HASBRO, INC. 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 SUMMARYHasbro, Inc. ("Hasbro") is a global play and entertainment company committed to Creating the World's Best Play and Entertainment Experiences and making the world a better place for all children, fans and families. Hasbro delivers immersive brand experiences for global audiences through consumer products, including toys and games; gaming, led by the team at Wizards of the Coast, an award-winning developer of tabletop and digital games; and entertainment through Entertainment One ("eOne"), our independent studio. The Company's unparalleled portfolio of approximately 1,500 brands includes MAGIC: THE GATHERING, NERF, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, MONOPOLY, BABY ALIVE, DUNGEONS & DRAGONS, POWER RANGERS, PEPPA PIG and PJ MASKS, as well as premier partner brands. For the past decade, we have been consistently recognized for our corporate citizenship, including being named one of the 100 Best Corporate Citizens by3BL Media and one of the World's Most Ethical Companies byEthisphere Institute . Our strategic plan is centered around the Hasbro Brand Blueprint, a framework for bringing compelling and expansive brand experiences to consumers and audiences around the world. Our brands are story-led consumer franchises brought to life through a wide array of consumer products, digital gaming and compelling content offered across a multitude of platforms and media. Our commitment to disciplined, strategic investments across the Brand Blueprint over the long-term has built a differentiated business with diversified capabilities to drive profitable growth and enhance shareholder value. As we continue to evolve our strategy, our teams are driving focus and scale in gaming, multi-generational brands, entertainment creation and direct to consumer. Hasbro's purpose of making the world a better place for all children, fans and families sits at the center of the Hasbro Brand Blueprint and is a key driver of our brands and content. The value of Hasbro is fully activated when we can take a brand across multiple elements of the Brand Blueprint - consumer products; Wizards of the Coast and digital gaming; and entertainment. The ability to build a brand in any of our segments and leverage in-house capabilities to create multiple categories of engagement with consumers and fans is unique to Hasbro and optimizes our economics today and in the future.
During each of the periods presented in this Form 10-Q there were certain charges incurred which impacted operating results. These charges are detailed below in the Results of Operations - Consolidated.
Coronavirus Pandemic
Since the onset of the novel coronavirus (COVID-19) pandemic in early 2020, our business, has been adversely impacted by the challenges and risks associated with both the initial, and the continuing effects of the spread of the virus worldwide. Certain effects of the COVID-19 pandemic, including difficulties in shipping and distributing products due to ongoing constraints in port capacity, shipping containers and truck transportation, have continued through the first six months of 2022 and are expected to continue through the remainder of the year. These and other disruptions have led to higher costs for both ocean and air freight and delays in the availability of products, which can result in delayed sales and, in some cases, lost sales. In response to these and other challenges, we have developed and continue to evaluate and execute plans to mitigate the negative impacts of COVID-19 to our business. For example, we implemented certain price increases in the first half of 2022 and in 2021, to mitigate product input and freight cost increases. The Company continues to review the impact of increasing costs and implemented further price increases in its Wizards of the Coast tabletop business inJuly 2022 . Additionally, during the first half of 2022, the Company accelerated certain inventory purchases to ensure sufficient finished goods and raw material availability, ahead of expected periods of high consumer demand. We believe these mitigating actions will help manage the adverse impacts to our financial results for fiscal year 2022. The COVID-19 outbreak continues to be fluid and it is difficult to forecast the impact it could have on our future operations. However, since the initial outbreak, we have maintained sufficient liquidity and access to capital resources and we continue to closely monitor customer health and collectability of receivables. Please see Part I, Item 1A. Risk Factors and Part I, Item 1. Business, in the Company's Form 10-K for the fiscal year endedDecember 26, 2021 for further information. --------------------------------------------------------------------------------
D&D Beyond Acquisition
During the second quarter of 2022, the Company completed the strategic,
complementary acquisition of D&D Beyond ("D&D Beyond Acquisition"), the premier
digital content platform for DUNGEONS & DRAGONS, in an all-cash transaction for
a purchase price of $146.3 million . D&D Beyond Acquisition is expected to
substantially accelerate direct-to-fans capability for DUNGEONS & DRAGONS in
physical and digital play. See note 1 to the consolidated financial statements
included in Part I of this Form 10-Q for further discussion.
Second quarter 2022 highlights:
•Second quarter net revenues of$1.3 billion increased 1% compared to the second quarter of 2021 and included an unfavorable foreign currency translation of$32.7 million . Absent the unfavorable impact of foreign currency exchange, first quarter net revenues increased 4%.
•Consumer Products segment net revenues increased 7% to
•Net revenues from Franchise Brands increased 10%; Partner Brands net revenues increased 3%; Emerging Brands net revenues increased 3%;Hasbro Gaming net revenues decreased 14%; and TV/Film/Entertainment portfolio net revenues decreased 19%, reflecting the sale of eOne Music which represented$33.4 million of TV/Film/Entertainment portfolio net revenues in the second quarter of 2021. •Operating profit was$219.1 million , or 16.4% of net revenue, in the second quarter of 2022 compared to operating profit of$76.6 million , or 5.8% of net revenue, in the second quarter of 2021. •Operating Profit in the Wizards of the Coast and Digital Gaming segment increased 17% to$225.6 million ; Entertainment segment operating profit increased >100% to$14.3 million ; Consumer Products segment operating results decreased >100% to an operating loss of$6.5 million ; and Corporate and Other operating results decreased 30% to an operating loss of$14.3 million . •Second quarter 2021 operating profit was negatively impacted by a pre-tax non-cash impairment charge of$101.8 million and pre-tax cash transaction expenses of$9.5 million ($7.3 million after-tax) associated with the sale of eOne Music. •Certain other charges impacted operating segment performance for the second quarter of 2022 and 2021, in the Company's Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results. •Net earnings attributable toHasbro, Inc. of$142.0 million , or$1.02 per diluted share, in the second quarter of 2022 compared to net losses of$22.9 million , or$0.17 per diluted share, in the second quarter of 2021. The net loss in the second quarter of 2021 included the loss on assets held for sale from the Music business, as discussed above.
First six months 2022 highlights:
•Net revenues increased 3% to$2,502.3 million in first six months of 2022 compared to$2,437.0 million in the first six months of 2021. The increase in net revenues included$50.1 million of unfavorable foreign currency translation. Absent the impact of foreign currency exchange, net revenues increased 5%. •Net revenues in the Consumer Products segment increased 5% to$1,407.0 million ; Wizards of the Coast and Digital Gaming segment net revenues increased 5% to$682.6 million ; and Entertainment segment net revenues decreased 7% to$412.7 million .
•Net revenues from Franchise Brands increased 7%; Partner Brands net revenues
increased 6%; Emerging brands net revenues increased 3%;
•Operating profit was$339.1 million , or 13.6% of net revenues, in the first six months of 2022 compared to operating profit of$223.9 million , or 9.2% of net revenues, in the first six months of 2021. •Operating profit in the Wizards of the Coast and Digital Gaming segment increased 10% to$332.0 million ; Entertainment segment operating profit increased >100% to$26.5 million ; Consumer Products segment operating profit decreased 96% to$2.1 million ; and Corporate and Other operating losses improved by 34% to an operating loss of$21.5 million . -------------------------------------------------------------------------------- •Operating profit in the first half of 2021 was negatively impacted by a pre-tax non-cash impairment charge of$101.8 million and pre-tax cash transaction expenses of$9.5 million ($7.3 million after-tax) associated with the sale of eOne Music. •Certain other charges impacted operating segment performance for the first six months of 2022 and 2021, in the Company's Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results. •Net earnings attributable toHasbro, Inc. was$203.2 million , or$1.46 per diluted share, in the first six months of 2022 compared to net earnings attributable toHasbro, Inc. of$93.3 million , or$0.68 per diluted share, in the first six months of 2021. The net earnings in the first six months of 2021 included the loss on assets held for sale from the Music business, as discussed above. The impact of changes in foreign currency exchange rates used to translate the consolidated statements of operations is quantified by translating the current period revenues at the prior period exchange rates and comparing this amount to the prior period reported revenues. The Company believes that the presentation of the impact of changes in exchange rates, which are beyond the Company's control, is helpful to an investor's understanding of the performance of the underlying business.
SUMMARY OF FINANCIAL PERFORMANCE
A summary of the results of operations is illustrated below for the quarters and
six-month periods ended
Quarter Ended Six Months Ended
June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021
Net revenues $ 1,339.2 $ 1,322.2 $ 2,502.3 $ 2,437.0
Operating profit 219.1 76.6 339.1 223.9
Earnings before income taxes 179.9 41.1 260.1 170.6
Net earnings (loss) 140.5 (21.9) 203.4 95.6
Net (loss) earnings attributable to
noncontrolling interests (1.5) 1.0 0.2 2.3
Net earnings (loss) attributable to
Hasbro, Inc. 142.0 (22.9) 203.2 93.3
Diluted earnings per share 1.02 (0.17) 1.46 0.68
RESULTS OF OPERATIONS - CONSOLIDATED
Net earnings and diluted earnings per share attributable toHasbro, Inc. for the quarters and six-month periods endedJune 26, 2022 andJune 27, 2021 include certain charges as described below.
2022
•After-tax charges of$15.3 million , or$0.11 per diluted share and$31.2 million , or$0.22 per diluted share, of intangible amortization costs for the quarter and six-month periods endedJune 26, 2022 , respectively, related to the intangible assets acquired in the eOne acquisition. Beginning in 2022, these intangible amortization costs have been allocated between theConsumer Products and Entertainment segments, to match the revenue generated from such intangible assets. •After-tax charges of$3.2 million ,$0.02 per diluted share and$5.6 million , or$0.04 per diluted share, for the quarter and six-month periods endedJune 26, 2022 , respectively, of expense associated with retention awards granted in connection with the eOne acquisition. These expenses are included within Selling, Distribution and Administration within the Corporate and Other segment. --------------------------------------------------------------------------------
2021
•After-tax charges of$18.2 million , or$0.13 per diluted share and$38.7 million , or$0.28 per diluted share, of intangible amortization costs for the quarter and six-month periods endedJune 27, 2021 , respectively, related to the intangible assets acquired in the eOne acquisition. In 2021, these intangible amortization costs were recorded within the Entertainment segment. •After-tax charges of$1.6 million ,$0.01 per diluted share and$3.3 million , or$0.02 per diluted share, for the quarter and six-month periods endedJune 27, 2021 , respectively, of expense associated with retention awards granted in connection with the eOne acquisition. These expenses are included within Selling, Distribution and Administration within the Corporate segment. •After-tax charge of$109.1 million , or$0.79 per diluted share for quarter and six-month periods endedJune 27, 2021 , comprised of a non-cash goodwill impairment charge of$101.8 million and transaction expenses of$7.3 million , associated with the sale of eOne Music. The goodwill impairment charge of$101.8 million was based on revalued assets and liabilities of eOne music as of the second quarter of 2021. •A net charge of$39.4 million , or$0.29 per diluted share, for quarter and six-month periods endedJune 27, 2021 , of income tax expense as a result of revaluation of Hasbro'sUK tax attributes in accordance with the Finance Act 2021 enacted by theUnited Kingdom onJune 10, 2021 .
Second Quarter 2022
The quarters ended
Consolidated net revenues for the second quarter of 2022 grew 1% to$1,339.2 million from$1,322.2 million for the second quarter of 2021 and included an unfavorable$32.7 million impact from foreign currency translation as a result of weakening currencies, primarily inEurope . Operating profit for the second quarter of 2022 was$219.1 million , or 16.4% of net revenues, compared to operating profit of$76.6 million , or 5.8% of net revenues, for the second quarter of 2021. The operating profit increase was primarily driven by the impact to the prior year of the pre-tax non-cash impairment charge of$101.8 million and lower advertising and administrative costs in the second quarter of 2022, in each case as a result of the sale of eOne Music in 2021. In addition, the operating profit increase in the second quarter of 2022 was the result of lower program amortization costs within the Entertainment segment, reflecting the mix and timing of entertainment deliveries in the quarter compared to the second quarter of 2021, lower compensation expense, and lower advertising and depreciation costs within the Wizards of the Coast and Digital Gaming segment, due to digital gaming launches in the second quarter of 2021. These decreases were partially offset by higher costs of sales due to higher product input and freight costs as a result of rising costs and supply chain disruptions, as well as higher obsolescence charges inRussia and higher costs for consulting and other professional services associated with the annual shareholder meeting.
The following table presents net revenues by brand and entertainment portfolio
for the quarters ended
Quarter Ended
%
June 26, 2022 June 27, 2021 Change
Franchise Brands $ 743.9 $ 677.2 10 %
Partner Brands 219.4 212.0 3
Hasbro Gaming 125.8 147.1 -14
Emerging Brands 92.0 89.7 3
TV/Film/Entertainment 158.1 196.2 -19
Total $ 1,339.2 $ 1,322.2 1 %
Brand portfolio net revenues for the second quarter of 2021 have been restated
to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands,
effective for the first quarter of 2022. As a result, second quarter 2021 net
revenues of $27.3 million were reclassified from Emerging Brands to Franchise
Brands.
--------------------------------------------------------------------------------
FRANCHISE BRANDS: Net revenues in the Franchise Brands portfolio increased 10%
in the second quarter of 2022 compared to the second quarter of 2021. Drivers of
the net revenue increase include higher net revenues from MAGIC: THE GATHERING
products reflecting a favorable set release cadence during the second quarter of
2022, led by sales of the Commander Legends: Battle for Baldur's Gate and Double
Masters set releases, as well as higher net revenues from PLAY-DOH products and
higher net revenues from PEPPA PIG, driven by the third quarter 2021 launch of
the Company's first line of PEPPA PIG products. To a lesser extent, higher sales
of MY LITTLE PONY products, following the September 2021 release of the feature
length film, MY LITTLE PONY: A NEW GENERATION and the associated product line,
drove growth in the second quarter of 2022. These net revenue increases were
partially offset by lower net revenues from TRANSFORMERS and MONOPOLY products.
PARTNER BRANDS: Net revenues from the Partner Brands portfolio increased 3% in
the second quarter of 2022 compared to the second quarter of 2021. Within the
Partner Brands portfolio, there are a number of brands which are reliant on
related entertainment, including television and movie releases. As such, net
revenues from partner brands fluctuate depending on entertainment popularity,
release dates and related product line offerings and success. Historically these
entertainment-based brands experience higher revenues during years in which new
content is released in theaters, for broadcast, and on streaming platforms.
During the second quarter of 2022, Partner Brands net revenue increases were
driven by the Company's products for MARVEL, primarily from momentum in the
SPIDER-MAN franchise which benefited from entertainment releases including
Marvel Studios' SPIDER-MAN: NO WAY HOME, released in December 2021 and the
children's animated television series Marvel's SPIDEY and HIS AMAZING FRIENDS.
In addition, the Company's products for Marvel's AVENGERS benefited from the
release of Marvel Studios' DOCTOR STRANGE in the MULTIVERSE of MADNESS, in May
2022 and THOR: LOVE AND THUNDER, ahead of the July 2022 release. To a lesser
extent, net revenues from the Company's line of STAR WARS products increased as
a result of the entertainment lineup from Lucasfilms including, THE BOOK of BOBA
FETT , released in the first fiscal quarter of 2022 and the launch of the STAR
WARS series OBI-WAN KENOBI series during the second quarter of 2022, both
streaming on Disney+. These increases were partially offset by net revenue
declines from BEYBLADE and DISNEY FROZEN products during the second quarter of
2022.
HASBRO GAMING : Net revenues in the Hasbro Gaming portfolio decreased 14% in the
second quarter of 2022 compared to the second quarter of 2021 driven primarily
by net revenue decreases from the Dungeons & Dragons: Dark Alliance digital game
launched during the second quarter 2021, with no comparable release in 2022 and,
to a lesser extent, net revenue decreases from DUEL MASTERS products. These net
revenue decreases were partially offset by higher net revenues from AVALON
HILL'S HeroQuest products and certain classic games.
Net revenues for Hasbro's total gaming category, including the Hasbro Gaming
portfolio as reported above and all other gaming revenue, most notably revenues
from MAGIC: THE GATHERING and MONOPOLY products, which are included in the
Franchise Brands portfolio, totaled $528.3 million for the second quarter of
2022, an increase of 2%, as compared to $519.4 million in the second quarter of
2021.
EMERGING BRANDS: Net revenues from the Emerging Brands portfolio increased 3%
during the second quarter of 2022 compared to the second quarter of 2021. Net
revenue increases during the second quarter of 2022 were driven by POWER RANGERS
and FURREAL FRIENDS products, partially offset by lower net revenues from GI JOE
and certain other EMERGING BRANDS products.
TV/FILM/ENTERTAINMENT: Net revenues from the TV/Film/Entertainment portfolio
decreased 19% compared to the second quarter of 2021. The second quarter 2022
net revenue decrease was driven by the sale of the eOne Music business at the
start of the third quarter 2021, which represented $33.4 million or 17% of TV,
Film and Entertainment portfolio net revenues during the second quarter 2021. In
addition, lower scripted deliveries, primarily related to the delivery timing of
CRUEL SUMMER season two which is expected in the third quarter of 2022, as
compared to CRUEL SUMMER season one, which was delivered in the second quarter
of 2021, contributed to the decrease. These decreases were partially offset by
higher net revenues from THE ROOKIE television series, higher film revenues and
higher unscripted television production revenues during the second quarter of
2022, compared to the second quarter of 2021.
First Six Months of 2022
The six-month periods ended
For the first six months of 2022, consolidated net revenues increased 3% compared to the first six months of 2021 and reflect an unfavorable variance of$50.1 million as a result of foreign currency translation due to weaker currencies across the Company's European and, to a lesser extent,Asia Pacific markets when compared to the first six months of 2021. -------------------------------------------------------------------------------- Operating profit for the first six months of 2022 was$339.1 million , or 13.6% of net revenues, compared to an operating profit of$223.9 million , or 9.2% of net revenues, for the first six months of 2021. The operating profit increase was primarily driven by the impact to the prior year of the pre-tax non-cash impairment charge of$101.8 million and lower administrative costs as a result of the sale of eOne Music in 2021. In addition, the operating profit increase was due to higher net revenues in 2022, combined with lower advertising and depreciation costs within the Wizards of the Coast and Digital Gaming segment due to digital gaming launches in the first six months of 2021, as well as lower royalty expenses in 2022. These benefits were partially offset by higher costs of sales due to higher product input and freight costs as a result of rising costs and supply chain disruptions and higher program amortization costs within the Entertainment segment, reflecting the mix of programming deliveries during the first six months, and to a lesser extent, higher marketing and sales costs.
The following table presents net revenues by product category for the first six months of 2022 and 2021.
Six Months Ended
%
June 26, 2022 June 27, 2021 Change
Franchise Brands $ 1,287.0 1,200.3 7 %
Partner Brands 425.9 400.0 6 %
Hasbro Gaming 269.4 283.4 -5 %
Emerging Brands 168.4 162.8 3 %
TV/Film/Entertainment 351.6 390.5 -10 %
Total $ 2,502.3 2,437.0 3 %
Brand portfolio net revenues for first six months of 2021 have been restated to
reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands,
effective for the first quarter of 2022. As a result, first six months of 2021
net revenues of $58.9 million were reclassified from Emerging Brands to
Franchise Brands.
FRANCHISE BRANDS: Net revenues in the Franchise Brands portfolio increased 7% in
the first six months of 2022 compared to 2021. The net revenue increase was
primarily driven by higher net revenues from MAGIC: THE GATHERING products
reflecting record sales from the Kamigawa: Neon Dynasty, Commander Legends:
Battle for Baldur's Gate and Double Masters set releases during the first six
months of 2022. In addition, higher net revenues from PEPPA PIG, driven by the
third quarter 2021 launch of the Company's first line of PEPPA PIG products,
higher net revenues from PLAY-DOH products and higher net revenues from MY
LITTLE PONY, following the September 2021 release of the feature length film, MY
LITTLE PONY: A NEW GENERATION, drove growth during the first six months of 2022.
These net revenue increases were partially offset by lower net revenues from
MONOPOLY products, and to a lesser extent, lower net revenues from TRANSFORMERS
and NERF products during the first six months of 2022.
PARTNER BRANDS: Net revenues from the Partner Brands portfolio increased 6% during the first six months of 2022 compared to 2021.
During the first six months of 2022, Partner Brands net revenue increases were driven by the Company's products for MARVEL, primarily from momentum in the SPIDER-MAN franchise which benefited from entertainment releases includingMarvel Studios' SPIDER-MAN: NO WAY HOME and the children's animated television series Marvel's SPIDEY and HIS AMAZING FRIENDS while the Company's products for Marvel's AVENGERS benefited from the release ofMarvel Studios' DOCTOR STRANGE in the MULTIVERSE of MADNESS. To a lesser extent, net revenues from the Company's line of STAR WARS products increased as a result of the lineup of new entertainment from Lucasfilms including, THE BOOK ofBOBA FETT and the STAR WARS seriesOBI-WAN KENOBI , both streaming on Disney+. In addition, Partner Brands net revenues benefited from the introduction of the Company's line of FORTNITE action figures during the first six months of 2022. These increases were partially offset by net revenue declines from DISNEY FROZEN and BEYBLADE products and to a lesser extent, DISNEY PRINCESS and TROLLS products during the first half of 2022.HASBRO GAMING : Net revenues in the Hasbro Gaming portfolio decreased 5% in the first six months of 2022 compared to the first six months of 2021 driven primarily by lower net revenues from the Dungeons & Dragons:Dark Alliance digital game launched during the second quarter 2021 with no comparable release in 2022. Net revenues for Hasbro's total gaming category, including the Hasbro Gaming portfolio as reported above and all other gaming revenue, most notably from MAGIC: THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, were$907.1 million , an increase of 3%, in the first six months of 2022 versus$884.7 million in the first six months of 2021. -------------------------------------------------------------------------------- EMERGING BRANDS: Net revenues from the Emerging Brands portfolio grew 3% for the first six months of 2022 compared to the first six months of 2021. Net revenue increases during the first half of 2022 were driven by POWER RANGERS products and to a lesser extent, PJ MASKS and FURREAL FRIENDS products, partially offset by lower net revenues from G.I. JOE and SUPER SOAKER products. TV/FILM/ENTERTAINMENT: Net revenues from the TV/Film/Entertainment portfolio decreased 10% for the first six months of 2022 compared to the first six months of 2021. Lower net revenues in 2022 were driven by the sale of eOne Music at the start of the third quarter 2021, which represented$65.2 million or 17% of TV,Film and Entertainment portfolio net revenues during the first six months of 2021. In the first six months of 2022, higher net revenues from unscripted television deliveries, compared to the first six months of 2021 where deliveries were limited or delayed due to the impact of the COVID-19 pandemic, and higher film revenues, were offset by lower scripted television net revenues due primarily to the timing of deliveries during the first six months of 2022.
SEGMENT RESULTS
Beginning in 2022, intangible amortization costs related to the intangible assets acquired in the eOne acquisition have been allocated between theConsumer Products and Entertainment segments to match the revenue generated from such intangible assets. In 2021, comparable intangible amortization costs were recorded within the Entertainment segment.
Second Quarter 2022
The following table presents net external revenues and operating profit (loss) data for the Company's principal segments for the quarters endedJune 26, 2022 andJune 27, 2021 : Quarter Ended % June 26, 2022 June 27, 2021 Change Net revenues Consumer Products$ 734.2 $ 689.2 7 % Wizards of the Coast and Digital Gaming 419.8 406.3 3 % Entertainment * 185.2 226.7 -18 % Operating Profit (Loss) Consumer Products $ (6.5) $ 17.8 >-100% Wizards of the Coast and Digital Gaming 225.6 192.9 17 % Entertainment * 14.3 (113.7) >100% Corporate and Other (14.3) (20.4) 30 % * Entertainment segment net revenues and operating loss, for the quarter endedJune 27, 2021 include$33.4 million and($94.9) million , respectively, from eOne Music, which was sold at the beginning of the third quarter of 2021.
Consumer Products Segment
The following table presents the Consumer Products segment net revenues by major
geographic region for the quarters ended
Quarter Ended
June 26, 2022 June 27, 2021
North America $ 433.3 391.4
Europe 162.1 176.5
Asia Pacific 66.6 68.4
Latin America 72.2 52.9
Net revenues $ 734.2 $ 689.2
The Consumer Products segment net revenues increased 7% to $734.2 million for
the second quarter of 2022 compared to $689.2 million for the second quarter of
2021 and included the impact of an unfavorable $19.1 million currency
translation, most notably from the Company's European markets. Drivers of the
net revenue increase include higher sales of the Company's products for MARVEL,
higher sales of PLAY-DOH and PEPPA PIG products, and higher sales of POWER
RANGERS, PJ
--------------------------------------------------------------------------------
MASKS and MY LITTLE PONY products. Partially offsetting these increases were
lower sales of MONOPOLY products and lower sales of the Company's products for
DISNEY FROZEN, as well as lower sales of BEYBLADE, TRANSFORMERS and GI JOE
products. Net revenues increased in North America and in Latin American markets
during the second quarter of 2022. Absent the unfavorable foreign currency
exchange impact of $14.9 million in Europe , and to a lesser extent, $2.8 million
in Asia Pacific , net revenues remained relatively flat in the Company's Europe
and Asia Pacific regions.
Consumer Products segment operating losses for the second quarter of 2022 were
$6.5 million or 0.9% of segment net revenues, compared to segment operating
profit of $17.8 million or 2.6% of segment net revenues, for the second quarter
of 2021. As noted above, to align with the revenue generated from the assets
acquired in the eOne acquisition, Consumer Products segment operating profit in
the second quarter of 2022 includes $9.6 million of intangible asset
amortization costs. In 2021, the comparable costs were reported in the
Entertainment segment results. This allocation of intangible amortization drove
a 1.3% decline in operating margin for the Consumer Products segment. The
remaining operating profit decrease in the second quarter of 2022 was driven by
higher product costs, including higher inventory obsolescence costs related to
products in Russia and higher distribution costs as a result of global supply
chain disruptions. These negative impacts were partially offset by price
increases implemented during the second half of 2021 and the first quarter of
2022.
--------------------------------------------------------------------------------Wizards of the Coast and Digital Gaming Segment
The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters endedJune 26, 2022 andJune 27, 2021 . Quarter Ended June 26, 2022 June 27, 2021 Tabletop Gaming$ 361.8 $ 315.4 Digital and Licensed Gaming 58.0 90.9 Net revenues$ 419.8 $ 406.3 Wizards of the Coast and Digital Gaming segment net revenues increased 3% in the second quarter of 2022 to$419.8 million from$406.3 million in the second quarter of 2021 and included the impact of an unfavorable$8.2 million foreign currency translation. The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the second quarter of 2022 was attributable to net revenue increases from Wizards of the Coast tabletop gaming products, most notably, MAGIC: THE GATHERING, driven by sales of the Commander Legends: Battle for Baldur's Gate and Double Masters set releases, and, to a lesser extent, higher licensed digital gaming net revenues. These increases were partially offset by lower digital gaming net revenues from the mobile version of Magic:The Gathering Arena and from Dungeons & Dragons:Dark Alliance , released during the second quarter of 2021. Wizards of the Coast and Digital Gaming segment operating profit was$225.6 million , or 53.7% of segment net revenues for the second quarter of 2022, compared to operating profit of$192.9 million , or 47.5% of segment net revenues, for the second quarter of 2021. The operating profit increase during the second quarter of 2022 was the result of higher sales combined with lower product development costs, lower advertising costs and lower depreciation , compared to second quarter 2021 costs in support of the launch of Dungeons & Dragons:Dark Alliance . These cost decreases in the second quarter of 2022 were partially offset by higher product input costs associated with tabletop gaming and higher freight costs. Entertainment Segment
The following table presents Entertainment segment net revenues by category for
the quarters ended
Quarter Ended
June 26, 2022 June 27, 2021
Film and TV $ 148.2 $ 164.3
Family Brands 22.8 26.1
Music and Other * 14.2 36.3
Net revenues $ 185.2 $ 226.7 *Music and Other category net revenues for the quarter ended
Entertainment segment net revenues declined 18% to$185.2 million for the second quarter of 2022, compared to$226.7 million for the second quarter of 2021 and included the impact of an unfavorable$5.4 million foreign currency translation. The net revenue decrease during the second quarter of 2022 was driven by the sale of eOne Music business in the third quarter of 2021 which accounted for$33.4 million or 14.7% of segment net revenues in the second quarter of 2021. In addition, the net revenue decrease in the second quarter of 2022 was primarily due to the timing of scripted television deliveries, most notably, CRUEL SUMMER season two expected in the third quarter of 2022, compared to CRUEL SUMMER season one which was delivered in the second quarter of 2021. These decreases were partially offset by higher net revenues from unscripted television deliveries compared to the second quarter of 2021, and higher film licensing revenues. Entertainment segment operating profit was$14.3 million , or 7.7% of segment net revenues for the second quarter of 2022 compared to operating losses of$113.7 million , or 50.2% of segment net revenues for the second quarter of 2021. The operating profit increase during the second quarter of 2022 was primarily driven by the second quarter 2021 non-cash impairment charge of$101.8 million associated with the sale of eOne Music. Absent the impact of the loss on the Music sale, the second quarter 2022 operating profit increase was driven by lower program amortization costs reflecting the mix of --------------------------------------------------------------------------------
programming delivered during the second quarter of 2022, lower advertising and
administrative costs and the allocation of
Corporate and Other Segment
The Corporate and Other segment operating losses were$14.3 million for the second quarter of 2022 compared to operating losses of$20.4 million for the second quarter of 2021. The decline in operating losses in the second quarter of 2022 was primarily the result of lower administrative expenses. Operating losses in 2021 included$9.5 million of transaction costs associated with the sale of eOne Music. First Six Months 2022 The following table presents net revenues and operating profit (loss) for the Company's principal segments for each of the six-month periods endedJune 26, 2022 andJune 27, 2021 . Six Months Ended % June 26, 2022 June 27, 2021 Change Net revenues Consumer Products segment$ 1,407.0 $ 1,343.1 5 % Wizards of the Coast and Digital Gaming segment 682.6 648.5 5 % Entertainment segment * 412.7 445.4 -7 % Operating Profit (Loss) Consumer Products segment $ 2.1 $ 50.1 -96 % Wizards of the Coast and Digital Gaming segment 332.0 302.9 10 % Entertainment segment * 26.5 (96.7) >100% Corporate and Other (21.5) (32.4) 34 %
* Entertainment segment net revenues and operating loss, for the six-month
period ended
Consumer Products Segment
The following table presents the Consumer Products segment net revenues by major geographic region for the six-month periods endedJune 26, 2022 andJune 27, 2021 . Six Months Ended June 26, 2022 June 27, 2021 North America$ 838.5 $ 754.1 Europe 338.8 365.0 Asia Pacific 118.8 133.2 Latin America 110.9 90.8 Net Revenues$ 1,407.0 $ 1,343.1 The Consumer Products segment net revenues increased 5% to$1,407.0 million for the first six months of 2022 compared to$1,343.1 million for the first six months of 2021 and included the impact of an unfavorable$32.6 million currency translation. The drivers of the net revenue increase include higher sales of the Company's Partner Brands for MARVEL, as well as higher sales of PEPPA PIG and PLAY-DOH products. To a lesser extent, higher sales of MY LITTLE PONY, POWER RANGERS and PJ MASKS products and higher sales of the Company's Partner Brands for STAR WARS contributed to the increase. Partially offsetting these increases were lower sales of certain Partner Brands, notably, the Company's products for DISNEY FROZEN and BEYBLADE and lower sales of MONOPOLY and TRANSFORMERS products. Net revenues increased inNorth America and in Latin American markets during the first six months of 2022 while net revenues declined in theAsia Pacific . InEurope , absent the unfavorable foreign currency exchange impact of$26.9 million , net revenues remained relatively flat. -------------------------------------------------------------------------------- Consumer Products segment operating profit for the first six months of 2022 was$2.1 million or 0.1% of segment net revenues, compared to segment operating profit of$50.1 million or 3.7% of segment net revenues, for the first six months of 2021. As noted above, in alignment with the revenue generated from the assets acquired in the eOne acquisition, Consumer Products segment operating profit for the first six months of 2022 includes$19.9 million of intangible amortization, which in 2021 was reported within the Entertainment segment results. This allocation of intangible amortization drove a 1.5% decline in operating margin for the Consumer Products segment. The remaining operating profit decrease in the first six months of 2022 was driven by higher product costs, including higher inventory reserves related toRussia , higher distribution costs driven by increased freight costs as a result of global supply chain, disruptions as well as higher marketing and sales costs. These negative impacts were partially offset by price increases implemented during the second half 2021 and during the first half of 2022.
Wizards of the Coast and Digital Gaming Segment
The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the six-month periods endedJune 26, 2022 andJune 27, 2021 . Six Months Ended June 26, 2022 June 27, 2021 Tabletop Gaming$ 554.0 $ 490.7 Digital and Licensed Gaming 128.6 157.8 Net revenues$ 682.6 $ 648.5 Wizards of the Coast and Digital Gaming segment net revenues increased 5% in the first six months of 2022 to$682.6 million from$648.5 million in the first six months of 2021 and included the impact of an unfavorable$11.1 million foreign currency translation. The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first six months of 2022 was driven primarily by higher net revenues from Wizards of the Coast table-top gaming products, most notably, MAGIC: THE GATHERING, due to the number of strong performing card set releases. In addition to the net revenue increases from the Company's Wizards of the Coast table-top gaming business, the segment benefited from growth in certain of the Company's licensed digital games. These net revenue increases were partially offset by lower digital gaming net revenues from Dungeons & Dragons:Dark Alliance and the mobile version of Magic: The Gathering, released during the second quarter of 2021. Wizards of the Coast and Digital Gaming segment operating profit was$332.0 million , or 48.6% of segment net revenues for the first six months of 2022, compared to operating profit of$302.9 million , or 46.7% of segment net revenues for the first six months of 2021. The operating profit increase during the first six months of 2022 was the result of higher sales volumes as described above, lower advertising expenses and depreciation costs, compared to the first six months of 2021, where the Company incurred higher costs associated with the launch of the mobile version of Magic:The Gathering Arena and Dungeons & Dragons:Dark Alliance . These increases to operating profit were partially offset by higher freight costs and higher product costs.
Entertainment Segment
The following table presents Entertainment segment net revenues by category for
the six-month periods ended
Six Months Ended
June 26, 2022 June 27, 2021
Film and TV $ 338.4 $ 330.7
Family Brands 46.0 44.9
Music and Other * 28.3 69.8
Net revenues $ 412.7 $ 445.4
*Music and Other category net revenues for the six-month period ended June 27,
2021 includes $65.2 million from eOne Music, which was sold at the beginning of
the third quarter of 2021.
Entertainment segment net revenues for the six months ended June 26, 2022
decreased 7% to $412.7 million from $445.4 million for the six months ended
June 27, 2021 and included the impact of an unfavorable $6.4 million foreign
currency translation. The segment net revenue decrease was driven by the sale of
eOne Music business in the third quarter of 2021 which
--------------------------------------------------------------------------------
accounted for $65.2 million or 14.6% of segment net revenues in the first six
months of 2021. During the first six months of 2022, higher net revenues from
live shows, unscripted programming deliveries and higher net revenues from
streaming content sales related to programming featuring the Company's brands
were partially offset by lower net revenues from scripted television deliveries.
The Entertainment segment operating profit was $26.5 million , or 6.4% of net
revenues, for the six months ended June 26, 2022 , compared to operating losses
of $96.7 million , or 21.7% of segment net revenues, for the six months ended
June 27, 2021 . The operating profit increase during the first six months of 2022
was driven by the second quarter 2021 non-cash impairment charge of $101.8
million associated with the sale of eOne Music. Absent the impact of the loss on
the Music sale, the operating profit increase in the first six months of 2022
was driven by the allocation of $19.9 million of intangible asset amortization
costs to the Consumer Products segment in the first six months of 2022, as
described above and lower royalty and advertising and promotion expenses. These
increases to operating profit were partially offset by the sale of eOne Music
combined with higher program amortization costs reflecting the mix of
programming delivered during the first six months of 2022.
Corporate and Other Segment
Operating losses in the Corporate and Other Segment for the first six months of 2022 were$21.5 million , compared to operating losses of$32.4 million for the first six months of 2021. The decline in operating losses during the first six months of 2022 was the result of lower royalty expense, partially offset by higher product development costs and higher administrative expenses. Operating losses in 2021 included$9.5 million of transaction costs associated with the sale of eOne Music and retention costs of$3.8 million in relation to the eOne acquisition. OPERATING COSTS AND EXPENSES Second Quarter 2022
The Company's costs and expenses, stated as percentages of net revenues, are
illustrated below for the quarters ended
Quarter Ended
June 26, 2022 June 27, 2021
Cost of sales 30.7 % 26.1 %
Program cost amortization 6.0 % 8.4 %
Royalties 8.2 % 8.4 %
Product development 5.9 % 6.6 %
Advertising 6.3 % 8.0 %
Amortization of intangibles 2.0 % 2.2 %
Selling, distribution and administration 24.4 % 26.8 %
Loss on assets held for sale - % 7.7 %
Cost of sales for the second quarter of 2022 was $411.5 million , or 30.7% of net
revenues, compared to $345.0 million , or 26.1% of net revenues, for the second
quarter of 2021. The cost of sales increase in dollars and as a percent of net
revenues was driven by higher sales volumes and higher product costs, including
higher freight costs, and higher inventory obsolescence charges including
reserves related to inventory in Russia .
Program cost amortization decreased to $80.7 million , or 6.0% of net revenues,
for the second quarter of 2022 from $110.7 million , or 8.4% of net revenues, for
the second quarter of 2021. Program costs are capitalized as incurred and
amortized primarily using the individual-film-forecast method which matches
costs to the related recognized revenue. The decrease in dollars and as a
percent of net revenues during the second quarter of 2022 was driven by lower
sales volume within the Entertainment segment, due primarily to the timing of
deliveries and the mix of content delivered, compared to the second quarter of
2021.
Royalty expense for the second quarter of 2022 decreased to $110.1 million , or
8.2% of net revenues, compared to $111.5 million , or 8.4% of net revenues, for
the second quarter of 2021. Fluctuations in royalty expense are generally
related to the volume of content releases and deliveries and
entertainment-driven products sold. Royalty expense during the second quarter of
2022 was consistent with the second quarter of 2021, including lower expense due
to the impact of the sale of eOne Music during 2021 and the mix of Film and TV
deliveries during the quarter. These declines were offset by higher expense in
the Consumer Products segment driven by an increase in partner brand revenues.
--------------------------------------------------------------------------------
Product development expense for the second quarter of 2022 was $79.2 million , or
5.9% of net revenues, compared to $87.2 million , or 6.6% of net revenues, for
the second quarter of 2021. The decrease was primarily related to lower costs
within Wizards digital gaming due to the launch of games in the second quarter
of 2021.
Advertising expense for the second quarter of 2022 was $84.2 million , or 6.3% of
net revenues, compared to $105.4 million , or 8.0% of net revenues, for the
second quarter of 2021. Advertising spend is generally impacted by revenue mix
and the number and type of entertainment releases delivered. The advertising
expense decrease during the second quarter of 2022 was driven by lower expense
within the Entertainment segment, as well as lower expense within the Wizards of
the Coast and Digital Gaming segment, compared to the second quarter 2021, where
advertising expense was driven by support for the launch of the mobile version
of Magic: The Gathering Arena and Dungeons & Dragons: Dark Alliance , with no
comparable releases in 2022.
Amortization of intangible assets decreased to $27.2 million , or 2.0% of net
revenues, for the second quarter of 2022, compared to $29.7 million , or 2.2% of
net revenues, for the second quarter of 2021. The decrease in 2022 is related to
the discontinuation of amortization related to the eOne Music intangible assets
following the sale of eOne Music in the third quarter of 2021, partially offset
by additional expense associated with assets acquired through the D&D Beyond
Acquisition during the second quarter of 2022.
Selling, distribution and administration expenses decreased to $327.2 million ,
or 24.4% of net revenues for the second quarter of 2022, from $354.3 million , or
26.8% of net revenues, for the second quarter of 2021. The decrease in selling,
distribution and administration expenses reflects lower incentive compensation
accruals and lower depreciation expense in 2022 compared to depreciation expense
in the second quarter of 2021 associated with the launch of Dungeons & Dragons:
Dark Alliance . These decreases were partially offset by increased costs
associated with consulting and other professional services for the Company's
annual shareholder meeting.
The loss on assets held for sale of
First Six Months of 2022
The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the six-month periods endedJune 26, 2022 andJune 27, 2021 . Six Months Ended June 26, 2022 June 27, 2021 Cost of sales 29.8 % 26.1 % Program cost amortization 8.8 % 8.5 % Royalties 8.0 % 9.0 % Product development 5.9 % 6.1 % Advertising 6.5 % 7.9 % Amortization of intangibles 2.2 % 2.6 % Selling, distribution and administration 25.3 % 26.4 % Loss on assets held for sale - % 4.2 % Cost of sales for the six months endedJune 26, 2022 increased to$744.6 million , or 29.8% of net revenues, from$634.9 million , or 26.1% of net revenues for the six months endedJune 27, 2021 . The cost of sales increase in dollars and as a percent of net revenues was due to higher sales volumes and higher product input costs, including higher freight and material costs, as well as higher inventory obsolescence charges. Program cost amortization increased in the first six months of 2022 to$219.2 million , or 8.8% of net revenues, from$208.2 million , or 8.5% of net revenues, in the first six months of 2021. The program cost amortization increase in dollars and as a percent of net revenues during the first six months of 2022, was driven by the volume and mix of both scripted and unscripted programming revenues during the first half of 2022 compared to the first half of 2021. Royalty expense for the six months endedJune 26, 2022 was$200.2 million , or 8.0% of net revenues, compared to$220.4 million , or 9.0% of net revenues, for the six months endedJune 27, 2021 . The decrease in royalty expense in dollars was driven by the impact of the sale of eOne Music and the mix of Film and TV deliveries during the first six months of 2022. In addition, certain licensing agreements acquired through the eOne acquisition expired, which carried higher royalty expenses in prior periods. The decrease in royalty expense as a percent of net revenues during the first six months of 2022 was the result of a higher percentage of product sales that do not carry significant royalty expenses. -------------------------------------------------------------------------------- Product development expense for the six months endedJune 26, 2022 was$148.8 million , or 5.9% of net revenues, from$149.0 million , or 6.1% of net revenues, for the six months endedJune 27, 2021 . Product development expense in the first six months of 2022 was consistent with the first six months of 2021, reflecting the Company's continued investment in innovation and anticipated growth across our brand and entertainment portfolios. Advertising expense for the six months endedJune 26, 2022 was$161.8 million , or 6.5% of net revenues, compared to$193.3 million , or 7.9% of net revenues, for the six months endedJune 27, 2021 . The advertising expense decrease during the first six months of 2022 was driven by lower expense within the Entertainment segment related to the sale of the eOne Music business combined with a shift in the type of entertainment releases delivered, as well as lower expense within the Wizards of the Coast and Digital Gaming segment, compared to the first half of 2021, where advertising expense was driven by support for the launch of the mobile version of Magic:The Gathering Arena and Dungeons & Dragons:Dark Alliance , with no comparable releases in 2022. Amortization of intangible assets was$54.3 million , or 2.2% of net revenues, for the six months endedJune 26, 2022 compared to$62.6 million , or 2.6% of net revenues, in the first six months of 2021. The decrease in 2022 is related to the discontinuation of amortization related to the eOne Music intangible assets following the sale of eOne Music in the third quarter of 2021. This decline was slightly offset by additional expense associated with assets acquired through the D&D Beyond Acquisition during the second quarter of 2022. For the six months endedJune 26, 2022 , the Company's selling, distribution and administration expenses decreased to$634.3 million , or 25.3% of net revenues, from$642.9 million , or 26.4% of net revenues, for the six months endedJune 27, 2021 . The decrease in selling, distribution and administration expenses reflects lower depreciation expense, primarily related to the Company's digital gaming business compared to the first six months of 2021, lower compensation accruals and lower administrative costs as a result of the sale of eOne Music during 2021. These decreases were partially offset by higher marketing and sales costs within the Consumer Products segment, consistent with the increase in net revenues during the first six months of 2022.
The loss on disposal of business of
NON-OPERATING EXPENSE (INCOME)
Interest expense for the second quarter and first six months of 2022 totaled$41.7 million and$83.3 million , respectively, compared to$46.1 million and$94.0 million in the second quarter and first six months of 2021, respectively. The decrease in interest expense during the second quarter and first half of 2022 primarily reflects long-term debt repayments made throughout 2021 and during the first half of 2022, related to borrowings utilized for the eOne acquisition. Interest income was$2.7 million and$4.8 million for the second quarter and first six months of 2022, respectively, compared to$1.2 million and$2.4 million in the second quarter and first six months of 2021, respectively. Higher average interest rates in 2022 compared to 2021 contributed to the increase for the three and six-month periods. Other expense, net was$0.2 million and$0.5 million for the second quarter and first six months of 2022, respectively, compared to other income, net of$9.4 million and$38.3 million in the second quarter and first six months of 2021, respectively. The decline in 2022 was primarily driven by a$26.7 million gain from a legal settlement realized during the first six months of 2021 with no comparable gain in 2022, lower earnings from the Company's joint venture with Discovery and foreign exchange losses during the first six months of 2022 compared to gains during the first half of 2021.
INCOME TAXES
Income tax expense totaled$39.4 million on pre-tax income of$179.9 million in the second quarter of 2022 compared to income tax expense of$63.0 million on pre-tax income of$41.1 million in the second quarter of 2021. For the six-month periods, income tax expense totaled$56.7 million on pre-tax income of$260.1 million in 2022, compared to an income tax expense of$75.0 million on pretax income of$170.6 million in 2021. Both periods were impacted by discrete tax events including the accrual of potential interest and penalties on uncertain tax positions. During the first six months of 2022, favorable discrete tax adjustments were a net benefit of$3.2 million compared to a net expense of$17.4 million in the first six months of 2021. The favorable discrete tax adjustments for the first six months of 2022 primarily relate to the release of certain valuation allowances during the first quarter. The unfavorable discrete tax adjustments for the first six months of 2021 were primarily associated with the revaluation of net deferred tax liabilities as a result of theUnited Kingdom's ("UK") enactment of Finance Act 2021 during the second quarter, which will increase theUK corporate income tax rate from 19% to 25% as ofApril 1, 2023 . This was reduced by the release of a valuation allowance on net operating losses that offset income received from a one-time legal settlement and certain tax benefits, including the reversal of uncertain tax positions that resulted from statutes of limitations expiring in certain jurisdictions and operational tax planning during the second quarter. In addition, included in the second quarter of 2021 was an impairment expense on assets held for sale from which there was no -------------------------------------------------------------------------------- corresponding tax benefit. Absent discrete items, the tax rates for the first six months of 2022 and 2021 were 23.0% and 22.6% respectively. The increase in the base rate of 23.0% for the first six months of 2022 is primarily due to the mix of jurisdictions where the Company earned its profits.
OTHER INFORMATION
Business Seasonality and Shipments
Within the retail sector, the Company's revenue pattern from toys and games and licensed consumer products continues to show the second half of the year to be more significant to its overall business for the full year. The Company expects that this concentration will continue. The concentration of sales in the second half of the year increases the risk of (a) underproduction of popular items, (b) overproduction of less popular items, and (c) failure to achieve tight and compressed shipping schedules. The business of the Company is characterized by customer order patterns which vary from year to year largely because of differences in the degree of consumer acceptance of a product line, product availability, marketing strategies, inventory levels, policies of retailers and differences in overall economic conditions. Larger retailers generally maintain lower inventories throughout the year and purchase a greater percentage of product within or close to the fourth quarter holiday consumer buying season, which includes Christmas. Quick response inventory management practices being used by retailers as well as growth in ecommerce result in orders increasingly placed for immediate delivery and fewer orders placed well in advance of shipment. Retailers are timing their orders so that they are filled by suppliers closer to the time of purchase by consumers. To the extent that retailers do not sell as much of their year-end inventory purchases during the current holiday selling season as they had anticipated, their demand for additional product earlier in the following fiscal year may be curtailed, thus negatively impacting the Company's future revenues. However, more recently the Company's inventory levels reflect ongoing global supply chain disruptions, which began in late 2020 as economies slowly recovered from COVID-19 shutdowns, while consumer demand began to outpace the capacity of the global supply chain infrastructure. Supply chain constraints, including overcrowding of cargo ports and shipping container and truck transportation shortages have also led to higher costs for ocean, air and over the road freight and delays in the availability of products, as inventory remains in transit for extended periods of time. These and other disruptions are expected to continue throughout 2022. During the first six months of 2022, the Company accelerated certain inventory purchases, to ensure sufficient finished goods and raw material availability ahead of expected periods of high consumer demand. As a result, the Company expects inventory shipments to peak earlier in 2022 as compared to the historical timeline of August to December.
Unlike the Company's retail sales patterns, revenue patterns from the Company's entertainment businesses fluctuate based on the timing and popularity of television, film, streaming and digital content releases. Release dates are determined by factors including the timing of holiday periods, geographical release dates and competition in the market.
Russian Sanctions
As a result of the military conflict inUkraine , which has led to sanctions and other penalties being levied bythe United States ,European Union and other countries againstRussia , the Company has paused all shipments and new content distribution intoRussia . The Company's consolidated financial statements reflect certain reserves as ofJune 26, 2022 , primarily related to inventory and accounts receivable, and will be impacted by a loss of revenue and operating profit in the second half of 2022. For the full year 2021, our revenue inRussia was$115 million , with approximately 70% earned in the second half of the year. Any longstanding disruptions may magnify the impact of other risks described in this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K for the year endedDecember 26, 2021 .
Accounting Pronouncement Updates
As ofJune 27, 2022 , there were no recently adopted accounting standards that had a material effect on the Company's financial statements. The Company's significant accounting policies are summarized in note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year endedDecember 26, 2021 .
Recently Issued Accounting Pronouncements
In March of 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU 2020-04) Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applyingU.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
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated a significant amount of cash from operations. In the first six months of 2022 and 2021, the Company primarily funded its operations and liquidity needs through cash on hand and from cash flows from operations, and when needed, used borrowings under its available lines of credit. In addition, the Company's Entertainment operating segment used production financing to fund certain of its television and film productions which are arranged on an individual production basis using either the Company's revolving film and television production credit facility or through special purpose production subsidiaries. For more information on the Company's production financing facilities, including expected future repayments, see note 7 to the consolidated financial statements included in Part I of this Form 10-Q. The Company expects to continue to fund its working capital needs primarily through available cash, cash flows from operations and from production financing facilities and, if needed, by issuing commercial paper or borrowing under its revolving credit agreement. In the event that the Company is not able to issue commercial paper, the Company intends to utilize its available lines of credit. The Company believes that the funds available to it, including cash expected to be generated from operations, funds available through its commercial paper program or its available lines of credit and production financing, are adequate to meet its working capital needs for the remainder of 2022, including the repayment of the current portion of long-term debt of$137.0 million , as shown on the consolidated balance sheets, which represents the current portion of required quarterly principal amortization payments for our term loan facilities and other short-term production financing facilities, each as described below. The Company may also issue debt or equity securities from time to time, to provide additional sources of liquidity when pursuing opportunities to enhance our long-term competitive position, while maintaining a strong balance sheet. However, unexpected events or circumstances such as material operating losses or increased capital or other expenditures, or the inability to otherwise access the commercial paper market, may reduce or eliminate the availability of external financial resources. In addition, significant disruptions to credit markets may also reduce or eliminate the availability of external financial resources. Although the Company believes the risk of nonperformance by the counterparties to its financial facilities is not significant, in times of severe economic downturn in the credit markets, it is possible that one or more sources of external financing may be unable or unwilling to provide funding to the Company.
As of
Prior to 2017, deferred income taxes had not been provided on the majority of undistributed earnings of international subsidiaries as such earnings were indefinitely reinvested by the Company. Accordingly, such international cash balances were not available to fund cash requirements inthe United States unless the Company was to change its reinvestment policy. The Company has maintained sufficient sources of cash inthe United States to fund cash requirements without the need to repatriate any funds. The Tax Cuts and Jobs Act of 2017 ("the Tax Act") provided significant changes to theU.S. tax system including the elimination of the ability to deferU.S. income tax on unrepatriated earnings by imposing a one-time mandatory deemed repatriation tax on undistributed foreign earnings. As ofJune 26, 2022 , the Company had a total liability of$137.7 million related to this tax,$34.4 million is reflected in current liabilities while the remaining long-term payable related to the Tax Act of$103.3 million is presented within other liabilities, non-current on the consolidated balance sheets included in Part I of this Form 10-Q. As permitted by the Tax Act, the Company will pay the transition tax in annual interest-free installments through 2025. As a result, in the future, the related earnings in foreign jurisdictions will be made available with greater investment flexibility. The majority of the Company's cash and cash equivalents held outside ofthe United States as ofJune 26, 2022 are denominated in theU.S. dollar. Because of the seasonality in the Company's cash flow, management believes that on an interim basis, rather than discussing only its cash flows, a better understanding of its liquidity and capital resources can be obtained through a discussion of the various balance sheet categories. Also, as several of the major categories, including cash and cash equivalents, accounts receivable, inventories and short-term borrowings, fluctuate significantly from quarter to quarter, due to the seasonality of its business, management believes that a comparison to the comparable period in the prior year is generally more meaningful than a comparison to the prior year-end. --------------------------------------------------------------------------------
The table below outlines key financial information (in millions of dollars) pertaining to our consolidated balance sheets including the period-over-period changes.
June 26, 2022 June 27, 2021 % Change
Cash and cash equivalents (including restricted
cash of $41.9 and $83.1 ) $ 628.2 $ 1,228.2 -49 %
Accounts receivable, net 870.5 865.9 1 %
Inventories 867.5 499.6 74 %
Prepaid expenses and other current assets 719.2 543.2 32 %
Other assets 1,367.6 1,350.5 1 %
Accounts payable and accrued liabilities 1,923.2 1,778.9 8 %
Other liabilities 570.0 753.0 -24 %
Accounts receivable increased 1% to $870.5 million at June 26, 2022 , compared to
$865.9 million at June 27, 2021 . Absent the unfavorable foreign currency
exchange impact of $27.8 million , accounts receivable increased 4% or $32.5
million . The increase in accounts receivable was driven by higher sales during
the first six months of 2022, partially offset by improved collections. Days
sales outstanding decreased from 60 days at June 27, 2021 to 59 days at June 26,
2022 .
Inventories increased 74% to $867.5 million as of June 26, 2022 , compared to
$499.6 million at June 27, 2021 . Absent the unfavorable foreign currency
exchange impact of $36.2 million , inventories increased 81% or $404.1 million .
The increase in 2022 inventory balances reflects accelerated inventory purchases
in the first half of 2022 in an effort to mitigate the impact of certain global
supply chain challenges, including increased lead-times and higher freight-in
costs, most notably in the U.S. and Europe , attributable to the Company's
Consumer Products and Wizards of the Coast tabletop gaming businesses.
Prepaid expenses and other current assets increased 32% to $719.2 million at
June 26, 2022 from $543.2 million at June 27, 2021 . The increase was driven by
higher accrued tax credit balances related to film and television production
costs, due to increased productions and timing of tax credit claims, as well as
higher accrued royalty and licensing balances, primarily attributable to the
Company's Entertainment business and higher unrealized gains on foreign exchange
contracts. These increases were partially offset by lower prepaid royalty
balances in relation to the Company's MARVEL, POWER RANGERS and DISNEY PRINCESS
royalty agreements and from lower prepaid tax balances during the second quarter
2022.
Other assets increased 1% to $1,367.6 million at June 26, 2022 from $1,350.5
million at June 27, 2021 . The increase was driven by higher long-term accrued
income balances related to certain of the Company's content distribution
arrangements and increased non-current receivable balances within the
Entertainment segment. These increases were partially offset by a lower balance
for the Company's investment in Discovery Family Channel, due to an impairment
charge recorded in the fourth quarter of 2021 and distributions received in the
first six months of 2022, and from certain content and production assets sold in
connection with the sale of eOne Music during the third quarter of 2021.
Accounts payable and accrued liabilities increased 8% to $1,923.2 million at
June 26, 2022 from $1,778.9 million at June 27, 2021 driven by higher account
payable balances due to increased inventory purchases, higher accrued freight
balances due to increased costs as a result of supply chain disruptions, higher
accrued royalty balances due to higher sales of partner brand products, as well
as higher participations and residuals and higher accrued tax balances. These
increases were partially offset by lower deferred revenue balances due to the
timing of certain scripted television content deliveries, lower accounts payable
and accrued liabilities balances associated with the sale of eOne Music, lower
incentive compensation accruals and lower severance accruals from payments made
in relation to restructuring actions taken in 2020.
Other liabilities decreased 24% to $570.0 million at June 26, 2022 from $753.0
million at June 27, 2021 . The decrease was driven by lower long-term lease
liability balances, lower long-term deferred tax liability balances due to the
sale of eOne Music during the third quarter of 2021, a lower transition tax
liability balance reflecting the reclassification of the 2022 installment
payment due April 2023 , a lower Discovery option agreement balance due to a
revaluation of the Discovery Family Channel investment during the fourth quarter
of 2021, and lower deferred revenue balances.
--------------------------------------------------------------------------------Cash Flow
The following table summarizes the changes in the Consolidated Statement of Cash
Flows, expressed in millions of dollars, for the six-month periods ended
June 26, 2022 June 27, 2021
Net cash provided by (utilized for):
Operating activities$ 147.8 $ 577.1 Investing activities (212.6) (66.3) Financing activities (319.9) (718.4) Net cash provided by operating activities in the first six months of 2022 was$147.8 million compared to$577.1 million in the first six months of 2021. The$429.3 million decrease in net cash provided by operating activities was primarily attributable to higher working capital requirements, including higher inventory costs, higher incentive bonus payments, higher royalty payments and higher freight costs due to ongoing supply chain constraints. Net cash utilized for investing activities was$212.6 million in the first six months of 2022 compared to$66.3 million in the first six months of 2021. The increase in cash used reflects a cash payment of$146.3 million related to the D&D Beyond Acquisition during the second quarter of 2022. Additions to property, plant and equipment were$75.8 million in the first six months of 2022 compared to$63.1 million in the first six months of 2021. Net cash utilized for financing activities was$319.9 million in the first six months of 2022 compared to$718.4 million in the first six months of 2021. Financing activities in the first six months of 2022 include payments totaling$57.5 million related to the$1.0 billion in term loans described below, consisting of a$50.0 million principal and quarterly principal amortization payment of$7.5 million toward the Five-Year Tranche loan, as well as drawdowns of$137.7 million and repayments of$133.3 million related to production financing loans and cash payments of$124.0 million to repurchases the Company's common stock. Financing activities in the first six months of 2021 included the repayment of$300.0 million aggregate principal amount of 3.15% Notes and payments totaling$265.0 million related to the$1.0 billion in term loans consisting of$250.0 million towards the principal balance of the Three-Year Tranche loans and quarterly principal payments totaling$15.0 million . In addition, the Company had drawdowns of$114.7 million and repayments of$70.2 million related to production financing loans. Dividends paid in the first six months of 2022 totaled$191.9 million , compared to$187.5 million in the first six months of 2021 reflecting a higher dividend rate commencing with theMay 2022 dividend payment. 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 described in Note 14 in the Company's Annual Report on Form 10-K for the year endedDecember 26, 2021 . The DEUs will be credited as additional RSUs or PSUs and settled concurrently with the vesting of associated awards. Sources and Uses of Cash The Company commits to inventory production, advertising and marketing expenditures in support of its consumer products business, prior to the peak fourth quarter retail selling season. Accounts receivable typically increase during the third and fourth quarter as customers increase their purchases to meet consumer demand expected in the holiday selling season. Due to the concentrated timeframe of this selling period, payments for these accounts receivable are generally not due until the fourth quarter or early in the first quarter of the subsequent year. This timing difference between expenditures and cash collections on accounts receivable sometimes makes it necessary for the Company to borrow amounts during the latter part of the year. In the Company's entertainment business, expenditures of cash for productions are often made well in advance of sale and delivery of the content produced. Trading card and digital gaming revenues have shorter collection periods, but product development expense often occurs years prior to release and revenue generation. During the first six months of 2022 and 2021, the Company primarily used cash from operations and, to a lesser extent, borrowings under available lines of credit, in particular production financing vehicles, to fund its working capital. The Company has an agreement with a group of banks which provides for a commercial paper program (the "Program"). Under the Program, at the request of the Company and subject to market conditions, the banks may either purchase from the Company, or arrange for the sale by the Company, of unsecured commercial paper notes. The Company may issue notes from time to time up to an aggregate principal amount outstanding at any given time of$1.0 billion . The maturities of the notes may vary but may not exceed 397 days. The notes are sold under customary terms in the commercial paper market and are issued at -------------------------------------------------------------------------------- a discount to par, or alternatively, sold at par and bear varying interest rates based on a fixed or floating rate basis. The interest rates vary based on market conditions and the ratings assigned to the notes by the credit rating agencies at the time of issuance. Subject to market conditions, the Company intends to utilize the Program as its primary short-term borrowing facility and does not intend to sell unsecured commercial paper notes in excess of the available amount under the revolving credit agreement discussed below. If, for any reason, the Company is unable to access the commercial paper market, the Company intends to use the revolving credit agreement to meet the Company's short-term liquidity needs. AtJune 26, 2022 , the Company had no outstanding borrowings related to the Program. The Company has a second amended and restated revolving credit agreement withBank of America, N.A ., as administrative agent, swing line lender and a letter of credit issuer and lender and certain other financial institutions, as lenders thereto (the "Amended Revolving Credit Agreement"), which provides the Company with commitments having a maximum aggregate principal amount of$1.5 billion . The Amended Revolving Credit Agreement also provides for a potential additional incremental commitment increase of up to$500.0 million subject to agreement of the lenders. The Amended Revolving Credit Agreement contains certain financial covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility, including with respect to liens, mergers and incurrence of indebtedness. The Amended Revolving Credit Agreement extends throughSeptember 20, 2024 . The Company was in compliance with all covenants as ofJune 26, 2022 . The Company had no borrowings outstanding under its committed revolving credit facility as ofJune 26, 2022 . However, letters of credit outstanding under this facility as ofJune 26, 2022 were approximately$3.1 million . Amounts available and unused under the committed line atJune 26, 2022 were approximately$1.5 billion , inclusive of borrowings under the Company's commercial paper program. The Company also has other uncommitted lines from various banks, of which approximately$10.5 million was utilized atJune 26, 2022 . Of the amount utilized under, or supported by, the uncommitted lines, approximately$9.6 million and$0.9 million represent letters of credit and outstanding short-term borrowings, respectively. In September of 2019, the Company entered into a$1.0 billion Term Loan Agreement (the "Term Loan Agreement") withBank 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"). OnDecember 30, 2019 , the Company completed the acquisition of eOne and on that date, borrowed the full amount of$1.0 billion under the Term Loan Facilities. As ofJune 26, 2022 , the Company has fully repaid the Three-Year Tranche$400.0 million principal term loan, and of the Five-Year Tranche$600.0 million principal balance, the Company has repaid a total of$260.0 million in the following increments:$22.5 million in 2020;$180.0 million in 2021; and,$57.5 million in the first six months of 2022 consisting of$50.0 million principal and a quarterly principal amortization payment of$7.5 million . The Company is subject to certain financial covenants contained in this agreement and as ofJune 26, 2022 , the Company was in compliance with these covenants. The terms of the Term Loan Facilities are described in note 7 to the consolidated financial statements included in Part I of this Form 10-Q. During November 2019 , in conjunction with the Company's acquisition of eOne, the Company issued an aggregate of$2.4 billion of senior unsecured debt securities (collectively, the "Notes") consisting of the following tranches:$300 million of notes due 2022 (the "2022 Notes") that bear interest at a fixed rate of 2.60%;$500 million of notes due 2024 (the "2024 Notes") that bear interest at a fixed rate of 3.00%;$675 million of notes due 2026 (the "2026 Notes") that bear interest at a fixed rate of 3.55%; and$900 million of notes due 2029 (the "2029 Notes") that bear interest at a fixed rate of 3.90%. During the third quarter of 2021 the Company repaid in full, its 2022 Notes in the aggregate principal amount of$300.0 million , including early redemption premiums and accrued interest of$10.8 million . The terms of the Notes are described in note 7 to the consolidated financial statements in Part I of this Form 10-Q. The Company uses production financing facilities to fund its film and television productions which are arranged on an individual production basis by either special purpose production subsidiaries, each secured by the assets and future revenues of such production subsidiaries, which are non-recourse to the Company's assets, or through a senior revolving credit facility obtained inNovember 2021 , dedicated to production financing. The Company's senior revolving film and television production credit facility (the "RPCF") withMUFG 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 throughNovember 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. The Company expects to utilize the revolving production financing facility for the majority of its future production financing needs. During the first six months of 2022, the Company had total drawdowns of$137.7 million and repayments of$133.3 million towards these production financing facilities. As ofJune 26 , -------------------------------------------------------------------------------- 2022, the Company had outstanding production financing borrowings related to these facilities of$175.0 million ,$77.0 million of which are recorded within the current portion of long-term debt and$98.0 million are recorded within short-term borrowings in the Company's consolidated balance sheets, included in Part I of this Form 10-Q. The Company has principal amounts of long-term debt as ofJune 26, 2022 of$3.9 billion , due at varying times from 2024 through 2044. Of the total principal amount of long-term debt,$137.0 million is current atJune 26, 2022 of which$60.0 million is related to principal amortization of the 5-year term loans dueDecember 2024 and$77.0 million represents the Company's outstanding production financing facilities described above. During the first quarter of 2021, the Company repaid in full its 3.15% Notes in the aggregate principal amount of$300.0 million due inMay 2021 , including accrued interest. All of the Company's other long-term borrowings have contractual maturities that occur subsequent to the third quarter of 2024, with the exception of certain of the Company's production financing facilities discussed above.
The Company also had letters of credit and other similar instruments of
approximately
Other contractual obligations and commercial commitments, as detailed in the Company's 2021 Form 10-K, did not materially change outside of certain payments made in the normal course of business and as otherwise set forth in this report. The Company has a long history of returning cash to its shareholders through quarterly dividends and share repurchases. Hasbro increased the quarterly dividend rate from$0.68 per share to$0.70 per share effective for the dividend paid inMay 2022 . The Company also returns cash to shareholders through its share repurchase program. As part of this initiative, since 2005, the Company's Board of Directors (the "Board") adopted numerous share repurchase authorizations with a cumulative authorized repurchase amount of$4.3 billion . The most recent authorization was approved inMay 2018 for$500 million . Following the Company's acquisition of eOne, the Company temporarily suspended its share repurchase program to prioritize deleveraging. InApril 2022 , given the Company's progress towards reducing debt, the Company resumed its share repurchase activity and repurchased approximately 1.4 million shares at a total cost of$124.0 million and at an average price of$87.48 per share. AtJune 26, 2022 , the Company had$242.6 million remaining under these share repurchase authorizations. Share repurchases are subject to market conditions, the availability of funds and other uses of funds. The Company has no obligation to repurchase shares under the authorization, and the timing, actual number, and value of the shares that are repurchased, if any, will depend on a number of factors, including the price of the Company's stock and the Company's generation of, and uses for, cash. The Company believes that cash from operations, and, if necessary, its committed line of credit and other borrowing facilities, will allow the Company to meet its obligations over the next twelve months.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted inthe United States of America . As such, management is required to make certain estimates, judgments and assumptions that it believes are reasonable based on the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. The significant accounting policies which management believes are the most critical to aid in fully understanding and evaluating the Company's reported financial results include film and television production costs, recoverability of goodwill and intangible assets, income taxes and business combinations. Additionally, the Company identified the valuation of the Company's equity method investment in Discovery Family Channel as a significant accounting estimate. These critical accounting policies are the same as those detailed in the Company's 2021 Form 10-K.
FINANCIAL RISK MANAGEMENT
The Company is exposed to market risks attributable to fluctuations in foreign currency exchange rates primarily as the result of sourcing products priced inU.S. dollars,Hong Kong dollars and Euros while marketing and selling those products in more than twenty currencies. Results of operations may be affected primarily by changes in the value of theU.S. dollar, Euro, British pound sterling, Canadian dollar, Japanese Yen, Brazilian real and Mexican peso and, to a lesser extent, other currencies in Latin American andAsia Pacific countries. To manage this exposure, the Company has hedged a portion of its forecasted foreign currency transactions using foreign exchange forward contracts. The Company is also exposed to foreign currency risk with respect to its net cash and cash equivalents or short-term borrowing positions in currencies other than theU.S. dollar. The Company believes, however, that the on-going risk on the net exposure should not be material to its financial condition. In addition, the Company's revenues and costs have been, and will likely continue to be, affected by changes in foreign currency rates. A significant change in foreign exchange rates can materially impact the Company's revenues and earnings due to translation of foreign-denominated revenues and expenses. The Company does not hedge against translation impacts of foreign exchange. From time to time, affiliates of the -------------------------------------------------------------------------------- Company may make or receive intercompany loans in currencies other than their functional currency. The Company manages this exposure at the time the loan is made by using foreign exchange contracts. The Company reflects derivatives at their fair value as an asset or liability on the consolidated balance sheets. The Company does not speculate in foreign currency exchange contracts. AtJune 26, 2022 , these contracts had net unrealized gains of$19.0 million , of which$19.3 million of unrealized gains are recorded in prepaid expenses and other current assets,$0.5 million of unrealized gains are recorded in other assets and$0.8 million of unrealized losses are recorded in accrued liabilities. Included in accumulated other comprehensive loss atJune 26, 2022 are deferred gains, net of tax, of$15.8 million , related to these derivatives. AtJune 26, 2022 , the Company had principal amounts of long-term debt of$3.9 billion . InMay 2014 , the Company issued an aggregate$600.0 million of long-term debt which consisted of$300.0 million of 3.15% Notes, subsequently repaid in 2021, and$300.0 million of 5.10% Notes due 2044. Prior to theMay 2014 debt issuance, the Company entered into forward-starting interest rate swap agreements with a total notional value of$500.0 million to hedge the anticipated underlyingU.S. Treasury interest rate. These interest rate swaps were matched with this debt issuance and were designated and effective as hedges of the change in future interest payments. At the date of issuance, the Company terminated these swap agreements and their fair value at the date of issuance was recorded in accumulated other comprehensive loss and is being amortized through the consolidated statements of operations using an effective interest rate method over the life of the related debt. Included in accumulated other comprehensive loss atJune 26, 2022 are deferred losses, net of tax, of$15.2 million related to these derivatives.
INFLATION
The impact of inflation on the Company's business operations has been significant during the first six months of 2022 compared to prior years. However, due to mitigating actions taken by the Company, such as price increases where deemed necessary, the impact of general price inflation on our financial position and results of operations has been reduced. The Company continues to monitor the impact of inflation to its business operations on an ongoing basis and may need to adjust its prices further to mitigate the impact of changes to the rate of inflation in future periods. However, future volatility of general price inflation could affect consumer purchases of our products and spending on entertainment. Additionally, the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead, could adversely affect the Company's financial results.
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