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 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets | |||||||||||||||||
| Cash and cash equivalents including restricted cash of $6.1 million, $94.9 million and $35.8 million | $ | 551.6 | $ | 1,181.2 | $ | 1,019.2 | |||||||||||
| Accounts receivable, less allowance for doubtful accounts of $21.8 million, $30.4 million and $22.9 million | 1,188.8 | 1,476.6 | 1,500.4 | ||||||||||||||
| Inventories | 844.5 | 544.1 | 552.1 | ||||||||||||||
| Prepaid expenses and other current assets | 658.8 | 528.5 | 656.4 | ||||||||||||||
| Assets held for sale | 16.8 | — | — | ||||||||||||||
| Total current assets | 3,260.5 | 3,730.4 | 3,728.1 | ||||||||||||||
| Property, plant and equipment, less accumulated depreciation of $640.3 million, $607.6 million and $630.0 million | 411.8 | 441.9 | 421.1 | ||||||||||||||
| Other assets | |||||||||||||||||
| Goodwill | 3,469.8 | 3,420.2 | 3,419.6 | ||||||||||||||
| Other intangible assets, net of accumulated amortization of $1,094.6 million, $1,027.4 million and $1,050.4 million | 1,079.7 | 1,209.5 | 1,172.0 | ||||||||||||||
| Other | 1,404.3 | 1,428.4 | 1,297.0 | ||||||||||||||
| Total other assets | 5,953.8 | 6,058.1 | 5,888.6 | ||||||||||||||
| Total assets | $ | 9,626.1 | $ | 10,230.4 | $ | 10,037.8 | |||||||||||
| LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY | |||||||||||||||||
| Current liabilities | |||||||||||||||||
| Short-term borrowings | $ | 122.3 | $ | 0.9 | $ | 0.8 | |||||||||||
| Current portion of long-term debt | 122.6 | 187.6 | 200.1 | ||||||||||||||
| Accounts payable | 559.5 | 598.2 | 580.2 | ||||||||||||||
| Accrued liabilities | 1,537.5 | 1,663.7 | 1,674.8 | ||||||||||||||
| Liabilities held for sale | 15.0 | — | — | ||||||||||||||
| Total current liabilities | 2,356.9 | 2,450.4 | 2,455.9 | ||||||||||||||
| Long-term debt | 3,725.1 | 3,977.4 | 3,824.2 | ||||||||||||||
| Other liabilities | 545.1 | 722.5 | 670.7 | ||||||||||||||
| Total liabilities | $ | 6,627.1 | $ | 7,150.3 | $ | 6,950.8 | |||||||||||
| Redeemable noncontrolling interests | — | 22.9 | 23.9 | ||||||||||||||
| Shareholders' equity | |||||||||||||||||
| Preference stock of $2.50 par value. Authorized 5,000,000 shares; none issued | — | — | — | ||||||||||||||
| Common stock of $0.50 par value. Authorized 600,000,000 shares; issued 220,286,736 shares at September 25, 2022, September 26, 2021, and December 26, 2021 | 110.1 | 110.1 | 110.1 | ||||||||||||||
| Additional paid-in capital | 2,530.1 | 2,388.9 | 2,428.0 | ||||||||||||||
| Retained earnings | 4,297.8 | 4,269.6 | 4,257.8 | ||||||||||||||
| Accumulated other comprehensive loss | (324.9) | (208.6) | (235.3) | ||||||||||||||
| Treasury stock, at cost; 82,178,615 shares at September 25, 2022; 82,359,425 shares at September 26, 2021; and 82,066,136 shares at December 26, 2021 | (3,637.1) | (3,541.0) | (3,534.7) | ||||||||||||||
| Noncontrolling interests | 23.0 | 38.2 | 37.2 | ||||||||||||||
| Total shareholders' equity | 2,999.0 | 3,057.2 | 3,063.1 | ||||||||||||||
| Total liabilities, noncontrolling interests and shareholders' equity | $ | 9,626.1 | $ | 10,230.4 | $ | 10,037.8 |
See accompanying condensed notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Millions of Dollars Except Per Share Data)
(Unaudited)
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Net revenues | $ | 1,675.9 | $ | 1,970.0 | $ | 4,178.2 | $ | 4,407.0 | |||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||
| Cost of sales | 586.6 | 609.5 | 1,331.2 | 1,244.4 | |||||||||||||||||||
| Program cost amortization | 146.5 | 187.9 | 365.7 | 396.1 | |||||||||||||||||||
| Royalties | 135.1 | 171.8 | 335.3 | 392.2 | |||||||||||||||||||
| Product development | 82.4 | 80.1 | 231.2 | 229.1 | |||||||||||||||||||
| Advertising | 115.2 | 163.3 | 277.0 | 356.6 | |||||||||||||||||||
| Amortization of intangibles | 26.9 | 27.7 | 81.2 | 90.3 | |||||||||||||||||||
| Selling, distribution and administration | 365.8 | 361.8 | 1,000.1 | 1,004.7 | |||||||||||||||||||
| Loss on assets held for sale | 23.1 | — | 23.1 | — | |||||||||||||||||||
| Loss on disposal of business | — | — | — | 101.8 | |||||||||||||||||||
| Total costs and expenses | 1,481.6 | 1,602.1 | 3,644.8 | 3,815.2 | |||||||||||||||||||
| Operating profit | 194.3 | 367.9 | 533.4 | 591.8 | |||||||||||||||||||
| Non-operating expense (income): | |||||||||||||||||||||||
| Interest expense | 41.9 | 43.3 | 125.2 | 137.3 | |||||||||||||||||||
| Interest income | (3.2) | (1.8) | (8.0) | (4.2) | |||||||||||||||||||
| Other (income) expense, net | (10.0) | 3.0 | (9.5) | (35.3) | |||||||||||||||||||
| Total non-operating expense, net | 28.7 | 44.5 | 107.7 | 97.8 | |||||||||||||||||||
| Earnings before income taxes | 165.6 | 323.4 | 425.7 | 494.0 | |||||||||||||||||||
| Income tax expense | 37.4 | 68.5 | 94.1 | 143.5 | |||||||||||||||||||
| Net earnings | 128.2 | 254.9 | 331.6 | 350.5 | |||||||||||||||||||
| Net earnings (loss) attributable to noncontrolling interests | (1.0) | 1.7 | (0.8) | 4.0 | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | $ | 129.2 | $ | 253.2 | $ | 332.4 | $ | 346.5 | |||||||||||||||
| Net earnings per common share: | |||||||||||||||||||||||
| Basic | $ | 0.93 | $ | 1.83 | $ | 2.39 | $ | 2.51 | |||||||||||||||
| Diluted | $ | 0.93 | $ | 1.83 | $ | 2.39 | $ | 2.51 | |||||||||||||||
| Cash dividends declared per common share | $ | 0.70 | $ | 0.68 | $ | 2.10 | $ | 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 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Net earnings | $ | 128.2 | $ | 254.9 | $ | 331.6 | $ | 350.5 | |||||||||||||||
| Other comprehensive earnings (loss): | |||||||||||||||||||||||
| Foreign currency translation adjustments, net of tax | (72.0) | (31.4) | (103.0) | (23.6) | |||||||||||||||||||
| Unrealized holding losses on available-for-sale securities, net of tax | (0.1) | (0.3) | (0.3) | (0.1) | |||||||||||||||||||
| Net gains on cash flow hedging activities, net of tax | 12.6 | 5.2 | 20.6 | 7.8 | |||||||||||||||||||
| Reclassifications to earnings, net of tax: | |||||||||||||||||||||||
| Net gains (losses) on cash flow hedging activities | (5.9) | 1.1 | (7.2) | 1.7 | |||||||||||||||||||
| Amortization of unrecognized pension and postretirement amounts | 0.1 | 0.2 | 0.3 | 0.6 | |||||||||||||||||||
| Total other comprehensive loss, net of tax | $ | (65.3) | $ | (25.1) | $ | (89.6) | $ | (13.6) | |||||||||||||||
| Total comprehensive earnings (loss) attributable to noncontrolling interests | (1.0) | 1.7 | (0.8) | 4.0 | |||||||||||||||||||
| Total comprehensive earnings attributable to Hasbro, Inc. | $ | 63.9 | $ | 228.1 | $ | 242.8 | $ | 332.9 |
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 25, 2022 | September 26, 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings | $ | 331.6 | $ | 350.5 | |||||||
| Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation of plant and equipment | 94.4 | 116.2 | |||||||||
| Amortization of intangibles | 81.2 | 90.3 | |||||||||
| Loss on assets held for sale | 23.1 | — | |||||||||
| Loss on disposal of business | — | 101.8 | |||||||||
| Program cost amortization | 365.7 | 396.1 | |||||||||
| Deferred income taxes | (66.6) | 47.9 | |||||||||
| Stock-based compensation | 66.2 | 56.2 | |||||||||
| Other non-cash items | 3.1 | 5.7 | |||||||||
| Change in operating assets and liabilities net of acquired balances: | |||||||||||
| Decrease (increase) in accounts receivable | 201.8 | (83.8) | |||||||||
| Increase in inventories | (327.2) | (159.4) | |||||||||
| Decrease in prepaid expenses and other current assets | 34.4 | 56.7 | |||||||||
| Program spend, net | (498.1) | (526.3) | |||||||||
| (Decrease) increase in accounts payable and accrued liabilities | (22.7) | 310.5 | |||||||||
| Change in net deemed repatriation tax | (18.4) | (18.4) | |||||||||
| Other | (6.3) | (58.4) | |||||||||
| Net cash provided by operating activities | 262.2 | 685.6 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property, plant and equipment | (130.7) | (98.1) | |||||||||
| Acquisitions | (146.3) | — | |||||||||
| Proceeds from sale of business, net of cash | — | 379.2 | |||||||||
| Other | 11.2 | (3.6) | |||||||||
| Net cash (utilized) provided by investing activities | (265.8) | 277.5 | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from borrowings with maturity greater than three months | 3.3 | 127.6 | |||||||||
| Repayments of borrowings with maturity greater than three months | (182.0) | (1,062.1) | |||||||||
| Net proceeds from other short-term borrowings | 121.6 | (6.2) | |||||||||
| Purchases of common stock | (125.0) | — | |||||||||
| Stock-based compensation transactions | 74.2 | 24.6 | |||||||||
| Dividends paid | (288.6) | (280.7) | |||||||||
| Payments related to tax withholding for share-based compensation | (21.1) | (10.8) | |||||||||
| Debt extinguishment costs | — | (9.1) | |||||||||
| Other | (25.4) | (6.8) | |||||||||
| Net cash utilized by financing activities | (443.0) | (1,223.5) | |||||||||
| Effect of exchange rate changes on cash | (16.2) | (8.1) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (462.8) | (268.5) | |||||||||
| Net change due to cash classified as held for sale | (4.8) | — | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | (467.6) | (268.5) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of year | 1,019.2 | 1,449.7 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 551.6 | $ | 1,181.2 | |||||||
| Supplemental information | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ | 107.1 | $ | 123.7 | |||||||
| Income taxes | $ | 157.2 | $ | 124.1 |
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 25, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Interests | Total Shareholders' Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||
| Balance, June 26, 2022 | $ | 110.1 | 2,503.4 | 4,265.9 | (259.6) | (3,636.2) | 29.2 | $ | 3,012.8 | $ | 23.0 | |||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | — | — | 129.2 | — | — | — | 129.2 | — | ||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | — | — | — | — | — | (1.0) | (1.0) | — | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (65.3) | — | — | (65.3) | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation transactions | — | (1.5) | — | — | (0.1) | — | (1.6) | — | ||||||||||||||||||||||||||||||||||||||||||
| Purchases of common stock | — | — | — | — | (1.0) | — | (1.0) | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 23.0 | — | — | 0.2 | — | 23.2 | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | 0.7 | (97.3) | — | — | — | (96.6) | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling owners and other foreign exchange | — | — | — | — | — | (5.2) | (5.2) | — | ||||||||||||||||||||||||||||||||||||||||||
| Buyout of redeemable noncontrolling interest | — | 4.5 | — | — | — | — | 4.5 | (23.0) | ||||||||||||||||||||||||||||||||||||||||||
| Balance, September 25, 2022 | $ | 110.1 | 2,530.1 | 4,297.8 | (324.9) | (3,637.1) | 23.0 | $ | 2,999.0 | $ | — | |||||||||||||||||||||||||||||||||||||||
| 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 loss attributable to Hasbro, Inc. | — | — | 253.2 | — | — | — | 253.2 | — | ||||||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to noncontrolling interests | — | — | — | — | — | 0.4 | 0.4 | 1.3 | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (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 |
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Redeemable Noncontrolling Interests
(Millions of Dollars)
(Unaudited)
| Nine Months Ended September 25, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Noncontrolling Interests | Total Shareholders' Equity | Redeemable Noncontrolling Interests | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 26, 2021 | $ | 110.1 | 2,428.0 | 4,257.8 | (235.3) | (3,534.7) | 37.2 | $ | 3,063.1 | $ | 23.9 | |||||||||||||||||||||||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | — | 332.4 | — | — | — | 332.4 | — | |||||||||||||||||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | — | — | — | — | — | (1.4) | (1.4) | 0.6 | ||||||||||||||||||||||||||||||||||||||||||
| Change in put option value | — | (0.4) | — | — | — | — | (0.4) | — | ||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (89.6) | — | — | (89.6) | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation transactions | — | 31.0 | — | — | 22.1 | — | 53.1 | — | ||||||||||||||||||||||||||||||||||||||||||
| Purchases of common stock | — | — | — | — | (125.0) | — | (125.0) | — | ||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | 65.8 | — | — | 0.5 | — | 66.3 | — | ||||||||||||||||||||||||||||||||||||||||||
| Dividends declared | — | 1.2 | (292.4) | — | — | — | (291.2) | — | ||||||||||||||||||||||||||||||||||||||||||
| Distributions paid to noncontrolling owners and other foreign exchange | — | — | — | — | — | (12.8) | (12.8) | (1.5) | ||||||||||||||||||||||||||||||||||||||||||
| Buyout of redeemable noncontrolling interest | $ | — | 4.5 | — | — | — | — | $ | 4.5 | $ | (23.0) | |||||||||||||||||||||||||||||||||||||||
| Balance, September 25, 2022 | $ | 110.1 | 2,530.1 | 4,297.8 | (324.9) | (3,637.1) | 23.0 | $ | 2,999.0 | $ | — | |||||||||||||||||||||||||||||||||||||||
| 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 loss | — | — | — | (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 |
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 25, 2022 and September 26, 2021, and the results of its operations and cash flows and shareholders' equity for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes thereto. Actual results could differ from those estimates.
The quarters ended September 25, 2022 and September 26, 2021 were each 13-week periods. The nine-month periods ended September 25, 2022 and September 26, 2021 were each 39-week periods.
The results of operations for the quarter ended September 25, 2022 are not necessarily indicative of results to be expected for the full year 2022, nor were those of the comparable 2021 period representative of those actually experienced for the full year 2021.
Significant Accounting Policies
The Company's significant accounting policies are summarized in note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 26, 2021 ("2021 Form 10-K").
Blueprint 2.0 and Operational Excellence
On October 4, 2022, following a nine-month strategic review, the Company announced a new go-forward strategic plan guided by our new Blueprint 2.0, a framework for bringing compelling and expansive brand experiences to audiences around the world. During the review, the Company identified opportunities to focus and scale its business, enhance operational excellence, including through organizational and supply chain programs, and drive high-margin growth and profit. The Company plans to focus investment in its most valuable and profitable franchises across toys, games, entertainment and licensing, and to exit certain non-core aspects of the business. Under this plan, a pre-tax charge of $55.3 million was recorded in the third quarter of 2022 associated with the program, comprised of a loss on assets held for sale of $23.1 million, severance and other employee charges of $21.3 million, consulting fees of $7.2 million and asset impairments of $3.7 million. The impairment losses related to the exit of certain non-core businesses were recorded within the Entertainment segment and the severance and other employee charges and the consulting fees were recorded within the Corporate and Other segment. The businesses to be exited do not constitute a material part of the Company's operations. See Note 4 and Item 2. Management's Discussion and Analysis in this Form 10-Q for further information.
D&D Beyond Acquisition
On May 19, 2022, the Company acquired D&D Beyond, a strategic, complementary acquisition of the premier digital content platform for DUNGEONS & DRAGONS, which is expected to substantially accelerate our direct-to-fans capability for DUNGEONS & DRAGONS in physical and digital play. The all-cash transaction in the amount of $146.3 million was funded with cash on hand. The allocation of assets acquired includes $81.4 million to intangible assets, $64.7 million to goodwill, with the remainder allocated to property, plant, and equipment.
eOne Music Sale
On June 29, 2021, the Company completed the sale of its Entertainment One music business ("eOne Music") for net proceeds of $397.0 million, including the sales price of $385.0 million and $12.0 million of closing adjustments related to working capital and net debt calculations. The final proceeds were subject to further adjustment upon completion of closing working capital, which resulted in a net outflow of $0.9 million in the fourth quarter of 2021. 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 Company’s acquisition of Entertainment One in December 2019 (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 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 for the second quarter of 2021. The
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
impairment charge was recorded within the Entertainment segment and the transaction costs were recorded within the Corporate and Other segment. Fiscal year 2021 includes two quarters of financial results for the eOne Music Business.
Dividend Equivalent Units
Beginning with employee stock incentive awards granted in 2022, the payment of cash dividends to shareholders also results in the crediting of Dividend Equivalent Units (“DEUs”) to holders of restricted stock units ("RSUs") and contingent stock performance awards ("PSUs") granted under the Company's Restated 2003 Stock Incentive Plan, as amended, for employees as defined and described in Note 15 in the Company's Annual Report on Form 10-K for the year ended December 26, 2021. The DEUs will be credited as additional RSUs or PSUs and settled concurrently with the vesting of associated awards. DEUs are forfeited in the event the underlying RSUs or PSU's do not vest. The dividend equivalent value of forfeitable DEUs is treated as a reduction of retained earnings or, if the Company is in a retained deficit position, as a reduction of additional paid-in capital.
These consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The Company filed with the SEC audited consolidated financial statements for the fiscal year ended December 26, 2021 in its 2021 Form 10-K, which includes all such information and disclosures and, accordingly, should be read in conjunction with the financial information included herein.
Recently Adopted Accounting Standards
As of September 25, 2022, there were no recently adopted accounting standards that had a material effect on the Company’s financial statements.
Issued Accounting Pronouncements
In March of 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU 2020-04) Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions, for a limited period of time, to ease the potential burden of recognizing the effects of reference rate reform on financial reporting. The amendments in this update apply to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to the global transition away from LIBOR and certain other interbank offered rates. An entity may elect to apply the amendments provided by this update beginning March 12, 2020 through December 31, 2022. The change from LIBOR to an alternate rate has not had a material impact on the Company's consolidated financial statements.
(2) Revenue Recognition
Contract Assets and Liabilities
In the ordinary course of business, the Company’s Consumer Products, Wizards of the Coast and Digital Gaming and Entertainment segments enter into contracts to license certain of the Company’s intellectual property, providing licensees right-to-use or access such intellectual property for use in the production and sale of consumer products and digital game development, and for use within content for distribution over streaming platforms and for television and film. The Company also licenses owned television and film content for distribution to third parties in formats that include broadcast, digital streaming and theatrical. Through these arrangements, the Company may receive advanced royalty payments from licensees, either in advance of a licensees’ subsequent sales to customers or, prior to the completion of the Company’s performance obligation. In addition, the Company’s Wizards of the Coast and Digital Gaming segment may receive advanced payments from end users of its digital games at the time of the initial purchase or through in-application purchases. These digital gaming revenues are recognized over a period of time, determined based on player usage patterns or the estimated playing life of the user or when additional downloadable content is made available. The Company defers revenues on all licensee and digital gaming advanced payments until the respective performance obligations are satisfied. The Company records the aggregate deferred revenues as contract liabilities, with the current portion recorded within Accrued Liabilities and the long-term portion recorded as Other Non-current Liabilities in the Company’s consolidated balance sheets. The Company records contract assets in the case of (1) minimum guarantees being recognized in advance of contractual invoicing, which are recognized ratably over the terms of the respective license periods, and (2) film and television distribution revenues recorded for content delivered, where payment will occur over the license term. The current portion of contract assets is recorded in Prepaid Expenses and Other Current Assets, respectively, and the long-term portion is recorded within Other Long-Term Assets.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
At September 25, 2022, September 26, 2021 and December 26, 2021 the Company had the following contract assets and liabilities in its consolidated balance sheets:
| September 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||
| Assets | |||||||||||||||||
| Contract assets - current | $ | 361.2 | $ | 263.3 | $ | 286.9 | |||||||||||
| Contract assets - long term | 157.5 | 108.1 | 104.2 | ||||||||||||||
| Total | $ | 518.7 | $ | 371.4 | $ | 391.1 | |||||||||||
| Liabilities | |||||||||||||||||
| Contract liabilities - current | $ | 132.2 | $ | 147.0 | $ | 114.1 | |||||||||||
| Contract liabilities - long term | 1.8 | 9.7 | 7.1 | ||||||||||||||
| Total | $ | 134.0 | $ | 156.7 | $ | 121.2 |
For the nine months ended September 25, 2022, the Company reclassified $469.9 million, including current year activity, from contract assets to accounts receivable, upon completion of contractual performance obligations. In addition, for the nine months ended September 25, 2022, the Company recognized $59.0 million of contract liabilities that were included in the December 26, 2021 balances.
Unsatisfied performance obligations
Unsatisfied performance obligations relate primarily to in-production television content to be delivered in the future under existing agreements with partnering content providers such as broadcasters, distributors, television networks and subscription video on demand services. As of September 25, 2022, unrecognized revenue attributable to unsatisfied performance obligations expected to be recognized in the future were $371.2 million. Of this amount, we expect to recognize $204.7 million in the remainder of 2022, $159.5 million in 2023, $2.5 million in 2024 and $4.5 million in 2025. These amounts include only fixed consideration.
Accounts Receivable and Allowance for Credit Losses
The Company’s balance for accounts receivable on the consolidated balance sheets as of September 25, 2022 and September 26, 2021 are primarily from contracts with customers. The Company had no material expense for credit losses for the quarters or nine months ended September 25, 2022 and September 26, 2021.
Disaggregation of revenues
The Company disaggregates its revenues from contracts with customers by reportable segment: Consumer Products, Wizards of the Coast and Digital Gaming, and Entertainment. The Company further disaggregates revenues within its Consumer Products segment by major geographic region: North America, Europe, Latin America, and Asia Pacific; within its Wizards of the Coast and Digital Gaming segment by line of business: Tabletop Gaming and Digital and Licensed Gaming; 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 13 for further information.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(3) Earnings Per Share
Net earnings per share data for the quarters and nine months ended September 25, 2022 and September 26, 2021 were computed as follows:
| 2022 | 2021 | ||||||||||||||||||||||
| Quarter | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | $ | 129.2 | 129.2 | $ | 253.2 | 253.2 | |||||||||||||||||
| Average shares outstanding | 138.3 | 138.3 | 138.1 | 138.1 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Options and other share-based awards | — | 0.2 | — | 0.4 | |||||||||||||||||||
| Equivalent Shares | 138.3 | 138.5 | 138.1 | 138.5 | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. per common share | $ | 0.93 | 0.93 | $ | 1.83 | 1.83 |
| 2022 | 2021 | ||||||||||||||||||||||
| Nine Months | Basic | Diluted | Basic | Diluted | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. | $ | 332.4 | $ | 332.4 | $ | 346.5 | $ | 346.5 | |||||||||||||||
| Average shares outstanding | 138.9 | 138.9 | 137.9 | 137.9 | |||||||||||||||||||
| Effect of dilutive securities: | |||||||||||||||||||||||
| Options and other share-based awards | — | 0.2 | — | 0.4 | |||||||||||||||||||
| Equivalent Shares | 138.9 | 139.1 | 137.9 | 138.3 | |||||||||||||||||||
| Net earnings attributable to Hasbro, Inc. per common share | $ | 2.39 | $ | 2.39 | $ | 2.51 | $ | 2.51 |
For the quarter and nine months ended September 25, 2022, options and restricted stock units totaling 2.9 million and 2.8 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 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.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(4) Goodwill
During the first quarter of 2021, the Company realigned its financial reporting structure creating the following three principal reportable segments: Consumer Products, Wizards of the Coast and Digital Gaming and Entertainment. In our realignment, some, but not all, of our reporting units were changed. As a result of these changes, during 2021, the Company reallocated its goodwill among the revised reporting units based on the change in relative fair values of the respective reporting units.
Changes in the carrying amount of goodwill, by operating segment, for the nine month periods ended September 25, 2022 and September 26, 2021 are as follows:
| Consumer Products | Wizards of the Coast and Digital Gaming | Entertainment | Total | |||||||||||||||||||||||
| 2022 | ||||||||||||||||||||||||||
| Balance at December 26, 2021 | $ | 1,584.9 | 307.3 | 1,527.4 | $ | 3,419.6 | ||||||||||||||||||||
| Acquired during the period | — | 64.7 | — | 64.7 | ||||||||||||||||||||||
| Foreign exchange translation | (0.4) | (0.5) | (1.8) | (2.7) | ||||||||||||||||||||||
| Impairment during the period | — | — | (11.8) | (11.8) | ||||||||||||||||||||||
| Balance at September 25, 2022 | $ | 1,584.5 | 371.5 | 1,513.8 | $ | 3,469.8 |
| 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 |
During the third quarter of 2022, the Company determined to exit certain non-core businesses within the Entertainment segment resulting in the classification of certain assets as Assets Held for Sale. A revaluation of the effected businesses resulted in a pre-tax non-cash goodwill impairment charge of $11.8 million, recorded within Loss on Assets Held for Sale in the Consolidated Statement of Operations, and within the Entertainment segment for the quarter ended September 25, 2022.
On May 19, 2022, the Company completed its acquisition of D&D Beyond for $146.3 million, which was funded with cash on hand. Based on the valuation of these assets, $64.7 million was allocated to goodwill within the Wizards of the Coast and Digital Gaming segment during the second quarter of 2022.
During the second quarter of 2021, the Company entered into a definitive agreement to sell eOne Music. Based on the value of the net assets held by eOne Music, which included goodwill and intangible assets allocated to eOne Music as part of the 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.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(5) Other Comprehensive Earnings (Loss)
Components of other comprehensive earnings (loss) are presented within the consolidated statements of comprehensive earnings. The following table presents the related tax effects on changes in other comprehensive earnings (loss) for the quarters and nine months ended September 25, 2022 and September 26, 2021.
| Quarter Ended | Nine months ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Other comprehensive earnings (loss), tax effect: | |||||||||||||||||||||||
| Tax expense on unrealized holding gains | $ | — | 0.1 | $ | 0.1 | — | |||||||||||||||||
| Tax expense on cash flow hedging activities | (1.7) | (0.3) | (2.1) | (0.7) | |||||||||||||||||||
| Reclassifications to earnings, tax effect: | |||||||||||||||||||||||
| Tax expense (benefit) on cash flow hedging activities | 0.6 | (0.3) | 0.5 | (0.3) | |||||||||||||||||||
| Amortization of unrecognized pension and postretirement amounts | — | (0.1) | (0.1) | (0.2) | |||||||||||||||||||
| Total tax effect on other comprehensive loss | $ | (1.1) | (0.6) | $ | (1.6) | (1.2) |
Changes in the components of accumulated other comprehensive earnings (loss), net of tax for the nine months ended September 25, 2022 and September 26, 2021 are as follows:
| Pension and Postretirement Amounts | Gains (Losses) on Derivative Instruments | Unrealized Holding Gains (Losses) on Available- for-Sale Securities | Foreign Currency Translation Adjustments | Total Accumulated Other Comprehensive Loss | |||||||||||||||||||||||||
| 2022 | |||||||||||||||||||||||||||||
| Balance at December 26, 2021 | $ | (35.1) | (6.0) | 0.2 | (194.4) | (235.3) | |||||||||||||||||||||||
| Current period other comprehensive earnings (loss) | 0.3 | 13.4 | (0.3) | (103.0) | (89.6) | ||||||||||||||||||||||||
| Balance at September 25, 2022 | $ | (34.8) | 7.4 | (0.1) | (297.4) | (324.9) | |||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Balance at December 27, 2020 | $ | (40.7) | (22.1) | 0.3 | (132.5) | (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) | 0.2 | (156.1) | (208.6) |
Gains (Losses) on Derivative Instruments
At September 25, 2022, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $22.4 million in accumulated other comprehensive earnings (loss) ("AOCE"). These instruments hedge payments related to inventory purchased in the third quarter of 2022 or forecasted to be purchased during the remainder of 2022 through 2023, intercompany expenses expected to be paid or received during 2022, television and movie production costs paid in 2022 or expected to be paid in 2023 or 2024, and cash receipts for sales made at the end of the third quarter of 2022 or forecasted to be made in the remainder of 2022. These amounts will be reclassified into the consolidated statements of operations upon the sale of the related inventory, the recognition of the related production costs or the recognition of the related sales or intercompany expenses to be paid or received.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
In addition to foreign currency forward contracts, the Company entered into hedging contracts on future interest payments related to the 3.15% Notes that were repaid in full in the aggregate principal amount of $300.0 million during the first quarter of 2021 (See note 7), and the 5.10% Notes due 2044. At the date of debt issuance, these contracts were terminated and the fair value on the date of settlement was deferred in AOCE and is being amortized to interest expense over the life of the related notes using the effective interest rate method. At September 25, 2022, deferred losses, net of tax of $15.0 million related to these instruments remained in AOCE. For each of the quarters ended September 25, 2022 and September 26, 2021, previously deferred losses of $0.2 million related to these instruments were reclassified from AOCE to net earnings. For the nine-month periods ended September 25, 2022 and September 26, 2021, previously deferred losses of $0.5 million and $1.0 million, respectively, related to these instruments were reclassified from AOCE to net earnings.
Of the net deferred gains included in AOCE at September 25, 2022, the Company expects net gains of approximately $22.4 million to be reclassified to the consolidated statements of operations within the next 12 months. However, the amount ultimately realized in earnings is dependent on the fair value of the hedging instruments on the settlement dates.
See note 11 for additional discussion on reclassifications from AOCE to earnings.
(6) Accrued Liabilities
Components of accrued liabilities for the periods ended September 25, 2022, September 26, 2021 and December 26, 2021 were as follows:
| September 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||
| Participations and residuals | $ | 266.7 | $ | 272.9 | $ | 299.1 | |||||||||||
| Royalties | 238.4 | 203.9 | 253.0 | ||||||||||||||
| Deferred revenue | 132.2 | 147.0 | 114.1 | ||||||||||||||
| Dividends | 96.7 | 93.8 | 94.0 | ||||||||||||||
| Other taxes | 69.2 | 69.9 | 95.0 | ||||||||||||||
| Advertising | 103.5 | 148.5 | 60.4 | ||||||||||||||
| Cancellation charges | 65.5 | 50.5 | 57.2 | ||||||||||||||
| Severance | 39.1 | 33.0 | 32.0 | ||||||||||||||
| Accrued Expenses IIC & IIP | 51.9 | 52.9 | 74.9 | ||||||||||||||
| Freight | 47.7 | 72.6 | 107.5 | ||||||||||||||
| Accrued income taxes | 58.6 | 55.3 | 30.9 | ||||||||||||||
| Lease liability - Current | 40.4 | 43.9 | 43.9 | ||||||||||||||
| Bonus accrual | 70.4 | 128.5 | 168.5 | ||||||||||||||
| General vendor accruals | 44.1 | 36.3 | 29.8 | ||||||||||||||
| Interest | 38.7 | 38.8 | 30.0 | ||||||||||||||
| Accrued salaries | 28.0 | 15.1 | 27.6 | ||||||||||||||
| Defined contribution plans | 26.7 | 33.1 | 31.0 | ||||||||||||||
| Production payables | 23.8 | 26.0 | 14.3 | ||||||||||||||
| Other | 95.9 | 141.7 | 111.6 | ||||||||||||||
| Total accrued liabilities | $ | 1,537.5 | $ | 1,663.7 | $ | 1,674.8 |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(7) Financial Instruments
The Company's financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At September 25, 2022, September 26, 2021 and December 26, 2021, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at September 25, 2022, September 26, 2021 and December 26, 2021 also include certain assets and liabilities measured at fair value (see notes 10 and 11) as well as long-term borrowings. The carrying costs, which are equal to the outstanding principal amounts, and fair values of the Company's long-term borrowings as of September 25, 2022, September 26, 2021 and December 26, 2021 are as follows:
| September 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||||||||||||||||||||
| Carrying Cost | Fair Value | Carrying Cost | Fair Value | Carrying Cost | Fair Value | ||||||||||||||||||||||||||||||
| 3.90% Notes Due 2029 | $ | 900.0 | 804.6 | $ | 900.0 | 1,001.7 | $ | 900.0 | 991.7 | ||||||||||||||||||||||||||
| 3.55% Notes Due 2026 | 675.0 | 633.4 | 675.0 | 737.2 | 675.0 | 725.6 | |||||||||||||||||||||||||||||
| 3.00% Notes Due 2024 | 500.0 | 481.1 | 500.0 | 529.1 | 500.0 | 521.2 | |||||||||||||||||||||||||||||
| 6.35% Notes Due 2040 | 500.0 | 497.8 | 500.0 | 702.3 | 500.0 | 692.8 | |||||||||||||||||||||||||||||
| 3.50% Notes Due 2027 | 500.0 | 461.5 | 500.0 | 546.2 | 500.0 | 539.2 | |||||||||||||||||||||||||||||
| 5.10% Notes Due 2044 | 300.0 | 258.3 | 300.0 | 375.0 | 300.0 | 374.5 | |||||||||||||||||||||||||||||
| 6.60% Debentures Due 2028 | 109.9 | 114.1 | 109.9 | 137.2 | 109.9 | 136.7 | |||||||||||||||||||||||||||||
| Variable % Notes Due December 30, 2024 (1) | 325.0 | 325.0 | 505.0 | 505.0 | 397.5 | 397.5 | |||||||||||||||||||||||||||||
| Production Financing Facilities | 62.6 | 62.6 | 204.7 | 204.7 | 170.1 | 170.1 | |||||||||||||||||||||||||||||
| Total long-term debt | $ | 3,872.5 | 3,638.4 | $ | 4,194.6 | 4,738.4 | $ | 4,052.5 | 4,549.3 | ||||||||||||||||||||||||||
| Less: Deferred debt expenses | 24.8 | — | 29.6 | — | 28.2 | — | |||||||||||||||||||||||||||||
| Less: Current portion | 122.6 | — | 187.6 | — | 200.1 | — | |||||||||||||||||||||||||||||
| Long-term debt | $ | 3,725.1 | 3,638.4 | $ | 3,977.4 | 4,738.4 | $ | 3,824.2 | 4,549.3 |
(1) During the first quarter of 2022, the Company repaid $50.0 million of the Variable % Notes due December 30, 2024.
In November 2019, in conjunction with the Company's acquisition of eOne, the Company issued an aggregate of $2.4 billion of senior unsecured debt securities (the "Notes") consisting of the following tranches: $300.0 million of notes due 2022 (the "2022 Notes") that bear interest at a fixed rate of 2.60%, $500.0 million of notes due 2024 (the "2024 Notes") that bear interest at a fixed rate of 3.00%, $675.0 million of notes due 2026 (the "2026 Notes") that bear interest at a fixed rate of 3.55% and $900.0 million of notes due 2029 (the "2029 Notes") that bear interest at a fixed rate of 3.90%. Net proceeds from the issuance of the Notes, after deduction of $20.0 million of underwriting discount and fees, totaled $2.4 billion. These costs are being amortized over the life of the Notes outstanding, which range from five years to ten years from the date of issuance. During 2021, the Company repaid in full the $300.0 million of 2022 Notes and recorded $9.1 million of debt extinguishment costs within other expense (income) in the Consolidated Statements of Operations.
The Notes bear interest at the stated rates but may be subject to upward adjustment if the credit rating of the Company is reduced by Moody's or Standard & Poors. The adjustment can be from 0.25% to 2.00% based on the extent of the ratings decrease. The Company may redeem the Notes at its option at the greater of the principal amount of the Notes or the present value of the remaining scheduled payments discounted using the effective interest rate on applicable U.S. Treasury bills at the time of repurchase, plus (1) 25 basis points (in the case of the 2024 Notes); (2) 30 basis points (in the case of the 2026 Notes); and (3) 35 basis points (in the case of the 2029 Notes). In addition, on and after October 19, 2024 for the 2024 Notes, September 19, 2026 for the 2026 Notes and August 19, 2029 for the 2029 Notes, such series of Notes will be redeemable, in whole at any time or in part from time to time, at the Company's option at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus any accrued and unpaid interest.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
In September 2019, the Company entered into a $1.0 billion Term Loan Agreement (the "Term Loan Agreement”) with Bank of America N.A. (“Bank of America”), as administrative agent, and certain financial institutions as lenders, pursuant to which such lenders committed to provide, contingent upon the completion of the eOne Acquisition and certain other customary conditions to funding, (1) a three-year senior unsecured term loan facility in an aggregate principal amount of $400.0 million (the “Three-Year Tranche”) and (2) a five-year senior unsecured term loan facility in an aggregate principal amount of $600.0 million (the “Five-Year Tranche” and together with the Three-Year Tranche, the “Term Loan Facilities”). The full amount of the Term Loan Facilities was drawn down on December 30, 2019, the closing date of the eOne Acquisition. As of September 25, 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 $275.0 million in the following increments: $22.5 million in 2020; $180.0 million in 2021; and $72.5 million in the first nine months of 2022, consisting of $50.0 million of the principal balance and principal amortization payments of $22.5 million.
Loans under the remaining Five-Year Tranche bear interest at the Company’s option, at either the Eurocurrency Rate or the Base Rate, plus a per annum applicable rate that fluctuates between 100.0 basis points and 187.5 basis points, in the case of loans priced at the Eurocurrency Rate, and between 0.0 basis points and 87.5 basis points, in the case of loans priced at the Base Rate, in each case, based upon the non-credit enhanced, senior unsecured long-term debt ratings of the Company by Fitch Ratings Inc., Moody’s Investor Service, Inc. and S&P Global Rankings, subject to certain provisions taking into account potential differences in ratings issued by the relevant rating agencies or a lack of ratings issued by such rating agencies. Loans under the Five-Year Tranche require principal amortization payments that are payable in equal quarterly installments of 5.0% per annum of the original principal amount thereof for each of the first two years after funding, increasing to 10.0% per annum of the original principal amount thereof for each subsequent year. The Term Loan Agreement contains affirmative and negative covenants typical of this type of facility, including: (i) restrictions on the Company’s and its domestic subsidiaries’ ability to allow liens on their assets, (ii) restrictions on the incurrence of indebtedness, (iii) restrictions on the Company’s and certain of its subsidiaries’ ability to engage in certain mergers, (iv) the requirement that the Company maintain a Consolidated Interest Coverage Ratio of no less than 3.00:1.00 as of the end of any fiscal quarter and (v) the requirement that the Company maintain a Consolidated Total Leverage Ratio of no more than, depending on the gross proceeds of equity securities issued after the effective date of the acquisition of eOne, 5.65:1.00 or 5.40:1.00 for each of the first, second and third fiscal quarters ended after the funding of the Term Loan Facilities, with periodic step downs to 3.50:1.00 for the fiscal quarter ending December 31, 2023 and thereafter. As of September 25, 2022, the Company was in compliance with the financial covenants contained in the Term Loan Agreement.
The Company may redeem its 5.10% notes due in 2044 (the "2044 Notes") at its option, at the greater of the principal amount of the notes or the present value of the remaining scheduled payments, discounted using the effective interest rate on applicable U.S. Treasury bills at the time of repurchase.
Current portion of long-term debt at September 25, 2022 of $122.6 million, as shown on the consolidated balance sheet, represents the current portion of required quarterly principal amortization payments for the Five-Year Tranche of the Term Loan Facilities and production financing facilities. All of the Company’s other long-term borrowings have contractual maturities that occur subsequent to 2023 with the exception of certain of the Company's production financing facilities and annual principal payments related to the Term Loan Facilities.
The fair values of the Company's long-term debt are considered Level 3 fair values (see note 10 for further discussion of the fair value hierarchy) and are measured using the discounted future cash flows method. In addition to the debt terms, the valuation methodology includes an assumption of a discount rate that approximates the current yield on a similar debt security. This assumption is considered an unobservable input in that it reflects the Company's own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Production Financing
In addition to the Company's financial instruments, the Company uses production financing facilities to fund its film and television productions which are arranged on an individual production basis by either special purpose production subsidiaries, each secured by future revenues of such production subsidiaries, which are non-recourse to the Company's assets, or through a senior revolving credit facility dedicated to production financing obtained in November 2021. The Company's senior revolving film and television production credit facility (the “RPCF”) with MUFG Union Bank, N.A., as administrative agent and lender and certain other financial institutions, as lenders thereto (the “Revolving Production Financing Agreement”) provides the Company with commitments having a maximum aggregate principal amount of $250.0 million. The Revolving Production Financing Agreement also provides the Company with the option to request a commitment increase up to an aggregate additional amount of $150.0 million subject to agreement of the lenders. The Revolving Production Financing Agreement extends through November 22, 2024. The Company uses the RPCF to fund certain of the Company’s original film and TV production costs. Borrowings under the RPCF are non-recourse to the Company's assets. Going forward, the Company expects to utilize the RPCF for the majority of its production financing needs.
Production financing facilities typically have maturities of less than two years, while the titles are in production, and are repaid once delivered and all credits, broadcaster pre-sales and international sales have been received. The production financing facilities as of September 25, 2022, September 26, 2021 and December 26, 2021 are as follows:
| September 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||
| Production financing (net of cash) | |||||||||||||||||
| Production financing facilities | $ | 184.9 | $ | 204.7 | $ | 170.1 | |||||||||||
| Production financing included in the consolidated balance sheet as: | |||||||||||||||||
| Non-current | $ | — | $ | 47.0 | $ | — | |||||||||||
| Current | 184.9 | 157.7 | 170.1 | ||||||||||||||
| Total | $ | 184.9 | $ | 204.7 | $ | 170.1 |
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 25, 2022 was 2.5%.
The Company has Canadian dollar and U.S. dollar production financing loans with various banks. The carrying amounts are denominated in the following currencies:
| Canadian Dollars | U.S. Dollars | Total | |||||||||||||||
| As of September 25, 2022 | $ | 19.3 | $ | 43.3 | $ | 62.6 |
The following table represents the movements in production financing loans during the first nine months of 2022:
| Production Financing | |||||||||||||||||
| December 26, 2021 | $ | 170.1 | |||||||||||||||
| Drawdowns | 204.5 | ||||||||||||||||
| Repayments | (189.2) | ||||||||||||||||
| Foreign exchange differences | (0.5) | ||||||||||||||||
| Balance at September 25, 2022 | $ | 184.9 |
The Company expects to repay all of its currently outstanding production financing loans by the third quarter of 2023.
(8) Investments in Productions and Investments in Acquired Content Rights
Investments in productions and investments in acquired content rights are predominantly monetized on a title-by-title basis and are recorded within other assets in the Company's consolidated balance sheets, to the extent they are considered recoverable 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 title basis and any portion of the unamortized
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
amount that appears not to be recoverable from future net revenues is expensed as part of program cost amortization during the period the loss becomes evident.
The Company's unamortized investments in productions and investments in acquired content rights consisted of the following at September 25, 2022, September 26, 2021, and December 26, 2021:
| September 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||||||||||||||
| Investment in Films and Television Programs: | |||||||||||||||||||||||||||||
| Individual Monetization | |||||||||||||||||||||||||||||
| Released, net of amortization | $ | 486.3 | $ | 512.6 | $ | 481.7 | |||||||||||||||||||||||
| Completed and not released | 1.2 | 20.1 | 18.5 | ||||||||||||||||||||||||||
| In production | 176.9 | 202.1 | 151.6 | ||||||||||||||||||||||||||
| Pre-production | 109.7 | 91.9 | 84.0 | ||||||||||||||||||||||||||
| 774.1 | 826.7 | 735.8 | |||||||||||||||||||||||||||
| Film/TV Group Monetization (1) | |||||||||||||||||||||||||||||
| Released, net of amortization | 24.5 | — | 32.2 | ||||||||||||||||||||||||||
| In production | 24.5 | — | 13.0 | ||||||||||||||||||||||||||
| 49.0 | — | 45.2 | |||||||||||||||||||||||||||
| Investment in Other Programming | |||||||||||||||||||||||||||||
| Released, net of amortization | 12.9 | 3.9 | 5.3 | ||||||||||||||||||||||||||
| Completed and not released | 0.3 | 0.4 | 0.4 | ||||||||||||||||||||||||||
| In production | 8.4 | 5.9 | 12.6 | ||||||||||||||||||||||||||
| Pre-production | 1.5 | 2.5 | 1.7 | ||||||||||||||||||||||||||
| 23.1 | 12.7 | 20.0 | |||||||||||||||||||||||||||
| Total Program Investments | $ | 846.2 | $ | 839.4 | $ | 801.0 |
(1) Due to a monetization strategy change, as of December 26, 2021 the Company began monetizing certain content assets as a Film/TV group.
The Company recorded $365.7 million of program cost amortization related to released programming in the nine months ended September 25, 2022, consisting of the following:
| Investment in Production | Investment in Content | Other | Total | |||||||||||||||||||||||
| Program cost amortization | $ | 321.8 | $ | 43.9 | $ | — | $ | 365.7 |
(9) Income Taxes
The Company and its subsidiaries file income tax returns in the United States and various state and international jurisdictions. In the normal course of business, the Company is regularly audited by U.S. federal, state and local, and international tax authorities in various tax jurisdictions.
Our effective tax rate ("ETR") from continuing operations was 22.1% for the nine months ended September 25, 2022 and 29.0% for the nine months ended September 26, 2021.
The following items caused the year-to-date ETR to be significantly different from the prior year ETR:
-
during the nine months ended September 25, 2022, the Company recorded a net discrete tax benefit of $6.7 million primarily associated with (i) the release of certain valuation allowances during the first quarter; (ii) the decrease to our liability for uncertain tax positions that resulted from statutes of limitations expiring in certain jurisdictions; and (iii) a benefit on the loss of assets held for sale in the third quarter; and
-
during the nine months ended September 26, 2021, the Company recorded a net discrete tax expense of $8.8 million primarily associated with (i) the revaluation of net deferred tax liabilities as a result of the United Kingdom's ("UK") enactment of the Finance Act 2021 during the second quarter, which increases the UK corporate income tax rate from
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
19% to 25% as of April 1, 2023; (ii) a one-time tax charge related to an ongoing tax audit; (iii) release of a valuation allowance on net operating losses that offset 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 2021 ETR also included a goodwill impairment charge on the sale of the eOne Music from which there was no corresponding tax benefit.
In May 2019, a public referendum held in Switzerland approved the Swiss Federal Act on Tax Reform and AHV Financing ("TRAF") proposals previously approved by the Swiss Parliament. The Swiss tax reform measures were effective on January 1, 2020. Changes in tax reform include the abolishment of preferential tax regimes for holding companies, domicile companies and mixed companies at the cantonal level. The enacted changes in Swiss federal and cantonal tax, including cantonal transitional provisions adopted in 2021, were not material to the Company's financial statements.
The Company is no longer subject to U.S. federal income tax examinations for years before 2012. With few exceptions, the Company is no longer subject to U.S. state or local and non-U.S. income tax examinations by tax authorities in its major jurisdictions for years before 2016. 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.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act, which included various tax provisions. The two main tax provisions, a 15% alternative corporate minimum tax based on financial statement income and a 1% excise tax on corporate stock buy backs, are not expected to have a material impact to the Company.
(10) Fair Value of Financial Instruments
The Company measures certain financial instruments at fair value. The fair value hierarchy consists of three levels: Level 1 fair values are based on quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access; Level 2 fair values are those based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and Level 3 fair values are based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. There have been transfers between levels within the fair value hierarchy.
Accounting standards permit entities to measure many financial instruments and certain other items at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
At September 25, 2022, September 26, 2021 and December 26, 2021, the Company had the following assets and liabilities measured at fair value in its consolidated balance sheets (excluding assets for which the fair value is measured using net asset value per share):
| Fair Value Measurements Using: | |||||||||||||||||||||||
| Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||
| September 25, 2022 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available-for-sale securities | $ | — | — | — | — | ||||||||||||||||||
| Derivatives | 38.8 | — | 38.8 | — | |||||||||||||||||||
| Total assets | $ | 38.8 | — | 38.8 | — | ||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives | $ | 0.4 | — | 0.4 | — | ||||||||||||||||||
| Option agreement | 1.7 | — | — | 1.7 | |||||||||||||||||||
| Total liabilities | $ | 2.1 | — | 0.4 | 1.7 | ||||||||||||||||||
| 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 | ||||||||||||||||||
| December 26, 2021 | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Available-for-sale securities | $ | 1.9 | 1.9 | — | — | ||||||||||||||||||
| Derivatives | 10.9 | — | 10.9 | — | |||||||||||||||||||
| Total assets | $ | 12.8 | 1.9 | 10.9 | — | ||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Derivatives | $ | 2.6 | — | 2.6 | — | ||||||||||||||||||
| Option agreement | 1.7 | — | — | 1.7 | |||||||||||||||||||
| Total Liabilities | $ | 4.3 | — | 2.6 | 1.7 |
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 25, 2022, September 26, 2021 and December 26, 2021, and is valued using an option pricing model based on the fair value of the related investment. Inputs used in the option pricing model include the volatility and fair value of the underlying company which are considered unobservable inputs as they reflect the Company's own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement. Due to the 2021 revaluation of the Discovery investment and resulting impairment charges, the Company reduced the option's fair value by $20.1 million during the fourth quarter of 2021. There were no changes in these valuation techniques during the quarter ended September 25, 2022.
The following is a reconciliation of the beginning and ending balances of the fair value measurements of the Company's financial instruments which use significant unobservable inputs (Level 3):
| 2022 | 2021 | ||||||||||
| Balance at beginning of year | $ | (1.7) | $ | (20.6) | |||||||
| Gain from change in fair value | — | (1.2) | |||||||||
| Balance at end of third quarter | $ | (1.7) | $ | (21.8) |
(11) Derivative Financial Instruments
Hasbro uses foreign currency forward contracts to mitigate the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. These over-the-counter contracts, which hedge future currency requirements related to purchases of inventory, product sales, television and film production cost and production financing loans (see note 7) as well as other cross-border transactions not denominated in the functional currency of the business unit, are primarily denominated in United States and Hong Kong dollars, and Euros. All contracts are entered into with a number of counterparties, all of which are major financial institutions. The Company believes that a default by a single counterparty would not have a material adverse effect on the financial condition of the Company. Hasbro does not enter into derivative financial instruments for speculative purposes.
Cash Flow Hedges
All of the Company's designated foreign currency forward contracts are considered to be cash flow hedges. These instruments hedge a portion of the Company's currency requirements associated with anticipated inventory purchases, product sales, certain production financing loans and other cross-border transactions, primarily for the remainder of 2022, 2023, and to a lesser extent, 2024.
At September 25, 2022, September 26, 2021 and December 26, 2021, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:
| September 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||||||||||||||||||||
| Hedged transaction | Notional Amount | Fair Value | Notional Amount | Fair Value | Notional Amount | Fair Value | |||||||||||||||||||||||||||||
| Inventory purchases | $ | 144.7 | 12.6 | $ | 261.8 | 6.0 | $ | 199.1 | 10.4 | ||||||||||||||||||||||||||
| Sales | 101.9 | 5.2 | 164.5 | (0.5) | 104.5 | (1.9) | |||||||||||||||||||||||||||||
| Production financing and other | 106.7 | 7.2 | 261.4 | 0.3 | 217.0 | 2.3 | |||||||||||||||||||||||||||||
| Total | $ | 353.3 | 25.0 | $ | 687.7 | 5.8 | $ | 520.6 | 10.8 |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The Company has a master agreement with each of its counterparties that allows for the netting of outstanding forward contracts. The fair values of the Company's foreign currency forward contracts designated as cash flow hedges are recorded in the consolidated balance sheets at September 25, 2022, September 26, 2021 and December 26, 2021 as follows:
| September 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Unrealized gains | $ | 24.5 | $ | 8.6 | $ | 13.8 | |||||||||||
| Unrealized losses | (1.2) | (3.7) | (3.1) | ||||||||||||||
| Net unrealized gains | $ | 23.3 | $ | 4.9 | $ | 10.7 | |||||||||||
| Other assets | |||||||||||||||||
| Unrealized gains | $ | 1.9 | $ | 2.0 | $ | 0.2 | |||||||||||
| Unrealized losses | (0.1) | (0.1) | — | ||||||||||||||
| Net unrealized gains | $ | 1.8 | $ | 1.9 | $ | 0.2 | |||||||||||
| Accrued liabilities | |||||||||||||||||
| Unrealized gains | $ | 0.9 | $ | 0.3 | $ | — | |||||||||||
| Unrealized losses | (1.0) | (1.3) | (0.1) | ||||||||||||||
| Net unrealized losses | $ | (0.1) | $ | (1.0) | $ | (0.1) | |||||||||||
Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net earnings for the quarters and nine months ended September 25, 2022 and September 26, 2021 as follows:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Statements of Operations Classification | |||||||||||||||||||||||
| Cost of sales | $ | 5.9 | $ | (2.0) | $ | 8.5 | (4.4) | ||||||||||||||||
| Net revenues | 1.0 | 0.1 | 0.8 | 1.4 | |||||||||||||||||||
| Other | (0.2) | 0.8 | (0.9) | 2.0 | |||||||||||||||||||
| Net realized (losses) gains | $ | 6.7 | $ | (1.1) | $ | 8.4 | (1.0) |
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 25, 2022, September 26, 2021 and December 26, 2021 the total notional amounts of the Company's undesignated derivative instruments were $601.3 million, $663.2 million and $632.0 million, respectively.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
At September 25, 2022, September 26, 2021 and December 26, 2021, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:
| September 25, 2022 | September 26, 2021 | December 26, 2021 | |||||||||||||||
| Prepaid expenses and other current assets | |||||||||||||||||
| Unrealized gains | $ | 19.6 | $ | 6.5 | $ | — | |||||||||||
| Unrealized losses | (6.0) | (3.4) | — | ||||||||||||||
| Net unrealized gains | $ | 13.6 | $ | 3.1 | $ | — | |||||||||||
| Accrued liabilities | |||||||||||||||||
| Unrealized gains | $ | — | $ | — | $ | 3.5 | |||||||||||
| Unrealized losses | (0.2) | (0.8) | (6.0) | ||||||||||||||
| Net unrealized losses | $ | (0.2) | $ | (0.8) | $ | (2.5) | |||||||||||
| Total unrealized gains (losses), net | $ | 13.4 | $ | 2.3 | $ | (2.5) |
The Company recorded net gains of $28.7 million and $49.2 million on these instruments to other (income) expense, net for the quarter and nine months ended September 25, 2022, respectively, and net gains of $3.6 million and $2.9 million for the quarter and nine months ended September 26, 2021, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains and losses from the change in fair value of intercompany loans to which the contracts relate.
For additional information related to the Company's derivative financial instruments (see notes 5 and 10).
(12) Leases
The Company occupies offices and uses certain equipment under various operating lease arrangements. The Company has no material finance leases. The Company's leases have remaining lease terms of 1 to 17 years, some of which include options to extend lease terms or options to terminate current lease terms at certain times, subject to notice requirements set out in the lease agreement. Payments under certain of the lease agreements may be subject to adjustment based on a consumer price index or other inflationary indices. The lease liability for such lease agreements as of the adoption date, was based on fixed payments as of the adoption date. Any adjustments to these payments based on the related indices will be recorded to expense as incurred. Leases with an expected term of 12 months or less are not capitalized. Lease expense under such leases is recorded straight line over the life of the lease. The Company capitalizes non-lease components for equipment leases, but expenses non-lease components as incurred for real estate leases.
The rent expense under such arrangements and similar arrangements that do not qualify as leases under ASU 2016-02, net of sublease income amounted to $24.2 million and $67.4 million for the quarter and nine months ended September 25, 2022, respectively, and $21.8 million and $66.0 million for the quarter and nine months ended September 26, 2021, respectively, and was not material to the Company's financial statements. Expenses related to short-term leases (expected terms less than 12 months) or variable lease payments was not material in the quarter or nine months ended September 25, 2022 or September 26, 2021.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Information related to the Company’s leases for the quarters ended September 25, 2022 and September 26, 2021 is as follows:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | |||||||||||||||||||||||
| Operating cash flows from operating leases | $ | 12.7 | $ | 13.7 | $ | 39.4 | 39.9 | ||||||||||||||||
| Right-of-use assets obtained in exchange for lease obligations: | |||||||||||||||||||||||
| Operating leases net of lease modifications | $ | 0.4 | $ | 10.4 | $ | — | 21.8 | ||||||||||||||||
| Weighted Average Remaining Lease Term | |||||||||||||||||||||||
| Operating leases | 4.5 years | 5.6 years | 4.5 years | 5.6 years | |||||||||||||||||||
| Weighted Average Discount Rate | |||||||||||||||||||||||
| Operating leases | 3.4 | % | 3.1 | % | 3.4 | % | 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 25, 2022:
| September 25, 2022 | |||||
| 2022 (excluding the nine months ended September 25, 2022) | $ | 12.2 | |||
| 2023 | 42.3 | ||||
| 2024 | 29.5 | ||||
| 2025 | 24.6 | ||||
| 2026 | 19.2 | ||||
| 2027 and thereafter | 24.2 | ||||
| Total future lease payments | 152.0 | ||||
| Less imputed interest | 18.2 | ||||
| Present value of future operating lease payments | 133.8 | ||||
| Less current portion of operating lease liabilities (1) | 40.4 | ||||
| Non-current operating lease liability (2) | 93.4 | ||||
| Operating lease right-of-use assets, net (3) | $ | 120.1 |
(1) Included in Accrued liabilities on the consolidated balance sheets.
(2) Included in Other liabilities on the consolidated balance sheets.
(3) Included in Property, plant, and equipment on the consolidated balance sheets.
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
(13) Segment Reporting
Hasbro is a global play and entertainment company with a broad portfolio of brands and entertainment content spanning toys, games, licensed products ranging from traditional to digital, as well as film and television entertainment. Effective for the three months ended March 28, 2021, the Company realigned its reportable segment structure to: (1) align with changes to its business structure subsequent to the integration of eOne; and (2) reflect changes to its reporting structure and provide transparency into how operating performance is measured. The Company's three principal reportable segments are (i) Consumer Products, (ii) Wizards of the Coast and Digital Gaming, and (iii) Entertainment.
The Consumer Products segment engages in the sourcing, marketing and sales of toy and game products around the world. The Consumer Products business also promotes the Company's brands through the out-licensing of our trademarks, characters and other brand and intellectual property rights to third parties, through the sale of branded consumer products such as toys and apparel. The Wizards of the Coast and Digital Gaming business engages in the promotion of the Company's brands through the development of trading card, role-playing and digital game experiences based on Hasbro and Wizards of the Coast games. Additionally, the Company out-licenses certain brands to other third-party digital game developers who transform Hasbro brand-based characters and other intellectual properties, into digital gaming experiences. The Entertainment segment engages in the development, acquisition, production, financing, distribution and sale of world-class entertainment content including film, scripted and unscripted television, family programming, digital content and live entertainment.
The significant accounting policies of the Company's segments are the same as those referenced in note 1.
Results shown for the quarter ended September 25, 2022 are not necessarily representative of those which may be expected for the full year 2022, nor were those of the comparable 2021 periods representative of those actually experienced for the full year 2021. Similarly, such results are not necessarily those which would be achieved were each segment an unaffiliated business enterprise.
Information by segment and a reconciliation to reported amounts for the quarters and nine months ended September 25, 2022 and September 26, 2021 are as follows:
| Quarter Ended | |||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | ||||||||||||||||||||||
| Net revenues | External | Affiliate (c) | External | Affiliate (c) | |||||||||||||||||||
| Consumer Products | $ | 1,160.8 | $ | 113.2 | $ | 1,282.7 | $ | (149.6) | |||||||||||||||
| Wizards of the Coast and Digital Gaming | 303.5 | 39.4 | 360.2 | (38.0) | |||||||||||||||||||
| Entertainment | 211.6 | 14.6 | 327.1 | (13.7) | |||||||||||||||||||
| Corporate and Other (a) | — | (167.2) | — | 201.3 | |||||||||||||||||||
| $ | 1,675.9 | $ | — | $ | 1,970.0 | $ | — |
| Nine Months Ended | |||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | ||||||||||||||||||||||
| Net revenues | External | Affiliate (c) | External | Affiliate (c) | |||||||||||||||||||
| Consumer Products | $ | 2,567.8 | $ | 350.3 | $ | 2,625.8 | $ | (316.8) | |||||||||||||||
| Wizards of the Coast and Digital Gaming | 986.1 | 122.1 | 1,008.7 | (93.1) | |||||||||||||||||||
| Entertainment | 624.3 | 41.3 | 772.5 | (40.4) | |||||||||||||||||||
| Corporate and Other (a) | — | (513.7) | — | 450.3 | |||||||||||||||||||
| $ | 4,178.2 | $ | — | $ | 4,407.0 | $ | — |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| Operating profit (loss) | September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | |||||||||||||||||||
| Consumer Products (a) | $ | 136.8 | $ | 210.4 | $ | 138.9 | $ | 260.5 | |||||||||||||||
| Wizards of the Coast and Digital Gaming | 102.2 | 159.4 | 434.2 | 462.3 | |||||||||||||||||||
| Entertainment (a) | (28.9) | 22.4 | (2.4) | (74.3) | |||||||||||||||||||
| Corporate and Other (a) | (15.8) | (24.3) | (37.3) | (56.7) | |||||||||||||||||||
| $ | 194.3 | $ | 367.9 | $ | 533.4 | $ | 591.8 |
| Total assets | September 25, 2022 | September 26, 2021 | December 26, 2021 | ||||||||||||||
| Consumer Products (b) | $ | 5,817.9 | $ | 4,754.0 | $ | 4,925.5 | |||||||||||
| Wizards of the Coast and Digital Gaming | 2,646.6 | 915.1 | 1,585.1 | ||||||||||||||
| Entertainment (a) | 6,158.5 | 5,570.0 | 6,052.8 | ||||||||||||||
| Corporate and Other (a) | (4,996.9) | (1,008.7) | (2,525.6) | ||||||||||||||
| $ | 9,626.1 | $ | 10,230.4 | $ | 10,037.8 |
(a) Certain long-term assets, including property, plant and equipment, goodwill and other intangibles, which benefit multiple operating segments, are included in both Entertainment and Corporate and Other. Allocations of certain Corporate and Other expenses, related to these assets are made to the individual operating segments at the beginning of the year based on budgeted amounts. Any differences between actual and budgeted amounts are reflected in Corporate and Other because allocations are translated from the U.S. Dollar to local currency at budgeted rates when recorded. Beginning in 2022, the Company has allocated certain of the intangible amortization costs related to the assets acquired in the eOne Acquisition, between the Consumer Products and Entertainment segments. Corporate and Other also includes the elimination of inter-company balance sheet amounts.
(b) During the second quarter of 2021, the Company adjusted certain inter-segment balance sheet amounts which impacted the Consumer Products and Corporate and Other total asset values. These adjustments did not impact the Company's total assets.
(c) Amounts represent revenues from transactions with other operating segments that are included in the operating profit (loss) of the segment.
The following table represents consolidated Consumer Products segment net revenues by major geographic region for the quarters and nine months ended September 25, 2022 and September 26, 2021:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| North America | $ | 693.3 | $ | 805.0 | $ | 1,531.8 | $ | 1,559.1 | |||||||||||||||
| Europe | 271.6 | 304.2 | 610.4 | 669.2 | |||||||||||||||||||
| Asia Pacific | 82.8 | 75.5 | 201.6 | 208.7 | |||||||||||||||||||
| Latin America | 113.1 | 98.0 | 224.0 | 188.8 | |||||||||||||||||||
| Net revenues | $ | 1,160.8 | $ | 1,282.7 | $ | 2,567.8 | $ | 2,625.8 |
The following table represents consolidated Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters and nine months ended September 25, 2022 and September 26, 2021:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Tabletop Gaming | $ | 246.3 | $ | 269.4 | $ | 800.3 | $ | 760.1 | |||||||||||||||
| Digital and Licensed Gaming | 57.2 | 90.8 | 185.8 | 248.6 | |||||||||||||||||||
| Net revenues | $ | 303.5 | $ | 360.2 | $ | 986.1 | $ | 1,008.7 |
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The following table represents consolidated Entertainment segment net revenues by category for the quarters and nine months ended September 25, 2022 and September 26, 2021:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Film and TV | $ | 188.6 | $ | 255.4 | $ | 527.0 | $ | 586.1 | |||||||||||||||
| Family Brands | 13.6 | 60.5 | 59.6 | 105.4 | |||||||||||||||||||
| Music and Other | 9.4 | 11.2 | 37.7 | 81.0 | |||||||||||||||||||
| Net revenues | $ | 211.6 | $ | 327.1 | $ | 624.3 | $ | 772.5 |
The following table presents consolidated net revenues by brand and entertainment portfolio for the quarters and nine months ended September 25, 2022 and September 26, 2021:
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||
| September 25, 2022 | September 26, 2021 | September 25, 2022 | September 26, 2021 | ||||||||||||||||||||
| Franchise Brands (1) | $ | 814.1 | $ | 925.1 | $ | 2,101.1 | $ | 2,125.4 | |||||||||||||||
| Partner Brands | 349.9 | 366.7 | 775.8 | 766.7 | |||||||||||||||||||
| Hasbro Gaming (2) | 211.3 | 281.9 | 480.7 | 565.3 | |||||||||||||||||||
| Emerging Brands (1) | 123.4 | 134.4 | 291.8 | 297.2 | |||||||||||||||||||
| TV/Film/Entertainment | 177.2 | 261.9 | 528.8 | 652.4 | |||||||||||||||||||
| Total | $ | 1,675.9 | $ | 1,970.0 | $ | 4,178.2 | $ | 4,407.0 |
(1) Effective in the first quarter of 2022, the Company moved PEPPA PIG into Franchise Brands from Emerging Brands. For comparability, net revenues for the quarter and nine months ended September 26, 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, which amounted to a change of $43.1 million and $102.0 million, respectively.
(2) Hasbro's total gaming category, which includes all gaming net revenues, both those reported in Hasbro Gaming and those reported elsewhere, most notably MAGIC: THE GATHERING and MONOPOLY which are reported within Franchise Brands, totaled $508.6 million and $1,415.7 million for the quarter and nine months ended September 25, 2022, respectively. For the quarter and nine months ended September 26, 2021, total gaming revenues were $658.6 million and $1,543.3 million, respectively.
(14) Restructuring Actions
During the third quarter of 2022, the Company took certain restructuring actions related to the Company's strategic review which resulted in severance and other employee charges of $21.3 million recorded in Selling, Distribution and Administration within the Corporate and Other segment and a loss of $26.7 million of non-cash charges related to the sale or disposal of non-strategic businesses, recorded as assets held for sale of $23.1 million and program cost amortization of $3.7 million recorded within the Entertainment segment. These businesses do not constitute a material part of the Company's operations. See Note 1 for additional information related to these charges.
During 2018 and 2020, the Company took certain restructuring actions including headcount reduction aimed at right-sizing the Company’s cost-structure and integration actions related to the acquisition of eOne.
As of September 25, 2022, the Company had a remaining balance of $26.8 million in termination payments related to these restructuring programs.
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