Business Combination

12 Months Ended

Dec. 27, 2020

On December 30, 2019, the Company completed its acquisition of eOne, a global independent studio that specializes in the development, acquisition, production, financing, distribution and sales of entertainment content. eOne's principal brand, PEPPA PIG, which was launched in the United Kingdom in May 2004, entertains preschool children worldwide with much of its historical revenue generated through licensing and merchandising programs across multiple retail categories. eOne’s portfolio of preschool brands also includes PJ MASKS.

The addition of eOne accelerates the Company's brand blueprint strategy by expanding our brand portfolio with eOne's global preschool brands, adding proven TV and film expertise and executive leadership as well as by enhancing brand building capabilities and our storytelling capabilities to strengthen Hasbro brands.

The all-cash transaction was valued at approximately £2,900,000 based on the consideration of £5.60 per common share of eOne. Converted at the rate of $1.31 USD/GBP on December 30, 2019, the cash consideration for shares outstanding was approximately $3,658,000. The Company also redeemed eOne's outstanding senior secured notes and paid off the debt outstanding under eOne's revolving credit facility, which together represented approximately $831,000 of eOne's indebtedness. The total cash consideration transferred by the Company was approximately $4,635,000.

The total consideration transferred, in thousands of dollars except per share data, was as follows:


Acquisition Consideration
eOne common shares outstanding as of December 30, 2019	498,040
Cash consideration per share	$	7.35
Total consideration for shares outstanding	3,658,345
Cash consideration for employee share based payment awards outstanding	145,566
Cash consideration for extinguishment of debt	831,130
Total cash consideration	4,635,041
Less: Employee awards to be recorded as future stock compensation expense	47,399
Total consideration transferred	$	4,587,642

The Company financed the acquisition with proceeds from the following debt and equity financings: (1) the issuance of senior unsecured Notes in an aggregate principal amount of $2,375,000 in November 2019, (2) the issuance of 10,592 shares of common stock at a public offering price of $95.00 per share in November 2019 (resulting in net proceeds of $975,185) and (3) $1,000,000 in term loans provided by a term loan agreement, which were borrowed on the date of closing. See note 11 for further discussion of the issuance of the senior unsecured notes and term loan agreement.

The acquisition was accounted for as a business combination under FASB Accounting Standards Codification Topic 805, Business Combinations (“Topic 805”). Pursuant to Topic 805, the Company allocated the eOne purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date, December 30, 2019. The excess of the purchase price over those fair values was recorded to goodwill. The Company's evaluations of the facts and circumstances available as of December 30, 2019, to assign fair values to assets acquired and liabilities assumed, including income tax related amounts, continued throughout 2020. As we completed further analysis of assets including program rights, investment in films and television content, intangible assets, as well as deferred revenue, noncontrolling interest, tax and certain other liabilities, additional information impacting the assets acquired, liabilities assumed and the related allocation thereof, became available. As a result, changes in information related to the net assets acquired, impacted the amount of the purchase price assigned to goodwill resulting in adjustments to the preliminary fair values set forth below, as additional information was obtained and valuations were completed. Provisional adjustments were recognized during the reporting period in which the adjustments were determined and are identified as measurement period adjustments below. The adjustments made to the fair value of acquired investments in productions and content and intangible assets did not result in material changes to the amortization expense recorded in previous quarters.

The following table summarizes our allocation of the December 30, 2019 eOne purchase price (in thousands of dollars), as adjusted during the year ended December 27, 2020:


	Initial Fair Value		Measurement Period Adjustments		Updated Fair Value
Cash, cash equivalents and restricted cash	$	183,713	$	(9,019)	$	174,694
Accounts receivable, net	259,061		(622)		258,439
Inventories	7,029		—		7,029
Other current assets	286,270		(12,968)		273,302
Property, plant and equipment (including right of use assets)	90,339		35,333		125,672
Intangible assets	1,055,249		751		1,056,000
Content assets - IIC and IIP	751,524		(186,696)		564,828
Other assets	183,209		(58,688)		124,521
Short-term borrowings	(11,011)		(4,377)		(15,388)
Current portion of long-term debt	(60,533)		(60,498)		(121,031)
Accounts payable, and accrued liabilities	(761,086)		100,244		(660,842)
Long-term debt	(149,118)		67,279		(81,839)
Other liabilities	(262,644)		19,087		(243,557)
Noncontrolling interests	(63,541)		(6,041)		(69,582)
Estimated fair value of net assets acquired	1,508,461		(116,215)		1,392,246
Goodwill	3,079,181		116,215		3,195,396
Total purchase price	$	4,587,642	$	—	$	4,587,642

Intangible assets consist of intellectual property associated with established brands, eOne artist relationships, eOne music catalogs and trademarks and tradenames with estimated useful lives ranging from 7 to 15 years, determined based on when the related cash flows are expected to be realized. The fair value of the intangible assets acquired was determined based on the estimated future cash flows to be generated from the acquired assets, considering assumptions related to contract renewal rates and estimated brand franchise revenue growth. The following table summarizes the intangible assets acquired as part of the eOne Acquisition for the year ended December 27, 2020:


Intangible assets acquired	Weighted Average Amortization Period	Fair value
Established brands	10 years	615,000
Trade names	15 years	100,000
Artist relationships	14 years	100,000
Music catalogs	12 years	120,000
Other	8 years	$	121,000
Total intangible assets acquired	11 years	$	1,056,000

Investments in productions and content, or IIP and IIC, includes the fair value of completed films and television programs which have been produced by eOne or for which eOne has acquired distribution rights, as well as the fair value of films and television programs in production, pre-production and development. For films and television programs, fair values were estimated based on forecasted cash flows, discounted to present value. For titles less than 3 years old and titles in development, the content assets will be amortized using the individual film forecast method, wherein the amortization will phase to the revenues recognized. For titles over 3 years old, the estimated useful life is 10 years, and will be amortized straight-line over that period.

Deferred tax liabilities within other liabilities were adjusted to record the deferred tax impact of purchase price accounting adjustments, primarily related to intangible assets.

Other fair value adjustments were made to accounts, such as deferred revenue within accrued liabilities to reflect the fair value of the liability upon acquisition.

The former eOne senior notes were adjusted to fair value prior to extinguishment using quoted market values, and the fair value of the outstanding amounts under eOne's credit facility were estimated to approximate their carrying values.

Goodwill of $3,195,396 represents the excess of the purchase price over the fair value of the underlying tangible and identifiable intangible assets acquired and liabilities assumed. The acquisition goodwill represents the value placed on the combined company’s brand building capabilities, storytelling capabilities and franchise economics in TV, film and other mediums to strengthen Hasbro brands. In addition, the acquisition goodwill depicts added benefits of long-term profitable growth through in-sourcing toy and game production for the acquired preschool brands and cost-synergies, as well as future revenue growth opportunities. The goodwill recorded as part of this acquisition was allocated to the Company's reportable segments as follows: eOne: $2,241,396, U.S. and Canada: $521,217, International: $329,612, and Entertainment, Licensing and Digital: $103,171. The goodwill associated with the acquisition will not be amortized for financial reporting purposes and will not be deductible for federal tax purposes. See note 6 for further information on the Company's goodwill.

The following table summarizes net revenues and loss before income taxes, of eOne included in the Company's Consolidated Statement of Operations since the date of acquisition for the year ended December 27, 2020 (in thousands of dollars).


	Year Ended
	December 27, 2020
eOne:
Net revenues	$	957,471
Loss before income taxes	(112,378)

In 2020 the Company incurred charges of $218,566 related to the eOne Acquisition, which are recorded in acquisition and related costs within the Company’s Consolidated Statement of Operations.

The acquisition and related costs for the year ended December 27, 2020 consist of the following:

•Acquisition and integration costs of $145,169 including expense associated with the acceleration of eOne stock-based compensation and advisor fees settled at the closing of the acquisition, integration costs and impairment charges in the fourth quarter of 2020 for certain definite-lived intangible and other assets; and

•Restructuring and related costs of $73,397 which includes severance and retention costs, as well as impairment charges in the first quarter of 2020 for certain definite-lived intangible and production assets.

Of the $218,566 acquisition and related charges recorded in 2020, $112,417 were included within the eOne segment and $20,831 were included within the Entertainment, Licensing and Digital segment. The remaining charges were included in Corporate and Eliminations.

In addition to the acquisition and related costs, the eOne loss before income taxes for the year ended December 27, 2020 includes $97,856 of amortization expense related to the acquired intangible assets noted above.

Pursuant to Topic 805, unaudited supplemental pro forma results of operations for the year ended December 29, 2019, as if the acquisition of eOne had occurred on December 31, 2018, the first day of the Company’s 2019 fiscal year are presented below (in thousands, except per share amounts):


	Year Ended
	December 29, 2019
Revenues	$	5,936,000
Net earnings	351,313
Net earnings attributable to Hasbro, Inc.	345,911

Net earnings per common share attributable to Hasbro, Inc.:
Diluted	$	2.51
Basic	$	2.51

The Company acquired eOne on the first day of fiscal year 2020, as such our actual results reflect the acquisition occurring on the first day of the current period.

These pro forma results do not represent financial results that would have been realized had the acquisition occurred on December 31, 2018, nor are they intended to be a projection of future results.

The unaudited pro forma results include certain pro forma adjustments to net earnings that were directly attributable to the acquisition, as if the acquisition had occurred on December 31, 2018, including the following:

•elimination of transaction costs of $24,267 for the year ended December 29, 2019, incurred by Hasbro and eOne related to the eOne Acquisition, included in Selling, Distribution and Administration;

•additional amortization expense of $38,823 for the year ended December 29, 2019, that would have been recognized as a result of the allocation of purchase consideration to definite-lived intangible assets subject to amortization;

•estimated differences in interest expense of $75,351 for the year ended December 29, 2019, as a result of incurring new debt and extinguishing historical eOne debt;

•total adjustments to Other (Income) Expense of $74,752 for the year ended December 29, 2019, consisting of:

◦elimination of a gain of $94,564 for the year ended December 29, 2019, related to the mark to market of foreign exchange forward and option contracts, which the Company entered into in order to hedge a portion of the British pound sterling purchase price for the eOne Acquisition; and

◦elimination of a charge of $19,812 for the year ended December 29, 2019, related to premiums paid by eOne in connection with the 2019 early redemption and refinancing of its senior secured notes and the related write-off of unamortized deferred finance charges associated with the senior secured notes;

•the income tax effect of the pro forma adjustments resulted in income tax benefits of $12,250 for the year ended December 29, 2019, calculated using a blended statutory income tax rate of 22.5% for the eOne adjustments, and a blended statutory tax rate of 21% for the Hasbro adjustments.