine months of 2023.

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

During the first six months of 2024, the Company incurred a $24.4 million unfavorable adjustment to the 2023 Loss on Sale of the Film & TV reporting unit with no corresponding tax benefit.

The first six months of 2023 includes an impairment of goodwill related to the Film & TV reporting unit of $231.2 million with no tax benefit.

During the first six months of 2024, exclusive of the Loss on Sale adjustment, the Company recorded unfavorable net discrete tax adjustments of $0.7 million compared to a net benefit, exclusive of the goodwill impairment, of $8.9 million in the first six months of 2023.

The unfavorable net discrete tax adjustments for the first six months of 2024 are primarily associated with stock-based compensation offset by the release of various uncertain tax positions.

The favorable net 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 activity related to uncertain tax positions, primarily interest accruals.

Absent discrete items, the tax rates for the first six months of 2024 and 2023 were 22.7% and 35.3% respectively.

The decrease in the base rate of 22.7% for the first six months of 2024, relative to 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.

During the first nine months of 2024, the Company incurred a $24.4 million unfavorable adjustment to the 2023 Loss on Sale of the Film & TV reporting unit with no corresponding tax benefit.

The first nine months of 2023 includes an impairment of goodwill related to the Film & TV reporting unit of $231.2 million with no tax benefit.

During the first nine months of 2024, exclusive of the Loss on Sale adjustment, the Company recorded net discrete tax expense of $1.8 million compared to a net benefit, exclusive of the goodwill impairment, of $113.3 million in the first nine months of 2023.

The unfavorable net discrete tax expense for the first nine months of 2024 is primarily associated with stock-based compensation offset by the release of various uncertain tax positions.

The net discrete tax benefits recorded in the first nine months of 2023 is primarily associated with a tax benefit on the impairment of trade names in the Entertainment segment in the second quarter and the loss on assets held for sale of $473.0 million, recorded in the third quarter.

Absent discrete items, the tax rates for the first nine months of 2024 and 2023 were 22.7% and 25.0%, respectively.

The decrease in the base rate of 22.7% for the first nine months of 2024, relative to the first nine months of 2023, is primarily due to the mix of jurisdictions where the Company earned its profits coupled with a pre-tax loss in the first nine months of 2023.

SEGMENT RESULTS

The following table presents net external revenues and operating profit (loss) for the Company's reportable segments for the six months ended June 30, 2024 and July 2, 2023:

Six Months Ended

The following table presents net external revenues and operating profit (loss) for the Company's reportable segments for the nine months ended September 29, 2024 and October 1, 2023:

Nine Months Ended

September 29,

2024 October 1,

Net revenues:

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Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the six months ended June 30, 2024 and July 2, 2023:

Six Months Ended

The following table presents the Consumer Products segment net revenues by major geographic region for the nine months ended September 29, 2024 and October 1, 2023:

Nine Months Ended

September 29,

2024 October 1,

North America $ 1,072.0 $ 1,234.7 (13) %

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Net revenues $ 1,797.6 $ 2,132.5 (16) %

The Consumer Products segment net revenues decreased 20% to $937.5 million for the first six months of 2024 compared to $1,175.6 million for the first six months of 2023 primarily driven by broader industry trends, exited businesses, including out-licensing certain brands, shifts in product mix, and reduced closeout sales as a result of last year's inventory clean up initiatives.

The Consumer Products segment net revenues decreased 16% to $1,797.6 million for the first nine months of 2024 compared to $2,132.5 million for the first nine months of 2023 primarily driven by broader industry trends, exited businesses, including out-licensing certain brands, shifts in product mix, and reduced closeout sales as a result of last year's inventory clean up initiatives.

The net revenue decrease primarily reflects lower net revenues from NERF, TRANSFORMERS, STAR WARS and MARVEL products.

Net revenues from TRANSFORMERS products in the first six months of 2023 were supported by the June 2023 theatrical release of TRANSFORMERS:

Net revenues from TRANSFORMERS products in the first nine months of 2023 were supported by the June 2023 theatrical release of TRANSFORMERS:

Rise of the Beasts.

Consumer Products segment operating loss for the first six months of 2024 was $56.2 million or 6.0% of segment net revenues, compared to a segment operating loss of $34.6 million or 2.9% of segment net revenues, for the first six months of 2023.

The decrease in operating profit in the first six months of 2024 was driven by lower net revenue, partially offset by savings realized from the Company's Operational Excellence program, lower royalty expenses reflecting the mix of products sold, lower advertising and promotion expense and lower freight costs, associated with the lower sales volumes.

The net revenue decrease was also driven by lower net revenues from the Company's products for STAR WARS and MARVEL which benefited from a slate of entertainment releases in prior years without a more recent release entertainment release to support revenue in the first nine months of 2024.

These revenue decreases were partially offset by revenue contributions from FURBY products following the Company's reintroduction of the brand and refreshed product line during the second quarter of 2023 and licensing revenue for MY LITTLE PONY trading cards.

Consumer Products segment operating profit for the first nine months of 2024 was $64.8 million or 3.6% of segment net revenues, compared to a segment operating profit of $61.5 million or 2.9% of segment net revenues, for the first nine months of 2023.

The increase in operating profit in the first nine months of 2024 was driven by favorable licensing product mix, supply chain productivity, and cost savings realized from cost savings initiatives, partially offset by the lower sale volumes contributions.

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 months ended June 30, 2024 and July 2, 2023:

Six Months Ended

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the nine months ended September 29, 2024 and October 1, 2023:

Nine Months Ended

September 29,

2024 October 1,

Tabletop Gaming $ 832.6 $ 806.9 3 %

1 unchanged sentence

Net revenues $ 1,172.3 $ 1,094.4 7 %

Wizards of the Coast and Digital Gaming segment net revenues increased 15% in the first six months of 2024 to $768.3 million from $670.8 million in the first six months of 2023.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first six months of 2024 was primarily attributable to revenue contributions from higher digital licensing of Baldur's Gate 3 , the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023, and MONOPOLY GO!

Wizards of the Coast and Digital Gaming segment net revenues increased 7% in the first nine months of 2024 to $1,172.3 million from $1,094.4 million in 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 2024 was primarily attributable to revenue contributions from higher digital licensing of Baldur's Gate 3 , the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023, and MONOPOLY GO!

Tabletop Gaming revenue increased 3% behind growth in MAGIC:

THE GATHERING primarily due to strong demand for Modern Horizons 3 and strong early interest for Bloomburrow .

Wizards of the Coast and Digital Gaming segment operating profit was $369.9 million, or 48.1% of segment net revenues for the first six months of 2024, compared to operating profit of $219.1 million, or 32.7% of segment net revenues, for the first six months of 2023.

The operating profit increase during the first six months of 2024 was driven by increased net revenues, contributions from higher digital licensing revenue mix, lower royalty expense, and cost savings initiatives.

THE GATHERING primarily due to strong demand for Bloomburrow , Duskmourn, and Modern Horizons 3.

Wizards of the Coast and Digital Gaming segment operating profit was $551.1 million, or 47.0% of segment net revenues for the first nine months of 2024, compared to operating profit of $422.5 million, or 38.6% of segment net revenues, for the first nine months of 2023.

The operating profit increase during the first nine months of 2024 was driven by increased net revenues, contributions from higher digital licensing revenue mix, lower royalty expense, and cost savings initiatives.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the six months ended June 30, 2024 and July 2, 2023:

Six Months Ended

The following table presents Entertainment segment net revenues by category for the nine months ended September 29, 2024 and October 1, 2023:

Nine Months Ended

September 29,

2024 October 1,

Film and TV $ 3.4 $ 423.8 (99) %

1 unchanged sentence

Net revenues $ 64.0 $ 487.5 (87) %

Entertainment segment net revenues decreased 87% to $46.8 million for the first six months of 2024, compared to $364.6 million for the first six months of 2023.

The net revenue decrease in the Entertainment segment during the first six months of 2024 was driven by lower net revenues as a result of the sale of the eOne Film and TV business during the fourth quarter of 2023.

Entertainment segment operating profit was $4.8 million, or 10% of segment net revenues for the first six months of 2024, compared to an operating loss of $332.9 million, or 91% of segment net revenues for the first six months of 2023.

The increase in Entertainment segment operating results during the first six months of 2024 was driven by a non-cash goodwill impairment charge of $231.2 million and intangible asset impairment charges of $65.0 million recorded during the first six months of 2023, associated with the impairment review of the Company's Film and TV reporting unit.

Entertainment segment net revenues decreased 87% to $64.0 million for the first nine months of 2024, compared to $487.5 million for the first nine months of 2023.

The net revenue decrease in the Entertainment segment during the first nine months of 2024 was driven by lower net revenues as a result of the sale of the eOne Film and TV business during the fourth quarter of 2023.

Entertainment segment operating profit was $14.6 million, or 23% of segment net revenues for the first nine months of 2024, compared to an operating loss of $801.4 million, or 164% of segment net revenues for the first nine months of 2023.

The increase in Entertainment segment operating results during the first nine months of 2024 was driven by a goodwill impairment charge of $231.2 million and intangible asset impairment charges of $65.0 million recorded during the first nine months of 2023, associated with the impairment review of the Company's Film and TV reporting unit.

In the third quarter of 2023, the Entertainment segment recognized a loss on assets held for sale of $473.0 million that related to the sale of the non-core eOne Film and TV Business.

Corporate and Other

Corporate and Other operating profit was $9.8 million for the first six months of 2024 compared to an operating loss of $22.3 million for the first six months of 2023.

The increase in operating profit in the first six months of 2024 as compared to the first six months of 2023 reflects savings realized from the Company's Operational Excellence program and a benefit from an non-recurring adjustment for stock compensation expense reversal recorded in the first quarter of 2024, partially offset by the net impact of the two prior period non-recurring adjustments recorded during the second quarter of 2024.

Corporate and Other operating loss was $0.3 million for the first nine months of 2024 compared to an operating loss of $22.8 million for the first nine months of 2023.

The decrease in operating loss in the first nine months of 2024 as compared to the first nine months of 2023 reflects cost savings realized from cost savings initiatives and a benefit from an non-recurring adjustment for stock compensation expense reversal recorded in the first quarter of 2024, partially offset by the net impact of the two prior period non-recurring adjustments recorded during the second quarter of 2024.

R efer to Note 1 to the consolidated financial statements for further information on these non-recurring adjustments.

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

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.

During 2024, the Company expects to continue to fund its working capital needs primarily through available cash, cash flows from operations and if needed, by issuing commercial paper or borrowing under its revolving credit agreement.

The Company primarily funds 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.

The Company believes that the funds available to it, including cash expected to be generated from operations, funds available through its commercial paper program or its available lines of credit, are adequate to meet its working capital needs for the next twelve months.

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

As of June 30, 2024, the Company's cash and cash equivalents totaled $626.8 million, and the Company's short-term investments totaled $483.0 million.

The majority of the Company’s cash and cash equivalents held outside of the United States as of June 30, 2024, are denominated in the U.S.

As of June 30, 2024, the Company had a remaining liability of $95.0 million related to a one-time mandatory deemed repatriation tax on undistributed foreign earnings applied in 2017 and paid in interest free installments over eight years, all of which is reflected in current liabilities in the Company's Consolidated Balance Sheets and represents the Company's final two installments due in 2024 and 2025, respectively.

Due to severe storms and flooding in 2024 in Providence County, Rhode Island, US federal tax payments initially due April 15, 2024 were delayed to July 15, 2024, and, accordingly, both the 2024 and 2025 installment payments are reflected in short term liabilities as of June 30, 2024.

Additionally, during the second quarter, the federal government applied $8.2 million of a tax refund receivable against the 2024 transition tax payment, reducing the July 2024 payment from $45.9 million to $37.7 million.

As of September 29, 2024, the Company's cash and cash equivalents totaled $696.1 million, and the Company's short-term investments totaled $489.3 million.

The majority of the Company’s cash and cash equivalents held outside of the United States as of September 29, 2024, are denominated in the U.S.

Under the Company’s commercial paper program, at the request of the Company and subject to market conditions, the Company may issue notes from time to time up to an aggregate principal amount outstanding at any given time of $1.0 billion.

The Company intends to use the commercial paper program as its primary short-term borrowing facility.

As of June 30, 2024, the Company had no outstanding borrowings related to the commercial paper program.

As of September 29, 2024, the Company had no outstanding borrowings related to the commercial paper program.

The Company’s revolving credit facility with Bank of America, provides the Company with commitments having a maximum aggregate principal amount of $1.25 billion.

1 unchanged sentence

The Company's revolving credit facility 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 Company was in compliance with all covenants as of June 30, 2024.

The Company had no borrowings outstanding under its revolving credit facility as of June 30, 2024.

However, letters of credit outstanding under this facility as of June 30, 2024 were approximately $4.0 million.

Amounts available and unused under the revolving credit facility at June 30, 2024 were approximately $1.2 billion, inclusive of borrowings under the Company’s commercial paper program.

The Company also has other uncommitted lines from various banks, of which approximately $7.6 million was utilized as of June 30, 2024.

The Company was in compliance with all covenants as of September 29, 2024.

The Company had no borrowings outstanding under its revolving credit facility as of September 29, 2024.

However, letters of credit outstanding under this facility as of September 29, 2024 were approximately $4.0 million.

Amounts available and unused under the revolving credit facility at September 29, 2024 were approximately $1.2 billion, inclusive of borrowings under the Company’s commercial paper program.

The Company also has other uncommitted lines from various banks, of which approximately $7.8 million was utilized as of September 29, 2024.

Of the amount utilized under, or supported by, the uncommitted lines, the full $7.8 million represented letters of credit.

The Company has principal amounts of long-term debt as of June 30, 2024 of $4.0 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $500.0 million is current as of June 30, 2024 which represents the Company's 3% fixed-rate notes due November 2024 (the "2024 Notes").

The Company has principal amounts of long-term debt as of September 29, 2024 of $4.0 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $500.0 million is current as of September 29, 2024 which represents the Company's 3% fixed-rate notes due November 2024 (the "2024 Notes").

See Note 8 to the Company’s consolidated financial statements for additional information on long-term debt and long-term debt interest repayment, respectively.

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It is anticipated that proceeds from the 2034 Notes, along with existing cash available, will be utilized to repay the 2024 Notes.

As of June 30, 2024, the Company had invested the proceeds from the 2034 Notes in short-term investments.

As of September 29, 2024, the Company had invested the proceeds from the 2034 Notes in short-term investments.

From time to time, the Company or its affiliates may seek to retire or purchase outstanding debt through cash purchases, in open-market purchases, privately negotiated transactions or otherwise.

Such repurchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

The Company has a supplier finance program which provides participating suppliers the option of receiving payment in advance of an invoice due date, to be paid by certain administering banks, on the basis of invoices that the Company has confirmed as valid and approved.

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The Company or the administering bank may terminate the agreement upon at least 30 days’ written notice.

The amount of obligations confirmed under the supplier finance program that remain unpaid by the Company were $72.4 million, $89.0 million, and $43.3 million as of June 30, 2024, July 2, 2023 and December 31, 2023, respectively.

The amount of obligations confirmed under the supplier finance program that remain unpaid by the Company were $118.7 million, $105.7 million, and $43.3 million as of September 29, 2024, October 1, 2023 and December 31, 2023, respectively.

These obligations are presented within Accounts payable in the Company's Consolidated Balance Sheets.

The activity related to this program is reflected within the operating activities section of the Consolidated Statements of Cash Flows.

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the six months ended June 30, 2024 and July 2, 2023.

Six Months Ended

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the nine months ended September 29, 2024 and October 1, 2023.

Nine Months Ended

September 29,

2024 October 1,

Net cash provided by (utilized for):

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Financing activities 190.8 (418.0)

Net cash provided by Operating activities in the first six months of 2024 was $365.1 million compared to $119.2 million in the first six months of 2023.

The $245.9 million increase in net cash provided by Operating activities after adjusting for non-cash items, was primarily attributable to improved net income in the first six months of 2024 compared to first six months of 2023, and working capital benefits, primarily as a result of the sale of the eOne Film and TV business.

Net cash utilized for Investing activities was $575.4 million in the first six months of 2024 compared to net cash utilized for Investing activities of $115.8 million in the first six months of 2023.

Additions to property, plant and equipment were $97.7 million in the first six months of 2024 compared to $112.1 million in the first six months of 2023 and purchase of Short-term Investments of $480.1 million in the first six months of 2024 from the proceeds of the 2034 Notes compared to the prior year with no similar activity.

Net cash provided by Financing activities was $288.5 million in the first six months of 2024 compared to net cash utilized of $296.2 million in the first six months of 2023.

Financing activities in the first six months of 2024 primarily include $500.0 million of proceeds from issuance of the 2034 Notes, dividends paid of $194.6 million and $11.9 million of payments related to tax withholdings for stock compensation coinciding with equity award vesting activity.

Financing activities in the first six months of 2023 include $193.8 million of dividends paid, $45.0 million of principal amortization payments toward the Company's Five-Year Tranche loan, which was retired during the fourth quarter of 2023 using the proceeds received from the sale of eOne Film and TV, as well as drawdowns of $105.0 million and repayments of $142.5 million related to production financing loans, all of which were assumed by Lionsgate effective upon the closing of the sale of the eOne Film and TV business in the fourth quarter of 2023, and $14.5 million of payments related to tax withholdings for stock compensation coinciding with equity award vesting activity.

Net cash provided by Operating activities in the first nine months of 2024 was $587.6 million compared to $334.9 million in the first nine months of 2023.

The $252.7 million increase in net cash provided by Operating activities after adjusting for non-cash items, was primarily attributable to improved net income in the first nine months of 2024 compared to first nine months of 2023, and working capital benefits, primarily as a result of the sale of the eOne Film and TV business.

Net cash utilized for Investing activities was $635.4 million in the first nine months of 2024 compared to net cash utilized for Investing activities of $162.6 million in the first nine months of 2023.

Additions to property, plant and equipment were $146.2 million in the first nine months of 2024 compared to $160.4 million in the first nine months of 2023 and purchase of Short-term Investments of $571.0 million in the first nine months of 2024 primarily from the proceeds of the 2034 Notes compared to the prior year with no similar activity.

Net cash provided by Financing activities was $190.8 million in the first nine months of 2024 compared to net cash utilized of $418.0 million in the first nine months of 2023.

Financing activities in the first nine months of 2024 primarily include $500.0 million of proceeds from issuance of the 2034 Notes, dividends paid of $292.2 million and $13.0 million of payments related to tax withholdings for stock compensation coinciding with equity award vesting activity.

Financing activities in the first nine months of 2023 include $290.9 million of dividends paid, $60.0 million of principal amortization payments toward the Company's Five-Year Tranche loan, which was retired during the fourth quarter of 2023 using the proceeds received from the sale of eOne Film and TV, as well as drawdowns of $117.9 million and repayments of $162.0 million related to production financing loans, all of which were assumed by Lionsgate effective upon the closing of the sale of the eOne Film and TV business in the fourth quarter of 2023, and $15.7 million of payments related to tax withholdings for stock compensation coinciding with equity award vesting activity.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

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See Note 12 to the Company’s consolidated financial statements for further details on the Company's derivatives.

As of June 30, 2024, the Company had fixed-rate debt of $4.0 billion.

As of September 29, 2024, the Company had fixed-rate debt of $4.0 billion.

The Company may from time to time assess interest rate swaps related to its outstanding debt.

The Company did not have any outstanding swaps as of June 30, 2024, July 2, 2023, or December 31, 2023.

The impact of inflation on the Company's business operations was significant during the first six months of 2024 and throughout 2023.

The Company did not have any outstanding swaps as of September 29, 2024, October 1, 2023, or December 31, 2023.

The impact of inflation on the Company's business operations was significant during the first nine months of 2024 and throughout 2023.

The Company monitors the impact of inflation to its business operations on an ongoing basis and may need to implement actions such as price adjustments 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