Spin Master Corp.

Management's Discussion and Analysis of Financial Results For the three months and year ended December 31, 2021

INTRODUCTION .........................................................................................................................................................	1
BASIS OF PRESENTATION ....................................................................................................................................	1
BUSINESS OVERVIEW .............................................................................................................................................	1
FINANCIAL PERFORMANCE ..................................................................................................................................	4
OUTLOOK ....................................................................................................................................................................	13
INVESTMENTS AND ACQUISITIONS ...................................................................................................................	14
SELECTED QUARTERLY FINANCIAL INFORMATION ....................................................................................	16
LIQUIDITY AND CAPITAL RESOURCES .............................................................................................................	17
CASH FLOW ...............................................................................................................................................................	18
CONTRACTUAL OBLIGATIONS & COMMITMENTS .........................................................................................	21
OFF‑BALANCE SHEET ARRANGEMENTS .........................................................................................................	21
CAPITALIZATION ......................................................................................................................................................	22
RISKS RELATING TO SPIN MASTER'S BUSINESS .........................................................................................	22
FINANCIAL RISK MANAGEMENT .........................................................................................................................	39
RELATED PARTY TRANSACTIONS .....................................................................................................................	40
CRITICAL ACCOUNTING ESTIMATES .................................................................................................................	40
FINANCIAL INSTRUMENTS ....................................................................................................................................	42
DISCLOSURE CONTROLS AND PROCEDURES ...............................................................................................	42
LIMITATIONS OF AN INTERNAL CONTROL SYSTEM .....................................................................................	42
NON-GAAP FINANCIAL MEASURES AND RATIOS .........................................................................................	43
FORWARD‑LOOKING STATEMENTS ..................................................................................................................	51
ADDENDUM ................................................................................................................................................................	53

February 28, 2022

INTRODUCTION

The following Management’s Discussion and Analysis (“MD&A”) for Spin Master Corp. and its subsidiaries (“Spin Master” or the “Company”) is dated February 28, 2022 and provides information concerning the Company’s financial condition, financial performance and cash flows for the year ended December 31, 2021 and the three months ended December 31, 2021, (“fourth quarter”, “the quarter”, “Q4”). This MD&A should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes (“financial statements”) for the year ended December 31, 2021, as well as its Annual Information Form ("AIF") dated March 15, 2021. These and additional information relating to the Company can be found under the Company's profile on SEDAR at www.sedar.com.

Some of the statements in this MD&A contain forward-looking information that are based on assumptions and involve risks and uncertainties. See the “Forward‑Looking Statements”, “Financial Risk Management” and “Risks Relating to Spin Master’s Business” sections of this MD&A for a discussion of the uncertainties, risks and assumptions associated with those statements. Actual results may differ materially from those discussed in the forward‑looking statements as a result of various factors, including those described in the “Risks Relating to Spin Master’s Business” section and elsewhere in this MD&A.

BASIS OF PRESENTATION

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”). However, certain financial measures and ratios contained in this MD&A do not have any standardized meaning under IFRS ("Non-GAAP") and are discussed further in the “Non-GAAP Financial Measures and Ratios” section of this MD&A. Management believes the Non-GAAP financial measures and Non-GAAP financial ratios defined in the section noted above are important supplemental measures of operating performance and highlight trends in the business. Management believes that these measures allow for assessment of the Company’s operating performance and financial condition on a basis that is consistent and comparable between reporting periods. The Company believes that investors, lenders, securities analysts and other interested parties frequently use these Non-GAAP financial measures and NonGAAP financial ratios in the evaluation of issuers.

All financial information is presented in United States dollars ("$", "dollars" and "US$") and has been rounded to the nearest hundred thousand, except per share amounts and where otherwise indicated.

BUSINESS OVERVIEW

Spin Master Corp. is a leading global children's entertainment company, creating exceptional play experiences through it’s three creative centres: Toys, Entertainment and Digital Games. With distribution in over 100 countries, Spin Master is best known for award-winning brands PAW Patrol®, Bakugan®, Kinetic Sand®, Air Hogs®, Hatchimals®, Rubik’s Cube® and GUND®, and is the global toy licensee for other popular properties. Spin Master Entertainment creates and produces compelling multiplatform content, through its in-house studio and partnerships with outside creators, including the preschool franchise PAW Patrol and numerous other original shows, short-form series and feature films. The Company has an established presence in digital games, anchored by the Toca Boca® and Sago Mini® brands, offering open-ended and creative game and educational play in digital environments. Through Spin Master Ventures, the Company makes minority investments globally in emerging companies and start-ups. With over 30 offices in close to 20 countries, Spin Master employs more than 2,000 team members globally.

Spin Master’s principal strategies to drive the Company’s continued growth include:

Innovate using our internal and external global research and development network;
Increase international sales in developed and emerging markets;
Develop global evergreen entertainment franchises;

Establish a leading position in digital games; and
Leverage the Company's global platform through strategic acquisitions and investments.

Spin Master's organic growth strategy is centered around the Company's 36-month brand innovation pipeline. This pipeline is fed by internal innovation from inventors, licensors, consumers and potential acquisitions, traditional and innovative entertainment content and digital games.

Spin Master continues to expand into both entertainment content for traditional television, video-on-demand, subscription video-on-demand, and other short-form and long-form content, including movies, as well expanding the Company’s digital games business led by Toca Boca and Sago Mini .

Spin Master’s business comprises three geographic segments: North America, comprised of the United States ("U.S.") and Canada; Europe, comprised of the United Kingdom, France, Italy, the Netherlands, Germany, Austria, Switzerland, Belgium, Luxembourg, Slovakia, Hungary, Romania, Czech Republic, Poland, Turkey, Russia and Greece; and the Rest of World, primarily comprised of Hong Kong, China, Vietnam, India, Australia, New Zealand, Japan and Mexico and all other areas of the world serviced by Spin Master’s third party distribution network. The Company remains focused on its long-term goal of more than 45% of sales outside of the North America segment.

Spin Master’s toy creative centre is organized into four product categories: (1) Activities, Games & Puzzles and Plush; (2) Wheels & Action; (3) Outdoor and (4) Preschool, Dolls & Interactive. In the fourth quarter of 2021, the "Preschool and Girls" product category was renamed "Preschool and Dolls & Interactive" and the "Boys" product category was renamed "Wheels & Action".

Seasonality factors cause the Company's operating results to fluctuate significantly from quarter to quarter. In particular, Toy revenue is concentrated in the third and fourth quarters of a fiscal year with a significant portion of its net income earned and cash flows generated during the same period.

COVID-19 PANDEMIC

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. The crisis related to COVID-19 is unprecedented and has had an impact on the Company's employees, customers and suppliers in 2020 and 2021.

Supply Chain

The Company closely monitors the changing global environment to enable immediate actions to be taken to ensure customer order fulfillment is achieved across the various markets. The shipment of goods from ports in Asia to North America and Europe continues to be affected by shipping container availability issues and port disruptions.

Demand

Consumer demand for toys is strong in most major markets. Brick and mortar retail consumer traffic continues to be affected in some markets with government-imposed restrictions and consumer purchasing behaviour. Online and e-commerce channels are active in most countries.

Spin Master’s Entertainment and Digital Games creative centres were not adversely impacted by COVID-19. Demand for entertainment content and digital games increased during the pandemic as parents sought entertainment for their children whilst they were at home.

Liquidity

As at December 31, 2021, the Company had unutilized liquidity of $1,080.2 million, comprised of $562.7 million in cash and cash equivalents and $517.5 million under its credit facilities. The Company believes it has sufficient liquidity to meet its operational requirements.

Selected Financial Information

The following provides selected key performance metrics of the Company for the year ended December 31, 2021, which should be read in conjunction with the financial statements of the Company.

Key Performance Metrics		Year	Ended Dec 31
(US$ millions, except per share information)	2021		2020	2019
Sales and Earnings
Gross Product Sales1	1,962.4		1,623.7	1,691.2
Toy revenue	1,731.8		1,415.6	1,463.7
Entertainment and Licensing revenue	135.8		78.2	91.7
Digital games revenue	174.8		76.8	26.2
Revenue	2,042.4		1,570.6	1,581.6
Net income	198.6		45.5	64.3
Net margin2	9.7	%	2.9 %	4.1 %
Adjusted Net Income1	221.3		53.4	92.8
Adjusted Net Margin1	10.8	%	3.4 %	5.9 %
EBITDA1	384.1		124.5	181.3
Adjusted EBITDA1	414.1		180.6	219.0
Adjusted EBITDA Margin1	20.3	%	11.5 %	13.8 %
Earnings Per Share ("EPS")
Basic EPS	1.94		0.45	0.63
Diluted EPS	1.89		0.44	0.62
Adjusted Basic EPS1	2.16		0.52	0.91
Adjusted Diluted EPS1	2.10		0.51	0.90
Balance Sheet and Cash Flow Data
Cash and cash equivalents	562.7		320.6	115.3
Total assets	1,736.7		1,342.1	1,256.4
Total liabilities	684.3		499.2	496.0
Cash provided by operating activities	419.1		310.8	98.4
Cash used in investing activities	(153.2)		(84.9)	(116.2)
Cash used in financing activities	(18.3)		(16.3)	(13.7)
Free Cash Flow1	339.6		232.1	4.7

Notes:

1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

2) Net margin is calculated as Net income divided by Revenue.

Revenue was $2,042.4 million which increased by 30.0% from $1,570.6 million in 2020. Constant Currency Revenue[1] grew by 28.9%[2] to $2,025.2 million from $1,570.6 million. The growth in revenue was attributed to all three creative centers - Toy, Entertainment and Licensing and Digital Games.

Gross Product Sales[1] have increased from $1,623.7 million in 2020 to $1,962.4 million in 2021. Over the same period, toy revenue were $1,731.8 million up from $1,415.6 million, driven by growth in all product categories, particularly Preschool and Dolls & Interactive.

Entertainment and Licensing revenue increased by $57.6 million or 73.7% to $135.8 million. The increase was primarily a result of higher distribution revenue related to PAW Patrol: The Movie and higher licensing and merchandising revenue .

Digital Games revenue increased by $98.0 million or 127.6% to $174.8 million. The increase was primarily due to higher in-game purchases in Toca Life World .

1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"

2 See "Percentage change in Constant Currency Gross Product Sales" and "Percentage change in Constant Currency Revenue" within "Non-GAAP Financial Measures and Ratios".

Gross profit of $1,056.6 million increased by 45.2% from $727.9 million in 2020. The increase in gross profit was primarily driven by a 22.3% increase in toy revenue, higher digital games revenue, cost reductions resulting from the Company's operational improvement and productivity initiatives and higher entertainment and licensing revenue. Gross margin[3] increased from 46.3% to 51.7%. The improvement in gross margin was as a result of cost reductions resulting from the Company's operational improvements and productivity initiatives, favourable changes in product mix, a higher proportion of Digital Games and licensing and merchandising revenue and lower closeout sales. This increase was offset in part by inflation on product costs and ocean freight, which was partially mitigated by price increases implemented during the third quarter, as well as by the dilutive effect of PAW Patrol: The Movie (revenue less amortization of production costs).

Net income for the year ended December 31, 2021 was $198.6 million, an increase of $153.1 million or 336.5% from $45.5 million in 2020. Adjusted Net Income[1] for the year ended December 31, 2021 was $221.3 million, an increase of $167.9 million or 314.4% from $53.4 million in 2020.

Adjusted EBITDA[1] increased to $414.1 million with Adjusted EBITDA Margin[1 ] of 20.3%, compared to $180.6 million and 11.5%, respectively, in 2020, primarily driven by higher gross profit, higher administrative, marketing and selling expenses, partially offset by lower distribution expenses.

FINANCIAL PERFORMANCE

Consolidated Results

The following tables provide a summary of Spin Master’s consolidated results for the three months and years ended December 31, 2021 and 2020:

ended December 31, 2021 and 2020:
		Three Months Ended Dec 31
(US$ millions)	2021	2020	$ Change	% Change
Revenue	620.5	490.6	129.9	26.5 %
Cost of sales	297.2	249.6	47.6	19.1 %
Gross profit	323.3	241.0	82.3	34.1 %
Selling, general and administrative expenses	267.4	211.8	55.6	26.3 %
Depreciation and amortization expenses	7.9	10.0	(2.1)	(21.0) %
Other expense, net	9.6	9.7	(0.1)	(1.0) %
Net foreign exchange (gain) loss	(0.7)	10.5	(11.2)	(106.7) %
Finance costs	3.1	3.4	(0.3)	(8.8)%
Income (loss) before income tax expense (recovery)	36.0	(4.4)	40.4	(918.2) %
Income tax expense(recovery)	9.5	(4.7)	14.2	(302.1)%
Net income	26.5	0.3	26.2	8,733.3 %

		Year Ended Dec 31	Year Ended Dec 31
(US$ millions)	2021	2020	$ Change	% Change
Revenue	2,042.4	1,570.6	471.8	30.0 %
Cost of sales	985.8	842.7	143.1	17.0 %
Gross profit	1,056.6	727.9	328.7	45.2 %
Selling, general and administrative expenses	742.5	632.4	110.1	17.4 %
Depreciation and amortization expenses	33.5	37.7	(4.2)	(11.1) %
Other expense, net	11.3	8.7	2.6	29.9 %
Net foreign exchange (gain) loss	(2.9)	27.6	(30.5)	(110.5) %
Finance costs	10.2	12.1	(1.9)	(15.7)%
Income before income tax expense (recovery)	262.0	9.4	252.6	2,687.2 %
Income tax expense(recovery)	63.4	(36.1)	99.5	(275.6)%
Net income	198.6	45.5	153.1	336.5 %

3 Gross margin is calculated as Gross profit divided by Revenue.

Revenue

For the three months ended December 31, 2021 as compared to the same period in 2020:

The following table provides a summary of Spin Master’s revenue, including by product category, for the three months ended December 31, 2021 and 2020:

		Three Months	Ended Dec 31
(US$ millions)	2021	20201	$ Change	% Change
Preschool and Dolls & Interactive2	251.8	200.2	51.6	25.8 %
Activities, Games & Puzzles and Plush5	206.5	173.9	32.6	18.7 %
Wheels & Action2	146.1	122.1	24.0	19.7 %
Outdoor	23.1	15.6	7.5	48.1 %
Gross Product Sales 3	627.5	511.8	115.7	22.6 %
Sales Allowances4	(85.5)	(77.5)	(8.0)	10.3 %
Toy revenue	542.0	434.3	107.7	24.8 %
Entertainment and Licensing revenue	28.5	24.5	4.0	16.3 %
Digital Games revenue6	50.0	31.8	18.2	57.2 %
Other revenue	78.5	56.3	22.2	39.4 %
Revenue	620.5	490.6	129.9	26.5 %

2 Effective Q4 2021, the "Preschool and Girls" product category was renamed "Preschool and Dolls & Interactive" and the "Boys" product category was renamed "Wheels & Action".

3 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

4 Sales Allowances represent sales credits requested by customers relating to factors such as cooperative advertising, contractual and negotiated discounts, volume rebates, and costs incurred by customers to sell the Company’s products.

5 Includes $9.7 million related to Rubik's in Q4 2021. Rubik's was acquired on January 4, 2021.

6 Includes $1.0 million related to Originator in Q4 2021. Originator was acquired on June 14, 2021.

Revenue was $620.5 million, an increase of 26.5% from $490.6 million driven by revenue growth in Toy, Entertainment and Licensing and Digital Games. Constant Currency Revenue[1] was $622.1 million, up from $490.6 million, an increase of 26.8%[2] .

Toy revenue increased by $107.7 million or 24.8% to $542.0 million driven by growth in all product categories, offset by an increase in Sales Allowances.

Gross Product Sales increased by $115.7 million or 22.6%, to $627.5 million from $511.8 million. Constant Currency Gross Product Sales1 increased by $117.2 million or 22.9%2 to $629.0 million, up from $511.8 million. The improvement was generated by growth in all product categories and reflected strong customer demand throughout the quarter and the Company's successful management of the global supply chain volatility.

Gross Product Sales in Preschool, Dolls & Interactive increased by $51.6 million or 25.8% to $251.8 million, arising from sales of Wizarding World , Gabby's Dollhouse, PAW Patrol and Purse Pets , offset in part by a decline in Hatchimals .

Gross Product Sales in Activities, Games & Puzzles and Plush increased by $32.6 million or 18.7% to $206.5 million, mainly due to increases in Kinetic Sand, Rubik's and Orbeez .

Gross Product Sales in Wheels & Action increased by $24.0 million or 19.7% to $146.1 million, led by increases in DC licensed products and Tech Deck , partially offset by a decline in DreamWorks Dragons .

1 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios"

2 See "Percentage change in Constant Currency Gross Product Sales" and "Percentage change in Constant Currency Revenue" within "Non-GAAP Financial Measures and Ratios".

Gross Product Sales in Outdoor increased by $7.5 million or 48.1% to $23.1 million, primarily driven by increases in SwimWays and Aerobie .

Sales Allowances decreased by $8.0 million or 10.3% to $85.5 million. As a percentage of Gross Product Sales, Sales Allowances declined 1.5% to 13.6% from 15.1%, primarily driven by lower non-compliance charges.

Entertainment and Licensing revenue increased by $4.0 million or 16.3% to $28.5 million. The increase was primarily driven by licensing and merchandising revenue.

Digital games revenue increased by $18.2 million or 57.2% to $50.0 million. The increase was driven by higher in-game purchases in the Toca Life World platform.

Revenue by Geographic Segment

The following table provides a summary of Spin Master’s Gross Product Sales by geographic segment for the three months ended December 31, 2021 and 2020:

		Three Months	Three Months	Ended Dec 31
(US$ millions)	2021	% of GPS	2020	% of GPS	$ Change	% Change
North America	361.8	57.6 %	272.4	53.2 %	89.4	32.8 %
Europe	187.5	29.9 %	168.0	32.8 %	19.5	11.6 %
Rest of World	78.2	12.5 %	71.4	14.0 %	6.8	9.5 %
International	265.7	42.4 %	239.4	46.8 %	26.3	11.0 %
Gross Product Sales1	627.5	100.0 %	511.8	100.0 %	115.7	22.6 %
Sales Allowances	(85.5)	(13.6)%	(77.5)	(15.1)%	(8.0)	10.3 %
Toy revenue	542.0		434.3		107.7	24.8 %

1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

As a percentage of total Gross Product Sales, the North America segment increased 4.4% to 57.6% compared to 53.2%. International sales, comprised of the Europe and Rest of World segments, decreased 4.4% to 42.4% compared to 46.8%.

Gross Product Sales in North America increased by $89.4 million or 32.8% to $361.8 million, with a favourable foreign exchange impact of $0.5 million. The increase was driven by Gabby's Dollhouse, DC licensed products, Kinetic Sand, SwimWays, Monster Jam RC and PAW Patrol .

Gross Product Sales in Europe increased by $19.5 million or 11.6% to $187.5 million, with a unfavourable foreign exchange impact of $1.9 million. The increase was driven by Wizarding World, Purse Pets, PAW Patrol and Rubik's , offset in part by Hatchimals and Present Pets .

Gross Product Sales in Rest of World increased by $6.8 million or 9.5% to $78.2 million, with an unfavourable foreign exchange impact of $0.1 million. The increase arose from Wizarding World, Rubik's and PAW Patrol, offset in part by Hatchimals .

For the year ended December 31, 2021 as compared to the same period in 2020:

The following table provides a summary of Spin Master’s revenue, including by product category, for the years ended December 31, 2021 and 2020:

		Year Ended Dec 31	Year Ended Dec 31
(US$ millions)	2021	20201	$ Change	% Change
Preschool and Dolls & Interactive2	809.6	609.5	200.1	32.8 %
Activities, Games & Puzzles and Plush4	587.8	534.8	53.0	9.9 %
Wheels & Action2	445.6	388.3	57.3	14.8 %
Outdoor	119.4	91.1	28.3	31.1 %
Gross Product Sales3	1,962.4	1,623.7	338.7	20.9 %
Sales Allowances5	(230.6)	(208.1)	(22.5)	10.8 %
Toy revenue	1,731.8	1,415.6	316.2	22.3 %
Entertainment and Licensing revenue6	135.8	78.2	57.6	73.7 %
Digital Games revenue7	174.8	76.8	98.0	127.6 %
Other revenue	310.6	155.0	155.6	100.4 %
Revenue	2,042.4	1,570.6	471.8	30.0 %

1 Effective Q1 2021, Spin Master simplified its product categories to align with the Company's product offerings going forward. Prior year comparative information has been updated to conform with the current disclosure. See "Addendum" for further details. 2 Effective Q4 2021, the "Preschool and Girls" product category was renamed "Preschool and Dolls & Interactive" and the "Boys" product category was renamed "Wheels & Action".

3 Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

4 Includes $25.2 million related to Rubik's in 2021. Rubik's was acquired on January 4, 2021.

5 Sales Allowances represent sales credits requested by customers relating to factors such as cooperative advertising, contractual and negotiated discounts, volume rebates, and costs incurred by customers to sell the Company’s products.

6 Includes $26.0 million related to revenue for PAW Patrol: The Movie in 2021.

7 Includes $2.3 million related to Originator in 2021. Originator was acquired on June 14, 2021.

Revenue was $2,042.4 million, an increase of 30.0% from $1,570.6 million driven by revenue growth in Toy, Entertainment and Licensing and Digital Games. Constant Currency Revenue[1] increased by 28.9%[2] to $2,025.2 million from $1,570.6 million.

Toy revenue increased by $316.2 million or 22.3% to $1,731.8 million, driven by growth in all product categories, particularly Preschool and Dolls & Interactive.

Gross Product Sales increased by $338.7 million or 20.9% to $1,962.4 million, with a favourable foreign exchange impact of $12.3 million or 0.8%. Constant Currency Gross Product Sales[1] increased by $326.4 million to $1,950.1 million from $1,623.7 million, an increase of 20.1%[2] . The improvement was due to growth in all product categories, particularly Preschool and Dolls & Interactive.

Gross Product Sales in Preschool, Dolls & Interactive increased by $200.1 million or 32.8% to $809.6 million, driven primarily by increases in PAW Patrol, Wizarding World, Gabby's Dollhouse and Purse Pets , offset in part by declines in Hatchimals and Twisty Petz .

Gross Product Sales in Activities, Games & Puzzles and Plush increased by $53.0 million or 9.9% to $587.8 million, mainly due to increases in Kinetic Sand, Rubik's and GUND , offset in part by a decline in the Games & Puzzles portfolio.

Gross Product Sales in Wheels & Action increased by $57.3 million or 14.8% to $445.6 million, driven by increases in DC licensed products, Monster Jam RC and Tech Deck , partially offset by declines in Ninja Bots and DreamWorks Dragons.

Gross Product Sales in Outdoor increased by $28.3 million or 31.1% to $119.4 million, a result of increases in SwimWays and Aerobie .

Sales Allowances increased by $22.5 million or 10.8% to $230.6 million. As a percentage of Gross Product Sales, Sales Allowances declined 1.0% to 11.8% from 12.8%, primarily driven by lower non-compliance charges and markdowns.

Entertainment and Licensing revenue increased by $57.6 million or 73.7% to $135.8 million. The increase was driven by distribution revenue from PAW Patrol: The Movie and higher licensing and merchandising revenue.

Digital games revenue increased by $98.0 million or 127.6% to $174.8 million. The increase was driven by higher in-game purchases in the Toca Life World platform.

Revenue by Geographic Segment

The following table provides a summary of Spin Master’s Gross Product Sales by geographic segment for the years ended December 31, 2021 and 2020:

			Year Ended Dec 31	Year Ended Dec 31
(US$ millions)	2021	% of GPS	2020	% of GPS	$ Change	% Change
North America	1,197.3	61.0 %	983.4	60.6 %	213.9	21.8 %
Europe	530.7	27.0 %	451.0	27.8 %	79.7	17.7 %
Rest of World	234.4	12.0 %	189.3	11.6 %	45.1	23.8 %
International	765.1	39.0 %	640.3	39.4 %	124.8	19.5 %
Gross Product Sales1	1,962.4	100.0 %	1,623.7	100.0 %	338.7	20.9 %
Sales Allowances	(230.6)	(11.8)%	(208.1)	(12.8)%	(22.5)	10.8 %
Toy revenue	1,731.8		1,415.6		316.2	22.3 %

1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

As a percentage of total Gross Product Sales, the North America segment increased 0.4% to 61.0% compared to 60.6%. International sales, comprised of the Europe and Rest of World segments, decreased 0.4% to 39.0% compared to 39.4%.

Gross Product Sales in North America increased by $213.9 million or 21.8% to $1,197.3 million, with a favourable foreign exchange impact of $1.8 million. The increase was driven by PAW Patrol , Gabby's Dollhouse, SwimWays, Monster Jam RC, Kinetic Sand, Wizarding World, DC licensed products and Bakugan, offset in part by the Games & Puzzles portfolio.

Gross Product Sales in Europe increased by $79.7 million or 17.7% to $530.7 million, with a favourable foreign exchange impact of $6.4 million. The increase was driven by PAW Patrol , Wizarding World, Purse Pets, Rubik's, Kinetic Sand, Tech Deck, Zoobles and GUND, offset in part by Hatchimals.

Gross Product Sales in Rest of World increased by $45.1 million or 23.8% to $234.4 million, with a favourable foreign exchange impact of $4.1 million. The increase was driven by PAW Patrol, Wizarding World, Rubik's and Orbeez , offset in part by Hatchimals and Present Pets .

Gross Profit as compared to the same period in 2020:

		Three Months	Ended Dec 31
(US$ millions)	2021	2020	$ Change	% Change
Revenue	620.5	490.6	129.9	26.5 %
Grossprofit	323.3	241.0	82.3	34.1 %
Gross margin	52.1 %	49.1 %	N/A	3.0 %

For the three months ended December 31, 2021, gross profit increased by $82.3 million or 34.1% to $323.3 million, primarily driven by a 24.8% increase in toy revenue and higher digital games revenue.

Gross margin increased to 52.1% from 49.1% as compared to the same period in 2020, as a result of lower closeout sales, a higher proportion of Digital Games and licensing and merchandising revenue and favourable changes in product mix and productivity savings, offset in part by inflation on product costs and ocean freight, which was partially mitigated by price increases.

		Year Ended Dec 31	Year Ended Dec 31
(US$ millions)	2021	2020	$ Change	% Change
Revenue	2,042.4	1,570.6	471.8	30.0 %
Grossprofit	1,056.6	727.9	328.7	45.2 %
Gross margin	51.7 %	46.3 %	N/A	5.4 %

For the year ended December 31, 2021, gross profit increased by $328.7 million or 45.2% to $1,056.6 million, primarily driven by a 22.3% increase in toy revenue, higher digital games revenue, cost reductions resulting from the Company's operational improvement and productivity initiatives and higher entertainment and licensing revenue.

Gross margin increased to 51.7% from 46.3%, as a result of cost reductions resulting from the Company's operational improvements and productivity initiatives, favourable changes in product mix, a higher proportion of Digital Games and licensing and merchandising revenue and lower closeout sales. This increase was offset in part by inflation on product costs and ocean freight, which was partially mitigated by price increases implemented during the third quarter, as well as by the dilutive effect of PAW Patrol: The Movie (revenue less amortization of production costs).

Selling, General and Administrative Expenses ("SG&A") as compared to the same period in 2020:

		Three Months	Three Months	Ended Dec 31
(US$ millions)	2021	% of revenue	2020	% of revenue	$ Change	% Change
Selling expenses	41.3	6.7 %	32.0	6.5 %	9.3	29.1 %
Marketing expenses	92.0	14.8 %	70.0	14.3 %	22.0	31.4 %
Distribution expenses	22.9	3.7 %	22.7	4.6 %	0.2	0.9 %
Product development expenses	7.4	1.2 %	10.4	2.1 %	(3.0)	(28.8) %
Administrative expenses	103.8	16.7 %	76.7	15.6 %	27.1	35.3 %
SG&A	267.4	43.1 %	211.8	43.2 %	55.6	26.3 %

Selling expenses increased by $9.3 million or 29.1% to $41.3 million due to higher sales volume of partner licensed brands. Selling expenses as a percentage of revenue increased to 6.7% from 6.5%.

Marketing expenses increased by $22.0 million or 31.4% to $92.0 million, due to higher media and commercial production spend. Marketing expenses were lower in the prior year due to lower media spend as a result of COVID-19. Marketing expenses as a percentage of revenue increased to 14.8% from 14.3%.

Distribution expenses increased by $0.2 million or 0.9% to $22.9 million, primarily due to lower storage and outbound transportation costs. Distribution expenses as a percentage of revenue decreased to 3.7% from 4.6%.

Product development expenses decreased by $3.0 million or 28.8% to $7.4 million.

For the three months ended December 31, 2021, administrative expenses increased by $27.1 million or 35.3% to $103.8 million. The increase was primarily due to higher personnel related costs and incentive compensation driven by improved operating results. Administrative expenses as a percentage of revenue increased to 16.7% from 15.6%.

			Year Ended Dec 31	Year Ended Dec 31
(US$ millions)	2021	% of revenue	2020	% of revenue	$ Change	% Change
Selling expenses	133.8	6.6 %	109.5	7.0 %	24.3	22.2 %
Marketing expenses	179.7	8.8 %	133.1	8.5 %	46.6	35.0 %
Distribution expenses	71.3	3.5 %	90.7	5.8 %	(19.4)	(21.4) %
Product development expenses	27.4	1.3 %	34.5	2.2 %	(7.1)	(20.6) %
Administrative expenses	330.3	16.2 %	264.6	16.8 %	65.7	24.8 %
SG&A	742.5	36.4 %	632.4	40.3 %	110.1	17.4 %

Selling expenses increased by $24.3 million or 22.2% to $133.8 million, due to higher sales volume of partner licensed brands. Selling expenses as a percentage of revenue decreased to 6.6% from 7.0%, driven by lower proportion of revenue from partner licensed brands.

Marketing expenses increased by $46.6 million or 35.0% to $179.7 million, due to higher media and commercial production spend. Marketing expenses were lower in the prior year due to decreased media marketing, lower experiential marketing and trade show cancellations as a result of COVID-19. Marketing expenses as a percentage of revenue increased to 8.8% from 8.5%.

Distribution expenses decreased by $19.4 million or 21.4% to $71.3 million, primarily due to lower storage and outbound transportation costs. Contributing to the decline was the Company's reduction of its North American warehouse footprint from 18 warehouses to 4 warehouses during 2020. Distribution expenses as a percentage of revenue decreased to 3.5% from 5.8%.

Product development expenses decreased by $7.1 million or 20.6% to $27.4 million.

For the year ended December 31, 2021, administrative expenses increased by $65.7 million or 24.8% to $330.3 million.

Adjusted SG&A as compared to the same period in 2020:

		Three Months Ended Dec 31	Three Months Ended Dec 31
(US$ millions)	2021	2020	$ Change	% Change
Selling, general and administrative expenses	267.4	211.8	55.6	26.3 %
Adjustments1:
Restructuring expense2	(1.4)	(0.5)	(0.9)	180.0 %
Share based compensation3	(4.0)	(2.9)	(1.1)	37.9 %
Impairment of property, plant and equipment4	—	(0.5)	0.5	n.m.
Transaction costs5	(2.1)	(0.9)	(1.2)	n.m.
Adjusted SG&A6	259.9	207.0	52.9	25.6 %

1) These adjustments relate to items recorded within Administrative expenses.

2) Restructuring expense primarily relates to personnel related costs. Restructuring expense in the prior year includes costs related to changes in senior leadership.

3) Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company's initial public offering, share option expense and long-term incentive plan.

4) Impairment of property, plant and equipment related to machinery.
5) Professional fees incurred relating to acquisitions and other transactions.
6) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

Adjusted SG&A[1] increased by $52.9 million or 25.6% to $259.9 million. Adjusted SG&A[1] as a percentage of revenue decreased to 41.9% from 42.2%.

		Year Ended Dec 31	Year Ended Dec 31
(US$ millions)	2021	2020	$ Change	% Change
Selling, general and administrative expenses	742.5	632.4	110.1	17.4 %
Adjustments1:
Restructuring expense2	(2.5)	(5.3)	2.8	(52.8) %
Share based compensation3	(15.3)	(12.2)	(3.1)	25.4 %
Impairment of property, plant and equipment4	—	(0.5)	0.5	n.m.
Transaction costs5	(2.8)	(0.9)	(1.9)	n.m.
Adjusted SG&A6	721.9	613.5	108.4	17.7 %

1) These adjustments relate to items recorded within Administrative expenses.

2) Restructuring expense primarily relates to personnel related costs. Restructuring expense in the prior year includes costs related to changes in senior leadership.

4) Impairment of property plant and equipment related to machinery. See Note 5 of the Consolidated financial statements.
5) Professional fees incurred relating to acquisitions and other transactions.
6) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

The increase was primarily due to higher personnel related costs and incentive compensation driven by improved operating results as well as higher professional services expenses. Administrative expenses as a percentage of revenue decreased to 16.2% from 16.8%. Adjusted SG&A increased by $108.4 million or 17.7% to $721.9 million. Adjusted SG&A as a percentage of revenue decreased to 35.3% from 39.1%.

Finance Costs as compared to the same period in 2020:

For the three months ended December 31, 2021, finance costs decreased by $0.3 million to $3.1 million. For the year ended December 31, 2021, finance costs decreased by $1.9 million to $10.2 million. The decrease was primarily due to lower interest expense.

Depreciation and Amortization Expenses as compared to the same period in 2020:

		Three Months	Ended Dec 31
(US$ millions)	2021	2020	$ Change	% Change
Included in cost of sales	15.1	17.6	(2.5)	(14.2) %
Included in expenses	7.9	10.0	(2.1)	(21.0)%
Depreciation and amortization expenses	23.0	27.6	(4.6)	(16.7) %

For the three months ended December 31, 2021, depreciation and amortization expense decreased by $4.6 million to $23.0 million. The decrease was primarily due to lower expenses related to entertainment content development.

		Year Ended Dec 31	Year Ended Dec 31
(US$ millions)	2021	2020	$ Change	% Change
Included in cost of sales	78.4	65.3	13.1	20.1 %
Included in expenses	33.5	37.7	(4.2)	(11.1)%
Depreciation and amortization expenses	111.9	103.0	8.9	8.6 %

For the year ended December 31, 2021, depreciation and amortization expense increased by $8.9 million to $111.9 million. The increase was primarily due to higher expenses related to entertainment content and app development.

Foreign Exchange (Gain) Loss as compared to the same period in 2020:

For the three months ended December 31, 2021, the Company incurred a foreign exchange gain of $0.7 million (unrealized gain of $0.7 million and realized gain of $nil) compared to a net foreign exchange loss of $10.5 million (realized loss of $4.1 million and unrealized loss of $6.4 million). For the year ended December 31, 2021, the Company incurred a foreign exchange gain of $2.9 million (realized gain of $2.5 million and unrealized gain of $0.4 million) compared to a net foreign exchange loss of $27.6 million (unrealized loss of $41.7 million, net of realized gain of $14.1 million).

Unrealized foreign exchange gains and losses are generated by the translation of monetary assets and liabilities denominated in a currency other than the functional currency and also includes gains and losses related to the Company's hedging programs. Realized foreign exchange gains and losses are recognized when monetary assets and liabilities denominated in a currency other than the functional currency of the applicable entity are settled. The Company uses derivative financial instruments such as foreign exchange forward contracts to manage foreign currency risk.

Income Tax Expense (Recovery) as compared to the same period in 2020:

For the three months ended December 31, 2021, the Company had an income tax expense of $9.5 million compared to an income tax recovery of $4.7 million. For the year ended December 31, 2021, the Company had an income tax expense of $63.4 million compared to an income tax recovery of $36.1 million. The effective tax rate was 24.2% compared to (384.0)%. The prior year effective tax rate related to an internal transfer of intellectual property, which resulted in a one-time income tax recovery of $33.3 million or (354.2)% for the year ended December 31, 2020 as well as from different tax rates of subsidiaries operating in other jurisdictions and income not taxable in determining the taxable income.

Net Income as compared to the same period in 2020:

Net income for the three months ended December 31, 2021 was $26.5 million, an increase of $26.2 million from $0.3 million. Adjusted Net Income[1] for the three months ended December 31, 2021 was $38.7 million, an increase of $24.1 million from $14.6 million.

Net income for the year ended December 31, 2021 was $198.6 million, an increase of $153.1 million from $45.5 million. Adjusted Net Income[1] for the year ended December 31, 2021 was $221.3 million, an increase of $167.9 million from $53.4 million.

OUTLOOK

Spin Master continues to focus on driving long-term growth. Its principal strategies are to:

Innovate using our internal and external global research and development network;
Increase international sales in developed and emerging markets;
Develop global evergreen entertainment franchises;
Establish a leading position in digital games; and
Leverage the Company's global platform through strategic acquisitions and investments.

Revenue increased 30.0% for the year ended December 31, 2021 compared to 2020. Previous guidance on November 4, 2021 was for Revenue to increase slightly above 20% compared to 2020. The higher than expected Revenue growth was primarily driven by Gross Product Sales[1] , which increased 20.9% for the year ended December 31, 2021 compared to 2020. Previous guidance was for Gross Product Sales[1] to increase mid-teens compared to 2020. The increase in Gross Product Sales[1] , was primarily driven by the strength of customer demand for Spin Master’s innovative product line and the Company’s ability to successfully manage through global supply chain disruptions, to ensure steady inventory flow and availability both on shelf and online.

2022 Guidance

The Company expects 2022 Gross Product Sales[1] to increase mid to high single digits compared to 2021.

The Company expects 2022 Revenue to increase mid to high single digits compared to 2021 Revenue, excluding PAW Patrol: The Movie Distribution Revenue[1] of $26.0 million.

The Company expects 2022 Adjusted EBITDA Margin[1] to be in line with 2021 Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue[1 ] of $26.0 million.

INVESTMENTS AND ACQUISITIONS

Acquisition of Rubik's Brand Limited

On January 4, 2021, the Company completed the acquisition of Rubik's Brand Limited by acquiring 100% of the shares of its holding company, Rubiks Malta Holding Company Limited (“Rubik’s”). Rubik’s is a licensor and distributor of various editions of the Rubik’s product lines and qualifies as a business under IFRS 3, Business Combinations ("IFRS 3"). The Company secured the global intellectual property for the Rubik’s portfolio and the ability to sell, market and license for further penetration directly to wholesale customers or continue to sell indirectly through distributors into markets as well as expansion into new territories. The brand has been reported in the Activities, Games & Puzzles and Plush product category and included in the Rubik's cash‑generating unit ("CGU") beginning from the date of acquisition.

The total purchase consideration of $55.2 million was comprised of $51.4 million of cash consideration plus $3.8 million related to the estimated fair value of future royalties. The total purchase consideration has been allocated to the identifiable intangible assets based on their estimated fair values of $38.1 million (related to brands and customer relationships), tangible assets of $6.5 million and assumed liabilities of $12.0 million with the remainder allocated to goodwill.

The Company incurred transaction related costs of $1.1 million. $0.9 million was recorded in administrative expenses in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2020 and $0.2 million was recorded in administrative expenses in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021.

The total purchase consideration includes $3.8 million in deferred payments for future royalties. The future royalties are payable to the vendor upon the achievement of key performance indicators over a six-year period. The potential undiscounted amount of all future payments that the Company could be required to make under this contingent consideration arrangement is between $nil and $5.7 million. Based on a subsequent review of financial performance of the existing contingent consideration provision at year end, an additional $0.7 million was recorded for the year ended December 31, 2021.

Acquisition of certain assets from a product invention and development company

On April 16, 2021, the Company acquired assets and assumed liabilities of a product invention and development company which constitutes a business under IFRS 3. Included in the acquisition is an assembled workforce to complement the Company's toy innovation and development capabilities. The acquisition has been reported in the Toy CGU from the date of acquisition.

The total purchase consideration was comprised of $7.5 million of cash consideration and has been allocated as $0.7 million of tangible assets and $0.7 million of assumed liabilities with the remainder allocated to goodwill.

The Company had pre-existing licensing arrangements for the acquired intellectual property. No gain/loss from the settlement of the pre-existing relationship was generated from this transaction. The Company incurred $0.2 million in transaction related costs which were included in administrative expenses in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021.

The purchase agreement includes deferred consideration of $14.5 million which is contingent on continued employment of key principals over a five-year period. These payments are considered an incentiveremuneration expense and are accrued over the five-year period. Deferred remuneration expense of $4.3 million is included in Other expenses, net in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021, and in provisions and contingent liabilities in the Consolidated statements of financial position.

Acquisition of Originator Inc.

On June 14, 2021, the Company acquired 100% of the shares of Originator Inc., which qualifies as a business under IFRS 3. Originator Inc. is a developer and publisher of education focused mobile apps for kids and families and was acquired to complement Sago Mini's edutainment digital games offering. The acquisition has been reported in the Digital Games CGU and its revenue is included within Digital Games revenue from the date of acquisition.

The total purchase consideration was comprised of $15.0 million of cash consideration. The total purchase consideration has been allocated to identifiable intangible assets based on their estimated fair values of $9.1 million (related to brands, customer relationships and app development), tangible assets of $0.6 million and assumed liabilities of $2.9 million with the remainder allocated to goodwill. The purchase price allocation was finalized in the Company's third quarter of 2021.

The purchase agreement also includes deferred consideration of $4.0 million which is contingent on meeting certain performance metrics and has been allocated a fair value of $nil in the total purchase consideration.

The Company incurred $0.4 million in transaction related costs which were included in administrative expenses in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021, respectively.

The purchase agreement includes total deferred consideration of $10.0 million which is contingent on the continued employment of key principals as well as certain performance metrics, over a five-year period. These payments are considered an incentive-related remuneration expense and are accrued over the five-year period. Deferred remuneration expense of $2.5 million is included in Other expenses, net in the Consolidated statements of earnings and comprehensive income for the year ended December 31, 2021, and in provisions and contingent liabilities in the Consolidated statements of financial position.

Spin Master Ventures

On October 19, 2021, the Company announced the creation of Spin Master Ventures ("SMV"). SMV’s focus is to accelerate growth in each of the Company’s three creative centres comprising of Toys, Entertainment and Digital Games, through strategic minority investments. Spin Master will initially allocate $100 million capital to SMV, funded from existing internal resources. In the third quarter of 2021, SMV made minority investments in two companies for $2.4 million, namely, Nørdlight Games AB ("Nørdlight") for $0.6 million and Hoot Reading Inc. ("Hoot") for $1.8 million.

Nørdlight, a mobile game development company based in Stockholm is comprised of a five-person team with over 50 years of experience in the mobile games industry.
Hoot Reading, an education technology company based in Canada providing an online tutoring service that provides children with live, 1:1 reading lessons with experienced teachers.

SELECTED QUARTERLY FINANCIAL INFORMATION

Seasonality factors cause Spin Master’s operating results to fluctuate significantly from quarter to quarter. A majority of the Company’s annual Gross Product Sales[1] occur during the third and fourth quarters of the Company’s fiscal year.

The following table provides selected historical information and other data, which should be read in conjunction with the financial statements of the Company.

(in US$ millions, except EPS)	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Gross Product Sales1	627.5	681.2	359.0	294.7	511.8	587.4	282.2	242.3
Toy revenue	542.0	607.8	326.4	255.6	434.3	523.3	252.6	205.4
Entertainment and Licensing revenue	28.5	52.9	27.5	26.9	24.5	20.5	18.3	14.9
Digital games revenue	50.0	53.8	36.9	34.1	31.8	27.8	10.2	7.0
Revenue	620.5	714.5	390.8	316.6	490.6	571.6	281.1	227.3
Net income (loss)	26.5	135.4	33.5	3.2	0.3	86.8	(14.9)	(26.7)
Net margin	4.3%	19.0%	8.6%	1.0%	0.1%	15.2%	(5.3)%	(11.7)%
Adjusted EBITDA1	78.3	217.3	81.8	36.7	51.5	139.9	21.5	(32.3)
Adjusted EBITDA Margin1	12.6%	30.4%	20.9%	11.6%	10.5%	24.5%	7.6%	(14.2)%
Basic EPS	$0.26	$1.32	$0.33	$0.03	$—	$0.85	$(0.15)	$(0.26)
Diluted EPS	$0.25	$1.29	$0.32	$0.03	$—	$0.83	$(0.15)	$(0.26)
Adjusted Net Income (Loss)1	38.7	132.6	41.6	8.4	14.6	95.1	(9.5)	(46.8)
Adjusted Net Margin1	6.2%	18.6%	10.6%	2.7%	3.0%	16.6%	(3.4)%	(20.6)%
Adjusted Basic EPS1	$0.38	$1.30	$0.41	$0.08	$0.14	$0.93	$(0.09)	$(0.46)
Adjusted Diluted EPS1	$0.37	$1.26	$0.40	$0.08	$0.14	$0.91	$(0.09)	$(0.45)
Cash and cash equivalents, net of loans	562.7	360.5	310.7	262.3	320.6	207.3	111.5	74.8
and borrowings
Cash flow from operating activities	230.1	85.8	94.2	9.0	138.2	117.2	64.2	(8.8)
Cash used in investing activities	(19.6)	(22.7)	(46.9)	(64.0)	(19.3)	(20.2)	(26.4)	(19.0)
Free Cash Flow1	211.3	65.8	69.0	(6.5)	123.7	96.0	40.2	(27.8)

1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary source of liquidity is cash flow from operations. As a result of the seasonal nature of the toy industry, working capital requirements are variable throughout the year. Working capital needs typically grow through the first three quarters as inventories are built up for the peak sales periods for retailers in the fourth quarter. The Company’s cash flows from operating activities are typically at their highest levels of the year in the fourth quarter. As at December 31, 2021, the Company had cash and cash equivalents of $562.7 million (December 31, 2020 - $320.6 million).

Cash flows from operations could be negatively impacted by decreased demand for the Company’s products, which may result from factors such as adverse economic conditions and changes in public and consumer preferences, the loss of confidence by the Company’s principal customers in the Company and its product lines, or by increased costs associated with manufacturing and distribution of products. The Company’s primary capital needs are related to inventory financing, accounts payable funding, and capital expenditures for tooling, film production, digital games development and to fund strategic acquisitions and investments. The Company expects that cash, future operating cash flows and the amounts available to be drawn against the credit facilities will enable the Company to finance its capital investment program and fund its ongoing business requirements over the next 12 months, including working capital and financial obligations.

On September 28, 2021, the Company entered into an agreement to amend and restate its existing $510.0 million secured five-year revolving credit facility (the "Facility"). Under the terms of the amended and restated agreement, the Facility is now unsecured, matures on September 28, 2026 and contains certain financial covenants. The Facility also has an option which permits the Company to increase the total capital available by an additional $200.0 million. Total financing costs of $1.7 million, which include Facility amendment fees and related legal fees, are recognized in Other assets and will be amortized over the term of the amended and restated agreement.

As at December 31, 2021, there were $0.4 million (December 31, 2020 - $0.4 million) in letters of credit utilized under the Facility and no amounts drawn (December 31, 2020 - nil) under this Facility.

The Company has an uncommitted Overdraft Facility Agreement (the "European Facility") for $17.0 million (€15.0 million). The European Facility may be used to fund working capital requirements in Europe. As at December 31, 2021, the European Facility was undrawn.

The Company has a credit facility (the "Production Facility") with a limit of $7.9 million (CAD$10.0 million) to finance television and film production. As at December 31, 2021, the Production Facility was undrawn.

Short Form Base Shelf Prospectus

The Company filed a short form base shelf prospectus dated November 2, 2021, pursuant to which, for a period of 25 months thereafter, the Company (and shareholders of the Company) may sell up to an aggregate of CAD$1.0 billion of Subordinate Voting Shares, preferred shares, debt securities, subscription receipts, warrants or any combination thereof as a unit. This filing provides the Company with the flexibility to access debt and equity markets on a timely basis. The Company's previous base shelf prospectus in the amount of CAD$750.0 million, expired during the third quarter of 2021.

Capital and Investment Framework

Over the long term, the Company plans to use its free cash flows to fund seasonal working capital requirements related to product sales, television shows, feature films, short-form content, digital games development in addition to strategic acquisitions and minority investments.

Spin Master primarily uses third parties to manufacture, warehouse and distribute its products. As a result, the Company does not have to incur material investments in property, plant and equipment. The Company’s capital expenses are generally comprised of the purchase of tooling used in the manufacturing process and entertainment property production.

CASH FLOW

The following tables provide a summary of Spin Master’s consolidated cash flows for the three months and year ended December 31, 2021 and 2020:

	Three Months Ended Dec 31	Three Months Ended Dec 31
(US$ millions)	2021	2020	$ Change
Net cash flows provided by operating activities	230.1	138.2	91.9
Net cash flows used in investing activities	(19.6)	(19.3)	(0.3)
Net cash flows used in financingactivities	(3.5)	(4.0)	0.5
Net increase in cash and cash equivalents (excluding
the effect of foreign currency exchange rate changes)	207.0	114.9	92.1
Effect of foreign currency exchange rate changes on cash
and cash equivalents	(4.8)	(1.6)	(3.2)
Cash and cash equivalents,beginningofperiod	360.5	207.3	153.2
Cash and cash equivalents, end of period	562.7	320.6	242.1

		Year Ended Dec 31
(US$ millions)	2021	2020	$ Change
Net cash flows provided by operating activities	419.1	310.8	108.3
Net cash flows used in investing activities	(153.2)	(84.9)	(68.3)
Net cash flows used in financingactivities	(18.3)	(16.3)	(2.0)
Net increase in cash and cash equivalents (excluding
the effect of foreign currency exchange rate changes)	247.6	209.6	38.0
Effect of foreign currency exchange rate changes on cash
and cash equivalents	(5.5)	(4.3)	(1.2)
Cash and cash equivalents,beginningofyear	320.6	115.3	205.3
Cash and cash equivalents, end of year	562.7	320.6	242.1

Cash from Operating Activities as compared to the same period in 2020:

Cash flows provided by operating activities were $230.1 million for the three months ended December 31, 2021 compared to $138.2 million driven by higher net income and the decrease in change in net working capital.

Cash flows provided by operating activities were $419.1 million for the year ended December 31, 2021 compared to $310.8 million driven by higher net income and the decrease in change in net working capital.

The table below outlines key financial information pertaining to the Company's net working capital:

Dec 31, (US$ millions) 2021	Dec 31, $ Change % Change 2020
Trade receivables, net1 327.9 Other receivables2 66.7 Inventories 137.4 Advances on royalties 7.1 Prepaid expenses 9.0 Other assets —	277.2 50.7 18.3 % 59.2 7.5 12.7 % 102.0 35.4 34.7 % 17.2 (10.1) (58.7) % 7.2 1.8 25.0 % 3.0 (3.0) (100.0)%
Total current assets 548.1 Trade payables 274.7 Accrued liabilities3 201.7 Deferred revenue 10.9 Provisions and contingent liabilities 25.1	465.8 82.3 17.7 % 161.4 113.3 70.2 % 153.0 48.7 31.8 % 25.3 (14.4) (56.9) % 29.2 (4.1) (14.0)%
Total current liabilities 512.4	368.9 143.5 38.9 %
Total net working capital 35.7	96.9 (61.2) (63.2) %

1) Trade receivables are net of allowance for doubtful accounts and provisions for sales allowances. Refer to Note 10 of the financial statements.

2) Other receivables include investment tax credits receivable, royalties, sales tax and other balances. Refer to Note 10 of the financial statements.

3) Accrued liabilities are comprised of payroll related liabilities, accrued royalties, commodity tax and other balances. Refer to Note 17 of the financial statements.

Dec 31, (US$ millions) 2020	Dec 31, $ Change % Change 2019
Trade receivables, net1 277.2 Other receivables2 59.2 Inventories 102.0 Advances on royalties 17.2 Prepaid expenses 7.2 Other assets 3.0	370.7 (93.5) (25.2) % 57.0 2.2 3.9 % 185.3 (83.3) (45.0) % 18.0 (0.8) (4.4) % 14.4 (7.2) (50.0) % — 3.0 n.m
Total current assets 465.8 Trade payables 161.4 Accrued liabilities3 153.0 Deferred revenue 25.3 Provisions and contingent liabilities 29.2	645.4 (179.6) (27.8) % 215.8 (54.4) (25.2) % 129.8 23.2 17.9 % 7.6 17.7 232.9 % 26.2 3.0 11.5 %
Total current liabilities 368.9	379.4 (10.5) (2.8) %
Total net working capital 96.9	266.0 (169.1) (63.6) %

1) Trade receivables are net of allowance for doubtful accounts and provisions for sales allowances. Refer to Note 10 of the financial statements.
2) Other receivables include investment tax credits receivable, royalties, sales tax and other balances. Refer to Note 10 of the financial statements.
3) Accrued liabilities are comprised of payroll related liabilities, accrued royalties, commodity tax and other balances. Refer to Note 17 of the financial statements.

Total net working capital decreased by $61.2 million or 63.2% to $35.7 million at December 31, 2021 from $96.9 million. Excluding the impact of foreign exchange, total net working capital increased by $49.9 million.

Trade receivables, net, increased by $50.7 million or 18.3% to $327.9 million at December 31, 2021 from $277.2 million, driven by the increase in toy revenue in the fourth quarter compared to the prior year.

Inventories increased by $35.4 million or 34.7% to $137.4 million at December 31, 2021 from $102.0 million, driven by higher in-transit inventory and higher product and ocean freight costs due to inflation.

Trade payables and accrued liabilities increased by $162.0 million or 51.5% to $476.4 million at December 31, 2021 from $314.4 million, driven by the timing of payments in line with the seasonality of the business.

Investing Activities as compared to the same period in 2020:

The following tables provide a summary of Spin Master’s consolidated cash flows used in investing activities for the three months and year ended December 31, 2021 and 2020:

	Three Months Ended Dec 31	Three Months Ended Dec 31
(US$ millions)	2021	2020	$ Change
Property, plant and equipment
Tooling	4.3	3.8	0.5
Other	(1.1)	(2.0)	0.9
Totalproperty, plant and equipment	3.2	1.8	1.4
Intangible assets
Entertainment content and app development	14.6	14.2	0.4
Computer software	0.5	(1.7)	2.2
Brands,licenses and trademark acquisitions	0.5	0.2	0.3
Total intangible assets	15.6	12.7	2.9
Total capital expenditures	18.8	14.5	4.3
Business acquisitions, net of cash acquired	0.7	3.3	(2.6)
Investment in minority interests and limited partnership, net of
investment distribution income	0.1	1.8	(1.7)
Proceeds from disposals	—	(0.3)	0.3
Cash used in investing activities	19.6	19.3	0.3

Cash used in investing activities was $19.6 million for the three months ended December 31, 2021 compared to $19.3 million as a result of higher investments in entertainment content and app development offset by lower investments in business acquisitions.

		Year Ended Dec 31
(US$ millions)	2021	2020	$ Change
Property, plant and equipment
Tooling	22.8	18.9	3.9
Other	3.6	2.1	1.5
Totalproperty, plant and equipment	26.4	21.0	5.4
Intangible assets
Entertainment content and app development	50.3	50.6	(0.3)
Computer software	1.8	5.9	(4.1)
Brands,licenses and trademark acquisitions	1.0	1.2	(0.2)
Total intangible assets	53.1	57.7	(4.6)
Total capital expenditures	79.5	78.7	0.8
Business acquisitions, net of cash acquired	70.9	2.3	68.6
Investment in minority interests and limited partnership, net of
investment distribution income	2.8	1.8	1.0
Investment in trademark license agreement	—	2.4	(2.4)
Proceeds from disposals	—	(0.3)	0.3
Cash used in investing activities	153.2	84.9	68.3

For the year ended December 31, 2021, cash used in investing activities was $153.2 million compared to $84.9 million. Business acquisitions in the current year relate to the acquisition of Rubik's , Originator and certain assets from a product invention and development company. Also contributing to the increase was higher investment in property, plant and equipment, offset in part by lower investments in computer software.

Financing Activities as compared to the same period in 2020:

Cash flows used in financing activities were $3.5 million for the three months ended December 31, 2021 compared to $4.0 million. For the year ended December 31, 2021, cash flows used in financing activities were $18.3 million compared to cash flows used in financing activities of $16.3 million driven by higher payment of lease liabilities.

Free Cash Flow[1] as compared to the same period in 2020:

The following tables provide a reconciliation of Spin Master’s consolidated Free Cash Flow[1] to cash from operating activities and cash used in investing activities for the three months and year ended December 31, 2021 and 2020:

	Three Months Ended Dec 31	Three Months Ended Dec 31
(US$ millions)	2021	2020	$ Change
Cash flows provided by operating activities	230.1	138.2	91.9
Cash flows used in investing activities	(19.6)	(19.3)	(0.3)
Add:
Business acquisitions, net of cash acquired	0.7	—	0.7
Investment in limited partnership	0.1	1.8	(1.7)
Advancepaid for business acquisitions	—	3.0	(3.0)
Free Cash Flow1	211.3	123.7	87.6

		Year Ended Dec 31
(US$ millions)	2021	2020	$ Change
Cash flows provided by operating activities	419.1	310.8	108.3
Cash flows used in investing activities	(153.2)	(84.9)	(68.3)
Add:
Business acquisitions, net of cash acquired	70.9	(0.7)	71.6
Advance paid for business acquisitions	—	3.0	(3.0)
Investment in trademark license agreement	—	2.4	(2.4)
Investment distribution income	(0.6)	—	(0.6)
Investment in limited partnership	1.0	1.8	(0.8)
Investment in minority interests	2.4	—	2.4
Proceeds from sale of investments	—	(0.3)	0.3
Free Cash Flow1	339.6	232.1	107.5

1) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

Free Cash Flow[1] was $211.3 million for the three months ended December 31, 2021 compared to $123.7 million, an increase of $87.6 million. Free Cash Flow[1] increased primarily due to higher cash flows generated by operating activities driven by higher net income and the decrease in net working capital. For the year ended December 31, 2021, Free Cash Flow[1] was $339.6 million compared to $232.1 million, an increase of $107.5 million. In both comparative periods, Free Cash Flow[1] increased primarily due to higher cash flows generated by operating activities driven by higher net income and the decrease in net working capital.

CONTRACTUAL OBLIGATIONS & COMMITMENTS

In the normal course of business, Spin Master enters into contractual arrangements to obtain and protect Spin Master’s right to create and market certain products and to ensure availability and timely delivery of future purchases of goods and services. These arrangements include commitments for future services, purchases, commitments to settle foreign currency forward contracts and royalty payments pursuant to licensing agreements. Certain of these commitments routinely contain provisions for guarantees or minimum expenditures during the terms of the contracts. Additionally, Spin Master routinely enters into non‑cancellable lease agreements for premises and equipment, which contain minimum rental payments.

The following table summarizes Spin Master's contractual commitments and obligations as at December 31, 2021, which are primarily for the leasing of offices and related office equipment and minimum guarantees due to licensors. The leases have been entered into with terms of between two and twelve years in length and minimum guarantees to licensors are primarily due within 24 months.

		Less	than 1 year to	greater than 5 years
(US$ millions)	<1 Year		1-5 Years	> 5 Years	Total
Lease obligations - undiscounted		15.0	38.7	45.4		99.1
Guaranteedpayments due to licensors		15.1	14.0	2.0		31.1
Total commitments		30.1	52.7	47.4		130.2

OFF ‑ BALANCE SHEET ARRANGEMENTS

‑ Spin Master has no off balance sheet arrangements that have or are reasonably likely to have a current or future material effect on its financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

CAPITALIZATION

Share Capital

As at February 28, 2022, there were 102.4 million shares outstanding comprised of 70.6 million Multiple Voting Shares and 31.8 million Subordinate Voting Shares.

As of February 28, 2022, pursuant to grants under the Company's Long-Term Incentive Plan, 0.9 million Subordinate Voting Shares were issuable under outstanding Restricted Stock Units, up to 2.2 million Subordinate Voting Shares were issuable under outstanding Performance Share Units (assuming vesting at a maximum of 200% for units with an outstanding performance period) and 0.5 million Subordinate Voting Shares were issuable under outstanding Share Option grants.

On February 18, 2020, the Company announced changes to senior leadership. As a result of these changes, 301,160 subordinate voting shares were forfeited and 133,550 subordinate voting shares with a fair value of $1.1 million were canceled.

RISKS RELATING TO SPIN MASTER'S BUSINESS

An investment in securities of the Company involves significant risks. Investors should carefully consider the risks described below, the other information described elsewhere in this Annual Information Form and those risks set out in the Company's MD&A for the year ended December 31, 2021 (as updated by subsequent interim MD&A) before making a decision to buy securities of the Company. If any of the following or other risks occur, the Company’s business, prospects, financial condition, financial performance and cash flows could be materially adversely impacted. These factors are also currently, and in the future may be, amplified by the COVID-19 pandemic. In that case, the ability of the Company to make distributions to holders of Subordinate Voting Shares could be adversely affected, the trading price of securities of the Company could decline and investors could lose all or part of their investment in such securities. There is no assurance that risk management steps taken will avoid future loss due to the occurrence of the below described or other unforeseen risks.

If Spin Master does not create original, or enhance existing, products, brands and entertainment properties that satisfy consumer preferences, and anticipate, initiate and capitalize on developments in its industry, the Company’s business will suffer.

Spin Master depends on its ability to innovate and sell original products, brands and entertainment properties and to identify changing consumer sentiments and respond to such changes on a timely basis. Spin Master also relies on its ability to identify third-party entertainment media that is likely to be popular with consumers and license rights to such media to incorporate into the Company’s products. Spin Master’s ability to maintain current sales, and increase sales or establish sales with new, innovative products, will depend on its ability to satisfy play preferences, enhance existing products, engineer, develop, introduce and achieve market acceptance of its original products, brands and entertainment properties. If the Company is unable to anticipate consumer preferences, its products, brands and entertainment properties may not be accepted by children, parents, or families, demand for the Company’s products, brands and entertainment properties could decrease and Spin Master’s business, financial condition and performance could be materially and adversely affected.

Spin Master’s business and financial performance depend largely upon the appeal of its products, brands and entertainment properties. Failure to anticipate, identify and react to changes in children’s interests and consumer preferences could significantly lower sales of its products, brands and entertainment properties and harm its revenues and profitability. This challenge is more difficult with the ever increasing utilization of technology and digital media in entertainment offerings, and the increasing breadth of entertainment available to consumers. Evolving consumer tastes and shifting interests, coupled with changing and expanding sources of entertainment and consumer products and properties which compete for children’s and families’ interest and acceptance, create an environment in which some products and properties can fail to achieve consumer acceptance, and other products and properties can be popular during a certain period of time but then be rapidly replaced. The preferences and interests of children and families evolve quickly, can change drastically from year to year and season to season and are difficult to anticipate. Significant, sudden shifts in demand are caused by “hit” toys, technologies and trends, which are often unpredictable. Even the Company’s successful brands and products typically have a relatively short period of high demand followed by a decrease in demand as the product matures or is superseded by newer technologies and / or brands and products. A decline in the popularity of the Company’s existing products, brands and entertainment properties, or the failure of Spin

Master’s original products, brands and entertainment properties to achieve and sustain market acceptance with retailers and consumers, could significantly lower the Company’s revenues and operating margins, which would harm Spin Master’s business, financial condition and performance.

The industries in which Spin Master operates are highly competitive and the Company’s inability to compete effectively may materially and adversely impact its business, financial condition and performance.

Spin Master operates in industries characterized by intense competition. The Company competes domestically and internationally with numerous large and small companies that develop, market and sell analog toys and games, products which combine analog and digital play, digital gaming products, and other entertainment and consumer products, as well as with retailers who offer such products under their own private labels often at lower prices. The growing importance of digital media, and the heightened connection between digital media and consumer interest, has further increased the ability for new participants to enter Spin Master’s markets, and has broadened the array of companies Spin Master competes with which can become a significant source of competition for the Company in a very short period of time. In addition to existing customers, low barriers to entry enable new competitors to quickly establish themselves with only a single popular product. New participants with a popular product idea or property can gain access to consumers and become a significant source of competition for the Company. Spin Master’s competitors’ products may achieve greater market acceptance than the Company’s products and, in doing so, may potentially reduce the demand for the Company’s products, brands or properties. Spin Master’s competitors have obtained and are likely to continue to obtain licenses that overlap with the Company’s licenses with respect to products, geographic areas and markets. Spin Master may not be able to obtain adequate shelf space in retail stores to support or expand its brands or products, and the Company may not be able to continue to compete effectively against current and future competitors. These existing and new competitors may be able to respond more rapidly than Spin Master to changes in consumer preferences. Spin Master’s competitors’ products may achieve greater market acceptance than the Company’s products and potentially reduce demand for the Company’s products, lower its revenues and lower its profitability.

Spin Master also faces competition in the entertainment industry. Some of the Company’s competitors in the content market have interests in multiple media businesses which are often vertically integrated. Spin Master’s ability to compete in this market depends on a number of factors, including its ability to develop high quality and popular entertainment content, adapt to new technologies and distribution platforms and achieve widespread distribution.

Some of Spin Master’s competitors have longer operating histories, significantly greater financial, marketing and other resources, greater economies of scale, more long-standing brands and products and greater name recognition. The Company may be unable to compete with them in the future. If Spin Master fails to compete, its business, financial condition and performance could be materially and adversely affected.

Spin Master’s failure to market or advertise products could have a material adverse effect on the Company’s business, financial condition and performance.

Spin Master’s products are marketed worldwide through a diverse spectrum of advertising and promotional programs. The Company’s ability to sell products is largely dependent upon the success of these programs. If Spin Master does not market its products, sales could decline or if media or other advertising or promotional costs increase, Spin Master’s costs could increase, which could have a material adverse effect on the Company’s business, financial condition and performance. Additionally, loss of television or media support related to any of the Company’s products may decrease the number of products it sells and harm its business, financial condition and performance.

Failure to protect or enforce Spin Master’s IP rights and claims by third parties that the Company is infringing their IP rights could materially and adversely affect Spin Master’s business, financial condition and performance.

Spin Master relies on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect its IP and proprietary rights. Contractual arrangements and other steps the Company has taken to protect its IP may not prevent misappropriation of its IP or deter independent third-party development of similar products. The steps Spin Master has taken may not prevent unauthorized use of its IP, particularly in foreign countries where the Company does not hold patents or trademarks or where the laws may not protect its IP as fully as in North America. Some of Spin Master’s products and product features have limited IP protection, and, as a consequence, the Company may not have the legal right to prevent others from reverse engineering or otherwise copying and using these features in competitive products. Monitoring the unauthorized use of the Company’s IP is costly, and any dispute or other

litigation, regardless of the outcome, may be costly and time consuming and may divert the Company’s resources.

Additionally, Spin Master has registered various domain names relating to some of its brands and products. If the Company fails to maintain these registrations, or if a third party acquires domain names similar to the Company’s and engages in a business that may be confusing to the Company’s users and customers, Spin Master’s revenues may decline and it may incur additional expenses in maintaining its brands.

Spin Master periodically receives claims of infringement or otherwise becomes aware of potentially relevant patents, copyrights, trademarks or other IP rights held by other parties. Responding to any infringement claim, regardless of its validity, may be costly and time-consuming and may divert the Company’s resources. If Spin Master or its licensors are found to be infringing on the IP rights of any third-party, Spin Master or its licensors may be required to obtain a license to use those rights, which may not be obtainable on reasonable terms, if at all. The Company also may be subject to significant damages or injunctions against the development and sale of some of its products or against the use of a trademark or copyright in the sale of some of its products. Spin Master’s insurance does not cover all types of IP claims and insurance levels for covered claims may not be adequate to indemnify the Company against all liability, which could materially and adversely harm its business, financial condition and performance.

Spin Master licenses IP rights from third-party owners. Failure of such owners to properly maintain or enforce the IP underlying such licenses could have a material adverse effect on the Company’s business, financial condition and performance. The Company’s licensors may also seek to terminate Spin Master’s license.

Spin Master is a party to a number of licenses that give the Company rights to third-party IP that is necessary or useful to the Company’s business. Spin Master’s success will depend in part on the ability of its licensors to obtain, maintain and enforce its licensed IP, in particular, those IP rights to which the Company has secured exclusive rights. Without protection for the IP Spin Master licenses, other companies might be able to offer substantially identical products for sale, which could have a material adverse effect on the Company’s business, financial condition and performance.

One or more of the Company’s licensors may not renew its expiring licenses or allege that Spin Master has breached its license agreement with them, and accordingly seek to terminate Spin Master’s license. If successful, this could result in the Company’s loss of the right to use the licensed IP, which could adversely affect the Company’s ability to commercialize its technologies, products or services, as well as have a material adverse effect on its business, financial condition and performance.

The COVID-19 pandemic and actions taken by governments, businesses, and individuals in response to it could adversely affect Spin Master’s business, financial position, sales, and results of operations.

The global COVID-19 pandemic and the actions taken by governments, businesses, and individuals in response to it have resulted in significant global economic disruption, including, but not limited to, temporary business closures, reduced retail traffic, volatility in financial markets, restrictions on travel, and safer-at-home protocols. Such disruptions in the markets in which Spin Master, its employees, consumers, customers, partners, licensees, licensors, suppliers, and manufacturers operate, can have, and at times in the past have had, a significant negative impact on Spin Master’s business, financial position, sales, and results of operations. Negative impacts may result from, among other things:

declines in Toy revenue as a result of retail store closures (including specialty retailers), limited reopening, evolving stay-at-home protocols, and limitations on the capacity of e-commerce in certain markets;
disruptions to the design, development, manufacturing, and/or distribution operations of Spin Master and/or its third-party suppliers resulting in limitations on Spin Master’s ability to design, develop, manufacture, and distribute products effectively, efficiently, and in a timely manner;
delays in entertainment content releases from our licensors, or changes in release plans, that can adversely impact sales of the Company’s products;
disruptions or restrictions on the ability of Spin Master’s employees, suppliers, and manufacturers to work effectively, including due to illness, quarantines, government actions, and facility closures or other similar restrictions;
increased operational risks, including increased risks of accounts receivable collection, insolvency of retailers (particularly specialty retailers), delays in payment, and negotiations with third parties over payment terms or the ability to perform under certain contracts or licenses; and
any currently unforeseen effects of COVID-19.

Any one of these factors, or a combination thereof, could impact Spin Master’s ability to meet demand for its products. To the extent any of these disruptions become prolonged or recur, particularly during seasonally high periods of production or distribution, Spin Master’s ability to meet demand may be materially impacted.

Since mid-March 2020, the majority of Spin Master’s workforce has been working remotely. While reopening of some of the Company’s offices has begun on a limited basis, Spin Master continues to actively develop a plan to safely bring additional personnel back to its offices, which will be based on need and governmental, health, and safety guidelines. The Company regularly communicates and engages with its employees to minimize the disruption and stress of working remotely, provide flexibility and ensure that our employees are getting access to information and accommodations as the Company plans for a successful and safe re-entry to the workplace.

The impact of the COVID-19 pandemic continues to be fluid and uncertain, making it difficult to forecast the ultimate impact it could have on Spin Master’s future operations. If Spin Master’s business experiences prolonged occurrence of adverse public health conditions due to COVID-19 or other similar public health incidents, Spin Master’s business, financial position, sales, and results of operations could be materially impacted.

Spin Master may not be able to sustain or manage its growth strategy, which may prevent the Company

from increasing its revenues.

Historically, Spin Master has experienced growth in its product lines which at times has been rapid. The Company’s growth strategy calls for it to continuously develop and diversify its business by introducing original products, innovating and refining its existing product lines and expanding into international markets, entering into additional license agreements, and acquiring other companies, which will place additional demands upon the Company’s management, operational capacity and financial resources and systems. The increased demand upon management may necessitate Spin Master’s recruitment and retention of qualified personnel. This can be particularly difficult when unexpected, significant, sudden shifts in demand are caused by “hit” toys and trends. There can be no assurance that the Company will be able to recruit and retain qualified personnel or expand and manage its operations effectively and profitably. Implementation of Spin Master’s growth strategy is subject to risks beyond its control, including competition, market acceptance of original products, changes in economic conditions, its ability to obtain or renew licenses on commercially reasonable terms and its ability to finance increased levels of accounts receivable and inventory necessary to support its sales growth, if any. Accordingly, there can be no assurance that the Company’s growth strategy will be successful or that it will be able to achieve its targeted future sales growth. The lack of success in the Company’s growth strategy may have a material and adverse effect on its business, financial condition and performance.

Spin Master’s dependence on third-party manufacturers, distributors, distribution centres and logistics service providers presents risks to the Company’s business and exposes it to risks associated with international operations.

A majority of Spin Master’s products are manufactured by third-party manufacturers, most of which are located in Asia and primarily in China, and transported, stored and distributed by third parties on its behalf. The Company’s operations could be adversely affected if the Company lost its relationship with any of its third-party service providers, or if there was any material failure, inadequacy or interruption resulting from its third-party service providers due to factors beyond the Company’s control. Although Spin Master’s external sources of manufacturing and its distribution centres and logistics service providers can be shifted over a period of time to alternative sources, should such changes be necessary, the Company’s operations could be disrupted, potentially for a significant period of time, while alternative sources were secured, and significant capital investments could be required to remediate the problem.

Given that the majority of Spin Master’s products are manufactured by third-party manufacturers, public health crises, such as the COVID-19 pandemic, and other factors affecting political, social and economic activity where our manufacturers are located may affect the movement of people and products into and from those locations to the Company’s major markets, including North America and Europe. Public health crises, such as the COVID-19 pandemic, impacting the Company’s third-party manufacturers, distributors, distribution centres and logistics service providers had and can have a significant negative impact on Spin Master’s business.

As a result of Spin Master’s dependence on third-party manufacturers, any difficulties encountered by one of the Company’s third-party manufacturers that results in production delays, cost overruns or the inability to fulfill its orders on a timely basis, including political disruptions, labour difficulties and other factors beyond the Company’s control, could adversely affect the Company’s ability to deliver its products to its customers, which in turn could harm the Company’s reputation and adversely affect its business, financial condition and performance. Similarly, Spin Master relies on third-party distribution centres and logistics service providers to transport its products to the markets in which they are sold and on third-party distributors to distribute those

products within those markets. Any disruption affecting the ability of the Company’s third-party service providers to timely deliver or distribute its products to its customers could cause delays in product sales, cause customers to cancel orders, have a material adverse effect on Spin Master’s revenue and profitability, and harm its reputation.

Spin Master’s significant use of third-party manufacturers outside of North America also exposes the Company to risks, including:

currency fluctuations;
limitations on the repatriation of capital;
potential challenges to the Company’s transfer pricing determinations and other aspects of its crossborder transactions which may impact income tax expense;
political instability, civil unrest and economic instability;
greater difficulty enforcing IP rights and weaker laws protecting such rights;
requirements to comply with different laws in varying jurisdictions, which laws may dictate that certain practices that are acceptable in some jurisdictions are not acceptable in others, and changes in governmental policies;
natural disasters and greater difficulty and expense in recovering from them;
difficulties in moving materials and products from one country to another, including port congestion, strikes and other transportation delays and interruptions;
difficulties in controlling the quality of raw materials and components used to manufacture the Company’s products, which may lead to public health and other concerns regarding its products;
changes in international labour costs, labour strikes, disruptions or lock-outs; and
the imposition of tariffs or other protectionist measures, or the breakdown of trade relations.

Due to Spin Master’s reliance on international sourcing of manufacturing, its business, financial condition and performance could be significantly and materially harmed if any of the risks described above were to occur.

Spin Master requires its third-party manufacturers and distributors to comply with Spin Master’s code of conduct, which is designed to prevent products manufactured by or for the Company from being produced under inhumane or exploitive conditions. Spin Master’s code of conduct addresses a number of issues, including work hours and compensation, health and safety, and abuse and discrimination. In addition, the Company requires that its products supplied by third-party manufacturers or distributors be produced or distributed in compliance with all applicable laws and regulations, including consumer and product safety laws in the markets where those products are sold. The Company has the right, both directly and through the use of outside monitors, to monitor compliance by its third-party manufacturers and distributors with Spin Master’s code of conduct and other manufacturing requirements. In addition, the Company conducts quality assurance testing on its products, including products manufactured or distributed for the Company by third parties. Notwithstanding these requirements and Spin Master’s monitoring and testing of compliance with them, there remains the risk that one or more of the Company’s third-party manufacturers or distributors will not comply with Spin Master’s requirements and that Spin Master will not immediately discover such non-compliance. Any failure of the Company’s third-party manufacturers or distributors to comply with labour, consumer, product safety or other applicable requirements in manufacturing or distributing products for the Company could result in damage to Spin Master’s reputation, harm sales of its products and potentially create liability for Spin Master and its business, financial condition and performance could be materially and adversely impacted.

Disruptions in Spin Master’s manufacturing operations or supply chain due to political instability, civil unrest or public health crisis have adversely affected and could further adversely affect Spin Master’s business, financial position, sales, and results of operations.

The Company owns, operates and manages manufacturing facilities and utilizes third-party manufacturers and suppliers in China, as well as in Vietnam, India, Mexico and France. The risk of political instability and civil unrest in certain of these countries, which could temporarily or permanently damage the manufacturing operations of the Company or its third-party manufacturers. Outbreaks of communicable diseases have also been known to occur in certain of these countries and around the world. Other disruptions from public health crises such as these result from, among other things, workers contracting diseases, restrictions on factory openings, restrictions on travel, restrictions on shipping and shopping, and the closure of critical infrastructure. The design, development, manufacture, distribution and sale of the Company’s products has suffered and could further suffer if a significant number of the Company’s employees or the employees of its third-party manufacturers, their suppliers, or of businesses where the Company’s products are sold, contract communicable diseases such as these, or if the Company, the Company’s third-party manufacturers, or their suppliers are adversely affected by other impacts of such diseases. In addition, the contingency plans the Company has developed to help mitigate the impact of disruptions in its operations, have not and may not

prevent its business, financial position, sales, and results of operations from being adversely affected by a significant disruption to its operations, suppliers or demand for the Company’s products.

Spin Master’s business is seasonal and therefore its annual financial performance depends, in large part, on its sales relating to the holiday season. As retailers become more efficient in their control of inventory levels and give shorter lead times for production, failures to predict demand and possible transportation, production or other disruptions during peak demand times may affect the Company’s ability to deliver products in time to meet retailer demands.

Seasonality factors cause Spin Master’s operating results to fluctuate significantly from quarter to quarter. A majority of the Company’s Toy revenue is concentrated in the third and fourth quarters, with a majority of retail sales occurring during the period from September through December in anticipation of the holiday season. Generally, the first quarter is the period of lowest shipments and revenues in the toy industry and therefore, the least profitable because of certain fixed costs. Further, ecommerce continues to grow significantly and accounts for a higher portion of the ultimate sales of the Company’s products to consumers. Ecommerce retailers tend to hold less inventory and take inventory closer to the time of sale to consumers than traditional retailers. Spin Master’s failure to predict levels of consumer demand surrounding the holiday season may result in underproducing popular products and overproducing underperforming items, which, in either case, would adversely affect the Company’s business, financial condition and performance. Spin Master’s results of operations may also fluctuate as a result of factors such as the timing of new products or new products that its competitors introduce in the marketplace, the advertising activities of its competitors and the emergence of new market entrants. In addition, due to the seasonal nature of Spin Master’s business, the Company would be materially and adversely impacted, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen events, such as public health crises and pandemics, terrorist attacks, adverse weather conditions or economic shocks that harm the retail environment or consumer buying patterns during the Company’s key selling season, or by events such as strikes, port delays or supply chain interruptions, that interfere with the manufacture or shipment of goods during critical months leading up to the peak purchasing season.

If Spin Master fails to meet transportation schedules, it could damage the Company’s relationships with retailers, increase the Company’s distribution and logistics costs or cause sales opportunities to be delayed or lost. In order to be able to deliver its merchandise on a timely basis, Spin Master needs to maintain adequate inventory levels of the desired products. If the Company’s inventory forecasting and production planning processes result in Spin Master manufacturing inventory in excess of the levels demanded by its customers, the Company could be required to record inventory write-downs for excess and obsolete inventory, which could materially and adversely affect the Company’s financial performance. If the inventory of Spin Master products held by its retailers is too high, they may not place or may reduce orders for additional products, which could unfavourably impact the Company’s future sales and materially and adversely affect its financial performance.

Uncertainty and adverse changes in general economic conditions may negatively affect consumer spending, which could have a material adverse effect on Spin Master’s revenue and profitability.

Current and future conditions in the economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction for the economy as a whole. It is even more challenging to estimate growth or contraction in various parts, sectors and regions of the economy, including the many different markets in which Spin Master participates. The Company’s budgeting and forecasting are dependent upon estimates of demand for its products and growth or contraction in the markets it serves. Economic uncertainty complicates reliable estimation of future income and expenditures. Adverse changes may occur as a result of weakening global economic conditions, tightening of consumer credit, falling consumer confidence, increasing unemployment, declining stock markets or other factors affecting economic conditions generally. These changes may negatively affect demand for Spin Master’s products, increase exposure to retailers with whom it does business, increase the cost and decrease the availability of financing to fund Spin Master’s working capital needs, or increase costs associated with manufacturing and distributing products, any of which could have a material and adverse effect on the Company’s revenue and profitability.

Consumer spending habits, including spending on Spin Master products, are affected by, among other things, prevailing economic conditions, levels of employment, fuel prices, salaries and wages, the availability of consumer credit, foreclosures, bankruptcies, falling home prices, consumer confidence and consumer perception of economic conditions. A general economic slowdown in Canada, the U.S. and other parts of the world could decrease demand for the Company’s products which would adversely affect its revenue; an uncertain economic outlook may adversely affect consumer spending habits and customer traffic, which may result in lower revenue. A prolonged global economic downturn could have a material negative impact on the Company’s business, financial condition and performance.

In addition to experiencing potentially lower revenues during times of economic difficulty, in an effort to maintain sales during such times, Spin Master may need to reduce the price of its products, increase promotional spending and/or sales allowances, offer incentives or take other steps to encourage retailer and consumer purchase of its products. Those steps may lower the Company’s net revenues or increase its costs, thereby decreasing its operating margins and lowering its profitability. These challenges can be exacerbated if customers accumulate excess retail inventories over time due to their purchases of Spin Master’s products exceeding sales of those products to ultimate consumers. It can then take the Company significant time, working with retailers, to reduce those excess retail inventories, and in the interim its sales of new products can be negatively impacted.

Spin Master’s sales are concentrated with a small number of retailers that do not make long-term purchase commitments. Consequently, economic difficulties or changes in the purchasing strategies and patterns of those retailers could have a material adverse effect on the Company’s business, financial condition and performance.

A small number of retailers account for a large proportion of Spin Master’s revenue. This concentration means that if one or more of Spin Master’s major customers were to experience difficulties in fulfilling their obligations to the Company, cease doing business with the Company, significantly reduce the amount of their purchases from the Company, return substantial amounts of Spin Master’s products, favour its competitors or new entrants or increase their competition with Spin Master by expanding their private label product lines, or seek material financial contributions from the Company towards price reductions at the retail level, the Company’s business, financial condition and performance could suffer. In addition, increased concentration among Spin Master’s customers could also negatively impact its ability to negotiate higher sales prices for its products, could result in lower margins and could reduce the number of products the Company would otherwise be able to bring to market. Retailers do not make any long-term commitments to the Company regarding purchase volumes and make all purchases by delivering one-time purchase orders. Any customer could reduce its overall purchases of the Company’s products, reduce the number and variety of the Company’s products that it carries and the shelf space allotted for Spin Master’s products, or otherwise seek to materially change the terms of their business relationship with Spin Master at any time. Any such change could significantly harm the Company’s business, financial condition and performance. Similarly, liquidity problems at one or more of the Company’s key customers could expose the Company to losses from bad debts and negatively impact its business, financial condition and performance. Spin Master’s sales to retailers are typically made on credit without collateral. There is a risk that customers will not pay, or that payment will be delayed, because of bankruptcy or other factors beyond Spin Master’s control, which could increase its exposure to losses from bad debts and increase its cost of sales. In addition, if these or other retailers were to cease doing business as a result of bankruptcy, or significantly reduce the number of stores they operate, it could have a material adverse effect on the Company’s business, financial condition and performance. Spin Master’s credit insurance may not cover all types of claims against customers and insurance levels for covered claims may not be adequate to indemnify the Company against all liability, which could materially and adversely harm the Company’s business, financial condition and performance.

Failure to maintain existing relationships, or to develop new relationships, with inventors and entertainment content collaborators could have a material adverse effect on Spin Master’s business, financial condition and performance.

Spin Master’s relationships with inventors are a critical aspect of the Company’s product development. A significant portion of Spin Master’s product ideas have been sourced from inventors and developed by the Company. If Spin Master fails to maintain existing relationships or to develop new relationships within the inventor community or if the Company experiences an adverse change in the perception of the Company by inventors, Spin Master may receive fewer product concepts from inventors. This would adversely impact Spin Master’s ability to introduce new, innovative brands and products, which in turn would materially and adversely harm its business, financial condition and performance.

Spin Master’s relationships with entertainment collaborators, including writers, content developers, broadcasters and directors, are a critical aspect of the Company’s development of its entertainment properties, brands and content. A portion of Spin Master’s entertainment properties, brands and content have been sourced from external collaborators. If Spin Master fails to maintain existing relationships or to develop new relationships with entertainment collaborators or if the Company experiences an adverse change in the perception of the Company by these entertainment collaborators, Spin Master may receive fewer concepts. This would adversely impact Spin Master’s ability to introduce new entertainment properties, brands and content, which in turn would materially and adversely harm its business, financial condition and performance.

Failure to leverage Spin Master’s portfolio of franchises effectively across entertainment and media platforms, maintain relationships with key television and motion picture studios, and entertainment and media companies could have a material adverse effect on the Company’s business, financial condition and performance.

Complementing Spin Master’s product offerings with entertainment and media initiatives is an integral part of the Company’s growth strategy. Spin Master invests in interactive media and other entertainment initiatives, extending the Company’s brands across multiple platforms. Establishing and maintaining relationships with key broadcasters and motion picture studios, and entertainment and media companies are critical to the successful execution of these initiatives. The Company’s failure to execute effectively on these initiatives could result in its inability to recoup its investment and harm the related toy brands employed in these initiatives. Such failures could have a material adverse effect on the Company’s business, financial condition and performance.

Risks Related to the Entertainment Industry.

The entertainment industry involves a substantial degree of risk. Acceptance of children’s entertainment programming represents a response not only to the production’s artistic components, but also the quality and acceptance of other competing programs released into the marketplace at or near the same time, the availability of alternative forms of children’s entertainment and leisure time activities, general economic conditions, public tastes generally and other intangible factors, all of which could change rapidly or without notice and cannot be predicted with certainty. There is a risk that some or all of Spin Master’s programming will not be purchased or accepted by the public generally, resulting in a portion of costs not being recouped or anticipated direct and indirect profits not being realized, which could have a material and adverse effect on the Company’s business, financial condition and performance. There can be no assurance that revenue from existing or future programming will replace loss of revenue associated with the cancellation or unsuccessful commercialization of any particular production or that Spin Master’s entertainment programming will generate product sales.

The business of producing and distributing television programs is highly competitive. There are numerous suppliers of entertainment content and Spin Master faces intense competition with other producers and distributors, many of whom are substantially larger and have greater resources. Further, vertical integration of the television broadcast industry worldwide and the creation and expansion of new networks, which create a substantial portion of their own programming, has decreased access for programs produced by third-party production companies. The Company competes with other television production companies for ideas and storylines created by third parties as well as for access to animation studios, writers, producers, actors, directors and other personnel required for a production. Spin Master may not be successful in any of these efforts which could have a material and adverse effect on its business, financial condition and performance.

Spin Master also faces competition from both regulated and unregulated players using existing or new technologies and from illegal services. The rapid deployment of new technologies, services and products have reduced the traditional lines between internet and broadcast services and further expanded the competitive landscape. The Company may also be affected by changes in customer discretionary spending patterns, which in turn are dependent on consumer confidence, disposable consumer income and general economic conditions. New or alternative media technologies and business models, such as video-on-demand, subscription-video-on-demand, high-definition television, personal video recorders, mobile television, internet protocol television, over-the-top internet-based video entertainment services, connected televisions, virtual multichannel programming distributors, audio streaming platforms, podcasting and direct-to-home satellite compete for audiences. As well, mobile devices like smartphones and tablets allow consumers to access content anywhere, anytime and are creating consumer demand for mobile, portable or free content. These technologies and business models may increase audience fragmentation. Technological developments may also disrupt traditional distribution platforms by enabling content owners to provide content directly to consumers, thus bypassing traditional content aggregators.

Distributors’ decisions regarding the timing of release and promotional support of Spin Master’s television programs are important in determining the success of these programs. The Company does not ultimately control the timing and manner in which its distributors distribute the Company’s television programs. Any decision by those distributors not to distribute or promote one of Spin Master’s television programs or to promote competitors’ programs to a greater extent than they promote Spin Master’s programs could have a material and adverse effect on the Company’s business, financial condition and performance.

Production of film and television programs requires a significant amount of capital. Unforeseen events such as labour disputes, changes related to technology, special effects or other aspects of production, shortage of necessary equipment, or other unforeseen events affecting aspects of production may cause cost overruns and delay or frustrate completion of a production. Although Spin Master has historically completed its productions

within budget, there can be no assurance that it will continue to do so. The Company currently maintains insurance policies covering certain of these risks. There can be no assurance that any overrun resulting from any occurrence will be adequately covered or that such insurance and completion bonds will continue to be available or, if available on terms acceptable to Spin Master. In the event of substantial budget overruns, there can be no assurance that such costs will be recouped, which could have a material and adverse effect on the Company’s business, financial condition and performance.

Financial risks exist in productions relating to tax credits. There can be no assurance that industry funding assistance programs and government tax credits which Spin Master may access in Canada and internationally from time to time, including those sponsored by various European, Australian and Canadian governmental agencies, will not be reduced, amended or eliminated or that Spin Master’s production projects will continue to qualify for them. Any change in the policies of those countries in connection with their incentive programs could have a material and adverse effect on the Company’s business, financial condition and performance.

International sales are subject to various risks and failure to implement the international growth strategy could have a material adverse effect on the Company’s business, financial condition and performance.

Spin Master currently relies on international sales of its products and expects to do so to a greater extent in the future as it continues to expand its business. The Company believes that its revenue and financial performance will depend in part upon its ability to increase sales in international markets. Implementation of Spin Master’s international growth strategy is subject to risks beyond its control, and accordingly, there can be no assurance that the Company’s international growth strategy will be successful. The lack of success in the Company’s international growth strategy may have a material and adverse effect on its business, financial condition and performance.

International sales are subject to various risks, including: exposure to currency fluctuations; political and economic instability; increased difficulty of administering business; and the need to comply with a wide variety of international and domestic laws and regulatory requirements. There are a number of risks inherent in the Company’s international activities, including: unexpected changes in Canadian, U.S. or other governmental policies concerning the import and export of goods; services and technology and other regulatory requirements; tariffs and other trade barriers; costs and risks of localizing products for foreign languages; longer accounts receivable payment cycles; limits on repatriation of earnings; the burdens of complying with a wide variety of non-Canadian or U.S. laws; and difficulties supervising and managing local personnel. The financial stability of non-Canadian or U.S. markets could also affect Spin Master’s international sales. In addition, international income may be subject to taxation by more than one jurisdiction, which could also have a material adverse effect on the Company’s financial performance. Such factors may have a material adverse effect on the Company’s revenues and expenses related to international sales and, consequently, business, financial condition and performance.

An increasing portion of Spin Master’s business may come from new and emerging markets, and growing business in new and emerging markets presents additional challenges which could have a material adverse effect on the Company’s business, financial condition and performance.

Spin Master expects an increasing portion of its revenues to come from new and emerging markets. Operating in new and emerging markets, each with its own unique consumer preferences and business climates, presents additional challenges that Spin Master must meet. In addition, sales and operations in new and emerging markets are subject to other risks associated with international operations. Such risks include, but are not limited to: complications in complying with different laws in varying jurisdictions; dealing with changes in governmental policies and the evolution of laws and regulations that impact Spin Master’s product offerings and related enforcement; difficulties understanding the retail climate, consumer trends, local customs and competitive conditions in foreign markets, which may be quite different from Canada and the U.S.; difficulties in moving materials and products from one country to another, including port congestion, strikes and other transportation delays and interruptions; potential challenges to Spin Master’s transfer pricing determinations and other aspects of its cross border transactions; and the impact of tariffs, quotas, or other protectionist measures. Spin Master’s business, financial condition and performance could be harmed if any of the risks described above are not appropriately managed, or if the Company is otherwise unsuccessful in managing its new and emerging market business.

Product recalls, post-manufacture repairs of Spin Master’s products, product liability claims, absence or cost of insurance, and associated costs could harm the Company’s reputation, which could have a material adverse effect on the Company’s business, financial condition and performance.

Spin Master is subject to regulation by Health Canada, the U.S. Consumer Product Safety Commission and regulatory authorities and by similar consumer protection regulatory authorities in other countries in which Spin Master sells its products. These regulatory bodies have the authority to remove from the market, products that are found to be defective and present a substantial hazard or risk of serious injury or death. The Company has experienced, and may in the future experience, issues in relation to products that result in recalls, delays, withdrawals, or post-manufacture repairs or replacements of products.

Individuals have asserted claims, and may in the future assert claims, that they have sustained injuries from the Company’s products, and Spin Master may be subject to lawsuits relating to these claims. There is a risk that these claims or liabilities may exceed, or fall outside of the scope of, Spin Master’s insurance coverage as Spin Master does not maintain separate product recall insurance. The Company has recorded, and in the future may record, charges and incremental costs relating to recalls, withdrawals or replacements of its products, based on the Company’s most recent estimates of retailer inventory returns, consumer product replacement costs, associated legal and other professional fees, and costs associated with advertising and administration of product recalls. As these current and expected future charges are based on estimates, they may increase as a result of numerous factors, many of which are beyond Spin Master’s control, including the amount of products that may be returned by consumers and retailers, the number and type of legal, regulatory, or legislative proceedings relating to product recalls, withdrawals or replacements or product safety proceedings in Canada, the U.S. and elsewhere that may involve the Company, as well as regulatory or judicial orders or decrees in Canada, the U.S. and elsewhere that may require the Company to take certain actions in connection with product recalls.

Moreover, Spin Master may be unable to obtain adequate liability insurance in the future. Any of these issues could result in damage to the Company’s reputation, diversion of development and management resources, reduced sales, and increased costs and could cause the Company’s licensors to terminate or not renew its licenses, any of which could materially and adversely harm its business, financial condition and performance. Product recalls, withdrawals, or replacements may also increase the competition that Spin Master faces. Some competitors may attempt to differentiate themselves by claiming that their products are produced in a manner or geographic area that is insulated from the issues that preceded recalls, withdrawals or replacements of Spin Master’s products. In addition, to the extent that the Company’s competitors choose not to implement enhanced safety and testing protocols comparable to those that the Company and its third-party manufacturers have adopted, such competitors could enjoy a cost advantage that could enable them to offer products at lower prices than Spin Master.

Additionally, product recalls relating to Spin Master’s competitors’ products, post-manufacture repairs of their products and product liability claims against the Company’s competitors may indirectly impact the Company’s product sales even if its products are not subject to the same recalls, repairs or claims.

Unfavourable resolution of litigation matters and disputes, including those arising from recalls, withdrawals or replacements of Spin Master’s products, could have a material adverse effect on the Company’s business, financial condition and performance.

Spin Master is involved from time to time in litigation and disputes, including those arising from recalls, withdrawals or replacements of its products. Since outcomes of regulatory investigations, litigation and arbitration disputes are inherently difficult to predict, there is the risk that an unfavourable outcome in any of these matters could negatively affect the Company’s business, financial condition and performance. Regardless of the outcome, litigation may result in substantial costs and expenses to Spin Master and significantly divert the attention of its management. The Company may not be able to prevail in, or achieve a favourable settlement of, pending litigation. In addition to pending litigation, future litigation, government proceedings, labour disputes or environmental matters could lead to increased costs or interruption of the Company’s normal business operations.

Failure to implement new initiatives or meet product introduction schedules could have a material adverse effect on Spin Master’s business, financial condition and performance.

Spin Master has undertaken, and in the future may undertake, initiatives to increase its efficiency, reduce its costs, improve the execution of its core business, globalize and extend its brands, develop or extend entertainment properties, leverage new trends, create new brands or franchises, offer new innovative products and technologies, enhance product safety, develop its employees, improve productivity, simplify processes, maintain customer service levels, drive sales growth, capitalize on its scale advantage and improve its supply

chain. These initiatives involve investment of capital and complex decision-making, as well as extensive and intensive execution, and these initiatives may not succeed or there may be a delay in the anticipated timing of the launch of new initiatives. In addition, Spin Master may anticipate introducing a specific product, product line or brand at a certain time in the future. There is no guarantee that Spin Master will be able to manufacture, source and ship new or continuing products in a timely manner and on a cost-effective basis. The risk is also exacerbated by the increasing sophistication of many of the products the Company is designing, and the brands being developed in terms of combining digital and analog technologies and providing greater innovation and product differentiation. Unforeseen delays or difficulties in the development process or significant increases in the planned cost of development for new products may cause the introduction date for products to be later than anticipated or, in some situations, may cause a product or new product introduction to be discontinued. Failure to implement any of these initiatives, or the delay of the anticipated launch, or the failure of any of these initiatives or launches to produce the results anticipated by management, could have a material adverse effect on the Company’s business, financial condition and performance.

A reduction or interruption in the delivery of raw materials, parts and components from Spin Master’s suppliers or a significant increase in the price of raw materials and labour could negatively impact the Company’s profit margins or result in lower sales.

Spin Master’s ability to meet customer demand depends in part on its ability to obtain timely and adequate delivery of materials, parts and components from Spin Master’s suppliers. The Company has experienced shortages in the past, including shortages of raw materials and components, and may encounter these problems in the future. A reduction or interruption in supplies, whether resulting from more stringent regulatory requirements, disruptions in transportation, port delays, labour strikes, lockouts, an outbreak of a severe public health crisis, severe weather due to climate change or otherwise, the occurrence of threat of wars or other conflicts, or a significant increase in the price of one or more supplies, such as fuel and resin (which is a petroleum-based product), could have a material adverse effect on the Company’s business, financial condition and performance. Cost increases, whether resulting from shortages of materials or rising costs of materials, transportation, services or labour, could impact the profit margins on the sale of Spin Master’s products. Due to market conditions, timing of pricing decisions and other factors, the Company may not be able to offset any of these increased costs by adjusting the prices of its products. Increases in prices of the Company’s products could result in lower sales and have a material adverse effect on its financial condition and performance.

Spin Master may not realize the full benefit of its licenses if the licensed material has less market appeal than expected and licenses may not be profitable to the Company if sales revenue from the licensed products are not sufficient to support the minimum guaranteed royalties.

An integral part of Spin Master’s business involves obtaining licenses to produce products utilizing various entertainment brands and content. As a licensee of entertainment-based properties, the Company has no guarantee that a particular brand or property will translate into a successful toy, entertainment brand or other product. Additionally, a successful brand may not continue to be successful or maintain a high level of sales. If Spin Master produces a line of products based on entertainment-based properties, the success of the entertainment series has a critical impact on the level of consumer interest in the associated products being offered by the Company. Spin Master relies on the efforts of third parties, such as licensors, film studios, content producers and distribution channels with whom the Company works, with respect to development of content and timing of media development, release dates and the ultimate consumer interest in and success of these media efforts. Spin Master does not fully control when or if any particular project will be developed or released, and the Company’s licensors, media partners or other third parties may change their plans with respect to projects and release dates or cancel development all together. Lack of control can make it difficult for the Company to successfully develop and market products in conjunction with such entertainment projects, given the lengthy lead times involved in product development and successful marketing efforts. Any delay or cancellation of planned product development work, releases, or media support may decrease the number of products sold by the Company, which could harm its business. If any production or entertainment releases are delayed, due to the COVID-19 pandemic or otherwise, it could adversely affect the Company’s business, financial condition and performance.

The license agreements into which the Company enters usually require it to pay minimum royalty guarantees that may be substantial, and in some cases may be greater than the amount it earns from sales of the licensed brands. This could result in write-offs of significant amounts, which in turn could materially and adversely impact the Company’s financial condition and performance. Acquiring or renewing licenses may require the payment of minimum guaranteed royalties that Spin Master considers to be too high to be profitable, which may result in losing licenses it currently holds when they become renewable under their terms, or missing business opportunities for new licenses. If the Company is unable to acquire or maintain successful licenses on advantageous terms, its business, financial condition and performance may be materially and adversely impacted.

Spin Master’s operating procedures and product requirements are subject to change and may increase costs, which may materially and adversely affect its relationship with vendors and make it more difficult for it to produce, purchase and deliver products on a timely basis to meet market demands. Future conditions may require the Company to adopt further changes that may increase its costs and adversely affect the Company’s relationship with vendors.

Spin Master’s operating procedures and requirements for both its own manufacturing facilities and vendors, which are regularly monitored and which are subject to change, including by implementing enhanced testing requirements and standards, impose additional costs on both Spin Master and the vendors from whom it purchases products. These changes may also delay delivery of the Company’s products. Additionally, changes in industry wide product safety guidelines may affect the Company’s ability to sell its inventory and may negatively impact its business. Spin Master’s relationship with existing vendors may be adversely affected as a result of these changes, making it more dependent on a smaller number of vendors. Some vendors may choose not to continue to do business with the Company or not to accommodate the Company’s needs to the extent that they have done so in the past. Due to the seasonal nature of Spin Master’s business and the demands of its customers for deliveries with short lead times, Spin Master depends upon the cooperation of its vendors to meet market demand for its products in a timely manner. Existing and future events may require the Company to impose additional requirements on its vendors that may adversely affect the Company’s relationships with those vendors and its ability to meet market demand in a timely manner which may in turn have a material and adverse effect on the Company’s business, financial condition and performance.

Spin Master may engage in acquisitions, mergers, or dispositions, which may affect the profit, revenues, profit margins or other aspects of its business. Spin Master may not realize the anticipated benefits of future acquisitions, mergers or dispositions to the degree anticipated, or such transactions could have a material adverse impact on the Company’s business, financial condition and performance.

Acquisitions have been a part of Spin Master’s growth and have enabled it to further broaden and diversify its product offerings. The Company expects that in the future it will further expand its operations, brands, and product offerings through the acquisition of additional businesses, products or technologies. However, the Company may not be able to identify suitable acquisition targets or merger partners and the Company’s ability to efficiently integrate large acquisitions may be limited by its lack of experience with them. If Spin Master is able to identify suitable targets or merger partners, it may not be able to acquire these targets on acceptable terms or agree to terms with merger partners. Also, Spin Master may not be able to integrate or profitably manage acquired businesses and may experience substantial expenses, delays or other operational or financial problems associated with the integration of acquired businesses. The Company may also face substantial expenses, delays or other operational or financial problems if it is unable to sustain the distribution channels and other relationships currently in place at an acquired business. The businesses, products, brands or properties the Company acquires may not achieve or maintain popularity with consumers, and other anticipated benefits may not be realized immediately or at all. Further, integration of an acquired business may divert the attention of the Company’s management from its core business. In cases where Spin Master acquires businesses that have key individuals, Spin Master cannot be certain that those persons will continue to work for it after the acquisition or that they will continue to develop popular and profitable products. Loss of such individuals could materially and adversely affect the value of businesses that the Company acquires.

Acquisitions also entail numerous other risks, including but not limited to:

unanticipated costs and legal liabilities;
adverse effects on the Company’s existing business relationships with its suppliers and customers;
risk of entering markets in which the Company has limited or no prior experience;
amortizing any acquired intangible assets; and
difficulties in maintaining uniform standards, procedures, controls and policies.

Some or all of the foregoing risks could have a material adverse effect on Spin Master’s business, financial condition and performance. In addition, any businesses, products or technologies the Company may acquire may not achieve anticipated revenues or income and the Company may not be able to achieve cost savings and other benefits that it would hope to achieve with an acquisition.

Acquisitions could also consume a substantial portion of Spin Master’s available cash, could result in incurring substantial debt which may not be available on favourable terms, and could result in the Company assuming contingent liabilities. In addition, if the business, product or technologies the Company acquires are unsuccessful it would likely result in the incurrence of a write-down of such acquired assets, that could

adversely affect Spin Master’s financial performance. The Company’s failure to manage its acquisition strategy could have a material adverse effect on its business, financial condition and performance.

Consistent with Spin Master’s past practice and in the normal course, the Company may have outstanding nonbinding letters of intent and / or conditional agreements or may otherwise be engaged in discussions with respect to possible acquisitions which may or may not be material. However, there can be no assurance that any of these letters, agreements and / or discussions will result in an acquisition and, if they do, what the final terms or timing of any acquisition would be.

If Spin Master fails to maintain an effective system of internal controls, Spin Master may not be able to report its financial results or prevent fraud, which could harm the Company’s financial performance and may cause investors to lose confidence in it.

Spin Master must maintain effective internal financial controls for it to provide reliable and accurate financial reports. The Company’s compliance with the internal control reporting requirements will depend on the effectiveness of its financial reporting and data systems and controls. Spin Master expects these systems and controls to become increasingly complex to the extent that its business grows, including through acquisitions. To effectively manage such growth, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. These measures may not ensure that Spin Master designs, implements and maintains adequate controls over its financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation or operation, could harm the Company’s financial performance or cause it to fail to meet its financial reporting obligations. Inferior internal controls could also cause investors to lose confidence in the Company’s reported financial information, which could have a material and adverse effect on the trading price of its stock and its access to capital.

Spin Master is subject to tax and regulatory compliance in all the jurisdictions in which it operates and may be subject to audits from time to time that could result in the assessment of additional taxes, interest and penalties.

Spin Master conducts business globally and is subject to tax and regulatory compliance in the jurisdictions in which it operates. These include those related to collection and payment of value added taxes at appropriate rates and the appropriate application of value added taxes to each of the Company’s products, those designed to ensure that appropriate levels of customs duties are assessed on the importation of its products, as well as transfer pricing and other tax regulations designed to ensure that its intercompany transactions are consummated at prices that have not been manipulated to produce a desired tax result, that appropriate levels of income are reported as earned and that it is taxed appropriately on such transactions. International transfer pricing is a subjective area of taxation and generally involves a significant degree of judgment.

Spin Master may be subject to audits that are at various levels of review, assessment or appeal in a number of jurisdictions involving various aspects of value added taxes, customs duties, transfer pricing, income taxes, withholding taxes, sales and use and other taxes and related interest and penalties in material amounts. The taxation authorities in the jurisdictions where the Company carries on business could challenge the Company’s transfer pricing policies. In some circumstances, additional taxes, interest and penalties may be assessed and deposits required to be paid in order to challenge the assessments. When applicable, the Company reserves in the consolidated financial statements an amount that it believes represents the most likely outcome of the resolution of disputes, but if it is incorrect in its assessment, it may have to pay a different amount which could potentially be material. Ultimate resolution of these matters can take several years, and the outcome is uncertain. If the taxing authorities in any of the jurisdictions in which the Company operates were to successfully challenge its transfer pricing practices or its positions regarding the payment of income taxes, customs duties, value added taxes, withholding taxes, sales and use, and other taxes, it could become subject to higher taxes and its revenue and earnings could be adversely affected.

Significant changes in currency exchange rates could have a material adverse effect on Spin Master’s business, financial condition and performance.

Spin Master’s global operations means business is transacted in many different currencies and financial performance and cash flows are subject to changes in currency exchange rates and regulations. As the Company’s financial results are reported in U.S. dollars, changes in the exchange rate between the U.S. dollar and local currencies in which the Company operates may have an adverse effect / beneficial impact on the Company’s U.S. dollar results. Furthermore, potential significant revaluation of the Chinese yuan, which may result in an increase in the cost of producing products in China, could negatively affect Spin Master’s business. Government action may restrict the Company’s ability to transfer capital across borders and may also impact the fluctuation of currencies in the countries where the Company conducts business or has invested capital.

Significant changes in currency exchange rates and reductions in Spin Master’s ability to transfer capital across borders could have a material adverse effect on its business, financial condition and performance. Currency fluctuations may also adversely affect the Company’s financial performance when it repatriates the funds it receives from these sales or other sources.

Spin Master is subject to various laws and government regulations, which, if violated, could subject Spin Master to sanctions or third-party litigation or, if changed, could lead to increased costs, changes in the Company’s effective tax rate or the interruption of normal business operations that would negatively impact the Company’s business, financial condition and performance.

Spin Master operates in a highly regulated environment in the U.S., Canada and international markets, including its products and the importation and exportation of its products. These policies or regulations may include accounting standards, taxation requirements (including changes in applicable income tax rates, new tax laws, and revised tax law interpretations), product safety and other safety standards, trade restrictions, duties and tariffs (including international trade laws and regulations, export controls, and economic sanctions), and regulations regarding currency and financial matters, anticorruption standards, environmental matters, advertising directed toward children, product content, and privacy and data protection, as well as other administrative and regulatory restrictions. The breakdown of trade relations between the U.S. and a foreign country in which Spin Master has significant manufacturing facilities or other operations, could adversely affect Spin Master’s business, financial condition and results of operations. For example, a change in trade status between the U.S. and a foreign country could result in a substantial increase in the import duty of toys manufactured in that foreign country and imported into the U.S. The U.S. has in the past imposed certain trade actions, including imposing increased tariffs on certain goods imported into the U.S. from China, which resulted in retaliatory tariffs by China. Any increased trade barriers or restrictions on global trade imposed by the U.S., or other countries in response, could adversely affect Spin Master’s business, financial condition and performance.

In addition, changes in laws or regulations may lead to increased costs, changes in the Company’s effective tax rate, or the interruption of normal business operations that would materially and adversely impact its business, financial condition and performance. The Company believes that it takes all necessary steps to comply with these laws and regulations, but Spin Master cannot be certain that it is in full compliance or will be in the future. Failure to comply could result in sanctions or delays that could have a negative impact on the Company’s business, financial condition and performance.

Spin Master relies extensively on information technology in its operations, and any material failure in design, inadequacy, interruption, or security breach of that technology could have a material adverse impact on the Company’s business, financial condition and performance.

Spin Master relies extensively on various information technology systems and software applications across its operations to manage many aspects of the business, including product development, management of its supply chain, sale and delivery of its products, financial reporting, collection and storage of data, and various other processes and transactions. Many of these systems are managed by third-party service providers. The Company is critically dependent on the integrity, security and consistent operations of these systems and related back-up systems. These systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, malware and other security breaches, catastrophic events such as hurricanes, fires, floods, earthquakes, tornadoes, acts of war or terrorism and usage errors by employees or partners. The efficient operation and successful growth of Spin Master’s business depends on these information systems, including its ability to operate them effectively and to select and implement appropriate upgrades or new technologies and systems and adequate disaster recovery systems successfully. The failure of the information systems design, to perform as designed or Spin Master’s failure to implement and operate them effectively could disrupt the Company’s business, require significant capital investments to remediate a problem or subject the Company to liability and could have a material adverse effect on its business, financial condition and performance.

Spin Master’s business could be significantly harmed if its electronic data is compromised.

Spin Master maintains significant amounts of data electronically in locations around the world. This data relates to all aspects of the Company’s business and also contains certain customer and consumer data. The Company maintains systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion or tampering that could compromise the integrity and privacy of this data. Cyberattacks are increasing in their frequency, sophistication and intensity, and are becoming increasingly difficult to detect. They are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with malicious intent. Cyberattacks could include the deployment of harmful malware and key loggers, ransomware,

a denial of-service attack, a malicious website, the use of social engineering and other means to affect the confidentiality, integrity and availability of the Company’s technology systems and data. Cyberattacks could also include supply chain attacks, which could cause a delay in the manufacturing of the Company’s products. In addition, Spin Master provides confidential and proprietary information to its third-party business partners in certain cases where doing so is necessary to conduct the Company’s business. While Spin Master obtains assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, nonetheless those partners may also be subject to data intrusion or otherwise compromise the protection of such data. While Spin Master and its third-party business partners maintain systems for preventing and detecting a breach of their respective information technology systems, Spin Master and those third parties may be unaware that a breach has occurred, may be unable to detect an ongoing breach or may be delayed in detecting a breach. Spin Master has exposure to similar security risks faced by other large companies that have data stored on their information technology systems. To its knowledge, Spin Master has not experienced any material breach of its cybersecurity systems. If Spin Master’s or any third-party service providers’ systems fail to operate effectively or are damaged, destroyed, or shut down, or there are problems with transitioning to upgraded or replacement systems, or there are security breaches in these systems, any of the aforementioned could occur as a result of natural disasters, software or equipment failures, telecommunications failures, loss or theft of equipment, acts of terrorism, circumvention of security systems, or other cyber-attacks, Spin Master could experience delays or decreases in sales, and reduced efficiency of its operations. Any compromise of the confidential data of Spin Master’s customers, its consumers or itself, or failure to prevent or mitigate the loss of this data could disrupt Spin Master’s operations, damage its reputation, violate applicable laws and regulations and subject the Company to additional costs and liabilities and have a material and adverse impact on its business, financial condition and performance.

The challenge of continuously developing and offering products and entertainment experiences that are sought after by children is compounded by the sophistication of today’s children and the increasing array of technology and entertainment offerings available to them.

Children are increasingly utilizing electronic offerings such as computers, tablet devices and mobile phones and they are expanding their interests to a wider array of innovative, technology-driven entertainment products and digital and social media offerings at younger and younger ages. Spin Master’s products and digital games compete with the offerings of consumer electronics companies, gaming, digital media and social media companies. To meet this challenge, the Company is designing and marketing products and digital games which incorporate increasing technology, seek to combine digital and analog play, and capitalize on evolving play patterns and increased consumption of digital and social media. With the increasing array of competitive entertainment offerings, there is no guarantee that:

any of Spin Master’s products, brands or entertainment properties will achieve popularity or continue to be popular;
any property for which Spin Master has a significant license will achieve or sustain popularity;
any new products or product lines Spin Master introduces, or entertainment content that it creates, will be considered interesting to consumers and achieve an adequate market acceptance; or
any product’s life cycle or sales quantities will be sufficient to permit Spin Master to profitably recover the development, manufacturing, marketing, royalties (including royalty advances and guarantees) and other costs of producing, marketing and selling the product.

An increasing portion of Spin Master’s business may come from technologically advanced or sophisticated digital and smart technology products, which present additional challenges compared to more traditional toys and games.

Spin Master expects that children will continue to be interested in product offerings incorporating sophisticated technology, such as video games, consumer electronics and social and digital media, at younger and younger ages. Spin Master also expects that parents will seek to enhance child development and learning through digital technologies and analog and technology-based play.

In addition to the risks associated with Spin Master’s more traditional products, sophisticated digital and smart technology products face certain additional risks. Costs associated with designing, developing and producing digital games and technologically advanced or sophisticated products tend to be higher than for many of Spin Master’s more traditional products. Heavy competition in consumer electronics and entertainment products and difficult economic conditions may increase the risk of Spin Master not achieving sales sufficient to recover the increased costs associated with these products. Designing, developing and producing sophisticated digital and smart technology products requires different competencies and may follow longer timelines than traditional toys and games, and any delays in the design, development or production of these products could have a significant impact on Spin Master’s ability to successfully offer such products. In addition, the pace of change in product offerings and consumer tastes in the video games, consumer electronics and social and digital media areas is

potentially even greater than for Spin Master’s more traditional products. This pace of change means that the window in which a technologically advanced or sophisticated product can achieve and maintain consumer interest may be shorter than traditional toys and games. These products may also present data security and data privacy risks and be subject to certain laws, government policies or regulations not applicable to more traditional products, such as the U.S. Children’s Online Privacy Protection Act of 1998, the EU General Data Protection Regulation and the California Consumer Protection Act.

The production and sale of private-label toys by the retailers with which Spin Master does business may result in lower purchases of the Spin Master’s branded products by those customers .

In recent years, retailers have been increasing the development of their own private-label products that directly compete with the products of their other suppliers, including children’s entertainment companies. Some of the retailers with whom Spin Master does business sell private-label toys designed, manufactured and branded by the retailers themselves. The Company’s customers may sell their private-label toys at prices lower than comparable toys sold by the Company, and, particularly in the event of strong sales of private-label toys, may elect to reduce their purchases of Spin Master’s branded products. In some cases, retailers who sell these private-label toys are larger than Spin Master and have substantially more resources. An increase in the sale of private-label product by retailers could have a material adverse effect on the Company’s business, financial condition and performance.

Spin Master’s success depends on key personnel and without them the Company may be unable to maintain and expand its business.

Spin Master’s future success depends on the continued contribution of key personnel, including, executives, designers, inventors, technical, sales, marketing and in the entertainment and digital creative centres. The loss of services of any of the Company’s key personnel could harm its business. Recruiting and retaining skilled personnel is costly and highly competitive around the world. If the Company fails to retain, hire, train and integrate qualified employees and contractors, it may not be able to maintain and expand its business.

Natural disasters or other catastrophic events out of Spin Master’s control may damage its operations, facilities or those of its contractors and could materially and adversely affect the Company’s business, financial condition and performance.

A catastrophic event where Spin Master has operations, offices or manufacturing facilities, such as an earthquake, tsunami, flood, typhoon, fire or other natural or manmade disaster, terrorist attacks, wars and other conflicts, or an outbreak of a public health pandemic could disrupt the Company’s operations or those of its contractors and impair production or distribution of its products, damage inventory, interrupt critical functions, or otherwise affect its business negatively, and could materially and adversely affect the Company’s business, financial condition and performance.

Increases in interest rates, the lack of availability of credit and Spin Master’s inability to meet the debt covenant coverage requirements in its credit facility could negatively impact the Company’s ability to conduct its business operations.

Increases in interest rates, both domestically and internationally, could negatively affect Spin Master’s cost of financing its operations and investments. Adverse credit market conditions could limit the Company’s ability to refinance its existing credit facility and raise additional debt that may be needed to fund the Company’s operations. Additionally, Spin Master’s ability to issue or borrow long-term debt and obtain seasonal financing or pay dividends could be adversely affected by factors such as an inability to meet certain debt covenant requirements and ratios. In the past, the Company’s business has required and will continue to require capital expenditures and available resources to finance acquisitions. Accordingly, Spin Master’s ability to maintain its current credit facility and its ability to issue or borrow long-term debt and raise seasonal financing are critical for the success of Spin Master’s business. The Company’s ability to conduct operations could be materially and adversely impacted should these or other adverse conditions affect the Company’s sources of liquidity.

Negative publicity and product reviews may negatively impact Spin Master’s business, financial condition and performance.

There has been a marked increase in the use of social media platforms and similar channels, including weblogs (blogs), social media websites and other forms of Internet-based communications that provide individuals with access to a broad audience of consumers and other interested persons. The availability and impact of information on social media platforms is virtually immediate and the accuracy of such information is not independently verified. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning Spin Master or one or more of its products or

employees may be posted on such platforms at any time. Information posted may be adverse to Spin Master’s interests or may be inaccurate, each of which may harm the Company’s reputation and business. The harm may be immediate without affording Spin Master an opportunity for redress or correction. Ultimately, the risks associated with any such negative publicity or incorrect information cannot be completely eliminated or mitigated and may materially and adversely impact its business, financial condition and performance.

System failures related to the websites that support Spin Master’s internet-related products, applications, services and associated websites could harm the Company’s business.

The websites, applications and services associated with Spin Master’s internet-related products depend upon the reliable performance of their technological infrastructure. Customers could be inconvenienced and the Company’s business may suffer if demand for access to those websites, applications or services exceeds their capacity. Any significant disruption to, or malfunction by, those websites or services, particularly malfunctions related to transaction processing, on those associated websites could result in a loss of potential or existing customers and sales.

Although Spin Master’s systems have been designed to function in the event of outages or catastrophic occurrences, they remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication failures, terrorist attacks, computer viruses, computer denial-of-service attacks, and other events. Some of the Company’s systems are not fully redundant, and its disaster recovery planning is not sufficient for all eventualities. Spin Master’s systems are also subject to break-ins, sabotage, and intentional acts of vandalism. Despite any precautions the Company may take, the occurrence of a natural disaster or other unanticipated problems at the Company’s hosting facilities could result in lengthy interruptions in its services. Spin Master does not carry business interruption insurance sufficient to compensate it for losses that may result from interruptions in its service as a result of system failures. Any unplanned disruption of the Company’s systems could result in material and adverse financial impact on its business, financial condition and performance.

Spin Master may face increased costs in achieving its sustainability goals, and any failure to achieve its goals could result in reputational damage.

Spin Master believes the long-term viability and health of the Company’s own operations and its supply chain, and the significant potential for environmental improvements, are critical to its business success. The Company has set key goals and objectives in this area. Spin Master devotes resources and expenditures to help achieve these goals. It is possible that the Company will incur expenses in trying to achieve these goals with no assurance that it will be successful. Additionally, Spin Master’s reputation could be damaged if we fail to achieve the sustainability goals, or if the Company or others in the industry do not act, or are perceived not to act, responsibly with respect to the production and packaging of its products.

Spin Master may be subject to risks relating to its minority investments.

Spin Master may invest in companies at different stages of development, including early-stage companies and emerging businesses, which are developing products, emerging technologies and pioneering services that will require significant additional development, testing and investment prior to any commercialization. There can be no assurance that the technologies or products these companies have under development will materialize, be capable of being produced in commercial quantities at reasonable costs or be successfully marketed, which could result in a loss of all or a substantial part of Spin Master’s investment in these companies. The Company expects that its minority investments will complement its acquisition strategy, however certain minority investments may not be suitable acquisition targets. If Spin Master’s minority investments are suitable acquisition targets, it may not be able to acquire these targets on acceptable terms. Spin Master may not realize the expected returns or anticipated benefits from its minority investments to the degree anticipated.

FINANCIAL RISK MANAGEMENT

The Company is exposed to risks of varying degrees of significance which could affect its ability to achieve its strategic objectives for growth. Management’s objective is to protect the Company and its subsidiaries on a consolidated basis against material economic exposures and the variability of results from various financial risks that include foreign currency risk, interest rate risk, credit risk and liquidity risk.

Foreign currency risk

Due to the structure of the Company’s international operations, it is exposed to foreign currency risk driven by fluctuations in exchange rates. Risk arises because the value of monetary assets, liabilities, revenues and expenditures arising from transactions denominated in foreign currencies may vary due to changes in exchange rates (“transaction exposures”) and because the non-US dollar denominated financial statements of the Company’s subsidiaries may vary on translation into the US dollar presentation currency (“translation exposures”). These exposures could impact the Company’s earnings and cash flows.

The Company uses derivative financial instruments such as foreign exchange forward contracts with various financial institutions to manage foreign currency risk.

Interest rate risk

Interest rate risk is the risk that the Company’s financial assets and liabilities will increase or decrease in value due to a change in interest rates. The Company is exposed to interest rate risk as its loan facilities bears interest at a variable rate.

Credit risk and Customer Concentration

The Company is dependent on three main retailers with respect to product sales for the majority of its products. These three customers accounted for 52.6% and 50.3%% of consolidated Gross Product Sales[1] for the years ended December 31, 2021 and 2020 respectively.

As the Company usually grants credit to customers on an unsecured basis, credit risk arises from the possibility that customers may experience financial difficulty and may be unable to fulfil their financial obligations.

This risk is mitigated through financial arrangements such as cash in advance of shipment, letters of credit or bank or parental guarantees. In addition, the Company purchases Accounts Receivables insurance for our global customer base, who are not covered by other financial arrangements. This process, in conjunction with an established credit limit and payment term, mitigates the Company’s risk of loss. The financial arrangements, insurance policies and customer credit limits are reviewed each year.

RELATED PARTY TRANSACTIONS

The Company periodically engages the services of a law firm whose managing partner is also a member of the Company’s Board of Directors. During the year ended December 31, 2021, the fees for services rendered were in the amount of $1.3 million (December 31, 2020 - $1.6 million). As at December 31, 2021, amounts payable to the director's law firm were $0.2 million (December 31, 2020 - $0.8 million).

CRITICAL ACCOUNTING ESTIMATES

The Company’s significant accounting policies are described in Note 2 of the Company's audited consolidated financial statements and accompanying notes, which have been prepared in accordance with IFRS. The preparation of financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, related disclosures and the reported amounts of revenues and expenses during the periods covered by the financial statements. Refer to Note 3 of the Company's audited consolidated financial statements for additional information.

The Company has identified the following accounting policies under which significant judgments, estimates and assumptions are made, where actual results may differ from these estimates under different assumptions and conditions and which may materially affect financial results or the financial position in future periods.

Determination of cash ‑ generating units

A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Determining the impact of impairment requires significant judgment in identifying which assets or groups of assets are CGUs of the Company.

Functional currency

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates as of the dates the transactions occur. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.

Determining the appropriate functional currencies for entities in the Group requires analysis of various factors, including the currencies and country-specific factors that mainly influence sales prices, and the currencies that mainly influence labour, materials and other costs of providing goods or services.

Useful life of property, plant and equipment and intangible assets with finite useful lives

The Company employs significant estimates to determine useful lives of property, plant and equipment and intangible assets with finite useful lives, considering industry trends such as technological advancements, past experience, expected use and review of asset lives.

Components of an item of property, plant and equipment may have different useful lives. The Company makes estimates when determining depreciation methods, depreciation rates and useful lives, which require taking into account industry trends and company-specific factors. The Company reviews depreciation methods, useful lives and residual values annually or when circumstances change and adjusts, if necessary, its depreciation methods and assumptions prospectively.

Impairment testing of goodwill and indefinite life intangible assets

Goodwill and indefinite life intangible assets are assessed for impairment at least annually, and whenever there is an indication of impairment. The Company determines the fair value of its CGU groupings and indefinite life intangible assets using discounted cash flow models corroborated by other valuation techniques.

The process of determining these fair values requires the Company to make estimates and assumptions of a long-term nature regarding discount rates, projected revenues, royalty rates and margins derived from past experience, actual operating results and budgets. These estimates and assumptions may change in the future due to uncertain competitive and economic market conditions or changes in business strategies.

Provision for inventories

Inventories are stated at the lower of cost and estimated net realizable value. The Company estimates net realizable value as the amount at which inventories are expected to be sold, taking into consideration fluctuations in retail prices due to seasonality less estimated costs required to sell. Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage or declining selling prices.

Sales allowances

A sales allowance is established to reflect amounts for programs which can be contractual or discretionary by nature, and can include negotiated discounts, customer audits, defective products and refund of costs incurred by customers to sell the Company’s products. Contractual allowances are fixed and determinable at the time of sale and are recorded at the time of sale as a reduction to revenue. Discretionary allowances can vary depending on future outcomes such as customer sales volume, inventory position, product performance at retail, historical performance, market conditions and other considerations. The Company may adjust its estimate of sales allowances when facts and circumstances used in the estimation process change.

Income and other taxes

The calculation of current and deferred income taxes requires the Company to make estimates and assumptions and to exercise judgment regarding the carrying values of assets and liabilities which are subject to accounting estimates inherent in those balances, the interpretation of income tax legislation across various jurisdictions, expectations about future operating results, the timing of reversal of temporary differences and possible audits of income tax filings by tax authorities.

Changes or differences in underlying estimates or assumptions may result in changes to the current or deferred income tax balances on the Consolidated statements of financial position, a charge or credit to income tax expense in the Consolidated statements of earnings and comprehensive income and may result in cash payments or receipts. All income, capital and commodity tax filings are subject to audits and reassessments. Changes in interpretations or judgments may result in a change in the Company’s income, capital or commodity tax provisions in the future. The amount of such a change cannot be reliably estimated.

Business combinations

Business combinations are accounted for using the acquisition method of accounting. The Company determines the fair value of its the identifiable assets acquired and the liabilities assumed using discounted cash flow models corroborated by other valuation techniques.

FINANCIAL INSTRUMENTS

The Company uses derivative financial instruments such as foreign exchange forward contracts with various financial institutions to manage foreign currency risk.

As at December 31, 2021, the Company is committed under outstanding foreign exchange contracts representing a total net purchase commitment of $11.5 million (December 31, 2020 - $11.3 million). These foreign exchange contracts have maturity dates varying from January 2022 to April 2023. The fair value of foreign exchange forward contracts at December 31, 2021 resulted in an unrealized gain of $3.4 million, which is recorded in other receivables (2020 - $3.7 million) and an unrealized loss of $1.0 million recorded in accrued liabilities (2020 - $7.2 million). For the year ended December 31, 2021, realized gain on the Company’s matured hedges were $0.8 million (2020 - realized losses of $2.6 million) and is included in the Consolidated statements of earnings and comprehensive income.

DISCLOSURE CONTROLS AND PROCEDURES

The Chief Executive Officer and the Chief Financial Officer (the “Certifying Officers”) have designed, or caused to be designed under their supervision, Disclosure Controls and Procedures (“DC&P”) to provide reasonable assurance that (i) material information relating to the Company is made known to them by others, particularly during the period in which the annual filings are being prepared; and (ii) information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. The Certifying Officers have evaluated, or caused to be evaluated under their supervision, the effectiveness of the Company’s DC&P as at December 31, 2021 and have concluded that the Company's DC&P was effective as at December 31, 2021.

INTERNAL CONTROL OVER FINANCIAL REPORTING

The Certifying Officers have also designed, or caused to be designed under their supervision, Internal Control over Financial Reporting (“ICFR”) to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes prepared in accordance with IFRS. The Certifying Officers have used the Internal Control – Integrated Framework (2013 COSO Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) to design the Company’s ICFR. The Certifying Officers have evaluated, or caused to be evaluated under their supervision, the effectiveness of the Company’s ICFR as at December 31, 2021 and have concluded that the Company's ICFR was effective as at December 31, 2021.

There have been no changes in the Company’s ICFR during the three months ended December 31, 2021 which have materially affected, or are reasonably likely to materially affect, the Company’s ICFR and its disclosure controls and procedures.

LIMITATIONS OF AN INTERNAL CONTROL SYSTEM

The Chief Executive Officer and the Chief Financial Officer believe that any Disclosure Controls and Procedures or ICFR, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met and that all control issues, including instances of fraud, if any, within the Company have been prevented or detected. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any system of control is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential (future) conditions.

NON-GAAP FINANCIAL MEASURES AND RATIOS

In addition to using financial measures prescribed under IFRS, references are made in this MD&A to the following terms, each of which is a non-GAAP financial measure:

EBITDA
Adjusted EBITDA
Adjusted Net Income (Loss)
Free Cash Flow
Gross Product Sales
Constant Currency Gross Product Sales
Constant Currency Revenue
Adjusted Selling, General and Administration Expenses ("Adjusted SG&A")
Net Working Capital
Revenue, excluding PAW Patrol: The Movie Distribution Revenue
Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue

Non-GAAP financial measures do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.

Additionally, references are made in this MD&A to the following terms, each of which is a non-GAAP financial ratio:

Adjusted EBITDA Margin
Adjusted Net Margin
Adjusted Basic EPS
Adjusted Diluted EPS
Sales Allowance as a percentage of Gross Product Sales
Adjusted SG&A as a percentage of Revenue
Percentage change in Constant Currency Gross Product Sales
Percentage change in Constant Currency Revenue
Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue

Non-GAAP financial ratios do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.

Management believes the Non-GAAP financial measures and Non-GAAP financial ratios defined above are important supplemental measures of operating performance and highlight trends in the business. Management believes that these measures allow for assessment of the Company’s operating performance and financial condition on a basis that is consistent and comparable between reporting periods. The Company believes that investors, lenders, securities analysts and other interested parties frequently use these Non-GAAP financial measures and Non-GAAP financial ratios in the evaluation of issuers.

Non-GAAP Financial Measures

EBITDA is calculated as net income (loss) before finance costs, income tax expense (recovery) and depreciation and amortization. EBITDA is used by management as a measure of the Company’s profitability.

Adjusted EBITDA is calculated as EBITDA excluding adjustments that do not necessarily reflect the Company’s underlying financial performance. These adjustments include restructuring expenses, foreign exchange gains or losses, share based compensation expenses, acquisition related contingent consideration, impairment of intangible assets, impairment of goodwill, investment distribution income, acquisition related deferred incentive compensation, net unrealized gain on investment, impairment of property, plant and equipment, legal settlement, transaction costs, gain on disposal of asset and bad debt recovery. Adjusted EBITDA is used by management as a measure of the Company’s profitability. Refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a reconciliation of this metric to Net Income, the closest IFRS measure.

Adjusted Net Income (Loss) is calculated as net income excluding adjustments (as defined in Adjusted EBITDA), the corresponding impact these items have on income tax expense and a one-time income tax recovery in 2020. Management uses Adjusted Net Income (Loss) to measure the underlying financial performance of the business on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a reconciliation of this metric to Net Income, the closest IFRS measure.

Free Cash Flow is calculated as cash flows provided by/used in operating activities reduced by cash flows used in investing activities and adding back cash used for business acquisitions and investment in limited partnership and minority interests, net of investment distribution income. Management uses the Free Cash Flow metric to analyze the cash flows being generated by the Company’s business. The calculation of this metric was revised to include the impact of investment distribution income as Management believes this composition to be relevant to investors, lenders, securities analysts and other interested parties of the Company. Refer to the "Reconciliation of Non-GAAP Financial Measures" section for a reconciliation of this metric to Cash flow from operating activities, the closest IFRS measure.

Gross Product Sales represent sales of the Company’s products to customers, excluding the impact of Sales Allowances. As Sales Allowances are generally not associated with individual products, the Company uses changes in Gross Product Sales to provide meaningful comparisons across product category and geographical segment results to highlight trends in Spin Master’s business. For a reconciliation of Gross Product Sales to Revenue, the closest IFRS measure, refer to the "Revenue" section within the "Financial Performance" section for the three months and year ended December 31, 2021, and the "Reconciliation of Non-GAAP Financial Measures" section for the previous eight fiscal quarters.

Constant Currency Gross Product Sales and Constant Currency Revenue represent Gross Product Sales and Revenue presented excluding the impact from changes in foreign currency exchange rates, respectively. The current period and prior period results for entities reporting in currencies other than the US dollar are translated using consistent exchange rates, rather than using the actual exchange rate in effect during the respective periods. The difference between the current period and prior period results using the consistent exchange rates reflects the changes in the underlying performance results, excluding the impact from fluctuations in foreign currency exchange rates. Management uses Constant Currency Gross Product Sales and Constant Currency Revenue to measure the underlying financial performance of the business on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial Measures" section for a reconciliation of these metrics to Revenue, the closest IFRS measure.

Adjusted SG&A is calculated as selling, general and administrative expenses adjusted for restructuring expenses, share based compensation expenses, impairment of property, plant and equipment, transaction costs and bad debt recovery. Refer to the Adjusted SG&A table for the three months and year ended December 31, 2021 as compared to the same period in 2020 in this MD&A. Management uses Adjusted SG&A to measure the underlying financial performance of the business on a consistent basis over time. Refer to the "Selling, General & Administrative Expenses" section within the "Financial Performance" section for a reconciliation of these metrics to selling, general & administrative Expenses, the closest IFRS measure.

Net Working Capital is calculated as the difference between total current assets and total current liabilities. Refer to the Total Net Working Capital table for the year ended December 31, 2021 as compared to the same period in 2020 in this MD&A. Management uses Net Working Capital to measure the underlying financial performance of the business on a consistent basis over time. Refer to the "Cash Flow" section for a composition of this metric to total current assets and total current liabilities, the closest IFRS measures.

Revenue, excluding PAW Patrol: The Movie Distribution Revenue is calculated as revenue excluding distribution revenue of $26.0 million related to PAW Patrol: The Movie recognized in 2021 . Revenue, excluding PAW Patrol: The Movie Distribution Revenue is used to measure the underlying financial performance of the business on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial Measures" section for a reconciliation of this metric to Revenue, the closest IFRS measure.

Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Adjusted EBITDA excluding distribution revenue of $26.0 million related to PAW Patrol: The Movie recognized in 2021 . Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue is used by management as a measure of the Company’s profitability on a consistent basis over time. Refer to the "Reconciliation of Non-GAAP Financial Measures" section below for a reconciliation of this metric to Net Income, the closest IFRS measure.

Non-GAAP Financial Ratios

Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by Revenue. Management uses Adjusted EBITDA Margin to evaluate the Company’s performance compared to internal targets and to benchmark its performance against key competitors.

Adjusted Net Margin is calculated as Adjusted Net Income (Loss) divided by Revenue. Management uses Adjusted Net Margin to evaluate the Company’s performance compared to internal targets and to benchmark its performance against key competitors.

Adjusted Basic EPS is calculated by dividing Adjusted Net Income by the weighted average number of shares outstanding during the period. Adjusted Diluted EPS is calculated by dividing Adjusted Net Income (Loss) by the weighted average number of common shares outstanding, assuming the conversion of all dilutive securities were exercised during the period. Management uses Adjusted Basic EPS and Adjusted Diluted EPS to measure the underlying financial performance of the business on a consistent basis over time.

Sales Allowance as a percentage of Gross Product Sales is calculated by dividing Sales Allowance by Gross Product Sales. Management uses Sales Allowance as percentage of Gross Product Sales to identify and compare the cost of doing business with individual retailers, different geographic markets and amongst various distribution channels.

Adjusted SG&A as a percentage of Revenue is calculated by dividing Adjusted SG&A by Revenue. Management uses Adjusted SG&A as a percentage of Revenue to measure the underlying financial performance of the business on a consistent basis over time.

Percentage change in Constant Currency Gross Product Sales is calculated by dividing the change in Gross Product Sales excluding the impact from changes in foreign currency exchange rates by the Gross Product Sales of the comparative period. Management uses Percentage change in Constant Currency Gross Product Sales to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Percentage change in Constant Currency Revenue is calculated by dividing the change in Revenue excluding the impact from changes in foreign currency exchange rates by the Revenue of the comparative period. Management uses Percentage change in Constant Currency Revenue to measure the underlying financial performance of the business on a consistent basis over time excluding the impact from changes in foreign currency exchange rates.

Adjusted EBITDA Margin, excluding PAW Patrol: The Movie Distribution Revenue is calculated as Adjusted EBITDA excluding PAW Patrol: The Movie Distribution Revenue divided by Revenue. Management uses Adjusted EBITDA Margin excluding PAW Patrol: The Movie Distribution Revenue to evaluate the Company’s performance compared to internal targets and to benchmark its performance against key competitors on a consistent basis over time.

Reconciliation of Non-GAAP Financial Measures

The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and Adjusted Net Income for the years ended December 31, 2021, 2020 and 2019:

Income for the years ended December 31, 2021, 2020 and 2019:
	Year Ended Dec		31
(in US$ millions)	2021	2020	2019
Net income	198.6	45.5	64.3
Income tax expense (recovery)	63.4	(36.1)	20.7
Finance costs	10.2	12.1	11.7
Depreciation and amortization expenses	111.9	103.0	84.6
EBITDA	384.1	124.5	181.3
Adjustments
Share based compensation1	15.3	12.2	15.2
Acquisition related deferred incentive compensation2	6.8	—	—
Transaction costs3	2.8	0.9	—
Acquisition related contingent consideration4	2.7	3.7	3.2
Impairment of intangible assets5	2.6	0.4	5.6
Restructuring expense6	2.5	5.3	8.8
Impairment of goodwill7	1.9	—	—
Legal settlement8	—	5.5	—
Impairment of property, plant and equipment9	—	0.5	—
Bad debt (recovery) expense10	—	—	(0.9)
Gain on disposal of asset11	(0.2)	—	—
Investment distribution income12	(0.6)	—	—
Net unrealized gain on investment13	(0.9)	—	—
Foreign exchange(gain)loss14	(2.9)	27.6	5.8
Adjusted EBITDA	414.1	180.6	219.0
Distribution revenue related to_PAW Patrol: The Movie_	(26.0)	—	—
Adjusted EBITDA, excluding PAW Patrol: The Movie Distribution Revenue	388.1	180.6	219.0
Distribution revenue related to_PAW Patrol: The Movie_	(26.0)	—	—
Income tax expense (recovery)	63.4	(36.1)	20.7
Finance costs	10.2	12.1	11.7
Depreciation and amortization expenses	111.9	103.0	84.6
One-time income tax recovery15	—	33.3	—
Tax effect of adjustments16	7.3	14.9	9.2
Adjusted Net Income	221.3	53.4	92.8

1 Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company's initial public offering, share option expense and long-term incentive plan. See Note 21 of the Consolidated financial statements.

2 Deferred incentive compensation associated with acquisitions. See Note 5 of the Consolidated financial statements.

3 Professional fees incurred relating to acquisitions and other transactions.

4 Remuneration expense associated with contingent consideration for acquisitions. See Note 5 of the Consolidated financial statements.

5 Impairment of intangible assets related to entertainment content and app development. See Note 5 of the Consolidated financial statements.

6 Restructuring expense primarily relates to to changes in personnel. Restructuring expense in the prior year includes costs related to changes in senior leadership. See Note 7 of the Consolidated financial statements.

7 Impairment of goodwill associated with assets held for sale and one other CGU. See Note 5 of the Consolidated financial statements.

8 Legal settlement in the fourth quarter of 2020. See Note 5 of the Consolidated financial statements.

9 Impairment of property plant and equipment related to machinery. See Note 5 of the Consolidated financial statements.

10 Net bad debt (recovery) expense related to the bankruptcy declaration and liquidation proceedings of TRU during 2019. 11 Gain on disposal of intangible asset.

12 Distribution income related to investment in limited partnership. See Note 5 of the Consolidated financial statements.

13 Net unrealized gain related to investment in limited partnership. See Note 5 of the Consolidated financial statements.

14 Includes foreign exchange (gains) losses generated by the translation of monetary assets/liabilities denominated in a currency other than the functional currency of the applicable entity and (gains) losses related to the Company's hedging programs. See Note 8 of the Consolidated financial statements.

15 One-time income tax recovery relates to internal transfer of intangible property of $33.3 million. See Note 9 of the Consolidated financial statements.

16 Tax effect of adjustments (Footnotes 1-14). Adjustments are tax effected at the effective tax rate of the given period.

The following table provides reconciliations of net income (loss) to EBITDA, Adjusted EBITDA and Adjusted Net Income (Loss) for the previous eight fiscal quarters.

				Three Months Ended	Three Months Ended
(US$ millions)	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Net income (loss)	26.5	135.4	33.5	3.2	0.3	86.8	(14.9)	(26.7)
Income tax expense (recovery)	9.5	41.8	11.1	1.0	(4.7)	14.7	2.1	(48.2)
Finance costs	3.1	2.3	2.3	2.5	3.4	2.6	3.3	2.8
Depreciation and amortization expenses	23.0	41.7	24.1	23.1	27.6	26.4	25.7	23.3
EBITDA	62.1	221.2	71.0	29.8	26.6	130.5	16.2	(48.8)
Adjustments
Share based compensation1	4.0	4.1	4.0	3.2	2.9	2.9	2.8	3.6
Acquisition related contingent consideration2	3.4	—	—	(0.7)	3.7	—	—	—
Acquisition related deferred incentive compensation3	2.6	2.7	1.5	—	—	—	—	—
Transaction costs4	2.1	0.1	0.6	—	0.9	—	—	—
Restructuring expense5	1.4	0.4	—	0.7	0.5	1.4	(1.0)	4.4
Impairment of intangible assets6	1.2	—	0.5	0.9	0.4	—	—	—
Impairment of goodwill7	1.9	—	—	—	—	—	—	—
Net unrealized loss (gain) on investment8	0.3	—	(0.3)	(0.9)	—	—	—	—
Impairment of property, plant and equipment9	—	—	—	—	0.5	—	—	—
Legal settlement10	—	—	—	—	5.5	—	—	—
Investment distribution income11	—	(0.2)	(0.4)	—	—	—	—	—
Gain on disposal of asset12	—	(0.2)	—	—	—	—	—	—
Foreign exchange(gain)loss13	(0.7)	(10.8)	4.9	3.7	10.5	5.1	3.5	8.5
Adjusted EBITDA	78.3	217.3	81.8	36.7	51.5	139.9	21.5	(32.3)
Distribution revenue related to_PAW_
Patrol: The Movie	—	(26.0)	—	—	—	—	—
*Adjusted EBITDA, excludingPAW*** Patrol: The Movie Distribution Revenue	78.3	191.3	81.8	36.7	51.5	139.9	21.5	(32.3)
Distribution revenue related to_PAW_
Patrol: The Movie	—	(26.0)	—	—	—	—	—
Income tax expense (recovery)	9.5	41.8	11.1	1.0	(4.7)	14.7	2.1	(48.2)
Finance costs	3.1	2.3	2.3	2.5	3.4	2.6	3.3	2.8
Depreciation and amortization	23.0	41.7	24.1	23.1	27.6	26.4	25.7	23.3
One-time income tax recovery14	—	—	—	—	—	—	—	33.3
Tax effect of normalization adjustments15	4.0	(1.1)	2.7	1.7	10.6	1.1	(0.1)	3.3
Adjusted Net Income (Loss)	38.7	132.6	41.6	8.4	14.6	95.1	(9.5)	(46.8)

1 Related to non-cash expenses associated with subordinate voting shares granted to equity participants at the time of the Company's initial public offering, share option expense and long-term incentive plan.

2 Remuneration expense associated with contingent consideration for acquisitions.

3 Deferred incentive compensation associated with acquisitions.

4 Professional fees incurred relating to acquisitions and other transactions.

5 Restructuring expense primarily relates to changes in personnel. Restructuring expense in the prior year includes costs related to changes in senior leadership.

6 Impairment of intangible assets related to entertainment content and app development.
7 Impairment of goodwill associated with assets held for sale and one other CGU.
8 Net unrealized loss related to investment in limited partnership.
9 Impairment of property plant and equipment related to machinery.
10 Legal settlement in the fourth quarter of 2020.
11 Distribution income related to investment in limited partnership.
12 Gain on disposal of intangible asset.
13 Includes foreign exchange (gains) losses generated by the translation of monetary assets/liabilities denominated in a currency other than the functional currency of the applicable entity and (gains) losses related to the Company's hedging programs.
14 One-time income tax recovery relates to internal transfer of intangible property of $33.3 million.
15 Tax effect of adjustments (Footnotes 1-13). Adjustments are tax effected at the effective tax rate of the given period.

The following table provides reconciliations from Cash provided by operating activities and Cash used in investing activities to Free Cash Flow for the years ended December 31, 2021, 2020 and 2019:

	Year Ended Dec	Year Ended Dec
(US$ millions)	2021	2020	2019
Cash provided by operating activities	419.1	310.8	98.4
Cash used in investing activities	(153.2)	(84.9)	(116.2)
Add:
Business acquisitions, net of cash acquired	70.9	(0.7)	22.5
Investment in minority interests	2.4	—	—
Investment in limited partnership	1.0	1.8	—
Advance paid for business acquisitions	—	3.0	—
Investment in trademark license agreement	—	2.4	—
Proceeds from sale of investments	—	(0.3)	—
Investment distribution income	(0.6)	—	—
Free Cash Flow	339.6	232.1	4.7

The following table provides reconciliations from Cash provided by operating activities and Cash used in investing activities to Free Cash Flow for the previous eight fiscal quarters:

(US$ millions)	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020 Q1 2020	Q2 2020 Q1 2020
Cash provided (used in) operating	230.1	85.8	94.2	9.0	138.2	117.2	64.2	(8.8)
activities
Cash used in investing activities	(19.6)	(22.7)	(46.9)	(64.0)	(19.3)	(20.2)	(26.4)	(19.0)
Add:
Business acquisitions, net of cash	0.7	—	21.7	48.5	—	(0.7)	—	—
acquired
Investment in limited partnership	0.1	0.9	—	—	1.8	—	—	—
Advance paid for business acquisitions	—	—	—	—	3.0	—	—	—
Investment in trademark license	—	—	—	—	—	—	2.4	—
agreement
Investment distribution income	—	(0.6)	—	—	—	—	—	—
Investment in minority interests	—	2.4	—	—	—	—	—	—
Proceeds from sale of investments	—	—	—	—	—	(0.3)	—	—
Free Cash Flow	211.3	65.8	69.0	(6.5)	123.7	96.0	40.2	(27.8)

The following table provides reconciliations of Gross Product Sales to revenue for the previous eight fiscal quarters:

(US$ millions)	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Gross Product Sales	627.5	681.2	359.0	294.7	511.8	587.4	282.2	242.3
Sales Allowances	(85.5)	(73.4)	(32.6)	(39.1)	(77.5)	(64.1)	(29.6)	(36.9)
Toy revenue	542.0	607.8	326.4	255.6	434.3	523.3	252.6	205.4
Entertainment and Licensing revenue	28.5	52.9	27.5	26.9	24.5	20.5	18.3	14.9
Digitalgames revenue	50.0	53.8	36.9	34.1	31.8	27.8	10.2	7.0
Other revenue	78.5	106.7	64.4	61.0	56.3	48.3	28.5	21.9
Revenue	620.5	714.5	390.8	316.6	490.6	571.6	281.1	227.3

The following table presents a reconciliation of Revenue to Revenue, excluding PAW Patrol: The Movie Distribution Revenue for the years ended December 31, 2021 and 2020:

Distribution Revenue for the years ended December 31, 2021 and 2020:
		Year Ended Dec 31
(US$ millions)		2021		2020
Revenue	$	2,042.4	$	1,570.6
Distribution revenue related to_PAW Patrol: The Movie_		(26.0)		—
Revenue, excludingPAW Patrol: The Movie Distribution Revenue	$	2,016.4	$	1,570.6

The following table presents a reconciliation of Revenue to Revenue, excluding PAW Patrol: The Movie Distribution Revenue for the previous eight fiscal quarters:

(US$ millions)	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Revenue	$ 620.5	$ 714.5	$ 390.8	$ 316.6	$ 490.6	$ 571.6	$ 281.1	$ 227.3
Distribution revenue related to_PAW_
Patrol: The Movie	—	(26.0)	—	—	—	—	—	—
*Revenue, excludingPAW Patrol: The***
Movie Distribution Revenue	$ 620.5	$ 688.5	$ 390.8	$ 316.6	$ 490.6	$ 571.6	$ 281.1	$ 227.3

The following tables present reconciliations of Revenue to Constant Currency Gross Product Sales and Revenue to Constant Currency Revenue for the three months and years ended December 31, 2021, and 2020:

						Year Ended Dec 31	Year Ended Dec 31	Year Ended Dec 31
(US$ millions)		Q4 2021		Q4 2020		2021		2020
Constant Currency Gross Product Sales	$	629.0	$	507.5	$	1,950.1	$	1,620.7
Impact of foreign exchange		(1.5)		4.3		12.3		3.0
Gross Product Sales	$	627.5	$	511.8	$	1,962.4	$	1,623.7
Sales Allowances		(85.5)		(77.5)		(230.6)		(208.1)
Toy revenue	$	542.0	$	434.3	$	1,731.8	$	1,415.6
Entertainment and Licensing revenue		28.5		24.5		135.8		78.2
Digital Games revenue		50.0		31.8		174.8		76.8
Other revenue	$	78.5	$	56.3	$	310.6	$	155.0
Revenue	$	620.5	$	490.6	$	2,042.4	$	1,570.6
						Year Ended Dec 31
(US$ millions)		Q4 2021		Q4 2020		2021		2020
Constant Currency Revenue	$	622.1	$	484.7	$	2,025.2	$	1,565.4
Impact of foreign exchange		(1.6)		5.9		17.2		5.2
Revenue	$	620.5	$	490.6	$	2,042.4	$	1,570.6

The following tables present the composition of Percentage change in Constant Currency Gross Product Sales and Percentage change in Constant Currency Revenue for the three months and years ended December 31, 2021:

Q4 2021
(US$ millions)
2021
2020
Gross Product Sales
$ 627.5
$ 511.8
Revenue
$ 620.5
$ 490.6
Year Ended Dec 31
(US$ millions)
2021
2020
Gross Product Sales
$ 1,962.4
$ 1,623.7
Revenue
$ 2,042.4
$ 1,570.6

$ Change
% Change
As
reported
Impact of
foreign
exchange
In
Constant
Currency
As
reported
In
Constant
Currency
$ 115.7
$ 1.5
$ 117.2
22.6 %
22.9 %
$ 129.9
$ 1.6
$ 131.5
26.5 %
26.8 %
$ Change
% Change
As
reported
Impact of
foreign
exchange
In
Constant
Currency
As
reported
In
Constant
Currency
$ 338.7
$ (12.3)
$ 326.4
20.9 %
20.1 %
$ 471.8
$ (17.2)
$ 454.6
30.0 %
28.9 %

FORWARD ‑ LOOKING STATEMENTS

Certain statements, other than statements of historical fact, contained in this MD&A constitute “forward-looking information” within the meaning of certain securities laws, including the Securities Act (Ontario), and are based on expectations, estimates and projections as of the date on which the statements are made in this MD&A. The words “plans”, “expects”, “projected”, “estimated”, “forecasts”, “anticipates”, “indicative”, “intend”, “guidance”, “outlook”, “potential”, “prospects”, “seek”, “strategy”, “targets” or “believes”, or variations of such words and phrases or statements that certain future conditions, actions, events or results “will”, “may”, “could”, “would”, “should”, “might” or “can”, or negative versions thereof, “be taken”, “occur”, “continue” or “be achieved”, and other similar expressions, identify statements containing forward-looking information. Statements of forwardlooking information in this MD&A include, without limitation, statements with respect to: the Company’s outlook for 2022 (see “Outlook”); future growth expectations in 2022 and beyond; drivers and trends for such growth and financial performance; the successful execution of its strategies for growth; the Company's SMV initiative; content and product pipeline; financial position, cash flows and financial performance; and the creation of long term shareholder value.

Forward-looking statements are necessarily based upon management’s perceptions of historical trends, current conditions and expected future developments, as well as a number of specific factors and assumptions that, while considered reasonable by management as of the date on which the statements are made in this MD&A, are inherently subject to significant business, economic and competitive uncertainties and contingencies which could result in the forward-looking statements ultimately being incorrect. In addition to any factors and assumptions set forth above in this MD&A, the material factors and assumptions used to develop the forwardlooking information include, but are not limited to: ability of factories to manufacture products, including labour size and allocation, tooling, raw material and component availability, ability to shift between product mix, and customer acceptance of delayed delivery dates; the steps taken will create long term shareholder value; the expanded use of advanced technology, robotics and innovation the Company applies to its products will have a level of success consistent with its past experiences; the Company will continue to successfully secure broader licenses from third parties for major entertainment properties consistent with past practices; the expansion of sales and marketing offices in new markets will increase the sales of products in that territory; the Company will be able to successfully identify and integrate strategic acquisition and minority investment opportunities; the Company will be able to maintain its distribution capabilities; the Company will be able to leverage its global platform to grow sales from acquired brands; the Company will be able to recognize and capitalize on opportunities earlier than its competitors; the Company will be able to continue to build and maintain strong, collaborative relationships; the Company will maintain its status as a preferred collaborator; the culture and business structure of the Company will support its growth; the current business strategies of the Company will continue to be desirable on an international platform; the Company will be able to expand its portfolio of owned branded intellectual property and successfully license it to third parties; use of advanced technology and robotics in the Company’s products will expand; access of entertainment content on mobile platforms will expand; fragmentation of the market will continue to create acquisition opportunities; the Company will be able to maintain its relationships with its employees, suppliers, retailers and license partners; the Company will continue to attract qualified personnel to support its development requirements; and the Company's key personnel will continue to be involved in the Company products and entertainment properties will be launched as scheduled and that the risk factors noted in this MD&A, collectively, do not have a material impact on the Company.

By its nature, forward-looking information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. Known and unknown risk factors, many of which are beyond the control of the Company, could cause actual results to differ materially from the forward-looking information in this MD&A. Such risks and uncertainties include, without limitation, the magnitude and length of economic disruption as a result of the COVID-19 pandemic; and the factors discussed in the Company's disclosure materials, including the Annual MD&A and the Company's most recent AIF, filed with the securities regulatory authorities in Canada and available under the Company's profile on SEDAR (www.sedar.com). These risk factors are not intended to represent a complete list of the factors that could affect the Company and investors are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on forward-looking statements.

There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are provided for the purpose of providing information about management’s expectations and plans relating to the future. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, or to explain any material difference between subsequent actual events and such forward-looking statements, except to the extent required by applicable law.

ADDENDUM

Effective January 1, 2021, Spin Master has simplified its product categories to align with the Company's product offerings going forward. The following table presents 2020 Gross Product Sales[1] in the same format that the Company presents Gross Product Sales[1] in 2021:

Gross Product Sales1 by Product Category

(US$ millions)	Q1 2020	Q2 2020	Q3 2020	Q4 2020	Total
Preschool, Dolls & Interactive1	73.1	93.5	242.7	200.2	609.5
Activities, Games & Puzzles and Plush	80.1	99.8	181.0	173.9	534.8
Wheels & Action1	60.7	54.1	151.4	122.1	388.3
Outdoor	28.4	34.8	12.3	15.6	91.1
Gross Product Sales2	242.3	282.2	587.4	511.8	1,623.7

1) Prior to the fourth quarter of 2021, "Preschool, Dolls & Interactive" and "Wheels & Action" were called "Preschool and Girls" and "Boys", respectively. No other changes to these product categories were made.
2) Non-GAAP financial measure or ratio. See "Non-GAAP Financial Measures and Ratios".

AI assistant

Spin Master Corp. — Management Reports 2022

47311_rns_2022-02-28_e2d43722-a2d9-4e60-ac3b-ea3c2be4f976.pdf

Spin Master Corp.

TABLE OF CONTENTS

INTRODUCTION

BASIS OF PRESENTATION

BUSINESS OVERVIEW

COVID-19 PANDEMIC

Supply Chain

Demand

Liquidity

Selected Financial Information

Notes:

FINANCIAL PERFORMANCE

Consolidated Results

Revenue

For the three months ended December 31, 2021 as compared to the same period in 2020:

Revenue by Geographic Segment

For the year ended December 31, 2021 as compared to the same period in 2020:

Revenue by Geographic Segment

Gross Profit as compared to the same period in 2020:

Adjusted SG&A as compared to the same period in 2020:

Finance Costs as compared to the same period in 2020:

Depreciation and Amortization Expenses as compared to the same period in 2020:

Foreign Exchange (Gain) Loss as compared to the same period in 2020:

Income Tax Expense (Recovery) as compared to the same period in 2020:

Net Income as compared to the same period in 2020:

OUTLOOK

2022 Guidance

INVESTMENTS AND ACQUISITIONS

Acquisition of Rubik's Brand Limited

Acquisition of certain assets from a product invention and development company

Acquisition of Originator Inc.

Spin Master Ventures

SELECTED QUARTERLY FINANCIAL INFORMATION

LIQUIDITY AND CAPITAL RESOURCES

Short Form Base Shelf Prospectus

Capital and Investment Framework

CASH FLOW

Cash from Operating Activities as compared to the same period in 2020:

Investing Activities as compared to the same period in 2020:

Financing Activities as compared to the same period in 2020:

Free Cash Flow[1] as compared to the same period in 2020:

CONTRACTUAL OBLIGATIONS & COMMITMENTS

OFF ‑ BALANCE SHEET ARRANGEMENTS

CAPITALIZATION

Share Capital

RISKS RELATING TO SPIN MASTER'S BUSINESS

If Spin Master does not create original, or enhance existing, products, brands and entertainment properties that satisfy consumer preferences, and anticipate, initiate and capitalize on developments in its industry, the Company’s business will suffer.

The industries in which Spin Master operates are highly competitive and the Company’s inability to compete effectively may materially and adversely impact its business, financial condition and performance.

Spin Master’s failure to market or advertise products could have a material adverse effect on the Company’s business, financial condition and performance.

Failure to protect or enforce Spin Master’s IP rights and claims by third parties that the Company is infringing their IP rights could materially and adversely affect Spin Master’s business, financial condition and performance.

The COVID-19 pandemic and actions taken by governments, businesses, and individuals in response to it could adversely affect Spin Master’s business, financial position, sales, and results of operations.

Spin Master may not be able to sustain or manage its growth strategy, which may prevent the Company

from increasing its revenues.

Spin Master’s dependence on third-party manufacturers, distributors, distribution centres and logistics service providers presents risks to the Company’s business and exposes it to risks associated with international operations.

Disruptions in Spin Master’s manufacturing operations or supply chain due to political instability, civil unrest or public health crisis have adversely affected and could further adversely affect Spin Master’s business, financial position, sales, and results of operations.

Uncertainty and adverse changes in general economic conditions may negatively affect consumer spending, which could have a material adverse effect on Spin Master’s revenue and profitability.

Failure to maintain existing relationships, or to develop new relationships, with inventors and entertainment content collaborators could have a material adverse effect on Spin Master’s business, financial condition and performance.

Risks Related to the Entertainment Industry.

International sales are subject to various risks and failure to implement the international growth strategy could have a material adverse effect on the Company’s business, financial condition and performance.

An increasing portion of Spin Master’s business may come from new and emerging markets, and growing business in new and emerging markets presents additional challenges which could have a material adverse effect on the Company’s business, financial condition and performance.

Product recalls, post-manufacture repairs of Spin Master’s products, product liability claims, absence or cost of insurance, and associated costs could harm the Company’s reputation, which could have a material adverse effect on the Company’s business, financial condition and performance.

Unfavourable resolution of litigation matters and disputes, including those arising from recalls, withdrawals or replacements of Spin Master’s products, could have a material adverse effect on the Company’s business, financial condition and performance.

Failure to implement new initiatives or meet product introduction schedules could have a material adverse effect on Spin Master’s business, financial condition and performance.

A reduction or interruption in the delivery of raw materials, parts and components from Spin Master’s suppliers or a significant increase in the price of raw materials and labour could negatively impact the Company’s profit margins or result in lower sales.

Spin Master may not realize the full benefit of its licenses if the licensed material has less market appeal than expected and licenses may not be profitable to the Company if sales revenue from the licensed products are not sufficient to support the minimum guaranteed royalties.

If Spin Master fails to maintain an effective system of internal controls, Spin Master may not be able to report its financial results or prevent fraud, which could harm the Company’s financial performance and may cause investors to lose confidence in it.

Spin Master is subject to tax and regulatory compliance in all the jurisdictions in which it operates and may be subject to audits from time to time that could result in the assessment of additional taxes, interest and penalties.

Significant changes in currency exchange rates could have a material adverse effect on Spin Master’s business, financial condition and performance.

Spin Master relies extensively on information technology in its operations, and any material failure in design, inadequacy, interruption, or security breach of that technology could have a material adverse impact on the Company’s business, financial condition and performance.

Spin Master’s business could be significantly harmed if its electronic data is compromised.

The challenge of continuously developing and offering products and entertainment experiences that are sought after by children is compounded by the sophistication of today’s children and the increasing array of technology and entertainment offerings available to them.

An increasing portion of Spin Master’s business may come from technologically advanced or sophisticated digital and smart technology products, which present additional challenges compared to more traditional toys and games.

The production and sale of private-label toys by the retailers with which Spin Master does business may result in lower purchases of the Spin Master’s branded products by those customers .

Spin Master’s success depends on key personnel and without them the Company may be unable to maintain and expand its business.

Natural disasters or other catastrophic events out of Spin Master’s control may damage its operations, facilities or those of its contractors and could materially and adversely affect the Company’s business, financial condition and performance.

Increases in interest rates, the lack of availability of credit and Spin Master’s inability to meet the debt covenant coverage requirements in its credit facility could negatively impact the Company’s ability to conduct its business operations.

Negative publicity and product reviews may negatively impact Spin Master’s business, financial condition and performance.

Spin Master Corp. Management Reports 2022