filings.toolsItem 1. Financial Statements.
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Item 1. Financial Statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Millions of Dollars Except Share Data)
(Unaudited)
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents including restricted cash of $94.9 million, $71.2 million and $73.2 million | $ | 1,181.2 | $ | 1,132.4 | $ | 1,449.7 | |||||||||||
| Accounts receivable, less allowance for doubtful accounts of $30.4 million, $23.7 million and $28.1 million | 1,476.6 | 1,438.4 | 1,391.7 | ||||||||||||||
| Inventories | 544.1 | 540.0 | 395.6 | ||||||||||||||
| Prepaid expenses and other current assets | 528.5 | 648.2 | 609.6 | ||||||||||||||
| Total current assets | 3,730.4 | 3,759.0 | 3,846.6 | ||||||||||||||
| Property, plant and equipment, less accumulated depreciation of $607.6 million, $546.8 million and $553.0 million | 441.9 | 477.2 | 489.0 | ||||||||||||||
| Other assets | |||||||||||||||||
| Goodwill | 3,420.2 | 3,644.1 | 3,691.7 | ||||||||||||||
| Other intangible assets, net of accumulated amortization of $1,027.4 million, $885.8 million and $964.6 million | 1,209.5 | 1,546.8 | 1,530.8 | ||||||||||||||
| Other | 1,428.4 | 1,276.1 | 1,260.2 | ||||||||||||||
| Total other assets | 6,058.1 | 6,467.0 | 6,482.7 | ||||||||||||||
| Total assets | $ | 10,230.4 | $ | 10,703.2 | $ | 10,818.3 | |||||||||||
| LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Short-term borrowings | $ | 0.9 | $ | 10.0 | $ | 6.6 | |||||||||||
| Current portion of long-term debt | 187.6 | 369.3 | 432.6 | ||||||||||||||
| Accounts payable | 598.2 | 466.2 | 425.5 | ||||||||||||||
| Accrued liabilities | 1,663.7 | 1,470.1 | 1,538.6 | ||||||||||||||
| Total current liabilities | 2,450.4 | 2,315.6 | 2,403.3 | ||||||||||||||
| Long-term debt | 3,977.4 | 4,777.8 | 4,660.0 | ||||||||||||||
| Other liabilities | 722.5 | 778.5 | 793.9 | ||||||||||||||
| Total liabilities | $ | 7,150.3 | $ | 7,871.9 | $ | 7,857.2 | |||||||||||
| Redeemable noncontrolling interests | 22.9 | 22.9 | 24.4 | ||||||||||||||
| 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 September 26, 2021, September 27, 2020, and December 27, 2020 | 110.1 | 110.1 | 110.1 | ||||||||||||||
| Additional paid-in capital | 2,388.9 | 2,311.4 | 2,329.1 | ||||||||||||||
| Retained earnings | 4,269.6 | 4,192.4 | 4,204.2 | ||||||||||||||
| Accumulated other comprehensive loss | (208.6) | (280.3) | (195.0) | ||||||||||||||
| Treasury stock, at cost; 82,359,425 shares at September 26, 2021; 83,256,622 shares at September 27, 2020; and 82,979,403 shares at December 27, 2020 | (3,541.0) | (3,559.9) | (3,551.7) | ||||||||||||||
| Noncontrolling interests | 38.2 | 34.7 | 40.0 | ||||||||||||||
| Total shareholders' equity | 3,057.2 | 2,808.4 | 2,936.7 | ||||||||||||||
| Total liabilities, noncontrolling interests and shareholders' equity | $ | 10,230.4 | $ | 10,703.2 | $ | 10,818.3 |
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 | Nine Months Ended | ||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | ||||||||||||||||||||
| Net revenues | $ | 1,970.0 | $ | 1,776.6 | $ | 4,407.0 | $ | 3,742.5 | |||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of sales | 609.5 | 610.1 | 1,244.4 | 1,126.0 | |||||||||||||||||||
| Program cost amortization | 187.9 | 85.4 | 396.1 | 268.2 | |||||||||||||||||||
| Royalties | 171.8 | 176.9 | 392.2 | 387.1 | |||||||||||||||||||
| Product development | 80.1 | 62.7 | 229.1 | 174.9 | |||||||||||||||||||
| Advertising | 163.3 | 137.4 | 356.6 | 311.4 | |||||||||||||||||||
| Amortization of intangibles | 27.7 | 36.2 | 90.3 | 107.7 | |||||||||||||||||||
| Loss on disposal of business | — | — | 101.8 | — | |||||||||||||||||||
| Selling, distribution and administration | 361.8 | 325.4 | 1,004.7 | 885.7 | |||||||||||||||||||
| Acquisition and related costs | — | 5.9 | — | 166.0 | |||||||||||||||||||
| Total costs and expenses | 1,602.1 | 1,440.0 | 3,815.2 | 3,427.0 | |||||||||||||||||||
| Operating profit | 367.9 | 336.6 | 591.8 | 315.5 | |||||||||||||||||||
| Non-operating expense (income): | |||||||||||||||||||||||
| Interest expense | 43.3 | 49.4 | 137.3 | 153.7 | |||||||||||||||||||
| Interest income | (1.8) | (0.7) | (4.2) | (6.3) | |||||||||||||||||||
| Other income (expense), net | 3.0 | (11.3) | (35.3) | (15.4) | |||||||||||||||||||
| Total non-operating expense, net | 44.5 | 37.4 | 97.8 | 132.0 | |||||||||||||||||||
| Earnings before income taxes | 323.4 | 299.2 | 494.0 | 183.5 | |||||||||||||||||||
| Income tax expense | 68.5 | 79.2 | 143.5 | 64.3 | |||||||||||||||||||
| Net earnings | 254.9 | 220.0 | 350.5 | 119.2 | |||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | 1.7 | (0.9) | 4.0 | 1.9 | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | $ | 253.2 | $ | 220.9 | $ | 346.5 | $ | 117.3 | |||||||||||||||
| Net earnings per common share: | |||||||||||||||||||||||
| Basic | $ | 1.83 | $ | 1.61 | $ | 2.51 | $ | 0.86 | |||||||||||||||
| Diluted | $ | 1.83 | $ | 1.61 | $ | 2.51 | $ | 0.85 | |||||||||||||||
| Cash dividends declared per common share | $ | 0.68 | $ | 0.68 | $ | 2.04 | $ | 2.04 |
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
(Millions of Dollars)
(Unaudited)
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | ||||||||||||||||||||
| Net earnings | $ | 254.9 | $ | 220.0 | $ | 350.5 | $ | 119.2 | |||||||||||||||
| Other comprehensive earnings: | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | (31.4) | 40.8 | (23.6) | (98.1) | |||||||||||||||||||
| Unrealized holding (gains) losses on available-for-sale securities, net of tax | (0.3) | (0.8) | (0.1) | 1.3 | |||||||||||||||||||
| Net gains (losses) on cash flow hedging activities, net of tax | 5.2 | (5.7) | 7.8 | 15.7 | |||||||||||||||||||
| Reclassifications to earnings, net of tax: | |||||||||||||||||||||||
| Net losses (gains) on cash flow hedging activities | 1.1 | (6.8) | 1.7 | (15.8) | |||||||||||||||||||
| Amortization of unrecognized pension and postretirement amounts | 0.2 | 0.3 | 0.6 | 0.8 | |||||||||||||||||||
| Total other comprehensive (loss) earnings, net of tax | $ | (25.1) | $ | 27.8 | $ | (13.6) | $ | (96.1) | |||||||||||||||
| Total comprehensive earnings (loss) attributable to noncontrolling interests | 1.7 | (0.9) | 4.0 | 1.9 | |||||||||||||||||||
| Total comprehensive earnings attributable to Hasbro, Inc. | $ | 228.1 | $ | 248.7 | $ | 332.9 | $ | 21.2 |
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Millions of Dollars)
(Unaudited)
| Nine Months Ended | |||||||||||
| September 26, 2021 | September 27, 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 350.5 | $ | 119.2 | |||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation of plant and equipment | 116.2 | 94.2 | |||||||||
| Amortization of intangibles | 90.3 | 107.7 | |||||||||
| Asset impairments | — | 40.9 | |||||||||
| Loss on disposal of business | 101.8 | — | |||||||||
| Program cost amortization | 396.1 | 268.2 | |||||||||
| Deferred income taxes | 47.9 | 12.5 | |||||||||
| Stock-based compensation | 56.2 | 40.0 | |||||||||
| Other non-cash items | 5.7 | (1.7) | |||||||||
| Change in operating assets and liabilities net of acquired balances: | |||||||||||
| (Increase) decrease in accounts receivable | (83.8) | 165.6 | |||||||||
| Increase in inventories | (159.4) | (96.9) | |||||||||
| Decrease (increase) in prepaid expenses and other current assets | 56.7 | (10.0) | |||||||||
| Program spend, net | (526.3) | (294.6) | |||||||||
| Increase in accounts payable and accrued liabilities | 310.5 | 19.0 | |||||||||
| Change in net deemed repatriation tax | (18.4) | (18.3) | |||||||||
| Other | (58.4) | 48.5 | |||||||||
| Net cash provided by operating activities | 685.6 | 494.3 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property, plant and equipment | (98.1) | (92.1) | |||||||||
| Acquisitions, net of cash acquired | — | (4,403.9) | |||||||||
| Proceeds from sale of business, net of cash | 379.2 | — | |||||||||
| Other | (3.6) | 24.3 | |||||||||
| Net cash provided (utilized) by investing activities | 277.5 | (4,471.7) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings with maturity greater than three months | 127.6 | 1,036.0 | |||||||||
| Repayments of borrowings with maturity greater than three months | (1,062.1) | (147.3) | |||||||||
| Net repayments of other short-term borrowings | (6.2) | (0.3) | |||||||||
| Stock-based compensation transactions | 24.6 | 1.8 | |||||||||
| Dividends paid | (280.7) | (279.4) | |||||||||
| Payments related to tax withholding for share-based compensation | (10.8) | (5.9) | |||||||||
| Debt extinguishment costs | (9.1) | — | |||||||||
| Redemption of equity instruments | — | (47.4) | |||||||||
| Other | (6.8) | (7.0) | |||||||||
| Net cash (utilized) provided by financing activities | (1,223.5) | 550.5 | |||||||||
| Effect of exchange rate changes on cash | (8.1) | (21.1) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (268.5) | (3,448.0) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of year | 1,449.7 | 4,580.4 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,181.2 | $ | 1,132.4 | |||||||
| Supplemental information | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ | 123.7 | $ | 123.6 | |||||||
| Income taxes | $ | 124.1 | $ | 66.0 |
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 September 26, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Interests | Total Shareholders' Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||
| Balance, June 27, 2021 | $ | 110.1 | 2,361.2 | 4,110.3 | (183.5) | (3,547.6) | 39.9 | $ | 2,890.4 | $ | 24.5 | |||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | — | — | 253.2 | — | — | — | 253.2 | — | ||||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to noncontrolling interests | — | — | — | — | — | 0.4 | 0.4 | 1.3 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings | — | — | — | (25.1) | — | — | (25.1) | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation transactions | — | 7.4 | — | — | 6.6 | — | 14.0 | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 19.1 | — | — | — | — | 19.1 | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | (93.9) | — | — | — | (93.9) | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling owners and other foreign exchange | — | 1.2 | — | — | — | (2.1) | (0.9) | (2.9) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 26, 2021 | $ | 110.1 | 2,388.9 | 4,269.6 | (208.6) | (3,541.0) | 38.2 | $ | 3,057.2 | $ | 22.9 | |||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 27, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Interests | Total Shareholders' Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||
| Balance, June 28, 2020 | $ | 110.1 | 2,297.3 | 4,064.7 | (308.1) | (3,560.0) | 38.1 | $ | 2,642.1 | $ | 24.1 | |||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests related to acquisition of Entertainment One Ltd. | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | — | — | 220.9 | — | — | — | 220.9 | — | ||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | — | — | — | — | — | (0.9) | (0.9) | — | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings | — | — | — | 27.8 | — | — | 27.8 | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation transactions | — | (0.3) | — | — | 0.1 | — | (0.3) | — | ||||||||||||||||||||||||||||||||||||||||||
| Buyout of noncontrolling interest | — | 0.6 | — | — | — | — | 0.6 | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 13.9 | — | — | — | — | 13.9 | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | (93.2) | — | — | — | (93.2) | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling owners and other foreign exchange | — | — | — | — | — | (2.6) | (2.6) | (1.2) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 27, 2020 | $ | 110.1 | 2,311.4 | 4,192.4 | (280.3) | (3,559.9) | 34.7 | $ | 2,808.4 | $ | 22.9 |
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Redeemable Noncontrolling Interests
(Millions of Dollars)
(Unaudited)
| Nine Months Ended September 26, 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. | — | — | 346.5 | — | — | — | 346.5 | |||||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to noncontrolling interests | — | — | — | — | — | 2.4 | 2.4 | 1.6 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings | — | — | — | (13.6) | — | — | (13.6) | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation transactions | — | 4.2 | — | — | 9.6 | — | 13.8 | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 55.1 | — | — | 1.1 | — | 56.2 | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | (281.1) | — | — | — | (281.1) | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling owners and other foreign exchange | — | 0.5 | — | — | — | (4.2) | (3.7) | (3.1) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 26, 2021 | $ | 110.1 | 2,388.9 | 4,269.6 | (208.6) | (3,541.0) | 38.2 | $ | 3,057.2 | $ | 22.9 | |||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 27, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Interests | Total Shareholders' Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 29, 2019 | $ | 110.1 | 2,275.7 | 4,354.6 | (184.2) | (3,560.7) | — | $ | 2,995.5 | $ | — | |||||||||||||||||||||||||||||||||||||||
| Noncontrolling interests related to acquisition of Entertainment One Ltd. | — | — | — | — | — | 38.6 | 38.6 | 26.2 | ||||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | — | — | 117.3 | — | — | — | 117.3 | — | ||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | — | — | — | — | — | 2.1 | 2.1 | (0.1) | ||||||||||||||||||||||||||||||||||||||||||
| Buyout of noncontrolling interest | — | 0.6 | — | — | — | — | 0.6 | — | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (96.1) | — | — | (96.1) | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation transactions | — | (4.6) | — | — | 0.5 | — | (4.1) | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 39.7 | — | — | 0.3 | — | 40.0 | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | — | (279.5) | — | — | — | (279.5) | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling owners and other foreign exchange | — | — | — | — | — | (5.9) | (5.9) | (3.2) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 27, 2020 | $ | 110.1 | 2,311.4 | 4,192.4 | (280.3) | (3,559.9) | 34.7 | $ | 2,808.4 | $ | 22.9 | |||||||||||||||||||||||||||||||||||||||
See accompanying condensed notes to consolidated financial statements.
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 September 26, 2021 and September 27, 2020, 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 September 26, 2021 and September 27, 2020 were each 13-week periods. The nine-month periods ended September 26, 2021 and September 27, 2020 were each 39-week periods.
The results of operations for the quarter ended September 26, 2021 are not necessarily indicative of results to be expected for the full year 2021, nor were those of the comparable 2020 period representative of those actually experienced for the full year 2020.
Segment Realignment
Beginning with the first quarter of 2021, the Company realigned its financial reporting segments and business units, in order to align its reportable segments more closely with its current business structure. Reclassifications of certain prior year financial information has been made to conform to the current-year presentation. None of the changes impact the Company's previously reported consolidated net revenue, operating profits (losses), net earnings (losses) or net earnings (losses) per share. See Note 14 for more information on the Company’s 2021 segment realignment.
Legal Settlement
During the first quarter of 2021, the Company realized a gain of $26.7 million from a legal settlement related to a dispute associated with historical Entertainment One Ltd. ("eOne"). The gain is included in other income, net within the Company's consolidated financial statements, included in Part I of this Form 10-Q.
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 27, 2020 ("2020 Form 10-K").
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 27, 2020 in its 2020 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
In August 2018, the FASB issued Accounting Standards Update No. 2018-14 (ASU 2018-14) Compensation – Retirement Benefits – Defined Benefit Plans – General (Subtopic 715-20)- Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. For public companies, this standard is effective for annual reporting periods beginning after December 15, 2020, and early adoption is permitted. The Company adopted the standard in the first quarter of 2021 and the adoption of the standard did not have a material impact on its consolidated financial statements.
In December 2019, the FASB issued Accounting Standards Update No. 2019-12 (ASU 2019-12), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update remove certain exceptions for performing intra-period tax allocations, recognizing deferred taxes for investments, and calculating income taxes in interim periods. The guidance also simplifies the accounting for franchise taxes, transactions that result in a step-up in the tax basis of goodwill, and
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
the effect of enacted changes in tax laws or rates in interim periods. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. The Company adopted the standard in the first quarter of 2021 and the adoption of the standard did not have a material impact on its consolidated 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 Company does not currently expect the change from LIBOR to an alternate rate to have a material impact on its consolidated financial statements, and is continuing to evaluate the standard's potential impact to its consolidated financial statements.
(2) Revenue Recognition
Revenue Recognition
Revenue is recognized when control of the promised goods or content is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods or content. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.
Contract Assets and Liabilities
Within our Consumer Products and Entertainment segments the Company may receive royalty payments from licensees in advance of the licensees’ subsequent sales to their customers, or in advance of the Company’s performance obligation being satisfied. In addition, the Company may receive payments from its digital gaming business in advance of the recognition of the revenues. The Company defers revenues on these advanced payments until its performance obligation is satisfied and records the aggregate deferred revenues as contract liabilities. The current portion of contract liabilities was recorded within Accrued Liabilities and the long-term portion was 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, which are recognized ratably over the term of the respective license period, being recognized in advance of contractual invoicing, and (2) film and television distribution revenue recorded for content delivered but for which payment will occur over the license term. The current portion of contract assets was recorded in Prepaid Expenses and Other Current Assets, respectively, and the long-term portion was recorded as Other Long-Term Assets.
At September 26, 2021, September 27, 2020 and December 27, 2020 the Company had the following contract assets and liabilities in its consolidated balance sheets:
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||
| Assets | |||||||||||||||||
| Contract assets - current | $ | 263.3 | $ | 271.8 | $ | 284.4 | |||||||||||
| Contract assets - long term | 108.1 | 84.9 | 77.0 | ||||||||||||||
| Total | $ | 371.4 | $ | 356.7 | $ | 361.4 | |||||||||||
| Liabilities | |||||||||||||||||
| Contract liabilities - current | $ | 147.0 | $ | 147.6 | $ | 161.0 | |||||||||||
| Contract liabilities - long term | 9.7 | 17.9 | 18.2 | ||||||||||||||
| Total | $ | 156.7 | $ | 165.5 | $ | 179.2 |
For the nine months ended September 26, 2021, the Company collected $35.0 million of the contract assets and recognized $88.9 million of contract liabilities that were included in the December 27, 2020 balances.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
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 September 26, 2021, unrecognized revenue attributable to unsatisfied performance obligations expected to be recognized in the future were $456.0 million. Of this amount, we expect to recognize $195.5 million in the remainder of 2021, $252.7 million in 2022, $4.3 million in 2023 and $3.5 million in 2024. These amounts include only fixed considerations.
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; and within its Entertainment segment by category: Film & TV, Family Brands, and Other. 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 14 for further information.
(3) Business Combination
On December 30, 2019, the Company completed its acquisition of eOne, a global independent studio that specializes in the development, acquisition, production, financing, distribution and sales of entertainment content. The aggregate purchase price of $4.6 billion was comprised of $3.8 billion of cash consideration for shares outstanding and $0.8 billion related to the redemption of eOne's outstanding senior secured notes and the payoff of eOne's revolving credit facility. The Company financed the acquisition with proceeds from the following debt and equity financings: (1) the issuance of senior unsecured notes in an aggregate principal amount of $2.4 billion in November 2019, (2) the issuance of 10.6 million shares of common stock at a public offering price of $95.00 per share in November 2019 (resulting in net proceeds of $975.2 million) and (3) $1.0 billion in term loans provided by a term loan agreement, which were borrowed on the date of closing. See Note 8 for further discussion of the issuance of the senior unsecured notes and term loan agreement.
The addition of eOne accelerates the Company's brand blueprint strategy by expanding our brand portfolio with eOne's global preschool brands, adding proven TV and film expertise and executive leadership as well as by enhancing brand building capabilities and our storytelling capabilities to strengthen Hasbro brands.
eOne's results of operations and financial position have been included in the Company's consolidated financial statements and accompanying condensed footnotes since the date of the acquisition.
The acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations (“Topic 805”). Pursuant to Topic 805, the Company allocated the eOne purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, December 30, 2019. The excess of the purchase price over those fair values was recorded to goodwill.
The following table summarizes the intangible assets acquired as part of the eOne Acquisition:
| Weighted Average | |||||||||||
| Intangible assets acquired | Amortization Period | Fair Value | |||||||||
| Established brands | 10 years | $ | 615.0 | ||||||||
| Trade names | 15 years | 100.0 | |||||||||
| Artist relationships | 14 years | 100.0 | |||||||||
| Music catalogs | 12 years | 120.0 | |||||||||
| Other | 8 years | 121.0 | |||||||||
| Total intangible assets acquired | 11 years | $ | 1,056.0 | ||||||||
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Intangible assets consisted of intellectual property associated with established brands, eOne artist relationships, eOne music catalogs and trademarks and trade names with estimated useful lives ranging from 7 to 15 years, determined based on when the related cash flows are expected to be realized. The fair value of the intangible assets acquired was determined based on the estimated future cash flows to be generated from the acquired assets, considering assumptions related to contract renewal rates and estimated brand franchise revenue growth. eOne acquired intangible asset amortization expense for the quarter and nine months ended September 26, 2021 were $19.7 million and $66.4 million, respectively. For the quarter and nine months ended September 27, 2020, eOne acquired intangible asset amortization expense was $24.7 million and $72.3 million, respectively.
Deferred tax liabilities within other liabilities were adjusted to record the deferred tax impact of purchase price accounting adjustments, primarily related to intangible assets.
Investments in productions and content, or IIP and IIC, were valued at $564.8 million on the acquisition date, and include the fair value of completed films and television programs which have been produced by eOne or for which eOne has acquired distribution rights, as well as the fair value of films and television programs in production, pre-production and development. For films and television programs, fair values were estimated based on forecasted cash flows, discounted to present value. For titles less than 3 years old and titles in development, the content assets will be amortized using the individual film forecast method, wherein the amortization will phase to the revenues incurred. For titles over 3 years old, the estimated useful life is 10 years, and will be amortized straight-line over that period.
Goodwill of $3.2 billion represents the excess of the purchase price over the fair value of the underlying tangible and identifiable intangible assets acquired and liabilities assumed. The acquisition goodwill represents the value placed on the combined company’s brand building capabilities, our storytelling capabilities and franchise economics in TV, film and other mediums to strengthen Hasbro brands. In addition, the acquisition goodwill depicts added benefits of long-term profitable growth through in-sourcing toy and game production for the acquired preschool brands and cost-synergies, as well as future revenue growth opportunities. The goodwill recorded as part of this acquisition was included within the Entertainment and Consumer Products segments for the year ended December 27, 2020. The goodwill associated with the acquisition will not be amortized for financial reporting purposes and will not be deductible for federal tax purposes. See Note 5 for information on the Company's goodwill reallocation during the first quarter of 2021 and the goodwill impairment charge recorded in the second quarter of 2021 as a result of the sale of the eOne music business, which was completed during the third quarter of 2021.
For the quarter and nine months ended September 27, 2020, the Company incurred $5.9 million and $166.0 million, respectively, of charges related to the eOne Acquisition, which were recorded in acquisition and related costs within the Company’s Consolidated Statement of Operations. Included within the Entertainment segment results for the nine months ended September 27, 2020 were $98.5 million of acquisition and related charges. The remaining charges were included in Corporate and Other.
The acquisition and related costs for the quarter and nine months ended September 27, 2020 consisted of the following:
-
Acquisition and integration costs of $4.6 million and $104.3 million for the quarter and nine months ended September 27, 2020, respectively, including, for the nine months ended September 27, 2020, $47.4 million of expense associated with the acceleration of eOne stock-based compensation and $38.2 million of advisor fees settled at the closing of the acquisition, as well as integration costs; and
-
Restructuring and related costs of $1.4 million and $61.7 million for the quarter and nine months ended September 27, 2020, respectively, including severance and retention costs for the quarter and nine months ended September 27, 2020 of $1.4 million and $20.8 million, respectively, as well as $40.9 million in impairment charges for certain definite-lived intangible and production assets for the nine months ended September 27, 2020. The impairment charges of $40.9 million were driven by the change in strategy for the combined company’s entertainment assets.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(4) Earnings Per Share
Net earnings per share data for the quarters and nine months ended September 26, 2021 and September 27, 2020 were computed as follows:
| 2021 | 2020 | ||||||||||||||||||||||
| Quarter | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | $ | 253.2 | 253.2 | $ | 220.9 | 220.9 | |||||||||||||||||
| Average shares outstanding | 138.1 | 138.1 | 137.3 | 137.3 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Options and other share-based awards | — | 0.4 | — | 0.2 | |||||||||||||||||||
| Equivalent Shares | 138.1 | 138.5 | 137.3 | 137.5 | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. per common share | $ | 1.83 | 1.83 | $ | 1.61 | 1.61 |
| 2021 | 2020 | ||||||||||||||||||||||
| Nine Months | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | $ | 346.5 | 346.5 | $ | 117.3 | 117.3 | |||||||||||||||||
| Average shares outstanding | 137.9 | 137.9 | 137.2 | 137.2 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Options and other share-based awards | — | 0.4 | — | 0.3 | |||||||||||||||||||
| Equivalent Shares | 137.9 | 138.3 | 137.2 | 137.5 | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. per common share | $ | 2.51 | 2.51 | $ | 0.86 | 0.85 |
For the quarter and nine months ended September 26, 2021, options and restricted stock units totaling 2.1 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. For the quarter and nine months ended September 27, 2020, options and restricted stock units totaling 2.9 million and 3.0 million, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been anti-dilutive.
(5) 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, the Company reallocated its goodwill among the revised reporting units based on the change in relative fair values of the respective reporting units.
| 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 | (0.6) | (0.5) | ||||||||||||||||||||||
| Impairment during the period | — | — | (101.8) | (101.8) | ||||||||||||||||||||||
| Goodwill associated with the disposal of business | — | — | (169.2) | (169.2) | ||||||||||||||||||||||
| Balance at September 26, 2021 | $ | 1,585.0 | 307.5 | 1,527.7 | $ | 3,420.2 |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
In conjunction with the goodwill reallocation described above, during the first quarter of 2021, the Company performed an impairment test of goodwill balances held by the reporting units impacted by the segment realignment. The reporting units were tested as of December 28, 2020 and included our Europe, Asia Pacific, Global Consumer Products Licensing, Wizards of the Coast and Family Brands reporting units. Based on the results of the goodwill assessment, we determined that the fair values of each of these reporting units exceeded their carrying values, and as such, we concluded that there was no indication of goodwill impairment for these reporting units as of December 28, 2020.
During the second quarter of 2021, the Company entered into a definitive agreement to sell the Entertainment One Music business ("eOne Music") for an aggregate sales price of $385.0 million, subject to certain closing adjustments related to working capital and net debt. 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 eOne acquisition, the Company recorded a pre-tax non-cash goodwill impairment charge of $101.8 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 were removed from the consolidated financial statements.
(6) 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 and nine months ended September 26, 2021 and September 27, 2020.
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | ||||||||||||||||||||
| Other comprehensive earnings (loss), tax effect: | |||||||||||||||||||||||
| Tax benefit (expense) on unrealized holding gains (losses) | $ | 0.1 | $ | 0.2 | $ | — | (0.4) | ||||||||||||||||
| Tax (expense) benefit on cash flow hedging activities | (0.3) | 0.3 | (0.7) | (5.5) | |||||||||||||||||||
| Tax benefit on foreign currency translation adjustments | — | — | — | 8.4 | |||||||||||||||||||
| Reclassifications to earnings, tax effect: | |||||||||||||||||||||||
| Tax expense (benefit) on cash flow hedging activities | (0.3) | 1.9 | (0.3) | 3.4 | |||||||||||||||||||
| Amortization of unrecognized pension and postretirement amounts | (0.1) | (0.1) | (0.2) | (0.2) | |||||||||||||||||||
| Total tax effect on other comprehensive earnings (loss) | $ | (0.6) | $ | 2.3 | $ | (1.2) | 5.7 |
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) for the nine months ended September 26, 2021 and September 27, 2020 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 | |||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Balance at December 27, 2020 | $ | (40.7) | (22.1) | 0.4 | (132.6) | (195.0) | |||||||||||||||||||||||
| Current period other comprehensive earnings (loss) | 0.6 | 9.5 | (0.1) | (23.6) | (13.6) | ||||||||||||||||||||||||
| Balance at September 26, 2021 | $ | (40.1) | (12.6) | 0.3 | (156.2) | (208.6) | |||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||||||
| Balance at December 29, 2019 | $ | (36.1) | (5.2) | (0.2) | (142.6) | (184.2) | |||||||||||||||||||||||
| Current period other comprehensive earnings (loss) | 0.8 | (0.1) | 1.3 | (98.1) | (96.1) | ||||||||||||||||||||||||
| Balance at September 27, 2020 | $ | (35.3) | (5.3) | 1.1 | (240.8) | (280.3) |
Gains (Losses) on Derivative Instruments
At September 26, 2021, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $3.2 million in accumulated other comprehensive earnings (loss) ("AOCE"). These instruments hedge payments related to inventory purchased in the third quarter of 2021 or forecasted to be purchased during the remainder of 2021 through 2022, intercompany expenses expected to be paid or received during 2021, television and movie production costs paid in 2021, and cash receipts for sales made at the end of the third quarter of 2021 or forecasted to be made in the remainder of 2021 and, to a lesser extent, 2022 through 2023. These amounts will be reclassified into the consolidated statements of operations upon the sale of the related inventory or recognition of the related sales or expenses.
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 8), 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 September 26, 2021, deferred losses, net of tax of $15.7 million related to these instruments remained in AOCE. For the quarters ended September 26, 2021 and September 27, 2020, previously deferred losses of $0.2 million and $0.5 million, respectively, were reclassified from AOCE to net earnings. For the nine-month periods ended September 26, 2021 and September 27, 2020, previously deferred losses of $1.0 million and $1.3 million, respectively, were reclassified from AOCE to net earnings.
Of the amount included in AOCE at September 26, 2021, the Company expects net gains of approximately $2.2 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.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(7) Accrued Liabilities
Components of accrued liabilities for the periods ended September 26, 2021, September 27, 2020 and December 27, 2020 were as follows:
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||
| Participations and residuals | $ | 272.9 | $ | 309.2 | $ | 295.6 | |||||||||||
| Royalties | 203.9 | 206.6 | 229.2 | ||||||||||||||
| Deferred revenue | 147.0 | 147.6 | 161.0 | ||||||||||||||
| Payroll and management incentives | 156.1 | 89.2 | 132.4 | ||||||||||||||
| Dividends | 93.8 | 93.2 | 93.4 | ||||||||||||||
| Other taxes | 69.9 | 70.6 | 81.9 | ||||||||||||||
| Advertising | 148.5 | 131.5 | 58.6 | ||||||||||||||
| Severance | 33.0 | 41.7 | 49.7 | ||||||||||||||
| Lease liability - Current | 43.9 | 42.8 | 45.0 | ||||||||||||||
| Freight | 72.6 | 35.8 | 32.3 | ||||||||||||||
| Accrued income taxes | 55.3 | 18.4 | 29.7 | ||||||||||||||
| Other | 366.8 | 283.5 | 329.8 | ||||||||||||||
| Total accrued liabilities | $ | 1,663.7 | $ | 1,470.1 | $ | 1,538.6 |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(8) Financial Instruments
The Company's financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At September 26, 2021, September 27, 2020 and December 27, 2020, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at September 26, 2021, September 27, 2020 and December 27, 2020 also include certain assets and liabilities measured at fair value (see Notes 11 and 12) 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 September 26, 2021, September 27, 2020 and December 27, 2020 are as follows:
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||||||||||||||||||||
| Carrying Cost | Fair Value | Carrying Cost | Fair Value | Carrying Cost | Fair Value | ||||||||||||||||||||||||||||||
| 3.90% Notes Due 2029 | $ | 900.0 | 1,001.7 | $ | 900.0 | 947.5 | $ | 900.0 | 1,011.2 | ||||||||||||||||||||||||||
| 3.55% Notes Due 2026 | 675.0 | 737.2 | 675.0 | 716.1 | 675.0 | 752.7 | |||||||||||||||||||||||||||||
| 3.00% Notes Due 2024 | 500.0 | 529.1 | 500.0 | 531.9 | 500.0 | 540.6 | |||||||||||||||||||||||||||||
| 6.35% Notes Due 2040 | 500.0 | 702.3 | 500.0 | 587.4 | 500.0 | 636.5 | |||||||||||||||||||||||||||||
| 3.50% Notes Due 2027 | 500.0 | 546.2 | 500.0 | 518.8 | 500.0 | 544.5 | |||||||||||||||||||||||||||||
| 2.60% Notes Due 2022 (1) | — | — | 300.0 | 310.7 | 300.0 | 311.5 | |||||||||||||||||||||||||||||
| 5.10% Notes Due 2044 | 300.0 | 375.0 | 300.0 | 313.4 | 300.0 | 338.1 | |||||||||||||||||||||||||||||
| 3.15% Notes Due 2021 (2) | — | — | 300.0 | 303.5 | 300.0 | 302.3 | |||||||||||||||||||||||||||||
| 6.60% Debentures Due 2028 | 109.9 | 137.2 | 109.9 | 130.3 | 109.9 | 137.4 | |||||||||||||||||||||||||||||
| Variable % Notes Due December 30, 2022 (3) | — | — | 400.0 | 400.0 | 300.0 | 300.0 | |||||||||||||||||||||||||||||
| Variable % Notes Due December 30, 2024 (4) | 505.0 | 505.0 | 577.5 | 577.5 | 577.5 | 577.5 | |||||||||||||||||||||||||||||
| Production Financing Facilities | 204.7 | 204.7 | 121.4 | 121.4 | 165.5 | 165.5 | |||||||||||||||||||||||||||||
| Total long-term debt | $ | 4,194.6 | 4,738.4 | $ | 5,183.8 | 5,458.5 | $ | 5,127.9 | 5,617.8 | ||||||||||||||||||||||||||
| Less: Deferred debt expenses | 29.6 | — | 36.8 | — | 35.3 | — | |||||||||||||||||||||||||||||
| Less: Current portion | 187.6 | — | 369.3 | — | 432.6 | — | |||||||||||||||||||||||||||||
| Long-term debt | $ | 3,977.4 | 4,738.4 | $ | 4,777.8 | 5,458.5 | $ | 4,660.0 | 5,617.8 |
(1) During the third quarter of 2021, the Company repaid in full its 2.60% Notes, in the aggregate principal amount of $300.0 million due in November 2022.
(2) During the first quarter of 2021, the Company repaid in full its 3.15% Notes, in the aggregate principal amount of $300.0 million due in May 2021.
(3) During the second quarter of 2021, the Company repaid $250.0 million of the Variable % Notes Due December 30, 2022 and during the third quarter of 2021, the Company repaid the remaining balance of $50.0 million of the Variable % Notes Due December 30, 2022.
(4) During the third quarter of 2021, 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 the third quarter of 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
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
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.
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. During 2020, the Company made $122.5 million in payments towards the $1.0 billion term loan notes consisting of $100.0 million on the principal balance of the Three-Year Tranche loans in addition to the required quarterly principal amortization payments totaling $22.5 million on the Five-Year Tranche loans. During the first nine months of 2021, the Company paid $372.5 million toward the $1.0 billion term loan notes consisting of the remaining $300.0 million of the principal balance of the Three-Year Tranche loans as well as $50.0 million principal balance and principal amortization payments totaling $22.5 million on the Five-Year Tranche loans.
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.
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 September 26, 2021 of $187.6 million, as shown on the consolidated balance sheet, represents the current portion of required quarterly principal amortization payments for the Term Loan Facilities and production financing facilities. All of the Company’s other long-term borrowings have contractual maturities that occur subsequent to the third quarter of 2024.
The fair values of the Company's long-term debt are considered Level 3 fair values (see Note 11 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 to fund certain of its television and film productions which are typically arranged on an individual production basis by special purpose production subsidiaries.
Production financing facilities are secured by the assets and future revenue of the individual production subsidiaries and are non-recourse to the Company's assets.
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 September 26, 2021, September 27, 2020 and December 27, 2020 are as follows:
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||
| Production financing held by production subsidiaries | $ | 204.7 | $ | 121.4 | $ | 165.5 | |||||||||||
| Other loans (1) | — | 9.0 | 5.4 | ||||||||||||||
| Total | $ | 204.7 | $ | 130.4 | $ | 170.9 | |||||||||||
| Production financing included in the consolidated balance sheet as: | |||||||||||||||||
| Non-current | $ | 47.0 | $ | 82.2 | $ | 62.9 | |||||||||||
| Current | 157.7 | 39.2 | 102.6 | ||||||||||||||
| Total | $ | 204.7 | $ | 121.4 | $ | 165.5 |
(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 September 26, 2021 was 2.9%.
The Company has Canadian dollar and U.S. dollar production credit facilities with various banks. The carrying amounts are denominated in the following currencies:
| Canadian Dollars | U.S. Dollars | Total | |||||||||||||||
| As of September 26, 2021 | $ | 37.0 | $ | 167.7 | $ | 204.7 |
The following table represents the movements in production financing and other related loans during the first nine months of 2021:
| Production Financing | Other Loans | Total | |||||||||||||||
| December 27, 2020 | $ | 165.5 | $ | 5.4 | $ | 170.9 | |||||||||||
| Drawdowns | 127.6 | 16.7 | 144.3 | ||||||||||||||
| Repayments | (89.6) | (22.9) | (112.5) | ||||||||||||||
| Foreign exchange differences | 1.2 | 0.8 | 2.0 | ||||||||||||||
| Balance at September 26, 2021 | $ | 204.7 | $ | — | $ | 204.7 |
(9) 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 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.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The Company's unamortized investments in productions and investments in acquired content rights consisted of the following at September 26, 2021, September 27, 2020, and December 27, 2020:
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||||||||||||||
| Film and TV Programming | |||||||||||||||||||||||||||||
| Released, net of amortization | $ | 512.6 | $ | 477.3 | $ | 428.0 | |||||||||||||||||||||||
| Completed and not released | 20.1 | 18.1 | 17.3 | ||||||||||||||||||||||||||
| In production | 202.1 | 51.0 | 185.5 | ||||||||||||||||||||||||||
| Pre-production | 91.9 | 41.1 | 67.6 | ||||||||||||||||||||||||||
| 826.7 | 587.5 | 698.4 | |||||||||||||||||||||||||||
| Other Programming | |||||||||||||||||||||||||||||
| Released, net of amortization | 3.9 | 11.5 | 13.7 | ||||||||||||||||||||||||||
| Completed and not released | 0.4 | 3.4 | 2.1 | ||||||||||||||||||||||||||
| In production | 5.9 | 9.1 | 5.4 | ||||||||||||||||||||||||||
| Pre-production | 2.5 | 8.0 | 7.6 | ||||||||||||||||||||||||||
| 12.7 | 32.0 | 28.8 | |||||||||||||||||||||||||||
| Total Program Investments | $ | 839.4 | $ | 619.5 | $ | 727.2 |
The Company recorded $396.1 million of program cost amortization related to released programming in the nine months ended September 26, 2021, consisting of the following:
| Investment in Production | Investment in Content | Other | Total | |||||||||||||||||||||||
| Program cost amortization | $ | 334.6 | $ | 59.9 | $ | 1.6 | $ | 396.1 |
(10) 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 29.0% for the nine months ended September 26, 2021 and 35.0% for the nine months ended September 27, 2020.
The following items caused the year-to-date ETR to be significantly different from the prior year ETR:
-
during the nine months ended September 26, 2021, the Company recorded a net discrete tax expense of $8.8 million. The expense is primarily associated with (i) the revaluation of net deferred tax liabilities as a result of the United Kingdom's ("UK") enactment of Finance Act 2021 during the second quarter, which increases the UK corporate income tax rate from 19% to 25% as of April 1, 2023; (ii) a one-time tax charge related to an ongoing tax audit; (iii) a release of a valuation allowance on net operating losses that offsets income received from a one-time legal settlement; and (iv) certain tax benefits, including the reversal of uncertain tax positions and operational tax planning;
-
the year-to-date ETR also includes a goodwill impairment charge on the sale of the eOne Music business, recorded during the second quarter of 2021 for which there is no corresponding tax benefit; and
-
during the nine months ended September 27, 2020, the Company recorded a net discrete tax benefit of $5.3 million primarily associated with (i) a tax benefit resulting from the eOne acquisition and related costs incurred; (ii) a tax expense related to the revaluation of net deferred tax liabilities as a result of the UK's enactment during the third quarter of Finance Act 2020 which maintained the corporate income tax rate at 19%; and (iii) a tax expense related to an increase of uncertain tax positions.
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
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
and mixed companies at the cantonal level. The enacted changes in Swiss federal tax were not material to the Company’s financial statements. Swiss cantonal tax was enacted in December 2019. The Company is still assessing the transitional provision options it may elect; however, the legislation is not expected to have a material effect on 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 2015. 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.
(11) 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.
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. The Company elected the fair value option for certain available-for-sale investments using net asset value per share and during 2020, the Company liquidated these investments as part of its global cash management strategy. At September 27, 2020, prior to their liquidation, these investments totaled $13.4 million and were included in prepaid expenses and other current assets within the Company's consolidated balance sheet. The Company recorded a net gain of $1.1 million and a net loss of $0.1 million, respectively, on these investments in other (income) expense, net, related to the change in fair value of such instruments net for the quarter and nine months ended September 27, 2020.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
At September 26, 2021, September 27, 2020 and December 27, 2020, 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) | ||||||||||||||||||||
| September 26, 2021 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available-for-sale securities | $ | 2.0 | 2.0 | — | — | ||||||||||||||||||
| Derivatives | 9.8 | — | 9.8 | — | |||||||||||||||||||
| Total assets | $ | 11.8 | 2.0 | 9.8 | — | ||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives | $ | 1.7 | — | 1.7 | — | ||||||||||||||||||
| Option agreement | 21.8 | — | — | 21.8 | |||||||||||||||||||
| Total liabilities | $ | 23.5 | — | 1.7 | 21.8 | ||||||||||||||||||
| September 27, 2020 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available-for-sale securities | $ | 3.7 | 3.7 | — | — | ||||||||||||||||||
| Derivatives | 15.7 | — | 15.7 | — | |||||||||||||||||||
| Total assets | $ | 19.4 | 3.7 | 15.7 | — | ||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives | $ | 0.4 | — | 0.4 | — | ||||||||||||||||||
| Option agreement | 20.6 | — | — | 20.6 | |||||||||||||||||||
| Total liabilities | $ | 21.0 | — | 0.4 | 20.6 | ||||||||||||||||||
| December 27, 2020 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available-for-sale securities | $ | 2.1 | 2.1 | — | — | ||||||||||||||||||
| Derivatives | 4.8 | — | 4.8 | — | |||||||||||||||||||
| Total assets | $ | 6.9 | 2.1 | 4.8 | — | ||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives | $ | 12.7 | — | 12.7 | — | ||||||||||||||||||
| Option agreement | 20.6 | — | — | 20.6 | |||||||||||||||||||
| Total Liabilities | $ | 33.3 | — | 12.7 | 20.6 |
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 September 26, 2021, September 27, 2020 and December 27, 2020, 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. There were no changes in these valuation techniques during the quarter ended September 26, 2021.
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):
| 2021 | 2020 | ||||||||||
| Balance at beginning of year | $ | (20.6) | $ | (22.1) | |||||||
| Gain from change in fair value | (1.2) | 1.5 | |||||||||
| Balance at end of third quarter | $ | (21.8) | $ | (20.6) |
(12) 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 8) 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 and zero-cost collar options 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 in 2021 through 2022.
At September 26, 2021, September 27, 2020 and December 27, 2020, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||||||||||||||||||||
| Hedged transaction | Notional Amount | Fair Value | Notional Amount | Fair Value | Notional Amount | Fair Value | |||||||||||||||||||||||||||||
| Inventory purchases | $ | 261.8 | 6.0 | $ | 315.9 | 9.1 | $ | 316.8 | (10.0) | ||||||||||||||||||||||||||
| Sales | 164.5 | (0.5) | 111.8 | 3.9 | 111.6 | 1.4 | |||||||||||||||||||||||||||||
| Production financing and other | 261.4 | 0.3 | 115.2 | 2.2 | 89.9 | 0.3 | |||||||||||||||||||||||||||||
| Total | $ | 687.7 | 5.8 | $ | 542.9 | 15.2 | $ | 518.3 | (8.3) |
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 September 26, 2021, September 27, 2020 and December 27, 2020 as follows:
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Unrealized gains | $ | 8.6 | $ | 13.4 | $ | 2.3 | |||||||||||
| Unrealized losses | (3.7) | (1.7) | (1.6) | ||||||||||||||
| Net unrealized gains | $ | 4.9 | $ | 11.6 | $ | 0.7 | |||||||||||
| Other assets | |||||||||||||||||
| Unrealized gains | $ | 2.0 | $ | 4.2 | $ | 1.1 | |||||||||||
| Unrealized losses | (0.1) | (0.2) | — | ||||||||||||||
| Net unrealized gains | $ | 1.9 | $ | 4.0 | $ | 1.1 | |||||||||||
| Accrued liabilities | |||||||||||||||||
| Unrealized gains | $ | 0.3 | $ | 0.7 | $ | 3.0 | |||||||||||
| Unrealized losses | (1.3) | (1.0) | (12.9) | ||||||||||||||
| Net unrealized losses | $ | (1.0) | $ | (0.3) | $ | (9.9) | |||||||||||
| Other liabilities | |||||||||||||||||
| Unrealized gains | $ | — | $ | — | $ | — | |||||||||||
| Unrealized losses | — | (0.1) | (0.2) | ||||||||||||||
| Net unrealized losses | $ | — | $ | (0.1) | $ | (0.2) |
Net gains on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net earnings for the quarters and nine months ended September 26, 2021 and September 27, 2020 as follows:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | ||||||||||||||||||||
| Statements of Operations Classification | |||||||||||||||||||||||
| Cost of sales | $ | (2.0) | $ | 7.1 | $ | (4.4) | 16.7 | ||||||||||||||||
| Net revenues | 0.1 | 1.2 | 1.4 | 2.4 | |||||||||||||||||||
| Other | 0.8 | 0.9 | 2.0 | 1.4 | |||||||||||||||||||
| Net realized gains | $ | (1.1) | $ | 9.2 | $ | (1.0) | 20.5 |
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 September 26, 2021, September 27, 2020 and December 27, 2020 the total notional amounts of the Company's undesignated derivative instruments were $663.2 million, $538.9 million and $590.6 million, respectively.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
At September 26, 2021, September 27, 2020 and December 27, 2020, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:
| September 26, 2021 | September 27, 2020 | December 27, 2020 | |||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Unrealized gains | $ | 6.5 | $ | 3.3 | $ | 3.5 | |||||||||||
| Unrealized losses | (3.4) | (3.2) | (0.5) | ||||||||||||||
| Net unrealized gains | $ | 3.1 | $ | 0.1 | $ | 3.0 | |||||||||||
| Accrued liabilities | |||||||||||||||||
| Unrealized gains | $ | — | $ | — | $ | — | |||||||||||
| Unrealized losses | (0.8) | — | (2.6) | ||||||||||||||
| Net unrealized losses | $ | (0.8) | $ | — | $ | (2.6) | |||||||||||
| Total unrealized gains (losses), net | $ | 2.3 | $ | 0.1 | $ | 0.4 |
The Company recorded net gains of $3.6 million and $2.9 million on these instruments to other (income) expense, net for the quarter and nine months ended September 26, 2021, respectively, and net losses of $(6.9) million and $(20.1) million for the quarter and nine months ended September 27, 2020, 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 6 and 11).
(13) Leases
The Company occupies offices and uses certain equipment under various operating lease arrangements. The Company has no finance leases. These leases have remaining lease terms of 1 to 18 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.
For the quarter and nine months ended September 26, 2021, the Company's operating lease and other rental expenses were $21.8 million and $66.0 million, respectively. For the quarter and nine months ended September 27, 2020, the Company's operating lease and other rental expenses were $22.3 million and $67.6 million, respectively. Expense related to short-term leases (expected terms less than 12 months) and variable lease payments was not material in the quarter or nine months ended September 26, 2021 or September 27, 2020.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Information related to the Company’s leases for the quarter and nine months ended September 26, 2021 and September 27, 2020 are as follows:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||||||||
| Operating cash flows from operating leases | $ | 13.7 | $ | 13.2 | $ | 39.9 | 38.8 | ||||||||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||||||||||||||
| Operating leases | $ | 10.4 | $ | 2.1 | $ | 21.8 | 102.5 | ||||||||||||||||
| Weighted Average Remaining Lease Term | |||||||||||||||||||||||
| Operating leases | 5.6 years | 6.2 years | 5.6 years | 6.2 years | |||||||||||||||||||
| Weighted Average Discount Rate | |||||||||||||||||||||||
| Operating leases | 3.1 | % | 3.1 | % | 3.1 | % | 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 September 26, 2021:
| September 26, 2021 | |||||
| 2021 (excluding the nine months ended September 26, 2021) | $ | 13.2 | |||
| 2022 | 49.8 | ||||
| 2023 | 41.6 | ||||
| 2024 | 29.9 | ||||
| 2025 | 23.9 | ||||
| 2026 and thereafter | 49.9 | ||||
| Total future lease payments | 208.3 | ||||
| Less imputed interest | 25.2 | ||||
| Present value of future operating lease payments | 183.1 | ||||
| Less current portion of operating lease liabilities (1) | 43.9 | ||||
| Non-current operating lease liability (2) | 139.2 | ||||
| Operating lease right-of-use assets, net (3) | $ | 165.6 |
(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)
(14) 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. In the first quarter of 2020 the Company completed its acquisition of the global independent studio, eOne. Throughout 2020, the Company successfully integrated many parts of the eOne business and started to achieve synergies as a combined company. 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. 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 and nine months ended September 26, 2021 are not necessarily representative of those which may be expected for the full year 2021, nor were those of the comparable 2020 periods representative of those actually experienced for the full year 2020. Similarly, such results are not necessarily those which would be achieved were each segment an unaffiliated business enterprise.
Reclassifications of certain prior year segment results and account balances have been made to conform to the current-year presentation. None of the segment changes impact the Company's previously reported consolidated net revenue, operating profits, net earnings or net earnings per share.
On June 29, 2021, the Company completed the sale of eOne Music. The financial results of eOne Music were recorded within the Company's Entertainment segment through the date of the closing of the sale. The assets and liabilities of eOne Music were de-consolidated as of the closing date and there are no remaining carrying amounts in the Company's Consolidated Balance Sheets as of September 26, 2021. The sale of eOne Music in 2021 did not impact the Company's previously reported 2020 net revenues, operating profits, earnings, assets or liabilities.
Information by segment and a reconciliation to reported amounts for the quarters and nine months ended September 26, 2021 and September 27, 2020 are as follows:
| Quarter Ended | |||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | ||||||||||||||||||||||
| Net revenues | External | Affiliate (b) | External | Affiliate (b) | |||||||||||||||||||
| Consumer Products | $ | 1,282.7 | $ | (149.6) | $ | 1,317.8 | $ | (110.1) | |||||||||||||||
| Wizards of the Coast and Digital Gaming | 360.2 | (38.0) | 273.4 | (23.4) | |||||||||||||||||||
| Entertainment | 327.1 | (13.7) | 185.4 | (2.2) | |||||||||||||||||||
| Corporate and Other (b) | — | 201.3 | — | 135.7 | |||||||||||||||||||
| $ | 1,970.0 | $ | — | $ | 1,776.6 | $ | — |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
| Nine Months Ended | |||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | ||||||||||||||||||||||
| Net revenues | External | Affiliate (b) | External | Affiliate (b) | |||||||||||||||||||
| Consumer Products | $ | 2,625.8 | $ | (316.8) | $ | 2,409.8 | $ | (268.8) | |||||||||||||||
| Wizards of the Coast and Digital Gaming | 1,008.7 | (93.1) | 670.7 | (56.4) | |||||||||||||||||||
| Entertainment | 772.5 | (40.4) | 662.0 | (3.9) | |||||||||||||||||||
| Corporate and Other (b) | — | 450.3 | — | 329.1 | |||||||||||||||||||
| $ | 4,407.0 | $ | — | $ | 3,742.5 | $ | — |
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| Operating profit (loss) | September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | |||||||||||||||||||
| Consumer Products | $ | 210.4 | $ | 226.2 | $ | 260.5 | $ | 171.2 | |||||||||||||||
| Wizards of the Coast and Digital Gaming | 159.4 | 141.6 | 462.3 | 311.5 | |||||||||||||||||||
| Entertainment | 22.4 | (28.3) | (74.3) | (106.1) | |||||||||||||||||||
| Corporate and Other (b) | (24.3) | (2.9) | (56.7) | (61.1) | |||||||||||||||||||
| $ | 367.9 | $ | 336.6 | $ | 591.8 | $ | 315.5 |
| Total assets | September 26, 2021 | September 27, 2020 | December 27, 2020 | ||||||||||||||
| Consumer Products (a) | $ | 4,754.0 | $ | 6,323.4 | $ | 5,552.5 | |||||||||||
| Wizards of the Coast and Digital Gaming | 915.1 | 926.9 | 585.7 | ||||||||||||||
| Entertainment (b) | 5,570.0 | 6,199.7 | 6,003.0 | ||||||||||||||
| Corporate and Other (b) | (1,008.7) | (2,746.8) | (1,322.9) | ||||||||||||||
| $ | 10,230.4 | $ | 10,703.2 | $ | 10,818.3 |
(a) 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.
(b) 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. Corporate and Other also includes the elimination of inter-company balance sheet amounts.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The following table represents consolidated Consumer Products segment net revenues by major geographic region for the quarters and nine months ended September 26, 2021 and September 27, 2020:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | ||||||||||||||||||||
| North America | $ | 805.0 | $ | 830.1 | $ | 1,559.1 | $ | 1,434.9 | |||||||||||||||
| Europe | 304.2 | 316.8 | 669.2 | 615.4 | |||||||||||||||||||
| Asia Pacific | 75.5 | 78.2 | 208.7 | 197.1 | |||||||||||||||||||
| Latin America | 98.0 | 92.7 | 188.8 | 162.4 | |||||||||||||||||||
| Net revenues | $ | 1,282.7 | $ | 1,317.8 | $ | 2,625.8 | $ | 2,409.8 |
The following table represents consolidated Entertainment segment net revenues by category for the quarters and nine months ended September 26, 2021 and September 27, 2020:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | ||||||||||||||||||||
| Film and TV | $ | 255.4 | $ | 141.6 | $ | 586.1 | $ | 514.5 | |||||||||||||||
| Family Brands | 60.5 | 14.2 | 105.4 | 58.9 | |||||||||||||||||||
| Music and Other | 11.2 | 29.6 | 81.0 | 88.6 | |||||||||||||||||||
| Net revenues | $ | 327.1 | $ | 185.4 | $ | 772.5 | $ | 662.0 |
The following table presents consolidated net revenues by brand and entertainment portfolio for the quarters and nine months ended September 26, 2021 and September 27, 2020:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 26, 2021 | September 27, 2020 | September 26, 2021 | September 27, 2020 | ||||||||||||||||||||
| Franchise Brands | $ | 882.0 | $ | 807.5 | $ | 2,023.4 | $ | 1,580.9 | |||||||||||||||
| Partner Brands | 366.7 | 409.2 | 766.7 | 729.8 | |||||||||||||||||||
| Hasbro Gaming (1) | 281.9 | 239.2 | 565.3 | 516.3 | |||||||||||||||||||
| Emerging Brands | 177.5 | 155.0 | 399.2 | 325.1 | |||||||||||||||||||
| TV/Film/Entertainment | 261.9 | 165.7 | 652.4 | 590.4 | |||||||||||||||||||
| Total | $ | 1,970.0 | $ | 1,776.6 | $ | 4,407.0 | $ | 3,742.5 |
(1) 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 $658.6 million and $1,543.3 million for the quarter and nine months ended September 26, 2021, respectively. For the quarter and nine months ended September 27, 2020, total gaming revenues were $543.1 million and $1,202.6 million, respectively.
(15) eOne Music Sale
On April 25, 2021, the Company entered into a definitive agreement to sell eOne Music for an aggregate sales price of $385.0 million, subject to certain closing adjustments related to working capital and net debt.
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 are subject to further adjustments upon completion of closing working capital, which will be recognized in the fourth quarter of 2021. The Company acquired eOne Music through its acquisition of eOne in December 2019 ("eOne Acquisition"). 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 eOne Acquisition, the Company recorded a pre-tax non-cash goodwill impairment charge of $101.8 million within Loss on Disposal of Business on the Consolidated Statements of Operations for the nine months ended September 26, 2021. The Company also recorded pre-tax cash transaction expenses of $9.5 million within Selling, Distribution and Administration expenses on the Consolidated Statements of Operations during the second quarter of 2021. The impairment
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
charge was recorded within the Entertainment segment and the transaction costs were recorded within the Corporate and Other segment.
The operations of eOne Music did not meet the criteria to be presented as discontinued operations in accordance with Accounting Standards Update No. 2014-08 (ASU 2014-08) Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) - Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity and eOne Music did not represent an individually significant component of the Company’s business. Income from operations before income taxes, attributable to eOne Music, was recorded to the Company's Consolidated Statements of Operations, within the Entertainment segment through the sale transaction closing date. Assets of $479.5 million and liabilities of $76.3 million, attributable to eOne Music, were de-consolidated as of the closing date and, as of September 26, 2021, there are no remaining carrying amounts in the Company's Consolidated Balance Sheets.
The following table presents the carrying amounts of the major classes of eOne Music assets and liabilities sold on June 29, 2021:
| June 29, 2021 | |||||
| Cash and Cash Equivalents | $ | 18.2 | |||
| Goodwill and Other Intangible Assets | 410.3 | ||||
| Prepaid Expenses | 31.0 | ||||
| Other Assets | 20.0 | ||||
| Total Assets | 479.5 | ||||
| Accrued Liabilities | 24.4 | ||||
| Deferred Taxes | 36.9 | ||||
| Other Liabilities | 15.0 | ||||
| Total Liabilities | $ | 76.3 |
(16) Restructuring Actions
During 2018, the Company announced a comprehensive restructuring plan which consisted of re-designing its go-to market strategy and re-shaping its organization to become a more responsive, innovative and digitally-driven play and entertainment company. As part of this process the Company took certain restructuring actions which continued through 2019. The actions primarily included headcount reduction aimed at right-sizing the Company’s cost-structure and giving it the ability to add required new talent in the future. In the first nine months of 2020, the Company continued to streamline its commercial organization, and recorded severance of $11.5 million associated with these cost-savings initiatives.
During 2020, in connection with the eOne Acquisition, the Company recorded $32.5 million of severance and other employee charges related to the integration of eOne. For the quarter and nine months ended September 27, 2020, the related charge was $1.4 million and $20.8 million, respectively, which was recorded within acquisition and related costs on the Consolidated Statements of Operations, and reported within Corporate and Eliminations.
The detail of activity related to the programs for the nine months ended September 26, 2021 is as follows:
| 2018 Restructuring & 2020 Commercial Program | eOne Integration Program | Other | Total | |||||||||||||||||||||||||||||||||||
| Remaining amounts to be paid as of December 27, 2020 | $ | 17.3 | 16.9 | 0.8 | $ | 35.0 | ||||||||||||||||||||||||||||||||
| Payments made in the first nine months of 2021 | (6.3) | (8.8) | — | (15.1) | ||||||||||||||||||||||||||||||||||
| Remaining amounts as of September 26, 2021 | $ | 11.0 | 8.1 | 0.8 | $ | 19.9 |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(17) Subsequent Event
Leadership Matters
On October 12, 2021, we announced the passing of our leader and longtime Chairman and Chief Executive Officer, Brian D. Goldner. The Company’s Board of Directors (the "Board") has appointed Richard S. Stoddart to serve as Hasbro’s interim CEO while the Board completes its process for appointing a permanent CEO. Mr. Stoddart has served as a member of the Board since 2014, most recently as the Board’s Lead Independent Director and is the former President and Chief Executive Officer of global marketing execution firm InnerWorkings, Inc., serving in that role from 2017 until 2020 when InnerWorkings, Inc. was acquired. In addition to the appointment of Mr. Stoddart, Tracy A. Leinbach has been appointed to serve as Chair of the Board. Mrs. Leinbach has been a member of the Board since 2008.
Under Mr. Goldner’s employment agreement, we expect to incur additional compensation expense in the fourth quarter of 2021 due to the accelerated vesting of certain equity awards as a result of Mr. Goldner's passing. A description of Mr. Goldner’s employment agreement can be found in the Company’s proxy statement filed with the SEC on April 1, 2021 and filed as an exhibit to our 2020 Form 10-K. In future periods, we may incur additional compensation related expenses in connection with our succession plans and the appointment of a permanent CEO.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
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