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Item 2. Management’s Discussion and Analysis

2022-07-26 compared with 2022-04-27 · 428 added, 231 removed, 238 unchanged (73% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 consolidated financial statements and notes thereto, included in Part I, Item 1 of this Form 10-Q.

Unless otherwise specifically indicated, all dollar or share amounts herein are expressed in millions of dollars or shares, except for per share amounts.

Our objective within the following discussion is to provide an analysis of the Company’s Results of Operations, Financial Condition, and Cash Flows from management's perspective which should be read in conjunction with the Company’s consolidated financial statements and notes thereto, included in Part I, Item 1 of this Form 10-Q.

Unless otherwise specifically indicated, all dollar or share amounts within tables herein are expressed in millions of dollars or shares, except for per share amounts.

EXECUTIVE SUMMARY

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and entertainment through Entertainment One (“eOne”), our independent studio.

Our iconic brands include MAGIC:

THE GATHERING, NERF, PLAY-DOH, TRANSFORMERS, PEPPA PIG, MONOPOLY, MY LITTLE PONY, BABY ALIVE, DUNGEONS & DRAGONS, PJ MASKS and POWER RANGERS, as well as premier partner brands.

The Company’s unparalleled portfolio of approximately 1,500 brands includes MAGIC:

THE GATHERING, NERF, MY LITTLE PONY, TRANSFORMERS, PLAY-DOH, MONOPOLY, BABY ALIVE, DUNGEONS & DRAGONS, POWER RANGERS, PEPPA PIG and PJ MASKS, as well as premier partner brands.

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.

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Our commitment to disciplined, strategic investments across the Brand Blueprint over the long-term has built a differentiated business with diversified capabilities to drive profitable growth and enhance shareholder value.

As we continue to evolve our strategy, our teams are driving focus and scale in gaming, multi-generational brands, entertainment creation and direct to consumer.

Hasbro's purpose of making the world a better place for all children, fans and families sits at the center of the Hasbro Brand Blueprint and is a key driver of our brands and content.

The value of Hasbro is fully activated when we can take a brand across all elements of the Brand Blueprint – consumer products;

The value of Hasbro is fully activated when we can take a brand across multiple elements of the Brand Blueprint – consumer products;

Wizards of the Coast and digital gaming;

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Coronavirus Pandemic

Since the onset of the novel coronavirus (COVID-19) pandemic in early 2020, our business, has been adversely impacted by the challenges and risks associated with both the initial, and the residual effects of the spread of the virus worldwide.

Certain effects of the COVID-19 pandemic, including difficulties in shipping and distributing products due to ongoing constraints in port capacity, shipping containers and truck transportation, have continued into the first quarter of 2022 and are expected to continue through the remainder of the year.

Since the onset of the novel coronavirus (COVID-19) pandemic in early 2020, our business, has been adversely impacted by the challenges and risks associated with both the initial, and the continuing effects of the spread of the virus worldwide.

Certain effects of the COVID-19 pandemic, including difficulties in shipping and distributing products due to ongoing constraints in port capacity, shipping containers and truck transportation, have continued through the first six months of 2022 and are expected to continue through the remainder of the year.

These and other disruptions have led to 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, lost sales.

In response to these and other challenges, we have developed and continue to evaluate and execute plans to mitigate the negative impacts of COVID-19 to our business.

For example, to mitigate product input cost increases, we implemented certain price increases during 2021.

The Company continues to review the impact of increasing costs and plans to implement further price increases in 2022.

Additionally, during the first quarter of 2022, the Company accelerated certain inventory purchases to ensure sufficient finished goods and raw material availability, ahead of expected periods of high consumer demand.

We believe these mitigating actions will minimize the adverse impacts to our financial results for fiscal year 2022.

For example, we implemented certain price increases in the first half of 2022 and in 2021, to mitigate product input and freight cost increases.

The Company continues to review the impact of increasing costs and implemented further price increases in its Wizards of the Coast tabletop business in July 2022.

Additionally, during the first half of 2022, the Company accelerated certain inventory purchases to ensure sufficient finished goods and raw material availability, ahead of expected periods of high consumer demand.

We believe these mitigating actions will help manage the adverse impacts to our financial results for fiscal year 2022.

The COVID-19 outbreak continues to be fluid and it is difficult to forecast the impact it could have on our future operations.

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Business, in the Company's Form 10-K for the fiscal year ended December 26, 2021 for further information.

First quarter 2022 highlights:

• First quarter net revenues were $1.2 billion compared to $1.1 billion in the first quarter of 2021 and included an unfavorable foreign currency translation of $17.4 million.

D&D Beyond Acquisition

During the second quarter of 2022, the Company completed the strategic, complementary acquisition of D&D Beyond ("D&D Beyond Acquisition"), the premier digital content platform for DUNGEONS & DRAGONS, in an all-cash transaction for a purchase price of $146.3 million.

D&D Beyond Acquisition is expected to substantially accelerate direct-to-fans capability for DUNGEONS & DRAGONS in physical and digital play .

See note 1 to the consolidated financial statements included in Part I of this Form 10-Q for further discussion.

Second quarter 2022 highlights:

• Second quarter net revenues of $1.3 billion increased 1% compared to the second quarter of 2021 and included an unfavorable foreign currency translation of $32.7 million.

Absent the unfavorable impact of foreign currency exchange, first quarter net revenues increased 4%.

• Net revenues grew in all major operating segments:

Wizards of the Coast and Digital Gaming segment net revenues increased 9% to $262.8 million;

Entertainment segment net revenues increased 4% to $227.5 million;

• Consumer Products segment net revenues increased 7% to $734.2 million.

• Partner Brands portfolio net revenues increased 10%;

Hasbro Gaming and Emerging Brands net revenues each increased 5%;

Franchise Brands net revenues increased 4% while TV/Film/Entertainment portfolio net revenues were flat in the first quarter of 2022, reflecting the sale of eOne Music which represented $31.8 million of TV/Film/Entertainment portfolio net revenues in the first quarter of 2021.

• Operating profit was $120.0 million, or 10.3% of net revenue, in the first quarter of 2022 compared to operating profit of $147.3 million, or 13.2% of net revenue, in the first quarter of 2021.

• Operating Profit in the Wizards of the Coast and Digital Gaming segment decreased 3% to $106.4 million;

Entertainment segment operating profit decreased 28% to $12.2 million;

Consumer Products segment decreased 73% to $8.6 million;

and Corporate and Other operating losses improved 40% to $7.2 million.

• Certain charges impacted operating segment performance for the Company’s Consumer Products and Entertainment segments, which are discussed further below in Segment Results.

Wizards of the Coast and Digital Gaming segment net revenues increased 3% to $419.8 million;

and Entertainment segment net revenues declined 18% to $185.2 million.

• Net revenues from Franchise Brands increased 10%;

Partner Brands net revenues increased 3%;

Emerging Brands net revenues increased 3%;

Hasbro Gaming net revenues decreased 14%;

and TV/Film/Entertainment portfolio net revenues decreased 19%, reflecting the sale of eOne Music which represented $33.4 million of TV/Film/Entertainment portfolio net revenues in the second quarter of 2021.

• Operating profit was $219.1 million, or 16.4% of net revenue, in the second quarter of 2022 compared to operating profit of $76.6 million, or 5.8% of net revenue, in the second quarter of 2021.

• Operating Profit in the Wizards of the Coast and Digital Gaming segment increased 17% to $225.6 million;

Entertainment segment operating profit increased >100% to $14.3 million;

Consumer Products segment operating results decreased >100% to an operating loss of $6.5 million;

and Corporate and Other operating results decreased 30% to an operating loss of $14.3 million.

• Second quarter 2021 operating profit was negatively impacted by a pre-tax non-cash impairment charge of $101.8 million and pre-tax cash transaction expenses of $9.5 million ($7.3 million after-tax) associated with the sale of eOne Music.

• Certain other charges impacted operating segment performance for the second quarter of 2022 and 2021, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results.

• Net earnings attributable to Hasbro, Inc.

of $61.2 million, or $0.44 per diluted share, in the first quarter of 2022 compared to net earnings of $116.2 million, or $0.84 per diluted share, in the first quarter of 2021.

of $142.0 million, or $1.02 per diluted share, in the second quarter of 2022 compared to net losses of $22.9 million, or $0.17 per diluted share, in the second quarter of 2021.

The net loss in the second quarter of 2021 included the loss on assets held for sale from the Music business, as discussed above.

First six months 2022 highlights:

• Net revenues increased 3% to $2,502.3 million in first six months of 2022 compared to $2,437.0 million in the first six months of 2021.

The increase in net revenues included $50.1 million of unfavorable foreign currency translation.

Absent the impact of foreign currency exchange, net revenues increased 5%.

• Net revenues in the Consumer Products segment increased 5% to $1,407.0 million;

Wizards of the Coast and Digital Gaming segment net revenues increased 5% to $682.6 million;

and Entertainment segment net revenues decreased 7% to $412.7 million.

• Net revenues from Franchise Brands increased 7%;

Partner Brands net revenues increased 6%;

Emerging brands net revenues increased 3%;

Hasbro Gaming net revenues decreased 5%;

and Entertainment segment net revenues decreased 10% during the first six months of 2022.

• Operating profit was $339.1 million, or 13.6% of net revenues, in the first six months of 2022 compared to operating profit of $223.9 million, or 9.2% of net revenues, in the first six months of 2021.

• Operating profit in the Wizards of the Coast and Digital Gaming segment increased 10% to $332.0 million;

Entertainment segment operating profit increased >100% to $26.5 million;

Consumer Products segment operating profit decreased 96% to $2.1 million;

and Corporate and Other operating losses improved by 34% to an operating loss of $21.5 million.

• Operating profit in the first half of 2021 was negatively impacted by a pre-tax non-cash impairment charge of $101.8 million and pre-tax cash transaction expenses of $9.5 million ($7.3 million after-tax) associated with the sale of eOne Music.

• Certain other charges impacted operating segment performance for the first six months of 2022 and 2021, in the Company’s Consumer Products, Entertainment and Corporate and Other segments, which are discussed further below in Segment Results.

• Net earnings attributable to Hasbro, Inc.

was $203.2 million, or $1.46 per diluted share, in the first six months of 2022 compared to net earnings attributable to Hasbro, Inc.

of $93.3 million, or $0.68 per diluted share, in the first six months of 2021.

The net earnings in the first six months of 2021 included the loss on assets held for sale from the Music business, as discussed above.

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.

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SUMMARY OF FINANCIAL PERFORMANCE

A summary of the results of operations is illustrated below for the quarters ended March 27, 2022 and March 28, 2021.

Quarter Ended

March 27, 2022 March 28, 2021

A summary of the results of operations is illustrated below for the quarters and six-month periods ended June 26, 2022 and June 27, 2021.

Quarter Ended Six Months Ended

June 26, 2022 June 27, 2021 June 26, 2022 June 27, 2021

Net revenues $ 1,339.2 $ 1,322.2 $ 2,502.3 $ 2,437.0

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Earnings before income taxes 179.9 41.1 260.1 170.6

Net earnings 62.9 117.5

Net earnings attributable to noncontrolling interests 1.7 1.3

Net earnings attributable to Hasbro, Inc.

Net earnings (loss) 140.5 (21.9) 203.4 95.6

Net (loss) earnings attributable to noncontrolling interests (1.5) 1.0 0.2 2.3

Net earnings (loss) attributable to Hasbro, Inc.

142.0 (22.9) 203.2 93.3

Diluted earnings per share 1.02 (0.17) 1.46 0.68

RESULTS OF OPERATIONS – CONSOLIDATED

The quarters ended March 27, 2022 and March 28, 2021 were each 13-week periods.

Diluted earnings per share attributable to Hasbro, Inc.

for the quarters ended March 27, 2022 and March 28, 2021 include certain charges as described below.

• Net charges of $15.9 million, or $0.11 per diluted share and $20.4 million, or $0.15 per diluted share, of intangible amortization costs for the quarters ended March 27, 2022 and March 28, 2021, respectively, related to the intangible assets acquired in the eOne acquisition.

Beginning in 2022, certain of these intangible amortization costs have been allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets.

Net earnings and diluted earnings per share attributable to Hasbro, Inc.

for the quarters and six-month periods ended June 26, 2022 and June 27, 2021 include certain charges as described below.

• After-tax charges of $15.3 million, or $0.11 per diluted share and $31.2 million, or $0.22 per diluted share, of intangible amortization costs for the quarter and six-month periods ended June 26, 2022, respectively, related to the intangible assets acquired in the eOne acquisition.

Beginning in 2022, these intangible amortization costs have been allocated between the Consumer Products and Entertainment segments, to match the revenue generated from such intangible assets.

• After-tax charges of $3.2 million, $0.02 per diluted share and $5.6 million, or $0.04 per diluted share, for the quarter and six-month periods ended June 26, 2022, respectively, of 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.

• After-tax charges of $18.2 million, or $0.13 per diluted share and $38.7 million, or $0.28 per diluted share, of intangible amortization costs for the quarter and six-month periods ended June 27, 2021, respectively, related to the intangible assets acquired in the eOne acquisition.

In 2021, these intangible amortization costs were recorded within the Entertainment segment.

• Net charges of $2.3 million, $0.02 per diluted share and $1.7 million, or $0.01 per diluted share, for the quarters ended March 27, 2022 and March 28, 2021, respectively, of expense associated with retention awards granted in connection

with the eOne acquisition.

• After-tax charges of $1.6 million, $0.01 per diluted share and $3.3 million, or $0.02 per diluted share, for the quarter and six-month periods ended June 27, 2021, respectively, of expense associated with retention awards granted in connection with the eOne acquisition.

These expenses are included within Selling, Distribution and Administration within the Corporate segment.

Consolidated net revenues for the first quarter of 2022 grew 4% to $1,163.1 million from $1,114.8 million for the first quarter of 2021 and included an unfavorable $17.4 million impact from foreign currency translation as a result of weakening currencies, primarily in Europe.

Operating profit for the first quarter of 2022 was $120.0 million, or 10.3% of net revenues, compared to operating profit of $147.3 million, or 13.2% of net revenues, for the first quarter of 2021.

The operating profit decrease was primarily driven by higher costs of sales due to higher product input and freight costs as a result of rising costs and supply chain disruptions, higher program amortization costs within the Entertainment segment, reflecting the mix of programming deliveries in the quarter, higher product development costs to support growth in Wizards of the Coast and to a lesser extent, higher marketing and sales costs.

These cost increases were partially offset by lower royalty expense and lower advertising costs during the first quarter of 2022.

Net earnings attributable to Hasbro, Inc.

decreased to $61.2 million for the quarter ended March 27, 2022, compared to $116.2 million for the quarter ended March 28, 2021.

Diluted earnings per share attributable to Hasbro, Inc.

were $0.44 for the first quarter of 2022 compared to $0.84 for the first quarter of 2021.

The following table presents net revenues by brand and entertainment portfolio for the quarters ended March 27, 2022 and March 28, 2021.

• After-tax charge of $109.1 million, or $0.79 per diluted share for quarter and six-month periods ended June 27, 2021, comprised of a non-cash goodwill impairment charge of $101.8 million and transaction expenses of $7.3 million, associated with the sale of eOne Music.

The goodwill impairment charge of $101.8 million was based on revalued assets and liabilities of eOne music as of the second quarter of 2021.

• A net charge of $39.4 million, or $0.29 per diluted share, for quarter and six-month periods ended June 27, 2021, 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.

Second Quarter 2022

The quarters ended June 26, 2022 and June 27, 2021 were each 13-week periods.

Consolidated net revenues for the second quarter of 2022 grew 1% to $1,339.2 million from $1,322.2 million for the second quarter of 2021 and included an unfavorable $32.7 million impact from foreign currency translation as a result of weakening currencies, primarily in Europe.

Operating profit for the second quarter of 2022 was $219.1 million, or 16.4% of net revenues, compared to operating profit of $76.6 million, or 5.8% of net revenues, for the second quarter of 2021.

The operating profit increase was primarily driven by the impact to the prior year of the pre-tax non-cash impairment charge of $101.8 million and lower advertising and administrative costs in the second quarter of 2022, in each case as a result of the sale of eOne Music in 2021.

In addition, the operating profit increase in the second quarter of 2022 was the result of lower program amortization costs within the Entertainment segment, reflecting the mix and timing of entertainment deliveries in the quarter compared to the second quarter of 2021, lower compensation expense, and lower advertising and depreciation costs within the Wizards of the Coast and Digital Gaming segment, due to digital gaming launches in the second quarter of 2021.

These decreases were partially offset by higher costs of sales due to higher product input and freight costs as a result of rising costs and supply chain disruptions, as well as higher obsolescence charges in Russia and higher costs for consulting and other professional services associated with the annual shareholder meeting.

The following table presents net revenues by brand and entertainment portfolio for the quarters ended June 26, 2022 and June 27, 2021.

Quarter Ended

March 27, 2022 March 28, 2021 %

June 26, 2022 June 27, 2021 %

Franchise Brands $ 743.9 $ 677.2 10 %

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Total $ 1,339.2 $ 1,322.2 1 %

Brand portfolio net revenues for the first quarter of 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, effective for the first quarter of 2022.

As a result, first quarter 2021 net revenues of $31.6 million were reclassified from Emerging Brands to Franchise Brands.

Brand portfolio net revenues for the second quarter of 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, effective for the first quarter of 2022.

As a result, second quarter 2021 net revenues of $27.3 million were reclassified from Emerging Brands to Franchise Brands.

FRANCHISE BRANDS:

Net revenues in the Franchise Brands portfolio increased 4% in the first quarter of 2022 compared to the first quarter of 2021.

Net revenues in the Franchise Brands portfolio increased 10% in the second quarter of 2022 compared to the second quarter of 2021.

Drivers of the net revenue increase include higher net revenues from MAGIC:

THE GATHERING products reflecting record sales from the Kamigawa:

Neon Dynasty set release and higher net revenues from MY LITTLE PONY, following the September 2021 release of the feature length film, MY LITTLE PONY:

A NEW GENERA TION and the associated product line.

In addition, higher net revenues from PEPPA PIG were driven by the third quarter 2021 launch of the Company's first line of PEPPA PIG products.

These net revenue increases were partially offset by lower net revenues from MONOPOLY products and to a lesser extent, lower net revenues from BABY ALIVE and NERF products during the first quarter of 2022.

THE GATHERING products reflecting a favorable set release cadence during the second quarter of 2022, led by sales of the Commander Legends:

Battle for Baldur's Gate and Double Masters set releases, as well as higher net revenues from PLAY-DOH products and higher net revenues from PEPPA PIG, driven by the third quarter 2021 launch of the Company's first line of PEPPA PIG products.

To a lesser extent, higher sales of MY LITTLE PONY products, following the September 2021 release of the feature length film, MY LITTLE PONY:

A NEW GENERATION and the associated product line, drove growth in the second quarter of 2022.

These net revenue increases were partially offset by lower net revenues from TRANSFORMERS and MONOPOLY products.

PARTNER BRANDS:

Net revenues from the Partner Brands portfolio increased 10% in the first quarter of 2022 compared to the first quarter of 2021.

Net revenues from the Partner Brands portfolio increased 3% in the second quarter of 2022 compared to the second quarter of 2021.

Within the Partner Brands portfolio, there are a number of brands which are reliant on related entertainment, including television and movie releases.

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Historically these entertainment-based brands experience higher revenues during years in which new content is released in theaters, for broadcast, and on streaming platforms.

During the first quarter of 2022, Partner Brands net revenue increases were driven by the Company's products for MARVEL, primarily from momentum in the SPIDER-MAN franchise which benefited from entertainment releases including Marvel Studios' SPIDER-MAN:

During the second quarter of 2022, Partner Brands net revenue increases were driven by the Company's products for MARVEL, primarily from momentum in the SPIDER-MAN franchise which benefited from entertainment releases including Marvel Studios' SPIDER-MAN:

NO WAY HOME, released in December 2021 and the children’s animated television series Marvel's SPIDEY and HIS AMAZING FRIENDS.

In addition, the Company's products for Marvel's AVENGERS benefited ahead of the planned Marvel Studios' release of DOCTOR STRANGE in the MULTIVERSE of MADNESS , expected in May 2022.

To a lesser extent, net revenues from the Company's line of STAR WARS products increased as a result of the lineup of entertainment

from Lucasfilms including, THE BOOK of BOBA FETT released in the first fiscal quarter of 2022 and the upcoming launch of the OBI-WAN KENOBI series, expected in the second quarter of 2022, both on Disney+.

These increases were partially offset by net revenue declines from DISNEY FROZEN and to a lesser extent, DISNEY PRINCESS products as well as lower net revenues from BEYBLADE products during the first quarter of 2022.

In addition, 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 THOR:

LOVE AND THUNDER, ahead of the July 2022 release.

To a lesser extent, net revenues from the Company's line of STAR WARS products increased as a result of the entertainment lineup from Lucasfilms including, THE BOOK of BOBA FETT, released in the first fiscal quarter of 2022 and the launch of the STAR WARS series OBI-WAN KENOBI series during the second quarter of 2022, both streaming on Disney+.

These increases were partially offset by net revenue declines from BEYBLADE and DISNEY FROZEN products during the second quarter of 2022.

HASBRO GAMING:

Net revenues in the Hasbro Gaming portfolio increased 5% in the first quarter of 2022 compared to the first quarter of 2021.

Higher net revenues were driven by net revenue increases from DUNGEONS & DRAGONS products and to a lesser extent, net revenue increases from DUEL MASTERS and AVALON HILL'S HeroQuest products.

These net revenue increases were partially offset by lower net revenues from certain classic game products including CLUE and RISK.

Net revenues in the Hasbro Gaming portfolio decreased 14% in the second quarter of 2022 compared to the second quarter of 2021 driven primarily by net revenue decreases from the Dungeons & Dragons:

Dark Alliance digital game launched during the second quarter 2021, with no comparable release in 2022 and, to a lesser extent, net revenue decreases from DUEL MASTERS products.

These net revenue decreases were partially offset by higher net revenues from AVALON HILL'S HeroQuest products and certain classic games.

Net revenues for Hasbro’s total gaming category, including the Hasbro Gaming portfolio as reported above and all other gaming revenue, most notably revenues from MAGIC:

THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, totaled $378.8 million for the first quarter of 2022, an increase of 4%, as compared to $365.3 million in the first quarter of 2021.

THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, totaled $528.3 million for the second quarter of 2022, an increase of 2%, as compared to $519.4 million in the second quarter of 2021.

EMERGING BRANDS:

Net revenues from the Emerging Brands portfolio increased 5% during the first quarter of 2022 compared to the first quarter of 2021.

Net revenue increases during the first quarter of 2022 were driven by POWER RANGERS and PJ MASKS products, partially offset by lower net revenues from SUPER SOAKER and certain PLAYSKOOL products.

Net revenues from the Emerging Brands portfolio increased 3% during the second quarter of 2022 compared to the second quarter of 2021.

Net revenue increases during the second quarter of 2022 were driven by POWER RANGERS and FURREAL FRIENDS products, partially offset by lower net revenues from GI JOE and certain other EMERGING BRANDS products.

TV/FILM/ENTERTAINMENT:

During the first quarter of 2022, net revenues from the TV/Film/Entertainment portfolio were flat compared to the first quarter of 2021.

First quarter 2022 net revenues were driven by higher scripted television deliveries, most notably from the Netflix streaming series GRAYMAIL and from THE ROOKIE television series , as well as higher deliveries of unscripted programs compared to the first quarter of 2021, where deliveries were limited or delayed due to the impact of the COVID-19 pandemic.

To a lesser extent, TV/Film/Entertainment portfolio net revenues benefited from feature film production revenue contributions from titles including DEEP WATER as well as from the Company's live entertainment business which resumed live touring shows in 2022.

Net revenues from the TV/Film/Entertainment portfolio decreased 19% compared to the second quarter of 2021.

The second quarter 2022 net revenue decrease was driven by the sale of the eOne Music business at the start of the third quarter 2021, which represented $33.4 million or 17% of TV, Film and Entertainment portfolio net revenues during the second quarter 2021.

In addition, lower scripted deliveries, primarily related to the delivery timing of CRUEL SUMMER season two which is expected in the third quarter of 2022, as compared to CRUEL SUMMER season one, which was delivered in the second quarter of 2021, contributed to the decrease.

These decreases were partially offset by higher net revenues from THE ROOKIE television series, higher film revenues and higher unscripted television production revenues during the second quarter of 2022, compared to the second quarter of 2021.

First Six Months of 2022

The six-month periods ended June 26, 2022 and June 27, 2021 were each 26-week periods.

For the first six months of 2022, consolidated net revenues increased 3% compared to the first six months of 2021 and reflect an unfavorable variance of $50.1 million as a result of foreign currency translation due to weaker currencies across the Company's European and, to a lesser extent, Asia Pacific markets when compared to the first six months of 2021.

Operating profit for the first six months of 2022 was $339.1 million, or 13.6% of net revenues, compared to an operating profit of $223.9 million, or 9.2% of net revenues, for the first six months of 2021.

The operating profit increase was primarily driven by the impact to the prior year of the pre-tax non-cash impairment charge of $101.8 million and lower administrative costs as a result of the sale of eOne Music in 2021.

In addition, the operating profit increase was due to higher net revenues in 2022, combined with lower advertising and depreciation costs within the Wizards of the Coast and Digital Gaming segment due to digital gaming launches in the first six months of 2021, as well as lower royalty expenses in 2022.

These benefits were partially offset by higher costs of sales due to higher product input and freight costs as a result of rising costs and supply chain disruptions and higher program amortization costs within the Entertainment segment, reflecting the mix of programming deliveries during the first six months, and to a lesser extent, higher marketing and sales costs.

The following table presents net revenues by product category for the first six months of 2022 and 2021.

Six Months Ended

June 26, 2022 June 27, 2021 %

Franchise Brands $ 1,287.0 1,200.3 7 %

Partner Brands 425.9 400.0 6 %

Hasbro Gaming 269.4 283.4 -5 %

Emerging Brands 168.4 162.8 3 %

TV/Film/Entertainment 351.6 390.5 -10 %

Total $ 2,502.3 2,437.0 3 %

Brand portfolio net revenues for first six months of 2021 have been restated to reflect the elevation of PEPPA PIG from Emerging Brands to Franchise Brands, effective for the first quarter of 2022.

As a result, first six months of 2021 net revenues of $58.9 million were reclassified from Emerging Brands to Franchise Brands.

FRANCHISE BRANDS:

Net revenues in the Franchise Brands portfolio increased 7% in the first six months of 2022 compared to 2021.

The net revenue increase was primarily driven by higher net revenues from MAGIC:

THE GATHERING products reflecting record sales from the Kamigawa:

Neon Dynasty, Commander Legends:

Battle for Baldur's Gate and Double Masters set releases during the first six months of 2022 .

In addition, higher net revenues from PEPPA PIG, driven by the third quarter 2021 launch of the Company's first line of PEPPA PIG products, higher net revenues from PLAY-DOH products and higher net revenues from MY LITTLE PONY, following the September 2021 release of the feature length film, MY LITTLE PONY:

A NEW GENERATION, drove growth during the first six months of 2022.

These net revenue increases were partially offset by lower net revenues from MONOPOLY products, and to a lesser extent, lower net revenues from TRANSFORMERS and NERF products during the first six months of 2022.

PARTNER BRANDS:

Net revenues from the Partner Brands portfolio increased 6% during the first six months of 2022 compared to 2021.

During the first six months of 2022, Partner Brands net revenue increases were driven by the Company's products for MARVEL, primarily from momentum in the SPIDER-MAN franchise which benefited from entertainment releases including Marvel Studios' SPIDER-MAN:

NO WAY HOME and the children’s animated television series Marvel's SPIDEY and HIS AMAZING FRIENDS while the Company's products for Marvel's AVENGERS benefited from the release of Marvel Studios' DOCTOR STRANGE in the MULTIVERSE of MADNESS .

To a lesser extent, net revenues from the Company's line of STAR WARS products increased as a result of the lineup of new entertainment from Lucasfilms including, THE BOOK of BOBA FETT and the STAR WARS series OBI-WAN KENOBI , both streaming on Disney+.

In addition, Partner Brands net revenues benefited from the introduction of the Company's line of FORTNITE action figures during the first six months of 2022.

These increases were partially offset by net revenue declines from DISNEY FROZEN and BEYBLADE products and to a lesser extent, DISNEY PRINCESS and TROLLS products during the first half of 2022.

HASBRO GAMING:

Net revenues in the Hasbro Gaming portfolio decreased 5% in the first six months of 2022 compared to the first six months of 2021 driven primarily by lower net revenues from the Dungeons & Dragons:

Dark Alliance digital game launched during the second quarter 2021 with no comparable release in 2022.

Net revenues for Hasbro’s total gaming category, including the Hasbro Gaming portfolio as reported above and all other gaming revenue, most notably from MAGIC:

THE GATHERING and MONOPOLY products, which are included in the Franchise Brands portfolio, were $907.1 million, an increase of 3%, in the first six months of 2022 versus $884.7 million in the first six months of 2021.

EMERGING BRANDS:

Net revenues from the Emerging Brands portfolio grew 3% for the first six months of 2022 compared to the first six months of 2021.

Net revenue increases during the first half of 2022 were driven by POWER RANGERS products and to a lesser extent, PJ MASKS and FURREAL FRIENDS products, partially offset by lower net revenues from G.I.

JOE and SUPER SOAKER products.

TV/FILM/ENTERTAINMENT:

Net revenues from the TV/Film/Entertainment portfolio decreased 10% for the first six months of 2022 compared to the first six months of 2021.

Lower net revenues in 2022 were driven by the sale of eOne Music at the start of the third quarter 2021, which represented $65.2 million or 17% of TV, Film and Entertainment portfolio net revenues during the first six months of 2021.

In the first six months of 2022, higher net revenues from unscripted television deliveries, compared to the first six months of 2021 where deliveries were limited or delayed due to the impact of the COVID-19 pandemic, and higher film revenues, were offset by lower scripted television net revenues due primarily to the timing of deliveries during the first six months of 2022.

SEGMENT RESULTS

The following table presents net external revenues and operating profit data for the Company's principal segments for the quarters ended March 27, 2022 and March 28, 2021:

Beginning in 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.

Second Quarter 2022

The following table presents net external revenues and operating profit (loss) data for the Company's principal segments for the quarters ended June 26, 2022 and June 27, 2021:

Quarter Ended

March 27, 2022 March 28, 2021 %

June 26, 2022 June 27, 2021 %

Consumer Products $ 734.2 $ 689.2 7 %

2 unchanged sentences

185.2 226.7 -18 %

Operating Profit

Operating Profit (Loss)

Consumer Products $ (6.5) $ 17.8 >-100%

3 unchanged sentences

Corporate and Other (14.3) (20.4) 30 %

* Entertainment segment net revenues and operating profit, for the quarter ended March 27, 2021 include $31.8 million and $3.1 million, respectively, from eOne Music, which was sold at the beginning of the third quarter of 2021.

Beginning in 2022, intangible amortization costs related to the intangible assets acquired in the eOne acquisition have been allocated between the Consumer Products and Entertainment segments in the amounts of $10.3 million and $8.8 million, respectively, to match the revenue generated from such intangible assets.

In 2021, comparable intangible amortization costs of $24.9 million were recorded within the Entertainment segment.

* Entertainment segment net revenues and operating loss, for the quarter ended June 27, 2021 include $33.4 million and ($94.9) million, respectively, from eOne Music, which was sold at the beginning of the third quarter of 2021.

Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended March 27, 2022 and March 28, 2021.

The following table presents the Consumer Products segment net revenues by major geographic region for the quarters ended June 26, 2022 and June 27, 2021.

Quarter Ended

March 27, 2022 March 28, 2021

June 26, 2022 June 27, 2021

North America $ 433.3 391.4

3 unchanged sentences

Net revenues $ 734.2 $ 689.2

The Consumer Products segment net revenues increased 3% to $672.8 million for the first quarter of 2022 compared to $653.9 million for the first quarter of 2021 and included the impact of an unfavorable $13.5 million currency translation, most notably from the Company's European markets.

Drivers of the net revenue increase include higher sales of the Company's products for MARVEL, higher sales of PEPPA PIG and MY LITTLE PONY products, and higher net revenues from POWER RANGERS and PJ MASKS products.

Partially offsetting these increases were lower sales of TRANSFORMERS and MONOPOLY products and lower sales of the Company's products for DISNEY PRINCESS and DISNEY FROZEN.

Net revenues increased in North America and to a lesser extent, in Latin American markets during the first quarter of 2022, while net revenues declined in the Company's Asia Pacific and Europe regions.

In Europe, where the impact of foreign currency exchange was more significant compared to other regions, net revenue remained relatively flat absent the unfavorable foreign currency exchange impact of $12.0 million.

Consumer Products segment operating profit for the first quarter of 2022 was $8.6 million or 1.3% of segment net revenues, compared to segment operating profit of $32.3 million or 4.9% of segment net revenues, for the first quarter of 2021.

As noted above, in alignment with the revenue generated from the assets acquired in the eOne acquisition, the first quarter of 2022 includes $10.3 million of intangible amortization, which in 2021 was all reported in the Entertainment segment results.

The Consumer Products segment net revenues increased 7% to $734.2 million for the second quarter of 2022 compared to $689.2 million for the second quarter of 2021 and included the impact of an unfavorable $19.1 million currency translation, most notably from the Company's European markets.

Drivers of the net revenue increase include higher sales of the Company's products for MARVEL, higher sales of PLAY-DOH and PEPPA PIG products, and higher sales of POWER RANGERS, PJ

MASKS and MY LITTLE PONY products.

Partially offsetting these increases were lower sales of MONOPOLY products and lower sales of the Company's products for DISNEY FROZEN, as well as lower sales of BEYBLADE, TRANSFORMERS and GI JOE products.

Net revenues increased in North America and in Latin American markets during the second quarter of 2022.

Absent the unfavorable foreign currency exchange impact of $14.9 million in Europe, and to a lesser extent, $2.8 million in Asia Pacific, net revenues remained relatively flat in the Company's Europe and Asia Pacific regions.

Consumer Products segment operating losses for the second quarter of 2022 were $6.5 million or 0.9% of segment net revenues, compared to segment operating profit of $17.8 million or 2.6% of segment net revenues, for the second quarter of 2021.

As noted above, to align with the revenue generated from the assets acquired in the eOne acquisition, Consumer Products segment operating profit in the second quarter of 2022 includes $9.6 million of intangible asset amortization costs.

In 2021, the comparable costs were reported in the Entertainment segment results.

This allocation of intangible amortization drove a 1.3% decline in operating margin for the Consumer Products segment.

The remaining operating profit decrease in the first quarter of 2022 was driven by higher product costs and distribution costs as a result of global supply chain disruptions, including higher freight costs.

These negative impacts were partially offset by price increases implemented during 2021 and lower royalty expenses due to a favorable product mix during the first quarter of 2022.

The remaining operating profit decrease in the second quarter of 2022 was driven by higher product costs, including higher inventory obsolescence costs related to products in Russia and higher distribution costs as a result of global supply chain disruptions.

These negative impacts were partially offset by price increases implemented during the second half of 2021 and the first quarter of 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 for the quarters ended March 27, 2022 and March 28, 2021.

The following table presents Wizards of the Coast and Digital Gaming segment net revenues by category for the quarters ended June 26, 2022 and June 27, 2021.

Quarter Ended

March 27, 2022 March 28, 2021

June 26, 2022 June 27, 2021

Tabletop Gaming $ 361.8 $ 315.4

1 unchanged sentence

Net revenues $ 419.8 $ 406.3

Wizards of the Coast and Digital Gaming segment net revenues increased 9% in the first quarter of 2022 to $262.8 million from $242.2 million in the first quarter of 2021 and included the impact of an unfavorable $2.9 million foreign currency translation.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first quarter of 2022 was attributable to net revenue increases from Wizards of the Coast tabletop and digital gaming products, most notably, MAGIC:

THE GATHERING, driven by sales of the Kamigawa:

Neon Dynasty set release, and to a lesser extent, higher digital net revenues from Magic:

The Gathering Arena and Dungeons & Dragons:

Wizards of the Coast and Digital Gaming segment net revenues increased 3% in the second quarter of 2022 to $419.8 million from $406.3 million in the second quarter of 2021 and included the impact of an unfavorable $8.2 million foreign currency translation.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the second quarter of 2022 was attributable to net revenue increases from Wizards of the Coast tabletop gaming products, most notably, MAGIC:

THE GATHERING, driven by sales of the Commander Legends:

Battle for Baldur's Gate and Double Masters set releases, and, to a lesser extent, higher licensed digital gaming net revenues.

These increases were partially offset by lower digital gaming net revenues from the mobile version of Magic:

The Gathering Arena and from Dungeons & Dragons:

Dark Alliance , released during the second quarter of 2021.

Wizards of the Coast and Digital Gaming segment operating profit was $225.6 million, or 53.7% of segment net revenues for the second quarter of 2022, compared to operating profit of $192.9 million, or 47.5% of segment net revenues, for the second quarter of 2021.

The operating profit increase during the second quarter of 2022 was the result of higher sales combined with lower product development costs, lower advertising costs and lower depreciation , compared to second quarter 2021 costs in support of the launch of Dungeons & Dragons:

Dark Alliance.

In addition, higher net revenues from DUNGEONS & DRAGONS and DUEL MASTERS products contributed to the increase during the first quarter.

Wizards of the Coast and Digital Gaming segment operating profit was $106.4 million, or 40.5% of segment net revenues for the first quarter of 2022, compared to operating profit of $110.0 million, or 45.4% of segment net revenues, for the first quarter of 2021.

The operating profit decrease during the first quarter of 2022 was the result of higher product input costs associated with tabletop gaming, increased product development expenses, higher freight costs, as well as higher administrative expenses including higher personnel costs during the first quarter of 2022.

These increases were partially offset by lower advertising and promotional expenses compared to the first quarter of 2021, where the Company incurred higher costs associated with the launch of the mobile version of Magic:

These cost decreases in the second quarter of 2022 were partially offset by higher product input costs associated with tabletop gaming and higher freight costs.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the quarters ended June 26, 2022 and June 27, 2021.

Quarter Ended

June 26, 2022 June 27, 2021

Film and TV $ 148.2 $ 164.3

Family Brands 22.8 26.1

Music and Other *

Net revenues $ 185.2 $ 226.7

*Music and Other category net revenues for the quarter ended June 27, 2021 includes $33.4 million related to eOne Music, which was sold at the beginning of the third quarter of 2021.

Entertainment segment net revenues declined 18% to $185.2 million for the second quarter of 2022, compared to $226.7 million for the second quarter of 2021 and included the impact of an unfavorable $5.4 million foreign currency translation.

The net revenue decrease during the second quarter of 2022 was driven by the sale of eOne Music business in the third quarter of 2021 which accounted for $33.4 million or 14.7% of segment net revenues in the second quarter of 2021.

In addition, the net revenue decrease in the second quarter of 2022 was primarily due to the timing of scripted television deliveries, most notably, CRUEL SUMMER season two expected in the third quarter of 2022, compared to CRUEL SUMMER season one which was delivered in the second quarter of 2021.

These decreases were partially offset by higher net revenues from unscripted television deliveries compared to the second quarter of 2021, and higher film licensing revenues.

Entertainment segment operating profit was $14.3 million, or 7.7% of segment net revenues for the second quarter of 2022 compared to operating losses of $113.7 million, or 50.2% of segment net revenues for the second quarter of 2021.

The operating profit increase during the second quarter of 2022 was primarily driven by the second quarter 2021 non-cash impairment charge of $101.8 million associated with the sale of eOne Music.

Absent the impact of the loss on the Music sale, the second quarter 2022 operating profit increase was driven by lower program amortization costs reflecting the mix of

programming delivered during the second quarter of 2022, lower advertising and administrative costs and the allocation of $9.6 million of intangible asset amortization costs to the Consumer Products segment in 2022, as described above.

Corporate and Other Segment

The Corporate and Other segment operating losses were $14.3 million for the second quarter of 2022 compared to operating losses of $20.4 million for the second quarter of 2021.

The decline in operating losses in the second quarter of 2022 was primarily the result of lower administrative expenses.

Operating losses in 2021 included $9.5 million of transaction costs associated with the sale of eOne Music.

First Six Months 2022

The following table presents net revenues and operating profit (loss) for the Company's principal segments for each of the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021 %

Consumer Products segment $ 1,407.0 $ 1,343.1 5 %

Wizards of the Coast and Digital Gaming segment 682.6 648.5 5 %

Entertainment segment *

412.7 445.4 -7 %

Operating Profit (Loss)

Consumer Products segment $ 2.1 $ 50.1 -96 %

Wizards of the Coast and Digital Gaming segment 332.0 302.9 10 %

Entertainment segment *

26.5 (96.7) >100%

Corporate and Other (21.5) (32.4) 34 %

* Entertainment segment net revenues and operating loss, for the six-month period ended June 27, 2021 include $65.2 million and ($91.8) million, respectively, from eOne Music, which was sold at the beginning of the third quarter of 2021.

Consumer Products Segment

The following table presents the Consumer Products segment net revenues by major geographic region for the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021

North America $ 838.5 $ 754.1

Europe 338.8 365.0

Asia Pacific 118.8 133.2

Latin America 110.9 90.8

Net Revenues $ 1,407.0 $ 1,343.1

The Consumer Products segment net revenues increased 5% to $1,407.0 million for the first six months of 2022 compared to $1,343.1 million for the first six months of 2021 and included the impact of an unfavorable $32.6 million currency translation.

The drivers of the net revenue increase include higher sales of the Company's Partner Brands for MARVEL, as well as higher sales of PEPPA PIG and PLAY-DOH products.

To a lesser extent, higher sales of MY LITTLE PONY, POWER RANGERS and PJ MASKS products and higher sales of the Company's Partner Brands for STAR WARS contributed to the increase.

Partially offsetting these increases were lower sales of certain Partner Brands, notably, the Company's products for DISNEY FROZEN and BEYBLADE and lower sales of MONOPOLY and TRANSFORMERS products.

Net revenues increased in North America and in Latin American markets during the first six months of 2022 while net revenues declined in the Asia Pacific.

In Europe, absent the unfavorable foreign currency exchange impact of $26.9 million, net revenues remained relatively flat.

Consumer Products segment operating profit for the first six months of 2022 was $2.1 million or 0.1% of segment net revenues, compared to segment operating profit of $50.1 million or 3.7% of segment net revenues, for the first six months of 2021.

As noted above, in alignment with the revenue generated from the assets acquired in the eOne acquisition, Consumer Products segment operating profit for the first six months of 2022 includes $19.9 million of intangible amortization, which in 2021 was reported within the Entertainment segment results.

This allocation of intangible amortization drove a 1.5% decline in operating margin for the Consumer Products segment.

The remaining operating profit decrease in the first six months of 2022 was driven by higher product costs, including higher inventory reserves related to Russia, higher distribution costs driven by increased freight costs as a result of global supply chain, disruptions as well as higher marketing and sales costs.

These negative impacts were partially offset by price increases implemented during the second half 2021 and during the first half of 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 for the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021

Tabletop Gaming $ 554.0 $ 490.7

Digital and Licensed Gaming 128.6 157.8

Net revenues $ 682.6 $ 648.5

Wizards of the Coast and Digital Gaming segment net revenues increased 5% in the first six months of 2022 to $682.6 million from $648.5 million in the first six months of 2021 and included the impact of an unfavorable $11.1 million foreign currency translation.

The net revenue increase in the Wizards of the Coast and Digital Gaming segment during the first six months of 2022 was driven primarily by higher net revenues from Wizards of the Coast table-top gaming products, most notably, MAGIC:

THE GATHERING, due to the number of strong performing card set releases.

In addition to the net revenue increases from the Company's Wizards of the Coast table-top gaming business, the segment benefited from growth in certain of the Company's licensed digital games.

These net revenue increases were partially offset by lower digital gaming net revenues from Dungeons & Dragons:

Dark Alliance and the mobile version of Magic:

The Gathering , released during the second quarter of 2021.

Wizards of the Coast and Digital Gaming segment operating profit was $332.0 million, or 48.6% of segment net revenues for the first six months of 2022, compared to operating profit of $302.9 million, or 46.7% of segment net revenues for the first six months of 2021.

The operating profit increase during the first six months of 2022 was the result of higher sales volumes as described above, lower advertising expenses and depreciation costs, compared to the first six months of 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.

These increases to operating profit were partially offset by higher freight costs and higher product costs.

Entertainment Segment

The following table presents Entertainment segment net revenues by category for the quarters ended March 27, 2022 and March 28, 2021.

Quarter Ended

March 27, 2022 March 28, 2021

The following table presents Entertainment segment net revenues by category for the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021

Film and TV $ 338.4 $ 330.7

2 unchanged sentences

Net revenues $ 412.7 $ 445.4

*Music and Other category net revenues for the quarter ended March 27, 2021 includes $31.8 million related to eOne Music, which was sold at the beginning of the third quarter of 2021.

Entertainment segment net revenues increased 4% to $227.5 million for the first quarter of 2022, compared to $218.7 million for the first quarter of 2021.

Foreign currency translation did not have a significant impact on Entertainment segment net revenues.

The net revenue increase during the first quarter of 2022 was driven by higher deliveries of both unscripted and scripted television programming and to a lesser extent, higher net revenues from the Company's live entertainment business which resumed live touring shows in 2022.

Also contributing to the increase during the first quarter of 2022 were higher net revenues from streaming animated content deals related to programming featuring the Company's brands.

These increases were partially offset by the sale of the eOne Music business in the third quarter of 2021, which accounted for $31.8 million of segment net revenues in the first quarter of 2021.

Entertainment segment operating profit was $12.2 million, or 5.4% of segment net revenues for the first quarter of 2022 compared to operating profit of $17.0 million, or 7.8% of segment net revenues for the first quarter of 2021.

The operating profit decrease during the first quarter of 2022 was driven by higher program cost amortization reflecting the mix of programming delivered during the first quarter of 2022 and the impact of the sale of eOne Music described above.

These declines were partially offset by the allocation of $10.3 million of amortization costs related to the intangible assets acquired in

the eOne acquisition to the Consumer Products segment to match the revenue generated from such assets in the first quarter of 2022.

*Music and Other category net revenues for the six-month period ended June 27, 2021 includes $65.2 million from eOne Music, which was sold at the beginning of the third quarter of 2021.

Entertainment segment net revenues for the six months ended June 26, 2022 decreased 7% to $412.7 million from $445.4 million for the six months ended June 27, 2021 and included the impact of an unfavorable $6.4 million foreign currency translation.

The segment net revenue decrease was driven by the sale of eOne Music business in the third quarter of 2021 which

accounted for $65.2 million or 14.6% of segment net revenues in the first six months of 2021.

During the first six months of 2022, higher net revenues from live shows, unscripted programming deliveries and higher net revenues from streaming content sales related to programming featuring the Company's brands were partially offset by lower net revenues from scripted television deliveries.

The Entertainment segment operating profit was $26.5 million, or 6.4% of net revenues, for the six months ended June 26, 2022, compared to operating losses of $96.7 million, or 21.7% of segment net revenues, for the six months ended June 27, 2021.

The operating profit increase during the first six months of 2022 was driven by the second quarter 2021 non-cash impairment charge of $101.8 million associated with the sale of eOne Music.

Absent the impact of the loss on the Music sale, the operating profit increase in the first six months of 2022 was driven by the allocation of $19.9 million of intangible asset amortization costs to the Consumer Products segment in the first six months of 2022, as described above and lower royalty and advertising and promotion expenses.

These increases to operating profit were partially offset by the sale of eOne Music combined with higher program amortization costs reflecting the mix of programming delivered during the first six months of 2022.

Corporate and Other Segment

The Corporate and Other segment operating losses were $7.2 million for the first quarter of 2022 compared to operating losses of $12.0 million for the first quarter of 2021.

The decline in operating losses in 2022 were the result of lower royalty expense and lower administrative expenses.

Operating losses in the Corporate and Other Segment for the first six months of 2022 were $21.5 million, compared to operating losses of $32.4 million for the first six months of 2021.

The decline in operating losses during the first six months of 2022 was the result of lower royalty expense, partially offset by higher product development costs and higher administrative expenses.

Operating losses in 2021 included $9.5 million of transaction costs associated with the sale of eOne Music and retention costs of $3.8 million in relation to the eOne acquisition.

OPERATING COSTS AND EXPENSES

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended March 27, 2022 and March 28, 2021.

Second Quarter 2022

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the quarters ended June 26, 2022 and June 27, 2021.

Quarter Ended

March 27, 2022 March 28, 2021

June 26, 2022 June 27, 2021

Cost of sales 30.7 % 26.1 %

5 unchanged sentences

Selling, distribution and administration 24.4 % 26.8 %

Cost of sales for the first quarter of 2022 was $333.1 million, or 28.6% of net revenues, compared to $289.9 million, or 26.0% of net revenues, for the first quarter of 2021.

The cost of sales increase in dollars was due to higher sales volumes and higher product costs, including higher freight costs, partially offset by the impact of a favorable $6.5 million of foreign currency exchange.

The cost of sales increase as a percent of net revenues was driven by the impact of higher product costs and freight costs described above.

Program cost amortization increased to $138.5 million, or 11.9% of net revenues, for the first quarter of 2022 from $97.5 million, or 8.7% of net revenues, for the first quarter of 2021.

Loss on assets held for sale — % 7.7 %

Cost of sales for the second quarter of 2022 was $411.5 million, or 30.7% of net revenues, compared to $345.0 million, or 26.1% of net revenues, for the second quarter of 2021.

The cost of sales increase in dollars and as a percent of net revenues was driven by higher sales volumes and higher product costs, including higher freight costs, and higher inventory obsolescence charges including reserves related to inventory in Russia.

Program cost amortization decreased to $80.7 million, or 6.0% of net revenues, for the second quarter of 2022 from $110.7 million, or 8.4% of net revenues, for the second quarter of 2021.

Program costs are capitalized as incurred and amortized primarily using the individual-film-forecast method which matches costs to the related recognized revenue.

The increase in dollars and as a percent of net revenues during the first quarter of 2022 was driven by the volume and mix of both scripted and unscripted programming revenues during the first quarter of 2022 compared to the first quarter of 2021.

Royalty expense for the first quarter of 2022 decreased to $90.1 million, or 7.7% of net revenues, compared to $108.9 million, or 9.8% of net revenues, for the first quarter of 2021.

The decrease in dollars and as a percent of net revenues during the second quarter of 2022 was driven by lower sales volume within the Entertainment segment, due primarily to the timing of deliveries and the mix of content delivered, compared to the second quarter of 2021.

Royalty expense for the second quarter of 2022 decreased to $110.1 million, or 8.2% of net revenues, compared to $111.5 million, or 8.4% of net revenues, for the second quarter of 2021.

Fluctuations in royalty expense are generally related to the volume of content releases and deliveries and entertainment-driven products sold.

The decrease in royalty expense in dollars was driven by the impact of the sale of eOne Music and the mix of first quarter 2022 Film and TV deliveries.

In addition, certain licensing agreements acquired through the eOne acquisition expired, which carried higher royalty expenses in prior periods.

The decrease in royalty expense as a percent of net revenues during the first quarter of 2022 was the result of a higher percentage of product sales that do not carry significant royalty expenses.

Product development expense for the first quarter of 2022 was $69.6 million, or 6.0% of net revenues, compared to $61.8 million, or 5.5% of net revenues, for the first quarter of 2021.

The increase was primarily related to increased investments in the development of Wizards of the Coast tabletop and digital gaming initiatives.

Advertising expense for the first quarter of 2022 was $77.6 million, or 6.7% of net revenues, compared to $87.9 million, or 7.9% of net revenues, for the first quarter of 2021.

Royalty expense during the second quarter of 2022 was consistent with the second quarter of 2021, including lower expense due to the impact of the sale of eOne Music during 2021 and the mix of Film and TV deliveries during the quarter.

These declines were offset by higher expense in the Consumer Products segment driven by an increase in partner brand revenues.

Product development expense for the second quarter of 2022 was $79.2 million, or 5.9% of net revenues, compared to $87.2 million, or 6.6% of net revenues, for the second quarter of 2021.

The decrease was primarily related to lower costs within Wizards digital gaming due to the launch of games in the second quarter of 2021.

Advertising expense for the second quarter of 2022 was $84.2 million, or 6.3% of net revenues, compared to $105.4 million, or 8.0% of net revenues, for the second quarter of 2021.

Advertising spend is generally impacted by revenue mix and the number and type of entertainment releases delivered.

The advertising expense decrease during the first quarter of 2022 was driven by lower expense within the Entertainment segment, as well as lower 2022 expense within the Wizards of the Coast and Digital Gaming segment, compared to the first quarter 2021, where advertising expense was driven by support for the launch of the mobile version of Magic:

The advertising expense decrease during the second quarter of 2022 was driven by lower expense within the Entertainment segment, as well as lower expense within the Wizards of the Coast and Digital Gaming segment, compared to the second quarter 2021, where advertising expense was driven by support for the 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 decreased to $27.1 million, or 2.3% of net revenues, for the first quarter of 2022, compared to $32.9 million, or 3.0% of net revenues, for the first quarter of 2021.

Amortization of intangible assets decreased to $27.2 million, or 2.0% of net revenues, for the second quarter of 2022, compared to $29.7 million, or 2.2% of net revenues, for the second quarter of 2021.

The decrease in 2022 is related to the discontinuation of amortization related to the eOne Music intangible assets following the sale of eOne Music in the third quarter of 2021, partially offset by additional expense associated with assets acquired through the D&D Beyond Acquisition during the second quarter of 2022.

Selling, distribution and administration expenses decreased to $327.2 million, or 24.4% of net revenues for the second quarter of 2022, from $354.3 million, or 26.8% of net revenues, for the second quarter of 2021.

The decrease in selling, distribution and administration expenses reflects lower incentive compensation accruals and lower depreciation expense in 2022 compared to depreciation expense in the second quarter of 2021 associated with the launch of Dungeons & Dragons:

Dark Alliance.

These decreases were partially offset by increased costs associated with consulting and other professional services for the Company's annual shareholder meeting.

The loss on assets held for sale of $101.8 million, or 7.7% of net revenues during the second quarter of 2021, represents a non-cash impairment charge associated with the disposition of eOne Music.

First Six Months of 2022

The Company's costs and expenses, stated as percentages of net revenues, are illustrated below for the six-month periods ended June 26, 2022 and June 27, 2021.

Six Months Ended

June 26, 2022 June 27, 2021

Cost of sales 29.8 % 26.1 %

Program cost amortization 8.8 % 8.5 %

Royalties 8.0 % 9.0 %

Product development 5.9 % 6.1 %

Advertising 6.5 % 7.9 %

Amortization of intangibles 2.2 % 2.6 %

Selling, distribution and administration 25.3 % 26.4 %

Loss on assets held for sale — % 4.2 %

Cost of sales for the six months ended June 26, 2022 increased to $744.6 million, or 29.8% of net revenues, from $634.9 million, or 26.1% of net revenues for the six months ended June 27, 2021.

The cost of sales increase in dollars and as a percent of net revenues was due to higher sales volumes and higher product input costs, including higher freight and material costs, as well as higher inventory obsolescence charges.

Program cost amortization increased in the first six months of 2022 to $219.2 million, or 8.8% of net revenues, from $208.2 million, or 8.5% of net revenues, in the first six months of 2021.

The program cost amortization increase in dollars and as a percent of net revenues during the first six months of 2022, was driven by the volume and mix of both scripted and unscripted programming revenues during the first half of 2022 compared to the first half of 2021.

Royalty expense for the six months ended June 26, 2022 was $200.2 million, or 8.0% of net revenues, compared to $220.4 million, or 9.0% of net revenues, for the six months ended June 27, 2021.

The decrease in royalty expense in dollars was driven by the impact of the sale of eOne Music and the mix of Film and TV deliveries during the first six months of 2022.

In addition, certain licensing agreements acquired through the eOne acquisition expired, which carried higher royalty expenses in prior periods.

The decrease in royalty expense as a percent of net revenues during the first six months of 2022 was the result of a higher percentage of product sales that do not carry significant royalty expenses.

Product development expense for the six months ended June 26, 2022 was $148.8 million, or 5.9% of net revenues, from $149.0 million, or 6.1% of net revenues, for the six months ended June 27, 2021.

Product development expense in the first six months of 2022 was consistent with the first six months of 2021, reflecting the Company’s continued investment in innovation and anticipated growth across our brand and entertainment portfolios.

Advertising expense for the six months ended June 26, 2022 was $161.8 million, or 6.5% of net revenues, compared to $193.3 million, or 7.9% of net revenues, for the six months ended June 27, 2021.

The advertising expense decrease during the first six months of 2022 was driven by lower expense within the Entertainment segment related to the sale of the eOne Music business combined with a shift in the type of entertainment releases delivered, as well as lower expense within the Wizards of the Coast and Digital Gaming segment, compared to the first half of 2021, where advertising expense was driven by support for the 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 was $54.3 million, or 2.2% of net revenues, for the six months ended June 26, 2022 compared to $62.6 million, or 2.6% of net revenues, in the first six months of 2021.

The decrease in 2022 is related to the discontinuation of amortization related to the eOne Music intangible assets following the sale of eOne Music in the third quarter of 2021.

For the first quarter of 2022, the Company's selling, distribution and administration expenses increased to $307.1 million, or 26.4% of net revenues, from $288.6 million, or 25.9% of net revenues, for the first quarter of 2021.

The increase in selling, distribution and administration expenses reflects higher marketing and sales and administrative costs, including higher compensation expense, as well as higher distribution and warehousing costs, primarily due to ongoing global supply chain disruptions.

These increases were partially offset by lower administrative costs as a result of the sale of eOne Music during 2021.

This decline was slightly offset by additional expense associated with assets acquired through the D&D Beyond Acquisition during the second quarter of 2022.

For the six months ended June 26, 2022, the Company's selling, distribution and administration expenses decreased to $634.3 million, or 25.3% of net revenues, from $642.9 million, or 26.4% of net revenues, for the six months ended June 27, 2021.

The decrease in selling, distribution and administration expenses reflects lower depreciation expense, primarily related to the Company's digital gaming business compared to the first six months of 2021, lower compensation accruals and lower administrative costs as a result of the sale of eOne Music during 2021.

These decreases were partially offset by higher marketing and sales costs within the Consumer Products segment, consistent with the increase in net revenues during the first six months of 2022.

The loss on disposal of business of $101.8 million, or 4.2% of net revenues during the first six months of 2021, represents a non-cash impairment charge associated with the disposition of eOne Music.

NON-OPERATING EXPENSE (INCOME)

Interest expense for the first quarter of 2022 totaled $41.6 million compared to $47.9 million in the first quarter of 2021.

The decrease in interest expense during the first quarter of 2022 primarily reflects long-term debt repayments made throughout 2021 and during the first quarter of 2022, related to borrowings utilized for the eOne acquisition.

Interest income was $2.1 million for the first quarter of 2022 compared to $1.2 million in the first quarter of 2021, respectively.

Higher average interest rates in 2022 compared to 2021 contributed to the increase.

Other expense (income), net was $0.3 million for the first quarter of 2022 compared to other (income), net of $(28.9) million in the first quarter of 2021.

The decline was primarily driven by a first quarter 2021 gain of $25.6 million realized from a legal settlement with no comparable gain in 2022 and lower earnings from the Company's joint venture with Discovery, partially offset by lower foreign currency losses during the first quarter of 2022.

Income tax expense totaled $17.3 million on pre-tax income of $80.2 million in the first quarter of 2022 compared to income tax expense of $12.0 million on pre-tax income of $129.5 million in the first quarter of 2021.

Interest expense for the second quarter and first six months of 2022 totaled $41.7 million and $83.3 million, respectively, compared to $46.1 million and $94.0 million in the second quarter and first six months of 2021, respectively.

The decrease in interest expense during the second quarter and first half of 2022 primarily reflects long-term debt repayments made throughout 2021 and during the first half of 2022, related to borrowings utilized for the eOne acquisition.

Interest income was $2.7 million and $4.8 million for the second quarter and first six months of 2022, respectively, compared to $1.2 million and $2.4 million in the second quarter and first six months of 2021, respectively.

Higher average interest rates in 2022 compared to 2021 contributed to the increase for the three and six-month periods.

Other expense, net was $0.2 million and $0.5 million for the second quarter and first six months of 2022, respectively, compared to other income, net of $9.4 million and $38.3 million in the second quarter and first six months of 2021, respectively.

The decline in 2022 was primarily driven by a $26.7 million gain from a legal settlement realized during the first six months of 2021 with no comparable gain in 2022, lower earnings from the Company's joint venture with Discovery and foreign exchange losses during the first six months of 2022 compared to gains during the first half of 2021.

I ncome tax expense totaled $39.4 million on pre-tax income of $179.9 million in the second quarter of 2022 compared to income tax expense of $63.0 million on pre-tax income of $41.1 million in the second quarter of 2021.

For the six-month periods, income tax expense totaled $56.7 million on pre-tax income of $260.1 million in 2022, compared to an income tax expense of $75.0 million on pretax income of $170.6 million in 2021.

Both periods were impacted by discrete tax events including the accrual of potential interest and penalties on uncertain tax positions.

During the first quarter of 2022, favorable discrete tax adjustments were a net benefit of $2.3 million, compared to a net benefit of $8.9 million in the first quarter of 2021.

The favorable discrete tax adjustments for the first quarter of 2022 primarily relate to the release of certain valuation allowances during the quarter.

The favorable discrete tax adjustments for the first quarter of 2021 primarily relate to expiration of statutes of limitation for uncertain tax positions.

In the first quarter of 2021, pre-tax income benefited from a legal settlement gain with no associated tax expense, due to the availability of net operating losses ("NOLs") and release of the related valuation allowance on the NOLs utilized by the settlement gain.

Absent this discrete gain and tax items, the tax rates for the first quarter of 2022 and 2021 were 24.4% and 20.1%, respectively.

The increase in the adjusted base rate of 24.4% for the first quarter of 2022 is primarily due to the mix of jurisdictions where the Company earned its profits.

The Tax Cuts and Jobs Act of 2017 ("Tax Act") provided for significant changes to the U.S.

tax system including the mandatory capitalization of Research and Experimentation costs starting in the 2022 tax year.

The Company is still assessing the impact, however the legislation is not expected to have a material effect on the Company's financial statements.

During the first six months of 2022, favorable discrete tax adjustments were a net benefit of $3.2 million compared to a net expense of $17.4 million in the first six months of 2021.

The favorable discrete tax adjustments for the first six months of 2022 primarily relate to the release of certain valuation allowances during the first quarter.

The unfavorable discrete tax adjustments for the first six months of 2021 were primarily associated with the revaluation of net deferred tax liabilities as a result of the United Kingdom's ("UK") enactment of Finance Act 2021 during the second quarter, which will increase the UK corporate income tax rate from 19% to 25% as of April 1, 2023.

This was reduced by the release of a valuation allowance on net operating losses that offset income received from a one-time legal settlement and certain tax benefits, including the reversal of uncertain tax positions that resulted from statutes of limitations expiring in certain jurisdictions and operational tax planning during the second quarter.

In addition, included in the second quarter of 2021 was an impairment expense on assets held for sale from which there was no

corresponding tax benefit.

Absent discrete items, the tax rates for the first six months of 2022 and 2021 were 23.0% and 22.6% respectively.

The increase in the base rate of 23.0% for the first six months of 2022 is primarily due to the mix of jurisdictions where the Company earned its profits.

OTHER INFORMATION

Business Seasonality and Shipments

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.

Within the retail sector, the Company’s revenue pattern from toys and games and licensed consumer products continues to show the second half of the year to be more significant to its overall business for the full year.

The Company expects that this concentration will continue.

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However, more recently the Company's inventory levels reflect ongoing global supply chain disruptions, which began in late 2020 as economies slowly recovered from COVID-19 shutdowns, while consumer demand began to outpace the capacity of the global supply chain infrastructure.

Supply chain constraints, including overcrowding of cargo ports and shipping container and truck transportation shortages, have also led to higher costs for ocean, air and over the road freight and delays in

the availability of products, as inventory remains in transit for extended periods of time.

Supply chain constraints, including overcrowding of cargo ports and shipping container and truck transportation shortages have also led to higher costs for ocean, air and over the road freight and delays in the availability of products, as inventory remains in transit for extended periods of time.

These and other disruptions are expected to continue throughout 2022.

During the first quarter of 2022, the Company accelerated certain inventory purchases, to ensure sufficient finished goods and raw material availability ahead of expected periods of high consumer demand.

As a result, the Company expects 2022 inventory shipments to peak between May and July as opposed to the historical timeline of August to December.

During the first six months of 2022, the Company accelerated certain inventory purchases, to ensure sufficient finished goods and raw material availability ahead of expected periods of high consumer demand.

As a result, the Company expects inventory shipments to peak earlier in 2022 as compared to the historical timeline of August to December.

Unlike the Company's retail sales patterns, revenue patterns from the Company's entertainment businesses fluctuate based on the timing and popularity of television, film, streaming and digital content releases.

Release dates are determined by factors including the timing of holiday periods, geographical release dates and competition in the market.

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 has paused all shipments and new content distribution into Russia.

The Company’s consolidated financial statements reflect certain reserves as of June 26, 2022, primarily related to inventory and accounts receivable, and will be impacted by a loss of revenue and operating profit in the second half of 2022.

For the full year 2021, our revenue in Russia was $115 million, with approximately 70% earned in the second half of the year.

Any longstanding disruptions may magnify the impact of other risks described in this Quarterly Report on Form 10-Q and in the Company's Annual Report on Form 10-K for the year ended December 26, 2021.

Accounting Pronouncement Updates

As of March 27, 2022, there were no recently adopted accounting standards that had a material effect on the Company’s financial statements.

As of June 27, 2022, there were no recently adopted accounting standards that had a material effect on the Company’s financial statements.

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

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The amendments in this update apply to contracts, hedging relationships and other transactions that reference the London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued due to the global transition away from LIBOR and certain other interbank offered rates.

An entity may elect to apply the amendments provided by this update beginning March 12, 2020 through December 31, 2022.

An entity may elect to apply the amendments provided by this update

beginning March 12, 2020 through December 31, 2022.

The change from LIBOR to an alternate rate has not had a material impact on the Company's consolidated financial statements.

Russian Sanctions

As a result of the recent 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 has paused all shipments and new content distribution into Russia.

Although our business has not been materially impacted by the ongoing military conflict, the extent to which our operations, or those of our suppliers and manufacturers will be impacted remains unknown.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically generated a significant amount of cash from operations.

In the first three months of 2022 and 2021, the Company primarily funded its operations and liquidity needs through cash on hand and from cash flows from operations, and when needed, used borrowings under its available lines of credit.

In addition, the Company’s Entertainment operating segment used production financing to fund certain of its television and film productions which are typically arranged on an individual production basis using either the Company's revolving film and television production credit facility or through special purpose production subsidiaries.

In the first six months of 2022 and 2021, the Company primarily funded its operations and liquidity needs through cash on hand and from cash flows from operations, and when needed, used borrowings under its available lines of credit.

In addition, the Company’s Entertainment operating segment used production financing to fund certain of its television and film productions which are arranged on an individual production basis using either the Company's revolving film and television production credit facility or through special purpose production subsidiaries.

For more information on the Company's production financing facilities, including expected future repayments, see note 7 to the consolidated financial statements included in Part I of this Form 10-Q.

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Although the Company believes the risk of nonperformance by the counterparties to its financial facilities is not significant, in times of severe economic downturn in the credit markets, it is possible that one or more sources of external financing may be unable or unwilling to provide funding to the Company.

As of March 27, 2022, the Company's cash and cash equivalents totaled $1,057.9 million, of which $38.8 million is restricted under the Company’s production financing facilities.

As of June 26, 2022, the Company's cash and cash equivalents totaled $628.2 million, of which $41.9 million is restricted under the Company’s production financing facilities.

Prior to 2017, deferred income taxes had not been provided on the majority of undistributed earnings of international subsidiaries as such earnings were indefinitely reinvested by the Company.

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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.

The Tax Cuts and Jobs Act of 2017 ("the Tax Act") provided significant changes to the U.S.

tax system including the elimination of the ability to defer U.S.

income tax on unrepatriated earnings by imposing a one-time mandatory deemed repatriation tax on undistributed foreign earnings.

As of March 27, 2022, the Company had a total liability of $156.1 million related to this tax, $18.4 million is reflected in current liabilities while the remaining long-term payable related to the Tax Act of $137.7 million is presented within other liabilities, non-current on the consolidated balance sheets included in Part I of this Form 10-Q.

As of June 26, 2022, the Company had a total liability of $137.7 million related to this tax, $34.4 million is reflected in current liabilities while the remaining long-term payable related to the Tax Act of $103.3 million is presented within other liabilities, non-current on the consolidated balance sheets included in Part I of this Form 10-Q.

As permitted by the Tax Act, the Company will pay the transition tax in annual interest-free installments through 2025.

As a result, in the future, the related earnings in foreign jurisdictions will be made available with greater investment flexibility.

The majority of the Company’s cash and cash equivalents held outside of the United States as of March 27, 2022 are denominated in the U.S.

The majority of the Company’s cash and cash equivalents held outside of the United States as of June 26, 2022 are denominated in the U.S.

Because of the seasonality in the Company's cash flow, management believes that on an interim basis, rather than discussing only its cash flows, a better understanding of its liquidity and capital resources can be obtained through a discussion of the various balance sheet categories.

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The table below outlines key financial information (in millions of dollars) pertaining to our consolidated balance sheets including the period-over-period changes.

March 27, 2022 March 28, 2021 % Change

June 26, 2022 June 27, 2021 % Change

Cash and cash equivalents (including restricted cash of $41.9 and $83.1) $ 628.2 $ 1,228.2 -49 %

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Other liabilities 570.0 753.0 -24 %

Accounts receivable increased 15% to $931.7 million at March 27, 2022, compared to $810.4 million at March 28, 2021.

Accounts receivable increased 1% to $870.5 million at June 26, 2022, compared to $865.9 million at June 27, 2021.

Absent the unfavorable foreign currency exchange impact of $27.8 million, accounts receivable increased 4% or $32.5 million.

The increase in accounts receivable was driven by higher sales during the first quarter of 2022.

Days sales outstanding increased from 66 days at March 28, 2021 to 73 days at March 27, 2022 primarily due to Entertainment receivables, which have longer collection periods.

Inventories increased to $644.3 million as of March 27, 2022, compared to $429.2 million at March 28, 2021.

The increase in accounts receivable was driven by higher sales during the first six months of 2022, partially offset by improved collections.

Days sales outstanding decreased from 60 days at June 27, 2021 to 59 days at June 26, 2022.

Inventories increased 74% to $867.5 million as of June 26, 2022, compared to $499.6 million at June 27, 2021.

Absent the unfavorable foreign currency exchange impact of $36.2 million, inventories increased 81% or $404.1 million.

The increase in 2022 inventory balances reflects increased lead-times and higher freight-in costs, most notably in the U.S.

The increase in 2022 inventory balances reflects accelerated inventory purchases in the first half of 2022 in an effort to mitigate the impact of certain global supply chain challenges, including increased lead-times and higher freight-in costs, most notably in the U.S.

and Europe, attributable to the Company's Consumer Products and Wizards of the Coast tabletop gaming businesses.

In addition, to mitigate the impact of certain global supply chain challenges, the Company accelerated inventory purchases in the first quarter.

Prepaid expenses and other current assets increased 10% to $621.4 million at March 27, 2022 from $566.0 million at March 28, 2021.

The increase was driven by higher accrued tax credit balances related to film and television production costs due to increased productions and timing of tax credit claims as well as higher accrued royalty and licensing balances, primarily attributable to the Company's Entertainment business.

Prepaid expenses and other current assets increased 32% to $719.2 million at June 26, 2022 from $543.2 million at June 27, 2021.

The increase was driven by higher accrued tax credit balances related to film and television production costs, due to increased productions and timing of tax credit claims, as well as higher accrued royalty and licensing balances, primarily attributable to the Company's Entertainment business and higher unrealized gains on foreign exchange contracts.

These increases were partially offset by lower prepaid royalty balances in relation to the Company’s MARVEL, POWER RANGERS and DISNEY PRINCESS royalty agreements and from lower prepaid tax balances during the second quarter 2022.

Other assets increased to $1,284.9 million at March 27, 2022 from $1,266.0 million at March 28, 2021.

The increase was driven by higher capitalized film and television content and production balances due to increased investments in productions and acquired content, higher long-term accrued income balances related to certain of the Company's content distribution arrangements 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 an impairment charge recorded in the fourth quarter of 2021 and distributions made in the first quarter of 2022, and from certain content and production assets sold in connection with the sale of eOne Music during the third quarter of 2021.

Accounts payable and accrued liabilities increased 12% to $1,783.1 million at March 27, 2022 from $1,595.7 million at March 28, 2021 driven by higher account payable balances, higher accrued freight balances due to increased costs as a result of supply chain disruptions, higher accrued royalty balances due to higher sales of partner brand products as well as growth in the Entertainment segment, higher accrued expenses for investments in content and productions, higher incentive compensation accruals, and higher accrued tax balances.

These increases were partially offset by lower deferred revenue balances due to the timing of certain scripted television content deliveries, lower accounts payable and accrued liabilities balances associated with the sale of eOne Music and lower severance accruals from payments made in relation to restructuring actions taken in 2020.

Other liabilities decreased 19% to $633.6 million at March 27, 2022 from $777.7 million at March 28, 2021.

The decrease was driven by lower long-term lease liability balances, lower long-term deferred tax liability balances due to the sale of eOne Music during the third quarter of 2021, a lower Discovery option agreement balance due to a revaluation of the Discovery Family Channel investment during the fourth quarter of 2021, a lower transition tax liability balance reflecting the reclassification of the 2021 installment payment due April 2022, and lower tax reserves.

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the quarters ended March 27, 2022 and March 28, 2021.

March 27, 2022 March 28, 2021

Other assets increased 1% to $1,367.6 million at June 26, 2022 from $1,350.5 million at June 27, 2021.

The increase was driven by higher long-term accrued income balances related to certain of the Company's content distribution arrangements and increased 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 an impairment charge recorded in the fourth quarter of 2021 and distributions received in the first six months of 2022, and from certain content and production assets sold in connection with the sale of eOne Music during the third quarter of 2021.

Accounts payable and accrued liabilities increased 8% to $1,923.2 million at June 26, 2022 from $1,778.9 million at June 27, 2021 driven by higher account payable balances due to increased inventory purchases, higher accrued freight balances due to increased costs as a result of supply chain disruptions, higher accrued royalty balances due to higher sales of partner brand products, as well as higher participations and residuals and higher accrued tax balances.

These increases were partially offset by lower deferred revenue balances due to the timing of certain scripted television content deliveries, lower accounts payable and accrued liabilities balances associated with the sale of eOne Music, lower incentive compensation accruals and lower severance accruals from payments made in relation to restructuring actions taken in 2020.

Other liabilities decreased 24% to $570.0 million at June 26, 2022 from $753.0 million at June 27, 2021.

The decrease was driven by lower long-term lease liability balances, lower long-term deferred tax liability balances due to the sale of eOne Music during the third quarter of 2021, a lower transition tax liability balance reflecting the reclassification of the 2022 installment payment due April 2023, a lower Discovery option agreement balance due to a revaluation of the Discovery Family Channel investment during the fourth quarter of 2021, and lower deferred revenue balances.

The following table summarizes the changes in the Consolidated Statement of Cash Flows, expressed in millions of dollars, for the six-month periods ended June 26, 2022 and June 27, 2021.

June 26, 2022 June 27, 2021

Net cash provided by (utilized for):

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Financing activities (319.9) (718.4)

Net cash provided by operating activities in the first quarter of 2022 was $134.7 million compared to $377.6 million in the first quarter of 2021.

The $242.9 million decrease in net cash provided by operating activities was primarily attributable to lower earnings in 2022 and higher working capital requirements, including higher inventory costs, higher incentive bonus payments and higher freight costs due to ongoing supply chain constraints.

Net cash utilized for investing activities was $23.9 million in the first quarter of 2022 compared to $25.5 million in the first quarter of 2021.

Additions to property, plant and equipment were $29.2 million in the first quarter of 2022 compared to $23.9 million in the first quarter of 2021.

Net cash utilized for financing activities was $77.5 million in the first quarter of 2022 compared to $370.8 million in the first quarter of 2021.

Financing activities in the first quarter of 2022 include payments totaling $57.5 million related to the $1.0 billion in term loans described below, consisting of $50.0 million principal and a quarterly principal amortization payment of $7.5 million toward the Five-Year Tranche loan, in addition to drawdowns of $112.2 million and repayments of $84.0 million,

related to production financing loans.

Financing activities in the first quarter of 2021 included the early repayment of $300.0 million aggregate principal amount of 3.15% Notes due May 2021, as well as drawdowns of $72.4 million and repayments of $37.4 million related to production financing loans.

In addition, during the first quarter of 2021, the Company made a quarterly principal amortization payment of $7.5 million toward the Five-Year Tranche loan described below.

Dividends paid in the first quarter of 2022 totaled $94.5 million, consistent with dividends paid in the first quarter of 2021 of $93.4 million.

Net cash provided by operating activities in the first six months of 2022 was $147.8 million compared to $577.1 million in the first six months of 2021.

The $429.3 million decrease in net cash provided by operating activities was primarily attributable to higher working capital requirements, including higher inventory costs, higher incentive bonus payments, higher royalty payments and higher freight costs due to ongoing supply chain constraints.

Net cash utilized for investing activities was $212.6 million in the first six months of 2022 compared to $66.3 million in the first six months of 2021.

The increase in cash used reflects a cash payment of $146.3 million related to the D&D Beyond Acquisition during the second quarter of 2022.

Additions to property, plant and equipment were $75.8 million in the first six months of 2022 compared to $63.1 million in the first six months of 2021.

Net cash utilized for financing activities was $319.9 million in the first six months of 2022 compared to $718.4 million in the first six months of 2021.

Financing activities in the first six months of 2022 include payments totaling $57.5 million related to the $1.0 billion in term loans described below, consisting of a $50.0 million principal and quarterly principal amortization payment of $7.5 million toward the Five-Year Tranche loan, as well as drawdowns of $137.7 million and repayments of $133.3 million related to production financing loans and cash payments of $124.0 million to repurchases the Company's common stock.

Financing activities in the first six months of 2021 included the repayment of $300.0 million aggregate principal amount of 3.15% Notes and payments totaling $265.0 million related to the $1.0 billion in term loans consisting of $250.0 million towards the principal balance of the Three-Year Tranche loans and quarterly principal payments totaling $15.0 million.

In addition, the Company had drawdowns of $114.7 million and repayments of $70.2 million related to production financing loans.

Dividends paid in the first six months of 2022 totaled $191.9 million, compared to $187.5 million in the first six months of 2021 reflecting a higher dividend rate commencing with the May 2022 dividend payment.

Beginning with employee stock incentive awards granted in 2022, the payment of cash dividends to shareholders also results in the crediting of Dividend Equivalent Units (“DEUs”) to holders of restricted stock units ("RSUs") and contingent stock performance awards ("PSUs") granted under the Company’s Restated 2003 Stock Incentive Plan, as amended, for employees as described in Note 14 in the Company's Annual Report on Form 10-K for the year ended December 26, 2021.

The DEUs will be credited as additional RSUs or PSUs and settled concurrently with the vesting of associated awards.

Sources and Uses of Cash

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Trading card and digital gaming revenues have shorter collection periods, but product development expense often occurs years prior to release and revenue generation.

During the first quarter of 2022 and 2021, the Company primarily used cash from operations and, to a lesser extent, borrowings under available lines of credit, in particular production financing vehicles, to fund its working capital.

During the first six months of 2022 and 2021, the Company primarily used cash from operations and, to a lesser extent, borrowings under available lines of credit, in particular production financing vehicles, to fund its working capital.

The Company has an agreement with a group of banks which provides for a commercial paper program (the "Program").

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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 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.

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If, for any reason, the Company is unable to access the commercial paper market, the Company intends to use the revolving credit agreement to meet the Company's short-term liquidity needs.

At March 27, 2022, the Company had no outstanding borrowings related to the Program.

At June 26, 2022, the Company had no outstanding borrowings related to the Program.

The Company has a second amended and restated revolving credit agreement with Bank of America, N.A., as administrative agent, swing line lender and a letter of credit issuer and lender and certain other financial institutions, as lenders thereto (the "Amended Revolving Credit Agreement"), which provides the Company with commitments having a maximum aggregate principal amount of $1.5 billion.

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The Amended Revolving Credit Agreement extends through September 20, 2024.

The Company was in compliance with all covenants as of March 27, 2022.

The Company had no borrowings outstanding under its committed revolving credit facility as of March 27, 2022.

However, letters of credit outstanding under this facility as of March 27, 2022 were approximately $3.1 million.

Amounts available and unused under the committed line, at March 27, 2022 were approximately $1.5 billion, inclusive of borrowings under the Company’s commercial paper program.

The Company also has other uncommitted lines from various banks, of which approximately $10.9 million was utilized at March 27, 2022.

The Company was in compliance with all covenants as of June 26, 2022.

The Company had no borrowings outstanding under its committed revolving credit facility as of June 26, 2022.

However, letters of credit outstanding under this facility as of June 26, 2022 were approximately $3.1 million.

Amounts available and unused under the committed line at June 26, 2022 were approximately $1.5 billion, inclusive of borrowings under the Company’s commercial paper program.

The Company also has other uncommitted lines from various banks, of which approximately $10.5 million was utilized at June 26, 2022.

Of the amount utilized under, or supported by, the uncommitted lines, approximately $9.6 million and $0.9 million represent letters of credit and outstanding short-term borrowings, respectively.

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On December 30, 2019, the Company completed the acquisition of eOne and on that date, borrowed the full amount of $1.0 billion under the Term Loan Facilities.

As of March 27, 2022, the Company has fully repaid the Three-Year Tranche $400.0 million principal term loan, and of the Five-Year Tranche $600.0 million principal balance, the Company has repaid a total of $260.0 million in the following increments:

As of June 26, 2022, the Company has fully repaid the Three-Year Tranche $400.0 million principal term loan, and of the Five-Year Tranche $600.0 million principal balance, the Company has repaid a total of $260.0 million in the following increments:

$22.5 million in 2020;

$180.0 million in 2021;

and, $57.5 million in the first quarter of 2022

consisting of $50.0 million principle and a quarterly principal amortization payment of $7.5 million.

The Company is subject to certain financial covenants contained in this agreement and as of March 27, 2022, the Company was in compliance with these covenants.

and, $57.5 million in the first six months of 2022 consisting of $50.0 million principal and a quarterly principal amortization payment of $7.5 million.

The Company is subject to certain financial covenants contained in this agreement and as of June 26, 2022, the Company was in compliance with these covenants.

The terms of the Term Loan Facilities are described in note 7 to the consolidated financial statements included in Part I of this Form 10-Q.

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The terms of the Notes are described in note 7 to the consolidated financial statements in Part I of this Form 10-Q.

The Company uses production financing facilities to fund its film and television productions which are typically arranged on an individual production basis by either special purpose production subsidiaries, each secured by the assets and future revenues of such production subsidiaries, which are non-recourse to the Company's assets, or through a senior revolving credit facility dedicated to production financing obtained in November 2021.

The Company uses production financing facilities to fund its film and television productions which are arranged on an individual production basis by either special purpose production subsidiaries, each secured by the assets and future revenues of such production subsidiaries, which are non-recourse to the Company's assets, or through a senior revolving credit facility obtained in November 2021, dedicated to production financing.

The Company's senior revolving film and television production credit facility (the “RPCF”) with MUFG Union Bank, N.A., as administrative agent and lender and certain other financial institutions, as lenders thereto (the “Revolving Production Financing Agreement”) provides the Company with commitments having a maximum aggregate principal amount of $250.0 million.

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Borrowings under the RPCF are non-recourse to the Company's assets.

Going forward, the Company expects to utilize the revolving production financing facility for the majority of its production financing needs.

During the first quarter of 2022, the Company had total drawdowns of $112.2 million and repayments of $84.0 million towards these production financing facilities.

As of March 27, 2022 the Company had outstanding production financing borrowings related to these facilities of $199.1 million, $95.8 million of which are recorded within the current portion of long-term debt and $103.3 million are recorded within short-term borrowings in the Company's consolidated balance sheets, included in Part I of this Form 10-Q.

The Company has principal amounts of long-term debt as of March 27, 2022 of $3.9 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $155.8 million is current at March 27, 2022 of which $60.0 million is related to principal amortization of the 5-year term loans due December 2024 and $95.8 million represents the Company's outstanding production financing facilities described above.

The Company expects to utilize the revolving production financing facility for the majority of its future production financing needs.

During the first six months of 2022, the Company had total drawdowns of $137.7 million and repayments of $133.3 million towards these production financing facilities.

As of June 26,

2022, the Company had outstanding production financing borrowings related to these facilities of $175.0 million, $77.0 million of which are recorded within the current portion of long-term debt and $98.0 million are recorded within short-term borrowings in the Company's consolidated balance sheets, included in Part I of this Form 10-Q.

The Company has principal amounts of long-term debt as of June 26, 2022 of $3.9 billion, due at varying times from 2024 through 2044.

Of the total principal amount of long-term debt, $137.0 million is current at June 26, 2022 of which $60.0 million is related to principal amortization of the 5-year term loans due December 2024 and $77.0 million represents the Company's outstanding production financing facilities described above.

During the first quarter of 2021, the Company repaid in full its 3.15% Notes in the aggregate principal amount of $300.0 million due in May 2021, including accrued interest.

All of the Company’s other long-term borrowings have contractual maturities that occur subsequent to the third quarter of 2024, with the exception of certain of the Company’s production financing facilities discussed above.

The Company also had letters of credit and other similar instruments of approximately $13.4 million and purchase commitments of approximately $405.3 million outstanding at March 27, 2022.

The Company also had letters of credit and other similar instruments of approximately $12.8 million and purchase commitments of approximately $413.3 million outstanding at June 26, 2022.

Other contractual obligations and commercial commitments, as detailed in the Company's 2021 Form 10-K, did not materially change outside of certain payments made in the normal course of business and as otherwise set forth in this report.

The Company has a long history of returning cash to its shareholders through quarterly dividends and share repurchases.

In February 2022, Hasbro maintained its quarterly dividend rate of $0.68 per share with its first dividend payment of 2022.

In addition, in February 2022, the Company’s Board of Directors announced a 3% increase to the Company’s quarterly dividend rate from $0.68 per share to $0.70 per share, for the dividend scheduled to be paid in May 2022.

Hasbro increased the quarterly dividend rate from $0.68 per share to $0.70 per share effective for the dividend paid in May 2022.

The Company also returns cash to shareholders through its share repurchase program.

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The most recent authorization was approved in May 2018 for $500 million.

Since 2005, Hasbro has repurchased 108.6 million shares at a total cost of $4.0 billion and an average price of $36.44 per share.

At March 27, 2022, the Company had $366.6 million remaining under these share repurchase authorizations.

Following the Company's acquisition of eOne, the Company temporarily suspended its share repurchase program to prioritize deleveraging.

There were no repurchases of the Company's common stock in the first quarter of 2022.

A share repurchase program continues to be an important long-term component of Hasbro’s capital allocation strategy.

In April 2022, given the Company's progress towards reducing debt, the Company announced plans to resume its share repurchase activity during the second quarter of 2022, with a target of repurchasing $75.0 million to $150.0 million of Hasbro common stock in the open market in 2022.

In April 2022, given the Company's progress towards reducing debt, the Company resumed its share repurchase activity and repurchased approximately 1.4 million shares at a total cost of $124.0 million and at an average price of $87.48 per share.

At June 26, 2022, the Company had $242.6 million remaining under these share repurchase authorizations.

Share repurchases are subject to market conditions, the availability of funds and other uses of funds.

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.

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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, Russian ruble and Mexican peso and, to a lesser extent, other currencies in Latin American and Asia Pacific countries.

dollar, Euro, British pound sterling, Canadian dollar, Japanese Yen, 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.

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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.

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.

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The Company does not speculate in foreign currency exchange contracts.

At March 27, 2022, these contracts had net unrealized gains of $5.3 million, of which $9.9 million of unrealized gains are recorded in prepaid expenses and other current assets, $4.4 million of unrealized losses are recorded in accrued liabilities and $0.2 million of unrealized losses are recorded in other long-term liabilities.

Included in accumulated other comprehensive loss at March 27, 2022 are deferred gains, net of tax, of $8.7 million, related to these derivatives.

At March 27, 2022, the Company had principal amounts long-term debt of $3.7 billion.

At June 26, 2022, these contracts had net unrealized gains of $19.0 million, of which $19.3 million of unrealized gains are recorded in prepaid expenses and other current assets, $0.5 million of unrealized gains are recorded in other assets and $0.8 million of unrealized losses are recorded in accrued liabilities.

Included in accumulated other comprehensive loss at June 26, 2022 are deferred gains, net of tax, of $15.8 million, related to these derivatives.

At June 26, 2022, the Company had principal amounts of long-term debt of $3.9 billion.

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.

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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 March 27, 2022 are deferred losses, net of tax, of $15.4 million related to these derivatives.

The impact of inflation on the Company's business operations has been significant during the first quarter of 2022 compared to prior years.

However, due to mitigating actions taken by the Company, such as price increases during 2021 where deemed necessary, the impact of general price inflation on our financial position and results of operations has been reduced.

The Company continues to monitor the impact of inflation to its business operations on an ongoing basis and plans to implement additional price increases in 2022 and may need to adjust its prices further to mitigate the impact of changes to the rate of inflation in future periods.

However, future volatility of general price inflation and 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.

Included in accumulated other comprehensive loss at June 26, 2022 are deferred losses, net of tax, of $15.2 million related to these derivatives.

The impact of inflation on the Company's business operations has been significant during the first six months of 2022 compared to prior years.

However, due to mitigating actions taken by the Company, such as price increases where deemed necessary, the impact of general price inflation on our financial position and results of operations has been reduced.

The Company continues to monitor the impact of inflation to its business operations on an ongoing basis and may need to adjust its prices further 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.

Quantitative and Qualitative Disclosures About Market Risk.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis