Availability of Information
Our internet address is http://www.hasbro.com. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, available free of charge on or through the investor section of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
Investors and others should note that we announce material financial information to our investors using our investor relations website at https://hasbro.gcs-web.com, under “Corporate — Investors”, SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media to communicate with our shareholders and the public about our Company, our products and other matters. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our Company to review the information we post on the social media channels listed on our investor relations website. Hasbro has used, and intends to continue to use, our investor relations website, as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation Fair Disclosure. Further corporate governance information, including our articles of incorporation, bylaws, governance guidelines, committee charters, and code of business conduct and ethics, is also available on our investor relations website https://hasbro.gcs-web.com, under “Corporate — Investors — Corporate Governance.” The contents of our website are not intended to be incorporated by reference into this Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.
Item 1A. Risk Factors.
In evaluating our business, the material risks described below, as well as other information contained in this Annual Report on Form 10-K and in our other filings with the Securities and Exchange Commission should be considered carefully. Additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business. The occurrence of any of these events or circumstances could individually or in the aggregate have a material adverse effect on our business, financial condition, cash flow or results of operations. This report contains forward-looking statements. Please refer to the cautionary statements made under the heading "Special Note Regarding Forward-Looking Statements" for more information on the qualifications and limitations on forward-looking statements.
Strategic Risks Related to Our Business
Our business will suffer if we are not successful in executing our strategy and transformation initiatives.
Our strategy focuses on fewer and bigger brands that we believe have the largest potential, while emphasizing bottom-line growth, operational discipline, enhanced focus on our fans and commitment to shareholder return. In mid-2022, we formed the Hasbro Transformation Office ("HTO"), a team of leaders dedicated to designing and running a simple, efficient and effective business aligned with our strategy. The HTO is supporting our Operational Excellence Program, an ongoing enterprise-wide cost savings initiative intended to improve our business through specialized organizational programs that include targeted cost-savings, supply chain transformation and certain other restructuring actions designed to drive growth and enhance shareholder value. There are no assurances that we will achieve these cost savings in the amounts we anticipate or within the anticipated timeframes or at all. In addition, any cost savings that we realize may be offset, in whole or in part, by reductions in net sales or through increases in other expenses. Failure to realize the expected cost savings from these cost savings programs could have an adverse effect on our business, financial condition, and results of operations.
Failure to execute our strategic plan and transformation initiatives may harm our business. Our ability to successfully implement and execute these plans and initiatives in a timely basis, if at all, is dependent on many factors, including, among other things:
•our ability to successfully innovate, design, develop, price, commercialize and grow a select group of brands across our Blueprint to global consumers in a wide array of markets;
•our ability to successfully grow our digital gaming business;
•our ability to optimize our toy business, including through right-sizing our cost structure and creating efficiencies in our operations;
•our ability to implement appropriate systems and processes to obtain and analyze data and insights from consumers to enable us to make informed decisions about priorities and consumer preferences;
•our ability to gain market share in our focus categories;
•our ability to simplify our supply chain logistics;
•our ability to successfully manage inventory;
•the ability of our workforce to focus and execute on priority transformational projects across the business, and to sustain changes to maximize savings;
•the attraction and retention of key personnel with core skills and competencies in the areas of focus; and
•our ability to successfully license, divest, sell, or otherwise cease certain parts of the business that are not as profitable as other areas or are not core to the business.
Consumer interests change rapidly and acceptance of products and entertainment offerings are influenced by outside factors, making it difficult to design and develop innovative products, play patterns and entertainment offerings which are and will continue to be popular with children, families and audiences.
Central to our mission is to Create Magic Through Play. This means we need to design innovative toys and games that create memorable, social and collectible experiences of play and entertainment. Our ability to successfully create innovative toys and games is affected by the interests of children, families, fans and audiences evolve quickly and can change dramatically from year to year and by geography. To be successful, we must correctly
anticipate the types of products, play patterns and entertainment which will capture consumers’ interests and imagination, and quickly develop and introduce innovative products and engaging entertainment which can compete successfully for consumers’ limited time, attention and spending. Although we utilize our brand insights platform to gather data and analytics to help us make informed decisions, it is very difficult to predict consumer acceptance with certainty due to, among other things, the ever-increasing utilization of technology at younger and younger ages, social media and digital media in entertainment offerings, and the increasing breadth of products and entertainment available to consumers. Evolving consumer tastes and shifting interests, coupled with an ever-changing and expanding pipeline of products, technology and entertainment which compete for consumer interest and acceptance, create an environment in which some products, technology and entertainment offerings can fail to achieve consumer acceptance or can be popular during a certain period of time but then be rapidly replaced. As a result, our products and entertainment offerings can have short consumer life cycles with no guarantee of success. Consumer acceptance is even more critical for our toy business due to the recent decline in the overall toy industry.
Consumer acceptance of our or our partners’ entertainment offerings is also affected by outside factors, such as critical reviews, promotions, the quality and acceptance of films and television programs and content released into the marketplace at or near the same time, the availability of alternative forms of entertainment and leisure time activities, general economic conditions and public tastes generally, all of which could change rapidly and most of which are beyond our control. There can be no assurance that television programs and films we or our partners develop, produce or distribute will obtain favorable reviews or ratings, that films we develop, produce or distribute will be popular with consumers and perform well at the box office or in other distribution channels, or that broadcasters will license the rights to broadcast any of our television programs in development or renew licenses to broadcast programs in our library.
If we devote time and resources to developing and marketing products or entertainment that consumers do not accept, do not find interesting enough to buy in sufficient quantities to be profitable to us or do not purchase due to the pricing of a product, our revenues and profits may decline and our business performance may be harmed. Similarly, if our product offerings and entertainment fail to correctly anticipate consumer interests, our revenues and earnings will be reduced.
Our business will suffer if we are unable to innovate, develop and invest in digital gaming.
A key component to the success of our strategy is to continue to innovate, develop and invest in digital gaming, particularly through our Wizards of the Coast and digital gaming business. We have invested substantially in this business and as a result it has seen significant growth over the past several years. Continued digital game development is a key growth factor for the future, including AAA games, games as a service and licensed games. If we are unable to continue to grow this business and ensure its integration with our other business segments, our business may be harmed. The digital gaming industry is highly competitive, including for talent, and costs associated with designing, developing and producing digital games and technologically advanced or sophisticated products tend to be higher than for many of our other more traditional products, such as board and trading card games and action figures, with no assurance of success. As a result, we face increased risk of not achieving sales sufficient to recover our costs and we may lose money on the development and sale of these products. Additionally, designing, developing and producing digital gaming and other technologically advanced or innovative products often relies on third parties and requires different competencies and follows different timelines than traditional toys and games. Delays in the design, development or production of our digital gaming products could have a significant impact on our success. In addition, the pace of change in product offerings and consumer tastes in the electronics and digital gaming areas is potentially even greater than for our other products and this pace of change is expected to accelerate as artificial intelligence is further incorporated into the development of games. If a digital game fails to gain consumer acceptance early in its life cycle, there are limited opportunities to gain such acceptance through secondary launches or distribution through alternative platforms. This pace of change or lack of consumer acceptance means that the window in which a digital gaming product can achieve and maintain consumer interest may be even shorter than traditional toys and games.
If we fail to respond to or capitalize on the rapid technological development in the entertainment industry, including changes in entertainment delivery formats, our business could be harmed.
The entertainment industry continues to experience frequent change driven by technological development and audience viewing preferences, including developments with respect to the formats through which films, television programming, and other episodic content are delivered to consumers. With rapid technological changes and expanded digital content offerings, the scale and scope of these changes have accelerated in recent years. Consumers are continuing to increase their access to television, film and other episodic content on streaming and digital content networks. Similarly, some film releases go direct to streaming channels as opposed to theaters or at the same time as theaters or have gone to streaming channels after only a short period of time in the theaters.
Technological as well as other trends in the industry have caused significant disruption to the retail distribution of entertainment offerings and have caused, and could in the future cause, a negative impact on sales of our products and other forms of monetization of content, especially those which are reliant on box office success. We may lose opportunities to capitalize on changing market dynamics, technological innovations or consumer tastes if we do not adapt to such changes in a timely manner. The overall effect that technological development and new digital distribution platforms have on the revenue and profits we derive from our entertainment content, including from merchandise sales derived from such content, and the additional costs associated with changing markets, media platforms and technologies, is unpredictable. If we fail to accurately assess and effectively respond to changes in technology and consumer behavior in the entertainment industry, our business may be harmed.
The industries in which we compete are highly competitive. If we are unable to compete effectively with existing or new competitors, our revenues, market share and profitability could decline.
The play industry is highly competitive. We compete in the U.S. and internationally with a wide array of large and small manufacturers, marketers, and sellers of toys and games, products which combine traditional and digital play, digital gaming products, and other consumer products, as well as with retailers who offer such products under their own private labels often at lower prices. In addition, we compete with companies focused on building their brands across multiple product and consumer categories, including through entertainment offerings. Across our business, we face competitors who are constantly monitoring and attempting to anticipate consumer tastes and trends, seeking ideas which will appeal to consumers, and introducing new products that compete with our products for consumer acceptance and purchase.
In addition to existing competitors, the barriers to entry for new participants in the play industry are low, and the increasing importance of digital media and the heightened connection between digital media and consumer interest, has further increased the ability for new participants to enter our markets, and has broadened the array of companies we compete with. New participants with a popular product idea can gain access to consumers and become a significant source of competition for our products in a very short period of time. These risks will be heightened if the use of artificial intelligence in developing products becomes safer, more accepted and otherwise more broadly adopted. These existing and new competitors may be able to respond more rapidly than us to changes in consumer preferences or may design products that are more desirable than ours. Our competitors’ products may achieve greater market acceptance than our products and potentially reduce demand for our products, lower our revenues and lower our profitability.
Our entertainment business, which following the sale of our eOne film and television business is primarily focused on Hasbro and family-oriented content, faces global competition from major film studios and television production companies as well as other independent distributors and independent content producers. Many of these competitors release a large number of content offerings annually and command a significant share of box office revenues, streaming revenues, and television airtime, as well as other independent film and television production or distribution companies. Some of these competitors have substantially greater marketing and financial resources than we do and may be able to compete aggressively on pricing in order to increase box office or streaming revenues, obtain distribution rights and obtain television airtime. The competition we face may cause us to lose market share or achieve lower prices for productions based on our intellectual property, which could harm our business.
We may not realize the full benefit of our licenses if the licensed material has less market appeal than expected, if revenue from the licensed products is not sufficient to earn out the minimum guaranteed royalties or if licenses are not renewed.
The success of entertainment properties for which we have a license, such as licenses we have with The Walt Disney Company, and the ability of us to successfully market and sell related products, can significantly affect our revenues and profitability. In some cases, we may only obtain an exclusive license for certain aspects of an IP or for certain territories, which means that some of our competitors also have the right to use the same IP for other categories or in different territories. If we produce a line of products based on a movie or television series, the success of the movie or series has a critical impact on the level of consumer interest in the associated products we are offering. In addition, competition in our industry for access to entertainment properties can lessen our ability to secure, maintain, and renew popular licenses to entertainment products on beneficial terms, if at all, and to attract and retain the talented employees necessary to design, develop and market successful products based on these properties. If we are unable to realize the full benefit of an important license, or if an important license is not renewed or is otherwise terminated, our business results may be harmed.
The license agreements we enter to obtain these rights usually require us to pay minimum royalty guarantees that may be substantial, and in some cases may be greater than what we are ultimately able to recoup from actual
sales, which could result in write-offs which, in turn, would harm our results of operations. Acquiring or renewing licenses may require the payment of minimum guaranteed royalties that we consider to be too high to be profitable, which may result in losing licenses that we currently hold when they become available for renewal, or not pursuing certain new licenses. Additionally, as a licensee of entertainment-based properties, we cannot guarantee that a particular property or brand will translate into successful toy, game or other family entertainment products, and underperformance of any such products may result in reduced revenues and operating profit for us.
We may not realize the anticipated benefits of acquisitions, dispositions or investments in joint ventures, or those benefits may be delayed or reduced in their realization.
We cannot be certain that the products and offerings of companies we may acquire, or acquire an interest in, will achieve or maintain popularity with consumers in the future or that any such acquired companies or investments will allow us to more effectively market our products, develop our competencies or grow our business. In some cases, we expect that the integration of the companies that we may acquire into our operations will create production, marketing and other operating, revenue or cost synergies which will produce greater revenue growth and profitability and, where applicable, cost savings, operating efficiencies and other advantages. However, we cannot be certain that these synergies, efficiencies and cost savings will be realized. Even if achieved, these benefits may be delayed, reduced or short-lived in their realization. In other cases, we may acquire or invest in companies that we believe have strong and creative management, in which case we may plan to operate them more autonomously rather than fully integrating them into our operations. We cannot be certain that the key talented individuals at these companies would continue to work for us after the acquisition or that they would develop popular and profitable products, entertainment or services in the future. Acquisitions of businesses and brands could also be adversely affected by changes in our business strategy or external factors. For example, with our Blueprint strategy, we determined to sell, license or otherwise dispose of certain non-core assets, such as the recently completed sale of eOne Film and TV to Lionsgate. We cannot guarantee that any acquisition, disposition or investment we may make will be successful or beneficial, and acquisitions, dispositions and investments can consume significant amounts of management attention and other resources, which may negatively impact other aspects of our business.
Operational Risks Related to our Business
If we are not successful in transforming our supply chain operations, our business may be harmed.
As part of our transformation efforts, we are continuing to optimize our supply chain by improving our systems and sourcing to enable efficient product deployment, enhance product quality and safety, drive efficiency in transportation and our fulfillment centers, and strengthen our direct-to-consumer operations. This is a long-term project, with no assurance that we will achieve the anticipated efficiencies and benefits from such efforts. If the transformation of our supply chain operations is not successful, our business may be harmed. Further we may not achieve our anticipated cost savings, and we may face costly inefficiencies or other supply chain disruptions.
An inability to develop, introduce and ship planned products, product lines and new brands in a timely and cost-effective manner could result in excess inventory, a shortage of products or otherwise damage our business.
In developing products, product lines and new brands we have anticipated dates for the associated product and brand introductions. When we state that we will introduce, or anticipate introducing, a particular product, product line or brand at a certain time in the future those expectations are based on completing the associated development, implementation, and marketing work in accordance with our currently anticipated development schedule. If we do not have in place, appropriate systems and technology, or do not obtain sufficient data, analytics and insights, we may not be able to adequately predict demand for our products. If we fail to accurately forecast demand, we may experience excess inventory levels or a shortage of product to deliver to our customers. Inventory levels in excess of demand have in the past resulted in, and may in the future result in, inventory write-downs or write-offs, and the sale of excess inventory at discounted prices or through less preferred distribution channels, which could harm our profit margins. If we do not operate our supply chain in an effective manner, we will not be able to manufacture, source and ship new or continuing products in a timely manner and on a cost-effective basis to meet constantly changing consumer demands. This risk is heightened by our customers’ compressed shipping schedules and the seasonality of our business.
The risk is also exacerbated by the increasing sophistication of many of the brands and products we are designing and developing in terms of combining digital and traditional technologies, and providing greater innovation and product differentiation. Unforeseen delays or difficulties in the development process, significant increases in the planned cost of development, or changes in anticipated consumer demand for our products and new brands may cause the introduction date for products to be later than anticipated, may reduce or eliminate the profitability of such
products, result in excess inventory, or, in some situations, may cause a product or new brand introduction to be discontinued.
If we are unable to navigate through global supply chain challenges, our business may be harmed.
In recent years, we faced global supply chain challenges with the production and delivery of some products being delayed due to logistics, including labor, trucking and container shortages, port congestion and other shipping disruptions. We experienced increases in material costs and shortages for some of our products, due in part to higher wages being paid due to labor shortages in China and Vietnam, as well as periodic and unpredictable manufacturing shut-downs or slow-downs due to COVID-19. While we have taken actions to lessen the impact of these supply chain challenges, such as through the use of alternative ports and air freight, and accelerating inventory purchases in certain cases to ensure product availability for customers, such actions have resulted in higher costs and there can be no assurance that the actions taken will be effective. We have also increased prices in some cases to help offset increased costs. We can provide no assurance that we will be able to increase prices in the future and we cannot assure that price increases we have already taken, will offset the entirety of additional costs we have incurred, and may incur in the future to mitigate the supply chain disruption. Further, if we are unable to negotiate favorable carrier agreements, deliver products on time or otherwise satisfy demand for our products, our business may be harmed.
If we are unable to adapt our business to the continued shift to direct-to-consumer, our business may be harmed.
Part of our strategy is to build lifelong relationships with our consumers through direct-to consumer relationships created through ecommerce, social media, digital games and services. If we are unable to effectively connect with consumer through these channels, or business may be harmed. Similarly, if our technology and systems used to support direct-to-consumer order processing are not effective, our ability to deliver products on time on a cost-effective basis may be adversely affected. Failure to continue to adapt our systems and supply chain and successfully fulfill ecommerce sales could harm our business.
The concentration of our customer base means that economic difficulties or changes in the purchasing or promotional policies or patterns of our major customers could have a significant impact on us.
We depend upon a relatively small customer base to sell the majority of our products. For the fiscal year ended December 31, 2023, Walmart, Inc. and Amazon.com, Inc. each accounted for approximately 11% of our consolidated net revenues. Similarly, sales of certain products of our Wizards business depend in part on the success of specialty hobby stores. Due to our customer concentration and customer base, if one or more of our major customers or specialty hobby stores were to experience difficulties in fulfilling their obligations to us, cease doing business with us, significantly reduce the amount of their purchases from us, favor competitors or new entrants, increase their direct competition with us by expanding their private-label business, change their purchasing patterns, impose unexpected fees on us, alter the manner in which they promote our products or the resources they devote to promoting and selling our products, or return substantial amounts of our products, our business may be harmed.
Our customers do not make binding long-term commitments to us regarding purchase volumes and make all purchases by delivering purchase orders. Any customer could reduce its overall purchase of our products and reduce the number and variety of our products that it carries and the shelf space allotted for our products. In addition, increased concentration among our customers could negatively impact our ability to negotiate higher sales prices for our products and could result in lower gross margins than would otherwise be obtained if there were less consolidation among our customers. Furthermore, as we experienced with the bankruptcy of certain of our retailers in the past, the failure or lack of success of a significant retail customer could negatively impact our revenues and profitability.
Our substantial business, sales and manufacturing operations outside the U.S. subject us to risks associated with international operations.
We operate facilities and sell products and entertainment offerings in numerous countries outside the U.S. Additionally, we utilize third-party manufacturers primarily located in the Far East, including China, Vietnam and India, to produce most of our products. These international operations, including operations in emerging markets, have unique consumer preferences and business climates, present additional challenges and are subject to risks that may significantly harm our sales, increase our costs or otherwise damage our business, including:
•Currency conversion risks and currency fluctuations;
•The imposition of tariffs, trade sanctions, quotas, border adjustment taxes or other protectionist measures;
•Potential challenges to our transfer pricing determinations and other aspects of our cross-border transactions, which can materially increase our taxes and other costs of doing business;
•Political instability, civil unrest and economic instability, such as has recently been experienced between Russia and Ukraine, which has resulted in a suspension of our business activities in Russia;
•Greater difficulty enforcing intellectual property rights and weaker laws protecting such rights;
•Complications in complying with different laws in varying jurisdictions and in dealing with changes in governmental policies and the evolution of laws and regulations and related enforcement, as such laws and policies relate to our products and approval of entertainment;
•Difficulties understanding the retail climate, consumer trends, local customs and competitive conditions in foreign markets which may be different from the U.S.;
•Natural disasters and the greater difficulty and cost in recovering therefrom;
•Difficulties in moving materials and products from one country to another, including port congestion, strikes, labor shortages and other events causing transportation delays and interruptions;
•Increased investment and operational complexity to make our products compatible with systems in various countries and compliant with local laws; and
•Changes in international labor costs and other costs of doing business internationally.
Because of the importance of international sales, sourcing and manufacturing to our business, our financial condition and results of operations could be significantly harmed if any of the risks described above were to occur or if we are otherwise unsuccessful in managing our increasing global business and operating in an environment with these risks.
Our reliance on third-party manufacturers to produce our products, particularly in China, the U.S., Vietnam and India, presents risks to our business.
All our products are manufactured by third-party manufacturers, the majority of which are in China, with a significant amount of our product sourcing also coming from manufacturers the U.S., Vietnam and a lesser amount from India. Should changes be necessary, our external sources of manufacturing can be shifted, over a significant period of time, to alternative sources of supply. Working with vendors who have not historically manufactured products for us means these new vendors must successfully develop the capability to manufacture our products to the quality and safety standards we require and within the tight timeframe required by our customers. Newer and less experienced vendors are more susceptible to product quality, logistics and other issues, due in part to their less mature infrastructure or unfamiliarity with our product standards.
If we were prevented or delayed in obtaining products or components for a material portion of our product lines due to economic, political, civil, labor or other factors beyond our control, including work stoppages, slowdowns or strikes, natural disasters, adverse health conditions or pandemics, our ability to manufacture would be adversely affected and our operations may be substantially disrupted, potentially for a significant period of time. This delay could significantly reduce our revenues and profitability and harm our business while alternative sources of supply are secured.
Given that our toy and game manufacturing is conducted by third-party manufacturers, health conditions, such as COVID-19, and other factors affecting social and economic activity where our manufacturers are located may affect the movement of people and products into and from those locations to our major markets, including North America and Europe. Further, increases in the costs of labor and other costs of doing business in markets where we manufacture, could also have a significant negative impact on our operations, revenues and earnings. Prolonged disputes or slowdowns at west coast or other ports can negatively impact both the time and cost of transporting goods into the U.S. Natural disasters or health pandemics impacting our manufacturers had and can have a significant negative impact on our business.
Further, the imposition of tariffs, border adjustment taxes, trade sanctions or other regulations or economic penalties by the U.S. or the European Union against products imported by us from China or other foreign countries, or the loss of “normal trade relations” status with China or other foreign countries in which we operate, could significantly
increase our cost of products imported into the U.S. or Europe, shift more orders from direct import to domestic sales, put additional shipping and warehousing burdens on us, delay the time of our sales to retailers, result in lost sales, and otherwise harm our business. Additionally, the suspension of the operations of a third-party manufacturer by government inspectors in China or another market in which we source products could result in delays to us in obtaining product and may harm sales.
We require our third-party manufacturers to comply with our Global Business Ethics Principles, which are designed to prevent products manufactured for us from being produced under inhumane or exploitive conditions. Notwithstanding these requirements and our monitoring and testing of compliance with them, there is always a risk that one or more of our third-party manufacturers will not comply with our requirements and that we will not immediately discover such non-compliance. Any failure of our third-party manufacturers to comply with labor, consumer, product safety or other applicable requirements in manufacturing products for us could result in damage to our reputation, harm sales of our products and potentially create liability for us.
Our dependence on third-party relationships with studios, content producers and distribution channels to develop and distribute digital games and entertainment content is critical to our business.
We rely on third party relationships with studios, content producers and distribution channels to develop and distribute certain digital games and entertainment content. Our financial performance may be adversely affected by our relationships with these studios, content producers and distribution channels. Some of our digital gaming developers and content producers are affiliates of major studios that develop their own games or content. Some have their own distribution capability in the markets in which we operate, and some may decide, or be required by their respective parent companies, to use their intra‑company distribution or content production capabilities rather than contracting with us. Our business may be harmed if the studios, content producers and distribution channels with which we work stop or reduce the amount of work they do with us or otherwise demand less favorable terms to us.
If our vendors or third-party outsourcing partners fail to perform, our business may be harmed.
As a part of our transformation efforts to reduce costs, achieve operational efficiencies, and increase productivity and service quality, we have relied and expect to further rely on third-party vendor and outsourcing relationships for certain areas of the business. Working with third-parties for these critical areas subjects us to risk, including the reduction in full control over certain activities. Any failure to perform timely or accurately or other shortcoming of one of these vendors or outsourcers, could harm our business or could damage our reputation. Transitioning some of these services to a third-party outsourcing vendor is challenging and time-consuming. Problems with transitioning these services and systems to, or operating failures with, these vendors and outsourcers may cause delays to product sales and reduce the efficiency of our operations. We may not achieve the cost-savings we expect, and we may suffer knowledge loss and require significant capital investments to remediate the problem. We cannot guarantee that our outsourcing efforts will be successful.
Our success is dependent on the efforts and dedication of our officers and other employees.
Our officers and employees are at the heart of all our efforts. It is their skill, innovation and hard work that drive our success. We compete with many other potential employers in recruiting, hiring and retaining our management team and our many other skilled officers and employees around the world. In the digital gaming and entertainment industries, experienced personnel and top creative talent are in high demand and competition for their talent is intense. The continuing prevalence of remote and hybrid work creates further challenges in retaining employees as some employees desire more flexibility in their employment and the ability to work remotely or hybrid opens up more employment opportunities. Additionally, as we continue to transform our business to execute on our strategic plan, we have reduced our headcount and may otherwise lose employees due to our decision to eliminate or reduce the amount of work performed relative to non-core aspects of our business and the optimization of our business. The impact of reductions in workforce or failing to retain key employees can be high due to increased risk of loss of important information, key knowledge and relationships, loss of creative talent, lost productivity, hiring and training costs, all of which could result in lower profitability or otherwise harm the business. We cannot guarantee that we will recruit, hire or retain the key personnel we need to succeed.
We have experienced significant changes in our leadership in a relatively short period of time, with most key members of executive leadership having been appointed within the past couple of years. Our future success will depend on the leadership of our key executives and their ability to navigate the organization through our transformation efforts. Our loss of key management or other key employees, inability to drive success through our new leaders, or our inability to retain or hire talented people with the skill sets we need for our diverse and changing business, could significantly harm our business.
If we fail to develop diverse top talent, we may be unable to compete and our business may be harmed.
We promote a diverse and inclusive work environment. To compete successfully, we must continuously develop a diverse group of talented people representative of our fans and customers which we believe will foster new ideas and perspectives that will benefit our business, including through enhanced product innovation. Competition for diverse talent is intense. The recent restructuring changes in our business may make it more difficult to attract and retain diverse talent. We cannot guarantee we will achieve our goals or that our actions will result in expected benefits to our business.
Our business may be harmed if we are unable to protect our critical intellectual property rights.
Our intellectual property, including our trademarks and tradenames, copyrights, patents, and rights under our license agreements and other agreements that establish our intellectual property rights and maintain the confidentiality of our intellectual property, is of critical value. We rely on a combination of trade secret, copyright, trademark, patent and other proprietary rights laws to protect our rights to valuable intellectual property in the U.S. and around the world. From time to time, third parties have challenged, and may in the future try to challenge, our ownership of our intellectual property in the U.S. and around the world. In addition, our business is subject to the risk of third parties counterfeiting our products or infringing on our intellectual property rights, as well as the risk of unauthorized third parties copying and distributing our entertainment content or leaking portions of planned entertainment content. We may need to resort to litigation to protect our intellectual property rights, which could result in substantial costs and diversion of resources. Similarly, third parties may claim ownership over certain aspects of our products, productions or other intellectual property. Our failure to successfully protect our intellectual property rights could significantly harm our business and competitive position.
Failure to successfully operate our information systems and implement new technology effectively could disrupt our business or reduce our sales or profitability.
We rely extensively on various information technology systems and software applications to manage many aspects of our business, including product development, management of our supply chain, sale and delivery of our products, analytics, royalty and financial reporting and various other processes and transactions. As part of our transformation efforts, we are also upgrading some of our technology and systems, and, as described elsewhere, we are relying on the systems of third-party outsourcers for certain critical functions. We are critically dependent on the integrity, security and consistent operations of these systems and related back-up systems. These systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, malware and other cybersecurity attacks and breaches, catastrophic events such as hurricanes, fires, floods, earthquakes, tornadoes, acts of war or terrorism and usage errors by our employees or partners. The efficient operation and successful growth of our business depends on these information systems, including our ability and the ability of our third-party outsourcers to operate them effectively and to select and implement appropriate upgrades or new technologies and systems and adequate disaster recovery systems successfully. The failure of our information systems or third-party hosted technology to perform as designed or our failure to implement and operate them effectively could disrupt our business, require significant capital investments to remediate a problem or subject us to liability.
If our electronic data is compromised our business could be significantly harmed.
We and our third-party outsourcers and other business partners maintain significant amounts of data electronically in locations around the world and in the cloud. This data relates to all aspects of our business, including current and future products and entertainment under development, and also contains certain customer, consumer, supplier, partner and employee data. We and our partners maintain systems and processes designed to protect this data, but notwithstanding such protective measures, there is a risk of intrusion, cyber-attacks or tampering that could compromise the integrity and privacy of this data. Cyber-attacks continue to increase in their frequency, sophistication and intensity, and are becoming increasingly difficult to detect. They are often carried out by motivated, well-resourced, skilled and persistent actors, including nation states, organized crime groups, “hacktivists” and employees or contractors acting with malicious intent. Cyber-attacks could include the deployment of harmful malware and key loggers, ransomware, a denial-of-service attack, a malicious website, artificial intelligence, the use of social engineering and other means to affect the confidentiality, integrity and availability of our or third-party technology systems and data. Cyber-attacks could also include supply chain attacks, which could cause a delay in the manufacturing of our products. In addition, we provide confidential and proprietary information to our third-party outsourcers and business partners in certain cases where doing so is necessary to conduct our business. While we obtain assurances from those parties that they have systems and processes in place to protect such data, and where applicable, that they will take steps to assure the protections of such data by third parties, those outsourcers and partners may also be subject to data intrusion or otherwise compromise the protection of
such data. The risk of data loss or breaches is heightened during uncertain economic times, changes in business strategy and reductions in workforce. Any compromise of the confidential data of our customers, consumers, suppliers, partners, employees or ourselves, or failure to prevent or mitigate the loss of or damage to this data through breach of our third party outsourcers and other business partners’ information technology systems could substantially disrupt our operations, harm our customers, consumers, employees and other business partners, damage our reputation, violate applicable laws and regulations, subject us to potentially significant costs and liabilities and result in a loss of business that could be material.
Global and Economic Risks Relating to our Business
Outbreaks of communicable infections, diseases, or public health pandemics in the markets in which we and our employees, consumers, customers, partners, licensees, suppliers and manufacturers operate, could substantially harm our business.
Outbreaks of communicable infections, diseases or other adverse public health conditions, such as COVID-19, in markets in which we, our employees, consumers, customers, partners, licensees, licensors, suppliers and manufacturers operate, has had and could in the future have a significant negative impact on our business, revenues and profitability. The occurrence of these types of events can result, and in the case of COVID-19 has resulted in, disruptions and damage to our business, due to, among other things:
•difficulties in shipping and distributing products due to ongoing port capacity, and labor, shipping container and truck transportation shortages, resulting in higher costs for both ocean and air freight and delays in the availability of products, which can result in delayed sales and in some cases result in lost sales;
•disruptions in supply of products, due to closures or reductions in operations at third-party manufacturing facilities across several geographies including, but not limited to, China, Vietnam, India, the United States and Ireland;
•adverse sales impact due to changes in consumer purchasing behavior and availability of products to consumers;
•uncertain inventory availability or difficulty in anticipating demand, which can result in too little or too much supply at a given time;
•interruptions, delays or postponements of entertainment productions and releases; and
•challenges of working remotely.
Inflation and other adverse economic conditions in the markets in which we and our employees, consumers, customers, suppliers and manufacturers operate could negatively impact our ability to produce and ship our products, and lower our revenues, margins and profitability.
Various economic conditions in the markets in which we, our employees, consumers, customers, suppliers and manufacturers operate, could have a significant negative impact on our revenues, profitability and business. The occurrence of adverse economic conditions can result in manufacturing and other work stoppages, slowdowns and delays; shortages or delays in production or shipment of products or raw materials; delayed or reduced purchases from customers and consumers; and other factors that cause increases in costs or delay in revenues.
Inflation, such as what consumers in the U.S. and other economies have recently experienced, can cause significant increases in the costs of other products which are required by consumers, such as gasoline, home heating fuels, or groceries, may reduce household spending on the discretionary products and entertainment we offer. Weakened economic conditions, lowered employment levels or recessions in any of our major markets may also significantly reduce consumer purchases of our products and spending on entertainment. Economic conditions may also be negatively impacted by terrorist attacks, wars and other conflicts, natural disasters, increases in critical commodity prices or labor costs, or the prospect of such events. Such a weakened economic and business climate, as well as consumer uncertainty created by such a climate, could harm our revenues and profitability.
Our success and profitability not only depend on consumer demand for our products, but also on our ability to produce and sell those products at costs which allow for us to make a profit. Rising fuel and raw material prices, due to inflation or otherwise, for paperboard and other components such as resin used in plastics or electronic components, increased transportation and shipping costs, and increased labor costs in the markets in which our products are manufactured all may increase the costs we incur to produce and transport our products, which in turn may reduce our margins, reduce our profitability and harm our business.
Changes in U.S., global or regional economic conditions could impact discretionary consumer spending and harm our business and financial performance.
Our financial performance is impacted by the level of discretionary consumer spending in the markets in which we operate. Recessions or even fear or anticipation of recessions, inflation, rising or fluctuating interest rates and mortgage rates, credit crises and other economic downturns, or disruptions in credit markets, in the U.S. and in other markets in which we operate can result in lower levels of economic activity, lower employment levels, less consumer disposable income, and lower consumer confidence. Similarly, reductions in the value of key assets held by consumers, such as their homes or stock market investments, can lower consumer confidence and consumer spending power. Any of these factors can reduce the amount which consumers spend on the purchase of our products and entertainment. This in turn can reduce our revenues and harm our financial performance and profitability.
Financial Risks Relating to our Business
Our quarterly and annual operating results may fluctuate due to seasonality in our business.
Sales of our products are extremely seasonal, with a majority of retail sales occurring during the period from September through December in anticipation of the holiday season. This seasonality for our consumer products business has increased over time, as retailers become more and more efficient in their control of inventory levels through quick response or just in time inventory management techniques, including the use of automated inventory replenishment programs. Similarly, ecommerce retailers tend to hold less inventory and take inventory closer to the time of sale to consumers than traditional retailers. As a result, customers are timing their orders so that they are being filled by suppliers, such as us, closer to the time of purchase by consumers. While these techniques reduce a retailer’s investment in inventory, they increase pressure on suppliers like us to fill orders promptly and thereby shift a significant portion of inventory risk and carrying costs to the supplier. This can also result in our losing significant revenues and earnings if our supply chain is unable to supply product to our customers when they want it. Tariffs can exacerbate this negative impact by causing retailers to shift from direct import to domestic orders, further pressuring our supply chain.
The level of inventory carried by retailers may also reduce or delay retail sales resulting in lower revenues for us. If we or our customers determine that one of our products is more popular at retail than was originally anticipated, we may not have sufficient time to produce and ship enough additional products to fully meet consumer demand. Additionally, the logistics of supplying more product within shorter time periods increases the risk that we will fail to achieve tight and compressed shipping schedules, which also may reduce our sales and harm our financial performance. The ability to accurately predict levels of inventory remains challenging in the current economic environment, and, in 2023, resulted in write-offs of excess inventory.
Our entertainment business is also subject to variations based on the timing of television, film, streaming and digital content releases or other factors, such as labor or union strikes. Release dates are determined by several factors, including the timing of holiday periods, geographical release dates and competition in the market. In 2023, the development, production and delivery of content was adversely affected by the actors’ and writers’ strikes that occurred during the year, which caused content to be reduced, delayed or, in some case, not completed.
This seasonal patterns of our business requires significant use of working capital, mainly to manufacture or acquire inventory during the portion of the year prior to the holiday season, and requires accurate forecasting of demand for products during the holiday season in order to avoid losing potential sales of popular products or producing excess inventory of products that are less popular with consumers. Our failure to accurately predict and respond to consumer demand, resulting in under producing popular items and/or overproducing less popular items, would reduce our total sales and harm our results of operations.
As a result of the seasonal nature of our business, we would be significantly and adversely affected, in a manner disproportionate to the impact on a company with sales spread more evenly throughout the year, by unforeseen events such as a natural disaster, a terrorist attack, economic shock or pandemic that harms the retail environment or consumer buying patterns during our key selling season, or by events such as labor or union strikes, or delays or other issues in the supply chain, particularly from the Far East, during the critical months leading up to the holiday shopping season.
We have had and may in the future have significant impairment charges that adversely affect our net earnings.
Changes in strategy, shifting focus to certain lines of business, lower projections in an area of the business, declines in the profitability of acquired brands or businesses or our decision to reduce our focus or exit these brands or
businesses, such as certain non-core entertainment assets of the business, has in the past impacted and may in the future impact our ability to recover the carrying value of the related assets and could result in an impairment charge. Similarly, declines in our profitability may impact the fair value of our reporting units, which could result in a write-down of our goodwill and consequently harm our net earnings. In 2023, we recorded non-cash goodwill and asset impairment charges of $1,307.2 million for the year ended December 31, 2023. See note 6 to our Consolidated Financial Statements, included in Part II, Item 8. Financial Statements, of this Form 10-K.
Changes in foreign currency exchange rates can significantly impact our reported financial performance.
Our global operations mean we transact business in many different jurisdictions with many different currencies. As a result, if the exchange rate between the U.S. dollar and a local currency for an international market in which we have significant sales or operations changes, our financial results as reported in U.S. dollars, may be meaningfully impacted even if our business in the local currency is not significantly affected. In recent years, our sales were adversely impacted due to the strength of the U.S. dollar compared to certain foreign currencies in territories in which we operate. Similarly, our expenses can be significantly impacted, in U.S. dollar terms, by exchange rates, meaning the profitability of our business in U.S. dollar terms can be negatively impacted by exchange rate movements which we do not control. Depreciation in key currencies may have a significant negative impact on our revenues and earnings as they are reported in U.S. dollars.
Our indebtedness may limit our availability of cash, cause us to divert cash to fund debt service payments or make it more difficult to take certain other actions.
We incurred significant indebtedness to finance our acquisition of eOne in 2019. While we continue to pay down this indebtedness, including through the use of proceeds from the sale of certain parts of eOne, the increase in our debt service obligations resulting from additional indebtedness could have a material adverse effect on our results of operations and financial condition. In particular, our increased indebtedness could:
•make it more difficult and/or costly for us to pay or refinance our debts as they become due, particularly during adverse economic and industry conditions, because a decrease in revenues or increase in costs could cause cash flow from operations to be insufficient to make scheduled debt service payments;
•require a substantial portion of our available cash to be used for debt service payments, thereby reducing the availability of our cash to fund working capital, capital expenditures, development projects, acquisitions or other strategic opportunities, dividend payments, share repurchases and other general corporate purposes;
•result in downgrades in the credit ratings on our indebtedness, which could limit our ability to borrow additional funds on favorable terms or at all (including in order to refinance our other debt), increase the interest rates under our credit facilities and under any new indebtedness we may incur;
•make it more difficult for us to raise capital to fund working capital, make capital expenditures, pay dividends, pursue strategic initiatives or for other purposes;
•result in higher interest expense, which could be further increased in case of current or future borrowings subject to variable rates of interest;
•require that materially adverse terms, conditions or covenants be placed on us under our debt instruments, which could include, for example, limitations on additional borrowings, pay dividends, repurchase our common stock or make investments, any of which could hinder our access to capital markets or our flexibility in the conduct of our business and make us more vulnerable to economic downturns and adverse competitive industry conditions; and
•jeopardize our ability to pay our indebtedness if our business experienced a severe downturn.
If we were unable to obtain or service our other external financings, or if the restrictions imposed by such financing were too burdensome, our business would be harmed.
Due to the seasonal nature of our business, in order to meet our working capital needs, particularly those in the third and fourth quarters, we may rely on our commercial paper program, revolving credit facility and our other credit facilities for working capital. We currently have a commercial paper program which, subject to market conditions, and availability under our committed revolving credit facility, allows us to issue up to $1,000.0 million in aggregate amount of commercial paper outstanding from time to time as a source of working capital funding and liquidity. We
cannot guarantee that we will be able to issue commercial paper on favorable terms, or at all, at any given point in time.
We also have a revolving credit agreement which provides for a $1,250.0 million committed revolving credit facility. The credit agreement contains certain restrictive covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility. These restrictive covenants may limit our future actions as well as our financial, operating and strategic flexibility. Non-compliance with our debt covenants could result in us being unable to utilize borrowings under our revolving credit facility and other bank lines, a circumstance which potentially could occur when operating shortfalls would require supplementary borrowings to enable us to continue to fund our operations.
Not only may our individual financial performance impact our ability to access sources of external financing, but significant disruptions to credit markets in general may also harm our ability to obtain financing. In times of severe economic downturn and/or distress in the credit markets, it is possible that one or more sources of external financing may be unable or unwilling to provide funding to us. In such a situation, it may be that we would be unable to access funding under our existing credit facilities, and it might not be possible to find alternative sources of funding.
We also may choose to finance our capital needs, from time to time, through the issuance of debt securities. Our ability to issue such securities on satisfactory terms, if at all, will depend on the state of our business and financial condition, any ratings issued by major credit rating agencies, market interest rates, and the overall condition of the financial and credit markets at the time of the offering. The condition of the credit markets and prevailing interest rates have fluctuated significantly in the past and are likely to fluctuate in the future. Variations in these factors could make it difficult for us to sell debt securities or require us to offer higher interest rates in order to sell new debt securities. The failure to receive financing on desirable terms, or at all, could damage our ability to support our future operations or capital needs or engage in other business activities.
If we are unable to generate sufficient available cash flow to service our outstanding debt we would need to refinance our outstanding debt or face default. We cannot guarantee that we would be able to refinance debt on favorable terms, or at all.
Changes in, or differing interpretations of, income tax laws and rules, and changes in our geographic operating results, may impact our effective tax rate.
We are subject to income taxes in the U.S. and in various international tax jurisdictions. We also conduct business activities between our operating units in various jurisdictions and we are subject to transfer pricing rules in the countries in which we operate. There is some degree of uncertainty and subjectivity in complying with transfer pricing rules. Our effective tax rate could be impacted by changes in, or the interpretation of, tax laws, such as those imposed by the current U.S. administration and other jurisdictions in which we do business, or by changes in the amount of revenue and earnings we derive, or are determined to derive by tax authorities, from jurisdictions with differing tax rates.
In addition, we may be subject to tax examinations by federal, state, and international jurisdictions, and these examinations can result in significant tax findings if the tax authorities interpret the application of laws and rules differently than we do or disagree with the intercompany rates we are applying. We assess the likelihood of outcomes resulting from tax uncertainties. While we believe our estimates are reasonable, the ultimate outcome of these uncertain tax benefits, or results of possible current or future tax examinations, may differ from our estimates and may have a significant adverse impact on our business and operating results.
Governmental and Legal Risks Relating to our Business
We are subject to various government regulations, violation of which could subject us to sanctions or otherwise harm our business. In addition, we could be the subject of future product liability suits or product recalls, which could harm our business.
We are subject to significant government regulations, including, in the U.S., under The Consumer Products Safety Act, The Federal Hazardous Substances Act, and The Flammable Fabrics Act, as well as under product safety and consumer protection statutes in our international markets. In addition, certain of our products are subject to regulation by the Food and Drug Administration or similar international authorities. Advertising to children is subject to regulation by the Federal Trade Commission, the Federal Communications Commission and a host of other agencies globally, and the collection of information from children under the age of 13 is subject to the provisions of the Children’s Online Privacy Protection Act and other privacy laws around the world. The collection of personally identifiable information from anyone, including adults, is under increasing regulation in many markets, such as the General Data Protection Regulation adopted by the European Union, and data protection laws in the United States
and in a number of other counties. While we take all the steps we believe are necessary to comply with these acts and regulations, we cannot assure you that we will be in compliance and, if we fail to comply with these requirements or other regulations enacted in the future, we could be subject to fines, liabilities or sanctions which could have a significant negative impact on our business, financial condition and results of operations. We may also be subject to involuntary product recalls or may voluntarily conduct a product recall. While costs associated with product recalls have generally not been material to our business, the costs associated with future product recalls individually or in the aggregate in any given fiscal year could be significant. In addition, any product recall, regardless of direct costs of the recall, may harm the reputation of our products and have a negative impact on our future revenues and results of operations.
As a large multinational corporation, we are subject to a host of governmental regulations throughout the world, including antitrust, employment, customs and tax requirements, anti-boycott regulations, environmental regulations and the Foreign Corrupt Practices Act. Complying with these regulations imposes costs on us which can reduce our profitability and our failure to successfully comply with any such legal requirements could subject us to monetary liabilities and other sanctions that could further harm our business and financial condition.
Failure to achieve our sustainability goals could result in reputational damage.
We view sustainability challenges as opportunities to innovate and continuously improve our product design and operational efficiencies. We have set key goals and objectives in this area as described in our business section of this Form 10-K. Our reputation could be damaged if we fail to achieve our sustainability goals, or if we or others in our industry do not act, or are perceived not to act, responsibly with respect to the production and packaging of our products.
We are involved in litigation, arbitration or regulatory matters where the outcome is uncertain and which could entail significant expense.
As a large multinational corporation, we are subject to regulatory investigations, litigation and arbitration disputes, including potential liability from personal injury or property damage claims by the users of products that have been or may be developed by us, claims by third parties that our products infringe upon or misuse such third parties’ property or rights, claims by former employees for employment related matters or claims relating to media content. Because the outcome of litigation, arbitration and regulatory investigations is inherently difficult to predict, it is possible that the outcome of any of these matters could entail significant cost for us and harm our business. The fact that we operate in a significant number of international markets also increases the risk that we may face legal and regulatory exposures as we attempt to comply with a large number of varying legal and regulatory requirements. Any successful claim against us could significantly harm our business, financial condition and results of operations.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
We have an in-depth approach to monitoring and addressing cybersecurity risk. Members of management together with our Board, the Cybersecurity and Data Privacy Committee of the Board(the "Cybersecurity Committee"), our internal Cybersecurity and Data Privacy Steering Committee (a cross-functional team which includes members of our Executive Leadership Team), and the Enterprise Risk Management team (a task force comprised of senior representatives of the company assessing risk in the organization), have developed cybersecurity and risk management processes to adapt to the changing cybersecurity landscape and respond to emerging threats in a timely and effective manner.
Our cybersecurity program leverages various industry standards like the National Institute of Standards and Technology ("NIST") and Center for Internet Security Program framework, which organizes cybersecurity risks into five categories: identify, protect, detect, respond and recover. We regularly assess the threat landscape and take a holistic view of cybersecurity risks, with a layered cybersecurity strategy based on prevention, detection and mitigation. Our enterprise risk management team reviews cybersecurity risks, and key cybersecurity risks are incorporated into the enterprise risk management ("ERM") reports reviewed and discussed internally and with the Board. In addition, we have several avenues to gather risk intelligence, and potential threats identified by various services and capabilities to adjust our security strategy. We also have a set of Company-wide policies and procedures concerning cybersecurity and technology standards, which include a Technology Use policy, as well as other policies that directly or indirectly relate to cybersecurity, such as policies related to endpoint and network protection, encryption standards, malware/ransomware protection, remote access, multi-factor authentication,
confidential information and the use of the internet, social media, email and wireless devices. These policies go through an internal review process and are approved by appropriate members of management.
The Company’s Chief Information Security Officer (“CISO”) is responsible for developing and implementing our information security program and reporting quarterly on cybersecurity matters to the Cybersecurity and Data Privacy Steering Committee, as well as to the Board and the Cybersecurity Committee. Our Chief Information Officer is an Executive Sponsor of the Cyber Security Program, has over two decade of experience leading cyber security oversight, and others on our cyber security team have cybersecurity experience and certifications, such as the Certified Information Systems Security Professional, or other industry leading certifications.
We have invested in IT security, including additional end-user training, using layered defenses, identifying and protecting critical assets, strengthening monitoring and alerting, and engaging experts. We regularly test defenses by performing simulations and drills at both a technical level (including through penetration tests) and by reviewing our operational policies and procedures with third-party experts. At the management level, our IT security team regularly monitors alerts and meets to discuss threat levels, trends and remediation. The team also prepares a cyber scorecard, regularly collects data on cybersecurity threats and risk areas and conducts an annual risk assessment. Further, we conduct periodic external penetration tests, red team testing and maturity testing to assess our processes and procedures and the threat landscape. These tests and assessments are useful tools for maintaining a robust cybersecurity program to protect our investors, customers, employees, vendors, and intellectual property. In addition to assessing our own cybersecurity preparedness, we also consider and evaluate cybersecurity risks associated with use of third-party vendors and service providers. The internal business owners of the hosted applications are required to document user access reviews at least annually and provide from the vendor a System and Organization Controls ("SOC") 1 or SOC 2 report. If a third-party vendor is not able to provide a SOC 1 or SOC 2 report, we take additional steps to assess their cybersecurity preparedness and assess our relationship on that basis. Our assessment of risks associated with use of third-party providers is part of our overall cybersecurity risk management framework.
The Cybersecurity Committee and the full Board actively participate in discussions with management and amongst themselves regarding cybersecurity risks. The Cybersecurity Committee meets regularly during the year and discusses cyber-related industry events, critical cyber incidents, alignment with our information security framework, threat assessment, security capabilities, response readiness and training efforts. A third-party cyber security firm also advises the Cybersecurity Committee on cybersecurity threats, trends in the industry, and best practices. This third party also evaluates and assesses our programs. The Cybersecurity Committee conducts an ongoing review of the Company’s cybersecurity program, which includes discussion of management’s actions to identify and detect threats, planned actions in the event of a response or recovery situation, as well as a review of recent enhancements to the Company’s security detection and response capabilities, and management’s progress on its cybersecurity strategic roadmap. The Cybersecurity team also subscribes various threat intelligence services to evaluate our security strategy or defense mechanism against such threats.
The Board receives regular updates from the Cybersecurity Committee, including a summary of key performance indicators, test results and related remediation, and recent threats and how the Company is managing those threats. To aid the Board with its cybersecurity and data privacy oversight responsibilities, the Board periodically hosts experts for presentations on these topics.
We face a number of cybersecurity risks in connection with our business. During the past three years we have not suffered a material breach or a reportable incident, and cybersecurity risks (including breach of third parties with whom we work) have not materially affected us, including our business strategy, results of operations or financial condition. For more information about the cybersecurity risks we face, see Item 1A. Risk Factors.
Item 2. Properties.
Hasbro owns its corporate headquarters in Pawtucket, Rhode Island consisting of approximately 343,000 square feet, which is used by corporate functions as well as the Consumer Products segment. The Company owns an adjacent building consisting of approximately 23,000 square feet which is also used by corporate functions. The Company's significant leased properties include a facility in Providence, Rhode Island consisting of approximately 136,000 square feet which is used primarily by Commercial and Supply Chain functions, as well as the Consumer Products segment. In addition, the Company leases warehouse space aggregating approximately 3,081,000 square feet in California, Illinois, Georgia and Massachusetts that are used primarily by the Consumer Products segment. The Company leases approximately 80,000 square feet in Burbank, California used by the Consumer Products and Entertainment segments. The Company also leases approximately 111,000 square feet of office space in Renton, Washington as well as 25,000 square feet in Austin, Texas used primarily by the Wizards of the Coast and Digital Gaming segment. The Corporate and Other segment leases an aggregate of 94,000 square feet of office and warehouse space in Hong Kong as well as 48,000 square feet of office space leased in the People’s Republic of China.
Outside of the properties listed above, the Company leases or owns property in over 35 countries. The primary international locations for facilities in the Consumer Products segment are in Australia, Brazil, France, Germany, Mexico, Spain, the People’s Republic of China, and the United Kingdom, all of which comprise both office and warehouse space. In addition, the Company also leases offices in Switzerland and the Netherlands which are primarily used for corporate functions.
The above properties consist, in general, of brick, concrete and steel buildings which the Company believes are in good condition and well maintained.
The Company believes that its facilities are adequate for its needs at this time, although as part of its ongoing business it does periodically assess if alternate facilities to one or more of the facilities mentioned above would provide business advantages or if certain facilities could be consolidated. The Company believes that, should it not be able to renew any of the leases related to its leased facilities, it could secure similar substitute properties without a material adverse impact on its operations.
Item 3. Legal Proceedings.
The Company is currently party to certain legal proceedings, none of which we believe to be material to our business or financial condition.
Item 4. Mine Safety Disclosures.
None
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company’s common stock, par value $0.50 per share (the “Common Stock”), is traded on The NASDAQ Global Select Market under the symbol “HAS”. As of February 13, 2024, there were approximately 7,305 shareholders of record of the Company’s Common Stock.
Our practice has been to pay dividends on a quarterly basis. The declaration of dividends is subject to the discretion of the Board of Directors and depends on various factors, including our net income, financial condition, cash requirements, future prospects and other relevant factors. On February 13, 2024, we announced that our Board of Directors declared a dividend of $0.70 per share, which is payable on May 15, 2024 to shareholders of record on May 1, 2024. In 2024, the Company expects future dividend declarations will be made closer in time to the record date of the dividend than has historically been declared.
Issuer Repurchases of Common Stock
Purchases of the Company’s Common Stock may be made from time to time, subject to market conditions, to offset dilution caused by stock issuances related to its equity compensation program and when management believes it is a good use of cash. In May 2018, the Company announced that its Board of Directors authorized the repurchase of up to an additional $500 million in Common Stock which may either be repurchased in the open market or through privately negotiated transactions. As of December 31, 2023, Hasbro had $241.6 million remaining available under these share repurchase authorizations. There were no repurchases of the Company’s Common Stock during 2023. The Company has no obligation to repurchase shares under this authorization. The timing, actual number and value of the shares that are repurchased, if any, will depend on a number of factors, including the price of the Company’s stock and the Company's generation of, and uses for, cash.
Item 6. Reserved
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OBJECTIVE
Our objective within the following discussion is to provide an analysis of the Company’s Financial Condition, Cash Flows and Results of Operations from management's perspective, which should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto, included in Part II, Item 8. Financial Statements, of this Annual Report on Form 10-K.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements concerning the Company’s expectations and beliefs. See “Statement Regarding Forward-Looking Statements” and Part I, Item 1A. Risk Factors, of this Form 10-K for a discussion of other uncertainties, risks and assumptions associated with these statements.
Unless otherwise specifically indicated, all dollar or share amounts herein are expressed in millions of dollars or shares, except for per share amounts.
EXECUTIVE SUMMARY
Hasbro is a toy and game company whose mission is to entertain and connect generations of fans through the wonder of storytelling and exhilaration of play. We are Creating Magic Through Play by delivering engaging brand experiences for global audiences across gaming, consumer products and entertainment, with a portfolio of iconic brands including MAGIC: THE GATHERING, Hasbro Gaming, PLAY-DOH, NERF, TRANSFORMERS, DUNGEONS & DRAGONS, and PEPPA PIG, as well as premier partner brands.
Hasbro is guided by our purpose to create joy and community for all people around the world, one game, one toy, one story at a time. For the past decade, we have been consistently recognized for our corporate citizenship, including being named one of the 100 Best Corporate Citizens by 3BL Media and one of the World’s Most Ethical Companies by Ethisphere Institute.
Our strategic plan, which we sometimes refer to as our Blueprint or Blueprint 2.0, supports our mission by bringing compelling and expansive brand experiences to consumers and audiences around the world. Using this approach, our brands are transformed as story-led and play-led consumer franchises brought to life through games, play and experiences and offered across a multitude of platforms and media. Our commitment to disciplined, strategic investments, differentiates Hasbro as a purpose-driven business with diversified capabilities focused on driving long-term, sustainable and profitable growth and enhancing shareholder value.
Key elements of our strategy include:
•building innovative toys and games that create memorable, social and collectible experiences of play and entertainment in our key focus categories: games (board games, trading cards, role playing); preschool; action brands; creativity; outdoor; and dolls;
•pursuing a franchise-first approach to deliver the magic of our brands through licensing, digital games and entertainment;
•focusing on fewer, bigger, more profitable brands and driving market share in our key focus categories;
•investing in our Hasbro direct-to-consumer business and building direct relationships with fans through ecommerce, social, digital games and services;
•continuing to cultivate our digital gaming business, through AAA games, games as a service and licensing relationships that activate our brands;
•licensing of our brands through a growing portfolio of partners from theme park operators to toy companies, for consumers to experience our brands and drive communities of friendship and fandom around them;
•executing on our operational savings initiatives, including supply chain transformation, to improve operating results and reinvest in our business; and
•investing in and empowering our people at all levels of our organization and continue to foster a diverse and inclusive culture that drives accountability and focuses on profitability.
Hasbro generates revenue and earns cash by developing, marketing, licensing and selling products, play and entertainment experiences, based on our global brands as well as other IP in a broad variety of categories. This includes: innovative toy and gaming brands and role-playing and fantasy card collecting games, the marketing and sale of toys and games, including our owned and partner brands, through retail stores, ecommerce platforms and Hasbro Direct, our direct-to-consumer platform; the distribution, license and sale of digital games developed both internally and through licensing out our IP to third parties, such as Baldur's Gate 3, Monopoly Go! and Magic: The Gathering Arena and other digital games. Additionally, the Company generates revenue though the development, production and sales of entertainment content and from out-licensing certain non-core brands which are more profitable through a licensing arrangement for products that include various toys and games, consumer products, such as apparel and publishing, as well as for use in theme park attractions and other forms of location-based entertainment and within formats such as film and TV programming.
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.
Results discussed herein include income from operations before income taxes attributable to the eOne Film and TV business sold to Lionsgate on December 27, 2023. The eOne Film and TV results were recorded to the Company's Consolidated Statements of Operations, within the Entertainment segment, through the sale transaction closing date. Assets of $1.5 billion and liabilities of $542.0 million, attributable to the eOne Film and TV business were de-consolidated as of the closing date and, as of December 31, 2023, there are no remaining carrying amounts relative to that part of the business within the Company's Consolidated Balance Sheets. See note 3 to the consolidated financial statements included in Part II, Item 8. Financial Statements, of this Form 10-K, for further information on the sale of the Company's eOne Film and TV business.
During each of the periods presented in this Form 10-K there were significant charges and benefits incurred which impacted operating results. These charges are detailed below in the Summary of Financial Performance.
2023 highlights
•Net revenues of $5,003.3 million decreased 15% from $5,856.7 million in 2022. The decline in net revenues includes a favorable foreign currency translation of $20.6 million.
◦Net revenues in the Consumer Products segment decreased 19% to $2,886.4 million; Wizards of the Coast and Digital Gaming segment increased 10% to $1,457.6 million; and Entertainment segment net revenues decreased 31% to $659.3 million.
◦Franchise Brands net revenues decreased 3%; Partner Brands net revenues decreased 35%; Portfolio Brands net revenues decreased 17%; and Non-Hasbro Branded Film and TV net revenues declined 35%.
◦Hasbro’s total gaming portfolio, including the Hasbro Gaming portfolio as reported above, and all other gaming revenue, most notably MAGIC: THE GATHERING and MONOPOLY, totaled $2,074.4 million, an increase of 4%.
•Operating losses were $1,538.8 million, or 30.8% of net revenues in 2023 and declined compared to operating profit of $407.7 million, or 7.0% of net revenues in 2022.
◦Operating profit in the Consumer Products segment declined greater than 100% to an operating loss of $64.7 million; Wizards of the Coast and Digital Gaming segment operating profit declined 2% to $525.7 million; Entertainment segment operating losses declined to an operating loss of $1,911.5 million; and Corporate and Other operating losses improved 76% to an operating loss of $88.3 million.
◦Operating profit in 2023 was negatively impacted by non-cash goodwill and asset impairment charges of $1,307.2 million recorded within the Entertainment segment consisting of: $231.2 million related to the goodwill impairment of the eOne Film & TV business included in Impairment of goodwill; $65.0 million related to an impairment of the Company's definite-lived intangible, eOne Trademark, included in Selling, distribution and administration; a goodwill impairment charge of $960.0 million due to impairment of the Company's Family Brands business included in Impairment of goodwill; and, impairment charges of $51.0 million related to the impairment of the Company's PJ MASKS definite-lived intangible asset, included within Selling, distribution and administration. See note 6 to our Consolidated Financial Statements, included in Part II, Item 8. Financial Statements, of this Form 10-K for more information on these impairments and charges.
◦Certain other charges impacting 2023 operating segment performance, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, are discussed below in Results of Operations - Consolidated
•Net losses attributable to Hasbro, Inc. were $1,489.3 million in 2023, or $10.73 per diluted share, compared to net earnings attributable to Hasbro, Inc. of $203.5 million, or $1.46 per diluted share in 2022.
2022 highlights
•Net revenues of $5,856.7 million decreased 9% from $6,420.4 million in 2021. The decline in net revenues includes an unfavorable foreign currency translation of $166.3 million.
◦Net revenues in the Consumer Products segment decreased 10% to $3,572.5 million; Wizards of the Coast and Digital Gaming segment increased 3% to $1,325.1 million; and Entertainment segment net revenues decreased 17% to $959.1 million.
◦TV/Film/Entertainment portfolio net revenues decreased 17%; Hasbro Gaming net revenues decreased 13%; Emerging Brands net revenues decreased 12%; Partner Brands net revenues decreased 9%; and Franchise Brands net revenues decreased 4%.
◦Hasbro’s total gaming portfolio, including the Hasbro Gaming portfolio as reported above, and all other gaming revenue, most notably MAGIC: THE GATHERING and MONOPOLY, totaled $2.0 billion, a decrease of 5%.
•Operating profit was $407.7 million, or 7.0% of net revenues in 2022 compared to operating profit of $763.3 million, or 11.9% of net revenues in 2021.
◦Operating Profit in the Wizards of the Coast and Digital Gaming segment decreased 2% to $538.3 million; Consumer Products segment operating profit decreased 46% to $217.3 million; Entertainment segment operating losses increased greater than 100% to $22.7 million; and Corporate and Other operating losses increased greater than 100% to $370.6 million.
•Net earnings attributable to Hasbro, Inc. declined in 2022 to $203.5 million, or $1.46 per diluted share, compared to $428.7 million, or $3.10 per diluted share in 2021.
Summary of Financial Performance
A summary of the Company’s results of operations for 2023, 2022 and 2021 is illustrated below.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Net revenues | $ | 5,003.3 | | | $ | 5,856.7 | | | $ | 6,420.4 | |
Operating (loss) profit | (1,538.8) | | | 407.7 | | | 763.3 | |
(Loss) earnings before income taxes | (1,709.1) | | | 261.5 | | | 581.9 | |
Net (loss) earnings | (1,487.8) | | | 203.0 | | | 435.3 | |
Net earnings (loss) attributable to noncontrolling interests | 1.5 | | | (0.5) | | | 6.6 | |
Net (loss) earnings attributable to Hasbro, Inc. | (1,489.3) | | | 203.5 | | | 428.7 | |
Diluted (loss) earnings per share | (10.73) | | | 1.46 | | | 3.10 | |
Results of Operations — Consolidated
The fiscal year ended December 31, 2023 was a fifty-three week period, December 25, 2022 and December 26, 2021 were each fifty-two week periods.
Net losses attributable to Hasbro, Inc. were $1,489.3 million for the fiscal year ended December 31, 2023 compared to net earnings of $203.5 million for the fiscal year ended December 25, 2022, and net earnings of $428.7 million for the fiscal year ended December 26, 2021.
Diluted (loss) earnings per share attributable to Hasbro, Inc. were $(10.73) in 2023, $1.46 in 2022 and $3.10 in 2021.
Net (loss) earnings and diluted (loss) earnings per share attributable to Hasbro, Inc. for each fiscal year in the three years ended December 31, 2023 include certain charges and benefits as described below.
2023
•Non-cash goodwill and asset impairment charges of $1,278.2 million or $9.20 per diluted share, incurred within the Entertainment segment, associated with the eOne Film and TV business and within Family Brands to align with a change in entertainment strategy consisting of:
◦Net charges of $279.9 million recorded during the second quarter as a result of the Company's impairment review of its Film and TV reporting unit, consisting of a non-cash goodwill impairment charge of $231.2 million recorded in Impairment of goodwill and intangible asset impairment charges of $48.7 million related to the Company's definite-lived intangible eOne Trademark, recorded within Selling, distribution and administration.
◦A non-cash goodwill impairment charge of $960.0 million recorded during the fourth quarter of 2023, as a result of the Company's impairment review of its Family Brands reporting unit.
◦A net charge of $38.3 million related to the impairment of the Company's definite-lived PJ MASKS intangible asset.
•Net charges of $453.7 million, or $3.26 per diluted share, of Blueprint 2.0 implementation charges, consisting of:
◦A Loss on disposal of business of $419.7 million related to the sale of the Company's non-core eOne Film and TV business within the Entertainment segment, executed during the fourth quarter; and
◦Charges of $34.0 million associated with the eOne Film & TV business sale process recorded in Selling, distribution and administration expense within the Corporate and Other segment.
•Net charges of $55.6 million, or $0.40 per diluted share, of Operational Excellence program related charges consisting of consultant and transformation office expenses of $27.0 million and severance and
other employee charges of $ 28.6 million included within Selling, distribution and administration within Corporate and Other.
•Net charges of $48.8 million, or $0.35 per diluted share of intangible amortization costs related to certain intangible assets acquired in the eOne Acquisition. These expenses are allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets.
•Net charges of $1.7 million, or $0.01 per diluted share associated with retention awards granted in connection with the eOne Acquisition. These expenses were incurred during the first quarter of 2023 and are included within Selling, distribution and administration within the Corporate and Other segment.
2022
•In association with the Company's strategic review and subsequent Blueprint 2.0 strategy shift to focus on fewer, bigger brands, the Company incurred net charges of $253.0 million consisting of the following:
◦Net asset impairments and other net charges of $231.9 million, or $1.67 per diluted share, of which $215.2 million, or $1.55 per diluted share relates to the partial impairment of the Company's definite-lived Power Rangers intangible asset, $12.4 million, or $0.09 per diluted share, of incurred incremental asset charges related to product cancellations, consisting of inventory and asset write offs, and $4.3 million, or $0.03 per diluted share, of strategy-related asset impairments due to the cancellation of certain projects primarily within the Entertainment segment; and
◦A net loss on disposal of business of $21.1 million, or $0.15 per diluted share, comprised of a non-cash goodwill impairment loss of $11.8 million and other asset impairments of $9.3 million, related to the exit of non-core businesses within the Entertainment segment.
•In support of Blueprint 2.0, Hasbro announced an Operational Excellence program. In association with this program the Company incurred net charges of $89.2 million comprised of the following:
◦Net severance expense and other employee charges of $79.8 million, or $0.57 per diluted share, associated with cost-savings initiatives across the Company; and
◦Net charges of $9.4 million, or $0.07 per diluted share, of program related consultant and transformation office expenses.
•In association with the Company's acquisition of eOne, the Company incurred related expenses of $72.3 million, comprised of the following:
◦Net expenses of $59.4 million, or $0.43 per diluted share, of incremental intangible amortization costs related to the intangible assets acquired in the eOne acquisition; and
◦A net charge of $12.9 million, or $0.09 per diluted share, of stock based compensation expenses.
2021
•A net charge of $116.1 million, or $0.84 per diluted share, comprised of a non-cash goodwill impairment charge of $108.8 million and transaction expenses of $7.3 million, associated with the closing of the sale of eOne's music business ("e-One Music"). The goodwill impairment charge of $108.8 million is based on revalued assets and liabilities of eOne Music as of the second quarter of 2021 and finalized closing working capital adjustments made during the fourth quarter 2021.
•In association with the Company's acquisition of eOne, the Company incurred related expenses of $77.0 million, comprised of the following:
◦Net expenses of $70.4 million, or $0.51 per diluted share, of incremental intangible amortization costs related to the intangible assets acquired in the eOne acquisition; and
◦A net charge of $6.6 million, or $0.05 per diluted share, of stock based compensation expenses.
•Charges of $20.9 million, or $0.15 per diluted share, of additional stock compensation expense due to the contractual accelerated vesting of certain equity awards following the passing of the Company's former CEO in the fourth quarter of 2021.
•A net impairment charge of $41.3 million, or $0.30 per diluted share, associated with Hasbro's investment in the Discovery Family Channel, due to the impact of accelerating changes in the cable distribution industry. This charge was comprised of a pre-tax impairment of the investment held in Discovery of $74.1
million, which resulted in a pre-tax reduction to the Company’s Discovery option agreement liability of $20.1 million. See note 7 to the consolidated financial statements included in Part II, Item 8. Financial Statements, of this Form 10-K for further information on the Company’s Discovery option.
•A net charge of $39.4 million or $0.28 per diluted share of income tax expense as a result of revaluation of Hasbro’s UK tax attributes in accordance with the Finance Act 2021 enacted by the United Kingdom on June 10, 2021. Effective April 1, 2023, the law increases the corporate income tax rate to 25% from 19%.
Consolidated net revenues for the year ended December 31, 2023 declined 15% to $5,003.3 million from $5,856.7 million for the year ended December 25, 2022 and include a favorable foreign currency translation impact of $20.6 million as the result of stronger currencies, primarily in Latin America and to a lesser extent, the Company's European markets.
Consolidated net revenues for the year ended December 25, 2022 declined 9% to $5,856.7 million from $6,420.4 million for the year ended December 26, 2021 and included unfavorable foreign currency translation impact of $166.3 million.
Effective for the first quarter 2023, we realigned our brand portfolios to correspond with the evolution of our strategy. As a result, net revenues for the years ended December 25, 2022 and December 26, 2021 have been restated to reflect the realigned brand portfolio structure.
The following table presents net revenues expressed in millions of dollars, by brand portfolio for each year in the three years ended December 31, 2023.
| | | | | | | | | | | | | | | | | |
| 2023 Net Revenues | %
Change | 2022 Net Revenues | %
Change | 2021 Net Revenues |
| Franchise Brands | $ | 3,256.5 | | -3 | % | $ | 3,350.8 | | -5 | % | $ | 3,541.9 | |
| Partner Brands | 687.8 | | -35 | % | 1,052.0 | | -9 | % | 1,161.0 | |
Portfolio Brands | 521.3 | | -17 | % | 625.2 | | -13 | % | 719.8 | |
Non-Hasbro Branded Film & TV | 537.7 | | -35 | % | 828.7 | | -17 | % | 997.7 | |
Total | $ | 5,003.3 | | | $ | 5,856.7 | | | $ | 6,420.4 | |
2023 versus 2022
Net revenues declined in all brand portfolios in 2023 compared to 2022.
Franchise Brands: The Franchise Brands portfolio net revenues decreased 3% in 2023 compared to 2022. The net revenue decrease primarily reflects lower net revenues from NERF products, lower net revenues from Hasbro Gaming products, lower net revenues from PLAY-DOH products compared to 2022, which benefited from the release of Play-doh Squished programming and to a lesser extent, lower net revenues from PEPPA PIG products. These net revenue decreases were partially offset by net revenue increases from DUNGEONS & DRAGONS digital gaming products, most notably Baldur's Gate 3, the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023, as well as the theatrical release of Dungeons & Dragons: Honor Among Thieves released in March 2023 and higher net revenues from D&D Beyond, acquired during the second quarter of 2022. In addition, partially offsetting losses in the category were higher net revenues from TRANSFORMERS products, supported by the June 2023 theatrical release of Transformers: Rise of the Beast, and to a lesser extent, higher net revenues from MAGIC: THE GATHERING products, most notably from sales of the Lord of the Rings: Tales of Middle-earth card set released in June 2023, making 2023 the second consecutive year that MAGIC: THE GATHERING has reached billion-dollar brand acclaim, reflecting ongoing fan enthusiasm for the brand, as well as higher net revenues from MONOPOLY products reflecting the success of the mobile game Monopoly Go!, launched during the second quarter of 2023.
Partner Brands: The Partner Brands portfolio net revenues declined 35% in 2023 compared to 2022. Within the Partner Brands portfolio, there are a number of brands which are reliant on related entertainment, including movie and television releases. As such, net revenues fluctuate from year-to-year by brand, depending on entertainment popularity, release dates and the success of related product line offerings. Historically these entertainment-based brands experience higher revenues during years in which major films or television programming is released.
In 2023, Partner Brands net revenue declines were primarily driven by lower sales of the Company's products for DISNEY FROZEN and DISNEY PRINCESS due to the expiration of the related license agreements in December 2022, lower net revenues from the Company's products for MARVEL and STAR WARS compared to 2022, which benefited from a robust slate of entertainment releases in 2022 as described below, without comparable releases in
2023, and to a lesser extent, lower net revenues from BEYBLADE products. These decreases were partially offset by net revenue contributions from the introduction of the Company's products for INDIANA JONES, supported by the June 2023 theatrical release of Indiana Jones and the Dial of Destiny.
Portfolio Brands: The Hasbro Gaming portfolio net revenues declined 17% in 2023 compared to 2022 driven primarily by lower sales of FURREAL FRIENDS products and to a lesser extent, lower sales of PJ MASKS, MY LITTLE PONY and BABY ALIVE products. These decreases were partially offset by net revenues from FURBY products following the Company's successful reintroduction of the brand and refreshed product line during the second quarter of 2023, as well as higher net revenues from GI JOE products.
Non-Hasbro Branded Film & TV: Net revenues from the TV/Film/Entertainment portfolio declined 35% in 2023 compared to 2022. Lower net revenues in 2023 were driven by lower scripted and unscripted television deliveries, as well as lower film deliveries in 2023 compared to 2022. These decreases were due primarily to the impact of the several months-long worker strikes by the Writers Guild of America and the American actors' union, SAG-AFTRA, which disrupted the number and timing of planned program productions, most notably, Rookie seasons five and six, Rookie Feds season two, The Recruit season two, Yellowjackets season three and Cruel Summer season three. In 2024, this category will be removed from the Company's brand architecture. Hasbro will continue to develop and produce animation, digital shorts, scripted TV and theatrical films for audiences related to core Hasbro IP. All retained Hasbro-branded content is included in the portfolios noted above.
2022 versus 2021
Net revenues declined in all brand portfolios in 2022 compared to 2021.
Franchise Brands: The Franchise Brands portfolio net revenues decreased 5% in 2022 compared to 2021. Higher net revenues from MAGIC: THE GATHERING products, due to record sales from set releases that included: Kamigawa: Neon Dynasty, Commander Legends: Battle for Baldur's Gate, Double Masters, and others, reflecting momentum in the brand, and elevating MAGIC: THE GATHERING to the Company's first billion-dollar brand. In addition, the Franchise Brands portfolio benefited from higher sales of PEPPA PIG products, driven by the third quarter 2021 launch of the Company's first line of PEPPA PIG product line and higher sales of PLAY-DOH products. These net revenue increases were more than offset by lower net revenues from NERF products, lower sales of Hasbro Gaming products, most notably MONOPOLY products, and to a lesser extent, lower net revenues from TRANSFORMERS products and lower net revenues from the Dungeons & Dragons: Dark Alliance digital game launched during the second quarter 2021 with no comparable release in 2022.
Partner Brands: The Partner Brands portfolio net revenues declined 9% in 2022 compared to 2021. In 2022, Partner Brands net revenue declines were driven by lower sales of the Company's products for DISNEY FROZEN and DISNEY PRINCESS as the related license neared the end of its term, in addition to lower sales of BEYBLADE products, and to a lesser extent, lower sales of GHOSTBUSTERS products. These net revenue decreases were partially offset by higher net revenues from the Company's products for MARVEL, led by momentum in the SPIDER-MAN franchise which benefited from entertainment releases including the children’s animated television series, Marvel's Spidey and His Amazing Friends as well as Marvel Studios' Spider-Man: No Way Home, released in December 2021. The Company's products for Marvel's AVENGERS benefited from the release of Marvel Studios' Doctor Strange in the Multiverse of Madness in May 2022 and the July 2022 release of Thor: Love and Thunder, while the Company's products for BLACK PANTHER were supported by the November 2022 release of Black Panther: Wakanda Forever. To a lesser extent, net revenues from the Company's line of STAR WARS products increased as a result of continued STAR WARS entertainment released on Disney+.
Portfolio Brands: Portfolio Brands net revenues declined 13% in 2022 compared to 2021 driven primarily by lower net revenues from BABY ALIVE, FURREAL FRIENDS, PJ MASKS and MY LITTLE PONY products and to a lesser extent, lower net revenues from core PLAYSKOOL and POTATO HEAD products.
Non-Hasbro Branded Film & TV: Net revenues from the Non-Hasbro Branded Film & TV portfolio declined 17% in 2022 compared to 2021. Lower net revenues in 2022 were driven by the sale of eOne Music during the third quarter of 2021, which represented $65.2 million or 6% of portfolio net revenues during 2021. In addition to the sale of eOne Music, net revenue declines in 2022 were driven by the lower number of film deliveries in 2022 compared to 2021 due to timing shifts of certain films into 2023, and to a lesser extent, lower unscripted television deliveries in 2022. These decreases were partially offset by higher net revenues from scripted production deliveries, most notably, Cruel Summer season two, The Rookie seasons four and five and The Rookie: Feds season one.
SEGMENT RESULTS
The summary that follows provides a discussion of the results of operations of our four reportable segments: Consumer Products, Wizards of the Coast & Digital Gaming, Entertainment and Corporate and Other.
Net Revenues
The table below illustrates net revenues expressed in millions of dollars, derived from our principal operating segments in 2023, 2022 and 2021.
| | | | | | | | | | | | | | | | | |
| 2023 Net Revenues | %
Change | 2022 Net Revenues | %
Change | 2021 Net Revenues |
| Consumer Products | $ | 2,886.4 | | -19 | % | $ | 3,572.5 | | -10 | % | $ | 3,981.6 | |
| Wizards of the Coast & Digital Gaming | 1,457.6 | | 10 | % | 1,325.1 | | 3 | % | 1,286.6 | |
| Entertainment | 659.3 | | -31 | % | 959.1 | | -17 | % | 1,152.2 | |
Consumer Products Segment
The following table presents the Consumer Products segment net revenues by major geographic region for each fiscal year in the three years ended December 25, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 Net Revenues | | %
Change | | 2022 Net Revenues | | %
Change | | 2021 Net Revenues |
| North America | $ | 1,649.1 | | | -20 | % | | $ | 2,064.8 | | | -11 | % | | $ | 2,315.9 | |
| Europe | 669.5 | | | -26 | % | | 899.5 | | | -16 | % | | 1,067.7 | |
| Asia Pacific | 256.3 | | | -13 | % | | 293.4 | | | -5 | % | | 310.1 | |
| Latin America | 311.5 | | | -1 | % | | 314.8 | | | 9 | % | | 287.9 | |
| Net Revenues | $ | 2,886.4 | | | -19 | % | | $ | 3,572.5 | | | -10 | % | | $ | 3,981.6 | |
2023 versus 2022
Consumer Products segment net revenues declined 19% in 2023 compared to 2022 and included the impact of a favorable $21.8 million foreign currency translation, most notably from the Company's Latin American markets and to a lesser extent, from markets across Europe. Within the Consumer Products segment, net revenues declined in the Franchise Brands, Partner Brands and Portfolio Brands categories during 2023 compared to 2022.
The net revenue decrease was driven by lower sales of Partner Brands products including the Company's products for DISNEY PRINCESS and DISNEY FROZEN, following the expiration of associated license agreements in December 2022, lower sales of the Company's products for MARVEL and to a lesser extent, lower sales of the Company's products for STAR WARS compared to 2022, which benefited from a variety of entertainment releases without a comparable slate in 2023. In addition, lower sales of NERF products and lower sales of certain Hasbro Gaming products, as well as lower net revenues from FURREAL FRIENDS products contributed to the decrease. These net revenue decreases were partially offset by higher sales of TRANSFORMERS products supported by the theatrical release of Transformers: Rise of Beasts in June 2023 and from the Company's refreshed lineup of FURBY products following the reintroduction of the brand during the second quarter of 2023 and higher sales of GI JOE products. Overall, segment net revenue declines were primarily attributable to the challenging consumer discretionary environment in North America and to a lesser extent, the Company's markets across Europe during 2023.
2022 versus 2021
Consumer Products segment net revenues declined 10% in 2022 compared to 2021, declining in all brand portfolios.
The drivers of the net revenue decrease included lower sales of NERF, MONOPOLY, TRANSFORMERS and BABY ALIVE products, lower sales of the Company's products for DISNEY PRINCESS and DISNEY FROZEN as the related license term ended during the fourth quarter of 2022, and lower sales of BEYBLADE products. In addition, lower sales of Hasbro Gaming products, primarily from the Company's tabletop gaming brands such as JENGA, LIFE and certain other Hasbro Gaming brands and lower net revenues from FURREAL FRIENDS products contributed to the decrease. These net revenue decreases were partially offset by higher sales of PEPPA PIG and PLAY-DOH products, and higher sales of the Company's products for MARVEL and STAR WARS. Overall segment
net revenue declines were primarily attributable to North America and to a lesser extent, the Company's European markets during 2022.
Wizards of the Coast and Digital Gaming Segment
The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category (tabletop gaming and digital and licensed gaming) for each fiscal year in the three years ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 Net Revenues | | %
Change | | 2022 Net Revenues | | %
Change | | 2021 Net Revenues |
| Tabletop Gaming | $ | 1,072.5 | | | 1 | % | | $ | 1,067.0 | | | 12 | % | | $ | 950.6 | |
| Digital and Licensed Gaming | 385.1 | | | 49 | % | | 258.1 | | | -23 | % | | 336.0 | |
| Net Revenues | $ | 1,457.6 | | | 10 | % | | $ | 1,325.1 | | | 3 | % | | $ | 1,286.6 | |
2023 versus 2022
Wizards of the Coast and Digital Gaming segment net revenues increased 10% in 2023 compared to 2022 and included the impact of a favorable $2.9 million foreign currency translation. The net revenue increase in the Wizards of the Coast and Digital Gaming segment was primarily attributable to higher net revenues from DUNGEONS & DRAGONS digital gaming products, most notably Baldur's Gate 3, the DUNGEONS & DRAGONS-based role-playing video game released during the third quarter 2023 and to a lesser extent, higher digital licensing net revenues, attributable to the increased success of Monopoly Go!, as well as the launch of the Peppa Pig: World Adventures video game released in the first quarter of 2023. In addition, higher net revenues from Wizards of the Coast tabletop gaming products contributed to segment growth in 2023, most notably from MAGIC: THE GATHERING, driven by the success of the Lord of the Rings: Tales of Middle-earth card set released in June 2023.
2022 versus 2021
In 2022, net revenues from the Wizards of the Coast and Digital Gaming segment increased 3% compared to 2021. The net revenue increase in the Wizards of the Coast and Digital Gaming segment was attributable to higher net revenues from Wizards of the Coast tabletop gaming products, most notably, MAGIC: THE GATHERING, which in 2022, became the Company's first billion-dollar brand, driven by the number of strong performing card sets released during the year. In total, 81% of segment net revenues were attributable to Wizards of the Coast tabletop games during 2022. The increase in tabletop gaming net revenues was partially offset by lower digital and licensed gaming net revenues, primarily from Magic: The Gathering Arena and from Dungeons & Dragons: Dark Alliance, launched during the first half of 2021 and to a lesser extent, lower net revenues from certain other of the Company's licensed digital games during 2022.
Entertainment Segment
The following table presents Entertainment segment net revenues by category for each fiscal year in the three years ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 Net Revenues | | %
Change | | 2022 Net Revenues | | %
Change | | 2021 Net Revenues |
| Film and TV | $ | 575.5 | | | -31 | % | | $ | 837.6 | | | -10 | % | | $ | 932.5 | |
| Family Brands | 83.8 | | | 6 | % | | 79.4 | | | -40 | % | | 132.9 | |
| Music and Other | — | | | -100 | % | | 42.1 | | | -51 | % | | 86.8 | |
| Net Revenues | $ | 659.3 | | | -31 | % | | $ | 959.1 | | | -17 | % | | $ | 1,152.2 | |
*Music and Other category net revenues for the period ended December 26, 2021 includes $65.2 million from eOne Music, which was sold by the Company early in the third fiscal quarter of 2021.
2023 versus 2022
Entertainment segment net revenues declined 31% in 2023. compared to 2022 and included the impact of an unfavorable $4.3 million foreign currency translation. The net revenue decrease during 2023 was driven by lower entertainment productions and deliveries, reflecting the impact of the several months-long strikes during 2023 by the Writers Guild of America and the American actors' union, SAG-AFTRA. Notable programming that was delayed or cancelled included, Rookie seasons five and six, Rookie Feds season two, The Recruit season two, Yellowjackets season three and Cruel Summer season three. To a lesser extent, lower net revenues from unscripted programming contributed to the decrease reflecting the lower number of new deliveries during 2023 compared to 2022. Additionally, to a lesser extent, the strategic exit of certain non-core businesses during the fourth quarter of 2022 contributed to the decrease. These decreases were partially offset by higher net revenues from the Company's Family Brands business, from new agreements entered, and the renewal of certain existing streaming content agreements throughout 2023, related to programs featuring the Company's brands including the television series Power Rangers Cosmic Fury season 30, released on the Netflix streaming platform in September 2023.
2022 versus 2021
Entertainment segment net revenues declined 17% in 2022 compared to 2021. The segment net revenue decrease primarily reflects the number of major film deliveries compared to 2021 where films such as Clifford The Big Red Dog, Mrs. Harris Goes to Paris and Come From Away were delivered, without a comparable number of major film deliveries in 2022, as well as lower net revenues from streaming content sales compared to 2021, which benefited from the September 2021 release of My Little Pony: A New Generation. To a lesser extent, lower transactional net revenues and lower net revenues from unscripted television deliveries compared to 2021 contributed to the decline. These decreases were partially offset by higher scripted television deliveries that include The Rookie seasons four and five, Cruel Summer season two, The Rookie: Feds season one and Yellowjackets season two.
Operating Profit (Loss)
The table below illustrates operating profit expressed in millions of dollars and operating profit margins, derived from our principal operating segments in 2023, 2022 and 2021. For a reconciliation of segment operating profit to total Company operating profit, see note 21 to our consolidated financial statements which are included in Part II, Item 8. Financial Statements, of this Form 10-K.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | % Net
Revenues | %
Change | 2022 | % Net
Revenues | %
Change | 2021 | % Net
Revenues |
| Consumer Products | $ | (64.7) | | -2.2 | % | >100% | $ | 217.3 | | 6.1 | % | -46 | % | $ | 401.4 | | 10.1 | % |
| Wizards of the Coast & Digital Gaming | 525.7 | | 36.1 | % | -2 | % | 538.3 | | 40.6 | % | -2 | % | 547.0 | | 42.5 | % |
| Entertainment | (1,911.5) | | >100% | >100% | 22.7 | | 2.4 | % | >100% | (91.8) | | -8.0 | % |
| Corporate and Other | (88.3) | | n/a | 76 | % | (370.6) | | n/a | >100% | (93.3) | | n/a |
| Total | $ | (1,538.8) | | | | 407.7 | | | | 763.3 | | |
Effective for the first quarter of 2022, intangible amortization costs related to the intangible assets acquired in the eOne acquisition have been allocated between the Consumer Products and Entertainment segments to match the revenue generated from such intangible assets. In 2021, comparable intangible amortization costs were recorded within the Entertainment segment.
Consumer Products Segment
2023 versus 2022
Consumer Products segment operating results decreased $282.0 million to an operating loss of $64.7 million in 2023, compared to operating profit of $217.3 million in 2022. Operating profit margin decreased to -2.2% of net revenues in 2023 from 6.1% of net revenues in 2022.
In 2023, the Consumer Products segment operating loss was driven by lower net revenues reflecting the challenging consumer discretionary environment in North America and Europe, and to a lesser extent, Asia Pacific regions, combined with higher sales allowances and obsolescence charges, including inventory scrap write-downs of excess aged inventory, as well as higher levels of closeout sales, primarily across North America and Europe, due to efforts to reduce retail inventory levels. These impacts to operating profit were partially offset by lower product costs associated with improved inventory management including supply chain improvements, lower royalty
expenses as a result of the decline of Partner Brands sales in 2023, lower shipping and warehousing expenses associated with the Company's lower levels of inventory as well as lower advertising and promotion costs and lower product development and lower administrative expenses, reflecting focused cost savings initiatives and savings realized from the Company's Operational Excellence program.
2022 versus 2021
Consumer Products segment operating profit decreased $184.1 million to $217.3 million in 2022, compared to $401.4 million in 2021. Operating profit margin decreased to 6.1% of net revenues in 2022 from 10.1% of net revenues in 2021.
In 2022, to align with the revenue generated from the assets acquired in the eOne acquisition, Consumer Products segment operating profit included $37.7 million of incremental intangible asset amortization costs. In 2021, comparable costs were reported in the Entertainment segment results. Additionally, in connection with the Company's Blueprint 2.0 strategy shift, Consumer Products segment operating profit included charges of $14.9 million of incremental asset charges related to product cancellations, consisting of inventory and asset write offs related to the Company's plans to focus on fewer, bigger brands. The remaining operating profit decrease in 2022 was driven by lower net revenues and higher sales allowances and obsolescence charges, as well as higher levels of closeout sales and warehousing costs associated with higher inventory levels. These negative effects were partially offset by the impact of the expiration of certain Consumer Products licensing agreements acquired through the eOne acquisition, which carried higher royalty expenses in prior periods and higher net revenues from licensing agreements related to certain of the Company's Franchise Brands. In addition to these benefits were savings realized from the Company’s operational excellence program within cost of sales and distribution expense, price increases implemented in 2022 combined with lower product development costs, lower advertising and promotion expenses, and lower incentive compensation.
Wizards of the Coast and Digital Gaming Segment
2023 versus 2022
Wizards of the Coast and Digital Gaming segment operating profit decreased $12.6 million to $525.7 million in 2023, compared to $538.3 million in 2022. Operating profit margin decreased to 36.1% in 2023 from 40.6% in 2022.
The decrease in segment operating profit in 2023 was driven primarily by higher tabletop gaming product costs including higher inventory obsolescence charges, higher royalty expenses attributable the Lord of the Rings: Tales of Middle-earth and Magic: The Gathering - Doctor Who releases, higher product development costs as the Company continues to invest in Wizards of the Coast and Digital Gaming initiatives, as well as higher administrative expenses including costs to attract and retain talent and higher marketing and sales expenses in support of D&D Beyond and the Wizards of the Coast MagicCon event series. These impacts to operating profit were partially offset by a favorable mix of digital gaming product sales driven by Baldur's Gate 3 and certain other licensed digital gaming products including Monopoly Go!.
2022 versus 2021
Wizards of the Coast and Digital Gaming segment operating profit decreased $8.7 million to $538.3 million in 2022, compared to $547.0 million in 2021. Operating profit margin was 40.6% in 2022 compared to 42.5% in 2021.
The decrease in segment operating profit in 2022 was the result of higher inventory costs and higher product development costs in support of the Company's tabletop and digital gaming initiatives and talent to support long-term growth within the segment, as well as higher royalty expense due to the growth of MAGIC: THE GATHERING UNIVERSES BEYOND. These increases were partially offset by lower administrative expenses, including lower incentive compensation expenses and lower advertising expense and depreciation costs compared to 2021, where the Company incurred higher costs associated with the launch of the mobile version of Magic: The Gathering Arena and Dungeons & Dragons: Dark Alliance.
Entertainment Segment
2023 versus 2022
The Entertainment segment operating loss was $1.9 billion, compared to operating profit of $22.7 million, or 2.4% of segment net revenues in 2022.
Entertainment segment operating losses in 2023 were driven primarily by a non-cash goodwill impairment charge of $960.0 million, reflecting a reduced long-term forecast due to lower profitability of PJ MASKS as described below, and a change in outlook for our owned and operated production efforts that shifted the Entertainment strategy to an
asset lite and partner led model, a loss on disposal of business of $539.0 million related to the sale of the eOne Film and TV business not directly supporting the Company's Entertainment Strategy, a non-cash goodwill impairment charge of $231.2 million related to the goodwill impairment of the Company's Film & TV reporting unit, due to the expected economic impact of industry factors, as well as asset impairment charges of $65.0 million related to the Company's definite-lived intangible eOne Trademark. In addition to these charges, the Company recorded a $51.0 million intangible asset impairment charge related to the impairment of the Company's definite-lived PJ MASKS intangible asset due to challenging retail conditions and competitive market conditions leading to a reduction in brand profitability, and $19.4 million of intangible amortization costs recorded throughout 2023, related to certain intangible assets acquired in the eOne Acquisition. In addition to these charges, Entertainment segment operating losses were attributable to lower segment net revenues, due primarily to the impact of the writers' and actors' strikes mentioned above, which disrupted the number and timing of planned program productions and deliveries in 2023 compared to 2022, and higher program amortization costs due to production asset impairment charges associated with Dungeons & Dragons: Honor Among Thieves and other cancelled projects, due to the Company's go-forward brand strategy. These increases were partially offset by lower operating expenses as a result of the exit of certain non-core businesses during the fourth quarter of 2022 and lower royalty expenses within the Company's film and TV business due to the volume and mix of content delivered during 2023, compared to 2022.
2022 versus 2021
Entertainment segment operating profit was $22.7 million, or 2.4% of segment net revenues in 2022, compared to operating losses of $91.8 million, or 8.0% of segment net revenues in 2021.
The improved operating results in 2022 were driven primarily by the non-cash impairment charge of $108.8 million in 2021 associated with the sale of eOne Music, the allocation of $37.7 million of intangible asset amortization costs to the Consumer Products segment during 2022, as well as lower royalty expenses and lower advertising expense attributable to the lower number of film releases compared to 2021. These impacts to segment operating results were partially offset by a loss on disposal of assets of $22.1 million and asset impairment charges of $4.1 million related to the exit of certain non-core businesses, the impact of the sale of the eOne Music business during 2021 described above and higher program amortization costs in proportion to entertainment revenues related to the mix of programming delivered in 2022.
Corporate and Other Segment
In the Corporate and Other segment, the operating losses were $88.3 million in 2023 compared to operating losses of $370.6 million in 2022 and operating losses of $93.3 million in 2021.
Improved operating results in 2023 reflects lower administrative expenses, including lower compensation costs associated with headcount reductions, partially offset by Operational Excellence program related consultant and transformation office expenses of $35.3 million, severance and other employee charges of $34.2 million, and charges of $35.1 million associated with the non-core eOne Film and TV business sale process as well as higher marketing and sales costs compared to 2022.
In the Corporate and Other segment, the operating losses were $370.6 million in 2022 compared to operating losses of $93.3 million in 2021.
The Corporate and Other segment operating losses during 2022 were primarily related to impairment charges of $281.0 million related to the Company's Power Rangers intangible asset, severance charges of $94.1 million and transformation office and consultant fees of $12.3 million associated with Company's restructuring actions and operational excellence program related cost-savings initiatives, as well as $14.6 million of expense associated with retention awards granted in connection with the eOne acquisition. These operating loss increases were partially offset by lower incentive compensation, royalty expenses and lower advertising costs.
OPERATING COSTS AND EXPENSES
The Company’s operating expenses, stated as percentages of net revenues, are illustrated below for the fiscal years ended December 31, 2023, December 25, 2022 and December 26, 2021:
| | | | | | | | | | | |
| 2023 | 2022 | 2021 |
| Cost of sales | 34.1 | % | 32.6 | % | 30.0 | % |
| Program cost amortization | 9.0 | | 9.5 | | 9.8 | |
| Royalties | 8.6 | | 8.4 | | 9.7 | |
| Product development | 6.1 | | 5.3 | | 4.9 | |
| Advertising | 7.2 | | 6.6 | | 7.9 | |
| Amortization of intangibles | 1.7 | | 1.8 | | 1.8 | |
Impairment of goodwill | 23.8 | | — | | — | |
Loss on disposal | 10.8 | | 0.4 | | 1.7 | |
| Selling, distribution and administration | 29.6 | | 28.4 | | 22.3 | |
|
Operating expenses for 2023, 2022 and 2021 include benefits and expenses related to the following events:
2023
•During 2023 the Company recorded non-cash Goodwill and Asset impairment charges of $1.3 billion incurred within the Entertainment segment consisting of the following:
◦Charges of $296.2 million recorded during the second quarter as a result of the Company's impairment review of its Film and TV reporting unit, consisting of a non-cash goodwill impairment charge of $231.2 million recorded in Impairment of goodwill and intangible asset impairment charges of $65.0 million related to the Company's definite-lived intangible eOne Trademark, recorded within Selling, distribution and administration.
◦A non-cash goodwill impairment charge of $960.0 million recorded in Impairment of goodwill during the fourth quarter of 2023, as a result of the Company's impairment review of its Family Brands reporting unit.
◦An impairment charge of $51.0 million related to the impairment of the Company's definite-lived PJ MASKS intangible asset.
•During 2023 in association with actions taken following the Company's strategic review and subsequent strategy shift to focus on fewer, bigger brands, the Company incurred $574.1 million of Blueprint 2.0 implementation charges, consisting of:
◦A Loss on disposal of business of $539.0 million related to the sale of the Company's non-core eOne Film and TV business recorded in Loss on disposal within the Entertainment segment, executed during the fourth quarter; and,
◦Charges of $35.1 million associated with the eOne Film & TV business sale process recorded in Selling, distribution and administration expense within the Corporate and Other segment.
•During 2023 in association with the Company's Operational Excellence program the Company recorded charges of $69.5 million consisting of consultant and transformation office expenses of $35.3 million and severance and other employee charges of $34.2 million included within Selling, distribution and administration within Corporate and Other.
•During 2023, the Company incurred charges of $62.6 million of intangible amortization costs related to certain intangible assets acquired in the eOne Acquisition. These expenses are allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets.
•During 2023, the Company incurred charges of $1.9 million of stock based compensation expense associated with retention awards granted in connection with the eOne Acquisition. These expenses were
incurred during the first quarter of 2023 and are included within Selling, distribution and administration within the Corporate and Other segment.
2022
•During 2022, in association with actions taken following the Company's strategic review and subsequent Blueprint 2.0 strategy shift to focus on fewer, bigger brands, the Company incurred:
◦Asset impairments and charges of $300.3 million of which $281.0 relates to the partial impairment of the Company's definite-lived Power Rangers intangible asset recorded in Selling, distribution and administration within the Corporate and Other segment, $14.9 million of incurred incremental asset charges recorded within Cost of sales related to product cancellations, consisting of inventory and asset write offs within the Consumer Products segment, and $4.4 million of strategy related asset impairments recorded within Program cost amortization, due to the cancellation of certain projects within the Entertainment segment; and
◦Charges of $22.1 million comprised of a non-cash goodwill impairment loss of $11.8 million and other asset impairments of $10.3 million related to the exit of non-core businesses within the Entertainment segment, included in Loss on disposal of business.
•In support of the Company's strategic shift, Hasbro announced an Operational Excellence program. In association with this program the Company incurred:
◦Severance and other employee charges of $94.1 million associated with cost-savings initiatives across the Company, included within Selling, distribution and administration; and
◦Program related consultant fees and transformation office expenses of $12.3 million included within Selling, distribution and administration.
•During 2022, the Company incurred incremental intangible amortization costs of $71.4 million related to the intangible assets acquired in the eOne acquisition allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets.
•During 2022, the Company incurred $14.6 million of stock based compensation expense associated with retention awards granted in connection with the eOne acquisition. These expenses are included within Selling, distribution and administration within the Corporate and Other segment.
2021
•During 2021, in association with the sale of the eOne Music business, the Company incurred a loss of $118.3 million comprised of a goodwill impairment charge of $108.8 million included within Loss on disposal of business, and transaction costs of $9.5 million included within Selling, distribution and administration.
•During 2021, the Company incurred incremental intangible amortization costs of $85.0 million related to the intangible assets acquired in the eOne acquisition.
•During 2021, the Company incurred $20.9 million of stock based compensation expense associated with the accelerated vesting of certain equity awards as a result of the passing of its former CEO included within Selling, distribution and administration.
•During 2021, in association with the Company's acquisition of eOne, the Company incurred stock based compensation expense of $7.7 million for acquisition related equity grants, included within Selling, distribution and administration.
Cost of Sales
Cost of sales primarily consists of purchased materials, labor, manufacturing overhead and other inventory-related costs such as obsolescence. Cost of sales decreased 11% to $1,706.0 million, or 34.1% of net revenues, for the year ended December 31, 2023 compared to $1,911.8 million, or 32.6% of net revenues, for the year ended December 25, 2022. In 2023, the cost of sales decrease was driven by lower sales volumes, primarily in North America and Europe, and to a lesser extent Asia Pacific markets during 2023, and lower product input costs, most notably within the Consumer Products segment as well as cost savings realized from the Company's Operational Excellence Program combined with the impact of the exit of certain non-core business. These decreases were partially offset by higher closeout sales during 2023 compared to 2022. As a percent of net revenues, the cost of
sales increase was primarily the result of higher inventory obsolescence charges, primarily within the Consumer Products segment, partially offset by the mix of net revenues during 2023 compared to 2022.
In 2022, Cost of sales decreased 1% to $1,911.8 million, or 32.6% of net revenues, for the year ended December 25, 2022 compared to $1,927.5 million, or 30.0% of net revenues, for the year ended December 26, 2021. The cost of sales decrease in dollars was driven by lower sales volumes, primarily within the Consumer Products segment during 2022 compared to 2021. These decreases were partially offset by cost of sales increases within the Wizards of the Coast and Digital Gaming segment, reflecting higher tabletop gaming sales during 2022. The cost of sales increase as a percent of net revenues was the result of higher product input costs including higher material costs and higher inventory obsolescence, sales allowances and closeout charges to address excess inventory, most notably within Europe and the U.S., partially offset by the benefit of implemented price increases and lower freight costs.
Program Cost Amortization
Program cost amortization totaled $448.9 million, or 9.0% of net revenues in 2023, compared to $555.5 million, or 9.5% of net revenues in 2022 and $628.6 million, or 9.8% of net revenues, in 2021. The majority of the Company's program costs are capitalized as incurred and amortized using the individual-film-forecast method. The Company also utilizes the percentage of completion methodology, primarily related to unscripted content. Program cost amortization reflects both the phasing of revenues associated with films and television programming, as well as the type of content being produced and distributed. The program cost amortization decrease during 2023 reflects the impact of the writers' and actors' strikes during 2023, which disrupted the number and timing of planned productions and led to reduced deliveries during the year, in addition to an overall slowdown in production activity due to the sale of the eOne Film and TV business unit late in the fourth quarter of 2023. This decrease was partially offset by higher program cost amortization due to production asset impairment charges of $38.1 million associated with Dungeons & Dragons: Honor Among Thieves, recorded during the second quarter of 2023 and higher program amortization costs attributable to certain other cancelled projects as a result of the Company's go-forward brand strategy.
The Program cost amortization decrease during 2022 was driven by the volume and mix of programming revenues compared to 2021, partially offset by $4.1 million of asset impairment charges recorded during 2022, related to discontinued projects associated with the exit of non-core business within the Entertainment segment.
Royalty Expense
Royalty expense of $428.3 million, or 8.6% of net revenues, in 2023 compared to $493.0 million, or 8.4% of net revenues, in 2022 and $620.4 million, or 9.7% of net revenues, in 2021. Fluctuations in royalty expense generally relate to the volume of entertainment-driven products sold in a given period, especially if the Company is selling product tied to one or more major motion picture releases in the period. Product lines related to Hasbro-owned or controlled brands supported by entertainment generally do not incur the same level of royalty expense as licensed properties, particularly products for STAR WARS and MARVEL properties and certain other licensed properties which carry higher royalty rates than other licensed properties. In 2023, the decrease in royalty expense was primarily due to lower sales of certain Partner Brands products which carry higher royalty rates, driven in part by the exit of certain license agreements in December 2022, combined with lower royalty expense associated with the eOne Film & TV business as a result of the slowdown in production activity described above. These decreases to royalty expense were partially offset by the impact of royalty rates associated with the 2023 card set releases, Lord of the Rings: Tales of Middle-Earth and Doctor Who.
In 2022, the decrease in Royalty expense was driven by lower sales of certain Partner Brands products which carry higher royalty rates and a change in product mix within the Consumer Products segment, and to a lesser extent, the mix of entertainment deliveries in 2022 reflecting lower film deliveries compared to 2021. In addition, lower royalty expense in 2022 reflects the impact of the sale of eOne Music during 2021 and the expiration of certain licensing agreements acquired through the eOne acquisition, resulting in lower royalty expenses compared to prior periods. See note 20 to the Company’s consolidated financial statements in Part II, Item 8. Financial Statements, of this Form 10-K for information on the Company's future royalty commitments as of December 31, 2023.
Product Development
Product development expense in 2023 totaled $306.9 million, or 6.1% of net revenues, compared to $307.9 million, or 5.3% of net revenues, in 2022 and $315.7 million, or 4.9% of net revenues, in 2021. Product development expenditures reflect the Company’s investment in innovation and anticipated growth across our brand portfolio. In 2023 product development expense was consistent in dollars compared to 2022 and higher as a percent of net
revenues reflecting the Company's continued investments and costs to support the Wizards of the Coast tabletop and digital gaming initiatives, partially offset by lower personnel costs with the Consumer Products segment.
The decrease in 2022 Product development expense in dollars compared to 2021 was driven by lower spending in line with the Company's global cost savings initiatives partially offset by higher spending in the Wizards of the Coast and Digital Gaming segment in support of the Company’s core initiatives.
Advertising Expense
Advertising expense in 2023 totaled $358.4 million, or 7.2% of net revenues, compared to $387.3 million or 6.6% of net revenues in 2022 and $506.6 million or 7.9% in 2021. The level of the Company’s advertising expense is generally impacted by revenue mix, the amount and type of theatrical releases and television programming delivered. The advertising expense decrease during 2023 was driven by lower expense within the Consumer Products segment, due to the volume and mix of product sales and timing of advertising expenditures during 2023, partially offset by higher expense within the Entertainment and Wizards of the Coast and Digital Gaming segments, in support of the theatrical release of Dungeons & Dragons: Honor Among Thieves and advertising costs associated with D&D Beyond, acquired during the second quarter of 2022.
The Advertising expense decrease during 2022 was driven by lower expense within the Consumer Products segment, reflecting the implementation of the Company's strategic shift to focus on fewer, bigger brands and lower advertising expense in the Entertainment segment related to the sale of the eOne Music business and a shift in the type of entertainment releases delivered in 2022. In 2021, higher advertising expense was driven by support for the September 2021 release of My Little Pony: A New Generation and within the Wizards of the Coast and Digital Gaming segment, expense in support of the 2021 launch of the mobile version of Magic: The Gathering Arena and Dungeons & Dragons: Dark Alliance, with no comparable releases in 2022.
Amortization of Intangible Assets
Amortization of intangible assets decreased to $83.0 million, or 1.7% of net revenues, in 2023 compared to $105.3 million, or 1.8% of net revenues, in 2022 and $116.8 million, or 1.8% of net revenues in 2021. The decrease in 2023 reflects the discontinuation of amortization expense associated with intangible assets included with the sale of the eOne Film and TV business to Lionsgate, lower expense due to the impairment of the Company's definite-lived intangible asset, eOne Trademark during the second quarter of 2023, lower expense due to the partial impairment of the Company's definite-lived Power Rangers intangible assets during the fourth quarter of 2022, as well as lower expense due to certain classic gaming properties becoming fully amortized during the first quarter of 2023. These decreases were partially offset by additional expense associated with assets acquired through the D&D Beyond Acquisition during the second quarter of 2022.
The decrease in 2022 was the result of the discontinuation of amortization related to the eOne Music intangible assets following the sale of eOne Music during 2021. This decline was partially offset by additional expense associated with assets acquired through the D&D Beyond acquisition during 2022.
Impairment of Goodwill
In 2023, Impairment of goodwill of $1,191.2 million, or 23.8% of net revenues represents non-cash impairment charges of $960.0 million associated with the Company's Family Brands reporting unit recorded during the fourth quarter of 2023, reflecting a reduced long-term forecast due to lower profitability of PJ MASKS, and a change in outlook for the Company's owned and operated production efforts that shifted the Entertainment strategy to an asset lite and partner led model. In addition, $231.2 million of goodwill impairment charges recorded during the second quarter of 2023, related to the goodwill impairment of the Company's Film & TV reporting unit, due to the expected economic impact of industry factors. These charges were recorded within the Entertainment segment. See note 6 to the consolidated financial statements, included in Part II, Item 8. Financial Statements, of this Form 10-K for additional information on impairment of goodwill.
Loss on Disposal of Business
In 2023, the Loss on disposal of business of $539.0 million, or 10.8% of net revenues represents non-cash impairment charges and foreign currency translation losses reclassified from accumulated other comprehensive losses to current earnings, associated with the sale of the Company's non-core eOne Film and TV business within the Entertainment segment. In 2022, the loss on disposal of business of $22.1 million, or 0.4% of net revenues represents non-cash impairment charges associated with the exit of certain non-core businesses within the Entertainment segment. The Loss on disposal of business of $108.8 million, or 1.7% of net revenues, represents a non-cash impairment charge associated with the disposition of eOne Music during 2021. See note 3 to the
consolidated financial statements, included in Part II, Item 8. Financial Statements, of this Form 10-K for additional information on the sale of the eOne Film and TV business.
In 2022, the Loss on disposal of business of $22.1 million, or 0.4% of net revenues represents non-cash impairment charges associated with the exit of certain non-core businesses within the Entertainment segment. The Loss on disposal of business of $108.8 million, or 1.7% of net revenues, represents a non-cash impairment charge associated with the disposition of eOne Music during 2021.
Selling, Distribution and Administration Expenses
Selling, distribution and administration expenses decreased to $1,480.4 million, or 29.6% of net revenues in 2023, from $1,666.1 million, or 28.4% of net revenues, in 2022. In 2021, Selling, distribution and administration expenses were $1,432.7 million, or 22.3% of net revenues in 2021. In 2023, the decline in Selling, distribution and administration expense was driven by lower compensation expense associated with workforce reductions, lower costs for professional services and lower freight and warehousing expenses as a result of lower shipments during 2023. Additionally, Selling, distribution and administration expense in 2023 included $116.0 million of intangible asset impairment charges as compared to $281.0 million of intangible asset impairment charges in 2022. 2023 intangible asset impairment charges consist of $65.0 million related to the Company's definite-lived intangible eOne Trademark and $51.0 million related to the Company's PJ MASKS intangible asset, charges of $69.5 million associated with the Company's Operational Excellence program consisting of $35.3 million of consultant and transformation office charges and $34.2 million of severance and other employee charges, as well as charges totaling $35.1 million incurred by the Company associated with the process to sell the eOne Film and TV business. In addition, higher marketing and sales costs, most notably within the Wizards of the Coast and Digital Gaming segment in support of digital gaming and location based entertainment initiatives.
In 2022, Selling, distribution and administration expense reflects lower incentive compensation expense, lower depreciation expense within the Wizards of the Coast business, most notably due to the release of Dungeons & Dragons: Dark Alliance in 2021, with no comparable releases in 2022 and lower shipping costs due to global supply chain improvements during the year. These decreases were wholly offset by the impairment charges and severance and other charges associated with the Company's strategic review noted previously, and higher warehousing expenses, primarily in the Consumer Products segment and, to a lesser extent, the Wizards of the Coast and Digital Gaming segment, as a result of higher inventory levels for the year ended December 25, 2022.
NON-OPERATING EXPENSE (INCOME)
Interest Expense
Interest expense totaled $186.3 million in 2023 compared to $171.0 million in 2022 and $179.7 million in 2021. The increase in interest expense during 2023 primarily reflects higher interest rates in 2023 related to interest payments for the Company's variable-rate Five-Year term loan, which was retired late in the fourth quarter of 2023, using proceeds from the sale of the eOne Film and TV business. In addition, higher interest expense associated with borrowings from the Company's production financing credit facilities contributed to the increase. The Company's remaining senior revolving credit facility dedicated to production financing and all individual production loans were assumed by Lionsgate effective upon the closing of the sale of eOne Film and TV in the fourth quarter of 2023. The decrease in 2022 compared to 2021 primarily reflects long-term debt repayments made throughout 2021, primarily related to borrowings utilized for the eOne acquisition, partially offset by higher interest expense related to borrowings from the Company's production financing credit facilities. For more information on the Company's long-term debt and production financing facilities see notes 9 and 11 to the consolidated financial statements included in Part II, Item 8. Financial Statements, of this Form 10-K.
Interest Income
Interest income was $23.0 million in 2023 compared to $11.8 million in 2022 and $5.4 million in 2021. Higher interest income in 2023 primarily reflects higher average interest rates and higher interest income on income tax recoveries received in 2023 compared to 2022. Higher interest income in 2022 compared to 2021 is primarily the result of higher average interest rates in 2022 compared to 2021.
Other Expense (Income), Net
Other expense (income), net was $7.0 million, $(13.0) million and $7.1 million in 2023, 2022 and 2021, respectively. The following table outlines major contributors to other expense (income), net, expressed in millions of dollars.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Earnings from Discovery Family Channel | (10.9) | | | (8.1) | | | (20.8) | |
| Discovery Family Channel impairment | 1.3 | | | — | | | 74.1 | |
Impairment of right-of-use asset | 2.7 | | | — | | | — | |
| |
Foreign currency losses (gains) | 13.3 | | | (5.3) | | | (5.1) | |
| Legal settlement | — | | | — | | | (26.7) | |
| Discovery Family Channel option | — | | | — | | | (20.1) | |
| |
| Other | 0.6 | | | 0.4 | | | 5.7 | |
| $ | 7.0 | | | (13.0) | | | 7.1 | |
•Earnings from the Discovery joint venture are comprised of the Company’s share in the results of the Discovery Family Channel (the "Network").
•During 2023, the Company recorded an impairment loss of $1.3 million related to its investment in Discovery Family Channel due to lower expected future returns. During 2021, the Company recorded an impairment loss of $74.1 million related to its investment in Discovery Family Channel. The Network projected a significant decline in affiliate revenue in 2021, driven by changes in the cable distribution industry due to a decline in linear subscribers. There were no comparable losses during 2022.
•During 2023, the Company exited a lease agreement associated with the eOne Film and TV business sold to Lionsgate during the fourth quarter of 2023, resulting in a $2.7 million impairment loss recorded on the right-of-use asset during the second quarter.
•Foreign currency losses (gains) losses reflect fluctuations of foreign currency translation across the Company's international markets against the U.S. dollar. During 2023, the Company incurred $3.9 million of expense associated with the remittance of cash from Argentina to the U.S. The Central Bank of Argentina maintains currency controls that limit access to U.S. dollars in Argentina. The execution of certain trades, known as Blue Chip Swap transactions, which effectively result in a parallel U.S. dollar exchange rate, resulted in a $3.9 million loss during 2023.
•During the 2021, the Company realized a gain of $26.7 million from a legal settlement related to a historical eOne dispute.
•In relation to the Discovery joint venture, Hasbro and Discovery have a put/call option on the share of the Discovery Family Channel. The option’s fair value is periodically re-measured and in 2021, as a result of the Discovery Family Channel impairment, the adjustment of the option's fair value resulted in a $20.1 million gain. There were no material fair value changes to the put/call option in 2023 or 2022.
INCOME TAXES
Income tax benefit totaled 12.9% of pre-tax loss in 2023 compared with income tax expense on pre-tax earnings of 22.4% in 2022 and 25.2% in 2021. Our effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. Fiscal year 2023 includes discrete items related to (i) impairment of goodwill in our Family Brands business segment of $960.0 million with no tax benefit and (ii) impairment of goodwill in the Film and TV reporting unit of $231.2 million with no tax benefit. Exclusive of the goodwill impairments, the Company recorded a net discrete tax benefit of $278.7 million. This benefit is primarily related to two items. First, the Company recognized tax benefits of $124.0 million associated with the impairment of trade names in our Film and TV reporting unit, as well as loss on assets held for sale. Second, during 2023, the Company concluded its discussions with the tax authorities in Switzerland as to the application of the grandfathering rules related to 2020 Swiss Tax Reform. This resulted in the recording of a deferred tax asset of $135.6 million related to tax intangibles that will be amortized over time and result in a future cash tax benefit. This treatment applies starting in 2021.
Income tax expense for 2022 includes a net discrete benefit primarily related to: (i) favorable return to provision adjustments; offset by (ii) a discrete expense recording a valuation allowance against net deferred tax assets due to Russia's on-going conflict with Ukraine.
Income tax expense for 2021 includes a net discrete expense primarily related to: (i) a non-deductible impairment charge from the sale of eOne Music; and (ii) the remeasurement of UK net deferred tax liability as a result of the United Kingdom’s enactment of Finance Act 2021; offset by (iii) a benefit from the release of uncertain tax positions resulting from a change in management judgement and (iv) discrete tax planning benefits.
Subsequent to the United States passing the Tax Cuts and Jobs Act ("the Tax Act"), the Company has greater flexibility to manage cash globally. The Company intends to repatriate the accumulated foreign earnings as needed from time to time. The Company still has significant cash needs outside the United States and continues to consistently monitor and analyze its global working capital and cash requirements. As of 2023, we have recorded $3.2 million of foreign withholding and U.S. state income tax liability. The Company will continue to record additional tax effects, if any, in the period that the on-going distribution analysis is completed and is able to make reasonable estimates.
Tax laws are regularly being re-examined and evaluated globally. Recently, the Organization for Economic Co-operation and Development (OECD) has a framework to implement a global minimum corporate tax of 15% for companies with global revenues and profits above certain thresholds (referred to as Pillar 2). Certain aspects of Pillar 2 are effective January 1, 2024, and other aspects are effective January 1, 2025. Many non-US tax jurisdictions have either (i) enacted legislation to adopt certain components of Pillar 2 beginning in 2024 (including the European Union Member States) with delayed adoption of other components; or (ii) announced their plans to enact legislation in future years. We continue to evaluate the impacts of enacted and pending legislation related to Pillar 2 in our non-US tax jurisdictions.
NEW ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations. This ASU requires a buyer in a supplier finance program to disclose qualitative and quantitative information about the program including the program’s nature, activity during the period, changes from period to period and potential magnitude. ASU 2022-04 is effective for annual periods beginning after December 15, 2022 and interim periods within those annual periods. A rollforward of obligations during the annual period, including the amount of obligations confirmed and obligations subsequently paid, is effective for annual periods beginning after December 15, 2023 with early adoption permitted. This ASU should be applied retrospectively to each period in which a balance sheet is presented. We adopted provisions of this ASU in 2023, with the exception of the amendment on rollforward information, which will be adopted for annual periods beginning after December 15, 2023. Adoption of the new standard did not have a material impact on our consolidated financial statements.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC 280. The standard did not change the definition of a segment, the method for determining segments or the criteria for aggregating operating segments into reportable segments. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Retrospective adoption is required for all prior periods presented in the financial statements. We are assessing the impact of this ASU and upon adoption expect that any impact would be limited to additional segment expense disclosures in the footnotes to our Consolidated Financial Statements. We expect to adopt the standard beginning with our 2024 Form 10-K.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements in Income Tax Disclosures. The amendments in this update enhance the transparency and decision usefulness of income tax disclosures. This amendment requires public companies to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. Additionally, under the amendment entities are required to disclose the amount of income taxes paid disaggregated by federal, state and foreign taxes, as well as disaggregated by material individual jurisdictions. Finally, the amendment requires entities to disclose income from continuing operations before income tax expense disaggregated between domestic and
foreign and income tax expense from continuing operations disaggregated by federal, state and foreign. The new rules are effective for annual periods beginning after December 15, 2024. We are currently assessing the impact of this ASU on our consolidated financial statements.
The Company's significant accounting policies are summarized in note 1 to the consolidated financial statements included in Part II, Item 8. Financial Statements, of this Form 10-K.
OTHER INFORMATION
Russian Sanctions
As a result of the military conflict in Ukraine, which has led to sanctions and other penalties being levied by the United States, European Union and other countries against Russia, the Company paused all shipments and new content distribution into Russia. The impact to the Company’s operating results includes a loss of both revenue and operating profit, as well as a tax charge associated with recording a valuation allowance against local deferred tax assets. As of December 25, 2022, the Company has exhausted all locally held inventories, recovered all receivables and released all reserves in Russia.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated a significant amount of cash from operations. In 2023, the Company primarily funded its operations and liquidity needs through cash on hand and from cash flows from operations, commercial paper, 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 typically arranged on an individual production basis by using either the Company's senior revolving film and television production credit facility or through special purpose production subsidiaries. The senior revolving credit facility dedicated to production financing and individual production loans were assumed by Lionsgate effective upon the closing of the sale of eOne Film and TV in the fourth quarter of 2023. For more information on the Company's production financing facilities, see notes 3, 9 and 11 to the consolidated financial statements included in Part II, Item 8. Financial Statements, of this Form 10-K.
During 2024, the Company expects to continue to fund its working capital needs primarily through available cash, cash flows from operations and, if needed, by issuing commercial paper or borrowing under its revolving credit agreement. The Company believes that the funds available to it, including cash expected to be generated from operations, funds available through its commercial paper program or its available lines of credit, are adequate to meet its working capital needs for 2024, including the repayment of the current portion of long-term debt of $500.0 million, as shown on the Consolidated Balance Sheets which represents the Company's 3% fixed-rate notes due in November 2024. The Company may also issue debt or equity securities from time to time, to provide additional sources of liquidity when pursuing opportunities to enhance our long-term competitive position, while maintaining a strong balance sheet. However, unexpected events or circumstances such as material operating losses or increased capital or other expenditures, or the inability to otherwise access the commercial paper market, may reduce or eliminate the availability of external financial resources. In addition, significant disruptions to credit markets may also reduce or eliminate the availability of external financial resources. Although the Company believes the risk of nonperformance by the counterparties to its financial facilities is not significant, in times of severe economic downturn in the credit markets, it is possible that one or more sources of external financing may be unable or unwilling to provide funding to the Company.
As of December 31, 2023, the Company’s cash and cash equivalents totaled $545.4 million. Prior to 2017, deferred income taxes had not been provided on the majority of undistributed earnings of international subsidiaries as such earnings were indefinitely reinvested by the Company. Accordingly, such international cash balances were not available to fund cash requirements in the United States unless the Company was to change its reinvestment policy. The Company has maintained sufficient sources of cash in the United States to fund cash requirements without the need to repatriate any funds. 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 December 31, 2023, the Company had a total liability of $103.3 million related to this tax, $45.9 million is reflected in current liabilities and represents the Company's 2024 payment while the remaining long-term payable related to the Tax Act of $57.4 million, which represents the Company's final interest free installment due in 2025, is presented within Other liabilities, non-current on the Consolidated Balance Sheets included in Part II, Item 8. Financial Statements, of this Form 10-K. As a result of the Tax Act and associated repatriation tax payments, earnings in foreign jurisdictions are made available with greater investment flexibility. The majority of the Company’s cash and cash equivalents held outside of the United States as of December 31, 2023 are denominated in the U.S. dollar.
The table below outlines key financial information pertaining to our Consolidated Balance Sheets including the year-over-year changes, expressed in millions of dollars.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | % | | 2022 | | % | | 2021 |
Cash and cash equivalents, net of short-term borrowings (including restricted cash of $0.6, $14.5 and $35.8) | $ | 545.4 | | | 6 | % | | $ | 513.1 | | | -50 | % | | $ | 1,019.2 | |
| Accounts receivable, net | 1,029.3 | | | -9 | % | | 1,132.4 | | | -25 | % | | 1,500.4 | |
| Inventories | 332.0 | | | -51 | % | | 676.8 | | | 23 | % | | 552.1 | |
| Prepaid expenses and other current assets | 416.9 | | | -38 | % | | 676.8 | | | 3 | % | | 656.4 | |
| Other assets | 862.0 | | | -46 | % | | 1,589.3 | | | 23 | % | | 1,297.0 | |
| Accounts payable and accrued liabilities | 1,556.4 | | | -20 | % | | 1,934.1 | | | -14 | % | | 2,255.0 | |
| Other liabilities | 431.7 | | | -19 | % | | 533.1 | | | -21 | % | | 670.7 | |
Accounts receivable, net decreased 9% in 2023 compared to 2022. The decrease in accounts receivable reflects the removal of receivable balances included as part of the sale of the eOne Film and TV business during the fourth quarter of 2023, combined with lower revenues during 2023 compared to 2022. Days sales outstanding increased from 61 days at December 25, 2022 to 73 days at December 31, 2023, reflecting lower revenues and mix of sales during 2023. Accounts receivable, net decreased 25% in 2022 compared to 2021. The decrease in accounts receivable during 2022 was driven by lower sales and improved collections across the majority of the Company's markets during 2022. Days sales outstanding decreased from 68 days at December 26, 2021 to 61 days at December 25, 2022, primarily due to the improved collections described above.
Inventories decreased 51% in 2023 compared to 2022, reflecting enterprise-wide efforts to reduce retail inventory levels while improving the quality of inventory on hand. Inventory management efforts included inventory scrap and obsolescence write-downs for excess or obsolete inventory, most notably in the U.S. and Europe and within the Consumer Products and Wizards of the Coast tabletop gaming businesses, in addition to increases to inventory obsolescence reserves, as the Company looks toward 2024. Inventories increased 23% in 2022 compared to 2021, primarily reflecting accelerated inventory purchases attributable to the Company's Consumer Products and Wizards of the Coast businesses, to mitigate the impact of certain global supply chain challenges. However, as global supply chain constraints began to subside in 2022, the Company experienced lower than anticipated Consumer Products sales, resulting in higher inventory levels.
Prepaid expenses and other current assets decreased 38% in 2023 compared to 2022, driven primarily by lower accrued income balances and lower accrued tax credits for film and television production costs attributable to the eOne Film and TV business, sold during the fourth quarter of 2023. These decreases were partially offset by higher accrued royalty and licensing balances and higher prepaid income tax balances reflecting the reclassification of the Company's 2023 transition tax liability installment payment due in April 2024, which is increasing to $45.9 million, from $34.4 million paid in 2023. In 2022, prepaid expenses and other current assets increased 3% driven by higher accrued royalty and licensing balances, primarily attributable to the Company's Entertainment business as well as the reclassification of certain accrued income balances from long-term to current. These increases were partially offset by lower prepaid royalty balances in relation to the Company’s MARVEL, POWER RANGERS and DISNEY PRINCESS royalty agreements, the disposal of certain Entertainment assets in relation to the exit of certain non-core businesses within the Entertainment segment and from lower prepaid income tax balances during 2022.
Other assets decreased 46% in 2023 compared to 2022. The decrease primarily reflects the removal of long-term asset balances as a result of the sale of the eOne Film and TV business including balances for investments in film and television productions, non-current receivables and acquired intangible assets. Lower acquired intangible asset balances also reflects impairment write-downs of the definite-lived intangible eOne Trademark and the definite-lived PJ MASKS intangible asset. In addition, lower balances for the Company's investment in Discovery Family Channel, due to distributions received, contributed to the decrease in other assets during 2023. These decreases were partially offset by higher deferred tax balances as a result of a certain tax basis increase. Other assets increased 23% in 2022 compared to 2021. The increase was primarily driven by higher deferred tax balances, higher investments in film and television productions and higher non-current receivable balances within the Entertainment segment. These increases were partially offset by a lower balance for the Company's investment in Discovery Family Channel, due to distributions received during 2022.
Accounts payable and accrued liabilities decreased 20% in 2023 compared to 2022. The decrease was driven by lower accounts payable and accrued liability balances attributable to the eOne Film and TV business sold during the fourth quarter of 2023, including accrued participations, accrued expenses in relation to investments in film and
television content and productions, and certain accounts payable balances that were included with the sale. In addition, the decrease to Accounts payable and accrued liabilities was driven by lower accounts payable balances associated with the Company's global cost savings initiatives and the timing of payments. These decreases were partially offset by higher accrued royalty balances associated with the Company's digital gaming business, higher accrued income tax balances and higher incentive bonus accrual balances. Accounts payable and accrued liabilities decreased 14% in 2022 compared to 2021. The drivers of the decrease include lower accounts payable balances associated with the Company's global cost savings initiatives and the timing of payments in 2022, lower incentive bonus accruals, lower accrued royalty balances as a result of partner brand product sales declines, lower accrued freight balances due to improving supply chain conditions within certain markets, as well as the disposal of certain Entertainment liabilities in relation to the exit of non-core businesses within the Entertainment segment. These decreases were partially offset by higher severance accrual balances related to certain cost savings initiatives mentioned above.
Other liabilities decreased 19% in 2023 compared to 2022 reflecting lower lease liability balances and lower long-term deferred income tax balances associated with the eOne Film and TV business sold during the fourth quarter of 2023. In addition, the decrease in Other liabilities was driven by a lower transition tax liability balance reflecting the reclassification of the 2023 installment payment due April 2024, and lower long-term deferred tax balances reflecting the amortization of deferred tax liabilities attributable to legacy Hasbro businesses. These decreases were partially offset by a higher long-term lease liability balance attributable to a lease entered during the first nine months of 2023 in support of the Wizards of the Coast and Digital Gaming segment. Other liabilities decreased 21% in 2022 compared to 2021. The decrease was driven by a lower transition tax liability balance reflecting the reclassification of the 2022 installment payment due April 2023, lower long-term lease liability balances, lower deferred tax balances reflecting the amortization of certain deferred tax liabilities and the impact of foreign exchange revaluation, primarily related to the British Pound. These decreases were partially offset by an increase to the liability for uncertain tax positions, primarily related to the capitalization of research and experimentation expenditures.
Cash Flow
The following table summarizes the changes in the consolidated statement of cash flows included in Part II, Item 8. Financial Statements, of this Form 10-K, expressed in millions of dollars, for each of the years ended December 31, 2023, December 25, 2022 and December 26, 2021.
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Net cash provided by (used in): | | | | | |
| Operating Activities | $ | 725.6 | | | $ | 372.9 | | | $ | 817.9 | |
| Investing Activities | 117.6 | | | (313.0) | | | 242.0 | |
| Financing Activities | (818.1) | | | (553.3) | | | (1,459.8) | |
In 2023, 2022 and 2021, Hasbro generated $725.6 million, $372.9 million and $817.9 million of cash from its operating activities, respectively. Operating cash flows in 2023, 2022 and 2021 included $408.0 million, $767.7 million and $697.3 million, respectively, of cash used for television program and film production. The increase in net cash provided by operating activities during 2023 after adjusting for non-cash items, was attributable to lower working capital requirements, most notably, lower investments in entertainment content and production during 2023. The decrease in net cash provided by operating activities during 2022 reflected higher working capital requirements, including cash utilized for accounts payable and higher spend for television program and film production.
Net cash flows provided by investing activities was $117.6 million in 2023 compared to net cash flows utilized for investing activities of $313.0 million in 2022 and net cash flows provided by investing activities of $242.0 million in 2021. Investing activities in 2023 primarily reflect net proceeds of $329.6 million from the sale of the eOne Film and TV Business. Investing activities in 2022 reflect a cash payment of $146.3 million related to the D&D Beyond Acquisition during the second quarter of 2022. Investing activities in 2021 include net proceeds of $378.5 million, from the sale of eOne Music. The net proceeds received from the sale of the eOne Film & TV Business in 2023 were used to retire the Company's remaining floating rate long-term debt as a continuation of the Company's deleveraging plan and for other general corporate purposes. The D&D Beyond Acquisition during 2022 was funded with cash on hand. The net proceeds received from the sale of eOne Music during 2021 were used for long-term debt repayments and for general corporate purposes. Additions to property, plant and equipment were $209.3 million, $174.2 million and $132.7 million in 2023, 2022 and 2021, respectively. Of these additions, 23% in 2023, 44% in 2022 and 52% in 2021 were for purchases of tools, dies and molds related to the Company’s products.
During the fiscal years ended December 31, 2023, December 25, 2022 and December 26, 2021, the depreciation of plant and equipment was $127.7 million, $127.3 million and $163.3 million, respectively. Fluctuations in depreciation of plant and equipment correlate with the percentage of additions to property, plant and equipment relating to tools, dies and molds which have shorter useful lives and accelerated depreciation.
Net cash utilized by financing activities was $818.1 million, $553.3 million, and $1,459.8 million in 2023, 2022 and 2021, respectively.
Net cash utilized for financing activities in 2023 included payments totaling $310.0 million to retire the remaining principal balance of the Company's Five-Year Tranche loan described below, consisting of $60.0 million of quarterly principal amortization payments during the first three months of 2023 and a $250.0 million payment for the remaining principal balance, following the completion of the sale of the eOne Film and TV Business during the fourth quarter of 2023. In addition, cash utilized for financing activities included drawdowns of $118.1 million and repayments of $206.7 million related to production financing loans.
Net cash utilized for financing activities in 2022 included payments totaling $87.5 million toward the Five-Year Tranche loan consisting of a $50.0 million principal and quarterly principal amortization payments of $37.5 million. In addition, cash utilized for financing activities included as drawdowns of $258.6 million and repayments of $231.5 million related to production financing loans and cash payments of $125.0 million to repurchases the Company's Common Stock.
Net cash utilized for financing activities in 2021 included repayment of $300.0 million aggregate principal amount of 3.15% Notes due 2021, during the first quarter; early repayment of $300.0 million aggregate principal of 2.60% Notes due 2022 and related debt extinguishment costs of $9.1 million during the third quarter; payments totaling $480 million related to the $1.0 billion in term loans consisting of $300.0 million for the remaining principal balance of the Three-Year Tranche loans and $150.0 million principal and quarterly principal amortization payments totaling $30 million toward the Five-Year Tranche loan; and drawdowns of $144.0 million and repayments of $140.1 million related to production financing loans.
Dividends paid were $388.0 million in 2023, $385.3 million in 2022 and $374.5 million in 2021 reflecting the Company's quarterly dividend rate increase from $0.68 per share in 2021, to $0.70 per share in 2022 and 2023. Net (repayments) proceeds of short-term borrowings were $(41.6) million, $141.7 million and $(5.6) million in 2023, 2022 and 2021, respectively. The Company generated cash from employee stock option transactions $74.2 million, and $30.6 million in 2022 and 2021, respectively. There were no employee stock options transactions in 2023. The Company paid withholding taxes related to share-based compensation of $16.8 million, $24.0 million and $13.7 million in 2023, 2022 and 2021, respectively.
Sources and Uses of Cash
The Company commits to inventory production, advertising and marketing expenditures in support of its consumer products business, prior to the peak fourth quarter retail selling season. Accounts receivable typically increase during the third and fourth quarters as customers increase their purchases to meet expected consumer demand in the holiday selling season. Due to the concentrated timeframe of this selling period, payments for these accounts receivable are generally not due until the fourth quarter or early in the first quarter of the subsequent year. This timing difference between expenditures and cash collections on accounts receivable sometimes makes it necessary for the Company to borrow amounts during the latter part of the year. In the Company's entertainment business, cash expenditures for productions are often made well in advance of sale and delivery of the content produced whereas trading card and digital gaming revenues have shorter collection periods, but product development expense often occurs years prior to release and revenue generation. During 2023, 2022 and 2021 the Company primarily used cash from operations and, to a lesser extent, borrowings under its commercial paper program in addition to borrowings under its available lines of credit, to fund its working capital.
The Company has an agreement with a group of banks which provides for a commercial paper program (the "Program"). Under the Program, at the request of the Company and subject to market conditions, the banks may either purchase from the Company, or arrange for the sale by the Company, of unsecured commercial paper notes. The Company may issue notes from time to time up to an aggregate principal amount outstanding at any given time of $1.0 billion. The maturities of the notes may vary but may not exceed 397 days. The notes are sold under customary terms in the commercial paper market and are issued at a discount to par, or alternatively, sold at par and bear varying interest rates based on a fixed or floating rate basis. The interest rates vary based on market conditions and the ratings assigned to the notes by the credit rating agencies at the time of issuance. Subject to market conditions, the Company intends to utilize the Program as its primary short-term borrowing facility and does not intend to sell unsecured commercial paper notes in excess of the available amount under the revolving credit
agreement discussed below. If, for any reason, the Company is unable to access the commercial paper market, the Company intends to use the revolving credit agreement to meet the Company's short-term liquidity needs. During the second quarter and third quarter of 2023, the Company issued and repaid intra-quarter commercial paper notes under the Program, to meet certain of its short-term liquidity needs. As of December 31, 2023, the Company had no outstanding borrowings related to the Program.
During September 2023, the Company entered into a third 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 $1.25 billion, effective as of September 5, 2023. 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 5, 2028. The Company was in compliance with all covenants as of December 31, 2023. The Company had no borrowings outstanding under its committed revolving credit facility as of December 31, 2023. However, letters of credit outstanding under this facility as of December 31, 2023 were approximately $4.0 million. Amounts available and unused under the committed line, at December 31, 2023 were approximately $1.2 billion, inclusive of borrowings under the Company’s commercial paper program. The Company also has other uncommitted lines from various banks, of which approximately $9.3 million was utilized in the form of letters of credit, at December 31, 2023.
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 Company intends to refinance all or a portion of its 2024 Notes during the fourth quarter of 2024. The terms of the Notes are described in note 11 to the consolidated financial statements in Part II, Item 8. Financial Statements, of this Form 10-K.
The Company has principal amounts of long-term debt at December 31, 2023 of $3.5 billion due at varying times from 2024 through 2044. Of the total principal amount of long-term debt, $500.0 million is current at December 31, 2023 of which represents the Company's 3% fixed-rate notes due November 2024. See note 11 and note 20 to the Company’s consolidated financial statements in Part II, Item 8. Financial Statements, of this Form 10-K for additional information on long-term debt and long-term debt interest repayment, respectively.
The Company also has various third-party, inventory and tooling purchase commitments related primarily to the Company's Consumer Products segment which may total approximately $157.3 million in 2024. These payments exclude inventory and tooling purchase liabilities included in Accounts payable or Accrued liabilities on the Consolidated Balance Sheets as of December 31, 2023.
The Company has a supplier finance program which provides participating suppliers the option of receiving payment in advance of an invoice due date, to be paid by certain administering banks, on the basis of invoices that the Company has confirmed as valid and approved. The Company’s obligation is to make payment in the invoice amount negotiated with participating suppliers, to the administering banks on the invoice due date. The Company’s suppliers are not required to participate in the supplier finance program. The early payment transactions between the Company’s supplier and the administering bank are subject to an agreement between those parties, and the Company does not participate in any financial aspect of the agreements between the Company’s suppliers and the administering banks. The Company has not pledged any assets to the administering bank under the supplier financing program. The Company or the administering bank may terminate the agreement upon at least 30 days’ written notice.
The amount of obligations confirmed under the program that remain unpaid by the Company were $43.3 million, and $76.1 million as of December 31, 2023 and December 25, 2022, respectively. These obligations are presented within Accounts payable in our condensed Consolidated Balance Sheets. The activity related to this programs is reflected within the operating activities section of the Condensed Consolidated Statements of Cash Flows.
Share Repurchases and Dividends
The Company has a long history of returning cash to its shareholders through quarterly dividends and share repurchases. During 2023 Hasbro maintained its quarterly dividend rate of $0.70 per share for dividends paid in
February, May, August and November. 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 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. At December 31, 2023, $241.6 million remained available under these share repurchase authorizations. There were no share repurchases made during 2023. The Company has no obligation to repurchase shares under the authorization and the timing, actual number, and value of the shares that are repurchased, if any, will depend on a number of factors, including the price of the Company’s stock and the Company's generation of, and uses for, cash.
The Company believes that cash from operations, and, if necessary, its committed line of credit and other borrowing facilities, will allow the Company to meet its obligations over the next twelve months.
Critical Accounting Policies and Significant Estimates
The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted 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 information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses for the periods presented. The critical 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, 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.
Film and Television Production Costs
The Company incurs certain costs in connection with the production of television programs and films which are capitalized as they are incurred, the majority of which are amortized using the individual-film-forecast method. These costs, which include direct production costs, development costs, acquisition and inventory costs as well as residuals and participations, are amortized in the proportion that the current year’s revenues bear to management’s estimate of total ultimate revenues as of the beginning of each fiscal year related to the film or television program. These capitalized costs are reported at the lower of cost, less accumulated amortization, or fair value, and reviewed for impairment when an event or change in circumstances occurs that indicates that impairment may exist. The fair value is determined using a discounted cash flow model which is primarily based on management’s future revenue and cost estimates.
The most significant estimates are those used in the determination of ultimate revenue in the individual-film-forecast method. Ultimate revenue estimates impact the timing of program production cost amortization in the Consolidated Statements of Operations. Ultimate revenue includes revenue from all sources that are estimated to be earned related to a film or television program and include theatrical exhibition; first run program distribution fees; toy, game and other consumer product licensing fees; and other revenue sources, such as secondary market home entertainment formats and subscription video on demand services. Our ultimate revenue estimates for each film or television program are developed based on our estimates of expected future results. We review and revise these estimates at each reporting date to reflect the most current available information. When estimates for a film or television program are revised, the difference between the program production cost amortization determined using the revised estimate and any amounts previously expensed during that fiscal year, are included as an adjustment to program production cost amortization in the Consolidated Statements of Operations in the period in which the estimates are revised. Prior period amounts are not adjusted for subsequent changes in estimates. Factors that can impact our revenue estimates include the historical performance of similar films and television programs, expected distribution platforms, factors unique to our television and film content and the success of our program-related toy, game and other merchandise.
Recoverability of Goodwill and Intangible Assets
The Company tests goodwill for impairment at least annually. If an event occurs or circumstances change that indicate that the carrying value of a reporting unit exceeds its fair value, the Company will perform an interim goodwill impairment test at that time. The Company may perform a qualitative assessment and bypass the quantitative impairment testing process, if it is not more likely than not that the carrying value of a reporting unit exceeds its fair value.
If it is more likely than not the carrying value exceeds its fair value, a quantitative goodwill impairment test is performed. When performing a quantitative impairment test, goodwill is tested for impairment by comparing the
carrying value to the estimated fair value of the reporting unit which is calculated using an income approach and market approach. Other intangible assets with indefinite lives are tested for impairment by comparing their carrying value to their estimated fair value.
During the second quarter of 2023, the Company performed a quantitative goodwill impairment test of its Film and TV reporting unit due to triggering events that included the impact of the several months long strikes during 2023 by the Writers Guild of America and the American actors' union, SAG-AFTRA, which resulted in delayed production schedules, additional cost burdens and delayed content deliveries. These factors led to revised profitability and lower cash flow forecasts for the Film and TV reporting unit and as a result, we determined that the Film and TV reporting unit was impaired as the carrying value of the Film and TV reporting unit exceeded its fair value, and as such, we recorded a non-cash goodwill impairment charge of $231.2 million in Impairment of goodwill within the Entertainment segment, during the second quarter of 2023.
During the fourth quarter of 2023, the Company determined that a triggering event occurred following declines in the Company's financial forecast for the Family Brands reporting unit. The downward forecast revision reflects a lower profitability forecasts for the PJ MASKS franchise as described below, as well as Family Brand’s strategic shift to a support model for existing Hasbro-branded IP, rather than a brand innovator. As a result of these indicators the Company performed a quantitative goodwill impairment test of the Family Brands reporting unit and determined it was impaired as its carrying value exceeded its fair value, and as such, the Company recorded a non-cash goodwill impairment charge of $960.0 million in Impairment of goodwill within the Entertainment segment.
During the fourth quarter of 2023, the Company performed a qualitative goodwill assessment with respect to each of its reporting units. Based on its qualitative assessments, the Company determined, it is not more likely than not that the carrying values exceed the fair values of its reporting units other than the goodwill impairments of the Film and TV and Family Brands reporting units described above. As a result, during 2023 the Company concluded it was not necessary to perform a quantitative test for impairment of goodwill for any reporting unit, other than Film and TV and Family Brands.
On May 19, 2022, the Company completed its acquisition of D&D Beyond for $146.3 million, which was funded with cash on hand. Based on the valuation of these assets, $64.7 million was allocated to goodwill within the Wizards of the Coast and Digital Gaming segment during the second quarter of 2022.
During the third quarter of 2022, the Company determined to exit certain non-core businesses within the Entertainment segment. A revaluation of the effected businesses resulted in a pre-tax non-cash goodwill impairment charge of $11.8 million, recorded within Loss on Assets held for sale, within the Entertainment segment for the quarter ended September 25, 2022.
The estimation of future cash flows utilized in the evaluation of the Company’s goodwill requires significant judgments and estimates with respect to future revenues related to the respective asset and the future cash outlays related to those revenues. Actual revenues and related cash flows or changes in anticipated revenues and related cash flows could result in a change in this assessment and result in an impairment charge. The estimation of discounted cash flows also requires the selection of an appropriate discount rate. The use of different assumptions would increase or decrease estimated discounted cash flows and could increase or decrease the related impairment charge. See note 6 to the Company's consolidated financial statements in Part II, Item 8. Financial Statements, of this Form 10-K for more information on the Company's goodwill.
Intangible assets, other than those with indefinite lives, are reviewed for indications of impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
During the second quarter of 2023, in connection with the Company's quantitative goodwill impairment test of its Film and TV reporting unit described above, it was determined that there was an impairment of the Company's definite-lived intangible eOne Trademark, as the Film and TV reporting unit produces content under, and is synonymous with, the eOne name. As a result, the Company recorded a $65.0 million intangible asset impairment charge during the second quarter of 2023, in Selling, distribution and administration costs, within the Entertainment segment.
During the fourth quarter of 2023, due to challenging retail conditions and competitive market conditions leading to a reduction in brand profitability, the Company lowered its future revenue and costs estimates associated with its PJ MASKS brand as determined using a discounted cash flow model. As a result, the Company performed a quantitative goodwill impairment test of the PJ MASKS definite-lived intangible asset and determined it was impaired as its carrying value exceeded its fair value. As a result, the Company recorded a $51.0 million impairment charge, recorded in Selling, distribution and administration within the Entertainment segment.
During the fourth quarter of 2022, following the decision to cancel certain projects in conjunction with the Company's strategic shift, it was determined that there was a partial impairment of the Company's definite-lived Power Rangers intangible asset. As a result of these cancelled projects, changes to anticipated revenues and related cash flows led to the determination that carrying values of these intangible assets exceeded their related estimated future cash flows, thus indicating impairment. As a result, charges of $281.0 million were recorded in the fourth quarter of 2022 within Selling, Distribution and Administration within the Corporate and Other segment.
There were no other triggering events in 2023, 2022 or 2021 which would indicate the Company's intangible assets were impaired.
Income Taxes
The Company’s annual income tax rate is based on its income, statutory tax rates, changes in prior tax positions and tax planning opportunities available in the various jurisdictions in which it operates. Significant judgment and estimates are required to determine the Company’s annual tax rate and evaluate its tax positions. Despite the Company’s belief that its tax return positions are fully supportable, these positions are subject to challenge and estimated liabilities are established to account for events in which these positions are challenged, and the Company is not successful in defending those challenges. These estimated liabilities, as well as the related interest, are adjusted in light of changing facts and circumstances such as the progress of a tax audit.
In May 2019, a public referendum held in Switzerland approved the Swiss Federal Act on Tax Reform and AHV Financing ("TRAF") proposals previously approved by the Swiss Parliament. The Swiss tax reform measures were effective on January 1, 2020. During 2023, the Company concluded its discussions with the tax authorities in Switzerland as to the application of the grandfathering rules related to 2020 Swiss Tax Reform. This has resulted in the recording of a deferred tax asset of $135.6 million related to tax intangibles that will be amortized over time and result in a future cash tax benefit. This treatment applies starting in 2021.
In certain cases, tax law requires items to be included in the Company’s income tax returns at a different time than when these items are recognized in the consolidated financial statements or at a different amount than that which is recognized in the consolidated financial statements. Some of these differences are permanent, such as expenses that are not deductible on the Company’s tax returns, while other differences are temporary and will reverse over time, such as depreciation expense. The differences that will reverse over time are recorded as deferred tax assets and liabilities on the consolidated balance sheets. Deferred tax assets represent deductions that have been reflected in the consolidated financial statements but have not yet been reflected in the Company’s income tax returns. Valuation allowances are established against deferred tax assets to the extent that it is determined that the Company will have insufficient future taxable income, including capital gains, to fully realize the future deductions or capital losses. Deferred tax liabilities represent expenses recognized on the Company’s income tax return that have not yet been recognized in the Company’s consolidated financial statements or income recognized in the consolidated financial statements that has not yet been recognized in the Company’s income tax return.
Contractual Obligations and Commercial Commitments
In the normal course of its business, the Company enters into contracts related to obtaining rights to produce products under license, which may require the payment of minimum guarantees. In addition, the Company enters into contractual commitments to obtain film and television content distribution rights and minimum guarantee commitments related to the purchase of film and television rights for content to be delivered in the future. The Company has also entered into operating leases for certain facilities and equipment. In addition, the Company has $3,484.9 million in principal amount of total debt outstanding at December 31, 2023. See note 20 to the consolidated financial statements included in Part II, Item 8. Financial Statements, of this Form 10-K for further information on the Company's contractual obligations and commercial commitments.
Other Expected Future Payments
From time to time, the Company may be party to arrangements, contractual or otherwise, whereby the Company may not be able to estimate the ultimate timing or amount of the related payments. These amounts are described below:
•Included in other liabilities in the Consolidated Balance Sheets at December 31, 2023, the Company has a liability of $47.4 million of potential tax, interest and penalties for uncertain tax positions that have been taken or are expected to be taken in various income tax returns. The Company does not know the ultimate resolution of these uncertain tax positions and as such, does not know the ultimate amount or timing of payments related to this liability.
•At December 31, 2023, the Company had letters of credit and related instruments of approximately $13.3 million.
The Company believes that cash from operations and funds available through its commercial paper program or lines of credit, as described above under "Liquidity and Capital Resources", will allow the Company to meet these and the other contractual obligations and commercial commitments described above.
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 and selling those products in more than twenty currencies. Results of operations may be affected primarily by changes in the value of the U.S. dollar, Euro, British pound sterling, Canadian dollar, Brazilian real, 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 using foreign exchange forward contracts and foreign exchange option contracts. At December 31, 2023, the Company estimates that a hypothetical immediate 10% depreciation of the U.S. dollar against all foreign currencies included in these foreign exchange forward contracts could result in an approximate $16.6 million decrease in the fair value of these instruments. A decrease in the fair value of these instruments would be offset by increases in the value of the forecasted foreign currency transactions.
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.
The Company reflects all derivatives at their fair value as an asset or liability on the Consolidated Balance Sheets. The Company does not speculate in foreign currency exchange contracts. At December 31, 2023, these contracts had net unrealized losses of $3.2 million, of which $0.7 million are recorded in Prepaid expenses and other current assets, $3.9 million are recorded in Accrued liabilities. Included in Accumulated other comprehensive loss at December 31, 2023 are deferred losses of $2.5 million, net of tax, related to these derivatives.
At December 31, 2023, the Company had fixed rate long-term debt of $3,484.9 million. In May 2014, the Company issued an aggregate $600.0 million of long-term debt which consisted of $300.0 million of 3.15% Notes, subsequently repaid in 2021, and $300.0 million of 5.10% Notes due 2044. Prior to the May 2014 debt issuance, the Company entered into forward-starting interest rate swap agreements with a total notional value of $500.0 million to hedge the anticipated 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 issuance, the Company terminated these swap agreements and their fair value at the date of issuance was recorded in Accumulated other comprehensive loss and is being amortized through the Consolidated Statements of Operations using an effective interest rate method over the life of the related debt. Included in Accumulated other comprehensive loss at December 31, 2023 are deferred losses, net of tax, of $14.2 million related to these derivatives.
Industry Trends, the Economy and Inflation
The principal market for the Company’s toys and games and licensed consumer products, is the retail sector. Revenues from the Company’s top five retail customers, accounted for approximately 34% of its consolidated net revenues in 2023, 35% in 2022 and 36% of its consolidated net revenues in 2021. The Company monitors the creditworthiness of its customers and adjusts credit policies and limits as it deems appropriate.
The Company’s revenue pattern continues to show the second half of the year to be more significant to its overall business for the full year. In 2023, approximately 56% of the Company’s full year net revenues were recognized in the second half of the year. The Company expects that this concentration will continue. The concentration of sales in the second half of the year increases the risk of (a) underproduction of popular items, (b) overproduction of less popular items, and (c) failure to achieve tight and compressed shipping schedules. The business of the Company is characterized by customer order patterns which vary from year to year largely because of differences in the degree of consumer acceptance of a product line, product availability, marketing strategies, inventory levels, policies of
retailers and differences in overall economic conditions. Larger retailers generally maintain lower inventories throughout the year and purchase a greater percentage of product within or close to the fourth quarter holiday consumer buying season, which includes Christmas.
Quick response inventory management practices being used by retailers as well as growth in ecommerce result in orders increasingly placed for immediate delivery and fewer orders placed well in advance of shipment. Retailers are timing their orders so that they are filled by suppliers closer to the time of purchase by consumers. To the extent that retailers do not sell as much of their year-end inventory purchases during this holiday selling season as they had anticipated, their demand for additional product earlier in the following fiscal year may be curtailed, thus negatively impacting the Company’s future revenues. In 2023, the Company's inventory levels decreased 51% compared to 2022. This decrease reflects company-wide efforts to reduce retail inventory levels, while improving the quality of inventory on hand. Inventory management efforts included inventory scrap and obsolescence write-downs for excess or obsolete inventory as the Company looks toward 2024. Inventories increased 23% in 2022 compared to 2021, primarily reflecting accelerated inventory purchases attributable to the Company's Consumer Products and Wizards of the Coast businesses, to mitigate the impact of certain global supply chain challenges experienced in 2021. However, as global supply chain constraints began to subside later in 2022, the Company experienced lower than anticipated Consumer Products sales, resulting in higher inventory levels. The Company is continuing to manage inventory levels through closeout sales where needed and by monitoring consumer purchase patterns to ensure adequate supply of new product while clearing excess supply to mitigate the risk of inventory obsolescence.
In addition to these inventory management challenges, the bankruptcy or other lack of success of one of the Company’s significant retailers could negatively impact the Company’s future revenues.
Unlike the Company's retail sales patterns, revenue patterns from the Company's entertainment businesses fluctuate based on the timing and popularity of content releases. Release dates are determined by factors including the timing of holiday periods, geographical release dates and competition in the market. In addition, entertainment business operating results fluctuate due to expenses recorded in relation to productions and content such as program amortization costs and advertising expenses, which are incurred and recognized, beginning prior to initial releases and then continue throughout the related distribution windows.
Inflation
The impact of inflation on the Company's business operations was significant during 2022 and 2023. The Company monitors the impact of inflation to its business operations on an ongoing basis and may need to implement actions such as price adjustments to mitigate the impact of changes to the rate of inflation in future periods. However, future volatility of general price inflation could affect consumer purchases of our products and spending on entertainment. Additionally, the impact of inflation on costs and availability of materials, costs for shipping and warehousing and other operational overhead, could adversely affect the Company's financial results.
Other Information
The Company is not aware of any material amounts of potential exposure relating to environmental matters and does not believe its environmental compliance costs or liabilities to be material to its operating results or financial position.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The information required by this item is included in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation, of this Form 10-K and is incorporated herein by reference.
Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Hasbro, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Hasbro, Inc. and subsidiaries (the Company) as of December 31, 2023 and December 25, 2022, the related consolidated statements of operations, comprehensive earnings, shareholders’ equity and redeemable noncontrolling interests, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes and financial statement schedule II - valuation and qualifying accounts (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and December 25, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value of the Family Brands reporting unit
As discussed in Note 6 to the consolidated financial statements, the goodwill balance at December 31, 2023 was $2,279.2 million, a portion of which related to the Family Brands reporting unit. The Company performs an annual goodwill impairment assessment and, if an event occurs or circumstances change that indicate that the carrying value of a reporting unit may not be recoverable, the Company will perform an interim impairment test. During the fourth quarter of 2023, the Company determined that a triggering event occurred following declines in the Company's financial forecast for the Family Brands reporting unit. As such, the Company recognized an impairment charge of $960.0 million for the Family Brands reporting unit.
We identified the evaluation of the fair value of the Family Brands reporting unit as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the forecasted revenue, including the terminal
growth rate, and the discount rate used in the income approach, and the EBITDA market multiple assumption used in the market approach used to estimate fair value for the reporting unit. The assessment of the forecasted revenue assumption was subjective as it is based largely on the outcome of uncertain future events. Additionally, the estimate of fair value was sensitive to changes in the discount rate and EBITDA market multiple assumptions. In addition, specialized skills and knowledge were required to assess the terminal growth rate, discount rate, and EBITDA market multiple assumptions.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s goodwill impairment assessment process. This included controls related to the development of the forecasted revenue, discount rate, and EBITDA market multiple assumptions used to estimate fair value for the Family Brands reporting unit. We evaluated the reasonableness of forecasted revenue for the reporting unit by comparing it to available external industry data and other internal information. We involved valuation professionals with specialized skills and knowledge, who assisted in:
•evaluating the terminal growth rate by comparing it to publicly available market data
•evaluating the discount rate by comparing it to a discount rate range that was independently developed using publicly available market data
•evaluating the appropriateness of the selected guideline public companies by researching the selected guideline public companies and reviewing the business description
•evaluating the EBITDA market multiple assumption by comparing to EBITDA market multiple ranges developed using publicly available market data for the selected guideline public companies
•developing an independent estimate of the fair value of the reporting unit using the income and market approaches, which was then compared to the Company’s fair value estimate.
/s/
We have not been able to determine the specific year that we began serving as the Company’s auditor, however, we are aware that we have served as the Company’s auditor since at least 1968.
February 28, 2024
HASBRO, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2023 and December 25, 2022
(Millions of Dollars Except Share Data)
| | | | | | | | | | | |
| 2023 | | 2022 |
| ASSETS |
| Current assets | | | |
Cash and cash equivalents, including restricted cash of $ in 2023 and $ in 2022 | $ | | | | | |
Accounts receivable, less allowance for credit losses of $ in 2023 and $ in 2022 | | | | | |
| Inventories | | | | | |
| Prepaid expenses and other current assets | | | | | |
| Total current assets | | | | | |
| Property, plant and equipment, net | | | | | |
| Other assets | | | |
| Goodwill | | | | | |
| Other intangibles, net | | | | | |
| Other | | | | | |
| Total other assets | | | | | |
| Total assets | $ | | | | | |
| LIABILITIES, NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY |
| Current liabilities | | | |
| Short-term borrowings | $ | | | | | |
| Current portion of long-term debt | | | | | |
| Accounts payable | | | | | |
| Accrued liabilities | | | | | |
| Total current liabilities | | | | | |
| Long-term debt | | | | | |
| Other liabilities | | | | | |
| Total liabilities | | | | | |
|
| Shareholders’ equity | | | |
Preference stock of $ par value. Authorized shares; issued | | | | | |
Common stock of $ par value. Authorized shares; issued shares as of 2023 and 2022 | | | | | |
| Additional paid-in capital | | | | | |
| Retained earnings | | | | | |
| Accumulated other comprehensive loss | () | | | () | |
Treasury stock, at cost, shares in 2023 and shares in 2022 | () | | | () | |
| Noncontrolling interests | | | | | |
| Total shareholders’ equity | | | | | |
| Total liabilities, noncontrolling interests and shareholders’ equity | $ | | | | | |
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal Years Ended in December
(Millions of Dollars Except Per Share Data) | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Net revenues | $ | | | | | | | | |
| Costs and expenses: | | | | | |
| Cost of sales | | | | | | | | |
| Program cost amortization | | | | | | | | |
| Royalties | | | | | | | | |
| Product development | | | | | | | | |
| Advertising | | | | | | | | |
| Amortization of intangible assets | | | | | | | | |
| Selling, distribution and administration | | | | | | | | |
Impairment of goodwill | | | | | | | | |
Loss on disposal of business | | | | | | | | |
| Total costs and expenses | | | | | | | | |
Operating profit (loss) | () | | | | | | | |
| Non-operating expense (income): | | | | | |
| Interest expense | | | | | | | | |
| Interest income | () | | | () | | | () | |
| Other expense (income), net | | | | () | | | | |
Total non-operating expense, net | | | | | | | | |
Earnings (loss) before income taxes | () | | | | | | | |
Income tax (benefit) expense | () | | | | | | | |
Net earnings (loss) | () | | | | | | | |
Net earnings (loss) attributable to noncontrolling interests | | | | () | | | | |
Net earnings (loss) attributable to Hasbro, Inc. | $ | () | | | | | | | |
| | | | | |
| Per common share | | | | | |
Net earnings (loss) attributable to Hasbro, Inc. | | | | | |
| Basic | $ | () | | | | | | | |
| Diluted | $ | () | | | | | | | |
| Cash dividends declared | $ | | | | | | | | |
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Earnings
Fiscal Years Ended in December
(Millions of Dollars)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Net earnings (loss) | $ | () | | | | | | | |
| Other comprehensive earnings (loss): | | | | | |
| Foreign currency translation adjustments, net of tax | | | | () | | | () | |
Unrealized holding losses on available-for-sale securities, net of tax | | | | () | | | () | |
Net (losses) gains on cash flow hedging activities, net of tax | () | | | | | | | |
| Changes in unrecognized pension amounts, net of tax | () | | | | | | | |
| Reclassifications to earnings, net of tax: | | | | | |
Net losses (gains) on cash flow hedging activities | | | | () | | | | |
| Amortization of unrecognized pension and postretirement amounts | () | | | | | | | |
| |
Other comprehensive earnings (loss), net of tax | | | | () | | | () | |
Total comprehensive earnings (loss), net of tax | () | | | | | | | |
Total comprehensive earnings (loss) attributable to noncontrolling interests | | | | () | | | | |
Total comprehensive earnings (loss) attributable to Hasbro, Inc. | $ | () | | | | | | | |
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years Ended in December
(Millions of Dollars)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
| Cash flows from operating activities | | | | | |
Net earnings (loss) | $ | () | | | | | | | |
| Adjustments to reconcile net earnings to net cash provided by operating activities: | | | | | |
| Depreciation of property, plant and equipment | | | | | | | | |
| Loss on disposal of business | | | | | | | | |
Impairment of goodwill | | | | | | | | |
| Impairment of intangibles and production assets | | | | | | | | |
| Loss on Discovery investment | | | | | | | | |
| Fair value adjustment on Discovery Option | | | | | | | () | |
Inventory obsolescence | | | | | | | | |
| Amortization of intangible assets | | | | | | | | |
| Program cost amortization | | | | | | | | |
| Deferred income taxes | () | | | () | | | | |
| Stock-based compensation | | | | | | | | |
| Other non-cash items | () | | | | | | () | |
| Changes in operating assets and liabilities, net of acquired and disposed balances: | | | | | |
| Decrease (increase) in accounts receivable | | | | | | | () | |
Decrease (increase) in inventories | | | | () | | | () | |
| Decrease (increase) in prepaid expenses and other current assets | | | | | | | () | |
| Program spend, net | () | | | () | | | () | |
(Decrease) increase in accounts payable and accrued liabilities | () | | | () | | | | |
| Change in net deemed repatriation tax | () | | | () | | | () | |
| Other | | | | () | | | () | |
| Net cash provided by operating activities | | | | | | | | |
| Cash flows from investing activities | | | | | |
| Additions to property, plant and equipment | () | | | () | | | () | |
| Investments and acquisitions, net of cash acquired | | | | () | | | | |
Proceeds from sale of business, net of cash transferred | | | | | | | | |
| |
| Other | () | | | | | | () | |
| Net cash provided (utilized) by investing activities | | | | () | | | | |
| Cash flows from financing activities | | | | | |
Proceeds from borrowings | | | | | | | | |
| Repayments of borrowings | () | | | () | | | () | |
Net (repayments) proceeds of other short-term borrowings | () | | | | | | () | |
| Purchases of common stock | | | | () | | | | |
| Stock-based compensation transactions | | | | | | | | |
| Dividends paid | () | | | () | | | () | |
| Payments related to tax withholding for share-based compensation | () | | | () | | | () | |
| |
| |
| |
| Debt extinguishment costs | | | | | | | () | |
| |
| Other | () | | | () | | | () | |
Net cash utilized by financing activities | () | | | () | | | () | |
| Effect of exchange rate changes on cash | | | | () | | | () | |
Increase (decrease) in cash, cash equivalents and restricted cash | | | | () | | | () | |
| Cash, cash equivalents and restricted cash at beginning of year | | | | | | | | |
| Cash, cash equivalents and restricted cash at end of year | $ | | | | | | | | |
| Supplemental information | | | | | |
| Interest paid | $ | | | | | | | | |
| Income taxes paid | $ | | | | | | | | |
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interests
(Millions of Dollars)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common
Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Loss | | Treasury
Stock | | Non-controlling Interests | | Total
Shareholders’
Equity | | | Redeemable
Non-controlling
Interests |
| Balance, December 27, 2020 | $ | | | | | | | | | | () | | | () | | | | | | $ | | | | | $ | | |
| | | | | | | | | | | | |
| Net earnings attributable to Hasbro, Inc. | — | | | — | | | | | | — | | | — | | | — | | | | | | | — | |
| Net earnings attributable to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | | | | | | | | | |
Change in put option value | — | | | () | | | — | | | — | | | — | | | — | | | () | | | | — | |
| Other comprehensive loss | — | | | — | | | — | | | () | | | — | | | — | | | () | | | | — | |
| Stock-based compensation transactions | — | | | | | | — | | | — | | | | | | — | | | | | | | — | |
| | | | | | | | | | | | |
| Stock-based compensation expense | — | | | | | | — | | | — | | | | | | — | | | | | | | — | |
| Dividends declared | — | | | — | | | () | | | — | | | — | | | — | | | () | | | | — | |
| Distributions paid to noncontrolling owners and other foreign exchange | — | | | | | | — | | | — | | | — | | | () | | | () | | | | () | |
| Balance, December 26, 2021 | $ | | | | | | | | | | () | | | () | | | | | | $ | | | | | $ | | |
| Net earnings attributable to Hasbro, Inc. | — | | | — | | | | | | — | | | — | | | — | | | | | | | — | |
Net earnings (loss) attributable to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | () | | | () | | | | | |
| Change in put option value | — | | | () | | | — | | | — | | | — | | | — | | | () | | | | — | |
| Other comprehensive loss | — | | | — | | | — | | | () | | | — | | | — | | | () | | | | — | |
| Stock-based compensation transactions | — | | | | | | — | | | — | | | | | | — | | | | | | | — | |
| Stock-based compensation expense | — | | | | | | — | | | — | | | | | | — | | | | | | | — | |
| Dividends declared | — | | | | | | () | | | — | | | — | | | — | | | () | | | | — | |
| Distributions paid to noncontrolling owners and other foreign exchange | — | | | | | | — | | | — | | | — | | | () | | | () | | | | () | |
Purchase of common stock | — | | | — | | | — | | | — | | | () | | | — | | | () | | | | — | |
Buyout of redeemable noncontrolling interest | — | | | | | | — | | | — | | | — | | | () | | | — | | | | () | |
| Balance, December 25, 2022 | $ | | | | | | | | | | () | | | () | | | | | | $ | | | | | $ | | |
Net loss attributable to Hasbro, Inc. | — | | | — | | | () | | | — | | | — | | | — | | | () | | | | — | |
Net earnings attributable to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | | | | | | | | — | |
| | | | | | | | | | | | |
Other comprehensive earnings | — | | | — | | | — | | | | | | — | | | — | | | | | | | — | |
| Stock-based compensation transactions | — | | | () | | | — | | | — | | | | | | — | | | () | | | | — | |
| | | | | | | | | | | | |
| Stock-based compensation expense | — | | | | | | — | | | — | | | | | | — | | | | | | | |
| Dividends declared | — | | | | | | () | | | — | | | — | | | — | | | () | | | | — | |
| Distributions paid to noncontrolling owners and other foreign exchange | — | | | — | | | — | | | — | | | — | | | () | | | () | | | | — | |
| Buyout of redeemable noncontrolling interest | — | | | () | | | — | | | — | | | — | | | — | | | () | | | | — | |
| Balance, December 31, 2023 | $ | | | | | | | | | | () | | | () | | | | | | $ | | | | | $ | | |
See accompanying notes to consolidated financial statements.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1)
Principles of Consolidation
.
All intercompany balances and transactions have been eliminated.
Fiscal Year
Strategy Review and Operational Excellence
In October 2022, following a several months long review of our business, the Company announced a new strategic plan, a consumer-centric framework for bringing compelling and expansive brand experiences to audiences around the world. During the review, with the assistance of a third-party consultant, the Company identified opportunities to focus and scale its business, enhance operational excellence, including through specialized organizational programs and supply chain transformation, to drive growth and profit and enhance shareholder value. The Company is increasing strategic investment in its most valuable and profitable franchises across toys, games, licensing and entertainment, and exiting certain non-core aspects of the business.
Sale of Non-core Entertainment One Film and TV Business
On December 27, 2023, the Company completed the sale of its Entertainment One film and television business ("eOne Film and TV") to Lions Gate Entertainment Corp., Lions Gate Entertainment Inc. and Lions Gate International Motion Pictures S.à.r.l (collectively "Lionsgate"), pursuant to the terms of an Equity Purchase Agreement dated August 3, 2023, among Hasbro and Lionsgate. Lionsgate acquired eOne Film and TV for a purchase price of $ million in cash, subject to certain purchase price adjustments plus the assumption by Lionsgate of production financing loans.
See note 3 for additional information.
Brand Portfolio Realignment
Effective for the first quarter 2023, we realigned our brand portfolios to correspond with the evolution of our strategy. We are focusing on fewer, bigger, more profitable brands that showcase our leadership in preschool toys, action figures and accessories, games, arts & crafts, and outdoor action brands.
Our new product categories beginning in the first quarter of 2023 are as follows:
Franchise Brands - A refreshed group of our most financially significant brands which we consider to have the greatest long-term potential including MAGIC: THE GATHERING, Hasbro Gaming, PLAY-DOH, NERF, TRANSFORMERS, DUNGEONS & DRAGONS and PEPPA PIG.
Partner Brands - The Partner Brands category includes those brands we license from other parties such as Disney's STAR WARS and MARVEL brands as well as other partners, for which we develop toy and game products, with a focus on those key Partner Brands that give us the largest growth potential and where we can lead and innovate in the category.
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
Marketable Securities
Accounts Receivable and Allowance for Credit Losses
Inventories
At both December 31, 2023 and December 25, 2022, substantially all inventory is comprised of finished goods.
Equity Method Investment
HASBRO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements — (Continued)
See notes 7 and 14 for additional information.
Noncontrolling Interests
% | Ownership of intellectual property |
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