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

OBJECTIVE

Our objective within the following discussion is to provide an analysis of the Company’s Financial Condition, Cash Flows and Results of Operations from management's perspective which should be read in conjunction with the Company’s consolidated financial statements and notes thereto, included in Part I, Item 1 of this Form 10-Q.

Unless otherwise specifically indicated, all dollar or share amounts herein are expressed in millions of dollars or shares, except for per share amounts.

EXECUTIVE SUMMARY

Hasbro, Inc. (“Hasbro”) is a global play and entertainment company committed to Creating the World’s Best Play and Entertainment Experiences and making the world a better place for all children, fans and families. Hasbro delivers immersive brand experiences for global audiences through consumer products, including toys and games; gaming, led by the team at Wizards of the Coast, an award-winning developer of tabletop and digital games; and entertainment through Entertainment One (“eOne”), our independent studio.

Our iconic brands include MAGIC: THE GATHERING, NERF, PLAY-DOH, TRANSFORMERS, PEPPA PIG, MONOPOLY, MY LITTLE PONY, BABY ALIVE, DUNGEONS & DRAGONS, PJ MASKS and POWER RANGERS, as well as premier partner brands. For the past decade, we have been consistently recognized for our corporate citizenship, including being named one of the 100 Best Corporate Citizens by 3BL Media and one of the World’s Most Ethical Companies by Ethisphere Institute.

Our strategic plan is centered around the Hasbro Brand Blueprint, a framework for bringing compelling and expansive brand experiences to consumers and audiences around the world. Our brands are story-led consumer franchises brought to life through a wide array of consumer products, digital gaming and compelling content offered across a multitude of platforms and media. Our commitment to disciplined, strategic investments across the Brand Blueprint over the long-term has built a differentiated business with diversified capabilities to drive profitable growth and enhance shareholder value.

Hasbro's purpose of making the world a better place for all children, fans and families sits at the center of the Hasbro Brand Blueprint and is a key driver of our brands and content. The value of Hasbro is fully activated when we can take a brand across all elements of the Brand Blueprint – consumer products; Wizards of the Coast and digital gaming; and entertainment. The ability to build a brand in any of our segments and leverage in-house capabilities to create multiple categories of engagement with consumers and fans is unique to Hasbro and optimizes our economics today and in the future.

During each of the periods presented in this Form 10-Q there were certain charges incurred which impacted operating results. These charges are detailed below in the Results of Operations - Consolidated.

Coronavirus Pandemic

Since the onset of the novel coronavirus (COVID-19) pandemic in early 2020, our business, has been adversely impacted by the challenges and risks associated with both the initial, and the residual effects of the spread of the virus worldwide. Certain effects of the COVID-19 pandemic, including difficulties in shipping and distributing products due to ongoing constraints in port capacity, shipping containers and truck transportation, have continued into the first quarter of 2022 and are expected to continue through the remainder of the year. These and other disruptions have led to higher costs for both ocean and air freight and delays in the availability of products, which can result in delayed sales and, in some cases, lost sales. In response to these and other challenges, we have developed and continue to evaluate and execute plans to mitigate the negative impacts of COVID-19 to our business. For example, to mitigate product input cost increases, we implemented certain price increases during 2021. The Company continues to review the impact of increasing costs and plans to implement further price increases in 2022. Additionally, during the first quarter of 2022, the Company accelerated certain inventory purchases to ensure sufficient finished goods and raw material availability, ahead of expected periods of high consumer demand. We believe these mitigating actions will minimize the adverse impacts to our financial results for fiscal year 2022.

The COVID-19 outbreak continues to be fluid and it is difficult to forecast the impact it could have on our future operations. However, since the initial outbreak, we have maintained sufficient liquidity and access to capital resources and we continue to closely monitor customer health and collectability of receivables. Please see Part I, Item 1A. Risk Factors and Part I, Item 1. Business, in the Company's Form 10-K for the fiscal year ended December 26, 2021 for further information.

First quarter 2022 highlights:

• First quarter net revenues were $1.2 billion compared to $1.1 billion in the first quarter of 2021 and included an unfavorable foreign currency translation of $17.4 million. Absent the unfavorable impact of foreign currency exchange, first quarter net revenues increased 6%.

• Net revenues grew in all major operating segments: Wizards of the Coast and Digital Gaming segment net revenues increased 9% to $262.8 million; Entertainment segment net revenues increased 4% to $227.5 million; Consumer Products segment net revenues increased 3% to $672.8 million.

• Partner Brands portfolio net revenues increased 10%; Hasbro Gaming and Emerging Brands net revenues each increased 5%; Franchise Brands net revenues increased 4% while TV/Film/Entertainment portfolio net revenues were flat in the first quarter of 2022, reflecting the sale of eOne Music which represented $31.8 million of TV/Film/Entertainment portfolio net revenues in the first quarter of 2021.

• Operating profit was $120.0 million, or 10.3% of net revenue, in the first quarter of 2022 compared to operating profit of $147.3 million, or 13.2% of net revenue, in the first quarter of 2021.

• Operating Profit in the Wizards of the Coast and Digital Gaming segment decreased 3% to $106.4 million; Entertainment segment operating profit decreased 28% to $12.2 million; Consumer Products segment decreased 73% to $8.6 million; and Corporate and Other operating losses improved 40% to $7.2 million.

• Certain charges impacted operating segment performance for the Company’s Consumer Products and Entertainment segments, which are discussed further below in Segment Results.

• Net earnings attributable to Hasbro, Inc. of $61.2 million, or $0.44 per diluted share, in the first quarter of 2022 compared to net earnings of $116.2 million, or $0.84 per diluted share, in the first quarter of 2021.

The impact of changes in foreign currency exchange rates used to translate the consolidated statements of operations is quantified by translating the current period revenues at the prior period exchange rates and comparing this amount to the prior period reported revenues. The Company believes that the presentation of the impact of changes in exchange rates, which are beyond the Company’s control, is helpful to an investor’s understanding of the performance of the underlying business.

SUMMARY OF FINANCIAL PERFORMANCE

A summary of the results of operations is illustrated below for the quarters ended March 27, 2022 and March 28, 2021.

			Quarter Ended
			March 27, 2022						March 28, 2021
Net revenues			$	1,163.1					$	1,114.8
Operating profit			120.0						147.3
Earnings before income taxes			80.2						129.5
Net earnings			62.9						117.5
Net earnings attributable to noncontrolling interests			1.7						1.3
Net earnings attributable to Hasbro, Inc.			61.2						116.2
Diluted earnings per share			0.44						0.84

RESULTS OF OPERATIONS – CONSOLIDATED

The quarters ended March 27, 2022 and March 28, 2021 were each 13-week periods.

Diluted earnings per share attributable to Hasbro, Inc. for the quarters ended March 27, 2022 and March 28, 2021 include certain charges as described below.

• Net charges of $15.9 million, or $0.11 per diluted share and $20.4 million, or $0.15 per diluted share, of intangible amortization costs for the quarters ended March 27, 2022 and March 28, 2021, respectively, related to the intangible assets acquired in the eOne acquisition. Beginning in 2022, certain of these intangible amortization costs have been allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets. In 2021, these intangible amortization costs were recorded within the Entertainment segment.

• Net charges of $2.3 million, $0.02 per diluted share and $1.7 million, or $0.01 per diluted share, for the quarters ended March 27, 2022 and March 28, 2021, respectively, of expense associated with retention awards granted in connection

with the eOne acquisition. These expenses are included within Selling, Distribution and Administration within the Corporate segment.

Consolidated net revenues for the first quarter of 2022 grew 4% to $1,163.1 million from $1,114.8 million for the first quarter of 2021 and included an unfavorable $17.4 million impact from foreign currency translation as a result of weakening currencies, primarily in Europe.

Operating profit for the first quarter of 2022 was $120.0 million, or 10.3% of net revenues, compared to operating profit of $147.3 million, or 13.2% of net revenues, for the first quarter of 2021. The operating profit decrease was primarily driven by higher costs of sales due to higher product input and freight costs as a result of rising costs and supply chain disruptions, higher program amortization costs within the Entertainment segment, reflecting the mix of programming deliveries in the quarter, higher product development costs to support growth in Wizards of the Coast and to a lesser extent, higher marketing and sales costs. These cost increases were partially offset by lower royalty expense and lower advertising costs during the first quarter of 2022.

Net earnings attributable to Hasbro, Inc. decreased to $61.2 million for the quarter ended March 27, 2022, compared to $116.2 million for the quarter ended March 28, 2021.

Diluted earnings per share attributable to Hasbro, Inc. were $0.44 for the first quarter of 2022 compared to $0.84 for the first quarter of 2021.

The following table presents net revenues by brand and entertainment portfolio for the quarters ended March 27, 2022 and March 28, 2021.

			Quarter Ended
			March 27, 2022						March 28, 2021						% Change
Franchise Brands			$	543.1					$	523.1					4		%
Partner Brands			206.5						188.0						10
Hasbro Gaming			143.6						136.3						5
Emerging Brands			76.4						73.1						5
TV/Film/Entertainment			193.5						194.3						—
Total			$	1,163.1					$	1,114.8					4		%

Brand portfolio net revenues for the first quarter of 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, effective for the first quarter of 2022. As a result, first quarter 2021 net revenues of $31.6 million were reclassified from Emerging Brands to Franchise Brands.

FRANCHISE BRANDS: Net revenues in the Franchise Brands portfolio increased 4% in the first quarter of 2022 compared to the first quarter of 2021. Drivers of the net revenue increase include higher net revenues from MAGIC: THE GATHERING products reflecting record sales from the Kamigawa: Neon Dynasty set release and higher net revenues from MY LITTLE PONY, following the September 2021 release of the feature length film, MY LITTLE PONY: A NEW GENERATION and the associated product line. In addition, higher net revenues from PEPPA PIG were driven by the third quarter 2021 launch of the Company's first line of PEPPA PIG products. These net revenue increases were partially offset by lower net revenues from MONOPOLY products and to a lesser extent, lower net revenues from BABY ALIVE and NERF products during the first quarter of 2022.

PARTNER BRANDS: Net revenues from the Partner Brands portfolio increased 10% in the first quarter of 2022 compared to the first quarter of 2021. Within the Partner Brands portfolio, there are a number of brands which are reliant on related entertainment, including television and movie releases. As such, net revenues from partner brands fluctuate depending on entertainment popularity, release dates and related product line offerings and success. Historically these entertainment-based brands experience higher revenues during years in which new content is released in theaters, for broadcast, and on streaming platforms.

During the first quarter of 2022, Partner Brands net revenue increases were driven by the Company's products for MARVEL, primarily from momentum in the SPIDER-MAN franchise which benefited from entertainment releases including Marvel Studios' SPIDER-MAN: NO WAY HOME, released in December 2021 and the children’s animated television series Marvel's SPIDEY and HIS AMAZING FRIENDS. In addition, the Company's products for Marvel's AVENGERS benefited ahead of the planned Marvel Studios' release of DOCTOR STRANGE in the MULTIVERSE of MADNESS, expected in May 2022. To a lesser extent, net revenues from the Company's line of STAR WARS products increased as a result of the lineup of entertainment

from Lucasfilms including, THE BOOK of BOBA FETT released in the first fiscal quarter of 2022 and the upcoming launch of the OBI-WAN KENOBI series, expected in the second quarter of 2022, both on Disney+. These increases were partially offset by net revenue declines from DISNEY FROZEN and to a lesser extent, DISNEY PRINCESS products as well as lower net revenues from BEYBLADE products during the first quarter of 2022.

HASBRO GAMING: Net revenues in the Hasbro Gaming portfolio increased 5% in the first quarter of 2022 compared to the first quarter of 2021. Higher net revenues were driven by net revenue increases from DUNGEONS & DRAGONS products and to a lesser extent, net revenue increases from DUEL MASTERS and AVALON HILL'S HeroQuest products. These net revenue increases were partially offset by lower net revenues from certain classic game products including CLUE and RISK.

Net revenues for Hasbro’s total gaming category, including the Hasbro Gaming portfolio as reported above and all other gaming revenue, most notably revenues from MAGIC: THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, totaled $378.8 million for the first quarter of 2022, an increase of 4%, as compared to $365.3 million in the first quarter of 2021.

EMERGING BRANDS: Net revenues from the Emerging Brands portfolio increased 5% during the first quarter of 2022 compared to the first quarter of 2021. Net revenue increases during the first quarter of 2022 were driven by POWER RANGERS and PJ MASKS products, partially offset by lower net revenues from SUPER SOAKER and certain PLAYSKOOL products.

TV/FILM/ENTERTAINMENT: During the first quarter of 2022, net revenues from the TV/Film/Entertainment portfolio were flat compared to the first quarter of 2021. First quarter 2022 net revenues were driven by higher scripted television deliveries, most notably from the Netflix streaming series GRAYMAIL and from THE ROOKIE television series*,* as well as higher deliveries of unscripted programs compared to the first quarter of 2021, where deliveries were limited or delayed due to the impact of the COVID-19 pandemic. To a lesser extent, TV/Film/Entertainment portfolio net revenues benefited from feature film production revenue contributions from titles including DEEP WATER as well as from the Company's live entertainment business which resumed live touring shows in 2022.

SEGMENT RESULTS

The following table presents net external revenues and operating profit data for the Company's principal segments for the quarters ended March 27, 2022 and March 28, 2021:

			Quarter Ended
			March 27, 2022						March 28, 2021						% Change
Net Revenues
Consumer Products			$	672.8					$	653.9					3		%
Wizards of the Coast and Digital Gaming			262.8						242.2						9		%
Entertainment *			227.5						218.7						4		%
Operating Profit
Consumer Products			$	8.6					$	32.3					-73		%
Wizards of the Coast and Digital Gaming			106.4						110.0						-3		%
Entertainment *			12.2						17.0						-28		%
Corporate and Other			(7.2)						(12.0)						40		%

** Entertainment segment net revenues and operating profit, for the quarter ended March 27, 2021 include $31.8 million and $3.1 million, respectively, from eOne Music, which was sold at the beginning of the third quarter of 2021.*

Beginning in 2022, intangible amortization costs related to the intangible assets acquired in the eOne acquisition have been allocated between the Consumer Products and Entertainment segments in the amounts of $10.3 million and $8.8 million, respectively, to match the revenue generated from such intangible assets. In 2021, comparable intangible amortization costs of $24.9 million were recorded within the Entertainment segment.

Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended March 27, 2022 and March 28, 2021.

			Quarter Ended
			March 27, 2022						March 28, 2021
North America			$	405.2					362.7
Europe			176.7						188.5
Asia Pacific			52.2						64.8
Latin America			38.7						37.9
Net Revenues			$	672.8					$	653.9

The Consumer Products segment net revenues increased 3% to $672.8 million for the first quarter of 2022 compared to $653.9 million for the first quarter of 2021 and included the impact of an unfavorable $13.5 million currency translation, most notably from the Company's European markets. Drivers of the net revenue increase include higher sales of the Company's products for MARVEL, higher sales of PEPPA PIG and MY LITTLE PONY products, and higher net revenues from POWER RANGERS and PJ MASKS products. Partially offsetting these increases were lower sales of TRANSFORMERS and MONOPOLY products and lower sales of the Company's products for DISNEY PRINCESS and DISNEY FROZEN. Net revenues increased in North America and to a lesser extent, in Latin American markets during the first quarter of 2022, while net revenues declined in the Company's Asia Pacific and Europe regions. In Europe, where the impact of foreign currency exchange was more significant compared to other regions, net revenue remained relatively flat absent the unfavorable foreign currency exchange impact of $12.0 million.

Consumer Products segment operating profit for the first quarter of 2022 was $8.6 million or 1.3% of segment net revenues, compared to segment operating profit of $32.3 million or 4.9% of segment net revenues, for the first quarter of 2021. As noted above, in alignment with the revenue generated from the assets acquired in the eOne acquisition, the first quarter of 2022 includes $10.3 million of intangible amortization, which in 2021 was all reported in the Entertainment segment results. This allocation of intangible amortization drove a 1.5% decline in operating margin for the Consumer Products segment. The remaining operating profit decrease in the first quarter of 2022 was driven by higher product costs and distribution costs as a result of global supply chain disruptions, including higher freight costs. These negative impacts were partially offset by price increases implemented during 2021 and lower royalty expenses due to a favorable product mix during the first quarter of 2022.

Wizards of the Coast and Digital Gaming Segment

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters ended March 27, 2022 and March 28, 2021.

			Quarter Ended
			March 27, 2022						March 28, 2021
Tabletop Gaming			$	192.2					$	175.3
Digital and Licensed Gaming			70.6						66.9
Net revenues			$	262.8					$	242.2

Wizards of the Coast and Digital Gaming segment net revenues increased 9% in the first quarter of 2022 to $262.8 million from $242.2 million in the first quarter of 2021 and included the impact of an unfavorable $2.9 million foreign currency translation.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first quarter of 2022 was attributable to net revenue increases from Wizards of the Coast tabletop and digital gaming products, most notably, MAGIC: THE GATHERING, driven by sales of the Kamigawa: Neon Dynasty set release, and to a lesser extent, higher digital net revenues from Magic: The Gathering Arena and Dungeons & Dragons: Dark Alliance. In addition, higher net revenues from DUNGEONS & DRAGONS and DUEL MASTERS products contributed to the increase during the first quarter.

Wizards of the Coast and Digital Gaming segment operating profit was $106.4 million, or 40.5% of segment net revenues for the first quarter of 2022, compared to operating profit of $110.0 million, or 45.4% of segment net revenues, for the first quarter of 2021. The operating profit decrease during the first quarter of 2022 was the result of higher product input costs associated with tabletop gaming, increased product development expenses, higher freight costs, as well as higher administrative expenses including higher personnel costs during the first quarter of 2022. These increases were partially offset by lower advertising and promotional expenses compared to the first quarter of 2021, where the Company incurred higher costs associated with the launch of the mobile version of Magic: The Gathering Arena and Dungeons & Dragons: Dark Alliance.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the quarters ended March 27, 2022 and March 28, 2021.

			Quarter Ended
			March 27, 2022						March 28, 2021
Film and TV			$	190.2					$	166.4
Family Brands			23.2						18.8
Music and Other *			14.1						33.5
Net revenues			$	227.5					$	218.7

*Music and Other category net revenues for the quarter ended March 27, 2021 includes $31.8 million related to eOne Music, which was sold at the beginning of the third quarter of 2021.

Entertainment segment net revenues increased 4% to $227.5 million for the first quarter of 2022, compared to $218.7 million for the first quarter of 2021. Foreign currency translation did not have a significant impact on Entertainment segment net revenues. The net revenue increase during the first quarter of 2022 was driven by higher deliveries of both unscripted and scripted television programming and to a lesser extent, higher net revenues from the Company's live entertainment business which resumed live touring shows in 2022. Also contributing to the increase during the first quarter of 2022 were higher net revenues from streaming animated content deals related to programming featuring the Company's brands. These increases were partially offset by the sale of the eOne Music business in the third quarter of 2021, which accounted for $31.8 million of segment net revenues in the first quarter of 2021.

Entertainment segment operating profit was $12.2 million, or 5.4% of segment net revenues for the first quarter of 2022 compared to operating profit of $17.0 million, or 7.8% of segment net revenues for the first quarter of 2021. The operating profit decrease during the first quarter of 2022 was driven by higher program cost amortization reflecting the mix of programming delivered during the first quarter of 2022 and the impact of the sale of eOne Music described above. These declines were partially offset by the allocation of $10.3 million of amortization costs related to the intangible assets acquired in

the eOne acquisition to the Consumer Products segment to match the revenue generated from such assets in the first quarter of 2022.

Corporate and Other Segment

The Corporate and Other segment operating losses were $7.2 million for the first quarter of 2022 compared to operating losses of $12.0 million for the first quarter of 2021. The decline in operating losses in 2022 were the result of lower royalty expense and lower administrative expenses.

OPERATING COSTS AND EXPENSES

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended March 27, 2022 and March 28, 2021.

			Quarter Ended
			March 27, 2022						March 28, 2021
Cost of sales			28.6		%				26.0		%
Program cost amortization			11.9		%				8.7		%
Royalties			7.7		%				9.8		%
Product development			6.0		%				5.5		%
Advertising			6.7		%				7.9		%
Amortization of intangibles			2.3		%				3.0		%
Selling, distribution and administration			26.4		%				25.9		%

Cost of sales for the first quarter of 2022 was $333.1 million, or 28.6% of net revenues, compared to $289.9 million, or 26.0% of net revenues, for the first quarter of 2021. The cost of sales increase in dollars was due to higher sales volumes and higher product costs, including higher freight costs, partially offset by the impact of a favorable $6.5 million of foreign currency exchange. The cost of sales increase as a percent of net revenues was driven by the impact of higher product costs and freight costs described above.

Program cost amortization increased to $138.5 million, or 11.9% of net revenues, for the first quarter of 2022 from $97.5 million, or 8.7% of net revenues, for the first quarter of 2021. Program costs are capitalized as incurred and amortized primarily using the individual-film-forecast method which matches costs to the related recognized revenue. The increase in dollars and as a percent of net revenues during the first quarter of 2022 was driven by the volume and mix of both scripted and unscripted programming revenues during the first quarter of 2022 compared to the first quarter of 2021.

Royalty expense for the first quarter of 2022 decreased to $90.1 million, or 7.7% of net revenues, compared to $108.9 million, or 9.8% of net revenues, for the first quarter of 2021. Fluctuations in royalty expense are generally related to the volume of content releases and deliveries and entertainment-driven products sold. The decrease in royalty expense in dollars was driven by the impact of the sale of eOne Music and the mix of first quarter 2022 Film and TV deliveries. In addition, certain licensing agreements acquired through the eOne acquisition expired, which carried higher royalty expenses in prior periods. The decrease in royalty expense as a percent of net revenues during the first quarter of 2022 was the result of a higher percentage of product sales that do not carry significant royalty expenses.

Product development expense for the first quarter of 2022 was $69.6 million, or 6.0% of net revenues, compared to $61.8 million, or 5.5% of net revenues, for the first quarter of 2021. The increase was primarily related to increased investments in the development of Wizards of the Coast tabletop and digital gaming initiatives.

Advertising expense for the first quarter of 2022 was $77.6 million, or 6.7% of net revenues, compared to $87.9 million, or 7.9% of net revenues, for the first quarter of 2021. Advertising spend is generally impacted by revenue mix and the number and type of entertainment releases delivered. The advertising expense decrease during the first quarter of 2022 was driven by lower expense within the Entertainment segment, as well as lower 2022 expense within the Wizards of the Coast and Digital Gaming segment, compared to the first quarter 2021, where advertising expense was driven by support for the launch of the mobile version of Magic: The Gathering Arena and Dungeons & Dragons: Dark Alliance, with no comparable releases in 2022.

Amortization of intangible assets decreased to $27.1 million, or 2.3% of net revenues, for the first quarter of 2022, compared to $32.9 million, or 3.0% of net revenues, for the first quarter of 2021. The decrease in 2022 is related to the discontinuation of amortization related to the eOne Music intangible assets following the sale of eOne Music in the third quarter of 2021.

For the first quarter of 2022, the Company's selling, distribution and administration expenses increased to $307.1 million, or 26.4% of net revenues, from $288.6 million, or 25.9% of net revenues, for the first quarter of 2021. The increase in selling, distribution and administration expenses reflects higher marketing and sales and administrative costs, including higher compensation expense, as well as higher distribution and warehousing costs, primarily due to ongoing global supply chain disruptions. These increases were partially offset by lower administrative costs as a result of the sale of eOne Music during 2021.

NON-OPERATING EXPENSE (INCOME)

Interest expense for the first quarter of 2022 totaled $41.6 million compared to $47.9 million in the first quarter of 2021. The decrease in interest expense during the first quarter of 2022 primarily reflects long-term debt repayments made throughout 2021 and during the first quarter of 2022, related to borrowings utilized for the eOne acquisition.

Interest income was $2.1 million for the first quarter of 2022 compared to $1.2 million in the first quarter of 2021, respectively. Higher average interest rates in 2022 compared to 2021 contributed to the increase.

Other expense (income), net was $0.3 million for the first quarter of 2022 compared to other (income), net of $(28.9) million in the first quarter of 2021. The decline was primarily driven by a first quarter 2021 gain of $25.6 million realized from a legal settlement with no comparable gain in 2022 and lower earnings from the Company's joint venture with Discovery, partially offset by lower foreign currency losses during the first quarter of 2022.

INCOME TAXES

Income tax expense totaled $17.3 million on pre-tax income of $80.2 million in the first quarter of 2022 compared to income tax expense of $12.0 million on pre-tax income of $129.5 million in the first quarter of 2021. Both periods were impacted by discrete tax events including the accrual of potential interest and penalties on uncertain tax positions. During the first quarter of 2022, favorable discrete tax adjustments were a net benefit of $2.3 million, compared to a net benefit of $8.9 million in the first quarter of 2021. The favorable discrete tax adjustments for the first quarter of 2022 primarily relate to the release of certain valuation allowances during the quarter. The favorable discrete tax adjustments for the first quarter of 2021 primarily relate to expiration of statutes of limitation for uncertain tax positions. In the first quarter of 2021, pre-tax income benefited from a legal settlement gain with no associated tax expense, due to the availability of net operating losses ("NOLs") and release of the related valuation allowance on the NOLs utilized by the settlement gain. Absent this discrete gain and tax items, the tax rates for the first quarter of 2022 and 2021 were 24.4% and 20.1%, respectively. The increase in the adjusted base rate of 24.4% for the first quarter of 2022 is primarily due to the mix of jurisdictions where the Company earned its profits.

The Tax Cuts and Jobs Act of 2017 ("Tax Act") provided for significant changes to the U.S. tax system including the mandatory capitalization of Research and Experimentation costs starting in the 2022 tax year. The Company is still assessing the impact, however the legislation is not expected to have a material effect on the Company's financial statements.

OTHER INFORMATION

Business Seasonality and Shipments

The Company’s revenue pattern continues to show the second half of the year to be more significant to its overall business for the full year. The Company expects that this concentration will continue. The concentration of sales in the second half of the year increases the risk of (a) underproduction of popular items, (b) overproduction of less popular items, and (c) failure to achieve tight and compressed shipping schedules.

The business of the Company is characterized by customer order patterns which vary from year to year largely because of differences in the degree of consumer acceptance of a product line, product availability, marketing strategies, inventory levels, policies of retailers and differences in overall economic conditions. Larger retailers generally maintain lower inventories throughout the year and purchase a greater percentage of product within or close to the fourth quarter holiday consumer buying season, which includes Christmas.

Quick response inventory management practices being used by retailers as well as growth in ecommerce result in orders increasingly placed for immediate delivery and fewer orders placed well in advance of shipment. Retailers are timing their orders so that they are filled by suppliers closer to the time of purchase by consumers. To the extent that retailers do not sell as much of their year-end inventory purchases during the current holiday selling season as they had anticipated, their demand for additional product earlier in the following fiscal year may be curtailed, thus negatively impacting the Company’s future revenues. However, more recently the Company's inventory levels reflect ongoing global supply chain disruptions, which began in late 2020 as economies slowly recovered from COVID-19 shutdowns, while consumer demand began to outpace the capacity of the global supply chain infrastructure. Supply chain constraints, including overcrowding of cargo ports and shipping container and truck transportation shortages, have also led to higher costs for ocean, air and over the road freight and delays in

the availability of products, as inventory remains in transit for extended periods of time. These and other disruptions are expected to continue throughout 2022. During the first quarter of 2022, the Company accelerated certain inventory purchases, to ensure sufficient finished goods and raw material availability ahead of expected periods of high consumer demand. As a result, the Company expects 2022 inventory shipments to peak between May and July as opposed to the historical timeline of August to December.

Unlike the Company's retail sales patterns, revenue patterns from the Company's entertainment businesses fluctuate based on the timing and popularity of television, film, streaming and digital content releases. Release dates are determined by factors including the timing of holiday periods, geographical release dates and competition in the market.

Accounting Pronouncement Updates

As of March 27, 2022, there were no recently adopted accounting standards that had a material effect on the Company’s financial statements. The Company's significant accounting policies are summarized in note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 26, 2021.

Recently Issued Accounting Pronouncements

In March of 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU 2020-04) Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions, for a limited period of time, to ease the potential burden of recognizing the effects of reference rate reform on financial reporting. The amendments in this update apply to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to the global transition away from LIBOR and certain other interbank offered rates. An entity may elect to apply the amendments provided by this update beginning March 12, 2020 through December 31, 2022. The change from LIBOR to an alternate rate has not had a material impact on the Company's consolidated financial statements.

Russian Sanctions

As a result of the recent military conflict in Ukraine, which has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, the Company has paused all shipments and new content distribution into Russia. Although our business has not been materially impacted by the ongoing military conflict, the extent to which our operations, or those of our suppliers and manufacturers will be impacted remains unknown. Any longstanding disruptions may magnify the impact of other risks described in this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended December 26, 2021.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically generated a significant amount of cash from operations. In the first three months of 2022 and 2021, the Company primarily funded its operations and liquidity needs through cash on hand and from cash flows from operations, and when needed, used borrowings under its available lines of credit. In addition, the Company’s Entertainment operating segment used production financing to fund certain of its television and film productions which are typically arranged on an individual production basis using either the Company's revolving film and television production credit facility or through special purpose production subsidiaries. For more information on the Company's production financing facilities, including expected future repayments, see note 7 to the consolidated financial statements included in Part I of this Form 10-Q.

The Company expects to continue to fund its working capital needs primarily through available cash, cash flows from operations and from production financing facilities and, if needed, by issuing commercial paper or borrowing under its revolving credit agreement. In the event that the Company is not able to issue commercial paper, the Company intends to utilize its available lines of credit. The Company believes that the funds available to it, including cash expected to be generated from operations, funds available through its commercial paper program or its available lines of credit and production financing, are adequate to meet its working capital needs for the remainder of 2022, including the repayment of the current portion of long-term debt of $155.8 million, as shown on the consolidated balance sheets, which represents the current portion of required quarterly principal amortization payments for our term loan facilities and other short-term production financing facilities, each as described below. The Company may also issue debt or equity securities from time to time, to provide additional sources of liquidity when pursuing opportunities to enhance our long-term competitive position, while maintaining a strong balance sheet. However, unexpected events or circumstances such as material operating losses or increased capital or other expenditures, or the inability to otherwise access the commercial paper market, may reduce or eliminate the availability of external financial resources. In addition, significant disruptions to credit markets may also reduce or eliminate the availability of external financial resources. Although the Company believes the risk of nonperformance by the counterparties to its financial facilities is not significant, in times of severe economic downturn in the credit markets, it is possible that one or more sources of external financing may be unable or unwilling to provide funding to the Company.

As of March 27, 2022, the Company's cash and cash equivalents totaled $1,057.9 million, of which $38.8 million is restricted under the Company’s production financing facilities.

Prior to 2017, deferred income taxes had not been provided on the majority of undistributed earnings of international subsidiaries as such earnings were indefinitely reinvested by the Company. Accordingly, such international cash balances were not available to fund cash requirements in the United States unless the Company was to change its reinvestment policy. The Company has maintained sufficient sources of cash in the United States to fund cash requirements without the need to repatriate any funds. The Tax Act provided significant changes to the U.S. tax system including the elimination of the ability to defer U.S. income tax on unrepatriated earnings by imposing a one-time mandatory deemed repatriation tax on undistributed foreign earnings. As of March 27, 2022, the Company had a total liability of $156.1 million related to this tax, $18.4 million is reflected in current liabilities while the remaining long-term payable related to the Tax Act of $137.7 million is presented within other liabilities, non-current on the consolidated balance sheets included in Part I of this Form 10-Q. As permitted by the Tax Act, the Company will pay the transition tax in annual interest-free installments through 2025. As a result, in the future, the related earnings in foreign jurisdictions will be made available with greater investment flexibility. The majority of the Company’s cash and cash equivalents held outside of the United States as of March 27, 2022 are denominated in the U.S. dollar.

Because of the seasonality in the Company's cash flow, management believes that on an interim basis, rather than discussing only its cash flows, a better understanding of its liquidity and capital resources can be obtained through a discussion of the various balance sheet categories. Also, as several of the major categories, including cash and cash equivalents, accounts receivable, inventories and short-term borrowings, fluctuate significantly from quarter to quarter, due to the seasonality of its business, management believes that a comparison to the comparable period in the prior year is generally more meaningful than a comparison to the prior year-end.

The table below outlines key financial information (in millions of dollars) pertaining to our consolidated balance sheets including the period-over-period changes.

			March 27, 2022						March 28, 2021						% Change
Cash and cash equivalents (including restricted cash of $38.8 and $72.1)			$	1,057.9					$	1,430.4					-26		%
Accounts receivable, net			931.7						810.4						15		%
Inventories			644.3						429.2						50		%
Prepaid expenses and other current assets			621.4						566.0						10		%
Other assets			1,284.9						1,266.0						1		%
Accounts payable and accrued liabilities			1,783.1						1,595.7						12		%
Other liabilities			633.6						777.7						-19		%

Accounts receivable increased 15% to $931.7 million at March 27, 2022, compared to $810.4 million at March 28, 2021. Absent the unfavorable foreign currency exchange impact of $21.7 million, accounts receivable increased 18% or $143.0 million. The increase in accounts receivable was driven by higher sales during the first quarter of 2022. Days sales outstanding increased from 66 days at March 28, 2021 to 73 days at March 27, 2022 primarily due to Entertainment receivables, which have longer collection periods.

Inventories increased to $644.3 million as of March 27, 2022, compared to $429.2 million at March 28, 2021. Absent the unfavorable foreign currency exchange impact of $19.8 million, inventories increased 55% or $234.9 million. The increase in 2022 inventory balances reflects increased lead-times and higher freight-in costs, most notably in the U.S. and Europe, attributable to the Company's Consumer Products and Wizards of the Coast tabletop gaming businesses. In addition, to mitigate the impact of certain global supply chain challenges, the Company accelerated inventory purchases in the first quarter.

Prepaid expenses and other current assets increased 10% to $621.4 million at March 27, 2022 from $566.0 million at March 28, 2021. The increase was driven by higher accrued tax credit balances related to film and television production costs due to increased productions and timing of tax credit claims as well as higher accrued royalty and licensing balances, primarily attributable to the Company's Entertainment business. These increases were partially offset by lower prepaid royalty balances in relation to the Company’s MARVEL, POWER RANGERS and DISNEY PRINCESS royalty agreements and from lower prepaid tax balances during the second quarter 2022.

Other assets increased to $1,284.9 million at March 27, 2022 from $1,266.0 million at March 28, 2021. The increase was driven by higher capitalized film and television content and production balances due to increased investments in productions and acquired content, higher long-term accrued income balances related to certain of the Company's content distribution arrangements and higher non-current receivable balances within the Entertainment segment. These increases were partially offset by a lower balance for the Company's investment in Discovery Family Channel, due to an impairment charge recorded in the fourth quarter of 2021 and distributions made in the first quarter of 2022, and from certain content and production assets sold in connection with the sale of eOne Music during the third quarter of 2021.

Accounts payable and accrued liabilities increased 12% to $1,783.1 million at March 27, 2022 from $1,595.7 million at March 28, 2021 driven by higher account payable balances, higher accrued freight balances due to increased costs as a result of supply chain disruptions, higher accrued royalty balances due to higher sales of partner brand products as well as growth in the Entertainment segment, higher accrued expenses for investments in content and productions, higher incentive compensation accruals, and higher accrued tax balances. These increases were partially offset by lower deferred revenue balances due to the timing of certain scripted television content deliveries, lower accounts payable and accrued liabilities balances associated with the sale of eOne Music and lower severance accruals from payments made in relation to restructuring actions taken in 2020.

Other liabilities decreased 19% to $633.6 million at March 27, 2022 from $777.7 million at March 28, 2021. The decrease was driven by lower long-term lease liability balances, lower long-term deferred tax liability balances due to the sale of eOne Music during the third quarter of 2021, a lower Discovery option agreement balance due to a revaluation of the Discovery Family Channel investment during the fourth quarter of 2021, a lower transition tax liability balance reflecting the reclassification of the 2021 installment payment due April 2022, and lower tax reserves.

Cash Flow

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the quarters ended March 27, 2022 and March 28, 2021.

			March 27, 2022						March 28, 2021
Net cash provided by (utilized for):
Operating activities			$	134.7					$	377.6
Investing activities			(23.9)						(25.5)
Financing activities			(77.5)						(370.8)

Net cash provided by operating activities in the first quarter of 2022 was $134.7 million compared to $377.6 million in the first quarter of 2021. The $242.9 million decrease in net cash provided by operating activities was primarily attributable to lower earnings in 2022 and higher working capital requirements, including higher inventory costs, higher incentive bonus payments and higher freight costs due to ongoing supply chain constraints.

Net cash utilized for investing activities was $23.9 million in the first quarter of 2022 compared to $25.5 million in the first quarter of 2021. Additions to property, plant and equipment were $29.2 million in the first quarter of 2022 compared to $23.9 million in the first quarter of 2021.

Net cash utilized for financing activities was $77.5 million in the first quarter of 2022 compared to $370.8 million in the first quarter of 2021. Financing activities in the first quarter of 2022 include payments totaling $57.5 million related to the $1.0 billion in term loans described below, consisting of $50.0 million principal and a quarterly principal amortization payment of $7.5 million toward the Five-Year Tranche loan, in addition to drawdowns of $112.2 million and repayments of $84.0 million,

related to production financing loans. Financing activities in the first quarter of 2021 included the early repayment of $300.0 million aggregate principal amount of 3.15% Notes due May 2021, as well as drawdowns of $72.4 million and repayments of $37.4 million related to production financing loans. In addition, during the first quarter of 2021, the Company made a quarterly principal amortization payment of $7.5 million toward the Five-Year Tranche loan described below.

Dividends paid in the first quarter of 2022 totaled $94.5 million, consistent with dividends paid in the first quarter of 2021 of $93.4 million.

Sources and Uses of Cash

The Company commits to inventory production, advertising and marketing expenditures in support of its consumer products business, prior to the peak fourth quarter retail selling season. Accounts receivable typically increase during the third and fourth quarter as customers increase their purchases to meet consumer demand expected in the holiday selling season. Due to the concentrated timeframe of this selling period, payments for these accounts receivable are generally not due until the fourth quarter or early in the first quarter of the subsequent year. This timing difference between expenditures and cash collections on accounts receivable sometimes makes it necessary for the Company to borrow amounts during the latter part of the year. In the Company's entertainment business, expenditures of cash for productions are often made well in advance of sale and delivery of the content produced. Trading card and digital gaming revenues have shorter collection periods, but product development expense often occurs years prior to release and revenue generation. During the first quarter of 2022 and 2021, the Company primarily used cash from operations and, to a lesser extent, borrowings under available lines of credit, in particular production financing vehicles, to fund its working capital.

The Company has an agreement with a group of banks which provides for a commercial paper program (the "Program"). Under the Program, at the request of the Company and subject to market conditions, the banks may either purchase from the Company, or arrange for the sale by the Company, of unsecured commercial paper notes. The Company may issue notes from time to time up to an aggregate principal amount outstanding at any given time of $1.0 billion. The maturities of the notes may vary but may not exceed 397 days. The notes are sold under customary terms in the commercial paper market and are issued at a discount to par, or alternatively, sold at par and bear varying interest rates based on a fixed or floating rate basis. The interest rates vary based on market conditions and the ratings assigned to the notes by the credit rating agencies at the time of issuance. Subject to market conditions, the Company intends to utilize the Program as its primary short-term borrowing facility and does not intend to sell unsecured commercial paper notes in excess of the available amount under the revolving credit agreement discussed below. If, for any reason, the Company is unable to access the commercial paper market, the Company intends to use the revolving credit agreement to meet the Company's short-term liquidity needs. At March 27, 2022, the Company had no outstanding borrowings related to the Program.

The Company has a second amended and restated revolving credit agreement with Bank of America, N.A., as administrative agent, swing line lender and a letter of credit issuer and lender and certain other financial institutions, as lenders thereto (the "Amended Revolving Credit Agreement"), which provides the Company with commitments having a maximum aggregate principal amount of $1.5 billion. The Amended Revolving Credit Agreement also provides for a potential additional incremental commitment increase of up to $500.0 million subject to agreement of the lenders. The Amended Revolving Credit Agreement contains certain financial covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility, including with respect to liens, mergers and incurrence of indebtedness. The Amended Revolving Credit Agreement extends through September 20, 2024. The Company was in compliance with all covenants as of March 27, 2022. The Company had no borrowings outstanding under its committed revolving credit facility as of March 27, 2022. However, letters of credit outstanding under this facility as of March 27, 2022 were approximately $3.1 million. Amounts available and unused under the committed line, at March 27, 2022 were approximately $1.5 billion, inclusive of borrowings under the Company’s commercial paper program. The Company also has other uncommitted lines from various banks, of which approximately $10.9 million was utilized at March 27, 2022. Of the amount utilized under, or supported by, the uncommitted lines, approximately $10.2 million and $0.7 million represent letters of credit and outstanding short-term borrowings, respectively.

In September of 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”). On December 30, 2019, the Company completed the acquisition of eOne and on that date, borrowed the full amount of $1.0 billion under the Term Loan Facilities. As of March 27, 2022, the Company has fully repaid the Three-Year Tranche $400.0 million principal term loan, and of the Five-Year Tranche $600.0 million principal balance, the Company has repaid a total of $260.0 million in the following increments: $22.5 million in 2020; $180.0 million in 2021; and, $57.5 million in the first quarter of 2022

consisting of $50.0 million principle and a quarterly principal amortization payment of $7.5 million. The Company is subject to certain financial covenants contained in this agreement and as of March 27, 2022, the Company was in compliance with these covenants. The terms of the Term Loan Facilities are described in note 7 to the consolidated financial statements included in Part I of this Form 10-Q.

During 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 (collectively, the "Notes") consisting of the following tranches: $300 million of notes due 2022 (the "2022 Notes") that bear interest at a fixed rate of 2.60%; $500 million of notes due 2024 (the "2024 Notes") that bear interest at a fixed rate of 3.00%; $675 million of notes due 2026 (the "2026 Notes") that bear interest at a fixed rate of 3.55%; and $900 million of notes due 2029 (the "2029 Notes") that bear interest at a fixed rate of 3.90%. During the third quarter of 2021 the Company repaid in full, its 2022 Notes in the aggregate principal amount of $300.0 million, including early redemption premiums and accrued interest of $10.8 million. The terms of the Notes are described in note 7 to the consolidated financial statements in Part I of this Form 10-Q.

The Company uses production financing facilities to fund its film and television productions which are typically arranged on an individual production basis by either special purpose production subsidiaries, each secured by the assets and future revenues of such production subsidiaries, which are non-recourse to the Company's assets, or through a senior revolving credit facility dedicated to production financing obtained in November 2021. The Company's senior revolving film and television production credit facility (the “RPCF”) with MUFG Union Bank, N.A., as administrative agent and lender and certain other financial institutions, as lenders thereto (the “Revolving Production Financing Agreement”) provides the Company with commitments having a maximum aggregate principal amount of $250.0 million. The Revolving Production Financing Agreement also provides the Company with the option to request a commitment increase up to an aggregate additional amount of $150.0 million subject to agreement of the lenders. The Revolving Production Financing Agreement extends through November 22, 2024. The Company uses the RPCF to fund certain of the Company’s original film and TV production costs. Borrowings under the RPCF are non-recourse to the Company's assets. Going forward, the Company expects to utilize the revolving production financing facility for the majority of its production financing needs. During the first quarter of 2022, the Company had total drawdowns of $112.2 million and repayments of $84.0 million towards these production financing facilities. As of March 27, 2022 the Company had outstanding production financing borrowings related to these facilities of $199.1 million, $95.8 million of which are recorded within the current portion of long-term debt and $103.3 million are recorded within short-term borrowings in the Company's consolidated balance sheets, included in Part I of this Form 10-Q.

The Company has principal amounts of long-term debt as of March 27, 2022 of $3.9 billion, due at varying times from 2024 through 2044. Of the total principal amount of long-term debt, $155.8 million is current at March 27, 2022 of which $60.0 million is related to principal amortization of the 5-year term loans due December 2024 and $95.8 million represents the Company's outstanding production financing facilities described above. 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, including accrued interest. All of the Company’s other long-term borrowings have contractual maturities that occur subsequent to the third quarter of 2024, with the exception of certain of the Company’s production financing facilities discussed above.

The Company also had letters of credit and other similar instruments of approximately $13.4 million and purchase commitments of approximately $405.3 million outstanding at March 27, 2022.

Other contractual obligations and commercial commitments, as detailed in the Company's 2021 Form 10-K, did not materially change outside of certain payments made in the normal course of business and as otherwise set forth in this report.

The Company has a long history of returning cash to its shareholders through quarterly dividends and share repurchases. In February 2022, Hasbro maintained its quarterly dividend rate of $0.68 per share with its first dividend payment of 2022. In addition, in February 2022, the Company’s Board of Directors announced a 3% increase to the Company’s quarterly dividend rate from $0.68 per share to $0.70 per share, for the dividend scheduled to be paid in May 2022. The Company also returns cash to shareholders through its share repurchase program. As part of this initiative, since 2005, the Company's Board of Directors (the "Board") adopted numerous share repurchase authorizations with a cumulative authorized repurchase amount of $4.3 billion. The most recent authorization was approved in May 2018 for $500 million. Since 2005, Hasbro has repurchased 108.6 million shares at a total cost of $4.0 billion and an average price of $36.44 per share. At March 27, 2022, the Company had $366.6 million remaining under these share repurchase authorizations. Following the Company's acquisition of eOne, the Company temporarily suspended its share repurchase program to prioritize deleveraging. There were no repurchases of the Company's common stock in the first quarter of 2022. A share repurchase program continues to be an important long-term component of Hasbro’s capital allocation strategy. In April 2022, given the Company's progress towards reducing debt, the Company announced plans to resume its share repurchase activity during the second quarter of 2022, with a target of repurchasing $75.0 million to $150.0 million of Hasbro common stock in the open market in 2022. The Company has no obligation to repurchase shares under the authorization, and the timing, actual number, and value of the shares that are repurchased, if any, will depend on a number of factors, including the price of the Company’s stock and the Company's generation of, and uses for, cash.

The Company believes that cash from operations, and, if necessary, its committed line of credit and other borrowing facilities, will allow the Company to meet its obligations over the next twelve months.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. As such, management is required to make certain estimates, judgments and assumptions that it believes are reasonable based on the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company's reported financial results include film and television production costs, recoverability of goodwill and intangible assets, income taxes and business combinations. Additionally, the Company identified the valuation of the Company’s equity method investment in Discovery Family Channel as a significant accounting estimate. These critical accounting policies are the same as those detailed in the Company's 2021 Form 10-K.

FINANCIAL RISK MANAGEMENT

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

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

The Company reflects derivatives at their fair value as an asset or liability on the consolidated balance sheets. The Company does not speculate in foreign currency exchange contracts. At March 27, 2022, these contracts had net unrealized gains of $5.3 million, of which $9.9 million of unrealized gains are recorded in prepaid expenses and other current assets, $4.4 million of unrealized losses are recorded in accrued liabilities and $0.2 million of unrealized losses are recorded in other long-term liabilities. Included in accumulated other comprehensive loss at March 27, 2022 are deferred gains, net of tax, of $8.7 million, related to these derivatives.

At March 27, 2022, the Company had principal amounts long-term debt of $3.7 billion. In May 2014, the Company issued an aggregate $600.0 million of long-term debt which consisted of $300.0 million of 3.15% Notes, subsequently repaid in 2021, and $300.0 million of 5.10% Notes due 2044. Prior to the May 2014 debt issuance, the Company entered into forward-starting interest rate swap agreements with a total notional value of $500.0 million to hedge the anticipated underlying U.S. Treasury interest rate. These interest rate swaps were matched with this debt issuance and were designated and effective as hedges of the change in future interest payments. At the date of issuance, the Company terminated these swap agreements and their fair value at the date of issuance was recorded in accumulated other comprehensive loss and is being amortized through the consolidated statements of operations using an effective interest rate method over the life of the related debt. Included in accumulated other comprehensive loss at March 27, 2022 are deferred losses, net of tax, of $15.4 million related to these derivatives.

The impact of inflation on the Company's business operations has been significant during the first quarter of 2022 compared to prior years. However, due to mitigating actions taken by the Company, such as price increases during 2021 where deemed necessary, the impact of general price inflation on our financial position and results of operations has been reduced. The Company continues to monitor the impact of inflation to its business operations on an ongoing basis and plans to implement additional price increases in 2022 and may need to adjust its prices further to mitigate the impact of changes to the rate of inflation in future periods. However, future volatility of general price inflation and the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead could adversely affect the Company's financial results.