Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

(Dollar and share amounts in tables presented in millions, unless otherwise noted)

The following discussion and analysis should be read together with the accompanying unaudited consolidated financial statements and the notes thereto included in this Quarterly Report and the audited consolidated financial statements and the notes thereto in the 2023 Annual Report.

Overview

Hasbro, Inc. ("Hasbro") is a game, toy, and intellectual property company whose mission is to entertain and connect generations of fans through exhilaration of play and the wonder of storytelling. We are Creating Magic Through Play by delivering engaging brand experiences for global audiences across gaming, consumer products and entertainment, with a portfolio of iconic brands including MAGIC: THE GATHERING, Hasbro Gaming, PLAY-DOH, NERF, TRANSFORMERS, DUNGEONS & DRAGONS, and PEPPA PIG, as well as premier partner brands.

Hasbro is guided by our purpose to create joy and community for all people around the world, one game, one toy, one story at a time. For the past decade, we have been consistently recognized for our corporate citizenship, including being named one of the 100 Best Corporate Citizens by 3BL Media.

Recent Developments

In fiscal year 2023, we embarked upon an ambitious, multi-year transformation guided by our revamped strategy to focus on fewer, bigger and better brands. Since that announcement, we have been able to create efficiencies in our supply chain, improve our inventory position, lower our costs, and reinvest back into the business. In addition, we have strengthened our leadership team with industry veterans and turnaround experts and have focused our strategic investments on our most valuable and profitable franchises across games, toys, licensing and entertainment. This focused strategy also led to the decision to sell certain non-core parts of our business, including the Entertainment One film and television business ("eOne Film and TV") in December 2023, while retaining brand-based created content and the capability to develop and produce entertainment including animation, digital shorts, scripted TV and theatrical films related to core Hasbro IP, as well as our Family Brands business. In addition, during 2023, we experienced stronger than expected market headwinds within our Consumer Products business, resulting in our difficult decision to take additional headcount reductions and accelerate the process of certain organizational structure changes in an effort to strengthen our foundation and position Hasbro for growth.

During the first quarter of 2024, the Company experienced expected declines in revenue from $1,001.0 million in the first quarter of 2023 to $757.3 million in the first quarter of 2024 driven primarily by the sale of eOne Film and TV business and by broader industry trends, exited businesses, and reduced closeout sales in the Consumer Products business. The Company made strong progress towards its ongoing turnaround efforts while achieving a strong operating profit of $116.2 million in the first quarter of 2024 as compared to $17.9 million in first quarter of 2023. See the below discussion for the consolidated and segment results of operations.

RESULTS OF OPERATIONS

The following table presents the consolidated results of operations for the quarters ended March 31, 2024 and April 2, 2023.

			Quarter Ended
			March 31, 2024												April 2, 2023
			Amount						% of Net Sales						Amount						% of Net Sales
Net revenues			$	757.3					100.0		%				$	1,001.0					100.0		%
Costs and expenses:
Cost of sales			204.2						27.0		%				285.3						28.5		%
Program cost amortization			8.1						1.1		%				122.5						12.2		%
Royalties			50.9						6.7		%				69.0						6.9		%
Product development			65.5						8.6		%				83.3						8.3		%
Advertising			51.5						6.8		%				82.8						8.3		%
Amortization of intangibles			17.0						2.2		%				23.1						2.3		%
Selling, distribution and administration			234.8						31.0		%				317.1						31.7		%
Loss on disposal of business			9.1						1.2		%				—						—		%
Total costs and expenses			641.1						84.7		%				983.1						98.2		%
Operating profit			116.2						15.3		%				17.9						1.8		%
Non-operating expense (income):
Interest expense			38.5						5.1		%				46.3						4.6		%
Interest income			(8.3)						(1.1)		%				(6.0)						(0.6)		%
Other expense (income), net			5.0						0.7		%				(1.4)						(0.1)		%
Total non-operating expense, net			35.2						4.6		%				38.9						3.9		%
Earnings (loss) before income taxes			81.0						10.7		%				(21.0)						(2.1)		%
Income tax expense			21.9						2.9		%				0.7						0.1		%
Net earnings (loss)			59.1						7.8		%				(21.7)						(2.2)		%
Net earnings attributable to noncontrolling interests			0.9						0.1		%				0.4						—		%
Net earnings (loss) attributable to Hasbro, Inc.			$	58.2					7.7		%				$	(22.1)					(2.2)		%
Net earnings (loss) per common share:
Basic			$	0.42											$	(0.16)
Diluted			$	0.42											$	(0.16)

Net revenues - Net revenues for the first quarter of 2024 declined 24% to $757.3 million from $1,001.0 million for the first quarter of 2023 primarily driven by a $157.4 million, or 85%, decline in the Entertainment segment and a $107.4 million, or 21%, decline in the Consumer Products segment, partially offset by a $21.1 million, or 7%, increase in the Wizards of the Coast and Digital Gaming segment. See the Segment Results discussion below for further details.

The following table presents net revenues by brand portfolio category for the quarters ended March 31, 2024 and April 2, 2023:

			Quarter Ended
			March 31, 2024						April 2, 2023						% Change
Franchise Brands			$	606.5					$	613.4					-1		%
Partner Brands			87.7						132.7						-34		%
Portfolio Brands			63.1						92.1						-31		%
Non-Hasbro Branded Film & TV (1)			—						162.8						-100		%
Total			$	757.3					$	1,001.0					-24		%

(1) Net revenues from the Company's Non-Hasbro-branded Film and TV portfolio were associated with the Company's non-core eOne Film and TV business sold to Lionsgate during the fourth quarter of 2023.

FRANCHISE BRANDS: Net revenues in the Franchise Brands portfolio decreased $6.9 million, or 1%, in the first quarter of 2024, compared to the first quarter of 2023. The net revenue decrease primarily reflects lower net revenues from NERF products and TRANSFORMERS products. Net revenues from TRANSFORMERS products in the first quarter of 2023 were supported by the June 2023 theatrical release of Transformers: Rise of the Beasts. The lower net revenues from NERF and TRANSFORMERS products were partially offset by higher net revenues from MAGIC: THE GATHERING products, primarily due to the timing of set releases in the third quarter of 2023 and along with higher revenues from PEPPA PIG.

PARTNER BRANDS: Net revenues from the Partner Brands portfolio decreased $45.0 million, or 34% in the first quarter of 2024, compared to the first quarter of 2023. Within the Partner Brands portfolio, there are a number of brands which are reliant on related entertainment, including television and movie releases. As such, net revenues from Partner Brands fluctuate depending on entertainment popularity, release dates and related product line offerings. Historically these entertainment-based brands experience higher revenues during years in which new content is released in theaters, for broadcast, and on streaming platforms.

During the first quarter of 2024, Partner Brands net revenue decreases were driven by lower net revenues from the Company's products for STAR WARS and MARVEL which benefited from a robust slate of entertainment releases in prior years without a more recent release entertainment release to support revenue in the first quarter of 2024. Additionally, revenue in the first quarter of 2023 was higher due to the Company's products for INDIANA JONES supported by the June 2023 theatrical release of Indiana Jones and the Dial of Destiny.

PORTFOLIO BRANDS: Portfolio Brands net revenues decreased 31% in the first quarter of 2024 compared to the first quarter of 2023. Lower net revenues from MY LITTLE PONY, POWER RANGERS, and PJ MASKS products were partially offset by revenue contributions from FURBY products following the Company's reintroduction of the brand and refreshed product line during the second quarter of 2023.

NON-HASBRO BRANDED FILM & TV: Net revenues from Non-Hasbro Branded Film & TV decreased $162.8 million in the first quarter of 2024 compared to the first quarter of 2023. Net revenues from the Company's Non-Hasbro-branded Film and TV portfolio were associated with the eOne Film and TV business sold during the fourth quarter of 2023. Effective in the first quarter of 2024, the Company moved the remaining Non-Hasbro Branded Film & TV brands into Portfolio Brands to align with the Company's Brand Strategy. For comparability, net revenues for quarter ended April 2, 2023, has been reclassified to reflect the movement, resulting in a change of $0.1 million.

OPERATING COSTS AND EXPENSES

Cost of sales - Cost of sales for the first quarter of 2024 was $204.2 million, or 27.0% of net revenues, compared to $285.3 million, or 28.5% of net revenues, for the first quarter of 2023. The Cost of sales decrease in dollars was driven primarily by lower sales volumes as well as cost savings from the Company's Operational Excellence Program.

Program cost amortization - Program cost amortization decreased to $8.1 million, or 1.1% of net revenues, for the first quarter of 2024 from $122.5 million, or 12.2% of net revenues, for the first quarter of 2023. Program costs are capitalized as incurred and amortized primarily using the individual-film-forecast method which matches costs to the related recognized revenue. The decrease in dollars and as a percent of net revenues during the first quarter of 2024 was driven by the impact of the sale of the eOne Film and TV business during the fourth quarter of 2023 as prior year Program costs were primarily associated with the eOne Film and TV business.

Royalties - Royalty expense for the first quarter of 2024 decreased to $50.9 million, or 6.7% of net revenues, compared to $69.0 million, or 6.9% of net revenues, for the first quarter of 2023. Fluctuations in Royalty expense are generally related to the volume of content releases and deliveries and entertainment-driven products sold. The decrease in Royalty expense in dollars and as a percent of net revenues during the first quarter of 2024 directly reflects the impact of the sale of the eOne Film and TV business.

Product development - Product development expense for the first quarter of 2024 was $65.5 million, or 8.6% of net revenues, compared to $83.3 million, or 8.3% of net revenues, for the first quarter of 2023. The decrease in Product development expense during the first quarter of 2024 was driven by the Company's Operational Excellence Program along with phasing of product releases.

Advertising - Advertising expense for the first quarter of 2024 was $51.5 million, or 6.8% of net revenues, compared to $82.8 million, or 8.3% of net revenues, for the first quarter of 2023. The Advertising expense decrease during the first quarter of 2024 was primarily driven by the sale of the eOne Film and TV business, a decline in advertising expense, along with declines in the advertising expense in the Consumer Products segment due to lower net revenues.

Amortization of intangibles - Amortization of intangible assets decreased to $17.0 million, or 2.2% of net revenues, for the first quarter of 2024, compared to $23.1 million, or 2.3% of net revenues, for the first quarter of 2023. The decrease in 2024 reflects lower definite lived intangible assets due to the sale of the eOne Film and TV business and impairments taken in 2023. See further detail of impairments taken in 2023 in Note 6 of the 2023 Annual Report.

Selling, distribution and administration - Selling, distribution and administration expenses decreased to $234.8 million, or 31.0% of net revenues for the first quarter of 2024, from $317.1 million, or 31.7% of net revenues, for the first quarter of 2023. The decrease in Selling, distribution and administration expenses during the first quarter of 2024 primarily reflects lower administrative expenses due to cost savings from the Company's Operational Excellence Program, along with a non-recurring stock-compensation adjustment of $18.1 million.

Operating Profit - The operating profit for the first quarter of 2024 was $116.2 million, or 15.3% of net revenues, compared to operating profit of $17.9 million, or 1.8% of net revenues, for the first quarter of 2023 driven by the factors discussed above.

NON-OPERATING EXPENSE (INCOME)

Interest expense - Interest expense for the first quarter of 2024 totaled $38.5 million compared to $46.3 million in the first quarter of 2023. The decrease in Interest expense for the first quarter of 2024 primarily reflects lower outstanding borrowings in the first quarter of 2024 as compared to first quarter of 2023 due to the assumption of the production financing borrowings by Lionsgate as part of the eOne Film and TV business and due to the retirement of the Company's variable-rate Five-Year term loan using proceeds from the sale of the eOne Film and TV business, both occurring during the fourth quarter of 2023.

Interest income - Interest income was $8.3 million for the first quarter of 2024, compared to $6.0 million in the first quarter of 2023. Higher Interest income in 2024 primarily reflects higher average interest rates in 2024 compared to 2023.

Other expense (income), net - Other expense, net was $5.0 million for the first quarter of 2024, compared to Other income, net of $1.4 million in the first quarter of 2023. The change in Other expense (income), net during 2024 was driven primarily by an increase in foreign currency exchange losses the first quarter of 2024 as compared to the first quarter of 2023.

INCOME TAXES

Income tax expense totaled $21.9 million on pre-tax income of $81.0 million in the first quarter of 2024 compared to income tax expense of $0.7 million on pre-tax loss of $21.0 million in the first quarter of 2023. Both periods were impacted by discrete tax events including the accrual of potential interest and penalties on uncertain tax positions. During the first quarter of 2024, the Company recorded unfavorable discrete tax adjustments of $1.8 million compared to a net expense of $3.3 million in the first quarter of 2023. The unfavorable discrete tax adjustments for both periods are primarily associated with stock-based compensation. Absent discrete items, the tax rates for the first quarters of 2024 and 2023 were 22.4% and 12.2%, respectively. The increase in the base rate to 22.4% for the first quarter of 2024 is primarily due to the mix of jurisdictions where the Company earned its profits coupled with a pre-tax loss in the first quarter of 2023.

SEGMENT RESULTS

The following table presents net external revenues and operating profit (loss) for the Company's reportable segments for the quarters ended March 31, 2024 and April 2, 2023:

			Quarter Ended
			March 31, 2024						April 2, 2023						% Change
Net revenues
Consumer Products			$	413.0					$	520.4					-21		%
Wizards of the Coast and Digital Gaming			316.3						295.2						7		%
Entertainment			28.0						185.4						-85		%
Total Net revenues			$	757.3					$	1,001.0					-24		%
Operating Profit (Loss)
Consumer Products			$	(46.9)					$	(46.0)					2		%
Wizards of the Coast and Digital Gaming			122.8						76.8						60		%
Entertainment			5.8						(8.7)						-167		%
Corporate and Other			34.5						(4.2)						-921		%
Total Operating Profit			$	116.2					$	17.9					549		%

Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended March 31, 2024 and April 2, 2023:

			Quarter Ended
			March 31, 2024						April 2, 2023
North America			$	239.1					$	279.1
Europe			87.5						131.6
Asia Pacific			48.8						63.3
Latin America			37.6						46.4
Net revenues			$	413.0					$	520.4

The Consumer Products segment net revenues declined 21% to $413.0 million for the first quarter of 2024 compared to $520.4 million for the first quarter of 2023 primarily driven by broader industry trends, exited businesses, including out-licensing certain brands, and reduced closeout sales as a result of last year's inventory clean up initiatives. The net revenue decrease primarily reflects lower net revenues from NERF products and TRANSFORMERS products. Net revenues from TRANSFORMERS products in the first quarter of 2023 were supported by the June 2023 theatrical release of Transformers: Rise of the Beasts.

Consumer Products segment operating loss for the first quarter of 2024 was $46.9 million or 11.4% of segment net revenues, compared to a segment operating loss of $46.0 million or 8.8% of segment net revenues, for the first quarter of 2023. The decrease in operating profit in the first quarter of 2024 was driven by lower net revenue, partially offset by savings realized from the Company's Operational Excellence program, lower royalty expenses reflecting the mix of products sold, lower advertising and promotion expense and lower freight costs, associated with the lower sales volumes.

Wizards of the Coast and Digital Gaming Segment

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters ended March 31, 2024 and April 2, 2023:

			Quarter Ended
			March 31, 2024						April 2, 2023
Tabletop Gaming			$	228.2					$	217.9
Digital and Licensed Gaming			88.1						77.3
Net revenues			$	316.3					$	295.2

Wizards of the Coast and Digital Gaming segment net revenues increased 7% in the first quarter of 2024 to $316.3 million from $295.2 million in the first quarter of 2023. The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first quarter of 2024 was primarily attributable to revenue contributions from higher digital licensing of Baldur's Gate 3, the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023, and the continued success of MONOPOLY GO!. Tabletop Gaming revenue increased 5% behind growth in MAGIC: THE GATHERING shipment timing to support the Outlaws of Thunder Junction release and strong demand for the Universes Beyond Fallout Commander set.

Wizards of the Coast and Digital Gaming segment operating profit was $122.8 million, or 38.8% of segment net revenues for the first quarter of 2024, compared to operating profit of $76.8 million, or 26.0% of segment net revenues, for the first quarter of 2023. The operating profit increase during the first quarter of 2024 was driven by increased net revenues, contributions from higher digital licensing revenue mix, and cost savings initiatives.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the quarters ended March 31, 2024 and April 2, 2023:

			Quarter Ended
			March 31, 2024						April 2, 2023
Film and TV			$	—					$	168.4
Family Brands			28.0						17.0
Net revenues			$	28.0					$	185.4

Entertainment segment net revenues declined 85% to $28.0 million for the first quarter of 2024, compared to $185.4 million for the first quarter of 2023. The net revenue decrease in the Entertainment segment during the first quarter of 2024 was driven by lower net revenues as a result of the sale of the eOne Film and TV business during the fourth quarter of 2023. Excluding the contributions from the eOne Film and TV business, Family Brands' net revenue increased approximately 65% driven by PEPPA PIG content.

Entertainment segment operating profit was $5.8 million, or 20.7% of segment net revenues for the first quarter of 2024, compared to an operating loss of $8.7 million, or 4.7% of segment net revenues for the first quarter of 2023. The decrease in Entertainment segment operating results during the first quarter of 2024 was driven by the sale of the eOne Film and TV business in the fourth quarter of 2023.

Corporate and Other

Corporate and Other operating profit was $34.5 million for the first quarter of 2024 compared to an operating loss of $4.2 million for the first quarter of 2023. The increase in operating profit in the first quarter of 2024 as compared to the first quarter of 2023 reflects savings realized from the Company's Operational Excellence program and a benefit from an adjustment for stock compensation expense reversal recorded in the first quarter of 2024. Refer to note 1 to the consolidated financial statements for further information on the stock compensation adjustment.

OTHER INFORMATION

Commitments and Contingencies

The Company enters into purchase orders with vendors and other parties in the ordinary course of business. Refer to Item 7 of our 2023 Annual Report for additional information regarding the Company’s cash obligations and commitments as of the end of fiscal year 2023. Additionally, refer to note 14 to the consolidated financial statements for a discussion of the Company’s commitments and contingencies. Contractual obligations and commercial commitments, as detailed in the Company's 2023 Form 10-K, did not materially change outside of certain payments made in the normal course of business and as otherwise set forth in this report.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically generated a significant amount of cash from operations. The Company primarily funded its operations and liquidity needs through cash on hand and from cash flows from operations, and when needed, borrowings under its commercial paper program and available lines of credit.

During 2024, the Company expects to continue to fund its working capital needs primarily through available cash, cash flows from operations and if needed, by issuing commercial paper or borrowing under its revolving credit agreement. The Company believes that the funds available to it, including cash expected to be generated from operations, funds available through its commercial paper program or its available lines of credit, are adequate to meet its working capital needs for the next twelve months. The Company may also issue debt or equity securities from time to time, to provide additional sources of liquidity when pursuing opportunities to enhance our long-term competitive position, while maintaining a strong balance sheet.

As of March 31, 2024, the Company's cash and cash equivalents totaled $570.2 million. As of March 31, 2024, the Company had a total liability of $103.3 million related to a one-time mandatory deemed repatriation tax on undistributed foreign earnings applied in 2017 and paid in interest free installments over eight years. $45.9 million is reflected in current liabilities and represents the Company’s 2024 payment and $57.4 million, representing the Company’s final installment due in 2025, is presented within Other liabilities on the Company’s Consolidated Balance Sheets. The majority of the Company’s cash and cash equivalents held outside of the United States as of March 31, 2024, are denominated in the U.S. dollar.

Under the Company’s commercial paper program, at the request of the Company and subject to market conditions, the Company may issue notes from time to time up to an aggregate principal amount outstanding at any given time of $1.0 billion. The Company intends to use the commercial paper program as its primary short-term borrowing facility. As of March 31, 2024, the Company had no outstanding borrowings related to the commercial paper program.

The Company’s revolving credit facility with Bank of America, provides the Company with commitments having a maximum aggregate principal amount of $1.25 billion. The revolving credit facility also provides for a potential additional incremental commitment increase of up to $500.0 million subject to agreement of the lenders. The Company's revolving credit facility contains certain financial covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility, including with respect to liens, mergers and incurrence of indebtedness. The Company was in compliance with all covenants as of March 31, 2024. The Company had no borrowings outstanding under its revolving credit facility as of March 31, 2024. However, letters of credit outstanding under this facility as of March 31, 2024 were approximately $4.0 million. Amounts available and unused under the revolving credit facility at March 31, 2024 were approximately $1.2 billion, inclusive of borrowings under the Company’s commercial paper program. The Company also has other uncommitted lines from various banks, of which approximately $7.9 million was utilized as of March 31, 2024. Of the amount utilized under, or supported by, the uncommitted lines, the full $7.9 million represented letters of credit.

The Company has principal amounts of long-term debt as of March 31, 2024 of $3.5 billion, due at varying times from 2024 through 2044. Of the total principal amount of long-term debt, $500.0 million is current as of March 31, 2024 which represents the Company's 3% fixed-rate notes due November 2024. See note 8 to the Company’s consolidated financial statements for additional information on long-term debt and long-term debt interest repayment, respectively.

The Company has a supplier finance program which provides participating suppliers the option of receiving payment in advance of an invoice due date, to be paid by certain administering banks, on the basis of invoices that the Company has confirmed as valid and approved. The Company’s obligation is to make payment in the invoice amount negotiated with participating suppliers, to the administering banks on the invoice due date. The Company’s suppliers are not required to participate in the supplier finance program. The early payment transactions between the Company’s supplier and the administering bank are subject to an agreement between those parties, and the Company does not participate in any financial aspect of the agreements between the Company’s suppliers and the administering banks. The Company has not pledged any

assets to the administering bank under the supplier financing program. The Company or the administering bank may terminate the agreement upon at least 30 days’ written notice.

The amount of obligations confirmed under the supplier finance program that remain unpaid by the Company were $47.7 million, $66.0 million and $43.3 million as of March 31, 2024, April 2, 2023 and December 31, 2023, respectively. These obligations are presented within Accounts payable in the Company's Consolidated Balance Sheets. The activity related to this programs is reflected within the operating activities section of the Consolidated Statements of Cash Flows.

Cash Flow

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the three-month periods ended March 31, 2024 and April 2, 2023.

			Three months ended
			March 31, 2024						April 2, 2023
Net cash provided by (utilized for):
Operating activities			$	177.8					$	88.8
Investing activities			(48.1)						(55.6)
Financing activities			(108.9)						(156.6)

Net cash provided by Operating activities in the first three months of 2024 was $177.8 million compared to $88.8 million in the first three months of 2023. The $89.0 million increase in net cash provided by Operating activities after adjusting for non-cash items, was primarily attributable to improved net income in the first three months of 2024 compared to first three months of 2023, and working capital benefits, primarily as a result of the sale of the eOne Film and TV business.

Net cash utilized for Investing activities was $48.1 million in the first three months of 2024 compared to net cash utilized for Investing activities of $55.6 million in the first three months of 2023. Additions to property, plant and equipment were $45.8 million in the first three months of 2024 compared to $53.2 million in the first three months of 2023.

Net cash utilized for Financing activities was $108.9 million in the first three months of 2024 compared to $156.6 million in the first three months of 2023. Financing activities in the first three months of 2024 primarily include dividends paid of $97.2 million and $10.2 million of payments related to tax withholdings for stock compensation coinciding with equity award vesting activity. Financing activities in the first three months of 2023 include $96.7 million of dividends paid, $30.0 million of principal amortization payments toward the Company's Five-Year Tranche loan, which was retired during the fourth quarter of 2023 using the proceeds received from the sale of eOne Film and TV, as well as drawdowns of $42.8 million and repayments of $54.8 million related to production financing loans, all of which were assumed by Lionsgate effective upon the closing of the sale of the eOne Film and TV business in the fourth quarter of 2023, and $14.0 million of payments related to tax withholdings for stock compensation coinciding with equity award vesting activity.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. As such, management is required to make certain estimates, judgments and assumptions that it believes are reasonable based on the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company's reported financial results include recoverability of goodwill and intangible assets and income taxes. These critical accounting policies are detailed in the Company's 2023 Form 10-K.

FINANCIAL RISK MANAGEMENT

The Company is exposed to market risks attributable to fluctuations in foreign currency exchange rates primarily as the result of sourcing products priced in U.S. dollars, Hong Kong dollars and Euros while marketing and selling those products in more than twenty currencies. Results of operations may be affected primarily by changes in the value of the U.S. dollar, Euro, British pound sterling, Canadian dollar, Japanese Yen, Brazilian real and Mexican peso and, to a lesser extent, other currencies in Latin America and Asia Pacific countries.

To manage this exposure, the Company has hedged a portion of its forecasted foreign currency transactions using foreign exchange forward contracts and foreign exchange option contracts. The Company is also exposed to foreign currency risk with respect to its net cash and cash equivalents or short-term borrowing positions in currencies other than the U.S. dollar. The Company believes, however, that the on-going risk on the net exposure should not be material to its financial condition. In addition, the Company's revenues and costs have been, and will likely continue to be, affected by changes in foreign currency rates. A significant change in foreign exchange rates can materially impact the Company's revenues and earnings due to translation of foreign-denominated revenues and expenses. The Company does not hedge against translation impacts of foreign exchange. From time to time, affiliates of the Company may make or receive intercompany loans in currencies other than their functional currency. The Company manages this exposure at the time the loan is made by using foreign exchange contracts.

The Company reflects derivatives at their fair value as an asset or liability on the Consolidated Balance Sheets. The Company does not speculate in foreign currency exchange contracts. See note 12 to the Company’s consolidated financial statements for further details on the Company's derivatives.

As of March 31, 2024, the Company had fixed-rate long-term debt of $3.5 billion. The Company may from time to time assess interest rate swaps related to its outstanding debt. The Company did not have any outstanding swaps as of March 31, 2024, April 2, 2023, or December 31, 2023.

INFLATION

The impact of inflation on the Company's business operations was significant during the first quarter of 2024 and throughout 2023. The Company monitors the impact of inflation to its business operations on an ongoing basis and may need to implement actions such as price adjustments to mitigate the impact of changes to the rate of inflation in future periods. However, future volatility of general price inflation could affect consumer purchases of our products and spending on entertainment. Additionally, the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead, could adversely affect the Company's financial results.