Hasbro, Inc. — FY2021 Form 10-K
Reporting period and business context. This annual report covers the 52 weeks ended December 26, 2021; “2021 Q4” is not a standalone quarterly financial summary. Hasbro operates globally in consumer products, Wizards of the Coast and digital gaming, and entertainment through eOne. The company realigned its reportable segments in 2021; comparative segment results were presented on the new basis.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net revenue | $6,420.4 million | $5,465.4 million |
| Operating profit | $763.3 million; 11.9% margin | $501.8 million; 9.2% margin |
| Earnings before taxes | $581.9 million | $322.1 million |
| Net earnings attributable to Hasbro | $428.7 million | $222.5 million |
| Diluted EPS | $3.10 | $1.62 |
| Cash from operating activities | $817.9 million | $976.3 million |
- Revenue increased 17%, including a favorable $54.7 million foreign-currency translation effect. Growth was broad: Consumer Products revenue rose 9% to $3,981.6 million; Wizards of the Coast and Digital Gaming rose 42% to $1,286.6 million; Entertainment rose 27% to $1,152.2 million.
- Total gaming revenue, including games recorded outside the Hasbro Gaming portfolio, increased 19% to $2,098.9 million. MAGIC: THE GATHERING was a significant growth driver.
- Consumer Products operating profit increased 30% to $401.4 million, with margin rising to 10%. Wizards of the Coast and Digital Gaming operating profit increased 30% to $547.0 million, while its margin declined to 43% from 46% as development, marketing and other costs rose. Entertainment reported an operating loss of $91.8 million, narrower than the $141.1 million loss in 2020.
- Operating expenses included $628.6 million of program-cost amortization, up from $387.1 million, reflecting greater content deliveries and program mix. Cost of sales was 30.0% of revenue versus 31.5% in 2020; higher freight costs partly offset favorable mix and lower inventory-related charges.
- Interest expense was $179.7 million, down from $201.1 million. The effective income tax rate was 25.2%, versus 30.0% in 2020.
Cash, debt and liquidity
- Cash and cash equivalents were $1,019.2 million at year-end, including $35.8 million restricted under production financing, down from $1,449.7 million.
- Operating cash flow fell to $817.9 million from $976.3 million. Film and television production used $697.3 million of cash, versus $438.9 million in 2020; higher receivables and inventory also weighed on operating cash flow.
- Investing activities provided $242.0 million, including $378.5 million of net proceeds from the eOne Music sale. Financing activities used $1,459.8 million, principally reflecting debt repayments and $374.5 million of dividends paid. Capital expenditures were $132.7 million.
- Year-end long-term debt carrying value was $4,024.3 million, comprising $200.1 million current and $3,824.2 million long-term. The debt note reports $4,052.5 million total carrying cost before deferred debt expenses. Hasbro repaid several notes and term-loan balances during 2021.
- Hasbro had no commercial-paper or committed revolving-credit borrowings outstanding. Approximately $1,496.9 million remained available under its $1.5 billion revolving credit facility, and the company reported compliance with debt covenants. Management said available cash, operating cash flow and borrowing capacity should cover 2022 working-capital needs and obligations.
- Hasbro paid dividends of $0.68 per share quarterly during 2021. The Board declared a $0.70 quarterly dividend in February 2022. Repurchases remained suspended while the company prioritized deleveraging; management indicated repurchases might resume in the second half of 2023 or sooner, depending on performance and deleveraging progress.
Material changes, outlook and notable items
- Net earnings improved substantially from 2020, when results included $218.6 million of eOne acquisition-related costs and $97.9 million of acquired-intangible amortization. FY2021 also included significant nonrecurring and acquisition-related charges.
- Hasbro sold eOne Music in June 2021 for net proceeds of $397.0 million. The sale resulted in a $108.8 million non-cash goodwill impairment and $9.5 million of transaction expenses. The business’s results remained in the Entertainment segment through closing.
- In the fourth quarter, Hasbro recorded a $74.1 million impairment of its Discovery Family Channel investment, citing declining traditional cable subscribers and greater competition from digital content. A related $20.1 million option revaluation gain partly offset the impairment in other expense.
- The passing of former CEO and Chairman Brian Goldner in October led to $20.9 million of accelerated stock-compensation expense. Chris Cocks was announced as CEO and Eric Nyman as President and COO, effective February 25, 2022.
- Supply-chain disruption, port congestion, freight and labor costs, and intermittent manufacturing constraints continued in 2021 and were expected to persist into 2022. Hasbro reported inventory up 40% year over year, driven partly by longer lead times and higher freight-in costs. It said manufacturing capacity appeared adequate for anticipated 2022 demand, while noting that worsening disruptions could affect supply and results.
- Management said inflation’s 2021 effect on financial results was not significant after mitigation, including selective price increases, but warned that further inflation in materials, freight, warehousing and labor could pressure future results. The filing provides no specific 2022 revenue or earnings guidance.
- Business risks include seasonal concentration (about 62% of FY2021 revenue occurred in the second half), major-customer concentration (top five customers represented about 36% of revenue), reliance on third-party manufacturers and licensed brands, changing consumer tastes, entertainment and digital-game execution, foreign exchange, tariffs, cybersecurity, and debt service.
- The auditor issued unqualified opinions on the financial statements and internal control. Its critical audit matter was the valuation and impairment assessment of the Discovery Family Channel investment. Hasbro reported no legal proceedings it considered material.
Investor verification priorities
- Assess the sustainability of growth and margins, particularly the contribution from MAGIC: THE GATHERING and the relatively lower-margin Entertainment business.
- Track cash conversion, content-production spending, elevated inventory, freight expense and the effects of supply-chain recovery or renewed disruption.
- Review debt repayment progress, upcoming maturities, interest costs and management’s stated conditions and timing for resuming share repurchases.
- Evaluate assumptions behind the Discovery Family Channel impairment and the eOne Music sale-related charge, including any further valuation or transaction adjustments.
- Monitor CEO and operating leadership transition, license renewals (including Disney Princess and Disney Frozen rights expiring at the end of 2022), and the performance and cost recovery of planned entertainment and digital-game releases.