HASBRO, INC. This Quarterly Report on Form 10-Q, including the following section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements expressing management's current expectations, goals, objectives and similar matters. These forward-looking statements may include statements concerning: the impact of, and actions and initiatives taken and planned to be taken to try and manage the negative impact of, the global coronavirus outbreak on our business; the ability to achieve our financial and business goals and objectives; the Company's product and entertainment plans, including the content and timing of planned entertainment releases; changes in the methods of content distribution, including increased reliance on streaming outlets; marketing and promotional efforts; anticipated expenses; working capital and liquidity; and anticipated impact of acquisitions and dispositions. See Item 1A, in Part II of this report and Item 1A, in Part I of the Annual Report on Form 10-K for the year endedDecember 27, 2020 ("2020 Form 10-K"), for a discussion of factors which may cause the Company's actual results or experience to differ materially from that anticipated in these forward-looking statements. The Company undertakes no obligation to revise the forward-looking statements in this report after the date of the filing. EXECUTIVE SUMMARYHasbro, Inc. ("Hasbro") is a global play and entertainment company committed to Creating the World's Best Play and Entertainment Experiences. From toys, games and consumer products to television, movies, digital gaming, and other entertainment experiences, we connect to global audiences by bringing to life great innovations, stories and brands across established and inventive platforms. Our iconic brands include NERF, MAGIC: THE GATHERING, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, MONOPOLY, BABY ALIVE, POWER RANGERS, PEPPA PIG and PJ MASKS, as well as premier partner brands. Through our entertainment studio, Entertainment One ("eOne"), we are building our brands globally through great storytelling and content on all screens, including content based on our children's and family entertainment brands as well as offering the production and distribution of a broad spectrum of live-action scripted and unscripted entertainment content geared toward all audiences. At Hasbro, we are committed to making the world a better place for all children, fans and families. We believe that doing well includes doing good in the world and for all our constituents. This is demonstrated in all we do, including through our corporate social responsibility and philanthropy initiatives. 2021 Developments Segment Realignment In the first quarter of 2020, we completed our acquisition of eOne, our global independent studio. Throughout 2020, we successfully integrated parts of our business and began recognizing synergies as a combined company. Effective for the three months endedMarch 28, 2021 , we have realigned our reportable segment structure to correspond with the evolution of our company, including the integration of eOne, to reflect changes in our reporting structure and allocation of decision-making responsibility and for assessing the Company's performance. Our new reportable segments are: Consumer Products, Wizards of the Coast & Digital Gaming, Entertainment and Corporate and Other. •Consumer Products Our Consumer Products business engages in the sourcing, marketing and sales of toy and game products around the world. Our Consumer Products business also promotes our brands through the out-licensing of our trademarks, characters and other brand and intellectual property rights to third parties, through the sale of branded consumer products such as toys and apparel. Additionally, through license agreements with third parties, we develop and sell products based on popular third-party partner brands. Our toy and game products are supported by cross-functional teams including members of our global development and marketing groups. Our global development teams develop, design and engineer new products alongside the redesign of existing products, driven by our understanding of consumers and using marketplace insights while leveraging opportunistic toy and game lines and licenses. Our global marketing function establishes a cohesive brand direction and assists our selling entities in establishing local marketing programs. This strategy leverages efforts to increase consumer awareness of our brands through the Company's Entertainment experiences, including film and television programming and digital gaming. •Wizards of the Coast & Digital Gaming Our Wizards of the Coast & Digital Gaming business engages in the promotion of our brands through the development of trading card, role-playing and digital game experiences based on Hasbro and Wizards of the Coast properties. Wizards of the Coast offerings include popular games such as the collectable card game MAGIC: THE GATHERING and the fantasy tabletop role-playing game DUNGEONS & DRAGONS, as well as other digital games developed for mobile devices, personal computers and video gaming consoles including MAGIC: THE GATHERING ARENA. -------------------------------------------------------------------------------- Condensed Notes to Consolidated Financial Statements (Millions of Dollars and Shares Except Per Share Data) Additionally, we out-license certain of our brands to other third-party digital game developers who transform Hasbro brand-based characters and other intellectual properties, into digital gaming experiences. •Entertainment Our Entertainment business engages in in the development, acquisition, production, financing, distribution and sale of world-class entertainment content including film, scripted and unscripted television, family programming, digital content, live entertainment and music production and sales. Film and TV operations produce film and television content which is sold worldwide to distributors, broadcasters, television networks and streaming platforms. While maintaining ownership of the content rights, we sell content for specific time periods to generate broadcast license fees from television content and to collect minimum guarantees and overage participations from films. The Entertainment business also actively acquires third-party film and television content. In television, the Entertainment segment engages in the sale of acquired third-party content internationally. For acquired films, the Entertainment segment obtains territorial rights from independent producers to distribute in those territories and acquires global rights which are sold internationally. Feature length film and television programming based on our owned and controlled brands provide both immersive storytelling and the ability for our consumers to enjoy these properties in different formats, which also drives product sales, results in increased licensing revenues, and expands overall brand awareness. •Corporate and Other Our Corporate and Other segment provides management and administrative services to the Company's principal reporting segments described above. The segment consists of unallocated corporate expenses and administrative costs and activities not considered when evaluating segment performance such as the Company's legal, human resources, finance, facilities and information technology departments as well as certain assets benefiting more than one segment. In addition, intersegment transactions are eliminated within the Corporate and Other segment. Coronavirus Pandemic Throughout 2020 and continuing through the first quarter of 2021, the world has been significantly impacted by the novel coronavirus (COVID-19) pandemic. During this period we experienced accelerated ecommerce growth and increased interest in our Wizards of the Coast gaming and entertainment content, as consumers have been seeking entertainment options during the pandemic. In 2020, and continuing into 2021, the pandemic did, however, have a substantial adverse impact on our business, as well as our employees, consumers, customers, partners, licensees, suppliers and manufacturers, due in part to the preventative measures taken to reduce the spread of the virus worldwide. We experienced and in many cases, continue to experience: •disruptions in supply of products, primarily occurring in the first quarter of 2020, due to closures or reductions in operations at third-party manufacturing facilities across several geographies including, but not limited to,China ,India ,the United States andIreland , as well as increased costs and difficulties in shipping and distributing products; •adverse sales impact due to changes in consumer purchasing behavior and availability of products to consumers, resulting from retail store closures, limited reopening of retail stores and limitations on the capacity of ecommerce channels to supply additional products; •fluctuations in our performance based on the progress of different countries in controlling the coronavirus and the maturity of e-commerce platforms in those markets. •limited production of live-action scripted and unscripted entertainment content due to the shutdown and gradual reopening of production studios; •delays or postponements of entertainment productions and releases of entertainment content both internally and by our partners; and •challenges of working remotely. In response to these challenges, we developed and continue to develop and execute plans to mitigate the negative impact of COVID-19 to the business. Our responses included: •utilizing our global supply chain and existing inventory to work to meet demand, while managing freight cost increases across all markets, as our manufacturing facilities returned to varying levels of operation; •accelerating our business online and expanding omni-channel to get products to customers and consumers; •developing innovative ways to enable players to continue to play MAGIC: THE GATHERING and DUNGEONS & DRAGONS games remotely; and -------------------------------------------------------------------------------- Condensed Notes to Consolidated Financial Statements (Millions of Dollars and Shares Except Per Share Data) •continuing to develop new entertainment, including working on animation productions and post-production work, which were able to be worked on remotely as live TV and film productions have returned gradually, with health and safety protocols in place. We have maintained sufficient liquidity and access to capital resources. We also continue to closely manage expenses to further preserve liquidity and we continually monitor customer health and collectability of receivables. The COVID-19 outbreak continues to be fluid and it is difficult to forecast the impact it could have on our future operations. Please see Part I, Item 1A. Risk Factors, in the Company's Form 10-K for the fiscal year endedDecember 27, 2020 for further information. Brand Blueprint Strategy Hasbro's 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, compelling content offered across a multitude of platforms and media. 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 Hasbro brands and content. The development and execution of our brands and content are informed by our proprietary consumer insights, which help us understand the behavior of our consumers, from a consumption of content and play standpoint. We have learned that consumers will travel with a brand that they love across multiple forms and formats, including our core historical strength of toys and games and licensed consumer products, as well as digital gaming and story-led entertainment, including short-form content online and long-form content in television and film. As the global consumer landscape, shopping behaviors and the retail and entertainment environments continue to evolve, we continue to adapt and refine our business strategy. This process includes reexamining the ways we organize across the Hasbro Brand Blueprint, re-shaping our business into a more adaptive and digitally-driven organization, expanding our ecommerce capabilities and attracting and developing a high-performing and diverse workforce through human capital investments. First quarter 2021 highlights: •First quarter net revenues were$1.1 billion compared to$1.1 billion in the first quarter of 2020 and included a favorable foreign currency translation of$18.4 million . Absent the impact of currency exchange first quarter net revenues declined 1%. •Net revenues in the Consumer Products segment increased 14% to$653.9 million ; Wizards of the Coast & Digital Gaming segment net revenues increased 15% to$242.2 million ; and Entertainment segment net revenues decreased 32% to$218.7 million . •Net revenues from Franchise Brands increased 24%; Emerging Brands net revenues increased 11%; Partner Brands net revenues increased 3%; net revenues fromHasbro Gaming decreased 3%; and Entertainment portfolio net revenues decreased 34% in the first quarter of 2021. •Operating profit was$147.3 million , or 13% of net revenue, in the first quarter of 2021 compared to operating losses of$23.3 million , or 2.1% of net revenue, in the first quarter of 2020. •First quarter 2021 operating profit was negatively impacted by$24.9 million ($20.4 million after-tax) of eOne acquired intangible asset amortization and$1.9 million ($1.7 million after-tax) of expense associated with retention awards granted in connection with the eOne acquisition. •First quarter 2020 operating losses were negatively impacted by acquisition and related expenses of$149.8 million ($127.5 million after-tax) and eOne acquired intangible asset amortization of$25.0 million ($19.9 million after-tax). •Net earnings attributable toHasbro, Inc. of$116.2 million , or$0.84 per diluted share, in the first quarter of 2021 compared to a net loss of$69.7 million , or$0.51 per diluted share, in the first quarter of 2020 and included a gain of$25.6 million , or$0.19 per diluted share from a legal settlement related to a dispute associated with foreign exchange hedging activities. 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. -------------------------------------------------------------------------------- Condensed Notes to Consolidated Financial Statements (Millions of Dollars and Shares Except Per Share Data) SUMMARY OF FINANCIAL PERFORMANCE A summary of the results of operations is illustrated below for the quarters endedMarch 28, 2021 andMarch 29, 2020 .
Quarter Ended
March 28, 2021 March 29, 2020
Net revenues $ 1,114.8 $ 1,105.6
Operating profit (loss) 147.3 (23.3)
Earnings (loss) before income taxes 129.5 (72.0)
Net earnings (loss) 117.5 (67.9)
Net earnings attributable to noncontrolling interests 1.3 1.8
Net earnings (loss) attributable to Hasbro, Inc. 116.2 (69.7)
Diluted earnings (loss) per share 0.84 (0.51)
RESULTS OF OPERATIONS - CONSOLIDATED
The quarters ended March 28, 2021 and March 29, 2020 were each 13-week periods.
Consolidated net revenues for the first quarter of 2021 increased $9.2 million ,
or 1%, compared to the first quarter of 2020, including a favorable $18.4
million impact from foreign currency translation as a result of strengthening
currencies, primarily in the Company's European and Asia Pacific regions, during
the first quarter of 2021 compared to 2020.
Operating profit for the first quarter of 2021 was $147.3 million , or 13% of net
revenues, compared to operating losses of $23.3 million , or 2% of net revenues,
for the first quarter of 2020. Operating profit during the first quarter of 2021
reflects $24.9 million ($20.4 million after-tax) of eOne acquired intangible
asset amortization and $1.9 million ($1.7 million after-tax) of expense
associated with retention awards granted in connection with the eOne
acquisition. Operating losses during the first quarter of 2020 were negatively
impacted by acquisition and related costs of $149.8 million ($127.5 million
after-tax) and $25.0 million ($19.9 million after-tax) of expenses related to
eOne acquired intangible asset amortization.
Net earnings attributable to Hasbro, Inc. were $116.2 million for the first
quarter of 2021 compared to net losses of $69.7 million for the first quarter of
2020. Diluted earnings per share attributable to Hasbro, Inc. for the first
quarter of 2021 was $0.84 , compared to a diluted loss per share of $0.51 in the
first quarter of 2020. The diluted earnings per share in 2021 reflects the
negative impact of $0.16 per diluted share from eOne acquired intangible asset
amortization and costs associated with retention awards. The diluted loss per
share in 2020 reflects the negative impact of acquisition related costs and
acquired intangible asset amortization of $0.93 per diluted share and $0.15 per
diluted share, respectively.
The following table presents net revenues by brand and entertainment portfolio
for the quarters ended March 28, 2021 and March 29, 2020 .
Quarter Ended
%
March 28, 2021 March 29, 2020 Change
Franchise Brands $ 491.5 $ 396.5 24 %
Partner Brands 188.0 182.3 3 %
Hasbro Gaming 136.3 140.1 -3 %
Emerging Brands 104.7 94.2 11 %
Entertainment 194.3 292.5 -34 %
Total $ 1,114.8 $ 1,105.6 1 %
FRANCHISE BRANDS: Net revenues in the Franchise Brands portfolio increased 24%
in the first quarter of 2021 compared to the first quarter of 2020. Higher net
revenues from MAGIC: THE GATHERING products, as a result of successful card set
releases, and higher net revenues from PLAY-DOH and NERF products, most notably
in the US, drove the majority of the increase, and to a lesser extent, higher
net revenues from TRANSFORMERS and BABY ALIVE products contributed to the
increase.
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Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
PARTNER BRANDS: Net revenues from the Partner Brands portfolio increased 3% in
the first quarter of 2021 compared to the first quarter of 2020. 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 by partner brand, fluctuate depending on entertainment popularity,
release dates and related product line offerings and success. Historically these
entertainment-based brands experience higher revenues during years in which new
content is released in theaters, for broadcast, and on streaming platforms.
During the first quarter of 2021, net revenue increases from STAR WARS and
DISNEY PRINCESS products drove growth in the Partner Brands portfolio, with each
brand benefiting from recent entertainment releases including the Disney+
streaming series, STAR WARS: THE MANDALORIAN, season two, was released during
the fourth quarter of 2020 and RAYA and THE LAST DRAGON premiered in theaters
and on Disney+ with Premier Access in March 2021 . To a lesser extent, Partner
Brand net revenues benefited from the Company's MARVEL products, primarily from
fan support in the U.S. and momentum in the SPIDER-MAN franchise. These
increases were partially offset by net revenue declines from TROLLS and DISNEY
FROZEN products as a result of the entertainment support in the prior year from
the TROLLS WORLD TOUR film, released in April 2020 and the November 2019
theatrical release of DISNEY'S FROZEN 2.
HASBRO GAMING : Net revenues in the Hasbro Gaming portfolio decreased 3% in the
first quarter of 2021 compared to the first quarter of 2020, which benefited
from growth during the onset of the COVID-19 pandemic as people looked for
entertainment alternatives at home. Lower net revenues from DUEL MASTERS, JENGA
and certain other Hasbro Gaming products were partially offset by net revenue
increases from DUNGEONS & DRAGONS products and higher net revenues from classic
games, including YAHTZEE and CLUE products during the first quarter of 2021.
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 $365.3 million for the first quarter of
2021, an increase of 7%, as compared to $340.5 million in the first quarter of
2020.
EMERGING BRANDS: Net revenues from the Emerging Brands portfolio increased 11%
during the first quarter of 2021 compared to the first quarter of 2020. Net
revenue increases were driven by FURREAL FRIENDS, SUPERSOAKER and GI JOE
products and to a lesser extent, POTATO HEAD products. These increases were
partially offset by lower net revenues from PJ MASKS and PEPPA PIG products in
the first quarter of 2021. During the second half of 2021, the Company expects
to launch its first PEPPA PIG and PJ MASKS products.
ENTERTAINMENT: During the first quarter of 2021, net revenues from the
Entertainment portfolio decreased 34% compared to the first quarter of 2020. The
impact of the COVID-19 pandemic on the entertainment industry in 2020, due to
the shutdown of production studios and gradual reopening beginning late in the
year, had an impact on deliveries in the first quarter of 2021. The drivers of
the 2021 decrease include; (i) declines in the theatrical business due to the
impact of COVID-19 shutdowns and restrictions; (ii) a difficult comparison due
to the positive impact in the prior year from film distribution revenues related
to the Amblin Partners film 1917; (iii) lower unscripted television production
revenues due to the cancellation of THE PACK television series following the
2020 season; and (iv) lower broadcast licensing revenues from THE ROOKIE
television series during the first quarter of 2021, due to timing and the number
of new deliveries in the first quarter of 2021 compared to the first quarter of
2020.
SEGMENT RESULTS
Effective for the three months ended March 28, 2021 , we have realigned our
reportable segments to reflect how the Company manages its businesses, evaluates
performance and allocates resources. Consistent with these changes, the
Company's three principal reportable segments are: Consumer Products, Wizards of
the Coast and Digital Gaming and Entertainment .
Reclassifications of certain prior year segment results have been made to
conform to the current-year presentation. None of the segment changes impact the
Company's previously reported consolidated net revenue, operating profits, net
earnings or net earnings per share.
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Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The following table presents net external revenues and operating profit data for
the Company's principal segments for the quarters ended March 28, 2021 and
March 29, 2020 :
Quarter Ended
%
March 28, 2021 March 29, 2020 Change
Net Revenues
Consumer Products segment $ 653.9 $ 572.5 14 %
Wizards of the Coast & Digital Gaming segment 242.2 210.6 15 %
Entertainment segment 218.7 322.5 -32 %
Operating Profit (Loss)
Consumer Products segment $ 32.3 $ (9.7) >100%
Wizards of the Coast & Digital Gaming segment 110.0 95.8 15 %
Entertainment segment 17.0 (64.3) >100%
Consumer Products Segment
The Consumer Products segment net revenues increased 14% to $653.9 million for
the first quarter of 2021 compared to $572.5 million for the first quarter of
2020 and included the impact of a favorable $9.0 million currency
translation. The drivers of the net revenue increase include higher sales of
PLAY-DOH, NERF and TRANSFORMERS products as well as higher sales of STAR WARS
and DISNEY PRINCESS products. Revenue grew across all geographic regions, most
notably in the U.S. and Europe . In addition, licensing revenues from
arrangements related to the Company's NERF brand, grew during the first quarter
of 2021. Partially offsetting these net revenue increases were lower sales of
Hasbro Gaming products in the US during the first quarter of 2021, compared to
the first quarter of 2020, which benefited from sales growth during the early
stages of the COVID-19 pandemic in the US.
Consumer Products segment operating profit for the first quarter of 2021 was
$32.3 million or 5% of segment net revenues, compared to segment operating
losses of $9.7 million or 2% of segment net revenues, for the first quarter of
2020. The operating profit increase in the first quarter of 2021 was driven by
higher segment net revenues as described above, partially offset by higher
royalty expenses as a result of higher sales of the Company's Partner Brand
products, higher advertising and higher freight costs.
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Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The following table presents the Consumer Products segment net revenues by major
geographic region for the quarter ended
Quarter Ended
March 28, March 29,
2021 2020
North America $ 362.7 $ 321.8
Europe 188.5 156.7
Asia Pacific 64.8 58.2
Latin America 37.9 35.8
Net Revenues $ 653.9 $ 572.5
Wizards of the Coast & Digital Gaming Segment
Wizards of the Coast & Digital Gaming segment net revenues increased 15% in the
first quarter of 2021 to $242.2 million from $210.6 million in the first quarter
of 2020 and included the impact of a favorable $4.3 million foreign currency
translation.
The net revenue increase in the Wizards of the Coast & Digital Gaming segment
during the first quarter of 2021 was attributable to net revenue increases from
Wizards of the Coast table-top and digital gaming products, most notably, MAGIC
THE GATHERING, driven by the Kaldheim and Time Spiral Remastered set releases
and DUNGEONS & DRAGONS. In addition to the net revenue increases from the
Company's Wizards of the Coast business, the segment benefited from growth in
certain of the Company's licensed digital games.
Wizards of the Coast & Digital Gaming segment operating profit was $110.0
million , or 45% of segment net revenues for the first quarter of 2021, compared
to operating profit of $95.8 million , or 45% of segment net revenues, for the
first quarter of 2020. The operating profit increase during the first quarter of
2021 was the result of increased sales described above, partially offset by
higher development costs, advertising costs and administrative costs, primarily
related to investments and costs to support the Company's digital gaming
initiatives.
Entertainment Segment
Entertainment segment net revenues declined 32% to $218.7 million for the first
quarter of 2021, compared to $322.5 million for the first quarter of 2020 and
included the impact of a favorable $5.0 million foreign currency translation.
The segment net revenue declines were primarily driven by lower theatrical film
revenues in 2021 compared to 2020, as theaters remained closed or operated at
limited capacity throughout the first quarter of 2021, and lower film and
television production and participation revenues, as a result of the limited
production of live-action entertainment content due to the shutdown and gradual
reopening of production studios during the latter half of 2020 and into 2021.
Entertainment segment operating profit increased to $17.0 million , or 8% of
segment net revenues for the first quarter of 2021 compared to operating losses
of $64.3 million , or 20% of segment net revenues for the first quarter of 2020.
The operating loss for the first quarter of 2020 included $98.5 million of
acquisition and integration costs, including $47.4 million of expense associated
with the acceleration of eOne stock-based compensation, $24.5 million of advisor
fees settled at the closing of the acquisition as well as $20.9 million in
impairment charges for certain production assets. Absent these 2020 expenses,
first quarter 2021 operating profit decreased $17.2 million as a result of lower
film and television deliveries, as discussed above, partially offset by lower
advertising costs due to lack of theatrical releases during the first quarter of
2021.
The following table presents Entertainment segment net revenues by category for
the quarter ended March 28, 2021 .
Quarter Ended
March 28, March 29,
2021 2020
TV and Film $ 166.4 $ 264.0
Family Brands 18.8 25.9
Music and Other 33.5 32.6
Net revenues $ 218.7 $ 322.5 --------------------------------------------------------------------------------
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Corporate and Other Segment
The Corporate and Other segment had an operating loss of $12.0 million for the
first quarter of 2021 compared to operating losses of $45.1 million for the
first quarter of 2020. Operating losses in the first quarter of 2020 were driven
primarily by acquisition and related costs of $51.2 million , including
restructuring and related costs of $34.1 million associated with the integration
of eOne.
OPERATING COSTS AND EXPENSES
The Company's costs and expenses, stated as percentages of net revenues, are
illustrated below for the quarters ended March 28, 2021 and March 29, 2020 .
Quarter Ended
March 28, 2021 March 29, 2020
Cost of sales 26.0 % 23.8 %
Program cost amortization 8.7 12.0
Royalties 9.8 10.2
Product development 5.5 4.9
Advertising 7.9 9.2
Amortization of intangibles 3.0 3.3
Selling, distribution and administration 25.9 25.2
Acquisition and related costs - 13.5
Cost of sales for the first quarter of 2021 was $289.9 million , or 26.0% of net
revenues, compared to $262.7 million , or 23.8% of net revenues, for the first
quarter of 2020. The cost of sales increase in dollars and as a percentage of
net revenues was primarily due to higher inventory costs driven by higher
freight costs and, to a lesser extent, from the impact of $4.1 million of
foreign currency exchange. These increases were partially offset by lower levels
of closeout sales in the first quarter of 2021.
Program cost amortization decreased to $97.5 million , or 8.7% of net revenues,
for the first quarter of 2021 from $132.2 million , or 12.0% of net revenues, for
the first quarter of 2020. Program costs are capitalized as incurred and
amortized using the individual-film-forecast method which matches costs to the
related recognized revenue. The decrease during the first quarter of 2021 is
driven by lower film and television programming revenues, due to lower
deliveries, in the first quarter of 2021.
Royalty expense for the first quarter of 2021 decreased to $108.9 million , or
9.8% of net revenues, compared to $112.8 million , or 10.2% of net revenues, for
the first quarter of 2020. Fluctuations in royalty expense are generally related
to the volume of content releases and deliveries and entertainment-driven
products sold. The decline in royalty expense was driven by lower film and
television revenues in the first quarter of 2021, partially offset by higher
sales of Partner Brand products in the first quarter of 2021 as compared to the
first quarter of 2020.
Product development expense for the first quarter of 2021 was $61.8 million , or
5.5% of net revenues, compared to $53.8 million , or 4.9% of net revenues, for
the first quarter of 2020. The increase was primarily related to increased
investments in the Wizards of the Coast and Digital Gaming segment, most notably
development costs related to the Company's mobile gaming initiatives.
Advertising expense for the first quarter of 2021 was $87.9 million , or 7.9% of
net revenues, compared to $101.7 million , or 9.2% of net revenues, for the first
quarter of 2020. The advertising expense decrease was driven by lower
entertainment revenues in the first quarter of 2021 compared to the first
quarter of 2020, as advertising spend is generally impacted by revenue mix and
the number and type of theatrical releases. This decrease was partially offset
by increased advertising expense in support of certain of the Company's digital
gaming initiatives.
Amortization of intangible assets decreased to $32.9 million , or 3.0% of net
revenues, for the first quarter of 2021, compared to $36.8 million , or 3.3% of
net revenues, for the first quarter of 2020. The decrease is primarily related
to certain licensed property rights which became fully amortized in the fourth
quarter of 2020.
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Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
For the first quarter of 2021, the Company's selling, distribution and
administration expenses increased to $288.6 million , or 25.9% of net revenues,
from $279.1 million , or 25.2% of net revenues, for the first quarter of 2020.
The increase in selling, distribution and administration expenses reflects
increased freight and warehousing costs and higher bonus and stock compensation
expense, partially offset by lower expense for credit losses and decreased
general and administrative spending during the first quarter of 2021.
During the first quarter of 2020, the Company incurred $149.8 million of
acquisition and related costs in connection with the eOne Acquisition. These
expenses comprised of $95.7 million of acquisition and integration costs,
primarily related to $47.4 million of expense associated with the acceleration
of eOne stock-based compensation and $38.2 million of advisor fees settled at
the closing of the acquisition. Also included in the acquisition and related
costs were $54.1 million of restructuring and related costs including severance
and retention costs of $13.2 million as well as $40.9 million in impairment
charges for certain definite-lived intangible and production assets. The
impairment charges of $40.9 million were driven by the change in strategy for
the combined company's entertainment assets.
NON-OPERATING (INCOME) EXPENSE
Interest expense for the first quarter of 2021 totaled $47.9 million compared to
$54.7 million in the first quarter of 2020. The decrease in interest expense for
the first quarter of 2021 primarily reflects 2020 debt paydown activities
related to borrowings utilized for the eOne acquisition and lower interest
rates, partially offset by higher production financing borrowings during the
first quarter of 2021.
Interest income was $1.2 million for the first quarter of 2021, compared to $4.7
million in the first quarter of 2020. Lower average interest rates in 2021
compared to 2020 contributed to the decrease.
Other income, net was $28.9 million for the first quarter of 2021, compared to
$1.3 million in the first quarter of 2020. The increase was driven by $25.6
million gain realized in the first quarter of 2021, from a legal settlement.
Also contributing to the increase in the first quarter 2021 are higher earnings
from the Company's joint venture with Discovery and lower foreign currency
losses during 2021 compared to the first quarter of 2020. Partially offsetting
these benefits were losses during the first quarter of 2021 associated with the
periodic re-measurement of Discovery's option to purchase Hasbro's share of the
Discovery Family Channel.
INCOME TAXES
Income tax expense totaled $12.0 million on pre-tax earnings of $129.5 million
in the first quarter of 2021 compared to income tax benefit of $4.1 million on
pre-tax loss of $72.0 million in the first quarter of 2020. Both periods were
impacted by discrete tax events including the accrual of potential interest and
penalties on uncertain tax positions. During the first quarter of 2021,
favorable discrete tax adjustments were a net benefit of $8.9 million compared
to a net discrete tax benefit of $20.1 million for the first quarter of 2020.
The favorable discrete tax adjustments for the first quarter of 2021 primarily
relate to expiration of statute of limitations for uncertain tax positions. The
discrete benefit includes a legal settlement gain with no tax expense due to the
availability of net operating losses and release of the related valuation
allowance on the NOLs utilized by the settlement gain. The favorable discrete
tax adjustments for the first quarter of 2020 primarily relate to the costs
related to the acquisition of eOne. Absent discrete items, the adjusted tax rate
for the first quarters of 2021 and 2020 were 20.1% and 20.6% respectively. The
decrease in the adjusted rate of 20.1% for the first quarter of 2021 is
primarily related to the mix of jurisdictions where the Company earned its
profits.
OTHER INFORMATION
Brexit Referendum
On June 23, 2016 , the United Kingdom voted in a referendum to leave the European
Union ("EU"), referred to as Brexit. On January 31, 2020 , the UK formally
withdrew from the EU and entered a transitional period which ended on December
31, 2020 . In December 2020 , the UK and the EU agreed on a trade and cooperation
agreement, under which the EU and the UK will now form two separate markets
governed by two distinct regulatory and legal regimes. The trade and cooperation
agreement covers the general objectives and framework of the relationship
between the UK and the EU, including as it relates to trade, transport and
visas. The Company continues to monitor the impact to foreign currency markets,
taking appropriate actions to support the Company's long-term strategy and to
mitigate risks in its operational and financial activities. However, the Company
cannot predict the direction of Brexit-related developments nor the impact of
those developments on our European operations and the economies of the markets
in which they operate.
--------------------------------------------------------------------------------
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Business Seasonality and Shipments
Historically, the revenue pattern of Hasbro's consumer products business has
shown the second half of the year to be more significant to its overall business
than the first half. The Company expects that this concentration will continue,
particularly as more of its business has shifted to larger customers with order
patterns concentrated in the second half of the year around the holiday season.
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 Company's consumer products customer order patterns vary from year to year
largely due to fluctuations in the degree of consumer acceptance of product
lines, product availability, marketing strategies and inventory policies of
retailers, the dates of theatrical releases of major motion pictures for which
we offer products, and changes in overall economic conditions. A
disproportionate volume of our net revenues has historically been earned during
the third and fourth quarters leading up to the retail industry's holiday
selling season, including Christmas. As a result, comparisons of unshipped
orders on any date with those at the same date in the prior year are not
necessarily indicative of our sales for that year. Moreover, quick response, or
just-in-time, inventory management practices result in a significant proportion
of orders being placed for immediate delivery. Although the Company may receive
orders from customers in advance, it is general industry practice that these
orders are subject to amendment or cancellation by customers prior to shipment
and, as such, the Company does not believe that these unshipped orders, at any
given date, are necessarily indicative of future sales. We expect retailers will
continue to follow this strategy.
Accounting Pronouncement Updates
In August 2018 , the FASB issued Accounting Standards Update No. 2018-14 (ASU
2018-14) Compensation - Retirement Benefits - Defined Benefit Plans - General
(Subtopic 715-20)- Disclosure Framework - Changes to the Disclosure Requirements
for Defined Benefit Plans. The amendments in this update modify the disclosure
requirements for employers that sponsor defined benefit pension or other
postretirement plans. For public companies, this standard is effective for
annual reporting periods beginning after December 15, 2020 , and early adoption
is permitted. The Company adopted the standard in the first quarter of 2021 and
the adoption of the standard did not have a material impact on its consolidated
financial statements.
In December 2019 , the FASB issued Accounting Standards Update No. 2019-12 (ASU
2019-12), Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.
The amendments in this update remove certain exceptions for performing
intraperiod tax allocations, recognizing deferred taxes for investments, and
calculating income taxes in interim periods. The guidance also simplifies the
accounting for franchise taxes, transactions that result in a step-up in the tax
basis of goodwill, and the effect of enacted changes in tax laws or rates in
interim periods. ASU 2019-12 is effective for fiscal years beginning after
December 15, 2020 and early adoption is permitted. The Company adopted the
standard in the first quarter of 2021 and the adoption of the standard did not
have a material impact on its consolidated financial statements.
Recently Issued Accounting Pronouncements
In March of 2020, the FASB issued Accounting Standards Update No. 2020-04 (ASU
2020-04) Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. The amendments in this update
provide optional expedients and exceptions for applying U.S. GAAP to contracts,
hedging relationships, and other transactions, for a limited period of time, to
ease the potential burden of recognizing the effects of reference rate reform on
financial reporting. The amendments in this update apply to contracts, hedging
relationships and other transactions that reference the London Inter-Bank
Offered Rate ("LIBOR") or another reference rate expected to be discontinued due
to the global transition away from LIBOR and certain other interbank offered
rates. An entity may elect to apply the amendments provided by this update
beginning March 12, 2020 through December 31, 2022 . The Company does not
currently expect the change from LIBOR to an alternate rate to have a material
impact on its consolidated financial statements, and the Company is continuing
to evaluate the standard's potential impact to its consolidated financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated a significant amount of cash from
operations. In the first three months of 2021 and 2020 the Company primarily
funded its operations and liquidity needs through 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 by special purpose production
subsidiaries.
--------------------------------------------------------------------------------
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The Company expects to continue to fund its working capital needs primarily
through available cash and cash flows from operations as well as production
financing facilities and, when 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 and 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
2021. 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 inability to otherwise access the
commercial paper market, may reduce or eliminate the availability of external
financial resources. In addition, significant disruptions to credit markets may
also reduce or eliminate the availability of external financial resources.
Although the Company believes the risk of nonperformance by the counterparties
to its financial facilities is not significant, in times of severe economic
downturn in the credit markets, it is possible that one or more sources of
external financing may be unable or unwilling to provide funding to the Company.
As of March 28, 2021 , the Company's cash and cash equivalents totaled $1,430.4
million , of which $72.1 million is restricted under the Company's production
financing facilities. Prior to 2017, deferred income taxes had not been provided
on the majority of undistributed earnings of international subsidiaries as such
earnings were considered indefinitely reinvested by the Company. The Tax Act
provided significant changes to the U.S. tax system including the elimination of
the ability to defer U.S. income tax on unrepatriated earnings by imposing a
one-time mandatory deemed repatriation tax on undistributed foreign earnings. As
of March 28, 2021 , the Company has a total liability of $174.5 million related
to this tax, $18.4 million is reflected in current liabilities while the
remaining long-term payable related to the Tax Act of $156.1 million is
presented within other liabilities, non-current on the Consolidated Balance
Sheets. As permitted by the Tax Act, the Company will pay the transition tax in
annual interest-free installments through 2025. As a result, the related
earnings in foreign jurisdictions are available with greater investment
flexibility. The majority of the Company's cash and cash equivalents held
outside of the United States as of March 28, 2021 is denominated in the U.S.
dollar.
Because of the seasonality in the Company's cash flow, management believes that
on an interim basis, rather than discussing only its cash flows, a better
understanding of its liquidity and capital resources can be obtained through a
discussion of the various balance sheet categories as well. Also, as several of
the major categories, including cash and cash equivalents, accounts receivable,
inventories and short-term borrowings, fluctuate significantly from quarter to
quarter, due to the seasonality of its business, management believes that a
comparison to the comparable period in the prior year is generally more
meaningful than a comparison to the prior year-end.
The table below outlines key financial information (in millions of dollars)
pertaining to our consolidated balance sheets including the period-over-period
changes.
March 28, 2021 March 29, 2020 % Change
Cash and cash equivalents (including restricted
cash of $72.1 and $86.2 ) $ 1,430.4 $ 1,237.9 16 %
Accounts receivable, net 810.4 963.8 -16 %
Inventories 429.2 444.4 -3 %
Prepaid expenses and other current assets 566.0 672.4 -16 %
Other assets 1,266.0 1,461.5 -13 %
Accounts payable and accrued liabilities 1,595.7 1,664.7 -4 %
Other liabilities 777.7 739.0 5 %
Accounts receivable decreased to $810.4 million at March 28, 2021 , compared to
$963.8 million at March 29, 2020 . Absent the favorable foreign currency impact
of $20.9 million , accounts receivable decreased 18%, or $174.3 million . The
decrease in accounts receivable was driven primarily by improved collections
during the first quarter of 2021 and by lower sales during the fourth quarter of
2020, primarily in the Company's Latin American and Asia Pacific markets. Days
sales outstanding decreased from 79 days at March 29, 2020 to 66 days at
March 28, 2021 primarily due to the mix of sales and from improved collections
in the quarter.
Inventories decreased to $429.2 million as of March 28, 2021 compared to $444.4
million at March 29, 2020 . Absent the favorable foreign currency impact of $15.5
million , inventories decreased 7% reflecting lower levels, primarily in the
Latin American, Europe and Asia Pacific markets due to improved inventory
management and higher obsolescence charges taken during 2020, as a result of the
impact of COVID-19.
--------------------------------------------------------------------------------
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Prepaid expenses and other current assets decreased to $566.0 million at
March 28, 2021 from $672.4 million at March 29, 2020 . The decrease was due to
lower unrealized gains on foreign exchange contracts, lower short-term
investment balances as a result of the Company's global cash management
strategy, lower accrued tax credits related to film and television production
costs reflecting the impact of COVID-19 to 2020 production activities and lower
prepaid tax balances in the first quarter of 2021 compared to 2020. These
decreases were partially offset by higher prepaid royalty amounts due to the
current portion payments made in the first quarter of 2021, in relation to the
Company's Marvel and Lucasfilm royalty agreements.
Other assets decreased to approximately $1,266.0 million at March 28, 2021 from
$1,461.5 million at March 29, 2020 . The decrease was driven by lower capitalized
film and television content and production balances as a result of disruptions
to the entertainment industry in 2020 caused by the COVID-19 pandemic, as well
as lower non-current royalty advances which have been reclassified from
non-current to current and lower deferred tax balances.
Accounts payable and accrued liabilities decreased to $1,595.7 million at
March 28, 2021 from $1,664.7 million at March 29, 2020 . The decrease was
attributable to lower accrued participation balances due to the limited
entertainment production activity during 2020, lower deferred revenue balances
and lower accrued interest as a result of debt paydown activities during the
fourth quarter of 2020 and the first quarter of 2021. These decreases were
partially offset by higher accrued advertising and higher accrued tax balances.
Other liabilities increased to $777.7 million at March 28, 2021 from $739.0
million at March 29, 2020 . The increase was driven by deferred tax liabilities
recorded as a result of the eOne Acquisition, higher long-term lease liability
balances, higher reserves for uncertain tax positions and higher long-term
international pension balances due to 2020 year-end actuarial valuations. These
increases were offset by a lower transition tax liability balance reflecting the
reclassification of the 2021 installment payment.
Cash Flow
The following table summarizes the changes in the Consolidated Statement of Cash
Flows, expressed in millions of dollars, for the quarters ended March 28, 2021
and March 29, 2020 .
March 28, 2021 March 29, 2020
Net cash provided by (used in)
Operating activities $ 377.6 $ 291.6
Investing activities (25.5) (4,430.5)
Financing activities (370.8) 819.5
Net cash provided by operating activities in the first three months of 2021 was
$377.6 million compared to $291.6 million in the first three months of 2020. The
$86.0 million increase in net cash provided by operating activities was
primarily attributable to higher earnings excluding non-cash charges and lower
film and television production spend during the first quarter of 2021.
Net cash utilized by investing activities was $25.5 million in the first three
months of 2021 compared to $4,430.5 million in the first three months of
2020. Investing activities in 2020 included $4.4 billion of cash utilized to
acquire eOne, net of cash acquired and consisted of the net proceeds from the
issuance of an aggregate principal amount of $2.4 billion in senior secured
notes in November 2019 , net proceeds $975.2 million from of the issuance of
approximately 10.6 million shares of common stock in November 2019 and $1.0
billion in term loans drawn in the first quarter of 2020.
Additions to property, plant and equipment were $23.9 million in the first three
months of 2021 compared to $30.8 million in the first three months of 2020.
Net cash utilized by financing activities was $370.8 million in the first three
months of 2021 compared to net cash provided by financing activities of $819.5
million in the first three months of 2020. Financing activities in the first
quarter of 2021 include the early repayment of $300.0 million aggregate
principal amount of 3.15% Notes due to mature in May 2021 , as well as drawdowns
of $72.4 million and repayments of $37.4 million related to production financing
loans. In addition, the Company made a quarterly principal payment of $7.5
million related to the $1.0 billion in term loans described above. In the first
quarter of 2020, the increase in cash provided by financing activities was
driven by the proceeds of the Company's $1.0 billion term loans, partially
offset by repayments of $50.2 million related to production financing loans and
payments totaling $47.4 million associated with the redemption of stock awards
that were accelerated as a result of the eOne acquisition.
Dividends paid in the first quarter of 2021 totaled $93.4 million , consistent
with dividends paid in the first quarter of 2020 of $93.2 million . There were no
repurchases of the Company's common stock in the first three months of 2021 as
the Company suspended its share repurchase program while it prioritizes
deleveraging.
--------------------------------------------------------------------------------
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
Sources and Uses of Cash
The Company has an agreement with a group of banks which provides for a
commercial paper program (the "Program"). Under the Program, at the request of
the Company and subject to market conditions, the banks may either purchase from
the Company, or arrange for the sale by the Company, of unsecured commercial
paper notes. The Company may issue notes from time to time up to an aggregate
principal amount outstanding at any given time of $1.0 billion . The maturities
of the notes may vary but may not exceed 397 days. The notes are sold under
customary terms in the commercial paper market and are issued at a discount to
par, or alternatively, sold at par and bear varying interest rates based on a
fixed or floating rate basis. The interest rates vary based on market conditions
and the ratings assigned to the notes by the credit rating agencies at the time
of issuance. Subject to market conditions, the Company intends to utilize the
Program as its primary short-term borrowing facility and does not intend to sell
unsecured commercial paper notes in excess of the available amount under the
revolving credit agreement discussed below. If, for any reason, the Company is
unable to access the commercial paper market, the Company intends to use the
revolving credit agreement to meet the Company's short-term liquidity needs. At
March 28, 2021 , the Company had no outstanding borrowings related to the
Program.
The Company has a second amended and restated revolving credit agreement with
Bank of America, N.A ., as administrative agent, swing line lender and a letter
of credit issuer and lender and certain other financial institutions, as lenders
thereto (the "Amended Revolving Credit Agreement"), which provides the Company
with commitments having a maximum aggregate principal amount of $1.5 billion .
The Amended Revolving Credit Agreement also provides for a potential additional
incremental commitment increase of up to $500.0 million subject to agreement of
the lenders. The Amended Revolving Credit Agreement contains certain financial
covenants setting forth leverage and coverage requirements, and certain other
limitations typical of an investment grade facility, including with respect to
liens, mergers and incurrence of indebtedness. The Amended Revolving Credit
Agreement extends through September 20, 2024 . The Company was in compliance with
all covenants as of March 28, 2021 . The Company had no borrowings outstanding
under its committed revolving credit facility as of March 28, 2021 . However,
letters of credit outstanding under this facility as of March 28, 2021 were
approximately $3.0 million . Amounts available and unused under the committed
line, at March 28, 2021 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 $23.3 million was
utilized at March 28, 2021 . Of the amount utilized under, or supported by, the
uncommitted lines, approximately $8.8 million and $14.5 million represent
outstanding short-term borrowings and letters of credit, respectively.
In September of 2019, the Company entered into a $1.0 billion Term Loan
Agreement (the "Term Loan Agreement") with Bank of America N.A . ("Bank of
America "), as administrative agent, and certain financial institutions as
lenders, pursuant to which such lenders committed to provide, contingent upon
the completion of the eOne Acquisition and certain other customary conditions to
funding, (1) a three-year senior unsecured term loan facility in an aggregate
principal amount of $400.0 million (the "Three-Year Tranche") and (2) a
five-year senior unsecured term loan facility in an aggregate principal amount
of $600.0 million (the "Five-Year Tranche" and together with the Three-Year
Tranche, the "Term Loan Facilities"). On December 30, 2019 , the Company
completed the acquisition of eOne and on that date, borrowed the full amount of
$1.0 billion under the Term Loan Facilities. The Company is subject to certain
financial covenants contained in this agreement and as of March 28, 2021 , the
Company was in compliance with these covenants. The terms of the Term Loan
Facilities are described in Note 8 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%. The terms of the Notes are
described in Note 8 to the consolidated financial statements in Part I of this
Form 10-Q.
The Company has principal amounts of long-term debt at March 28, 2021 of $4.7
billion , due at varying times from 2022 through 2044. Of the total principal
amount of long-term debt, $148.9 million is current at March 28, 2021 of which
$30.0 million is related to principal amortization of the 5-year term loans due
December 2024 . During the first quarter of 2021, the Company repaid in full, its
3.15% Notes in the aggregate principal amount of $300.0 million due in May 2021 ,
including accrued interest. Additionally, the Company has outstanding production
financing facilities at March 28, 2021 of $201.8 million of which $82.9 million
is included in long-term debt and $118.9 million is reported as the current
portion of long-term debt within the Company's consolidated financial
statements, included in Part I of this Form 10-Q. All of the Company's other
long-term borrowings have contractual maturities that occur subsequent to the
first quarter of 2022 with the exception of certain of the Company's production
financing facilities discussed above.
--------------------------------------------------------------------------------
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
In November of 2019, the Company completed an underwritten public offering of
10.6 million shares of common stock, par value $0.50 per share, at a public
offering price of $95.00 per share. Net proceeds from this public offering were
approximately $975.2 million , after deducting underwriting discounts and
commissions and offering expenses of approximately $31.1 million . The net
proceeds were used to finance, in part, the acquisition of eOne and to pay
related costs and expenses.
The Company also had letters of credit and other similar instruments of
approximately $14.5 million and purchase commitments of approximately $405.3
million outstanding at March 28, 2021 .
Other contractual obligations and commercial commitments, as detailed in the
Company's 2020 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 table of contractual obligations and commercial commitments, as detailed in
the Company's 2020 Form 10-K does not include certain tax liabilities related to
uncertain tax positions and certain unsatisfied performance obligations
primarily related to in-production television content to be delivered in the
future, under existing agreements.
The Company has a long history of returning cash to its shareholders through
quarterly dividends and share repurchases. In 2021 Hasbro maintained its
quarterly dividend rate of $0.68 per share for the dividend paid in February and
has declared a second cash dividend of $0.68 per share scheduled for May 2021 .
In addition to the dividend, the Company periodically returns cash to
shareholders through its share repurchase program. As part of this initiative,
since 2005, the Company's Board of Directors (the "Board") adopted numerous
share repurchase authorizations with a cumulative authorized repurchase amount
of $4.3 billion . The most recent authorization was approved in May 2018 for $500
million . Since 2005, Hasbro has repurchased 108.6 million shares at a total cost
of $4.0 billion and an average price of $36.44 per share. At March 28, 2021 , the
Company had $366.6 million remaining under these share repurchase
authorizations. Share repurchases are subject to market conditions, the
availability of funds and other uses of funds. As a result of the financing
activities related to the eOne Acquisition, the Company has suspended its
current share repurchase program while it prioritizes deleveraging.
The Company believes that cash from operations, and, if necessary, its committed
line of credit and other borrowing facilities, will allow the Company to meet
its obligations over the next twelve months.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ESTIMATES
The Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America . As
such, management is required to make certain estimates, judgments and
assumptions that it believes are reasonable based on the information
available. These estimates and assumptions affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses for the periods presented. The significant accounting
policies which management believes are the most critical to aid in fully
understanding and evaluating the Company's reported financial results include
film and television production costs, recoverability of goodwill and intangible
assets, income taxes and business combinations. Additionally, the Company
identified the valuation of the Company's equity method investment in Discovery
Family Channel as a significant accounting estimate. These critical accounting
policies are the same as those detailed in the 2020 Form 10-K.
FINANCIAL RISK MANAGEMENT
The Company is exposed to market risks attributable to fluctuations in foreign
currency exchange rates, primarily as the result of sourcing products priced in
U.S. dollars, Hong Kong dollars and Euros while marketing those products in more
than twenty currencies. Results of operations may be affected primarily by
changes in the value of the U.S. dollar, Hong Kong dollar, Euro, British pound
sterling, Canadian dollar, Brazilian real, Russian ruble and Mexican peso and,
to a lesser extent, other currencies in Latin American and Asia Pacific
countries.
To manage this exposure, the Company has hedged a portion of its forecasted
foreign currency transactions for fiscal years 2021 and 2022 using foreign
exchange forward contracts. The Company is also exposed to foreign currency risk
with respect to its net cash and cash equivalents or short-term borrowing
positions in currencies other than the U.S. dollar. The Company believes,
however, that the on-going risk on the net exposure should not be material to
its financial condition. In addition, the Company's revenues and costs have
been, and will likely continue to be, affected by changes in foreign currency
rates. A significant change in foreign exchange rates can materially impact the
Company's revenues and earnings due to translation of foreign-denominated
revenues and expenses. The Company does not hedge against translation impacts of
foreign exchange. From time to time, affiliates of the Company may make or
receive intercompany loans in currencies other than their functional currency.
The Company manages this exposure at the time the loan is made by using foreign
exchange contracts.
--------------------------------------------------------------------------------
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)
The Company reflects all forward and option contracts at their fair value as an
asset or liability on the consolidated balance sheets. The Company does not
speculate in foreign currency exchange contracts. At March 28, 2021 , these
contracts had net unrealized gains of $2.6 million , of which $7.8 million of
unrealized gains are recorded in prepaid expenses and other current assets, $1.6
million of unrealized gains are recorded in other assets, $6.6 million of
unrealized losses are recorded in accrued liabilities and $0.2 million of
unrealized losses are recorded in other liabilities. Included in accumulated
other comprehensive loss at March 28, 2021 are deferred losses, net of tax, of
$1.4 million , related to these derivatives.
At March 28, 2021 , the Company had principal amounts of long-term debt of $4.7
billion . In May 2014 , the Company issued an aggregate amount of $600.0 million
of long-term debt consisting of $300.0 million of 3.15% Notes, which were repaid
in full during the first quarter of 2021, and $300.0 million of 5.10% Notes due
2044. Prior to the debt issuance, the Company entered into forward-starting
interest rate swap agreements with a total notional value of $500 million to
hedge the anticipated underlying U.S. Treasury interest rate. These interest
rate swaps were matched with this debt issuance and were designated and
effective as hedges of the change in future interest payments. At the date of
debt issuance, the Company terminated these interest rate swap agreements and
their fair value at the date of issuance was recorded in accumulated other
comprehensive loss and is being amortized through the consolidated statements of
operations using an effective interest rate method over the life of the related
debt. Included in accumulated other comprehensive loss at March 28, 2021 are
deferred losses, net of tax, of $16.2 million , all of which relates to the
remaining $300.0 million of 5.10% Notes due 2044.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is included in Part I, Item 2.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and is incorporated herein by reference.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
The Company maintains disclosure controls and procedures, as defined in Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), that are designed to ensure that information required to be disclosed by
the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms and that such
information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure. The Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures as of March 28, 2021 . Based on the
evaluation of these disclosure controls and procedures, the Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective.
Changes in internal control over financial reporting
There were no changes in the Company's internal control over financial
reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act,
during the quarter ended March 28, 2021 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting. In the first quarter of fiscal 2020, we completed the
acquisition of eOne as described in Note 3 to the consolidated financial
statements in Part I of this Form 10-Q. We are currently integrating eOne into
our internal control over financial reporting processes. This integration will
be completed in 2021.
--------------------------------------------------------------------------------
Condensed Notes to Consolidated Financial Statements
(Millions of Dollars and Shares Except Per Share Data)© Edgar Online, source
