Hasbro, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 27, 2020 (52 weeks). Although the request references Q4, this is an annual filing; fourth-quarter results are noted separately below. Hasbro is a global play and entertainment company spanning toys and games, licensing, digital gaming, film and television. FY2020 includes Entertainment One (eOne) from its December 30, 2019 acquisition; FY2019 does not, so reported annual growth is not a like-for-like comparison.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net revenue | $5.465 billion | $4.720 billion |
| Operating profit / margin | $501.8 million / 9.2% | $652.1 million / 13.8% |
| Net earnings attributable to Hasbro | $222.5 million | $520.5 million |
| Diluted EPS | $1.62 | $4.05 |
| Cash from operating activities | $976.3 million | $653.1 million |
| Cash and cash equivalents | $1.450 billion | $4.580 billion |
| Long-term debt principal | $5.128 billion | $4.085 billion |
Revenue rose 16%, reflecting the addition of eOne and growth in gaming, while operating profit fell 23% and Hasbro-attributable earnings fell 57%. Higher interest expense, eOne-related costs and acquired-asset amortization weighed on earnings. Cash flow from operations increased, including improved receivable collections; it also included $438.9 million of net cash used for film and television production.
FY2020 segment revenue and operating profit (loss): U.S. and Canada, $2.556 billion and $539.7 million; International, $1.579 billion and $42.5 million; Entertainment, Licensing and Digital, $373.9 million and $93.0 million; eOne, $956.5 million and a $79.2 million loss. Total gaming-category revenue was $1.764 billion, up 15%. The eOne segment’s loss included substantial acquisition-related costs and acquired-intangible amortization.
Q4: Revenue was $1.723 billion versus $1.428 billion in Q4 2019. Operating profit was $186.4 million versus $190.4 million; net earnings attributable to Hasbro were $105.2 million versus $267.3 million, and diluted EPS was $0.76 versus $2.01. Prior-year Q4 earnings included eOne transaction-related gains.
Material changes and financial position
- eOne was acquired for approximately $4.6 billion. The acquisition added $956.5 million of reported FY2020 segment revenue and approximately $3.2 billion of goodwill. Financing included $2.375 billion of notes, $1.0 billion of term loans and an equity offering.
- Acquisition and related costs were $218.6 million; acquired-intangible amortization was $97.9 million; and the company recorded $8.5 million of separate cost-saving severance charges. A UK tax-code change added $15.4 million of tax expense.
- Cash declined by $3.131 billion, with $4.413 billion of acquisition-related net cash use in investing activities. The year-end balance included $73.2 million of restricted cash.
- Debt increased following the acquisition. Current debt was $432.6 million, including $300 million of notes due in May 2021. Hasbro reported no borrowings under its $1.5 billion revolving facility or commercial-paper program and was in compliance with debt covenants. Approximately $1.497 billion remained available under the committed facility.
- Quarterly dividends remained $0.68 per share ($2.72 declared for the year). Share repurchases were suspended while Hasbro prioritized deleveraging.
Outlook, management commentary and risks
Management said the pandemic boosted online sales, games and Wizards of the Coast engagement, but also disrupted retail access, supply, shipping, live-action production and entertainment releases. The pandemic’s continuing impact was described as uncertain. Management expected manufacturing capacity and supply to be adequate for anticipated 2021 demand, while cautioning that prolonged disruptions could constrain supply. Hasbro planned to begin in-sourcing production, distribution and licensing for certain eOne preschool-brand products in the second half of 2021, and anticipated a 2021 realignment of reporting segments. The filing provides no specific consolidated 2021 revenue or earnings guidance.
- Key exposures include ongoing COVID-19 effects, seasonal holiday concentration, shifts in consumer preferences and competition, dependence on major retail customers, and reliance on third-party manufacturers, particularly in Asia.
- Entertainment results depend on content performance, release schedules and third-party studios and platforms; the pandemic shifted or delayed productions and releases, and some films moved to streaming.
- Acquisition integration, elevated debt and debt-service needs, production financing, currency movements, tariffs, and the recoverability of goodwill, acquired intangibles and content assets are material considerations.
- Management reported no legal proceedings it considered material. KPMG issued an unqualified opinion on the financial statements and internal controls; the internal-control assessment excluded eOne, representing about 53% of assets and 18% of revenue.
Investor verification points
- Separate organic performance from eOne’s contribution when assessing the 16% reported revenue increase; compare against the filing’s pro forma disclosures where appropriate.
- Track integration costs, eOne profitability, expected synergies and the planned in-sourcing of preschool-brand products.
- Review debt maturities, especially the $300 million note due in 2021, debt repayment progress and continued covenant compliance.
- Assess whether higher operating cash flow is sustainable, given seasonal working-capital needs and continuing film and television production investment.
- Monitor pandemic-related supply and retail disruption, entertainment release timing, customer concentration, and impairment risk for acquired assets and content.