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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
__________________
FORM 10-Q
__________________
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended March 27, 2022
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Commission File Number 1-6682
__________________
HASBRO, INC.
(Exact name of registrant as specified in its charter)
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Rhode Island
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05-0155090
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(State or other jurisdiction of incorporation or
organization)
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(I.R.S. Employer Identification No.)
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1027 Newport Avenue
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Pawtucket,
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Rhode Island
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02861
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(Address of Principal Executive Offices)
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(Zip Code)
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(401) 431-8697
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Common Stock, $0.50 par value per share |
HAS |
The NASDAQ Global Select Market |
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). Yes [x] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definitions of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule
12b-2 of the Exchange Act.
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Large accelerated filer |
x
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☐
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Emerging growth company
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☐
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. [
]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
[x]
The number of shares of Common Stock, par value $.50 per share,
outstanding as of April 19, 2022 was 139,442,407.
Forward Looking Statement Safe Harbor
Certain statements in this Form 10-Q contain "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements, which may be identified by
the use of forward-looking words or phrases, include statements
relating to: our business strategies; the ability to achieve our
financial and business goals and objectives; anticipated financial
performance or business prospects in future periods; our efforts to
ship sufficient product to meet demand due to supply chain issues
affecting businesses globally; the expected timing for scheduled
new product introductions or our expectations concerning the future
acceptance of products by customers; expected benefits and plans
relating to acquired brands, properties and businesses; the
development and timing of planned consumer and digital gaming
products and entertainment releases; marketing and promotional
efforts; research and development activities; expectations related
to our manufacturing; impact of the coronavirus pandemic and other
public health conditions on our business; expected benefits and
cost-reductions from certain restructuring actions; capital
expenditures; working capital; liquidity; timing of and amount of
repayment of indebtedness; capital allocation strategy, including
plans for dividends and share repurchases; and other financial,
tax, accounting and similar matters. Our actual actions or results
may differ materially from those expected or anticipated in the
forward-looking statements due to both known and unknown risks and
uncertainties. Factors that might cause such a difference include,
but are not limited to:
•our
ability to design, develop, manufacture, source and ship products
on a timely, cost-effective and profitable basis;
•our
ability to implement strategies to lessen the impact of any
increased shipping costs, shipping delays or changes in required
methods of shipping, as well as our ability to take any price
increases to offset increased shipping costs, increases in prices
of raw materials or other increases in costs of our
products;
•rapidly
changing consumer interests in the types of products and
entertainment we offer;
•our
ability to develop and distribute engaging storytelling across
media to drive brand awareness;
•our
ability to successfully compete in the global play and
entertainment industry, including with manufacturers, marketers,
and sellers of toys and games, digital gaming products and digital
media, as well as with film studios, television production
companies and independent distributors and content
producers;
•our
ability to successfully evolve and transform our business and
capabilities to address a changing global consumer landscape and
retail environment, including changes to our supply chain, changing
inventory and sales policies and practices of our customers and
increased emphasis on ecommerce;
•our
ability to focus and scale select business initiatives and brands
to drive profitability;
•our
ability to successfully grow our consumer direct
business;
•our
ability to build on multi-generational brands;
•our
dependence on third party relationships, including with third party
manufacturers, licensors of brands, studios, content producers and
entertainment distribution channels;
•risks
relating to the concentration of manufacturing for many of our
products in the People’s Republic of China and our ability to
successfully diversify sourcing of our products to reduce reliance
on sources of supply in China;
•our
ability to successfully develop and execute plans to mitigate the
negative impact of the coronavirus on our business, including,
without limitation, negative impacts to our supply chain and costs
that have occurred and could continue to occur in countries where
we source significant amounts of product;
•risks
associated with international operations, such as currency
conversion, currency fluctuations, the imposition of tariffs,
quotas, shipping delays or difficulties, border adjustment taxes or
other protectionist measures, and other challenges in the
territories in which we operate,
•the
impact of the crisis between Russia and Ukraine on our business,
including on receivables;
•downturns
in global and regional economic conditions impacting one or more of
the markets in which we sell products, which can negatively impact
our retail customers and consumers, result in lower employment
levels, consumer disposable income, retailer inventories and
spending, including lower spending on purchases of our
products;
•other
economic and public health conditions or regulatory changes in the
markets in which we and our customers, partners, licensees,
suppliers and manufacturers operate, such as inflation, rising
interest rates, higher commodity prices, labor costs or
transportation costs, or outbreaks of disease, such as the
coronavirus, the occurrence of which could create work slowdowns,
delays or shortages in production or shipment of products,
increases in costs or delays in revenue;
•the
success of our key partner brands, including the ability to secure,
maintain and extend agreements with our key partners or the risk of
delays, increased costs or difficulties associated with any of our
or our partners’ planned digital applications or media
initiatives;
•fluctuations
in our business due to seasonality;
•risk
of lost sales if we are unable to effectively and timely supply
demand for product;
•the
concentration of our customers, potentially increasing the negative
impact to our business of difficulties experienced by any of our
customers or changes in their purchasing or selling
patterns;
•the
bankruptcy or other lack of success of one or more of our
significant retailers, licensees and other partners;
•risks
related to our recent leadership changes;
•our
ability to attract and retain talented and diverse
employees;
•our
ability to realize the benefits of cost-savings and efficiency
and/or revenue enhancing initiatives;
•our
ability to protect our assets and intellectual property, including
as a result of infringement, theft, misappropriation, cyber-attacks
or other acts compromising the integrity of our assets or
intellectual property;
•risks
relating to the production of entertainment due to strikes,
lockouts or other union actions that could halt or delay
productions;
•risks
relating to the impairment and/or write-offs of products and films
and television programs we acquire and produce;
•risks
relating to investments, acquisitions and dispositions, including
the ability to realize the anticipated benefits of acquired assets
or businesses;
•the
risk of product recalls or product liability suits and costs
associated with product safety regulations;
•changes
in tax laws or regulations, or the interpretation and application
of such laws and regulations, which may cause us to alter tax
reserves or make other changes which significantly impact our
reported financial results;
•the
impact of litigation or arbitration decisions or settlement
actions; and
•other
risks and uncertainties as may be detailed from time to time in our
public announcements and U.S. Securities and Exchange Commission
(“SEC”) filings.
The statements contained herein are based on our current beliefs
and expectations. We undertake no obligation to make any revisions
to the forward-looking statements contained in this Form 10-Q or to
update them to reflect events or circumstances occurring after the
date of this Form 10-Q.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of Dollars Except Share Data)
(Unaudited)
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March 27,
2022 |
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March 28,
2021 |
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December 26,
2021 |
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ASSETS
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Current assets |
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Cash and cash equivalents including restricted cash of $38.8
million, $72.1 million and $35.8 million
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$ |
1,057.9 |
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$ |
1,430.4 |
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$ |
1,019.2 |
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Accounts receivable, less allowance for doubtful accounts of $24.1
million, $32.5 million and $22.9 million
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931.7 |
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810.4 |
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1,500.4 |
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Inventories |
644.3 |
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429.2 |
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552.1 |
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Prepaid expenses and other current assets |
621.4 |
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566.0 |
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656.4 |
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Total current assets |
3,255.3 |
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3,236.0 |
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3,728.1 |
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Property, plant and equipment, less accumulated depreciation of
$641.5 million, $563.5 million and $630.0 million
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422.6 |
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482.7 |
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421.1 |
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Other assets |
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Goodwill |
3,419.3 |
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3,691.4 |
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3,419.6 |
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Other intangible assets, net of accumulated amortization of
$1,075.2 million, $999.7 million and $1,050.4 million
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1,136.6 |
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1,513.0 |
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1,172.0 |
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Other |
1,284.9 |
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1,266.0 |
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1,297.0 |
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Total other assets |
5,840.8 |
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6,470.4 |
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5,888.6 |
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Total assets |
$ |
9,518.7 |
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$ |
10,189.1 |
|
|
$ |
10,037.8 |
|
|
LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Short-term borrowings
|
$ |
104.1 |
|
|
$ |
8.8 |
|
|
$ |
0.8 |
|
|
Current portion of long-term debt
|
155.8 |
|
|
148.9 |
|
|
200.1 |
|
|
Accounts payable
|
411.7 |
|
|
312.1 |
|
|
580.2 |
|
|
Accrued liabilities
|
1,371.4 |
|
|
1,283.6 |
|
|
1,674.8 |
|
|
|
|
|
|
|
|
Total current liabilities
|
2,043.0 |
|
|
1,753.4 |
|
|
2,455.9 |
|
|
Long-term debt
|
3,737.9 |
|
|
4,674.1 |
|
|
3,824.2 |
|
|
Other liabilities
|
633.6 |
|
|
777.7 |
|
|
670.7 |
|
|
Total liabilities
|
$ |
6,414.5 |
|
|
$ |
7,205.2 |
|
|
$ |
6,950.8 |
|
|
Redeemable noncontrolling interests
|
23.5 |
|
|
24.0 |
|
|
23.9 |
|
|
Shareholders' equity
|
|
|
|
|
|
|
Preference stock of $2.50 par value. Authorized 5,000,000 shares;
none issued
|
— |
|
|
— |
|
|
— |
|
|
Common stock of $0.50 par value. Authorized 600,000,000 shares;
issued 220,286,736 shares at March 27, 2022, March 28,
2021, and December 26, 2021
|
110.1 |
|
|
110.1 |
|
|
110.1 |
|
|
Additional paid-in capital
|
2,475.7 |
|
|
2,339.6 |
|
|
2,428.0 |
|
|
Retained earnings
|
4,220.9 |
|
|
4,226.8 |
|
|
4,257.8 |
|
|
Accumulated other comprehensive loss
|
(246.9) |
|
|
(206.4) |
|
|
(235.3) |
|
|
Treasury stock, at cost; 80,844,603 shares at March 27, 2022;
82,724,111 shares at March 28, 2021; and 82,066,136 shares at
December 26, 2021
|
(3,513.8) |
|
|
(3,550.6) |
|
|
(3,534.7) |
|
|
Noncontrolling interests
|
34.7 |
|
|
40.4 |
|
|
37.2 |
|
|
Total shareholders' equity
|
3,080.7 |
|
|
2,959.9 |
|
|
3,063.1 |
|
|
Total liabilities, noncontrolling interests and shareholders'
equity
|
$ |
9,518.7 |
|
|
$ |
10,189.1 |
|
|
$ |
10,037.8 |
|
See accompanying condensed notes to consolidated financial
statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Millions of Dollars Except Per Share Data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
Net revenues |
$ |
1,163.1 |
|
|
$ |
1,114.8 |
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
Cost of sales |
333.1 |
|
|
289.9 |
|
|
|
|
|
|
Program cost amortization |
138.5 |
|
|
97.5 |
|
|
|
|
|
|
Royalties |
90.1 |
|
|
108.9 |
|
|
|
|
|
|
Product development |
69.6 |
|
|
61.8 |
|
|
|
|
|
|
Advertising |
77.6 |
|
|
87.9 |
|
|
|
|
|
|
Amortization of intangibles |
27.1 |
|
|
32.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, distribution and administration |
307.1 |
|
|
288.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
1,043.1 |
|
|
967.5 |
|
|
|
|
|
|
Operating profit |
120.0 |
|
|
147.3 |
|
|
|
|
|
|
Non-operating expense (income): |
|
|
|
|
|
|
|
|
Interest expense |
41.6 |
|
|
47.9 |
|
|
|
|
|
|
Interest income |
(2.1) |
|
|
(1.2) |
|
|
|
|
|
|
Other income (expense), net |
0.3 |
|
|
(28.9) |
|
|
|
|
|
|
Total non-operating expense, net |
39.8 |
|
|
17.8 |
|
|
|
|
|
|
Earnings before income taxes |
80.2 |
|
|
129.5 |
|
|
|
|
|
|
Income tax expense |
17.3 |
|
|
12.0 |
|
|
|
|
|
|
Net earnings |
62.9 |
|
|
117.5 |
|
|
|
|
|
|
Net earnings attributable to noncontrolling interests |
1.7 |
|
|
1.3 |
|
|
|
|
|
|
Net earnings attributable to Hasbro, Inc. |
$ |
61.2 |
|
|
$ |
116.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.44 |
|
|
$ |
0.84 |
|
|
|
|
|
|
Diluted |
$ |
0.44 |
|
|
$ |
0.84 |
|
|
|
|
|
|
Cash dividends declared per common share |
$ |
0.70 |
|
|
$ |
0.68 |
|
|
|
|
|
See accompanying condensed notes to consolidated financial
statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
(Millions of Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
Net earnings |
$ |
62.9 |
|
|
$ |
117.5 |
|
|
|
|
|
|
Other comprehensive earnings: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax
|
(10.7) |
|
|
(16.1) |
|
|
|
|
|
|
Unrealized holding gains on available-for-sale securities, net of
tax |
0.2 |
|
|
— |
|
|
|
|
|
|
Net (losses) gains on cash flow hedging activities, net of
tax |
(1.2) |
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications to earnings, net of tax: |
|
|
|
|
|
|
|
|
Net gains on cash flow hedging activities |
— |
|
|
(1.1) |
|
|
|
|
|
|
Amortization of unrecognized pension and postretirement
amounts
|
0.1 |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss, net of tax |
$ |
(11.6) |
|
|
$ |
(11.4) |
|
|
|
|
|
|
Total comprehensive earnings attributable to noncontrolling
interests |
1.7 |
|
|
1.3 |
|
|
|
|
|
|
Total comprehensive earnings attributable to Hasbro,
Inc. |
$ |
49.6 |
|
|
$ |
104.8 |
|
|
|
|
|
See accompanying condensed notes to consolidated financial
statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Millions of Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
March 27,
2022 |
|
March 28,
2021 |
|
Cash flows from operating activities: |
|
|
|
|
Net earnings |
$ |
62.9 |
|
|
$ |
117.5 |
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities: |
|
|
|
|
Depreciation of plant and equipment |
25.1 |
|
|
25.0 |
|
|
Amortization of intangibles |
27.1 |
|
|
32.9 |
|
|
|
|
|
|
|
|
|
|
Program cost amortization |
138.5 |
|
|
97.5 |
|
|
Deferred income taxes |
(33.4) |
|
|
16.3 |
|
|
Stock-based compensation |
18.1 |
|
|
16.7 |
|
|
|
|
|
|
Other non-cash items |
3.9 |
|
|
5.4 |
|
|
Change in operating assets and liabilities net of acquired
balances: |
|
|
|
|
Decrease in accounts receivable |
559.8 |
|
|
592.0 |
|
|
Increase in inventories |
(99.6) |
|
|
(42.1) |
|
|
Decrease in prepaid expenses and other current assets |
42.1 |
|
|
44.9 |
|
|
Program spend, net |
(169.4) |
|
|
(147.1) |
|
|
Decrease in accounts payable and accrued liabilities |
(464.4) |
|
|
(382.6) |
|
|
|
|
|
|
Other |
24.0 |
|
|
1.2 |
|
|
Net cash provided by operating activities |
134.7 |
|
|
377.6 |
|
|
Cash flows from investing activities: |
|
|
|
|
Additions to property, plant and equipment |
(29.2) |
|
|
(23.9) |
|
|
|
|
|
|
|
|
|
|
Other |
5.3 |
|
|
(1.6) |
|
|
Net cash utilized by investing activities |
(23.9) |
|
|
(25.5) |
|
|
Cash flows from financing activities: |
|
|
|
|
Proceeds from borrowings with maturity greater than three
months |
1.3 |
|
|
72.4 |
|
|
Repayments of borrowings with maturity greater than three
months |
(133.9) |
|
|
(344.9) |
|
|
Net proceeds from other short-term borrowings |
103.3 |
|
|
2.0 |
|
|
|
|
|
|
Stock-based compensation transactions |
70.2 |
|
|
4.7 |
|
|
Dividends paid |
(94.5) |
|
|
(93.4) |
|
|
Payments related to tax withholding for share-based
compensation |
(19.3) |
|
|
(9.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
(4.6) |
|
|
(2.3) |
|
|
Net cash utilized by financing activities |
(77.5) |
|
|
(370.8) |
|
|
Effect of exchange rate changes on cash |
5.4 |
|
|
(0.6) |
|
|
Net increase (decrease) in cash, cash equivalents and restricted
cash |
38.7 |
|
|
(19.3) |
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of
year |
1,019.2 |
|
|
1,449.7 |
|
|
Cash, cash equivalents and restricted cash at end of
period |
$ |
1,057.9 |
|
|
$ |
1,430.4 |
|
|
|
|
|
|
|
Supplemental information |
|
|
|
|
Cash paid during the period for: |
|
|
|
|
Interest |
$ |
30.5 |
|
|
$ |
34.5 |
|
|
Income taxes |
$ |
29.2 |
|
|
$ |
18.3 |
|
See accompanying condensed notes to consolidated financial
statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Redeemable
Noncontrolling Interests
(Millions of Dollars)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 27, 2022 |
|
|
|
|
|
Common
Stock |
|
Additional
Paid-in Capital |
|
Retained
Earnings |
|
Accumulated Other Comprehensive Loss |
|
Treasury
Stock |
|
Noncontrolling Interests |
|
Total
Shareholders'
Equity |
|
|
Redeemable Noncontrolling Interests |
|
Balance, December 26, 2021 |
$ |
110.1 |
|
|
2,428.0 |
|
|
4,257.8 |
|
|
(235.3) |
|
|
(3,534.7) |
|
|
37.2 |
|
|
$ |
3,063.1 |
|
|
|
$ |
23.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Hasbro, Inc. |
— |
|
|
— |
|
|
61.2 |
|
|
— |
|
|
— |
|
|
— |
|
|
61.2 |
|
|
|
— |
|
|
Net earnings attributable to noncontrolling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1.2 |
|
|
1.2 |
|
|
|
0.5 |
|
|
Change in put option value |
|
|
(0.4) |
|
|
|
|
|
|
|
|
|
|
(0.4) |
|
|
|
— |
|
|
Other comprehensive earnings |
— |
|
|
— |
|
|
— |
|
|
(11.6) |
|
|
— |
|
|
— |
|
|
(11.6) |
|
|
|
— |
|
|
Stock-based compensation transactions |
— |
|
|
30.0 |
|
|
— |
|
|
— |
|
|
20.9 |
|
|
— |
|
|
50.9 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
— |
|
|
18.1 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
18.1 |
|
|
|
— |
|
|
Dividends declared |
— |
|
|
— |
|
|
(98.1) |
|
|
— |
|
|
— |
|
|
— |
|
|
(98.1) |
|
|
|
— |
|
|
Distributions paid to noncontrolling owners and other foreign
exchange |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3.7) |
|
|
(3.7) |
|
|
|
(0.9) |
|
|
Balance, March 27, 2022 |
$ |
110.1 |
|
|
2,475.7 |
|
|
4,220.9 |
|
|
(246.9) |
|
|
(3,513.8) |
|
|
34.7 |
|
|
$ |
3,080.7 |
|
|
|
$ |
23.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 28, 2021 |
|
|
|
|
|
Common
Stock |
|
Additional
Paid-in Capital |
|
Retained
Earnings |
|
Accumulated Other
Comprehensive Loss |
|
Treasury
Stock |
|
Noncontrolling Interests |
|
Total
Shareholders'
Equity |
|
|
Redeemable Noncontrolling Interests |
|
Balance, December 27, 2020 |
$ |
110.1 |
|
|
2,329.1 |
|
|
4,204.2 |
|
|
(195.0) |
|
|
(3,551.7) |
|
|
40.0 |
|
|
$ |
2,936.7 |
|
|
|
$ |
24.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Hasbro, Inc. |
— |
|
|
— |
|
|
116.2 |
|
|
— |
|
|
— |
|
|
— |
|
|
116.2 |
|
|
|
— |
|
|
Net earnings attributable to noncontrolling interests |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1.3 |
|
|
1.3 |
|
|
|
— |
|
|
Other comprehensive earnings |
— |
|
|
— |
|
|
— |
|
|
(11.4) |
|
|
— |
|
|
— |
|
|
(11.4) |
|
|
|
— |
|
|
Stock-based compensation transactions |
— |
|
|
(5.8) |
|
|
— |
|
|
— |
|
|
1.1 |
|
|
— |
|
|
(4.7) |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense |
— |
|
|
16.7 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
16.7 |
|
|
|
— |
|
|
Dividends declared |
— |
|
|
— |
|
|
(93.6) |
|
|
— |
|
|
— |
|
|
— |
|
|
(93.6) |
|
|
|
— |
|
|
Distributions paid to noncontrolling owners and other foreign
exchange |
— |
|
|
(0.4) |
|
|
— |
|
|
— |
|
|
— |
|
|
(0.9) |
|
|
(1.3) |
|
|
|
(0.4) |
|
|
Balance, March 28, 2021 |
$ |
110.1 |
|
|
2,339.6 |
|
|
4,226.8 |
|
|
(206.4) |
|
|
(3,550.6) |
|
|
40.4 |
|
|
$ |
2,959.9 |
|
|
|
$ |
24.0 |
|
HASBRO, INC. AND SUBSIDIARIES
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(Unaudited)
(1)
Basis of Presentation
In the opinion of management, the accompanying unaudited interim
consolidated financial statements contain all normal and recurring
adjustments necessary to present fairly the consolidated financial
position of Hasbro, Inc. and all majority-owned subsidiaries
("Hasbro" or the "Company") as of March 27, 2022 and
March 28, 2021, and the results of its operations and cash
flows and shareholders' equity for the periods then ended in
accordance with accounting principles generally accepted in the
United States of America ("U.S. GAAP"). The preparation of
consolidated financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the amounts reported in the consolidated financial statements and
notes thereto. Actual results could differ from those
estimates.
The quarters ended March 27, 2022 and March 28, 2021 were
each 13-week periods.
The results of operations for the quarter ended March 27, 2022
are not necessarily indicative of results to be expected for the
full year 2022, nor were those of the comparable 2021 period
representative of those actually experienced for the full year
2021.
Significant Accounting Policies
The Company's significant accounting policies are summarized in
note 1 to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended
December 26, 2021 ("2021 Form 10-K").
eOne Music Sale
On June 29, 2021, the Company completed the sale of eOne Music for
net proceeds of $397.0 million, including the sales price of
$385.0 million and $12.0 million of closing adjustments
related to working capital and net debt calculations. The final
proceeds were subject to further adjustment upon completion of
closing working capital, which resulting in a net outflow of
$0.9 million in the fourth quarter of 2021. Fiscal year 2021
includes two quarters of financial results for the eOne Music
Business.
These consolidated financial statements have been prepared without
audit, pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC"). Certain information and
disclosures normally included in the consolidated financial
statements prepared in accordance with U.S. GAAP have been
condensed or omitted pursuant to such rules and
regulations. The Company filed with the SEC audited
consolidated financial statements for the fiscal year ended
December 26, 2021 in its 2021 Form 10-K, which includes all such
information and disclosures and, accordingly, should be read in
conjunction with the financial information included
herein.
Recently Adopted Accounting Standards
As of March 27, 2022, there were no recently adopted accounting
standards that had a material effect on the Company’s financial
statements.
Issued Accounting Pronouncements
In March of 2020, the FASB issued Accounting Standards Update
No. 2020-04 (ASU 2020-04) Reference Rate Reform (Topic
848):
Facilitation of the Effects of Reference Rate Reform on Financial
Reporting.
The amendments in this update provide optional expedients and
exceptions for applying U.S. GAAP to contracts, hedging
relationships, and other transactions, for a limited period of
time, to ease the potential burden of recognizing the effects of
reference rate reform on financial reporting. The amendments in
this update apply to contracts, hedging relationships and other
transactions that reference the London Inter-Bank Offered Rate
("LIBOR") or another reference rate expected to be discontinued due
to the global transition away from LIBOR and certain other
interbank offered rates. An entity may elect to apply the
amendments provided by this update beginning March 12, 2020 through
December 31, 2022. The change from LIBOR to an alternate rate has
not had a material impact on the Company's consolidated financial
statements.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(2)
Revenue Recognition
Contract Assets and Liabilities
In the ordinary course of business, the Company’s Consumer
Products, Wizards of the Coast and Digital Gaming and Entertainment
segments enter into contracts to license certain of the Company’s
intellectual property, providing licensees right-to-use access for
use in the production and sale of consumer products and digital
game development, and for use within content for distribution over
streaming platforms and for television and film. The Company also
licenses owned television and film content for distribution to
third parties in formats that include broadcast, digital streaming
and theatrical. Through these arrangements, the Company may receive
advanced royalty payments from licensees, either in advance of a
licensees’ subsequent sales to customers or, prior to the
completion of the Company’s performance obligation. In addition,
the Company’s Wizards of the Coast and Digital Gaming segment may
receive advanced payments from end users of its digital games at
the time of the initial purchase or through in-application
purchases. These digital gaming revenues are recognized over a
period of time, determined based on player usage patterns or the
estimated playing life of the user or when additional downloadable
content is made available. The Company defers revenues on all
licensee and digital gaming advanced payments until the respective
performance obligations are satisfied. The Company records the
aggregate deferred revenues as contract liabilities, with the
current portion recorded within Accrued Liabilities and the
long-term portion recorded as Other Non-current Liabilities in the
Company’s consolidated balance sheets. The Company records contract
assets in the case of (1) minimum guarantees being recognized in
advance of contractual invoicing, which are recognized ratably over
the terms of the respective license periods, and (2) film and
television distribution revenues recorded for content delivered,
where payment will occur over the license term. The current portion
of contract assets is recorded in Prepaid Expenses and Other
Current Assets, respectively, and the long-term portion is recorded
within Other Long-Term Assets.
At March 27, 2022, March 28, 2021 and
December 26, 2021 the Company had the following contract
assets and liabilities in its consolidated balance
sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
December 26, 2021 |
|
Assets |
|
|
|
|
|
|
Contract assets - current |
$ |
299.8 |
|
|
$ |
257.9 |
|
|
$ |
286.9 |
|
|
Contract assets - long
term |
94.6 |
|
|
70.0 |
|
|
104.2 |
|
|
Total |
$ |
394.4 |
|
|
$ |
327.9 |
|
|
$ |
391.1 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Contract liabilities -
current |
$ |
97.6 |
|
|
$ |
146.9 |
|
|
$ |
114.1 |
|
|
Contract liabilities - long
term |
5.9 |
|
|
16.6 |
|
|
7.1 |
|
|
Total |
$ |
103.5 |
|
|
$ |
163.5 |
|
|
$ |
121.2 |
|
For the three months ended March 27, 2022, the Company
collected $58.8 million of the contract assets and recognized $38.6
million of contract liabilities that were included in the
December 26, 2021 balances.
Unsatisfied performance obligations
Unsatisfied performance obligations relate primarily to
in-production television content to be delivered in the future
under existing agreements with partnering content providers such as
broadcasters, distributors, television networks and subscription
video on demand services. As of March 27, 2022, unrecognized
revenue attributable to unsatisfied performance obligations
expected to be recognized in the future were $315.2 million. Of
this amount, we expect to recognize $208.1 million in the remainder
of 2022, $91.9 million in 2023, $6.6 million in 2024 and $8.6
million in 2025. These amounts include only fixed
considerations.
Accounts Receivable and Allowance for Credit Losses
The Company’s balance for accounts receivable on the consolidated
balance sheets as of March 27, 2022 and March 28, 2021
are primarily from contracts with customers. Of the Company’s
accounts receivable, less allowance for doubtful accounts, of
$931.7 million, approximately $35.0 million relates to
accounts receivable held in Russia. The Company has insurance
coverage for over 90% of Russia receivables. The Company had no
material expense for credit losses for the quarters ended
March 27, 2022 and March 28, 2021.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Disaggregation of revenues
The Company disaggregates its revenues from contracts with
customers by reportable segment: Consumer Products, Entertainment,
and Wizards of the Coast and Digital Gaming. The Company
further disaggregates revenues within its Consumer Products segment
by major geographic region: North America, Europe, Latin America,
and Asia Pacific; within its Entertainment segment by category:
Film & TV, Family Brands, and Other; and within its Wizards of
the Coast and Digital Gaming segment by line of business: Tabletop
Gaming and Digital and Licensed Gaming. Finally, the Company
disaggregates its revenues by brand portfolio into five brand
categories: Franchise Brands, Partner Brands, Hasbro Gaming,
Emerging Brands, and TV/Film/Entertainment. We believe these
collectively depict how the nature, amount, timing and uncertainty
of revenue and cash flows are affected by economic factors. See
note 13 for further information.
(3)
Earnings Per Share
Net earnings per share data for the quarters ended March 27,
2022 and March 28, 2021 were computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
Quarter |
Basic |
|
Diluted |
|
Basic |
|
Diluted |
|
Net earnings attributable to Hasbro, Inc. |
$ |
61.2 |
|
|
61.2 |
|
|
$ |
116.2 |
|
|
116.2 |
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding |
139.3 |
|
|
139.3 |
|
|
137.7 |
|
|
137.7 |
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
Options and other share-based awards |
— |
|
|
0.3 |
|
|
— |
|
|
0.4 |
|
|
Equivalent Shares |
139.3 |
|
|
139.6 |
|
|
137.7 |
|
|
138.1 |
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Hasbro, Inc. per common
share |
$ |
0.44 |
|
|
0.44 |
|
|
$ |
0.84 |
|
|
0.84 |
|
For the quarters ended March 27, 2022 and March 28, 2021,
options and restricted stock units totaling 2.5 million and 2.2
million, respectively, were excluded from the calculation of
diluted earnings per share because to include them would have been
anti-dilutive.
(4)
Goodwill
During the first quarter of 2021, the Company realigned its
financial reporting structure creating the following three
principal reportable segments: Consumer Products, Wizards of the
Coast and Digital Gaming and Entertainment. In our realignment,
some, but not all, of our reporting units were changed. As a result
of these changes, during 2021, the Company reallocated its goodwill
among the revised reporting units based on the change in relative
fair values of the respective reporting units.
Changes in the carrying amount of goodwill, by operating segment,
for the quarters ended March 27, 2022 and March 28, 2021
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products |
|
Wizards of the Coast and Digital Gaming |
|
Entertainment |
|
Total |
|
2022 |
|
|
|
|
|
|
|
|
|
Balance at December 26, 2021 |
|
$ |
1,584.9 |
|
307.3 |
|
1,527.4 |
|
$ |
3,419.6 |
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation |
|
(0.1) |
|
0.2 |
|
(0.4) |
|
(0.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 27, 2022 |
|
$ |
1,584.8 |
|
307.5 |
|
1,527.0 |
|
$ |
3,419.3 |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Products |
|
Wizards of the Coast and Digital Gaming |
|
Entertainment |
|
Total |
|
2021 |
|
|
|
|
|
|
|
|
|
Balance at December 27, 2020 |
|
$ |
1,385.7 |
|
53.1 |
|
2,252.9 |
|
$ |
3,691.7 |
|
Goodwill allocation |
|
199.4 |
|
254.2 |
|
(453.6) |
|
— |
|
Foreign exchange translation |
|
(0.1) |
|
0.2 |
|
(0.4) |
|
(0.3) |
|
Balance at March 28, 2021 |
|
$ |
1,585.0 |
|
|
307.5 |
|
|
1,798.9 |
|
|
$ |
3,691.4 |
|
During the second quarter of 2021, the Company entered into a
definitive agreement to sell the Entertainment One Music business
("eOne Music"). Based on the value of the net assets held by eOne
Music, which included goodwill and intangible assets allocated to
eOne Music as part of the acquisition of Entertainment One in
December 2019 (the "eOne Acquisition"), the Company recorded a
pre-tax non-cash goodwill impairment charge of $108.8 million,
during the second quarter of 2021, within Loss on Disposal of
Business in the Consolidated Statements of Operations, and within
the Entertainment segment. On June 29, 2021, during the Company's
fiscal third quarter, the eOne Music sale was completed and
associated goodwill and intangible assets of $162.2 million
were removed from the consolidated financial
statements.
(5)
Other Comprehensive Earnings (Loss)
Components of other comprehensive earnings (loss) are presented
within the consolidated statements of comprehensive earnings
(loss). The following table presents the related tax effects on
changes in other comprehensive earnings (loss) for the quarters
ended March 27, 2022 and March 28, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings (loss), tax effect: |
|
|
|
|
|
|
|
|
Tax (expense) on unrealized holding gains |
$ |
(0.1) |
|
|
$ |
— |
|
|
|
|
|
|
Tax benefit (expense) on cash flow hedging activities |
0.9 |
|
|
(1.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassifications to earnings, tax effect: |
|
|
|
|
|
|
|
|
Tax expense (benefit) on cash flow hedging activities |
(0.2) |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of unrecognized pension and postretirement
amounts
|
— |
|
|
(0.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax effect on other comprehensive earnings (loss) |
$ |
0.6 |
|
|
$ |
(0.9) |
|
|
|
|
|
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Changes in the components of accumulated other comprehensive
earnings (loss), net of tax for the quarters ended March 27,
2022 and March 28, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
Postretirement
Amounts |
|
Gains
(Losses) on
Derivative
Instruments |
|
Unrealized
Holding
Gains
(Losses) on
Available-
for-Sale
Securities |
|
Foreign
Currency
Translation
Adjustments |
|
Total
Accumulated
Other
Comprehensive
Loss |
|
2022 |
|
|
|
|
|
|
|
|
|
|
Balance at December 26, 2021 |
$ |
(35.1) |
|
|
(6.0) |
|
|
0.2 |
|
|
(194.4) |
|
|
(235.3) |
|
|
Current period other comprehensive earnings (loss) |
0.1 |
|
|
(1.2) |
|
|
0.2 |
|
|
(10.7) |
|
|
(11.6) |
|
|
Balance at March 27, 2022 |
$ |
(35.0) |
|
|
(7.2) |
|
|
0.4 |
|
|
(205.1) |
|
|
(246.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2020 |
$ |
(40.7) |
|
|
(22.1) |
|
|
0.3 |
|
|
(132.5) |
|
|
(195.0) |
|
|
|
|
|
|
|
|
|
|
|
|
Current period other comprehensive earnings (loss) |
0.2 |
|
|
4.5 |
|
|
— |
|
|
(16.1) |
|
|
(11.4) |
|
|
Balance at March 28, 2021 |
$ |
(40.5) |
|
|
(17.6) |
|
|
0.3 |
|
|
(148.6) |
|
|
(206.4) |
|
Gains (Losses) on Derivative Instruments
At March 27, 2022, the Company had remaining net deferred
gains on foreign currency forward contracts, net of tax, of $8.1
million in accumulated other comprehensive earnings (loss)
("AOCE"). These instruments hedge payments related to inventory
purchased in the first quarter of 2022 or forecasted to be
purchased during the remainder of 2022 through 2023, intercompany
expenses expected to be paid or received during 2022, television
and movie production costs paid in 2022 or expected to be paid in
2023 or 2024, and cash receipts for sales made at the end of the
first quarter of 2022 or forecasted to be made in the remainder of
2022. These amounts will be reclassified into the consolidated
statements of operations upon the sale of the related inventory,
the recognition of the related production costs or the recognition
of the related sales or intercompany expenses to be paid or
received.
In addition to foreign currency forward contracts, the Company
entered into hedging contracts on future interest payments related
to the 3.15% Notes, that were repaid in full in the aggregate
principal amount of $300.0 million during the first quarter of 2021
(See note 7), and the 5.10% Notes due 2044. At the date of
debt issuance, these contracts were terminated and the fair value
on the date of settlement was deferred in AOCE and is being
amortized to interest expense over the life of the related notes
using the effective interest rate method. At March 27, 2022,
deferred losses, net of tax of $15.4 million related to these
instruments remained in AOCE. For the quarters ended March 27,
2022 and March 28, 2021, previously deferred losses of $0.2
million and $0.5 million, respectively, related to these
instruments were reclassified from AOCE to net
earnings.
Of the net deferred gains included in AOCE at March 27, 2022,
the Company expects net gains of approximately $8.7 million to be
reclassified to the consolidated statements of operations within
the next 12 months. However, the amount ultimately realized in
earnings is dependent on the fair value of the hedging instruments
on the settlement dates.
See note 11 for additional discussion on reclassifications from
AOCE to earnings.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(6)
Accrued Liabilities
Components of accrued liabilities for the periods ended
March 27, 2022, March 28, 2021 and December 26, 2021
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2022
|
|
March 28, 2021
|
|
December 26, 2021
|
|
Participations and residuals |
$ |
301.4 |
|
|
$ |
289.8 |
|
|
$ |
299.1 |
|
|
Royalties |
162.0 |
|
|
126.7 |
|
|
253.0 |
|
|
Deferred revenue |
97.6 |
|
|
146.9 |
|
|
114.1 |
|
|
Payroll and management incentives |
56.9 |
|
|
36.2 |
|
|
183.6 |
|
|
Dividends |
97.6 |
|
|
93.5 |
|
|
94.0 |
|
|
Other taxes |
74.1 |
|
|
67.5 |
|
|
95.0 |
|
|
Advertising |
58.6 |
|
|
69.7 |
|
|
60.4 |
|
|
Severance |
27.6 |
|
|
44.0 |
|
|
32.0 |
|
|
Accrued Expenses IIC & IIP |
70.7 |
|
|
40.9 |
|
|
74.9 |
|
|
Freight |
65.6 |
|
|
26.3 |
|
|
107.5 |
|
|
Accrued income taxes |
33.1 |
|
|
16.5 |
|
|
30.9 |
|
|
|
|
|
|
|
|
Other |
326.2 |
|
|
325.6 |
|
|
330.3 |
|
|
Total accrued liabilities |
$ |
1,371.4 |
|
|
$ |
1,283.6 |
|
|
$ |
1,674.8 |
|
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(7)
Financial Instruments
The Company's financial instruments include cash and cash
equivalents, accounts receivable, short-term borrowings, accounts
payable and certain accrued liabilities. At March 27, 2022,
March 28, 2021 and December 26, 2021, the carrying cost
of these instruments approximated their fair value. The Company's
financial instruments at March 27, 2022, March 28, 2021
and December 26, 2021 also include certain assets and
liabilities measured at fair value (see notes 10 and 11) as well as
long-term borrowings. The carrying costs, which are equal to the
outstanding principal amounts, and fair values of the Company's
long-term borrowings as of March 27, 2022, March 28, 2021
and December 26, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
December 26, 2021 |
|
Carrying
Cost |
|
Fair
Value |
|
Carrying
Cost |
|
Fair
Value |
|
Carrying
Cost |
|
Fair
Value |
|
3.90% Notes Due 2029
|
$ |
900.0 |
|
|
901.7 |
|
|
$ |
900.0 |
|
|
961.9 |
|
|
$ |
900.0 |
|
|
991.7 |
|
|
3.55% Notes Due 2026
|
675.0 |
|
|
677.2 |
|
|
675.0 |
|
|
731.2 |
|
|
675.0 |
|
|
725.6 |
|
|
3.00% Notes Due 2024
|
500.0 |
|
|
498.0 |
|
|
500.0 |
|
|
533.9 |
|
|
500.0 |
|
|
521.2 |
|
|
6.35% Notes Due 2040
|
500.0 |
|
|
604.2 |
|
|
500.0 |
|
|
639.6 |
|
|
500.0 |
|
|
692.8 |
|
|
3.50% Notes Due 2027
|
500.0 |
|
|
496.5 |
|
|
500.0 |
|
|
535.8 |
|
|
500.0 |
|
|
539.2 |
|
|
2.60% Notes Due 2022
|
— |
|
|
— |
|
|
300.0 |
|
|
309.6 |
|
|
— |
|
|
— |
|
|
5.10% Notes Due 2044
|
300.0 |
|
|
321.7 |
|
|
300.0 |
|
|
333.8 |
|
|
300.0 |
|
|
374.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.60% Debentures Due 2028
|
109.9 |
|
|
125.4 |
|
|
109.9 |
|
|
134.4 |
|
|
109.9 |
|
|
136.7 |
|
|
Variable % Notes Due December 30, 2022 |
— |
|
|
— |
|
|
300.0 |
|
|
300.0 |
|
|
— |
|
|
— |
|
|
Variable % Notes Due December 30, 2024
(1)
|
340.0 |
|
|
340.0 |
|
|
570.0 |
|
|
570.0 |
|
|
397.5 |
|
|
397.5 |
|
|
Production Financing Facilities |
95.8 |
|
|
95.8 |
|
|
201.8 |
|
|
201.8 |
|
|
170.1 |
|
|
170.1 |
|
|
Total long-term debt |
$ |
3,920.7 |
|
|
4,060.5 |
|
|
$ |
4,856.7 |
|
|
5,252.0 |
|
|
$ |
4,052.5 |
|
|
4,549.3 |
|
|
Less: Deferred debt expenses |
27.0 |
|
|
— |
|
|
33.7 |
|
|
— |
|
|
28.2 |
|
|
— |
|
|
Less: Current portion |
155.8 |
|
|
— |
|
|
148.9 |
|
|
— |
|
|
200.1 |
|
|
— |
|
|
Long-term debt |
$ |
3,737.9 |
|
|
4,060.5 |
|
|
$ |
4,674.1 |
|
|
5,252.0 |
|
|
$ |
3,824.2 |
|
|
4,549.3 |
|
(1)
During the first quarter of 2022, the Company repaid
$50.0 million of the Variable % Notes due December 30,
2024.
In November 2019, in conjunction with the Company's acquisition of
eOne, the Company issued an aggregate of $2.4 billion
of senior unsecured debt securities (the "Notes") consisting of the
following tranches: $300.0 million of notes due 2022 (the
"2022 Notes") that bear interest at a fixed rate
of 2.60%, $500.0 million of notes due 2024 (the
"2024 Notes") that bear interest at a fixed rate
of 3.00%, $675.0 million of notes due 2026 (the "2026
Notes") that bear interest at a fixed rate
of 3.55% and $900.0 million of notes due 2029 (the
"2029 Notes") that bear interest at a fixed rate of 3.90%. Net
proceeds from the issuance of the Notes, after deduction
of $20.0 million of underwriting discount and fees,
totaled $2.4 billion. These costs are being amortized over the
life of the Notes outstanding, which range from five years
to ten years from the date of issuance. During 2021, the
Company repaid in full the $300.0 million of 2022 Notes and
recorded $9.1 million of debt extinguishment costs within
other expense (income) in the Consolidated Statements of
Operations.
The Notes bear interest at the stated rates but may be subject to
upward adjustment if the credit rating of the Company is reduced by
Moody's or Standard & Poors. The adjustment can be
from 0.25% to 2.00% based on the extent of the
ratings decrease. The Company may redeem the Notes at its option at
the greater of the principal amount of the Notes or the present
value of the remaining scheduled payments discounted using the
effective interest rate on applicable U.S. Treasury bills at the
time of repurchase, plus (1) 25 basis points (in the case of the
2024 Notes); (2) 30 basis points (in the case of the 2026 Notes);
and (3) 35 basis points (in the case of the 2029 Notes). In
addition, on and after October 19, 2024 for the 2024 Notes,
September 19, 2026 for the 2026 Notes and August 19, 2029 for the
2029 Notes, such series of Notes will be redeemable, in whole at
any time or in part from time to time, at the Company's option at a
redemption price equal to 100% of the principal amount of
the Notes to be redeemed plus any accrued and unpaid
interest.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
In September 2019, the Company entered into a $1.0 billion Term
Loan Agreement (the "Term Loan Agreement”) with Bank of America
N.A. (“Bank of America”), as administrative agent, and certain
financial institutions as lenders, pursuant to which such lenders
committed to provide, contingent upon the completion of the eOne
Acquisition and certain other customary conditions to funding, (1)
a three-year senior unsecured term loan facility in an aggregate
principal amount of $400.0 million (the “Three-Year Tranche”) and
(2) a five-year senior unsecured term loan facility in an aggregate
principal amount of $600.0 million (the “Five-Year Tranche” and
together with the Three-Year Tranche, the “Term Loan Facilities”).
The full amount of the Term Loan Facilities were drawn down on
December 30, 2019, the closing date of the eOne Acquisition. As of
March 27, 2022, the Company has fully repaid the Three-Year Tranche
$400.0 million principal term loan, and of the Five-Year
Tranche $600.0 million principal balance, the Company has
repaid a total of $260.0 million in the following increments:
$22.5 million in 2020;
$180.0 million in 2021; and, $57.5 million in the first
quarter of 2022 consisting of $50.0 million of the principal
balance and a principal amortization payment of
$7.5 million.
Loans under the remaining Five-Year Tranche bear interest at the
Company’s option, at either the Eurocurrency Rate or the Base Rate,
plus a per annum applicable rate that fluctuates between 100.0
basis points and 187.5 basis points, in the case of loans priced at
the Eurocurrency Rate, and between 0.0 basis points and 87.5 basis
points, in the case of loans priced at the Base Rate, in each case,
based upon the non-credit enhanced, senior unsecured long-term debt
ratings of the Company by Fitch Ratings Inc., Moody’s Investor
Service, Inc. and S&P Global Rankings, subject to certain
provisions taking into account potential differences in ratings
issued by the relevant rating agencies or a lack of ratings issued
by such rating agencies. Loans under the Five-Year Tranche require
principal amortization payments that are payable in equal quarterly
installments of 5.0% per annum of the original principal amount
thereof for each of the first two years after funding, increasing
to 10.0% per annum of the original principal amount thereof for
each subsequent year. The Term Loan Agreement contains affirmative
and negative covenants typical of this type of facility, including:
(i) restrictions on the Company’s and its domestic subsidiaries’
ability to allow liens on their assets, (ii) restrictions on the
incurrence of indebtedness, (iii) restrictions on the Company’s and
certain of its subsidiaries’ ability to engage in certain mergers,
(iv) the requirement that the Company maintain a Consolidated
Interest Coverage Ratio of no less than 3.00:1.00 as of the end of
any fiscal quarter and (v) the requirement that the Company
maintain a Consolidated Total Leverage Ratio of no more than,
depending on the gross proceeds of equity securities issued after
the effective date of the acquisition of eOne, 5.65:1.00 or
5.40:1.00 for each of the first, second and third fiscal quarters
ended after the funding of the Term Loan Facilities, with periodic
step downs to 3.50:1.00 for the fiscal quarter ending December 31,
2023 and thereafter. As of March 27, 2022, the Company was in
compliance with the financial covenants contained in the Term Loan
Agreement.
The Company may redeem its 5.10% notes due in 2044 (the "2044
Notes") at its option, at the greater of the principal amount of
the notes or the present value of the remaining scheduled payments,
discounted using the effective interest rate on applicable U.S.
Treasury bills at the time of repurchase.
Current portion of long-term debt at
March 27, 2022
of
$155.8 million,
as shown on the consolidated balance sheet, represents
the current portion of required quarterly principal amortization
payments for the 5-Year Tranche of the Term Loan Facilities and
production financing facilities.
All of the Company’s other long-term borrowings have contractual
maturities that occur subsequent to 2023 with the exception of
certain of the Company's production financing facilities and annual
principal payments related to the Term Loan
Facilities.
The fair values of the Company's long-term debt are considered
Level 3 fair values (see note 10 for further discussion of the fair
value hierarchy) and are measured using the discounted future cash
flows method. In addition to the debt terms, the valuation
methodology includes an assumption of a discount rate that
approximates the current yield on a similar debt security. This
assumption is considered an unobservable input in that it reflects
the Company's own assumptions about the inputs that market
participants would use in pricing the asset or liability. The
Company believes that this is the best information available for
use in the fair value measurement.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Production Financing
In addition to the Company's financial instruments,
the
Company uses production financing facilities to fund its film and
television productions which are typically arranged on an
individual production basis by either special purpose production
subsidiaries, each secured by future revenues of such production
subsidiaries, which are non-recourse to the Company's assets, or
through a senior revolving credit facility dedicated to production
financing obtained in November 2021. The Company's senior revolving
film and television production credit facility (the “RPCF”) with
MUFG Union Bank, N.A., as administrative agent and lender and
certain other financial institutions, as lenders thereto (the
“Revolving Production Financing Agreement”) provides the Company
with commitments having a maximum aggregate principal amount of
$250.0 million. The Revolving Production Financing Agreement
also provides the Company with the option to request a commitment
increase up to an aggregate additional amount of
$150.0 million subject to agreement of the lenders. The
Revolving Production Financing Agreement extends through November
22, 2024. The Company uses the RPCF to fund certain of the
Company’s original film and TV production costs. Borrowings under
the RPCF are non-recourse to the Company's assets. Going forward,
the Company expects to utilize the RPCF for the majority of its
production financing needs.
Production financing facilities typically have maturities of less
than two years, while the titles are in production, and are repaid
once delivered and all credits, broadcaster pre-sales and
international sales have been received. The production financing
facilities as of March 27, 2022, March 28, 2021 and
December 26, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2022
|
|
March 28, 2021 |
|
December 26, 2021 |
|
Production financing facilities |
$ |
199.1 |
|
|
$ |
201.8 |
|
|
$ |
170.1 |
|
|
Other loans
(1)
|
— |
|
|
7.9 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
199.1 |
|
|
$ |
209.7 |
|
|
$ |
170.1 |
|
|
|
|
|
|
|
|
|
Production financing included in the consolidated balance sheet
as: |
|
|
|
|
|
|
Non-current |
$ |
— |
|
|
$ |
82.9 |
|
|
$ |
— |
|
|
Current |
199.1 |
|
|
118.9 |
|
|
170.1 |
|
|
Total |
$ |
199.1 |
|
|
$ |
201.8 |
|
|
$ |
170.1 |
|
(1)
Other loans consist of production related demand loans, and are
recorded within Short-term Borrowings in the Company's consolidated
balance sheets.
Interest is charged at bank prime rate plus a margin based on the
risk of the respective production. The weighted average interest
rate on all production financing as of March 27, 2022 was
3.1%.
The Company has Canadian dollar and U.S. dollar production
financing loans with various banks. The carrying amounts are
denominated in the following currencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canadian Dollars |
|
U.S. Dollars |
|
Total |
|
As of March 27, 2022
|
$ |
24.2 |
|
|
$ |
71.6 |
|
|
$ |
95.8 |
|
The following table represents the movements in production
financing loans during the first quarter of 2022:
|
|
|
|
|
|
|
|
|
|
|
Production Financing |
|
|
|
|
|
December 26, 2021 |
$ |
170.1 |
|
|
|
|
|
|
Drawdowns |
112.2 |
|
|
|
|
|
|
Repayments |
(84.0) |
|
|
|
|
|
|
Foreign exchange differences |
0.8 |
|
|
|
|
|
|
Balance at March 27, 2022
|
$ |
199.1 |
|
|
|
|
|
The Company expects to repay all of its currently outstanding
production financing loans by the first quarter of
2023.
(8)
Investments in Productions and Investments in Acquired Content
Rights
Investments in productions and investments in acquired content
rights are predominantly monetized on a title-by-title basis and
are recorded within other assets in the Company's consolidated
balance sheets, to the extent they are considered
recoverable
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
against future revenues. These amounts are being amortized to
program cost amortization using a model that reflects the
consumption of the asset as it is released through various channels
including broadcast licenses, theatrical release and home
entertainment. Amounts capitalized are reviewed periodically on an
individual film basis and any portion of the unamortized amount
that appears not to be recoverable from future net revenues is
expensed as part of program cost amortization during the period the
loss becomes evident.
The Company's unamortized investments in productions and
investments in acquired content rights consisted of the following
at March 27, 2022, March 28, 2021, and
December 26, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2022
|
|
March 28, 2021 |
|
December 26, 2021 |
|
|
|
|
Investment in Films and Television Programs: |
|
|
|
|
|
|
|
|
|
|
Individual Monetization |
|
|
|
|
|
|
|
|
|
|
Released, net of amortization |
|
$ |
489.1 |
|
|
$ |
481.9 |
|
|
$ |
481.7 |
|
|
|
|
|
Completed and not released |
|
12.7 |
|
|
35.0 |
|
|
18.5 |
|
|
|
|
|
In production |
|
157.8 |
|
|
147.4 |
|
|
151.6 |
|
|
|
|
|
Pre-production |
|
87.7 |
|
|
72.8 |
|
|
84.0 |
|
|
|
|
|
|
|
747.3 |
|
|
737.1 |
|
|
735.8 |
|
|
|
|
|
Film/TV Group Monetization
(1)
|
|
|
|
|
|
|
|
|
|
|
Released, net of amortization |
|
31.5 |
|
|
— |
|
|
32.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In production |
|
15.8 |
|
|
— |
|
|
13.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47.3 |
|
|
— |
|
|
45.2 |
|
|
|
|
|
Investment in Other Programming |
|
|
|
|
|
|
|
|
|
|
Released, net of amortization |
|
5.2 |
|
|
14.8 |
|
|
5.3 |
|
|
|
|
|
Completed and not released |
|
0.4 |
|
|
2.8 |
|
|
0.4 |
|
|
|
|
|
In production |
|
14.4 |
|
|
4.2 |
|
|
12.6 |
|
|
|
|
|
Pre-production |
|
1.8 |
|
|
8.7 |
|
|
1.7 |
|
|
|
|
|
|
|
21.8 |
|
|
30.5 |
|
|
20.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Program Investments |
|
$ |
816.4 |
|
|
$ |
767.6 |
|
|
$ |
801.0 |
|
|
|
|
(1)
Due to a monetization strategy change, as of December 26, 2021 the
Company began monetizing certain content assets as a Film/TV
group.
The Company recorded $138.5 million of program cost amortization
related to released programming in the quarter ended March 27,
2022, consisting of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Production |
|
Investment in Content |
|
Other |
|
Total |
|
Program cost amortization |
|
$ |
122.8 |
|
|
$ |
15.6 |
|
|
$ |
0.1 |
|
|
$ |
138.5 |
|
(9)
Income Taxes
The Company and its subsidiaries file income tax returns in the
United States and various state and international jurisdictions. In
the normal course of business, the Company is regularly audited by
U.S. federal, state and local, and international tax authorities in
various tax jurisdictions.
Our effective tax rate ("ETR") from continuing operations was 21.6%
for the quarter ended March 27, 2022 and 9.3% for the quarter
ended March 28, 2021.
The following items caused the first quarter ETR to be
significantly different from the prior year ETR:
•during
the quarter ended March 27, 2022, the Company recorded a net
discrete tax benefit of $2.3 million primarily associated with the
release of certain valuation allowances during the quarter;
and
•during
the quarter ended March 28, 2021, the Company recorded a net
discrete tax benefit of $8.9 million primarily associated with the
decrease to our liability for uncertain tax positions that resulted
from statutes of limitations
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
expiring in certain jurisdictions. Pre-tax income was benefited
from a legal settlement gain, with no associated tax expense, due
to the availability of net operating losses and release of the
related valuation allowance on the net operating losses utilized by
the settlement gain.
In May 2019, a public referendum held in Switzerland approved the
Swiss Federal Act on Tax Reform and AHV Financing ("TRAF")
proposals previously approved by the Swiss Parliament. The Swiss
tax reform measures were effective on January 1, 2020. Changes in
tax reform include the abolishment of preferential tax regimes for
holding companies, domicile companies and mixed companies at the
cantonal level. The enacted changes in Swiss federal and cantonal
tax, including cantonal transitional provisions adopted in 2021,
were not material to the Company's financial
statements.
The Company is no longer subject to U.S. federal income tax
examinations for years before 2012. With few exceptions, the
Company is no longer subject to U.S. state or local and non-U.S.
income tax examinations by tax authorities in its major
jurisdictions for years before 2014. The Company is currently under
income tax examination by the Internal Revenue Service and in
several U.S. state and local and non-U.S.
jurisdictions.
(10)
Fair Value of Financial Instruments
The Company measures certain financial instruments at fair value.
The fair value hierarchy consists of three levels: Level 1 fair
values are based on quoted market prices in active markets for
identical assets or liabilities that the entity has the ability to
access; Level 2 fair values are those based on quoted prices for
similar assets or liabilities, quoted prices in markets that are
not active, or other inputs that are observable or can be
corroborated by observable data for substantially the full term of
the assets or liabilities; and Level 3 fair values are based on
inputs that are supported by little or no market activity and that
are significant to the fair value of the assets or liabilities.
There have been transfers between levels within the fair value
hierarchy.
Accounting standards permit entities to measure many financial
instruments and certain other items at fair value and establish
presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement
attributes for similar assets and liabilities.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
At March 27, 2022, March 28, 2021 and December 26,
2021, the Company had the following assets and liabilities measured
at fair value in its consolidated balance sheets (excluding assets
for which the fair value is measured using net asset value per
share):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
Fair
Value |
|
Quoted
Prices in
Active
Markets
for
Identical
Assets
(Level 1) |
|
Significant
Other
Observable
Inputs
(Level 2) |
|
Significant
Unobservable
Inputs
(Level 3) |
|
March 27, 2022 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Available-for-sale securities |
$ |
1.6 |
|
|
1.6 |
|
|
— |
|
|
— |
|
|
Derivatives |
9.9 |
|
|
— |
|
|
9.9 |
|
|
— |
|
|
Total assets |
$ |
11.5 |
|
|
1.6 |
|
|
9.9 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Derivatives |
$ |
4.6 |
|
|
— |
|
|
4.6 |
|
|
— |
|
|
Option agreement |
1.7 |
|
|
— |
|
|
— |
|
|
1.7 |
|
|
Total liabilities |
$ |
6.3 |
|
|
— |
|
|
4.6 |
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
March 28, 2021 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Available-for-sale securities |
$ |
2.2 |
|
|
2.2 |
|
|
— |
|
|
— |
|
|
Derivatives |
9.4 |
|
|
— |
|
|
9.4 |
|
|
— |
|
|
Total assets |
$ |
11.6 |
|
|
2.2 |
|
|
9.4 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Derivatives |
$ |
6.8 |
|
|
— |
|
|
6.8 |
|
|
— |
|
|
Option agreement |
21.8 |
|
|
— |
|
|
— |
|
|
21.8 |
|
|
Total liabilities |
$ |
28.6 |
|
|
— |
|
|
6.8 |
|
|
21.8 |
|
|
|
|
|
|
|
|
|
|
|
December 26, 2021 |
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Available-for-sale securities |
$ |
1.9 |
|
|
1.9 |
|
|
— |
|
|
— |
|
|
Derivatives |
10.9 |
|
|
— |
|
|
10.9 |
|
|
— |
|
|
Total assets |
$ |
12.8 |
|
|
1.9 |
|
|
10.9 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Derivatives |
$ |
2.6 |
|
|
— |
|
|
2.6 |
|
|
— |
|
|
Option agreement |
1.7 |
|
|
— |
|
|
— |
|
|
1.7 |
|
|
Total Liabilities |
$ |
4.3 |
|
|
— |
|
|
2.6 |
|
|
1.7 |
|
Available-for-sale securities include equity securities of one
company quoted on an active public market.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The Company's derivatives consist of foreign currency forward and
option contracts. The Company uses current forward rates of the
respective foreign currencies to measure the fair value of these
contracts. The Company’s option agreement relates to an equity
method investment in Discovery Family Channel ("Discovery"). The
option agreement is included in other liabilities at March 27,
2022, March 28, 2021 and December 26, 2021, and is valued
using an option pricing model based on the fair value of the
related investment. Inputs used in the option pricing
model include the volatility and fair value of the underlying
company which are considered unobservable inputs as they reflect
the Company's own assumptions about the inputs that market
participants would use in pricing the asset or liability. The
Company believes that this is the best information available for
use in the fair value measurement. Due to the 2021 revaluation of
the Discovery investment and resulting impairment charges, the
Company reduced the option's fair value by $20.1 million
during the fourth quarter of 2021. There were no changes in these
valuation techniques during the quarter ended March 27,
2022.
The following is a reconciliation of the beginning and ending
balances of the fair value measurements of the Company's financial
instruments which use significant unobservable inputs (Level
3):
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
2021 |
|
Balance at beginning of year |
$ |
(1.7) |
|
|
$ |
(20.6) |
|
|
Gain from change in fair value |
0.1 |
|
|
(1.2) |
|
|
Balance at end of first quarter |
$ |
(1.6) |
|
|
$ |
(21.8) |
|
(11)
Derivative Financial Instruments
Hasbro uses foreign currency forward contracts to mitigate the
impact of currency rate fluctuations on firmly committed and
projected future foreign currency transactions. These
over-the-counter contracts, which hedge future currency
requirements related to purchases of inventory, product sales,
television and film production cost and production financing loans
(see note 7) as well as other cross-border transactions not
denominated in the functional currency of the business unit, are
primarily denominated in United States and Hong Kong dollars, and
Euros. All contracts are entered into with a number of
counterparties, all of which are major financial institutions. The
Company believes that a default by a single counterparty would not
have a material adverse effect on the financial condition of the
Company. Hasbro does not enter into derivative financial
instruments for speculative purposes.
Cash Flow Hedges
All of the Company's designated foreign currency forward contracts
are considered to be cash flow hedges. These instruments hedge a
portion of the Company's currency requirements associated with
anticipated inventory purchases, product sales, certain production
financing loans and other cross-border transactions, primarily for
the remainder of 2022, 2023, and to a lesser extent,
2024.
At March 27, 2022, March 28, 2021 and December 26,
2021, the notional amounts and fair values of the Company's foreign
currency forward contracts designated as cash flow hedging
instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
December 26, 2021 |
|
Hedged transaction |
Notional
Amount |
|
Fair
Value |
|
Notional
Amount |
|
Fair
Value |
|
Notional
Amount |
|
Fair
Value |
|
Inventory purchases |
$ |
196.9 |
|
|
7.8 |
|
|
$ |
332.1 |
|
|
0.6 |
|
|
$ |
199.1 |
|
|
10.4 |
|
|
Sales |
104.3 |
|
|
(2.4) |
|
|
208.5 |
|
|
0.3 |
|
|
104.5 |
|
|
(1.9) |
|
|
Production financing and other |
188.0 |
|
|
2.5 |
|
|
113.2 |
|
|
0.3 |
|
|
217.0 |
|
|
2.3 |
|
|
Total |
$ |
489.2 |
|
|
7.9 |
|
|
$ |
653.8 |
|
|
1.2 |
|
|
$ |
520.6 |
|
|
10.8 |
|
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The Company has a master agreement with each of its counterparties
that allows for the netting of outstanding forward contracts. The
fair values of the Company's foreign currency forward contracts
designated as cash flow hedges are recorded in the consolidated
balance sheets at March 27, 2022, March 28, 2021 and
December 26, 2021 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
December 26,
2021 |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
Unrealized gains |
$ |
12.7 |
|
|
$ |
8.4 |
|
|
$ |
13.8 |
|
|
Unrealized losses |
(2.8) |
|
|
(4.4) |
|
|
(3.1) |
|
|
Net unrealized gains |
$ |
9.9 |
|
|
$ |
4.0 |
|
|
$ |
10.7 |
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
|
|
|
Unrealized gains |
$ |
— |
|
|
$ |
1.8 |
|
|
$ |
0.2 |
|
|
Unrealized losses |
— |
|
|
(0.2) |
|
|
— |
|
|
Net unrealized gains |
$ |
— |
|
|
$ |
1.6 |
|
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
Unrealized gains |
$ |
0.9 |
|
|
$ |
1.7 |
|
|
$ |
— |
|
|
Unrealized losses |
(2.7) |
|
|
(5.9) |
|
|
(0.1) |
|
|
Net unrealized losses |
$ |
(1.8) |
|
|
$ |
(4.2) |
|
|
$ |
(0.1) |
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
|
|
|
|
Unrealized gains |
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Unrealized losses |
(0.2) |
|
|
(0.2) |
|
|
— |
|
|
Net unrealized losses |
$ |
(0.2) |
|
|
$ |
(0.2) |
|
|
$ |
— |
|
Net gains (losses) on cash flow hedging activities have been
reclassified from other comprehensive earnings (loss) to net
earnings for the quarters ended March 27, 2022 and
March 28, 2021 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
Statements of Operations Classification |
|
|
|
|
|
|
|
|
Cost of sales |
$ |
(0.4) |
|
|
$ |
— |
|
|
|
|
|
|
Net revenues |
(0.4) |
|
|
0.5 |
|
|
|
|
|
|
Other |
(0.5) |
|
|
0.9 |
|
|
|
|
|
|
Net realized gains |
$ |
(1.3) |
|
|
$ |
1.4 |
|
|
|
|
|
Undesignated Hedges
The Company also enters into foreign currency forward contracts to
minimize the impact of changes in the fair value of intercompany
loans due to foreign currency changes. The Company does not use
hedge accounting for these contracts as changes in the fair values
of these contracts are substantially offset by changes in the fair
value of the intercompany loans. Additionally, to manage
transactional exposure to fair value movements on certain monetary
assets and liabilities denominated in foreign currencies, the
Company has implemented a balance sheet hedging program. The
Company does not use hedge accounting for these contracts as
changes in the fair values of these contracts are offset by changes
in the fair value of the balance sheet items. As of March 27,
2022, March 28, 2021 and December 26, 2021 the total
notional amounts of the Company's undesignated derivative
instruments were $665.0 million, $653.4 million and $632.0 million,
respectively.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
At March 27, 2022, March 28, 2021 and December 26,
2021, the fair values of the Company's undesignated derivative
financial instruments were recorded in the consolidated balance
sheets as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
December 26,
2021 |
|
Prepaid expenses and other current assets |
|
|
|
|
|
|
Unrealized gains |
$ |
— |
|
|
$ |
5.0 |
|
|
$ |
— |
|
|
Unrealized losses |
— |
|
|
(1.2) |
|
|
— |
|
|
Net unrealized gains |
$ |
— |
|
|
$ |
3.8 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
|
|
|
|
Unrealized gains |
$ |
6.6 |
|
|
$ |
0.1 |
|
|
$ |
3.5 |
|
|
Unrealized losses |
(9.2) |
|
|
(2.5) |
|
|
(6.0) |
|
|
Net unrealized losses |
$ |
(2.6) |
|
|
$ |
(2.4) |
|
|
$ |
(2.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrealized gains (losses), net |
$ |
(2.6) |
|
|
$ |
1.4 |
|
|
$ |
(2.5) |
|
The Company recorded net (losses) of $(2.6) million and $(6.1)
million on these instruments to other (income) expense, net for the
quarters ended March 27, 2022 and March 28, 2021,
respectively, relating to the change in fair value of such
derivatives, substantially offsetting gains and losses from the
change in fair value of intercompany loans to which the contracts
relate.
For additional information related to the Company's derivative
financial instruments (see notes 5 and 10).
(12)
Leases
The Company occupies offices and uses certain equipment under
various operating lease arrangements. The Company has no material
finance leases. These leases have remaining lease terms of 1 to 17
years, some of which include options to extend lease terms or
options to terminate current lease terms at certain times, subject
to notice requirements set out in the lease agreement. Payments
under certain of the lease agreements may be subject to adjustment
based on a consumer price index or other inflationary indices. The
lease liability for such lease agreements as of the adoption date,
was based on fixed payments as of the adoption date. Any
adjustments to these payments based on the related indices will be
recorded to expense as incurred. Leases with an expected term
of 12 months or less are not capitalized. Lease expense under such
leases is recorded straight line over the life of the lease. The
Company capitalizes non-lease components for equipment leases, but
expenses non-lease components as incurred for real estate
leases.
The rent expense under such arrangements and similar arrangements
that do not qualify as leases under ASU 2016-02, net of sublease
income amounted to $22.3 million and $21.8 million for the quarters
ended March 27, 2022 and March 28, 2021, respectively,
and was not material to the Company's financial statements nor were
expenses related to short-term leases (expected terms less than 12
months) or variable lease payments was not material in the quarters
ended March 27, 2022 or March 28, 2021.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Information related to the Company’s leases for the quarters ended
March 27, 2022 and March 28, 2021 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
Cash paid for amounts included in the measurement of lease
liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
$ |
13.4 |
|
|
$ |
13.2 |
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease
obligations: |
|
|
|
|
|
|
|
|
Operating leases |
$ |
9.1 |
|
|
$ |
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term |
|
|
|
|
|
|
|
|
Operating leases |
5.4 years |
|
5.9 years |
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
|
|
|
Operating leases |
2.9 |
% |
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of future undiscounted cash flows
to the operating liabilities, and the related right of use assets,
included in our Consolidated Balance Sheets as of March 27,
2022:
|
|
|
|
|
|
|
March 27,
2022 |
|
2022 (excluding the three months ended March 27, 2022) |
$ |
38.5 |
|
|
2023 |
44.3 |
|
|
2024 |
31.9 |
|
|
2025 |
26.1 |
|
|
2026 |
20.3 |
|
|
2027 and thereafter |
33.4 |
|
|
Total future lease payments |
194.5 |
|
|
Less imputed interest |
21.2 |
|
|
Present value of future operating lease payments |
173.3 |
|
|
Less current portion of operating lease liabilities
(1)
|
45.0 |
|
|
Non-current operating lease liability
(2)
|
128.3 |
|
|
Operating lease right-of-use assets, net
(3)
|
$ |
156.7 |
|
(1)
Included in Accrued liabilities on the consolidated balance
sheets.
(2)
Included in Other liabilities on the consolidated balance
sheets.
(3)
Included in Property, plant, and equipment on the consolidated
balance sheets.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(13)
Segment Reporting
Hasbro is a global play and entertainment company with a broad
portfolio of brands and entertainment content spanning toys, games,
licensed products ranging from traditional to digital, as well as
film and television entertainment. Effective for the three months
ended March 28, 2021, the Company realigned its reportable segment
structure to: (1) align with changes to its business structure
subsequent to the integration of eOne; and (2) reflect changes to
its reporting structure and provide transparency into how operating
performance is measured. The Company's three principal reportable
segments are (i) Consumer Products, (ii) Wizards of the Coast and
Digital Gaming, and (iii) Entertainment.
The Consumer Products segment engages in the sourcing, marketing
and sales of toy and game products around the world. The Consumer
Products business also promotes the Company's brands through the
out-licensing of our trademarks, characters and other brand and
intellectual property rights to third parties, through the sale of
branded consumer products such as toys and apparel. The Wizards of
the Coast and Digital Gaming business engages in the promotion of
the Company's brands through the development of trading card,
role-playing and digital game experiences based on Hasbro and
Wizards of the Coast games. Additionally, the Company out-licenses
certain brands to other third-party digital game developers who
transform Hasbro brand-based characters and other intellectual
properties, into digital gaming experiences. The Entertainment
segment engages in the development, acquisition, production,
financing, distribution and sale of world-class entertainment
content including film, scripted and unscripted television, family
programming, digital content and live entertainment.
The significant accounting policies of the Company's segments are
the same as those referenced in note 1.
Results shown for the quarter ended March 27, 2022 are not
necessarily representative of those which may be expected for the
full year 2022, nor were those of the comparable 2021 periods
representative of those actually experienced for the full year
2021. Similarly, such results are not necessarily those which would
be achieved were each segment an unaffiliated business
enterprise.
Information by segment and a reconciliation to reported amounts for
the quarters ended March 27, 2022 and March 28, 2021 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
March 27, 2022 |
|
March 28, 2021 |
|
Net revenues |
External |
|
Affiliate
(c)
|
|
External |
|
Affiliate
(c)
|
|
Consumer Products |
$ |
672.8 |
|
|
$ |
91.9 |
|
|
$ |
653.9 |
|
|
$ |
70.3 |
|
|
Wizards of the Coast and Digital Gaming |
262.8 |
|
|
29.8 |
|
|
242.2 |
|
|
25.4 |
|
|
Entertainment |
227.5 |
|
|
13.9 |
|
|
218.7 |
|
|
14.1 |
|
|
Corporate and Other
(a)
|
— |
|
|
(135.6) |
|
|
— |
|
|
(109.8) |
|
|
|
$ |
1,163.1 |
|
|
$ |
— |
|
|
$ |
1,114.8 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
Operating profit (loss) |
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
Consumer Products
(a)
|
$ |
8.6 |
|
|
$ |
32.3 |
|
|
|
|
|
|
Wizards of the Coast and Digital Gaming |
106.4 |
|
|
110.0 |
|
|
|
|
|
|
Entertainment
(a)
|
12.2 |
|
|
17.0 |
|
|
|
|
|
|
Corporate and Other
(a)
|
(7.2) |
|
|
(12.0) |
|
|
|
|
|
|
|
$ |
120.0 |
|
|
$ |
147.3 |
|
|
|
|
|
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
March 27,
2022 |
|
March 28,
2021 |
|
December 26,
2021 |
|
Consumer Products
(b)
|
$ |
4,817.9 |
|
|
$ |
5,567.7 |
|
|
$ |
4,925.5 |
|
|
Wizards of the Coast and Digital Gaming |
1,877.7 |
|
|
616.9 |
|
|
1,585.1 |
|
|
Entertainment
(a)
|
6,214.4 |
|
|
6,106.8 |
|
|
6,052.8 |
|
|
Corporate and Other
(a)
|
(3,391.3) |
|
|
(2,102.3) |
|
|
(2,525.6) |
|
|
|
$ |
9,518.7 |
|
|
$ |
10,189.1 |
|
|
$ |
10,037.8 |
|
(a) Certain long-term assets, including property, plant and
equipment, goodwill and other intangibles, which benefit multiple
operating segments, are included in both Entertainment and
Corporate and Other. Allocations of certain Corporate and Other
expenses, related to these assets are made to the individual
operating segments at the beginning of the year based on budgeted
amounts. Any differences between actual and budgeted amounts are
reflected in Corporate and Other because allocations are translated
from the U.S. Dollar to local currency at budgeted rates when
recorded. Beginning in 2022, the Company has allocated certain of
the intangible amortization costs related to the assets acquired in
the eOne acquisition, between the Consumer Products and
Entertainment segments. Corporate and Other also includes the
elimination of inter-company balance sheet amounts.
(b) During the second quarter of 2021, the Company adjusted certain
inter-segment balance sheet amounts which impacted the Consumer
Products and Corporate and Other total asset values. These
adjustments did not impact the Company's total assets.
(c) Amounts represent revenues from transactions with other
operating segments that are included in the operating profit (loss)
of the segment.
The following table represents consolidated Consumer Products
segment net revenues by major geographic region for the quarters
ended March 27, 2022 and March 28, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
North America |
$ |
405.2 |
|
|
$ |
362.7 |
|
|
|
|
|
|
Europe |
176.7 |
|
|
188.5 |
|
|
|
|
|
|
Asia Pacific |
52.2 |
|
|
64.8 |
|
|
|
|
|
|
Latin America |
38.7 |
|
|
37.9 |
|
|
|
|
|
|
Net revenues |
$ |
672.8 |
|
|
$ |
653.9 |
|
|
|
|
|
The following table represents consolidated Wizards of the Coast
and Digital Gaming segment net revenues by category for the
quarters ended March 27, 2022 and March 28,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
March 27,
2022 |
|
March 28,
2021 |
|
Tabletop Gaming |
$ |
192.2 |
|
|
$ |
175.3 |
|
|
Digital and Licensed Gaming |
70.6 |
|
|
66.9 |
|
|
Net revenues |
$ |
262.8 |
|
|
$ |
242.2 |
|
The following table represents consolidated Entertainment segment
net revenues by category for the quarters ended March 27, 2022
and March 28, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
Film and TV |
$ |
190.2 |
|
|
$ |
166.4 |
|
|
|
|
|
|
Family Brands |
23.2 |
|
|
18.8 |
|
|
|
|
|
|
Music and Other |
14.1 |
|
|
33.5 |
|
|
|
|
|
|
Net revenues |
$ |
227.5 |
|
|
$ |
218.7 |
|
|
|
|
|
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The following table presents consolidated net revenues by brand and
entertainment portfolio for the quarters ended March 27, 2022
and March 28, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27,
2022 |
|
March 28,
2021 |
|
|
|
|
|
Franchise Brands
(1)
|
$ |
543.1 |
|
|
$ |
523.1 |
|
|
|
|
|
|
Partner Brands |
206.5 |
|
|
188.0 |
|
|
|
|
|
|
Hasbro Gaming
(2)
|
143.6 |
|
|
136.3 |
|
|
|
|
|
|
Emerging Brands
(1)
|
76.4 |
|
|
73.1 |
|
|
|
|
|
|
TV/Film/Entertainment |
193.5 |
|
|
194.3 |
|
|
|
|
|
|
Total |
$ |
1,163.1 |
|
|
$ |
1,114.8 |
|
|
|
|
|
(1)
Effective in the first quarter of 2022, the Company moved PEPPA PIG
into Franchise Brands from Emerging Brands. For comparability, net
revenues for the quarter ended March 28, 2021 have been restated to
reflect the elevation of PEPPA PIG from Emerging Brands to
Franchise Brands, which amounted to a change of
$31.6 million.
(2)
Hasbro's total gaming category, which includes all gaming net
revenues, both those reported in Hasbro Gaming and those reported
elsewhere, most notably MAGIC: THE GATHERING and MONOPOLY which are
reported within Franchise Brands, totaled $378.8 million and $365.3
million for the quarters ended March 27, 2022 and
March 28, 2021, respectively.
(14)
Restructuring Actions
During 2018 and 2020, the Company took certain restructuring
actions including headcount reduction aimed at right-sizing the
Company’s cost-structure and integration actions related to the
acquisition of eOne.
As of March 27, 2022, the Company had a remaining balance of
$13.3 million in termination payments related to these
programs.
(15)
Subsequent Event
On April 13, 2022, the Company announced that it entered into a
definitive agreement with Fandom, Inc. to purchase D&D Beyond
for $146.3 million to be paid in cash. D&D Beyond is the
premier digital content platform for DUNGEONS & DRAGONS. It is
a rapidly growing role-playing game digital toolset that will
become the hub for DUNGEONS & DRAGONS digital gaming. The
strategic acquisition of D&D Beyond is expected to deliver a
direct relationship with fans, providing valuable, data-driven
insights to unlock opportunities for growth in new product
development, live services and tools, and regional
expansions.
The transaction is subject to customary closing conditions,
including obtaining required regulatory approvals, and is expected
to close late in the second quarter or early in the third quarter
of 2022. The transaction will be funded out of cash on hand and is
not expected to have a material impact on Hasbro's 2022 results of
operations.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
OBJECTIVE
Our objective within the following discussion is to provide an
analysis of the Company’s Financial Condition, Cash Flows and
Results of Operations from management's perspective which should be
read in conjunction with the Company’s consolidated financial
statements and notes thereto, included in Part I, Item 1 of this
Form 10-Q.
Unless otherwise specifically indicated, all dollar or share
amounts herein are expressed in millions of dollars or shares,
except for per share amounts.
EXECUTIVE SUMMARY
Hasbro, Inc. (“Hasbro”) is a global play and entertainment company
committed to Creating the World’s Best Play and Entertainment
Experiences and making the world a better place for all children,
fans and families. Hasbro delivers immersive brand experiences for
global audiences through consumer products, including toys and
games; gaming, led by the team at Wizards of the Coast, an
award-winning developer of tabletop and digital games; and
entertainment through Entertainment One (“eOne”), our independent
studio.
Our iconic brands include MAGIC: THE GATHERING, NERF, PLAY-DOH,
TRANSFORMERS, PEPPA PIG, MONOPOLY, MY LITTLE PONY, BABY ALIVE,
DUNGEONS & DRAGONS, PJ MASKS and POWER RANGERS, as well as
premier partner brands. 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 and
one of the World’s Most Ethical Companies by Ethisphere
Institute.
Our strategic plan is centered around the Hasbro Brand Blueprint, a
framework for bringing compelling and expansive brand experiences
to consumers and audiences around the world. Our brands are
story-led consumer franchises brought to life through a wide array
of consumer products, digital gaming and compelling content offered
across a multitude of platforms and media. Our commitment to
disciplined, strategic investments across the Brand Blueprint over
the long-term has built a differentiated business with diversified
capabilities to drive profitable growth and enhance shareholder
value.
Hasbro's purpose of making the world a better place for all
children, fans and families sits at the center of the Hasbro Brand
Blueprint and is a key driver of our brands and content. The value
of Hasbro is fully activated when we can take a brand across all
elements of the Brand Blueprint – consumer products; Wizards of the
Coast and digital gaming; and entertainment. The ability to build a
brand in any of our segments and leverage in-house capabilities to
create multiple categories of engagement with consumers and fans is
unique to Hasbro and optimizes our economics today and in the
future.
During each of the periods presented in this Form 10-Q there were
certain charges incurred which impacted operating results. These
charges are detailed below in the Results of Operations -
Consolidated.
Coronavirus Pandemic
Since the onset of the novel coronavirus (COVID-19) pandemic in
early 2020, our business, has been adversely impacted by the
challenges and risks associated with both the initial, and the
residual effects of the spread of the virus worldwide. Certain
effects of the COVID-19 pandemic, including difficulties in
shipping and distributing products due to ongoing constraints in
port capacity, shipping containers and truck transportation, have
continued into the first quarter of 2022 and are expected to
continue through the remainder of the year. These and other
disruptions have led to higher costs for both ocean and air freight
and delays in the availability of products, which can result in
delayed sales and, in some cases, lost sales. In response to these
and other challenges, we have developed and continue to evaluate
and execute plans to mitigate the negative impacts of COVID-19 to
our business. For example, to mitigate product input cost
increases, we implemented certain price increases during 2021. The
Company continues to review the impact of increasing costs and
plans to implement further price increases in 2022. Additionally,
during the first quarter of 2022, the Company accelerated certain
inventory purchases to ensure sufficient finished goods and raw
material availability, ahead of expected periods of high consumer
demand. We believe these mitigating actions will minimize the
adverse impacts to our financial results for fiscal year
2022.
The COVID-19 outbreak continues to be fluid and it is difficult to
forecast the impact it could have on our future operations.
However, since the initial outbreak, we have maintained sufficient
liquidity and access to capital resources and we continue to
closely monitor customer health and collectability of receivables.
Please see Part I, Item 1A. Risk Factors and Part I, Item 1.
Business, in the Company's Form 10-K for the fiscal year ended
December 26, 2021 for further information.
First quarter 2022 highlights:
•First
quarter net revenues were $1.2 billion compared to $1.1 billion in
the first quarter of 2021 and included an unfavorable foreign
currency translation of $17.4 million. Absent the unfavorable
impact of foreign currency exchange, first quarter net revenues
increased 6%.
•Net
revenues grew in all major operating segments: Wizards of the Coast
and Digital Gaming segment net revenues increased 9% to $262.8
million; Entertainment segment net revenues increased 4% to $227.5
million; Consumer Products segment net revenues increased 3% to
$672.8 million.
•Partner
Brands portfolio net revenues increased 10%; Hasbro Gaming and
Emerging Brands net revenues each increased 5%; Franchise Brands
net revenues increased 4% while TV/Film/Entertainment portfolio net
revenues were flat in the first quarter of 2022, reflecting the
sale of eOne Music which represented $31.8 million of
TV/Film/Entertainment portfolio net revenues in the first quarter
of 2021.
•Operating
profit was $120.0 million, or 10.3% of net revenue, in the first
quarter of 2022 compared to operating profit of $147.3 million, or
13.2% of net revenue, in the first quarter of 2021.
•Operating
Profit in the Wizards of the Coast and Digital Gaming segment
decreased 3% to $106.4 million; Entertainment segment operating
profit decreased 28% to $12.2 million; Consumer Products segment
decreased 73% to $8.6 million; and Corporate and Other operating
losses improved 40% to $7.2 million.
•Certain
charges impacted operating segment performance for the Company’s
Consumer Products and Entertainment segments, which are discussed
further below in Segment Results.
•Net
earnings attributable to Hasbro, Inc. of $61.2 million, or $0.44
per diluted share, in the first quarter of 2022 compared to net
earnings of $116.2 million, or $0.84 per diluted share, in the
first quarter of 2021.
The impact of changes in foreign currency exchange rates used to
translate the consolidated statements of operations is quantified
by translating the current period revenues at the prior period
exchange rates and comparing this amount to the prior period
reported revenues. The Company believes that the presentation of
the impact of changes in exchange rates, which are beyond the
Company’s control, is helpful to an investor’s understanding of the
performance of the underlying business.
SUMMARY OF FINANCIAL PERFORMANCE
A summary of the results of operations is illustrated below for the
quarters ended March 27, 2022 and March 28,
2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
|
|
|
|
Net revenues |
$ |
1,163.1 |
|
|
$ |
1,114.8 |
|
|
|
|
|
|
Operating profit |
120.0 |
|
|
147.3 |
|
|
|
|
|
|
Earnings before income taxes |
80.2 |
|
|
129.5 |
|
|
|
|
|
|
Net earnings |
62.9 |
|
|
117.5 |
|
|
|
|
|
|
Net earnings attributable to noncontrolling interests |
1.7 |
|
|
1.3 |
|
|
|
|
|
|
Net earnings attributable to Hasbro, Inc. |
61.2 |
|
|
116.2 |
|
|
|
|
|
|
Diluted earnings per share |
0.44 |
|
|
0.84 |
|
|
|
|
|
RESULTS OF OPERATIONS – CONSOLIDATED
The quarters ended March 27, 2022 and March 28, 2021 were
each 13-week periods.
Diluted earnings per share attributable to Hasbro, Inc. for the
quarters ended March 27, 2022 and March 28, 2021 include
certain charges as described below.
•Net
charges of $15.9 million, or $0.11 per diluted share and $20.4
million, or $0.15 per diluted share, of intangible amortization
costs for the quarters ended March 27, 2022 and March 28, 2021,
respectively, related to the intangible assets acquired in the eOne
acquisition. Beginning in 2022, certain of these intangible
amortization costs have been allocated between the Consumer
Products and Entertainment segments, to match the revenue generated
from such intangible assets. In 2021, these intangible amortization
costs were recorded within the Entertainment segment.
•Net
charges of $2.3 million, $0.02 per diluted share and $1.7 million,
or $0.01 per diluted share, for the quarters ended March 27, 2022
and March 28, 2021, respectively, of expense associated with
retention awards granted in connection
with the eOne acquisition. These expenses are included within
Selling, Distribution and Administration within the Corporate
segment.
Consolidated net revenues for the first quarter of 2022 grew 4% to
$1,163.1 million from $1,114.8 million for the first quarter of
2021 and included an unfavorable $17.4 million impact from foreign
currency translation as a result of weakening currencies, primarily
in Europe.
Operating profit for the first quarter of 2022 was $120.0 million,
or 10.3% of net revenues, compared to operating profit of $147.3
million, or 13.2% of net revenues, for the first quarter of 2021.
The operating profit decrease was primarily driven by higher costs
of sales due to higher product input and freight costs as a result
of rising costs and supply chain disruptions, higher program
amortization costs within the Entertainment segment, reflecting the
mix of programming deliveries in the quarter, higher product
development costs to support growth in Wizards of the Coast and to
a lesser extent, higher marketing and sales costs. These cost
increases were partially offset by lower royalty expense and lower
advertising costs during the first quarter of 2022.
Net earnings attributable to Hasbro, Inc. decreased to $61.2
million for the quarter ended March 27, 2022, compared to
$116.2 million for the quarter ended March 28,
2021.
Diluted earnings per share attributable to Hasbro, Inc. were $0.44
for the first quarter of 2022 compared to $0.84 for the first
quarter of 2021.
The following table presents net revenues by brand and
entertainment portfolio for the quarters ended March 27, 2022
and March 28, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
March 27, 2022 |
|
March 28, 2021 |
|
%
Change |
|
Franchise Brands |
$ |
543.1 |
|
|
$ |
523.1 |
|
|
4 |
% |
|
Partner Brands |
206.5 |
|
|
188.0 |
|
|
10 |
|
|
Hasbro Gaming |
143.6 |
|
|
136.3 |
|
|
5 |
|
|
Emerging Brands |
76.4 |
|
|
73.1 |
|
|
5 |
|
|
TV/Film/Entertainment |
193.5 |
|
|
194.3 |
|
|
— |
|
|
Total |
$ |
1,163.1 |
|
|
$ |
1,114.8 |
|
|
4 |
% |
Brand portfolio net revenues for the first quarter of 2021 have
been restated to reflect the elevation of PEPPA PIG from Emerging
Brands to Franchise Brands, effective for the first quarter of
2022. As a result, first quarter 2021 net revenues of $31.6 million
were reclassified from Emerging Brands to Franchise
Brands.
FRANCHISE BRANDS:
Net revenues in the Franchise Brands portfolio increased 4% in the
first quarter of 2022 compared to the first quarter of 2021.
Drivers of the net revenue increase include higher net revenues
from MAGIC: THE GATHERING products reflecting record sales from
the
Kamigawa: Neon Dynasty
set release and higher net revenues from MY LITTLE PONY, following
the September 2021 release of the feature length film,
MY LITTLE PONY: A NEW GENERATION
and the associated product line. In addition, higher net revenues
from PEPPA PIG were driven by the third quarter 2021 launch of the
Company's first line of PEPPA PIG products. These net revenue
increases were partially offset by lower net revenues from MONOPOLY
products and to a lesser extent, lower net revenues from BABY ALIVE
and NERF products during the first quarter of 2022.
PARTNER BRANDS:
Net revenues from the Partner Brands portfolio increased 10% in the
first quarter of 2022 compared to the first quarter of
2021. 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 and success. 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 2022, Partner Brands net revenue
increases were driven by the Company's products for MARVEL,
primarily from momentum in the SPIDER-MAN franchise which benefited
from entertainment releases including Marvel Studios'
SPIDER-MAN: NO WAY HOME,
released in December 2021 and the children’s animated television
series Marvel's
SPIDEY and HIS AMAZING FRIENDS.
In addition, the Company's products for Marvel's AVENGERS benefited
ahead of the planned Marvel Studios' release of
DOCTOR STRANGE in the MULTIVERSE of MADNESS,
expected in May 2022. To a lesser extent, net revenues from the
Company's line of STAR WARS products increased as a result of the
lineup of entertainment
from Lucasfilms including,
THE BOOK of BOBA FETT
released in the first fiscal quarter of 2022 and the upcoming
launch of the
OBI-WAN KENOBI
series, expected in the second quarter of 2022, both on Disney+.
These increases were partially offset by net revenue declines from
DISNEY FROZEN and to a lesser extent, DISNEY PRINCESS products as
well as lower net revenues from BEYBLADE products during the first
quarter of 2022.
HASBRO GAMING:
Net revenues in the Hasbro Gaming portfolio increased 5% in the
first quarter of 2022 compared to the first quarter of 2021. Higher
net revenues were driven by net revenue increases from DUNGEONS
& DRAGONS products and to a lesser extent, net revenue
increases from DUEL MASTERS and AVALON HILL'S HeroQuest products.
These net revenue increases were partially offset by lower net
revenues from certain classic game products including CLUE and
RISK.
Net revenues for Hasbro’s total gaming category, including the
Hasbro Gaming portfolio as reported above and all other gaming
revenue, most notably revenues from MAGIC: THE GATHERING and
MONOPOLY products, which are included in the Franchise Brands
portfolio, totaled $378.8 million for the first quarter of 2022, an
increase of 4%, as compared to $365.3 million in the first quarter
of 2021.
EMERGING BRANDS:
Net revenues from the Emerging Brands portfolio increased 5% during
the first quarter of 2022 compared to the first quarter of 2021.
Net revenue increases during the first quarter of 2022 were driven
by POWER RANGERS and PJ MASKS products, partially offset by lower
net revenues from SUPER SOAKER and certain PLAYSKOOL
products.
TV/FILM/ENTERTAINMENT:
During the first quarter of 2022, net revenues from the
TV/Film/Entertainment portfolio were flat compared to the first
quarter of 2021. First quarter 2022 net revenues were driven by
higher scripted television deliveries, most notably from the
Netflix streaming series
GRAYMAIL
and from
THE ROOKIE
television series,
as well as higher deliveries of unscripted programs compared to the
first quarter of 2021, where deliveries were limited or delayed due
to the impact of the COVID-19 pandemic. To a lesser extent,
TV/Film/Entertainment portfolio net revenues benefited from feature
film production revenue contributions from
titles including
DEEP WATER
as well as from the Company's live entertainment business which
resumed live touring shows in 2022.
SEGMENT RESULTS
The following table presents net external revenues and operating
profit data for the Company's principal segments for the quarters
ended March 27, 2022 and March 28, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
March 27, 2022 |
|
March 28, 2021 |
|
%
Change |
|
Net Revenues |
|
|
|
|
|
|
Consumer Products |
$ |
672.8 |
|
|
$ |
653.9 |
|
|
3 |
% |
|
Wizards of the Coast and Digital Gaming |
262.8 |
|
|
242.2 |
|
|
9 |
% |
|
Entertainment
*
|
227.5 |
|
|
218.7 |
|
|
4 |
% |
|
|
|
|
|
|
|
|
Operating Profit |
|
|
|
|
|
|
Consumer Products |
$ |
8.6 |
|
|
$ |
32.3 |
|
|
-73 |
% |
|
Wizards of the Coast and Digital Gaming |
106.4 |
|
|
110.0 |
|
|
-3 |
% |
|
Entertainment
*
|
12.2 |
|
|
17.0 |
|
|
-28 |
% |
|
Corporate and Other |
(7.2) |
|
|
(12.0) |
|
|
40 |
% |
* Entertainment segment net revenues and operating profit, for the
quarter ended March 27, 2021 include $31.8 million and $3.1
million, respectively, from eOne Music, which was sold at the
beginning of the third quarter of 2021.
Beginning in 2022, intangible amortization costs related to the
intangible assets acquired in the eOne acquisition have been
allocated between the Consumer Products and Entertainment segments
in the amounts of $10.3 million and $8.8 million, respectively, to
match the revenue generated from such intangible assets. In 2021,
comparable intangible amortization costs of $24.9 million were
recorded within the Entertainment segment.
Consumer Products Segment
The following table presents the Consumer Products segment net
revenues by major geographic region for the quarters ended
March 27, 2022 and March 28, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
|
|
|
|
North America |
$ |
405.2 |
|
|
362.7 |
|
|
|
|
|
|
Europe |
176.7 |
|
|
188.5 |
|
|
|
|
|
|
Asia Pacific |
52.2 |
|
|
64.8 |
|
|
|
|
|
|
Latin America |
38.7 |
|
|
37.9 |
|
|
|
|
|
|
Net Revenues |
$ |
672.8 |
|
|
$ |
653.9 |
|
|
|
|
|
The Consumer Products segment net revenues increased 3% to $672.8
million for the first quarter of 2022 compared to $653.9 million
for the first quarter of 2021 and included the impact of an
unfavorable $13.5 million currency translation, most notably from
the Company's European markets. Drivers of the net revenue
increase include higher sales of the Company's products for MARVEL,
higher sales of PEPPA PIG and MY LITTLE PONY products, and higher
net revenues from POWER RANGERS and PJ MASKS products. Partially
offsetting these increases were lower sales of TRANSFORMERS and
MONOPOLY products and lower sales of the Company's products for
DISNEY PRINCESS and DISNEY FROZEN. Net revenues increased in North
America and to a lesser extent, in Latin American markets during
the first quarter of 2022, while net revenues declined in the
Company's Asia Pacific and Europe regions. In Europe, where the
impact of foreign currency exchange was more significant compared
to other regions, net revenue remained relatively flat absent the
unfavorable foreign currency exchange impact of $12.0
million.
Consumer Products segment operating profit for the first quarter of
2022 was $8.6 million or 1.3% of segment net revenues, compared to
segment operating profit of $32.3 million or 4.9% of segment net
revenues, for the first quarter of 2021. As noted above, in
alignment with the revenue generated from the assets acquired in
the eOne acquisition, the first quarter of 2022 includes $10.3
million of intangible amortization, which in 2021 was all reported
in the Entertainment segment results. This allocation of intangible
amortization drove a 1.5% decline in operating margin for the
Consumer Products segment. The remaining operating profit decrease
in the first quarter of 2022 was driven by higher product costs and
distribution costs as a result of global supply chain disruptions,
including higher freight costs. These negative impacts were
partially offset by price increases implemented during 2021 and
lower royalty expenses due to a favorable product mix during the
first quarter of 2022.
Wizards of the Coast and Digital Gaming Segment
The following table presents Wizards of the Coast and Digital
Gaming segment net revenues by category for the quarters ended
March 27, 2022 and March 28, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
|
|
|
|
Tabletop Gaming |
$ |
192.2 |
|
|
$ |
175.3 |
|
|
|
|
|
|
Digital and Licensed Gaming |
70.6 |
|
|
66.9 |
|
|
|
|
|
|
Net revenues |
$ |
262.8 |
|
|
$ |
242.2 |
|
|
|
|
|
Wizards of the Coast and Digital Gaming segment net revenues
increased 9% in the first quarter of 2022 to $262.8 million from
$242.2 million in the first quarter of 2021 and included the impact
of an unfavorable $2.9 million foreign currency
translation.
The net revenue increase in the Wizards of the Coast and Digital
Gaming segment during the first quarter of 2022 was attributable to
net revenue increases from Wizards of the Coast tabletop and
digital gaming products, most notably, MAGIC: THE GATHERING, driven
by sales of the
Kamigawa: Neon Dynasty
set release, and to a lesser extent, higher digital net revenues
from
Magic: The Gathering
Arena
and
Dungeons & Dragons: Dark Alliance.
In addition, higher net revenues from DUNGEONS & DRAGONS and
DUEL MASTERS products contributed to the increase during the first
quarter.
Wizards of the Coast and Digital Gaming segment operating profit
was $106.4 million, or 40.5% of segment net revenues for the first
quarter of 2022, compared to operating profit of $110.0 million, or
45.4% of segment net revenues, for the first quarter of 2021. The
operating profit decrease during the first quarter of 2022 was the
result of higher product input costs associated with tabletop
gaming, increased product development expenses, higher freight
costs, as well as higher administrative expenses including higher
personnel costs during the first quarter of 2022. These increases
were partially offset by lower advertising and promotional expenses
compared to the first quarter of 2021, where the Company incurred
higher costs associated with the launch of the mobile version
of
Magic: The Gathering
Arena
and
Dungeons & Dragons: Dark Alliance.
Entertainment Segment
The following table presents Entertainment segment net revenues by
category for the quarters ended March 27, 2022 and
March 28, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
|
|
|
|
Film and TV |
$ |
190.2 |
|
|
$ |
166.4 |
|
|
|
|
|
|
Family Brands |
23.2 |
|
|
18.8 |
|
|
|
|
|
|
Music and Other
*
|
14.1 |
|
|
33.5 |
|
|
|
|
|
|
Net revenues |
$ |
227.5 |
|
|
$ |
218.7 |
|
|
|
|
|
*Music and Other category net revenues for the quarter ended March
27, 2021 includes $31.8 million related to eOne Music, which was
sold at the beginning of the third quarter of 2021.
Entertainment segment net revenues increased 4% to $227.5 million
for the first quarter of 2022, compared to $218.7 million for the
first quarter of 2021. Foreign currency translation did not have a
significant impact on Entertainment segment net revenues. The net
revenue increase during the first quarter of 2022 was driven by
higher deliveries of both unscripted and scripted television
programming and to a lesser extent, higher net revenues from the
Company's live entertainment business which resumed live touring
shows in 2022. Also contributing to the increase during the first
quarter of 2022 were higher net revenues from streaming animated
content deals related to programming featuring the Company's
brands. These increases were partially offset by the sale of the
eOne Music business in the third quarter of 2021, which accounted
for $31.8 million of segment net revenues in the first quarter of
2021.
Entertainment segment operating profit was $12.2 million, or 5.4%
of segment net revenues for the first quarter of 2022 compared to
operating profit of $17.0 million, or 7.8% of segment net revenues
for the first quarter of 2021. The operating profit decrease during
the first quarter of 2022 was driven by higher program cost
amortization reflecting the mix of programming delivered during the
first quarter of 2022 and the impact of the sale of eOne Music
described above. These declines were partially offset by the
allocation of $10.3 million of amortization costs related to the
intangible assets acquired in
the eOne acquisition to the Consumer Products segment to match the
revenue generated from such assets in the first quarter of
2022.
Corporate and Other Segment
The Corporate and Other segment operating losses were $7.2 million
for the first quarter of 2022 compared to operating losses of $12.0
million for the first quarter of 2021. The decline in operating
losses in 2022 were the result of lower royalty expense and lower
administrative expenses.
OPERATING COSTS AND EXPENSES
The Company's costs and expenses, stated as percentages of net
revenues, are illustrated below for the quarters ended
March 27, 2022 and March 28, 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
March 27, 2022 |
|
March 28, 2021 |
|
Cost of sales |
28.6 |
% |
|
26.0 |
% |
|
Program cost amortization |
11.9 |
% |
|
8.7 |
% |
|
Royalties |
7.7 |
% |
|
9.8 |
% |
|
Product development |
6.0 |
% |
|
5.5 |
% |
|
Advertising |
6.7 |
% |
|
7.9 |
% |
|
Amortization of intangibles |
2.3 |
% |
|
3.0 |
% |
|
Selling, distribution and administration |
26.4 |
% |
|
25.9 |
% |
Cost of sales for the first quarter of 2022 was $333.1 million, or
28.6% of net revenues, compared to $289.9 million, or 26.0% of net
revenues, for the first quarter of 2021. The cost of sales
increase in dollars was due to higher sales volumes and higher
product costs, including higher freight costs, partially offset by
the impact of a favorable $6.5 million of foreign currency
exchange. The cost of sales increase as a percent of net revenues
was driven by the impact of higher product costs and freight costs
described above.
Program cost amortization increased to $138.5 million, or 11.9% of
net revenues, for the first quarter of 2022 from $97.5 million, or
8.7% of net revenues, for the first quarter of 2021. Program costs
are capitalized as incurred and amortized primarily using the
individual-film-forecast method which matches costs to the related
recognized revenue. The increase in dollars and as a percent of net
revenues during the first quarter of 2022 was driven by the volume
and mix of both scripted and unscripted programming revenues during
the first quarter of 2022 compared to the first quarter of
2021.
Royalty expense for the first quarter of 2022 decreased to $90.1
million, or 7.7% of net revenues, compared to $108.9 million, or
9.8% of net revenues, for the first quarter of
2021. 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 was driven by the impact of the sale of eOne Music and
the mix of first quarter 2022 Film and TV deliveries. In addition,
certain licensing agreements acquired through the eOne acquisition
expired, which carried higher royalty expenses in prior periods.
The decrease in royalty expense as a percent of net revenues during
the first quarter of 2022 was the result of a higher percentage of
product sales that do not carry significant royalty
expenses.
Product development expense for the first quarter of 2022 was $69.6
million, or 6.0% of net revenues, compared to $61.8 million, or
5.5% of net revenues, for the first quarter of 2021. The
increase was primarily related to increased investments in the
development of Wizards of the Coast tabletop and digital gaming
initiatives.
Advertising expense for the first quarter of 2022 was $77.6
million, or 6.7% of net revenues, compared to $87.9 million, or
7.9% of net revenues, for the first quarter of
2021. Advertising spend is generally impacted by revenue mix
and the number and type of entertainment releases delivered. The
advertising expense decrease during the first quarter of 2022 was
driven by lower expense within the Entertainment segment, as well
as lower 2022 expense within the Wizards of the Coast and Digital
Gaming segment, compared to the first quarter 2021, where
advertising expense was driven by support for the launch of the
mobile version of
Magic: The Gathering
Arena
and
Dungeons & Dragons: Dark Alliance,
with no comparable releases in 2022.
Amortization of intangible assets decreased to $27.1 million, or
2.3% of net revenues, for the first quarter of 2022, compared to
$32.9 million, or 3.0% of net revenues, for the first quarter of
2021. The decrease in 2022 is related to the discontinuation
of amortization related to the eOne Music intangible assets
following the sale of eOne Music in the third quarter of
2021.
For the first quarter of 2022, the Company's selling, distribution
and administration expenses increased to $307.1 million, or 26.4%
of net revenues, from $288.6 million, or 25.9% of net revenues, for
the first quarter of 2021. The increase in selling, distribution
and administration expenses reflects higher marketing and sales and
administrative costs, including higher compensation expense, as
well as higher distribution and warehousing costs, primarily due to
ongoing global supply chain disruptions. These increases were
partially offset by lower administrative costs as a result of the
sale of eOne Music during 2021.
NON-OPERATING EXPENSE (INCOME)
Interest expense for the first quarter of 2022 totaled $41.6
million compared to $47.9 million in the first quarter of 2021. The
decrease in interest expense during the first quarter of 2022
primarily reflects long-term debt repayments made throughout 2021
and during the first quarter of 2022, related to borrowings
utilized for the eOne acquisition.
Interest income was $2.1 million for the first quarter of 2022
compared to $1.2 million in the first quarter of 2021,
respectively. Higher average interest rates in 2022 compared to
2021 contributed to the increase.
Other expense (income), net was $0.3 million for the first quarter
of 2022 compared to other (income), net of $(28.9) million in the
first quarter of 2021. The decline was primarily driven by a first
quarter 2021 gain of $25.6 million realized from a legal settlement
with no comparable gain in 2022 and lower earnings from the
Company's joint venture with Discovery, partially offset by lower
foreign currency losses during the first quarter of
2022.
INCOME TAXES
Income tax expense totaled $17.3 million on pre-tax income of $80.2
million in the first quarter of 2022 compared to income tax expense
of $12.0 million on pre-tax income of $129.5 million in the first
quarter of 2021. 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 2022,
favorable discrete tax adjustments were a net benefit of $2.3
million, compared to a net benefit of $8.9 million in the first
quarter of 2021. The favorable discrete tax adjustments for the
first quarter of 2022 primarily relate to the release of certain
valuation allowances during the quarter. The favorable discrete tax
adjustments for the first quarter of 2021 primarily relate to
expiration of statutes of limitation for uncertain tax positions.
In the first quarter of 2021, pre-tax income benefited from a legal
settlement gain with no associated tax expense, due to the
availability of net operating losses ("NOLs") and release of the
related valuation allowance on the NOLs utilized by the settlement
gain. Absent this discrete gain and tax items, the tax rates for
the first quarter of 2022 and 2021 were 24.4% and 20.1%,
respectively. The increase in the adjusted base rate of 24.4% for
the first quarter of 2022 is primarily due to the mix of
jurisdictions where the Company earned its profits.
The Tax Cuts and Jobs Act of 2017 ("Tax Act") provided for
significant changes to the U.S. tax system including the mandatory
capitalization of Research and Experimentation costs starting in
the 2022 tax year. The Company is still assessing the impact,
however the legislation is not expected to have a material effect
on the Company's financial statements.
OTHER INFORMATION
Business Seasonality and Shipments
The Company’s revenue pattern continues to show the second half of
the year to be more significant to its overall business for the
full year. The Company expects that this concentration will
continue. The concentration of sales in the second half of the year
increases the risk of (a) underproduction of popular items, (b)
overproduction of less popular items, and (c) failure to achieve
tight and compressed shipping schedules.
The business of the Company is characterized by customer order
patterns which vary from year to year largely because of
differences in the degree of consumer acceptance of a product line,
product availability, marketing strategies, inventory levels,
policies of retailers and differences in overall economic
conditions. Larger retailers generally maintain lower inventories
throughout the year and purchase a greater percentage of product
within or close to the fourth quarter holiday consumer buying
season, which includes Christmas.
Quick response inventory management practices being used by
retailers as well as growth in ecommerce result in orders
increasingly placed for immediate delivery and fewer orders placed
well in advance of shipment. Retailers are timing their orders so
that they are filled by suppliers closer to the time of purchase by
consumers. To the extent that retailers do not sell as much of
their year-end inventory purchases during the current holiday
selling season as they had anticipated, their demand for additional
product earlier in the following fiscal year may be curtailed, thus
negatively impacting the Company’s future revenues. However, more
recently the Company's inventory levels reflect ongoing global
supply chain disruptions, which began in late 2020 as economies
slowly recovered from COVID-19 shutdowns, while consumer demand
began to outpace the capacity of the global supply chain
infrastructure. Supply chain constraints, including overcrowding of
cargo ports and shipping container and truck transportation
shortages, have also led to higher costs for ocean, air and over
the road freight and delays in
the availability of products, as inventory remains in transit for
extended periods of time. These and other disruptions are expected
to continue throughout 2022. During the first quarter of 2022, the
Company accelerated certain inventory purchases, to ensure
sufficient finished goods and raw material availability ahead of
expected periods of high consumer demand. As a result, the Company
expects 2022 inventory shipments to peak between May and July as
opposed to the historical timeline of August to
December.
Unlike the Company's retail sales patterns, revenue patterns from
the Company's entertainment businesses fluctuate based on the
timing and popularity of television, film, streaming and digital
content releases. Release dates are determined by factors including
the timing of holiday periods, geographical release dates and
competition in the market.
Accounting Pronouncement Updates
As of March 27, 2022, there were no recently adopted accounting
standards that had a material effect on the Company’s financial
statements. The Company's significant accounting policies are
summarized in note 1 to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year
ended December 26, 2021.
Recently Issued Accounting Pronouncements
In March of 2020, the FASB issued Accounting Standards Update
No. 2020-04 (ASU 2020-04) Reference Rate Reform (Topic
848):
Facilitation of the Effects of Reference Rate Reform on Financial
Reporting.
The amendments in this update provide optional expedients and
exceptions for applying U.S. GAAP to contracts, hedging
relationships, and other transactions, for a limited period of
time, to ease the potential burden of recognizing the effects of
reference rate reform on financial reporting. The amendments in
this update apply to contracts, hedging relationships and other
transactions that reference the London Inter-Bank Offered Rate
("LIBOR") or another reference rate expected to be discontinued due
to the global transition away from LIBOR and certain other
interbank offered rates. An entity may elect to apply the
amendments provided by this update beginning March 12, 2020 through
December 31, 2022. The change from LIBOR to an alternate rate has
not had a material impact on the Company's consolidated financial
statements.
Russian Sanctions
As a result of the recent military conflict in Ukraine, which has
led to sanctions and other penalties being levied by the United
States, European Union and other countries against Russia, the
Company has paused all shipments and new content distribution into
Russia. Although our business has not been materially impacted by
the ongoing military conflict, the extent to which our operations,
or those of our suppliers and manufacturers will be impacted
remains unknown. Any longstanding disruptions may magnify the
impact of other risks described in this Quarterly Report on Form
10-Q and in the Company's Annual Report on Form 10-K for the year
ended December 26, 2021.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated a significant amount of cash
from operations. In the first three months of 2022 and 2021, the
Company primarily funded its operations and liquidity needs through
cash on hand and from cash flows from operations, and when needed,
used borrowings under its available lines of credit. In addition,
the Company’s Entertainment operating segment used production
financing to fund certain of its television and film productions
which are typically arranged on an individual production basis
using either the Company's revolving film and television production
credit facility or through special purpose production subsidiaries.
For more information on the Company's production financing
facilities, including expected future repayments, see note 7 to the
consolidated financial statements included in Part I of this Form
10-Q.
The Company expects to continue to fund its working capital needs
primarily through available cash, cash flows from operations and
from production financing facilities and, if needed, by issuing
commercial paper or borrowing under its revolving credit agreement.
In the event that the Company is not able to issue commercial
paper, the Company intends to utilize its available lines of
credit. The Company believes that the funds available to it,
including cash expected to be generated from operations, funds
available through its commercial paper program or its available
lines of credit and production financing, are adequate to meet its
working capital needs for the remainder of 2022, including the
repayment of the current portion of long-term debt of $155.8
million, as shown on the consolidated balance sheets, which
represents the current portion of required quarterly principal
amortization payments for our term loan facilities and other
short-term production financing facilities, each as described
below. The Company 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. However,
unexpected events or circumstances such as material operating
losses or increased capital or other expenditures, or the inability
to otherwise access the commercial paper market, may reduce or
eliminate the availability of external financial resources. In
addition, significant disruptions to credit markets may also reduce
or eliminate the availability of external financial resources.
Although the Company believes the risk of nonperformance by the
counterparties to its financial facilities is not significant, in
times of severe economic downturn in the credit markets, it is
possible that one or more sources of external financing may be
unable or unwilling to provide funding to the Company.
As of March 27, 2022, the Company's cash and cash equivalents
totaled $1,057.9 million, of which $38.8 million is restricted
under the Company’s production financing facilities.
Prior to 2017, deferred income taxes had not been provided on the
majority of undistributed earnings of international subsidiaries as
such earnings were indefinitely reinvested by the Company.
Accordingly, such international cash balances were not available to
fund cash requirements in the United States unless the Company was
to change its reinvestment policy. The Company has maintained
sufficient sources of cash in the United States to fund cash
requirements without the need to repatriate any funds. The Tax Act
provided significant changes to the U.S. tax system including the
elimination of the ability to defer U.S. income tax on
unrepatriated earnings by imposing a one-time mandatory deemed
repatriation tax on undistributed foreign earnings. As of
March 27, 2022, the Company had a total liability of $156.1
million related to this tax, $18.4 million is reflected in current
liabilities while the remaining long-term payable related to the
Tax Act of $137.7 million is presented within other liabilities,
non-current on the consolidated balance sheets included in Part I
of this Form 10-Q. As permitted by the Tax Act, the Company will
pay the transition tax in annual interest-free installments through
2025. As a result, in the future, the related earnings in foreign
jurisdictions will be made available with greater investment
flexibility. The majority of the Company’s cash and cash
equivalents held outside of the United States as of March 27,
2022 are denominated in the U.S. dollar.
Because of the seasonality in the Company's cash flow, management
believes that on an interim basis, rather than discussing only its
cash flows, a better understanding of its liquidity and capital
resources can be obtained through a discussion of the various
balance sheet categories. Also, as several of the major categories,
including cash and cash equivalents, accounts receivable,
inventories and short-term borrowings, fluctuate significantly from
quarter to quarter, due to the seasonality of its business,
management believes that a comparison to the comparable period in
the prior year is generally more meaningful than a comparison to
the prior year-end.
The table below outlines key financial information (in millions of
dollars) pertaining to our consolidated balance sheets including
the period-over-period changes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
% Change |
|
Cash and cash equivalents (including restricted cash of $38.8 and
$72.1) |
$ |
1,057.9 |
|
|
$ |
1,430.4 |
|
|
-26 |
% |
|
Accounts receivable, net |
931.7 |
|
|
810.4 |
|
|
15 |
% |
|
Inventories |
644.3 |
|
|
429.2 |
|
|
50 |
% |
|
Prepaid expenses and other current assets |
621.4 |
|
|
566.0 |
|
|
10 |
% |
|
Other assets |
1,284.9 |
|
|
1,266.0 |
|
|
1 |
% |
|
Accounts payable and accrued liabilities |
1,783.1 |
|
|
1,595.7 |
|
|
12 |
% |
|
Other liabilities |
633.6 |
|
|
777.7 |
|
|
-19 |
% |
Accounts receivable increased 15% to $931.7 million at
March 27, 2022, compared to $810.4 million at March 28,
2021. Absent the unfavorable foreign currency exchange impact of
$21.7 million, accounts receivable increased 18% or $143.0 million.
The increase in accounts receivable was driven by higher sales
during the first quarter of 2022. Days sales outstanding increased
from 66 days at March 28, 2021 to 73 days at March 27,
2022 primarily due to Entertainment receivables, which have longer
collection periods.
Inventories increased to $644.3 million as of March 27, 2022,
compared to $429.2 million at March 28, 2021. Absent the
unfavorable foreign currency exchange impact of $19.8 million,
inventories increased 55% or $234.9 million. The increase in 2022
inventory balances reflects increased lead-times and higher
freight-in costs, most notably in the U.S. and Europe, attributable
to the Company's Consumer Products and Wizards of the Coast
tabletop gaming businesses. In addition, to mitigate the impact of
certain global supply chain challenges, the Company accelerated
inventory purchases in the first quarter.
Prepaid expenses and other current assets increased 10% to $621.4
million at March 27, 2022 from $566.0 million at
March 28, 2021. The increase was driven by higher accrued tax
credit balances related to film and television production costs due
to increased productions and timing of tax credit claims as well as
higher accrued royalty and licensing balances, primarily
attributable to the Company's Entertainment business. These
increases were partially offset by lower prepaid royalty balances
in relation to the Company’s MARVEL, POWER RANGERS and DISNEY
PRINCESS royalty agreements and from lower prepaid tax balances
during the second quarter 2022.
Other assets increased to $1,284.9 million at March 27, 2022
from $1,266.0 million at March 28, 2021. The increase was
driven by higher capitalized film and television content and
production balances due to increased investments in productions and
acquired content, higher long-term accrued income balances related
to certain of the Company's content distribution arrangements and
higher non-current receivable balances within the Entertainment
segment. These increases were partially offset by a lower balance
for the Company's investment in Discovery Family Channel, due to an
impairment charge recorded in the fourth quarter of 2021 and
distributions made in the first quarter of 2022, and from certain
content and production assets sold in connection with the sale of
eOne Music during the third quarter of 2021.
Accounts payable and accrued liabilities increased 12% to $1,783.1
million at March 27, 2022 from $1,595.7 million at
March 28, 2021 driven by higher account payable balances,
higher accrued freight balances due to increased costs as a result
of supply chain disruptions, higher accrued royalty balances due to
higher sales of partner brand products as well as growth in the
Entertainment segment, higher accrued expenses for investments in
content and productions, higher incentive compensation accruals,
and higher accrued tax balances. These increases were partially
offset by lower deferred revenue balances due to the timing of
certain scripted television content deliveries, lower accounts
payable and accrued liabilities balances associated with the sale
of eOne Music and lower severance accruals from payments made in
relation to restructuring actions taken in 2020.
Other liabilities decreased 19% to $633.6 million at March 27,
2022 from $777.7 million at March 28, 2021. The decrease was
driven by lower long-term lease liability balances, lower long-term
deferred tax liability balances due to the sale of eOne Music
during the third quarter of 2021, a lower Discovery option
agreement balance due to a revaluation of the Discovery Family
Channel investment during the fourth quarter of 2021, a lower
transition tax liability balance reflecting the reclassification of
the 2021 installment payment due April 2022, and lower tax
reserves.
Cash Flow
The following table summarizes the changes in the Consolidated
Statement of Cash Flows, expressed in millions of dollars, for the
quarters ended March 27, 2022 and March 28,
2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 27, 2022 |
|
March 28, 2021 |
|
Net cash provided by (utilized for): |
|
|
|
|
Operating activities |
$ |
134.7 |
|
|
$ |
377.6 |
|
|
Investing activities |
(23.9) |
|
|
(25.5) |
|
|
Financing activities |
(77.5) |
|
|
(370.8) |
|
Net cash provided by operating activities in the first quarter of
2022 was $134.7 million compared to $377.6 million in the first
quarter of 2021. The $242.9 million decrease in net cash
provided by operating activities was primarily attributable to
lower earnings in 2022 and higher working capital requirements,
including higher inventory costs, higher incentive bonus payments
and higher freight costs due to ongoing supply chain
constraints.
Net cash utilized for investing activities was $23.9 million in the
first quarter of 2022 compared to $25.5 million in the first
quarter of 2021. Additions to property, plant and equipment were
$29.2 million in the first quarter of 2022 compared to $23.9
million in the first quarter of 2021.
Net cash utilized for financing activities was $77.5 million in the
first quarter of 2022 compared to $370.8 million in the first
quarter of 2021. Financing activities in the first quarter of
2022 include payments totaling $57.5 million related to the $1.0
billion in term loans described below, consisting of $50.0 million
principal and a quarterly principal amortization payment of $7.5
million toward the Five-Year Tranche loan, in addition to drawdowns
of $112.2 mil