SEC Filing | Hasbro, Inc.

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has-20220925

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________

FORM 10-Q

__________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 25, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6682

__________________

HASBRO, INC.

(Exact name of registrant as specified in its charter)


Rhode Island		05-0155090
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1027 Newport Avenue
Pawtucket,	Rhode Island	02861
(Address of Principal Executive Offices)		(Zip Code)

(401) 431-8697

Registrant's telephone number, including area code

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 par value per share	HAS	The NASDAQ Global Select Market

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

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

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


Large accelerated filer	x	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

The number of shares of Common Stock, par value $.50 per share, outstanding as of October 18, 2022 was 138,113,722.

Forward Looking Statement Safe Harbor

Certain statements in this Form 10-Q contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements, which may be identified by the use of forward-looking words or phrases, include statements relating to: our business strategies; the ability to achieve our financial and business goals and objectives; anticipated financial performance or business prospects in future periods; expectations relating to our operational excellence program, including anticipated cost savings and cash costs to achieve savings; expectations relating to products, gaming and entertainment to be developed and delivered in the near term; expected benefits and plans relating to acquired brands, properties and businesses; marketing and promotional efforts; research and development activities; actions taken to mitigate the impact of inflation; capital expenditures; working capital; inventory; liquidity; financing sources; timing of and amount of repayment of indebtedness; capital allocation strategy, including plans for dividends and share repurchases; and other financial, tax, accounting and similar matters. Our actual actions or results may differ materially from those expected or anticipated in the forward-looking statements due to both known and unknown risks and uncertainties. Factors that might cause such a difference include, but are not limited to:

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

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

•our ability to successfully compete in the global play and entertainment industry, including with manufacturers, marketers, and sellers of toys and games, digital gaming products and digital media, as well as with film studios, television production companies and independent distributors and content producers;

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

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

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

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

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

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

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

•risks related to our leadership changes;

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

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

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

•risks relating to investments, acquisitions and dispositions, including the ability to realize the anticipated benefits of acquired assets or businesses;

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

•fluctuations in our business due to seasonality;

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

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

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

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

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

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

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of Dollars Except Share Data)

(Unaudited)


	September 25, 2022		September 26, 2021		December 26, 2021
ASSETS
Current assets
Cash and cash equivalents including restricted cash of $6.1 million, $94.9 million and $35.8 million	$	551.6	$	1,181.2	$	1,019.2
Accounts receivable, less allowance for doubtful accounts of $21.8 million, $30.4 million and $22.9 million	1,188.8		1,476.6		1,500.4
Inventories	844.5		544.1		552.1
Prepaid expenses and other current assets	658.8		528.5		656.4
Assets held for sale	16.8		—		—
Total current assets	3,260.5		3,730.4		3,728.1
Property, plant and equipment, less accumulated depreciation of $640.3 million, $607.6 million and $630.0 million	411.8		441.9		421.1
Other assets
Goodwill	3,469.8		3,420.2		3,419.6
Other intangible assets, net of accumulated amortization of $1,094.6 million, $1,027.4 million and $1,050.4 million	1,079.7		1,209.5		1,172.0
Other	1,404.3		1,428.4		1,297.0
Total other assets	5,953.8		6,058.1		5,888.6
Total assets	$	9,626.1	$	10,230.4	$	10,037.8
LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings	$	122.3	$	0.9	$	0.8
Current portion of long-term debt	122.6		187.6		200.1
Accounts payable	559.5		598.2		580.2
Accrued liabilities	1,537.5		1,663.7		1,674.8
Liabilities held for sale	15.0		—		—
Total current liabilities	2,356.9		2,450.4		2,455.9
Long-term debt	3,725.1		3,977.4		3,824.2
Other liabilities	545.1		722.5		670.7
Total liabilities	$	6,627.1	$	7,150.3	$	6,950.8
Redeemable noncontrolling interests	—		22.9		23.9
Shareholders' equity
Preference stock of $2.50 par value. Authorized 5,000,000 shares; none issued	—		—		—
Common stock of $0.50 par value. Authorized 600,000,000 shares; issued 220,286,736 shares at September 25, 2022, September 26, 2021, and December 26, 2021	110.1		110.1		110.1
Additional paid-in capital	2,530.1		2,388.9		2,428.0
Retained earnings	4,297.8		4,269.6		4,257.8
Accumulated other comprehensive loss	(324.9)		(208.6)		(235.3)
Treasury stock, at cost; 82,178,615 shares at September 25, 2022; 82,359,425 shares at September 26, 2021; and 82,066,136 shares at December 26, 2021	(3,637.1)		(3,541.0)		(3,534.7)
Noncontrolling interests	23.0		38.2		37.2
Total shareholders' equity	2,999.0		3,057.2		3,063.1
Total liabilities, noncontrolling interests and shareholders' equity	$	9,626.1	$	10,230.4	$	10,037.8

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Millions of Dollars Except Per Share Data)

(Unaudited)


	Quarter Ended				Nine Months Ended
	September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021
Net revenues	$	1,675.9	$	1,970.0	$	4,178.2	$	4,407.0
Costs and expenses:
Cost of sales	586.6		609.5		1,331.2		1,244.4
Program cost amortization	146.5		187.9		365.7		396.1
Royalties	135.1		171.8		335.3		392.2
Product development	82.4		80.1		231.2		229.1
Advertising	115.2		163.3		277.0		356.6
Amortization of intangibles	26.9		27.7		81.2		90.3
Selling, distribution and administration	365.8		361.8		1,000.1		1,004.7
Loss on assets held for sale	23.1		—		23.1		—
Loss on disposal of business	—		—		—		101.8

Total costs and expenses	1,481.6		1,602.1		3,644.8		3,815.2
Operating profit	194.3		367.9		533.4		591.8
Non-operating expense (income):
Interest expense	41.9		43.3		125.2		137.3
Interest income	(3.2)		(1.8)		(8.0)		(4.2)
Other (income) expense, net	(10.0)		3.0		(9.5)		(35.3)
Total non-operating expense, net	28.7		44.5		107.7		97.8
Earnings before income taxes	165.6		323.4		425.7		494.0
Income tax expense	37.4		68.5		94.1		143.5
Net earnings	128.2		254.9		331.6		350.5
Net earnings (loss) attributable to noncontrolling interests	(1.0)		1.7		(0.8)		4.0
Net earnings attributable to Hasbro, Inc.	$	129.2	$	253.2	$	332.4	$	346.5

Net earnings per common share:
Basic	$	0.93	$	1.83	$	2.39	$	2.51
Diluted	$	0.93	$	1.83	$	2.39	$	2.51
Cash dividends declared per common share	$	0.70	$	0.68	$	2.10	$	2.04

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Earnings

(Millions of Dollars)

(Unaudited)


	Quarter Ended				Nine Months Ended
	September 25, 2022		September 26, 2021		September 25, 2022		September 26, 2021
Net earnings	$	128.2	$	254.9	$	331.6	$	350.5
Other comprehensive earnings (loss):
Foreign currency translation adjustments, net of tax	(72.0)		(31.4)		(103.0)		(23.6)
Unrealized holding losses on available-for-sale securities, net of tax	(0.1)		(0.3)		(0.3)		(0.1)
Net gains on cash flow hedging activities, net of tax	12.6		5.2		20.6		7.8

Reclassifications to earnings, net of tax:
Net gains (losses) on cash flow hedging activities	(5.9)		1.1		(7.2)		1.7
Amortization of unrecognized pension and postretirement amounts	0.1		0.2		0.3		0.6

Total other comprehensive loss, net of tax	$	(65.3)	$	(25.1)	$	(89.6)	$	(13.6)
Total comprehensive earnings (loss) attributable to noncontrolling interests	(1.0)		1.7		(0.8)		4.0
Total comprehensive earnings attributable to Hasbro, Inc.	$	63.9	$	228.1	$	242.8	$	332.9

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of Dollars)

(Unaudited)


	Nine months ended
	September 25, 2022		September 26, 2021
Cash flows from operating activities:
Net earnings	$	331.6	$	350.5
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of plant and equipment	94.4		116.2
Amortization of intangibles	81.2		90.3

Loss on assets held for sale	23.1		—
Loss on disposal of business	—		101.8
Program cost amortization	365.7		396.1
Deferred income taxes	(66.6)		47.9
Stock-based compensation	66.2		56.2

Other non-cash items	3.1		5.7
Change in operating assets and liabilities net of acquired balances:
Decrease (increase) in accounts receivable	201.8		(83.8)
Increase in inventories	(327.2)		(159.4)
Decrease in prepaid expenses and other current assets	34.4		56.7
Program spend, net	(498.1)		(526.3)
(Decrease) increase in accounts payable and accrued liabilities	(22.7)		310.5
Change in net deemed repatriation tax	(18.4)		(18.4)
Other	(6.3)		(58.4)
Net cash provided by operating activities	262.2		685.6
Cash flows from investing activities:
Additions to property, plant and equipment	(130.7)		(98.1)
Acquisitions	(146.3)		—
Proceeds from sale of business, net of cash	—		379.2
Other	11.2		(3.6)
Net cash (utilized) provided by investing activities	(265.8)		277.5
Cash flows from financing activities:
Proceeds from borrowings with maturity greater than three months	3.3		127.6
Repayments of borrowings with maturity greater than three months	(182.0)		(1,062.1)
Net proceeds from other short-term borrowings	121.6		(6.2)
Purchases of common stock	(125.0)		—
Stock-based compensation transactions	74.2		24.6
Dividends paid	(288.6)		(280.7)
Payments related to tax withholding for share-based compensation	(21.1)		(10.8)
Debt extinguishment costs	—		(9.1)



Other	(25.4)		(6.8)
Net cash utilized by financing activities	(443.0)		(1,223.5)
Effect of exchange rate changes on cash	(16.2)		(8.1)
Net decrease in cash, cash equivalents and restricted cash	(462.8)		(268.5)
Net change due to cash classified as held for sale	(4.8)		—
Net decrease in cash, cash equivalents and restricted cash	(467.6)		(268.5)
Cash, cash equivalents and restricted cash at beginning of year	1,019.2		1,449.7
Cash, cash equivalents and restricted cash at end of period	$	551.6	$	1,181.2

Supplemental information
Cash paid during the period for:
Interest	$	107.1	$	123.7
Income taxes	$	157.2	$	124.1

See accompanying condensed notes to consolidated financial statements.

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity and Redeemable Noncontrolling Interests

(Millions of Dollars)

(Unaudited)


Three Months Ended September 25, 2022
	Common Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Stock	Noncontrolling Interests	Total Shareholders' Equity		Redeemable Noncontrolling Interests
Balance, June 26, 2022	$	110.1	2,503.4	4,265.9	(259.6)	(3,636.2)	29.2	$	3,012.8	$	23.0

Net earnings attributable to Hasbro, Inc.	—		—	129.2	—	—	—	129.2		—
Net loss attributable to noncontrolling interests	—		—	—	—	—	(1.0)	(1.0)		—

Other comprehensive loss	—		—	—	(65.3)	—	—	(65.3)		—
Stock-based compensation transactions	—		(1.5)	—	—	(0.1)	—	(1.6)		—
Purchases of common stock	—		—	—	—	(1.0)	—	(1.0)		—
Stock-based compensation expense	—		23.0	—	—	0.2	—	23.2		—
Dividends declared	—		0.7	(97.3)	—	—	—	(96.6)		—
Distributions paid to noncontrolling owners and other foreign exchange	—		—	—	—	—	(5.2)	(5.2)		—
Buyout of redeemable noncontrolling interest	—		4.5	—	—	—	—	4.5		(23.0)
Balance, September 25, 2022	$	110.1	2,530.1	4,297.8	(324.9)	(3,637.1)	23.0	$	2,999.0	$	—

Three Months Ended September 26, 2021
	Common Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Stock	Noncontrolling Interests	Total Shareholders' Equity		Redeemable Noncontrolling Interests
Balance, June 27, 2021	$	110.1	2,361.2	4,110.3	(183.5)	(3,547.6)	39.9	$	2,890.4	$	24.5

Net loss attributable to Hasbro, Inc.	—		—	253.2	—	—	—	253.2		—
Net earnings attributable to noncontrolling interests	—		—	—	—	—	0.4	0.4		1.3
Other comprehensive loss	—		—	—	(25.1)	—	—	(25.1)		—
Stock-based compensation transactions	—		7.4	—	—	6.6	—	14.0		—

Stock-based compensation expense	—		19.1	—	—	—	—	19.1		—
Dividends declared	—		—	(93.9)	—	—	—	(93.9)		—
Distributions paid to noncontrolling owners and other foreign exchange	—		1.2	—	—	—	(2.1)	(0.9)		(2.9)
Balance, September 26, 2021	$	110.1	2,388.9	4,269.6	(208.6)	(3,541.0)	38.2	$	3,057.2	$	22.9

HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders' Equity and Redeemable Noncontrolling Interests

(Millions of Dollars)

(Unaudited)


Nine Months Ended September 25, 2022
	Common Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Stock	Noncontrolling Interests	Total Shareholders' Equity		Redeemable Noncontrolling Interests
Balance, December 26, 2021	$	110.1	2,428.0	4,257.8	(235.3)	(3,534.7)	37.2	$	3,063.1	$	23.9
Net earnings attributable to Hasbro, Inc.	—			332.4	—	—	—	332.4		—
Net loss attributable to noncontrolling interests	—		—	—	—	—	(1.4)	(1.4)		0.6
Change in put option value	—		(0.4)	—	—	—	—	(0.4)		—
Other comprehensive loss	—		—	—	(89.6)	—	—	(89.6)		—
Stock-based compensation transactions	—		31.0	—	—	22.1	—	53.1		—
Purchases of common stock	—		—	—	—	(125.0)	—	(125.0)		—
Stock-based compensation expense	—		65.8	—	—	0.5	—	66.3		—
Dividends declared	—		1.2	(292.4)	—	—	—	(291.2)		—
Distributions paid to noncontrolling owners and other foreign exchange	—		—	—	—	—	(12.8)	(12.8)		(1.5)
Buyout of redeemable noncontrolling interest	$	—	4.5	—	—	—	—	$	4.5	$	(23.0)
Balance, September 25, 2022	$	110.1	2,530.1	4,297.8	(324.9)	(3,637.1)	23.0	$	2,999.0	$	—

Nine Months Ended September 26, 2021
	Common Stock		Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Treasury Stock	Noncontrolling Interests	Total Shareholders' Equity		Redeemable Noncontrolling Interests
Balance, December 27, 2020	$	110.1	2,329.1	4,204.2	(195.0)	(3,551.7)	40.0	$	2,936.7	$	24.4

Net earnings attributable to Hasbro, Inc.	—		—	346.5	—	—	—	346.5		—
Net earnings attributable to noncontrolling interests	—		—	—	—	—	2.4	2.4		1.6
Other comprehensive loss	—		—	—	(13.6)	—	—	(13.6)		—
Stock-based compensation transactions	—		4.2	—	—	9.6	—	13.8		—

Stock-based compensation expense	—		55.1	—	—	1.1	—	56.2		—
Dividends declared	—		—	(281.1)	—	—	—	(281.1)		—
Distributions paid to noncontrolling owners and other foreign exchange	—		0.5	—	—	—	(4.2)	(3.7)		(3.1)
Balance, September 26, 2021	$	110.1	2,388.9	4,269.6	(208.6)	(3,541.0)	38.2	$	3,057.2	$	22.9

HASBRO, INC. AND SUBSIDIARIES

Condensed Notes to Consolidated Financial Statements

(Millions of Dollars and Shares Except Per Share Data)

(Unaudited)

(1) Basis of Presentation

In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all normal and recurring adjustments necessary to present fairly the consolidated financial position of Hasbro, Inc. and all majority-owned subsidiaries ("Hasbro" or the "Company") as of September 25, 2022 and September 26, 2021, and the results of its operations and cash flows and shareholders' equity for the periods then ended in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and notes thereto. Actual results could differ from those estimates.

The quarters ended September 25, 2022 and September 26, 2021 were each 13-week periods. The nine-month periods ended September 25, 2022 and September 26, 2021 were each 39-week periods.

The results of operations for the quarter ended September 25, 2022 are not necessarily indicative of results to be expected for the full year 2022, nor were those of the comparable 2021 period representative of those actually experienced for the full year 2021.

Significant Accounting Policies

The Company's significant accounting policies are summarized in note 1 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 26, 2021 ("2021 Form 10-K").

Blueprint 2.0 and Operational Excellence

On October 4, 2022, following a nine-month strategic review, the Company announced a new go-forward strategic plan guided by our new Blueprint 2.0, a framework for bringing compelling and expansive brand experiences to audiences around the world. During the review, the Company identified opportunities to focus and scale its business, enhance operational excellence, including through organizational and supply chain programs, and drive high-margin growth and profit. The Company plans to focus investment in its most valuable and profitable franchises across toys, games, entertainment and licensing, and to exit certain non-core aspects of the business. Under this plan, a pre-tax charge of $55.3 million was recorded in the third quarter of 2022 associated with the program, comprised of a loss on assets held for sale of $23.1 million, severance and other employee charges of $21.3 million, consulting fees of $7.2 million and asset impairments of $3.7 million. The impairment losses related to the exit of certain non-core businesses were recorded within the Entertainment segment and the severance and other employee charges and the consulting fees were recorded within the Corporate and Other segment. The businesses to be exited do not constitute a material part of the Company's operations. See Note 4 and Item 2. Management's Discussion and Analysis in this Form 10-Q for further information.

D&D Beyond Acquisition

On May 19, 2022, the Company acquired D&D Beyond, a strategic, complementary acquisition of the premier digital content platform for DUNGEONS & DRAGONS, which is expected to substantially accelerate our direct-to-fans capability for DUNGEONS & DRAGONS in physical and digital play. The all-cash transaction in the amount of $146.3 million was funded with cash on hand. The allocation of assets acquired includes $81.4 million to intangible assets, $64.7 million to goodwill, with the remainder allocated to property, plant, and equipment.

eOne Music Sale

On June 29, 2021, the Company completed the sale of its Entertainment One music business ("eOne Music") for net proceeds of $397.0 million, including the sales price of $385.0 million and $12.0 million of closing adjustments related to working capital and net debt calculations. The final proceeds were subject to further adjustment upon completion of closing working capital, which resulted in a net outflow of $0.9 million in the fourth quarter of 2021. Based on the value of the net assets held by eOne Music, which included goodwill and intangible assets allocated to eOne Music as part of the Company’s acquisition of Entertainment One in December 2019 (the “eOne Acquisition"), the Company recorded a pre-tax non-cash goodwill impairment charge of $101.8 million within Loss on Disposal of Business on the consolidated statements of operations for the nine ended September 26, 2021. The Company also recorded pre-tax cash transaction expenses of $9.5 million within Selling, Distribution and Administration expenses on the consolidated statements of operations for the second quarter of 2021. The

Condensed Notes to Consolidated Financial Statements

(Millions of Dollars and Shares Except Per Share Data)

impairment charge was recorded within the Entertainment segment and the transaction costs were recorded within the Corporate and Other segment. Fiscal year 2021 includes two quarters of financial results for the eOne Music Business.

Dividend Equivalent Units

Beginning with employee stock incentive awards granted in 2022, the payment of cash dividends to shareholders also results in the crediting of Dividend Equivalent Units (“DEUs”) to holders of restricted stock units ("RSUs") and contingent stock performance awards ("PSUs") granted under the Company's Restated 2003 Stock Incentive Plan, as amended, for employees as defined and described in Note 15 in the Company's Annual Report on Form 10-K for the year ended December 26, 2021. The DEUs will be credited as additional RSUs or PSUs and settled concurrently with the vesting of associated awards. DEUs are forfeited in the event the underlying RSUs or PSU's do not vest. The dividend equivalent value of forfeitable DEUs is treated as a reduction of retained earnings or, if the Company is in a retained deficit position, as a reduction of additional paid-in capital.

These consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The Company filed with the SEC audited consolidated financial statements for the fiscal year ended December 26, 2021 in its 2021 Form 10-K, which includes all such information and disclosures and, accordingly, should be read in conjunction with the financial information included herein.

Recently Adopted Accounting Standards

As of September 25, 2022, there were no recently adopted accounting standards that had a material effect on the Company’s financial statements.

Issued Accounting Pronouncements

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

(2) Revenue Recognition

Contract Assets and Liabilities

In the ordinary course of business, the Company’s Consumer Products, Wizards of the Coast and Digital Gaming and Entertainment segments enter into contracts to license certain of the Company’s intellectual property, providing licensees right-to-use or access such intellectual property for use in the production and sale of consumer products and digital game development, and for use within content for distribution over streaming platforms and for television and film. The Company also licenses owned television and film content for distribution to third parties in formats that include broadcast, digital streaming and theatrical. Through these arrangements, the Company may receive advanced royalty payments from licensees, either in advance of a licensees’ subsequent sales to customers or, prior to the completion of the Company’s performance obligation. In addition, the Company’s Wizards of the Coast and Digital Gaming segment may receive advanced payments from end users of its digital games at the time of the initial purchase or through in-application purchases. These digital gaming revenues are recognized over a period of time, determined based on player usage patterns or the estimated playing life of the user or when additional downloadable content is made available. The Company defers revenues on all licensee and digital gaming advanced payments until the respective performance obligations are satisfied. The Company records the aggregate deferred revenues as contract liabilities, with the current portion recorded within Accrued Liabilities and the long-term portion recorded as Other Non-current Liabilities in the Company’s consolidated balance sheets. The Company records contract assets in the case of (1) minimum guarantees being recognized in advance of contractual invoicing, which are recognized ratably over the terms of the respective license periods, and (2) film and television distribution revenues recorded for content delivered, where payment will occur over the license term. The current portion of contract assets is recorded in Prepaid Expenses and Other Current Assets, respectively, and the long-term portion is recorded within Other Long-Term Assets.

Condensed Notes to Consolidated Financial Statements

(Millions of Dollars and Shares Except Per Share Data)

At September 25, 2022, September 26, 2021 and December 26, 2021 the Company had the following contract assets and liabilities in its consolidated balance sheets:


	September 25, 2022		September 26, 2021		December 26, 2021
Assets
Contract assets - current	$	361.2	$	263.3	$	286.9
Contract assets - long term	157.5		108.1		104.2
Total	$	518.7	$	371.4	$	391.1

Liabilities
Contract liabilities - current	$	132.2	$	147.0	$	114.1
Contract liabilities - long term	1.8		9.7		7.1
Total	$	134.0	$	156.7	$	121.2

For the nine months ended September 25, 2022, the Company reclassified $469.9 million, including current year activity, from contract assets to accounts receivable, upon completion of contractual performance obligations. In addition, for the nine months ended September 25, 2022, the Company recognized $59.0 million of contract liabilities that were included in the December 26, 2021 balances.

Unsatisfied performance obligations

Unsatisfied performance obligations relate primarily to in-production television content to be delivered in the future under existing agreements with partnering content providers such as broadcasters, distributors, television networks and subscription video on demand services. As of September 25, 2022, unrecognized revenue attributable to unsatisfied performance obligations expected to be recognized in the future were $371.2 million. Of this amount, we expect to recognize $204.7 million in the remainder of 2022, $159.5 million in 2023, $2.5 million in 2024 and $4.5 million in 2025. These amounts include only fixed consideration.

Accounts Receivable and Allowance for Credit Losses

The Company’s balance for accounts receivable on the consolidated balance sheets as of September 25, 2022 and September 26, 2021 are primarily from contracts with customers. The Company had no material expense for credit losses for the quarters or nine months ended September 25, 2022 and September 26, 2021.

Disaggregation of revenues

The Company disaggregates its revenues from contracts with customers by reportable segment: Consumer Products, Wizards of the Coast and Digital Gaming, and Entertainment. The Company further disaggregates revenues within its Consumer Products segment by major geographic region: North America, Europe, Latin America, and Asia Pacific; within its Wizards of the Coast and Digital Gaming segment by line of business: Tabletop Gaming and Digital and Licensed Gaming; and within its Entertainment segment by category: Film & TV, Family Brands, and Other. Finally, the Company disaggregates its revenues by brand portfolio into five brand categories: Franchise Brands, Partner Brands, Hasbro Gaming, Emerging Brands, and TV/Film/Entertainment. We believe these collectively depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. See note 13 for further information.

Condensed Notes to Consolidated Financial Statements

(Millions of Dollars and Shares Except Per Share Data)

(3) Earnings Per Share

Net earnings per share data for the quarters and nine months ended September 25, 2022 and September 26, 2021 were computed as follows:


	2022			2021
Quarter	Basic		Diluted	Basic		Diluted
Net earnings attributable to Hasbro, Inc.	$	129.2	129.2	$	253.2	253.2

Average shares outstanding	138.3		138.3	138.1		138.1
Effect of dilutive securities:
Options and other share-based awards	—		0.2	—		0.4
Equivalent Shares	138.3		138.5	138.1		138.5

Net earnings attributable to Hasbro, Inc. per common share	$	0.93	0.93	$	1.83	1.83


	2022				2021
Nine Months	Basic		Diluted		Basic		Diluted
Net earnings attributable to Hasbro, Inc.	$	332.4	$	332.4	$	346.5	$	346.5

Average shares outstanding	138.9		138.9		137.9		137.9
Effect of dilutive securities:
Options and other share-based awards	—		0.2		—		0.4
Equivalent Shares	138.9