Financial Instruments

9 Months Ended

Sep. 27, 2020

The Company's financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At September 27, 2020, September 29, 2019 and December 29, 2019, the carrying cost of these instruments approximated their fair value. The Company's financial instruments at September 27, 2020, September 29, 2019 and December 29, 2019 also include certain assets and liabilities measured at fair value (see Notes 10 and 11) as well as long-term borrowings. The carrying costs, which are equal to the outstanding principal amounts, and fair values of the Company's long-term borrowings as of September 27, 2020, September 29, 2019 and December 29, 2019 are as follows:


	September 27, 2020			September 29, 2019			December 29, 2019
	Carrying Cost		Fair Value	Carrying Cost		Fair Value	Carrying Cost		Fair Value
3.90% Notes Due 2029	$	900,000	947,520	$	—	—	$	900,000	893,430
3.55% Notes Due 2026	675,000		716,108	—		—	675,000		680,670
3.00% Notes Due 2024	500,000		531,850	—		—	500,000		502,150
6.35% Notes Due 2040	500,000		587,400	500,000		587,850	500,000		581,600
3.50% Notes Due 2027	500,000		518,750	500,000		511,200	500,000		500,550
2.60% Notes Due 2022	300,000		310,680	—		—	300,000		300,960
5.10% Notes Due 2044	300,000		313,350	300,000		310,080	300,000		301,980
3.15% Notes Due 2021	300,000		303,540	300,000		303,300	300,000		303,900
6.60% Debentures Due 2028	109,895		130,324	109,895		133,555	109,895		130,610
Variable % Notes Due December 30, 2022	400,000		400,000	—		—	—		—
Variable % Notes Due December 30, 2024	577,500		577,500	—		—	—		—
Production Financing Facilities	121,444		121,444	—		—	—		—
Total long-term debt	5,183,839		5,458,466	1,709,895		1,845,985	4,084,895		4,195,850
Less: Deferred debt expenses	36,763		—	13,691		—	38,438		—
Less: Current portion	369,269		—	—		—	—		—
Long-term debt	$	4,777,807	5,458,466	$	1,696,204	1,845,985	$	4,046,457	4,195,850

In November 2019, in conjunction with the Company's acquisition of eOne, the Company issued an aggregate of $2,375,000 of senior unsecured debt securities (the "Notes") consisting of the following tranches: $300,000 of notes due 2022 (the "2022 Notes") that bear interest at a fixed rate of 2.60%, $500,000 of notes due 2024 (the "2024 Notes") that bear interest at a fixed rate of 3.00%, $675,000 of notes due 2026 (the "2026 Notes") that bear interest at a fixed rate of 3.55% and $900,000 of notes due 2029 (the "2029 Notes") that bear interest at a fixed rate of 3.90%. Net proceeds from the issuance of the Notes, after deduction of $20,043 of underwriting discount and fees, totaled $2,354,957. These costs are being amortized over the life of the Notes, which range from three to ten years. The Notes bear interest at the stated rates but may be subject to upward adjustment if the credit rating of the Company is reduced by Moody's or Standard & Poors. The adjustment can be from 0.25% to 2.00% based on the extent of the ratings decrease. The Company may redeem the Notes at its option at the greater of the principal amount of the Notes or the present value of the remaining scheduled payments discounted using the effective interest rate on applicable U.S. Treasury bills at the time of repurchase, plus (1) 15 basis points (in the case of the 2022 Notes); (2) 25 basis points (in the case of the 2024 Notes); (3) 30 basis points (in the case of the 2026 Notes); and (4) 35 basis points (in the case of the 2029 Notes). In addition, on and after October 19, 2024 for the 2024 Notes, September 19, 2026 for the 2026 Notes and August 19, 2029 for the 2029 Notes, such series of Notes will be redeemable, in whole at any time or in part from time to time, at the Company's option at a redemption price equal to 100% of the principal amount of the Notes to be redeemed plus any accrued and unpaid interest.

In September 2019, the Company entered into a $1.0 billion Term Loan Agreement (the "Term Loan Agreement”) with Bank of America N.A. (“Bank of America”), as administrative agent, and certain financial institutions as lenders, pursuant to which such lenders committed to provide, contingent upon the completion of the eOne Acquisition and certain other customary conditions to funding, (1) a three-year senior unsecured term loan facility in an aggregate principal amount of $400,000 (the “Three-Year Tranche”) and (2) a five-year senior unsecured term loan facility in an aggregate principal amount of $600,000 (the “Five-Year Tranche” and together with the Three-Year Tranche, the “Term Loan Facilities”). Loans under the Term Loan Facilities bear interest at the Company’s option, at either the Eurocurrency Rate or the Base Rate, in each case plus a per annum applicable rate that fluctuates (1) in the case of the Three-Year Tranche, between 87.5 basis points and 175.0 basis points, in the

case of loans priced at the Eurocurrency Rate, and between 0.0 basis points and 75.0 basis points, in the case of loans priced at the Base Rate, and (2) in the case of the Five-Year Tranche, between 100.0 basis points and 187.5 basis points, in the case of loans priced at the Eurocurrency Rate, and between 0.0 basis points and 87.5 basis points, in the case of loans priced at the Base Rate, in each case, based upon the non-credit enhanced, senior unsecured long-term debt ratings of the Company by Fitch Ratings Inc., Moody’s Investor Service, Inc. and S&P Global Rankings, subject to certain provisions taking into account potential differences in ratings issued to the relevant rating agencies or a lack of ratings issued by such rating agencies. Loans under the Five-Year Tranche require principal amortization payments that are payable in equal quarterly installments of 5.0% per annum of the original principal amount thereof for each of the first two years after funding, increasing to 10.0% per annum of the original principal amount thereof for each subsequent year. The Term Loan Agreement contains affirmative and negative covenants typical of this type of facility, including: (i) restrictions on the Company’s and its domestic subsidiaries’ ability to allow liens on their assets, (ii) restrictions on the incurrence of indebtedness, (iii) restrictions on the Company’s and certain of its subsidiaries’ ability to engage in certain mergers, (iv) the requirement that the Company maintain a Consolidated Interest Coverage Ratio of no less than 3.00:1.00 as of the end of any fiscal quarter and (v) the requirement that the Company maintain a Consolidated Total Leverage Ratio of no more than, depending on the gross proceeds of equity securities issued after the effective date of the acquisition of eOne, 5.65:1.00 or 5.40:1.00 for each of the first, second and third fiscal quarters ended after the funding of the Term Loan Facilities, with periodic step downs to 3.50:1.00 for the fiscal quarter ending December 31, 2023 and thereafter. The notes were drawn down on December 30, 2019, the closing date of the eOne Acquisition. During the first nine months of 2020, the Company made its required quarterly principal amortization payments totaling $22,500 on the Five-Year Tranche loans. As of September 27, 2020, the Company was in compliance with the financial covenants contained in the Term Loan Agreement.

Current portion long-term debt at September 27, 2020 of $369,269, as shown on the consolidated balance sheet, represents the $300,000 of 3.15% Notes that mature during the second quarter of 2021, as well as the current portion of required quarterly principal amortization payments for the Term Loan Facilities and other production financing facilities. All of the Company’s other long-term borrowings have contractual maturities that occur subsequent to 2021 with the exception of certain of the Company’s production financing facilities.

The fair values of the Company's long-term debt are considered Level 3 fair values (see Note 10 for further discussion of the fair value hierarchy) and are measured using the discounted future cash flows method. In addition to the debt terms, the valuation methodology includes an assumption of a discount rate that approximates the current yield on a similar debt security. This assumption is considered an unobservable input in that it reflects the Company's own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement.

Production Financing

In addition to the Company's financial instruments, the Company uses production financing to fund certain of its television and film productions which are arranged on an individual production basis by special purpose production subsidiaries.

Production financing facilities are secured by the assets and future revenue of the individual production subsidiaries and are non-recourse to the Company's assets.

Production financing facilities typically have maturities of less than two years, while the titles are in production, and are repaid once delivered and all credits, broadcaster pre-sales and international sales have been received.


	Quarter Ended
	September 27, 2020
Production financing held by production subsidiaries	$	121,444
Other loans	8,998



Total	$	130,442

Production financing shown in the consolidated balance sheet as:
Non-current	$	82,175
Current	39,269
Total	$	121,444

Other loans of $8,998, consist of production related demand loans, and are recorded within Short-term Borrowings in the Company's consolidated balance sheets.

Interest is charged at bank prime rate plus a margin based on the risk of the respective production. The weighted average interest rate on all production financing as of September 27, 2020 was 5.1%.

The Company has Canadian dollar and U.S. dollar production credit facilities with various banks. The carrying amounts are denominated in the following currencies:


	Canadian Dollars		U.S. Dollars	Total
As of September 27, 2020	$	57,317	73,125	130,442

The following table represents the movements in production financing and other related loans acquired as a result of the eOne Acquisition during the first nine months of 2020:


	Production Financing		Other Loans	Total
December 30, 2019	$	209,651	9,102	218,753
Drawdowns	38,871		22,853	61,724
Repayments	(124,824)		(22,668)	(147,492)
Foreign exchange differences	(2,254)		(289)	(2,543)
Balance at September 27, 2020	$	121,444	8,998	130,442