Hasbro 10-Q 2023-04-02

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

FORM 10-Q

__________________

(Mark One)

For the quarterly period ended April 2, 2023

or

Commission File Number 1-6682

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HASBRO, INC.

(Exact name of registrant as specified in its charter)

(401) 431-8697

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [x] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No [x]

The number of shares of Common Stock, par value $.50 per share, outstanding as of April 27, 2023 was 138,608,781.

Forward Looking Statement Safe Harbor

Certain statements in this Form 10-Q contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by the use of forward-looking words or phrases, include statements relating to: our business and marketing strategies; anticipated payments to be received for content, expected financial performance or business prospects in future periods; the development and timing of planned consumer and digital gaming products and entertainment releases; changes in leadership; expected benefits and cost-savings resulting from the Company’s Operational Excellence Program; expected benefits and cost-reductions from certain restructuring actions and divestiture of non-core businesses or assets, such as parts of the Entertainment One film and television business; inventory; capital expenditures; working capital; cash flow and liquidity; timing of and amount of repayment of indebtedness and production financings; capital allocation strategy, including plans for dividends and share repurchases; and other financial, tax, accounting and similar matters. Our actual actions or results may differ materially from those expected or anticipated in the forward-looking statements due to both known and unknown risks and uncertainties. Factors that might cause such a difference include, but are not limited to:

• our ability to successfully execute on our Blueprint 2.0 strategy, including to focus on and scale select business initiatives and brands to drive profitability;

• our ability to design, develop, manufacture, and ship products on a timely, cost-effective and profitable basis;

• our ability to successfully compete in the global play and entertainment industry;

• our ability to successfully evolve and transform our business and capabilities to successfully address the global consumer landscape;

• inflation and downturns in global and regional economic conditions impacting one or more of the markets in which we sell products, which can negatively impact our retail customers and consumers, result in lower employment levels, consumer disposable income, retailer inventories and spending, including lower spending on purchases of our products;

• our dependence on third party relationships, including with third party manufacturers, licensors of brands, studios, content producers and entertainment distribution channels;

• the risk that any strike by, or lockout of, one or more of the unions that provide personnel essential to the production of films or television programs, such as the strike by the writers’ union in May 2023, could delay or halt our ongoing production activities; halts or delays, depending on the length of time, could cause a delay or interruption in our release of new films and television programs, which could impact our entertainment business;

• risks relating to the concentration of manufacturing for many of our products in the People’s Republic of China and our ability to successfully diversify sourcing of our products to reduce reliance on sources of supply in China;

• risks related to economic and public health conditions or regulatory changes in the markets in which we and our customers, partners, licensees, suppliers and manufacturers operate, such as inflation, rising interest rates, higher commodity prices, labor costs or transportation costs, the coronavirus or other outbreaks of disease, the occurrence of which could create work slowdowns, delays or shortages in production or shipment of products, increases in costs or delays in revenue;

• risks associated with international operations, such as currency conversion, currency fluctuations, the imposition of tariffs, quotas, shipping delays or difficulties, border adjustment taxes or other protectionist measures, and other challenges in the territories in which we operate;

• the success of our key partner brands, including the ability to secure, maintain and extend agreements with our key partners or the risk of delays, increased costs or difficulties associated with any of our or our partners’ planned digital applications or media initiatives;

• risks related to our leadership changes;

• our ability to attract and retain talented and diverse employees;

• our ability to realize the benefits of cost-savings and efficiency and/or revenue and operating profit enhancing initiatives;

• risks relating to the impairment and/or write-offs of products and content we acquire and produce;

• the risk that acquisitions, dispositions and other investments we complete may not provide us with the benefits we expect, or the realization of such benefits may be significantly delayed. We may not achieve a successful sale or license of non-core assets, including certain film and television assets;

• our ability to protect our assets and intellectual property, including as a result of infringement, theft, misappropriation, cyber-attacks or other acts compromising the integrity of our assets or intellectual property;

• fluctuations in our business due to seasonality;

• the risk of product recalls or product liability suits and costs associated with product safety regulations;

• changes in tax laws or regulations, or the interpretation and application of such laws and regulations, which may cause us to alter tax reserves or make other changes which significantly impact our reported financial results;

• the impact of litigation or arbitration decisions or settlement actions;

• the concentration of our customers, potentially increasing the negative impact to our business of difficulties experienced by any of our customers or changes in their purchasing or selling patterns;

• the bankruptcy or other lack of success of one or more of our significant retailers, licensees and other partners; and

• other risks and uncertainties as may be detailed in our public announcements and U.S. Securities and Exchange Commission (“SEC”) filings.

The statements contained herein are based on our current beliefs and expectations. We undertake no obligation to make any revisions to the forward-looking statements contained in this Form 10-Q or to update them to reflect events or circumstances occurring after the date of this Form 10-Q.

PART I. FINANCIAL INFORMATION

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of Dollars Except Share Data)

(Unaudited)

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Millions of Dollars Except Per Share Data)

(Unaudited)

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OBJECTIVE

Our objective within the following discussion is to provide an analysis of the Company’s Results of Operations, Financial Condition, and Cash Flows 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 within tables herein are expressed in millions of dollars or shares, except for per share amounts.

EXECUTIVE SUMMARY

Hasbro, Inc. (“Hasbro”) is a global Branded Entertainment leader whose mission is to entertain and connect generations of fans through the wonder of storytelling and exhilaration of play. Hasbro delivers engaging brand experiences for global audiences across gaming, consumer products and entertainment, with a portfolio of iconic brands including MAGIC: THE GATHERING, DUNGEONS & DRAGONS, Hasbro Gaming, NERF, TRANSFORMERS, PLAY-DOH and PEPPA PIG, as well as premier partner brands.

Hasbro is guided by our purpose to create joy and community for all people around the world, one game, one toy, one story at a time.

For more than a decade, we have been consistently recognized for our corporate citizenship, including being named one of the 100 Best Corporate Citizens by 3BL Media, one of the World’s Most Ethical Companies by Ethisphere Institute and one of the 50 Most Community-Minded Companies in the U.S. by the Civic 50.

Recent Developments

Executive Leadership

On April 12, 2023, the Company announced the appointment of Gina Goetter as Chief Financial Officer, effective May 18, 2023, following the Company’s Annual Meeting of Shareholders. Ms. Goetter joins Hasbro from Harley Davidson, Inc., where she served as Chief Financial Officer. Prior to her time at Harley Davidson, Ms. Goetter served in senior leadership roles at Tyson Foods, Inc. and General Mills, Inc.

On April 12, 2023, the Company announced the appointment of Tim Kilpin as President, Toy, Licensing & Entertainment, effective April 24, 2023. Mr. Kilpin joins Hasbro from PlayMonster Group, LLC, where he served as Executive Chairman and Chief Executive Officer. Previously, Mr. Kilpin held senior leadership positions within the toy and entertainment industry at companies that include Activision Blizzard, Inc., Mattel, Inc. and The Walt Disney Company.

Strategic Review

On October 4, 2022, following a several months long strategic review of our business led by our CEO, we announced a go-forward strategic plan guided by our new Blueprint 2.0, a consumer-centric framework for bringing compelling and expansive brand experiences to audiences around the world. Our Blueprint 2.0 strategy focuses on what has driven our business for the past one hundred years and will serve as our foundation going forward: Play. During our review we identified opportunities to focus and scale our business, enhance operational excellence, including through specialized organizational programs and supply chain transformation, to drive growth and profit and enhance shareholder value. We are increasing strategic investment in our most valuable and profitable franchises across toys, games, entertainment and licensing, and exiting certain non-core aspects of the business.

Hasbro Transformation Office

Under our new strategic plan, we launched the Hasbro Transformation Office (HTO), a team of leaders dedicated to running a disciplined, purpose-built company that is simpler, more efficient and redesigned to drive long-term sustainable growth in markets in which we compete. Our HTO aligns and delivers on our Operational Excellence program, an enterprise-wide cost-saving initiative intended to improve our business financially, operationally and culturally from our current state and designed to deliver $250 million to $300 million in run-rate cost savings by the end of 2025. During the first quarter of 2023, we realized an additional $35 million of run-rate cost savings.

TV and Film Business

On November 17, 2022, we announced an authorization by Hasbro's Board of Directors to initiate a marketing process to explore a sale of parts of our eOne TV and film business that do not directly support the Company’s Branded Entertainment strategy. In the event a transaction were to occur, Hasbro is expected to maintain the capability to develop and produce animation, digital shorts, scripted TV and theatrical films for audiences related to core Hasbro IP. The family brands business, including the brands PEPPA PIG and PJ MASKS, is not expected to be part of any sale transaction

involving parts of the eOne film and television business. The sale process was ongoing as of the close of the first quarter of 2023 however, there can be no assurance that the process will result in a sale.

Workforce Reduction

In alignment with the objectives of our Operational Excellence program, on January 26, 2023, we announced the undertaking of certain organizational changes which will result in the elimination of approximately 1,000 positions from our global workforce in 2023, or approximately 15% of global full-time employees.

Brand Portfolio Realignment

Effective for the first quarter 2023, we realigned our brand portfolios to correspond with the evolution of our Blueprint 2.0 strategy. We are focusing on fewer, bigger, more profitable brands that showcase our leadership in preschool toys, action figures and accessories, games, arts & crafts, and outdoor action brands.

Our new product categories beginning in the first quarter of 2023 are as follows:

◦Franchise Brands - A refreshed group of our most profitable brands that includes DUNGEONS & DRAGONS, Hasbro Gaming, MAGIC: THE GATHERING, NERF, PEPPA PIG, PLAY-DOH, and TRANSFORMERS.

◦Partner Brands - The Partner Brands category includes those brands we license from other parties such as Disney's STAR WARS and MARVEL as well as other partners, for which we develop toy and game products, with a focus on those key Partner Brands that give us the largest growth potential and where we can lead and innovate in the category.

◦Portfolio Brands - Our Portfolio Brands category includes those brands we own or control which we feel have upside in revenue and profitability that have not yet grown to the significance of a franchise brand.

◦Non-Hasbro Branded Film & TV - The Non-Hasbro Branded Film & TV category includes non-Hasbro-branded film, TV and other entertainment related revenues. All Hasbro-branded content is included in the portfolios noted above.

During each of the periods presented in this Form 10-Q there were certain charges incurred which impacted operating segment results in the Company’s Consumer Products, Entertainment and Corporate and Other segments. These charges are discussed below in Results of Operations - Consolidated.

First quarter 2023 highlights:

• First quarter net revenues of $1.0 billion decreased 14% compared to the first quarter of 2022 and included an unfavorable foreign currency translation of $15.8 million. Absent the unfavorable impact of foreign currency exchange, first quarter net revenues decreased 13%.

• Consumer Products segment net revenues declined 23% to $520.4 million. Wizards of the Coast and Digital Gaming segment net revenues increased 12% to $295.2 million; and Entertainment segment net revenues declined 19% to $185.4 million.

• Net revenues from Franchise Brands declined 6%; Partner Brands net revenues declined 36%; Portfolio Brands net revenues declined 18%; and Other Entertainment net revenues declined 16%.

• Operating profit was $17.9 million, or 1.8% of net revenue in the first quarter of 2023 compared to operating profit of $120.0 million, or 10.3% of net revenue, in the first quarter of 2022.

• Operating results in the Consumer Products segment decreased greater than 100% to an operating loss of $46.0 million; Wizards of the Coast and Digital Gaming segment operating profit decreased 28% to $76.8 million;

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The information required by this item is included in Part I, Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.

Evaluation of disclosure controls and procedures

The Company maintains disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of April 2, 2023. Based on the evaluation of these disclosure controls and procedures, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective.

Changes in internal control over financial reporting

There were no changes in the Company's internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarter ended April 2, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

The Company is currently party to certain legal proceedings, none of which it believes to be material to its business or financial condition.

In connection with information set forth in this Quarterly Report on Form 10-Q, the risk factors discussed under Item 1A. Risk Factors, in Part I of our 2022 Form 10-K and in our subsequent filings, including in this filing, should be considered. The risks set forth in our 2022 Form 10-K and in our subsequent filings, including in this filing, could materially and adversely affect our business, financial condition, and results of operations. There are no material changes from the risk factors as previously disclosed in our 2022 10-K, in any of our subsequently filed reports or as otherwise set forth in this Quarterly Report, except as set forth below.

Our entertainment business could be adversely affected by strikes or other union job actions.

Any strike by, or lockout of, one or more of the unions that provide personnel essential to the production of films or television programs, such as the strike by the writers’ union in May 2023, could delay or halt our ongoing production activities. Halts or delays, depending on the length of time, could cause a delay or interruption in our release of new films and television programs, which could impact our entertainment business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

In May 2018, the Company announced that its Board of Directors authorized the repurchase of an additional $500 million of common stock, its most recent share repurchase authorization. Purchases of the Company's common stock may be made from time to time, subject to market conditions. These shares may be repurchased in the open market or through privately negotiated transactions. The Company has no obligation to repurchase shares under this authorization and there is no expiration date for this repurchase authorization. The timing, actual number, and value of shares that are repurchased 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.

There were no repurchases of the Company’s Common Stock during the quarters ended April 2, 2023 and March 27, 2022. At April 2, 2023, Hasbro had $241.6 million remaining available under its share repurchase authorization.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

None.

** Furnished herewith*

*** Indicates* management contract or compensatory plan, contract or arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.