8-K/A
STARZ ENTERTAINMENT CORP /CN/ (STRZ)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 12, 2024 (December 27, 2023)
Lions Gate Entertainment Corp.
(Exact name of registrant as specified in charter)
British Columbia, Canada
(State or Other Jurisdiction of Incorporation)
| 1-14880 | N/A |
|---|---|
| (Commission File Number) | (IRS Employer Identification No.) |
(Address of principal executive offices)
250 Howe Street, 20th Floor
Vancouver, British Columbia V6C 3R8
and
2700 Colorado Avenue
Santa Monica, California 90404
Registrant’s telephone number, including area code: (877) 848-3866
No Change
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written Communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading<br><br>Symbol(s) | Name of Each Exchange<br><br>on Which Registered |
|---|---|---|
| Class A Voting Common Shares, no par value per share | LGF.A | New York Stock Exchange |
| Class B Non-Voting Common Shares, no par value per share | LGF.B | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
On December 27, 2023, Lions Gate Entertainment Corp., a corporation organized and existing under the corporate laws of British Columbia (the “Company”), filed a Current Report on Form 8-K (the “
Original Form 8-K
”) to announce the completion of its acquisition all of the issued and outstanding equity interests of the companies constituting the Entertainment One (“eOne”) television and film business from Hasbro, Inc., a Rhode Island corporation (“Hasbro”), pursuant to that certain Equity Purchase Agreement dated August 3, 2023, by and among Lions Gate Entertainment Inc., a Delaware corporation, Lions Gate International Motion Pictures S.à.r.l., a Luxembourg société à responsabilité limitée and Hasbro (the “Transaction”).
This amendment amends and supplements the Original Form 8-K solely to provide the financial statements and pro forma financial information relating to the Transaction required under Item 9.01 of Form 8-K, which were excluded from the Original Form 8-K in reliance on the instructions to such item. This amendment reports no other updates or amendments to the Original Form 8-K. The pro forma financial information included in this amendment has been presented for informational purposes only, as required by Form 8-K. It does not purport to represent the actual results of operations that the Company and eOne would have achieved had the companies been combined during the periods presented in the pro forma financial information and is not intended to project the future results of operations that the combined company may achieve after completion of the Transaction.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(a) Financial Statements of Business Acquired.
The audited combined financial statements of eOne as of December 25, 2022 and December 26, 2021 and for the fiscal years then ended are attached hereto as Exhibit 99.1 and incorporated herein by reference.
The unaudited condensed combined financial statements of eOne as of October 1, 2023 and for the nine months ended October 1, 2023 and September 25, 2022 are attached hereto as Exhibit 99.2 and incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined financial statements of the Company for the nine months ended December 31, 2023 and the fiscal year ended March 31, 2023 are attached hereto as Exhibit 99.3 and incorporated herein by reference.
(d) Exhibits
| Exhibit<br><br>No. | Description of Exhibits |
|---|---|
| 23.1 | Consent of KPMG. |
| 99.1 | Audited combined financial statements of eOne, as of December 25, 2022 and December 26, 2021 and for the fiscal years then ended. |
| 99.2 | Unaudited condensed combined financial statements of eOne, as of October 1, 2023 and for the nine months ended October 1, 2023 and September 25, 2022. |
| 99.3 | Unaudited pro forma condensed combined financial statements of the Company for the nine months ended December 31, 2023 and the fiscal year ended March 31, 2023. |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: March 12, 2024
| LIONS GATE ENTERTAINMENT CORP. | |
|---|---|
| (Registrant) | |
| By: | /s/ James W. Barge |
| Name: | James W. Barge |
| Title: | Chief Financial Officer |
EX-23.1
Exhibit 23.1
| KPMG LLP<br> <br>One Financial Plaza, Suite 2300<br><br><br>Providence, RI 02903 |
|---|
Consent of Independent Auditors
We consent to the use of our report dated January 17, 2024, with respect to the combined financial statements of Entertainment One Film and Television Business, included herein.
Providence, Rhode Island
March 8, 2024
KPMG LLP, a Delaware limited liability partnership and a member firm of
the KPMG global organization of independent member firms affiliated with
KPMG International Limited, a private English company limited by guarantee.
EX-99.1
Exhibit 99.1
Entertainment One Film and Television Business
(ABusiness of Hasbro Inc.)
Combined Financial Statements
For the Years Ended December 25, 2022 and December 26, 2021
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
TABLE OF CONTENTS
| Independent Auditors’ Report | 3 |
|---|---|
| Combined Balance Sheets as of December 25, 2022 and December 26, 2021 | 5 |
| Combined Statements of Operations for the fiscal years ended December 25, 2022 and<br>December 26, 2021 | 6 |
| Combined Statements of Comprehensive Loss for the fiscal years ended December 25, 2022 and<br>December 26, 2021 | 7 |
| Combined Statements of Cash Flows for the fiscal years ended December 25, 2022 and<br>December 26, 2021 | 8 |
| Combined Statements of Parent Equity and Redeemable<br>Non-Controlling Interests for the fiscal years ended December 25, 2022 and December 26, 2021 | 9 |
| Notes to Combined Financial Statements | 10 |
2
Independent Auditors’ Report
Those Charged with Governance
Entertainment One Film and Television Business:
Opinion
We have audited the combined financial statements of Entertainment One Film and Television Business (the Company), which comprise the combined balance sheets as of December 25, 2022 and December 26, 2021, and the related combined statements of operations, comprehensive loss, parent equity and redeemable non- controlling interests, and cash flows for the years then ended, and the related notes to the combined financial statements.
In our opinion, the accompanying combined financial statements present fairly, in all material respects, the financial position of the Company as of December 25, 2022 and December 26, 2021, and the results of its operations and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Combined Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Combined Financial Statements
Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with U.S. generally accepted accounting principles, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the combined financial statements are issued.
Auditors’ Responsibilities for the Audit of the Combined Financial Statements
Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined financial statements.
3
In performing an audit in accordance with GAAS, we:
| • | Exercise professional judgment and maintain professional skepticism throughout the audit. |
|---|---|
| • | Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud<br>or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. |
| --- | --- |
| • | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are<br>appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed. |
| --- | --- |
| • | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting<br>estimates made by management, as well as evaluate the overall presentation of the combined financial statements. |
| --- | --- |
| • | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise<br>substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
| --- | --- |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
/s/ KPMG LLP
Providence, Rhode Island
January 17, 2024
4
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Combined Balance Sheets
December 25, 2022 and December 26, 2021
(Thousands of Dollars)
| 2021 | |||
|---|---|---|---|
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents, including restricted cash of 13,600 in 2022 and 35,196 in<br>2021 | 91,077 | $ | 132,880 |
| Accounts receivable, less allowance for credit losses of 2,266 in 2022 and 3,042 in<br>2021 | 157,749 | 128,417 | |
| Inventories | 2,974 | 3,276 | |
| Prepaid expenses and other current assets | 423,456 | 400,433 | |
| Total current assets | 675,256 | **** | 665,006 |
| Operating lease<br>right-of-use assets | 38,233 | 48,531 | |
| Property, plant and equipment, net | 28,696 | 31,079 | |
| Investment in productions and investments in acquired content rights | 694,002 | 596,385 | |
| Goodwill | 231,000 | 231,000 | |
| Other intangibles, net | 118,995 | 141,840 | |
| Other | 115,091 | 58,168 | |
| Total assets | 1,901,273 | $ | 1,772,009 |
| LIABILITIES, NONCONTROLLING INTERESTS AND PARENT EQUITY | |||
| Current liabilities | |||
| Production financing | 194,781 | $ | 170,053 |
| Accounts payable | 29,833 | 6,667 | |
| Deferred revenue | 22,991 | 26,604 | |
| Accrued participation and residuals | 267,037 | 265,397 | |
| Accrued liabilities | 207,252 | 172,940 | |
| Total current liabilities | 721,894 | **** | 641,661 |
| Long-term operating lease liabilities | 31,012 | 40,216 | |
| Deferred revenue | 714 | 1,474 | |
| Other liabilities | 32,175 | 30,467 | |
| Total liabilities | 785,795 | **** | 713,818 |
| Commitments and contingencies (Note 17) | |||
| Redeemable noncontrolling interests | — | 23,938 | |
| Parent equity | |||
| Net parent investment | 1,143,855 | 1,028,975 | |
| Accumulated other comprehensive earnings (loss) | (28,377) | 5,278 | |
| Total parent equity | 1,115,478 | **** | 1,034,253 |
| Total liabilities, noncontrolling interests and parent equity | 1,901,273 | $ | 1,772,009 |
All values are in US Dollars.
See accompanying notes to Combined Financial Statements
5
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Combined Statements of Operations
Fiscal Years Ended December 25, 2022 and December 26, 2021
(Thousands of Dollars)
| 2022 | 2021 | |||
|---|---|---|---|---|
| Net revenues | $ | 827,811 | $ | 921,043 |
| Costs and expenses: | ||||
| Direct operating | 634,506 | 734,352 | ||
| Distribution and marketing | 19,299 | 28,742 | ||
| General and administration | 151,176 | 135,755 | ||
| Depreciation and amortization | 26,013 | 26,291 | ||
| Total costs and expenses | **** | 830,994 | **** | 925,140 |
| Operating loss | **** | (3,183) | **** | (4,097) |
| Interest expense | 14,005 | 8,444 | ||
| Interest income | (3,204) | (3,571) | ||
| Other income, net | (6,661) | 1,302 | ||
| Loss before income taxes | $ | (7,323) | $ | (10,272) |
| Income tax provision | 12,738 | 1,469 | ||
| Net loss | **** | (20,061) | **** | (11,741) |
| Less: Net earnings attributable to noncontrolling interests | 576 | 3,355 | ||
| Net loss attributable to Entertainment One Film and Television Business | $ | (20,637) | $ | (15,096) |
See accompanying notes to Combined Financial Statements.
6
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Combined Statements of Comprehensive Loss
Fiscal Years Ended December 25, 2022 and December 26, 2021
(Thousands of Dollars)
| 2022 | 2021 | |||
|---|---|---|---|---|
| Net loss | $ | (20,061) | $ | (11,741) |
| Other comprehensive loss: | ||||
| Foreign currency translation adjustments, net of tax | (33,066) | 6,225 | ||
| Net gains on cash flow hedging activities, net of tax | 1,535 | 3,564 | ||
| Reclassifications to earnings, net of tax: | ||||
| Net losses on cash flow hedging activities | (2,124) | (1,067) | ||
| Other comprehensive earnings (loss), net of tax | **** | (33,655) | **** | 8,722 |
| Total comprehensive loss, net of tax | **** | (53,716) | **** | (3,019) |
| Total comprehensive earnings attributable to noncontrolling interests | 576 | 3,355 | ||
| Total comprehensive loss attributable to Entertainment One Film and TelevisionBusiness | $ | (54,292) | $ | (6,374) |
See accompanying notes to Combined Financial Statements.
7
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Combined Statements of Cash Flows
Fiscal Years Ended December 25, 2022 and December 26, 2021
(Thousands of Dollars)
| Year ended December | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Cash flows from operating activities: | ||||
| Net loss | $ | (20,061) | $ | (11,741) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||
| Depreciation of property, plant and equipment | 7,028 | 6,808 | ||
| Amortization of intangible assets | 18,985 | 19,483 | ||
| Program cost amortization | 492,474 | 556,898 | ||
| Share-based compensation funded by Parent | 4,506 | 3,735 | ||
| Non-cash lease expense | 9,087 | 10,060 | ||
| Deferred income taxes | 948 | 1,246 | ||
| Other non-cash items | (589) | 2,497 | ||
| Changes in assets and liabilities: | ||||
| (Increase) decrease in accounts receivable | (1,716) | (36,332) | ||
| Decrease (increase) in inventories | 143 | (263) | ||
| Increase in prepaid expenses and other current assets | (41,701) | (103,005) | ||
| Program spend | (668,874) | (512,064) | ||
| Increase (decrease) in accounts payable | 27,182 | (21,397) | ||
| Increase in accrued liabilities | 73,213 | 59,633 | ||
| Increase (decrease) in accrued participation and residuals | 11,786 | (11,833) | ||
| Decrease in deferred revenue | (3,738) | (39,819) | ||
| Decrease in other noncurrent liabilities | (5,504) | (20,130) | ||
| Increase in other noncurrent assets | (59,531) | (9,121) | ||
| Net cash used in operating activities | **** | (156,362) | **** | (105,345) |
| Investing activities: | ||||
| Additions to property, plant and equipment | (5,988) | (5,730) | ||
| Net cash used in investing activities | **** | (5,988) | **** | (5,730) |
| Financing activities: | ||||
| Buyout of redeemable noncontrolling interest | (18,500) | — | ||
| Distributions to noncontrolling interests | (1,900) | (2,600) | ||
| Net proceeds from borrowings | 257,883 | 159,646 | ||
| Repayments of borrowings | (230,974) | (161,612) | ||
| Financing transactions with Parent, net | 115,625 | 80,935 | ||
| Net cash provided by financing activities | **** | 122,134 | **** | 76,369 |
| Effect of exchange rate changes on cash and cash equivalents | (1,587) | 2,470 | ||
| Change in cash and cash equivalents and restricted cash | **** | (41,803) | **** | (32,236) |
| Cash, cash equivalents and restricted cash at beginning of year | 132,880 | 165,116 | ||
| Cash, cash equivalents and restricted cash at end of year | $ | 91,077 | $ | 132,880 |
| Supplemental information | ||||
| Income taxes paid | $ | (6,314) | $ | (3,648) |
| Interest paid | $ | (6,566) | $ | (3,515) |
See accompanying notes to Combined Financial Statements.
8
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Combined Statements of Parent Equity and Redeemable Non-Controlling Interests
Fiscal Years Ended December 25, 2022 and December 26, 2021
(Thousands of Dollars)
| 2022 | 2021 | |||
|---|---|---|---|---|
| Net Parent Investment | ||||
| Balance at the beginning of the year | $ | 1,028,975 | $ | 972,191 |
| Net loss attributable to Entertainment One Film and Television Business | (20,637) | (15,096) | ||
| Share-based compensation funded by Parent | 4,506 | 3,735 | ||
| Net contributions from Parent | 131,011 | 68,145 | ||
| Balance at the end of the year | $ | 1,143,855 | $ | 1,028,975 |
| Accumulated Other Comprehensive Earnings (Loss), net of tax | ||||
| Balance at the beginning of the year | $ | 5,278 | $ | (3,444) |
| Other comprehensive earnings (loss) | (33,655) | 8,722 | ||
| Balance at the end of the year | **** | (28,377) | **** | 5,278 |
| Total Parent Equity | $ | 1,115,478 | $ | 1,034,253 |
| Redeemable Non-Controlling Interest | ||||
| Balance at the beginning of the year | $ | 23,938 | $ | 24,440 |
| Distributions paid to noncontrolling owners and other foreign exchange | (1,900) | (3,857) | ||
| Buyout of redeemable noncontrolling interest | (22,614) | — | ||
| Net earnings attributable to non-controlling<br>interests | 576 | 3,355 | ||
| Balance at the end of the year | $ | — | $ | 23,938 |
See accompanying notes to Combined Financial Statements.
9
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
| (1) | Description of Business and Basis of Presentation |
|---|
Description of Business
The accompanying Combined Financial Statements include the accounts of operations that comprise the Entertainment One (“eOne”) Film and Television operations (the “Company”) of Hasbro, Inc.’s (“Hasbro” or the “Parent”). The eOne Film and Television business produces scripted and unscripted television and motion pictures with global distribution and an extensive film and television library. To the extent that an asset, liability, revenue, or expense is directly associated with the Company, it is reflected in the accompanying Combined Financial Statements.
On August 3, 2023, Hasbro and certain of its wholly and majority owned subsidiaries entered into a definitive agreement (the “Purchase Agreement”) to sell the Company’s film and television business to Lionsgate (the “Purchaser” or “Lionsgate”). The deal closed on December 27, 2023 for approximately $375 million in cash, subject to certain purchase price adjustments, plus the assumption by Lionsgate of production financing loans. Upon consummation of the Transaction, the historical operations of the Company were transferred to the Purchaser, and Hasbro and the Purchaser entered into various commercial agreements designed to continue to serve their respective customers. The sale included employees, a content library of nearly 6,500 titles, active productions for non-Hasbro owned IP and the eOne unscripted business, which includes rights for certain Hasbro-based shows.
The business does not include Hasbro’s Allspark operations, nor any active productions for Hasbro-owned IP such as Dungeons & Dragons. Consequently, these operations and assets are not included in the accompanying Combined Financial Statements of the Company.
The accompanying Combined Financial Statements reflect the pushdown of the initial Hasbro acquisition accounting for the assets and liabilities acquired in 2019 which were directly attributable to the Company, and which existed as of the Lionsgate acquisition.
Basis Of Presentation
The Combined Financial Statements represent the operations of the Company and have been prepared on a “carve-out” basis. The Combined Financial Statements have been derived from Hasbro’s Consolidated Financial Statements and accounting records, and reflect the Combined Statements of Operations, Statements of Comprehensive Earnings, Balance Sheets, Cash Flows and Parent Equity of the Company in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Hasbro provides certain corporate functions to the Company and costs associated with these provided services have been allocated to the Company. These allocations include treasury functions, tax services and employment legal functions. The costs of such services have been allocated to the Company based on an allocation metric which best represents the Company’s portion of corporate expenses incurred, primarily using the relative percentage of operating income. Management believes such allocations to be reasonable; however, they may not be indicative of the actual expenses that would have been incurred had the Company been operating as an independent company for the period presented. The cost allocations for these items are included in in “General and administration” in the Combined Statement of Operations. The total amounts of these cost allocations were approximately $1,008 thousand and $261 thousand for the years ended December 25, 2022 and December 26, 2021, respectively. See Note 18.
Hasbro maintains a number of share-based compensation programs at a corporate level. The Company’s employees participate in those programs, and as such, the Company was charged a portion of the expenses associated with these programs. The Company was directly attributed share-based compensation expenses of $4,506 thousand and $3,735 thousand for the years ended December 25, 2022 and December 26, 2021, respectively. The charges are included in “General and administration” in the Combined Statements of Operations.
Substantially all employees attributable to the Company are covered by defined contribution plans held by the Company, rather than Hasbro. These related expenses are all directly attributable to the Company and resulting liabilities are in Accrued liabilities in the Combined Balance Sheets.
10
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
“Net Parent Investment” represents Hasbro’s interest in the net assets of the Company. The net parent investment balance represents the cumulative net investment by Hasbro in the Company through the periods presented, including any prior net earnings (loss) or comprehensive earnings (loss) attributed to the Company. Certain transactions between the Company, including allocated expenses, are also included in and reflected as a change in the Company’s net parent investment in the Combined Balance Sheets.
The Company frequently engages in various activities with Hasbro, resulting in accounts receivable and accounts payable positions. These balances do not settle in cash and have been eliminated through Net Parent Investment for the periods presented. Additionally, intercompany transactions within the Film & Television business have been eliminated for the periods presented.
The Combined Financial Statements may not be indicative of future performance and do not necessarily reflect the Combined Statements of Operations, Balance Sheets, and Statement of Cash Flows had the Company operated as an independent business from Hasbro during the periods presented.
| (2) | Summary of Significant Accounting Policies |
|---|
Preparation of Combined Financial Statements
The preparation of the Combined Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Combined Financial Statements and notes thereto. Actual results could differ from those estimates.
Fiscal Year
Entertainment One Film and Television Business’ fiscal year ends on the last Sunday in December. The fiscal years ended December 25, 2022 and December 26, 2021 were both fifty-two-week periods.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include all cash balances and highly liquid investments purchased with an initial maturity to the Company of three months or less. Under the Company’s production financing facilities, certain of the Company’s cash is restricted while the financing is outstanding. At December 25, 2022, $9,494 thousand of the Company’s cash was restricted by such facilities. See Production Financing below and Note 9 for further details. The Company’s cash is also restricted in connection with a historical catalog sale in which the Company sold a future economic interest in certain titles. As part of the sale, the Company agreed to settle a potential unfavorable tax payment of the buyer in relation to the purchased titles. At December 25, 2022, $4,106 thousand of the Company’s cash was restricted for this arrangement.
Accounts Receivable and Allowance for Credit Losses
Credit is granted to customers predominantly on an unsecured basis. Credit limits and payment terms are established based on extensive evaluations made on an ongoing basis throughout the fiscal year with regard to the financial performance, cash generation, financing availability and liquidity status of each customer. The majority of customers are formally reviewed at least annually; more frequent reviews are performed based on the customer’s financial condition and the level of credit being extended. The Company uses a variety of financial transactions, based on availability and cost, to increase the collectability of certain of its accounts, including letters of credit, credit insurance, and requiring cash in advance of delivery.
The Company records an allowance for credit losses for accounts receivable based on management’s expected credit losses. Management’s estimate of expected credit losses is based on its assessment of the business environment, customers’ financial condition, historical collection experience, accounts receivable aging and customer disputes.
11
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
Accounts receivable, net on the Combined Balance Sheets represents amounts due from customers less the allowance for credit losses as well as allowances for discounts.
Inventories
Inventories are valued at the lower of cost (first-in, first-out) or net realizable value. Based upon a consideration of quantities on hand and actual and projected sales volume, slow-moving and obsolete inventory is written down to its estimated net realizable value. At both December 25, 2022, and December 26, 2021, substantially all inventory is comprised of finished goods.
NoncontrollingInterests
The financial results and position of the redeemable noncontrolling interests are included in their entirety in the Company’s Combined Statements of Operations and Combined Balance Sheets. The value of the redeemable noncontrolling interests is presented in the Combined Balance Sheets as temporary equity between liabilities and parent equity. During 2022, the Company redeemed all outstanding redeemable noncontrolling interest in Renegade Entertainment, LLC, the only entity for which the Company previously held redeemable noncontrolling interest. Earnings (losses) attributable to the redeemable noncontrolling interests are presented as a separate line on the Combined Statements of Operations which is necessary to identify those earnings (losses) specifically attributable to Hasbro.
Property, Plant and Equipment, Net
Property, plant, and equipment are stated at cost less accumulated depreciation. Depreciation is computed using accelerated and straight-line methods to depreciate the cost of property, plant, and equipment over their estimated useful lives. The principal lives, in years, used in determining depreciation rates of various assets are: buildings and improvements 15 to 25 and computer hardware and software 3 to 12. Depreciation expense is classified in the Combined Statements of Operations based on the nature of the property and equipment being depreciated.
Property, plant and equipment, net is reviewed for impairment whenever events or circumstances indicate the carrying value may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset or related asset group to future undiscounted cash flows expected to be generated by the asset or asset group. If such assets are considered to be impaired, the impairment to be recognized would be measured by the amount by which the carrying value of the assets exceeds their fair value wherein the fair value is the appraised value. Furthermore, assets to be disposed of are carried at the lower of the net book value or their estimated fair value less disposal costs.
Goodwill and Other Intangible Assets, Net
Goodwill results from the original acquisition of eOne by Hasbro in 2019. Substantially all of the Company’s other intangible assets consist of the cost of exclusive content agreements and libraries. In establishing the value of such rights, the Company considers title ultimate revenue as well as historical collections to date, cash collection timing curves and other financial projections.
Goodwill was attributed based on the fair value of the historical goodwill recognized at the Hasbro acquisition date related to the eOne Film & TV business. There was no further goodwill from business acquisitions to be allocated to the Combined Financial Statements, nor were any impairments recognized.
Goodwill and intangible assets deemed to have indefinite lives are not amortized and are tested for impairment at least annually as of the third quarter of each year. The annual goodwill test begins with a qualitative assessment, where qualitative factors and their impact on critical inputs are assessed to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company determines there is an indication of impairment in its reporting unit based on the qualitative assessment, it is required to perform a quantitative assessment.
12
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
The Company performed a qualitative assessment of goodwill in the fourth quarters of 2022 and 2021. Based on the qualitative assessment, the Company determined that there was no impairment trigger which would require a quantitative analysis. As a result, the Company concluded that there was no impairment.
The Company’s intangible assets having definite lives are being amortized over periods ranging from two to fifteen years, primarily using the straight-line method.
The Company reviews intangible assets with definite lives for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. Recoverability is measured by a comparison of the carrying amount of the asset to future undiscounted cash flows expected to be generated by the asset or asset group. If such assets were considered to be impaired, the impairment to be recognized would be measured by the amount by which the carrying value of the assets exceeds their fair value wherein that fair value is determined based on discounted cash flows.
There were no other triggering events in 2022 or 2021 which would indicate the Company’s intangible assets were impaired.
Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At December 25, 2022, the carrying cost of these instruments approximated their fair value. The Company’s financial instruments at December 25, 2022 also include long-term borrowings (see Note 11 for carrying cost and related fair values) as well as certain assets and liabilities measured at fair value (see Notes 11 and 15).
Production Financing
Production financing relates to financing facilities for certain of the Company’s television and film productions. Production financing facilities 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. These facilities typically have maturities of less than two years while the titles are in production and are repaid once the production is delivered and all tax credits, broadcaster pre-sales and international sales have been received. In connection with the production of a television or film program, the Company records initial cash outflows within cash flows from operating activities due to its investment in the production and concurrently records cash inflows within cash flows from financing activities from the production financing it normally obtains. Under these facilities, certain of the Company’s cash is restricted while the financing is outstanding. On December 25, 2022 and December 26, 2021, $9,494 thousand and $31,015 thousand of the Company’s cash was restricted by such facilities, respectively. For further details, see Note 9.
RevenueRecognition
Revenue is recognized when control of the promised goods, intellectual property or production is transferred to the customers or licensees, in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable.
The Company enters into contracts to license its intellectual property for use in television and film. The licensees pay the Company either a sales-based or usage-based royalty, or a combination of both, for use of the brands, in some cases subject to minimum guaranteed amounts or fixed fees. The license of the Company’s brands provide access to the intellectual property over the term of the license, generally without any other performance obligation of the Company other than keeping the intellectual property active and is therefore considered a right-to-access license of symbolic intellectual property. The Company records sales-based or usage-based royalty revenues for right-to-access licenses at the occurrence of the licensees’ subsequent sale or usage. When the arrangement includes a minimum guarantee, the Company records the minimum guarantee on a ratable basis over
13
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
the term of the license period and does not record the sales-based or usage-based royalty revenues until they exceed the minimum guarantee.
The Company produces, sells and licenses television and film content for distribution to third parties in formats that include broadcast, digital streaming, transactional and theatrical. These are intellectual property licenses where the licensees pay either a fixed fee for the content license or a variable fee in the form of a sales-based royalty. The content that the Company delivers to its licensees typically has stand-alone functionality, generally without any other performance obligation of the Company, and is therefore considered a right-to-use license of functional intellectual property. The Company records revenues for right-to-use licenses once the license period has commenced and the licensee has the ability to use the delivered content. In arrangements where the licensee pays the Company a fixed fee for multiple seasons or multiple series of programming, arrangement fees are recorded as revenues based upon their relative fair values. The Company also earns advertising revenues from certain content made available on free to consumer streaming video on demand platforms where the Company earns a portion of the advertising revenues earned by the service provider. The performance obligation is met, and revenue is recorded when the user accesses the Company’s content through the streaming platform.
Direct Operating Expenses
Direct operating expenses include investment in productions and acquired content rights amortization, program cost amortization and participation and residual expenses.
Participation costs represent contingent consideration payable based on the performance of the film or television program to parties associated with the film or television program, including producers, writers, directors or actors. Residuals represent amounts payable to various unions or “guilds” such as the Screen Actors Guild—American Federation of Television and Radio Artists, Directors Guild of America, and Writers Guild of America, based on the performance of the film or television program in certain ancillary markets or based on the individual’s (i.e., actor, director, writer) salary level in the television market.
The Company enters into minimum guarantee royalty arrangements related to the purchase of film and television rights for content to be delivered in the future. These agreements may call for payment in advance or future payment of minimum guaranteed amounts. Amounts paid in advance are recorded as an asset and charged to Direct operating expense when the related revenue is recognized in the Combined Statements of Operations. If all or a portion of the minimum guaranteed amounts appear not to be recoverable through future use of the rights obtained under the license, the non-recoverable portion of the guaranty is charged to expense at that time.
Investment inProductions and Acquired Content Rights
The Company incurs costs in connection with the production of television programming and movies. The majority of these costs are capitalized by the Company as they are incurred and amortized using the individual-film-forecast method, whereby these costs are amortized in the proportion that the current year’s revenues bear to management’s estimate of total ultimate revenues as of the beginning of such period related to the program. Ultimate revenue estimates are periodically reviewed and adjustments, if any, will result in changes to amortization rates and estimated accruals for residuals and participations. Ultimate revenue includes estimates over a period not to exceed ten years following the date of release of the production. Ultimate revenue used in amortization of acquired content rights is estimated over the life of the acquired rights but no longer than a period of ten years. These capitalized costs are reported at the lower of cost, less accumulated amortization, or fair value, and reviewed for impairment when an event or change in circumstances occurs that indicates that impairment may exist. The fair value is determined using a discounted cash flow model which is primarily based on management’s future revenue and cost estimates. Certain of these agreements require the Company to pay minimum guaranteed advances (“MGs”) for participations and residuals. MGs are recognized in the Combined Balance Sheets when a liability arises, usually on delivery of the television or film program to the Company. The current portion of MGs are recorded as Accrued Liabilities.
14
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
Distribution and Marketing Expenses
Distribution and marketing expenses primarily include the costs of theatrical prints and advertising (“P&A”) and subscription video-on-demand (“SVOD”) expense and home entertainment expenses and marketing. Theatrical P&A includes the costs of the theatrical prints delivered to theatrical exhibitors and the advertising and marketing cost associated with the theatrical release of the picture. SVOD expense represents the advertising and marketing cost associated with the SVOD release of the picture. Home entertainment expenses represents manufacturing costs associated with creating the physical products.
Operating Leases
The Company leases certain property through operating leases. Operating lease right-of-use assets are recorded within Operating lease right-of use assets and the related liabilities are recorded within Accrued liabilities and Other liabilities on the Company’s Combined Balance Sheets. The Company has no material finance leases.
Operating lease assets represent the Company’s right to use the underlying asset for the lease term and lease liabilities represent an obligation to make lease payments according to the terms of the lease. Operating lease assets and liabilities are recognized at the inception of the lease agreement based on the estimated present value of lease payments over the lease term, using our incremental borrowing rate based on information available on the lease commencement date. The Company expenses non-lease components as incurred for real estate leases. Leases with an expected term of 12 months or less are not capitalized. Lease expense under such leases is recorded straight line over the life of the lease. For further details on the Company’s operating leases, see Note 14.
Income Taxes
For purposes of the Combined Financial Statements, income tax expense and deferred tax balances have been computed as if the Company filed income tax returns on a separate return basis from Hasbro. As a carve-out entity, deferred taxes and effective tax rate may differ from those in the historical periods.
The Company uses the asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred taxes are measured using rates expected to apply to taxable income in years in which those temporary differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company recognizes deferred tax assets to the extent it believes that these assets are more likely than not to be realized. In making such a determination, all available positive and negative evidence is considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates used to manage the underlying businesses. Actual operating results in future years could differ from current assumptions, judgments and estimates. A valuation allowance is recorded to reduce deferred tax assets to the net amount believed to be more likely than not to be realized. As of December 25, 2022, the valuation allowance of $267,106 thousand was primarily related to net operating losses. If it is determined that our deferred tax assets will be realizable in the future in excess of their net recorded amount, an adjustment would be made to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company uses a two-step process for the measurement of uncertain tax positions that have been taken or are expected to be taken in a tax return. The first step is a determination of whether the tax position should be recognized in the Combined Financial Statements. The second step determines the measurement of the tax position. The Company records potential interest and penalties on uncertain tax positions as a component of income tax expense.
15
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
Foreign Currency Translation
Foreign currency assets and liabilities are translated into U.S. dollars at period-end exchange rates, and revenues, costs and expenses are translated at weighted average exchange rates during each reporting period. Net loss includes gains or losses resulting from foreign currency. Other gains and losses resulting from translation of financial statements are a component of other comprehensive earnings (loss).
Pension Plans, Postretirement and Postemployment Benefits
The Company has several plans covering certain groups of employees, which may provide benefits to such employees following their period of employment but prior to their retirement. The Company accrues the costs of these obligations in Other liabilities.
Risk Management Contracts
The Company uses foreign currency forward contracts to mitigate the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. These over-the-counter contracts, which hedge television and film production costs and production financing as well as other cross-border currency requirements not denominated in the functional currency of the business unit, are primarily denominated in United States and Canadian dollars, Euros and British pound sterling. All contracts are entered into with a number of counterparties, all of which are major financial institutions. The Company believes that a default by a counterparty would not have a material adverse effect on the financial condition of the Company. The Company does not enter into derivative financial instruments for speculative purposes.
At the inception of the contracts, the Company designates its derivatives as cash flow hedges. The Company formally documents all relationships between hedging instruments and hedged items as well as its risk management objectives and strategies for undertaking various hedge transactions. All hedges designated as cash flow hedges are linked to forecasted transactions and the Company assesses, both at the inception of the hedge and on an on-going basis, the effectiveness of the derivatives used in hedging transactions in offsetting changes in the cash flows of the forecasted transaction.
The Company records all derivatives on the Combined Balance Sheets at fair value. Changes in the derivative fair values that are designated as cash flow hedges are deferred and recorded as a component of Accumulated Other Comprehensive Earnings (Loss) (“AOCE”) until the hedged transactions occur and are then recognized in the Combined Statements of Operations. The Company’s foreign currency contracts hedging anticipated cash flows are designated as cash flow hedges. When it is determined that a derivative is not highly effective as a hedge, the Company discontinues hedge accounting prospectively. Any gain or loss deferred through that date remains in AOCE until the forecasted transaction occurs, at which time it is reclassified to the Combined Statements of Operations. To the extent the transaction is no longer deemed probable of occurring, hedge accounting treatment is discontinued, and amounts deferred would be reclassified to the Combined Statements of Operations. In the event hedge accounting requirements are not met, gains and losses on such instruments are included in the Combined Statements of Operations. The Company uses derivatives to economically hedge net balance sheet exposures in foreign currencies. The Company does not use hedge accounting for these contracts as changes in the fair value of these contracts are substantially offset by the remeasurement of the foreign currency denominated balances.
| (3) | Revenue Recognition |
|---|
Contract Assets
In the ordinary course of business, the Entertainment One Film & TV Business enters into contracts to license their intellectual property, providing licensees right-to-use or access such intellectual property for use in the production and for use within content for distribution over streaming platforms and for television and film. The Company also licenses owned television and film content for distribution to third parties in formats that include broadcast, theatrical and digital streaming. Through these arrangements, the Company may receive advanced
16
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
royalty payments from licensees, either in advance of a licensees’ subsequent sales to customers or prior to the completion of the Company’s performance obligation. The Company defers revenues on all licenses until the respective performance obligations are satisfied. The Company records the aggregate deferred revenues as contract liabilities, with the current portion recorded within Accrued liabilities and the long-term portion recorded as Other liabilities in the Company’s Combined Balance Sheets. Certain multi-year license arrangements have payment terms over the license period that may differ from the timing of revenue recognition resulting in the recording of contract assets. The Company records contract assets, primarily related to (1) minimum guarantees being recognized in advance of contractual invoicing, which are recognized ratably over the terms of the respective license periods, and (2) film and television distribution revenues recorded for content delivered, where payment will occur over the license term.
The Company’s contract assets are classified within the following financial statement line items in the Combined Balance Sheets at December 25, 2022 and December 26, 2021 as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Prepaid expenses and other current assets | $ | 109,607 | $ | 49,710 |
| Other | 319,045 | 311,773 | ||
| Contract assets | $ | 428,652 | $ | 361,483 |
Deferred Revenue
Deferred revenue relates primarily to customer cash advances or deposits received prior to when the Company satisfies the corresponding performance obligation. Revenues of $10,957 thousand were recognized during the year ended December 25, 2022.
Unsatisfied PerformanceObligations
Unsatisfied performance obligations relate primarily to in-production television content to be delivered in the future under existing agreements with partnering content providers such as broadcasters, distributors, television networks and subscription video on demand services. As of December 25, 2022, unrecognized revenue attributable to unsatisfied performance obligations expected to be recognized in the future was $252,979 thousand. Of this amount, we expect to recognize approximately $205,854 thousand in 2023, $43,172 thousand in 2024, and $3,953 thousand in 2025. These amounts include only fixed consideration.
Accounts Receivable and Allowance for Credit Losses
The Company’s balance for accounts receivable on the Combined Balance Sheets as of December 25, 2022 and December 26, 2021 are primarily from contracts with customers. The Company had no material expense for credit losses in the years ended December 25, 2022 or December 26, 2021.
Disaggregation of revenues
The Company disaggregates its revenues from contracts with customers by category: Home Video and Digital, Broadcast and Licensing and Production and Other. Information by major revenue stream and a reconciliation to reported amounts are as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Home Video, Digital and Theatrical | $ | 31,803 | $ | 46,714 |
| Broadcast and Licensing | 242,526 | 266,965 | ||
| Production and Other | 553,482 | 607,364 | ||
| Total revenues | $ | 827,811 | $ | 921,043 |
See further discussion of the Company’s revenue recognition policy in Note 2.
17
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
| (4) | Other Comprehensive Loss |
|---|
Components of other comprehensive loss are presented within the Combined Statements of Comprehensive Loss. The following table presents the related tax effects on changes in other comprehensive loss for each of the two fiscal years ended December 25, 2022 and December 26, 2021.
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Other comprehensive earnings (loss), tax effect: | ||||
| Tax expense on cash flow hedging activities | $ | (420) | $ | (616) |
| Tax (expense) benefit on foreign currency translation amounts | — | — | ||
| Reclassifications to earnings, tax effect: | ||||
| Tax expense on net losses on cash flow hedging activities | 404 | 203 | ||
| Total tax effect on other comprehensive loss attributable to Entertainment One Film andTelevision Business Film and Television | $ | (16) | $ | (413) |
Changes in the components of accumulated other comprehensive loss, net of tax for each of the two fiscal years ended December 25, 2022 and December 26, 2021 are as follows:
| (In thousands) | Gains (Losses)<br>on Derivative<br>Instruments | Foreign<br>Currency<br>Translation<br>Adjustments | Total<br>Accumulated<br>Other<br>Comprehensive<br>Earnings (Loss) | |||
|---|---|---|---|---|---|---|
| 2022 | ||||||
| Balance at December 26, 2021 | $ | 1,886 | $ | 3,392 | $ | 5,278 |
| Current period other comprehensive earnings (loss) | 1,535 | (33,066) | (31,531) | |||
| Reclassifications from AOCE to earnings | (2,124) | — | (2,124) | |||
| Balance at December 25, 2022 | $ | 1,297 | $ | (29,674) | $ | (28,377) |
| 2021 | ||||||
| Balance at December 27, 2020 | $ | (611) | $ | (2,833) | $ | (3,444) |
| Current period other comprehensive earnings | 3,564 | 6,225 | 9,789 | |||
| Reclassifications from AOCE to earnings | (1,067) | — | (1,067) | |||
| Balance at December 26, 2021 | $ | 1,886 | $ | 3,392 | $ | 5,278 |
Gains (Losses) on Derivative Instruments
At December 25, 2022, the Company had remaining net deferred gains on foreign currency forward contracts, net of tax, of $1,297 thousand in AOCE. These instruments hedge payments related to television and movie production costs paid in 2022 or expected to be paid in 2023 or 2024. These amounts will be reclassified into the Combined Statements of Operations upon recognition of the related costs.
The Company expects net deferred gains included in AOCE at December 25, 2022 to be reclassified to the Combined Statements of Operations within the next 12 months. However, the amount ultimately realized in earnings is dependent on the fair value of the hedging instruments on the settlement dates.
See Note 15 for additional discussion on reclassifications from AOCE to earnings.
18
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
| (5) | Property, Plant and Equipment | |||
|---|---|---|---|---|
| (In thousands) | 2022 | 2021 | ||
| --- | --- | --- | --- | --- |
| Computer software and hardware | $ | 27,802 | $ | 16,969 |
| Furniture and fixtures | 2,466 | 9,434 | ||
| Leasehold improvements | 16,108 | 16,035 | ||
| Less accumulated depreciation | (17,680) | (11,359) | ||
| Total property, plant and equipment, net | $ | 28,696 | $ | 31,079 |
Expenditures for maintenance and repairs which do not materially extend the life of the assets are charged to operations as incurred. In 2022 and 2021 the Company recorded $7,028 thousand and $6,808 thousand, respectively, of depreciation expense.
See Note 14 for additional discussion on right of use assets.
| (6) | Goodwill and Other Intangible Assets |
|---|
Goodwill
The Company’s goodwill was derived from Hasbro’s acquisition in 2019 where the purchase price exceeded the fair value of the net assets acquired. After the allocation of fair values associated with the Acquisition was completed, the Company’s goodwill was approximately $231,000 thousand. The carrying amount of goodwill did not change during the reporting period. The Company performs an annual impairment assessment on goodwill. This annual impairment assessment is performed in the fourth quarter of the Company’s fiscal year. In addition, if an event occurs or circumstances change that indicate that the carrying value may not be recoverable, the Company will perform an interim impairment test at that time.
During the fourth quarters of 2022 and 2021, the Company performed a qualitative goodwill assessment. Based on the qualitative assessments, the Company determined it was not more likely than not that the carrying value exceeded the fair value of the reporting unit and as a result, the Company concluded it was not necessary to perform a quantitative test for impairment of goodwill.
Accordingly, no goodwill impairment was recorded for each of the years ended December 25, 2022 and December 26, 2021.
Other Intangible Assets, Net
The following table represents a summary of the Company’s other intangible assets, net at December 25, 2022 and December 26, 2021:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Exclusive content agreements and libraries | $ | 89,481 | $ | 95,510 |
| Trade name | 85,000 | 85,000 | ||
| Accumulated amortization | (55,486) | (38,670) | ||
| Total other intangibles assets, net | $ | 118,995 | $ | 141,840 |
The Company’s other intangible assets are amortized straight line over their remaining useful lives, and accumulated amortization of these other intangibles is reflected in other intangible assets, net in the accompanying Combined Balance Sheets.
Intangible assets are reviewed for indications of impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable.
19
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
The Company will continue to incur amortization expense related to its exclusive content agreements and libraries and trade name. The Company currently estimates amortization expense related to the above intangible assets to be $19,311 thousand for each of the next four years ended 2023 through 2026, with the exclusive content agreements and libraries fully amortizing in the year ended December 2026. Expected amortization expense related to the trade name will be $5,667 thousand in 2027.
| (7) | Investments in Productions and Investments in Acquired Content Rights |
|---|
Investments in productions and investments in acquired content rights are predominantly monetized on a title-by-title basis and are recorded within other assets in the Company’s Combined Balance Sheets, to the extent they are considered recoverable against future revenues. These amounts are being amortized to program cost amortization using a model that reflects the consumption of the asset as it is released through various channels including broadcast licenses, theatrical release and home entertainment. Amounts capitalized are reviewed periodically on an individual film basis and any portion of the unamortized amount that appears not to be recoverable from future net revenues is expensed as part of program cost amortization during the period the loss becomes evident.
Programming costs consist of the following at December 25, 2022 and December 26, 2021:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Investment in Films and Television Programs: | ||||
| Individual monetization | ||||
| Released, net of amortization | $ | 489,756 | $ | 446,392 |
| Completed and not released | 78,644 | 25,450 | ||
| In production | 21,915 | 50,755 | ||
| Pre-production | 103,687 | 73,788 | ||
| Total program investments | $ | 694,002 | $ | 596,385 |
The Company recorded $492,474 thousand of program cost amortization related to released programming during 2022, consisting of the following:
| (In thousands) | Investment inProduction | Investment inContent | Total | |||
|---|---|---|---|---|---|---|
| Program cost amortization | $ | 431,996 | $ | 60,478 | $ | 492,474 |
Based on management’s total revenue estimates at December 25, 2022, the Company’s expected future amortization expenses for capitalized programming costs over the next three years are as follows:
| (In thousands) | 2023 | 2024 | 2025 | |||
|---|---|---|---|---|---|---|
| Estimated Future Amortization Expense: | ||||||
| Individual monetization | ||||||
| Released | $ | (109,119) | $ | (67,227) | $ | (58,166) |
| Completed and not released | (42,310) | N/A | N/A | |||
| Total | $ | (151,429) | $ | (67,227) | $ | (58,166) |
In the normal course of its business, the Company also enters into contracts related to obtaining right of first refusal (“first look deals”) to purchase, distribute, or license certain entertainment projects or content. See Note 17 for more information on the Company’s expected future payments for first look deals.
20
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
| (8) | Accrued Liabilities |
|---|
Components of accrued liabilities for the fiscal years ended on December 25, 2022 and December 26, 2021 are as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Accrued expenses IIP & IIC | $ | 78,923 | $ | 72,827 |
| Severance | 21,131 | 2,688 | ||
| Payroll | 20,793 | 34,300 | ||
| Current lease liability | 8,155 | 9,306 | ||
| Accrued taxes | 20,089 | — | ||
| Other | 58,161 | 53,819 | ||
| Total accrued liabilities | $ | 207,252 | $ | 172,940 |
| (9) | Production Financing | |||
| --- | --- |
Production Financing
The Company uses production financing to fund certain of its television and film 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.
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 December 25, 2022 was 3.3%.
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 thousand. The Revolving Production Financing Agreement also provides the Company with the option to request a commitment increase up to an aggregate additional amount of $150 thousand subject to agreement of the lenders. The Revolving Production Financing Agreement extends through November 22, 2024. The Company uses the RPCF to fund certain of the Company’s original film and TV production costs. Borrowings under the RPCF are non-recourse to the Company’s assets.
The Company has U.S. dollar production credit facilities and Canadian dollar and U.S. dollar production loans with various banks. For all periods presented, the carrying value approximated fair value. The carrying amounts of each component of Production Financing were as follows:
| (In thousands) | Production<br>Loans | Credit<br>Facilities | Total<br>Production<br>Financing | |||
|---|---|---|---|---|---|---|
| As of December 25, 2022 | $ | 53,198 | $ | 141,583 | $ | 194,781 |
The following table represents the movements in production financing during 2022:
| (In thousands) | ProductionFinancing | |
|---|---|---|
| Balance at December 26, 2021 | $ | 170,053 |
| Drawdown | 257,884 | |
| Repayments | (230,974) | |
| Foreign exchange differences | (2,182) | |
| Balance at December 25, 2022 | $ | 194,781 |
21
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
The Company expects to repay all of its outstanding production financing loans in 2023.
| (10) | Income Taxes |
|---|
The components of earnings (loss) before income taxes, determined by tax jurisdiction, are as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| United States | $ | (25,855) | $ | 17,656 |
| International | 18,532 | (27,928) | ||
| Total loss before income taxes | $ | (7,323) | $ | (10,272) |
Income tax expense (benefit) attributable to loss before income taxes are:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Current | ||||
| United States | $ | — | $ | — |
| State and local | 526 | 802 | ||
| International | 9,634 | (778) | ||
| **** | 10,160 | **** | 24 | |
| Deferred | ||||
| United States | — | — | ||
| State and local | — | — | ||
| International | 2,578 | 1,445 | ||
| **** | 2,578 | **** | 1,445 | |
| Total income taxes | $ | 12,738 | $ | 1,469 |
A reconciliation of the statutory United States federal income tax rate to the Company’s effective income tax rate is as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Statutory income tax rate | $ | (1,538) | $ | (2,157) |
| State and local income taxes, net | (1,203) | 650 | ||
| Tax on international earnings | (1,269) | (297) | ||
| Change in valuation allowance | 23,579 | 11,041 | ||
| Deferred tax rate change | (848) | 5,748 | ||
| Loss on disposition of business | (1,514) | — | ||
| Uncertain tax positions | 380 | (6,393) | ||
| Partnership interest | (420) | (420) | ||
| Provision to return adjustments | (4,707) | (6,029) | ||
| Other permanent adjustments | 278 | (674) | ||
| $ | 12,738 | $ | 1,469 |
22
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
The components of deferred income tax expense (benefit) arise from various temporary differences and relate to items included in the Combined Statements of Operations as well as items recognized in other comprehensive earnings. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 25, 2022 and December 26, 2021 are:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Deferred Tax Assets | ||||
| Interest carryforward | $ | 10,050 | 7,920 | |
| Lease liability | 16,663 | 8,902 | ||
| Depreciation and amortization of long-lived assets | 24,039 | 6,283 | ||
| Other compensation | 6,571 | 1,016 | ||
| Loss and credit carryforwards | 232,437 | 249,644 | ||
| Other | 8,504 | 12,032 | ||
| Gross deferred tax asset | 298,264 | 285,797 | ||
| Deferred Tax Liabilities | ||||
| Right of use asset | 16,277 | 8,834 | ||
| Depreciation and amortization of long-lived assets | 26,260 | 31,160 | ||
| Other | 5,038 | 7,475 | ||
| Gross deferred tax liabilities | 47,575 | 47,469 | ||
| Valuation allowance | (267,106) | (253,797) | ||
| Net deferred income taxes | $ | (16,417) | $ | (15,469) |
The most significant amount of the loss and credit carryforwards relate to tax attributes of the acquired eOne entities that historically operated at losses in certain jurisdictions. At December 25, 2022, the Company has loss and credit carry forwards of $232,437 thousand, which is a decrease of $17,208 thousand from $249,644 thousand at December 26, 2021. Loss and credit carryforwards as of December 25, 2022 relate primarily to the U.S. and Canada. The Canadian loss carry forwards expire at various dates from 2031 to 2042. Some U.S. federal, state and international loss and credit carryforwards expire at various dates throughout 2023 while others have an indefinite carryforward period.
The recoverability of these future tax deductions and credits is evaluated by assessing the adequacy of future expected taxable income from all sources, including taxable income in prior carryback years, reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. To the extent the Company does not consider it more likely than not that a deferred tax asset will be recovered, a valuation allowance is generally established. To the extent that a valuation allowance was established and it is subsequently determined that it is more likely than not that the deferred tax assets will be recovered, the change in the valuation allowance is recognized in the Combined Statements of Operations.
The Company has a valuation allowance for certain net deferred tax assets at December 25, 2022 of $267,106 thousand, which is an increase of $13,309 thousand from $253,797 thousand at December 26, 2021. The valuation allowance pertains to certain U.S. state and international loss and credit carryforwards, some of which have no expiration and others that expire beginning in 2023, and other net deferred tax assets. The increase in the valuation allowance is primarily due to increases in certain net deferred tax assets with no corresponding tax benefit.
At December 25, 2022 and December 26, 2021, the Company’s net deferred income taxes are recorded in the Combined Balance Sheets as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Other assets | $ | — | $ | — |
| Other liabilities | (16,417) | (15,469) | ||
| Net deferred income taxes | $ | (16,417) | $ | (15,469) |
23
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal years ended December 25, 2022, and December 26, 2021 is as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Balance at beginning of year | $ | 23,850 | $ | 31,535 |
| Gross increase in prior period tax positions | — | — | ||
| Gross decrease in prior period tax positions | (2,137) | (2,137) | ||
| Gross increase in current period tax positions | — | — | ||
| Decrease related to settlements with tax authorities | (143) | (5,548) | ||
| Decreases from the expiration of statute of limitations | $ | 21,570 | $ | 23,850 |
Some of the unrecognized tax benefits as of December 25, 2022, and December 26, 2021 were recorded within Other liabilities in the Company’s Combined Balance Sheets, and some of the unrecognized tax benefits are netted within the Deferred tax assets, which may include a valuation allowance against the assets. If recognized, these tax benefits would have affected our income tax provision for fiscal years 2022, and 2021 by approximately $5,000 thousand and $5,000 thousand, respectively.
| (11) | Fair Value of Financial Instruments |
|---|
The Company measures certain financial instruments at fair value. The fair value hierarchy consists of three levels: Level 1 fair values are based on quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access; Level 2 fair values are those based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and Level 3 fair values are based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. There have been no transfers between levels within the fair value hierarchy.
Accounting standards permit entities to measure many financial instruments and certain other items at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities.
At December 25, 2022 and December 26, 2021, the Company had the following assets and liabilities measured using Level 2 fair value indicators in its Combined Balance Sheets:
| (In thousands) | Fair Value | |
|---|---|---|
| December 25, 2022 | ||
| Assets: | ||
| Derivatives | $ | 6,744 |
| Total assets | $ | 6,744 |
| Liabilities: | ||
| Derivatives | $ | 2,266 |
| Total liabilities | $ | 2,266 |
| December 26, 2021 | ||
| Assets: | ||
| Derivatives | $ | 4,294 |
| Total assets | $ | 4,294 |
| Liabilities: | ||
| Derivatives | $ | 1,613 |
| Total liabilities | $ | 1,613 |
24
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
The Company’s derivatives consist of foreign currency forward contracts. The Company uses current forward rates of the respective foreign currencies to measure the fair value of these contracts.
| (12) | Stock Options and Other Stock Awards |
|---|
Hasbro has share-based compensation plans under which it grants restricted stock units (RSUs) and performance share units (PSUs) to certain management level employees. In addition, employees and non-employee directors of the Company may be granted options to purchase shares of Hasbro’s common stock at the fair market value at the time of grant.
For the periods presented, the Company has recorded share-based compensation expense directly attributable to employees in the Entertainment One Film and Television Business. Total allocated share-based compensation expense and the associated income tax benefits recognized by the Company within General and Administration in the Combined Statement of Operations are as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Share-based compensation expense | $ | 4,506 | $ | 3,735 |
| Income tax benefits | (128) | (106) | ||
| Total share-based compensation expense after income taxes | $ | 4,378 | $ | 3,629 |
| (13) | Pension, Postretirement and Postemployment Benefits | |||
| --- | --- |
Pension and Postretirement Benefits
Expenses related to the Company’s defined contribution plans for 2022 and 2021 were approximately $1,305 thousand and $1,346 thousand, respectively.
Postemployment Benefits
Hasbro has several plans covering certain groups of employees, which may provide benefits to such employees following their period of active employment but prior to their retirement. These plans include certain severance plans which provide benefits to employees involuntarily terminated and certain plans which continue Hasbro’s health and life insurance contributions for employees who have left Hasbro’s employ under terms of its long-term disability plan. For the periods presented, the Company has recorded postemployment benefits expense directly attributable to employees in the Entertainment One Film and Television Business.
| (14) | Leases |
|---|
The Company occupies offices under various operating lease arrangements. The Company has no finance leases. The leases have remaining terms of 1 to 7 years, some of which include options to extend lease terms or options to terminate current lease terms at certain times, subject to notice requirements set out in the lease agreement. Payments under certain of the lease agreements may be subject to adjustment based on a consumer price index or other inflationary indices. The lease liability for such lease agreements as of the adoption date, was based on fixed payments as of the adoption date. Any adjustments to these payments based on the related indices will be recorded to expense as incurred. Leases with an expected term of 12 months or less are not capitalized. Lease expense under such leases is recorded straight line over the life of the lease. The Company expenses non-lease components as incurred for real estate leases.
The rent expense under such arrangements and similar arrangements that do not qualify as leases under ASU 2016-02, net of sublease income amounted to $13,679 thousand and $15,303 thousand, respectively, for each of the years ended December 25, 2022 and December 26, 2021, and was not material to the Company’s financial
25
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
statements nor were expenses related to short term leases (expected term less than twelve months) or variable lease payments during those same periods.
All leases expire prior to 2030. Real estate taxes, insurance and maintenance expenses are generally obligations of the Company. Operating leases often contain renewal options. In those locations in which the Company continues to operate, management expects that, in the normal course of business, leases that expire will be renewed or replaced by leases on other properties.
Information related to the Company’s leases for the years ended December 25, 2022 and December 26, 2021 is as follows:
| (In thousands) | 2022 | 2021 | ||||
|---|---|---|---|---|---|---|
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||
| Operating cash flows from operating leases | $ | 10,100 | $ | 10,479 | ||
| Right-of-useassets obtained in exchange for lease: | ||||||
| Operating leases net of lease modifications | 38,233 | 48,531 | ||||
| Weighted Average Remaining Lease Term: | ||||||
| Operating leases | 5.4 years | 6.1 years | ||||
| Weighted Average Discount Rate: | ||||||
| Operating leases | 1.7 | % | 1.7 | % |
The following is a reconciliation of future undiscounted cash flows to the operating liabilities, and the related right of use assets, included in our Combined Balance Sheets as of December 25, 2022:
| (In thousands) | Year Ended<br>December 25,<br>2022 | |
|---|---|---|
| 2023 | $ | 8,991 |
| 2024 | 7,671 | |
| 2025 | 7,739 | |
| 2026 | 5,524 | |
| 2027 | 5,203 | |
| 2028 and thereafter | 5,963 | |
| Total future lease payments | 41,091 | |
| Less imputed interest | 1,924 | |
| Present value of future operating lease payments | 39,167 | |
| Less current portion of operating lease liabilities (1) | 8,155 | |
| Non-current operating lease liability (2) | 31,012 | |
| Operating lease<br>right-of-use assets, net (3) | $ | 38,233 |
| (1) | Included in Accrued liabilities on the Combined Balance Sheets | |
| --- | --- | |
| (2) | Included in Other liabilities on the Combined Balance Sheets | |
| --- | --- | |
| (3) | Included in Operating lease<br>right-of-use assets on the Combined Balance Sheets | |
| --- | --- | |
| (15) | Derivative Financial Instruments | |
| --- | --- |
The Company uses foreign currency forward and option contracts to mitigate the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. These over-the-counter
26
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
contracts, which hedge future currency requirements related to television and film production cost and production financing facilities (see Note 9 as well as other cross-border transactions not denominated in the functional currency of the business unit), are primarily denominated in United States and Canadian Dollars, Pound Sterling and Euros. All contracts are entered into with a number of counterparties, all of which are major financial institutions. The Company believes that a default by a single counterparty would not have a material adverse effect on the financial condition of the Company. The Company does not enter into derivative financial instruments for speculative purposes.
Cash Flow Hedges
All the Company’s designated foreign currency forward contracts are considered to be cash flow hedges. These instruments hedge a portion of the Company’s currency requirements associated with certain production financing loans and other cross-border transactions, primarily in years 2023 and to a lesser extent, 2024.
At December 25, 2022 and December 26, 2021, the notional amounts and fair values of the Company’s foreign currency forward and option contracts designated as cash flow hedging instruments were as follows:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| (In thousands) | Notional<br>Amount | Fair Value | Notional<br>Amount | Fair Value | ||||
| Hedged Transaction | ||||||||
| Foreign currency denominated expense | 78,298 | 1,706 | 166,225 | 2,222 |
The fair values of the Company’s foreign currency forward contracts designated as cash flow hedges are recorded in the Combined Balance Sheets at December 25, 2022 and December 26, 2021 as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Prepaid expenses and other current assets | ||||
| Unrealized gains | $ | 2,051 | $ | 2,739 |
| Unrealized losses | — | — | ||
| Net unrealized gains | $ | 2,051 | $ | 2,739 |
| Accrued liabilities | ||||
| Unrealized gains | $ | — | $ | — |
| Unrealized losses | (292) | (517) | ||
| Net unrealized losses | $ | (292) | $ | (517) |
Net gains on cash flow hedging activities have been reclassified from other comprehensive loss to net earnings for the years ended December 25, 2022 and December 26, 2021 as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Combined Statements of Operations Classification | ||||
| Other income, net | 2,124 | (1,067) | ||
| Net realized gains | $ | 2,124 | $ | (1,067) |
Undesignated Hedges
To manage transactional exposure to fair value movements on certain monetary assets and liabilities denominated in foreign currencies, the Company has implemented a balance sheet hedging program. The Company does not use hedge accounting for these contracts as changes in the fair values of these contracts are offset by changes in the fair value of the balance sheet items. As of December 25, 2022 and December 26, 2021, the total
27
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
notional amounts of the Company’s undesignated derivative instruments were $296,474 thousand and $505,414 thousand, respectively.
At December 25, 2022 and December 26, 2021, the fair values of the Company’s undesignated derivative financial instruments are recorded in the Combined Balance Sheets as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Prepaid expenses and other current assets | ||||
| Unrealized gains | $ | 4,693 | $ | 1,555 |
| Unrealized losses | — | — | ||
| Net unrealized gains | **** | 4,693 | **** | 1,555 |
| Accrued liabilities | ||||
| Unrealized gains | — | — | ||
| Unrealized losses | (1,974) | (1,096) | ||
| Net unrealized losses | (1,974) | (1,096) | ||
| Total unrealized (losses) gains, net | $ | 2,719 | $ | 459 |
The Company recorded net gains (losses) of $2,766 thousand and $(1,427) thousand on these instruments to other (income) expense, net for 2022 and 2021, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains and losses from the change in fair value of the items to which the instruments relate.
For additional information related to the Company’s derivative financial instruments see Notes 4 and 11.
| (16) | Restructuring Actions |
|---|
During 2020, the Company took certain integration actions related to the acquisition of eOne by Hasbro in 2019.
During 2022, in support of Blueprint 2.0, the Parent announced an Operational Excellence program which the Company took certain restructuring actions, including global workforce reductions, resulting in severance and other employee charges of $23,846 thousand recorded in General and Administration.
The detail of activity related to the Company’s programs as of December 25, 2022 is as follows:
| Integration<br>Program | Operational<br>Excellence<br>Program | |||
|---|---|---|---|---|
| Remaining amounts to be paid as of December 27, 2020 | $ | 11,121 | $ | — |
| Payments made in 2021 | (8,542) | — | ||
| Remaining amounts to be paid as of December 26, 2021 | 2,579 | — | ||
| 2022 restructuring charges | — | 23,846 | ||
| Payments made in 2022 | (1,616) | (3,678) | ||
| Remaining amounts to be paid as of December 25, 2022 | $ | 963 | $ | 20,168 |
| (17) | Commitments and Contingencies | |||
| --- | --- |
The Company enters into license agreements with strategic partners for the use of intellectual properties in its content. Certain of these agreements contain provisions for the payment of guaranteed or minimum royalty
28
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
amounts. In addition, the Company enters into contractual commitments to obtain film and television content distribution rights and minimum guarantee commitments related to the purchase of film and television rights for content to be delivered in the future. Under terms of existing agreements as of December 25, 2022, the Company may, provided the other party meets their contractual commitment, be required to pay amounts as follows: 2023: $24,609 thousand; 2024: $1,545 thousand.
The Company enters into contracts with certain partners which among other things, provide the Company with the right of first refusal to purchase, distribute, or license certain entertainment projects or content. At December 25, 2022, the Company estimates that it may be obligated to pay $16,792 thousand and $3,638 thousand, in 2023 and 2024, respectively, related to such agreements.
The Company is party to certain legal proceedings, as well as certain asserted and unasserted claims. Amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the Combined Financial Statements.
See Note 14 for additional information on the Company’s future lease payment commitments. See Note 9 for additional information on the Company’s long-term debt and production financing repayments.
| (18) | Related Parties |
|---|
The Company has not historically operated as a standalone business and the Combined Financial Statements are derived from the Consolidated Financial Statements and accounting records of Hasbro. The following disclosure summarizes activity between the Company and Hasbro. The Company historically settles intercompany transaction between entities and will net settle intercompany transactions to parent equity prior to close.
Cost Allocations from Hasbro
Hasbro provides certain services including treasury, tax and legal functions to the Company. The Combined Financial Statements reflect an allocation of these costs. See Note 1 for a discussion of these costs and the methodology used to allocate them.
These allocations are reflected in the Combined Statement of Operations as follows:
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| General and administration expenses | $ | 1,008 | $ | 261 |
Management believes these cost allocations are a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Company during the periods presented. The allocations may not, however, be indicative of the actual expenses that would have been incurred had the Company operated as a standalone public company. Actual costs that may have been incurred if the Company had been a standalone public company would depend on a number of factors, including the chosen organizational structure, whether the functions were outsourced or performed by Company’s employees, and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.
Net Parent Investment
“Net parent investment” represents Hasbro’s interest in the net assets of the Company. The net parent investment balance represents the cumulative net investment by Hasbro in the Company through the periods presented, including any prior net earnings (loss) or comprehensive earnings (loss) attributed to the Company. Certain transactions between the Company and other related parties, including allocated expenses, are also included in and reflected as a change in the Company’s net parent investment in the Combined Balance Sheets.
29
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Combined Financial Statements
(Thousands of Dollars)
| (In thousands) | 2022 | 2021 | ||
|---|---|---|---|---|
| Net Parent Investment | ||||
| Corporate allocations | 1,008 | 261 | ||
| Share-based compensation funded by Parent | 4,506 | 3,735 | ||
| Net increase in Net Parent Investment | $ | 5,514 | $ | 3,996 |
Related Party Distribution Arrangements
In the ordinary course of business, the Company distributes Hasbro IP-related content through various physical and digital distribution arrangements. Expenses related to these related party distribution arrangements may not be indicative of the actual expenses the Company would have incurred as a separate, stand-alone company or of the costs the Company will incur in the future.
Expenses related to these arrangements were $3,656 thousand and $5,625 thousand in the Combined Statement of Operations for the years ended December 25, 2022 and December 26, 2021, respectively.
| (19) | Subsequent Events |
|---|
The Company has performed an evaluation of subsequent events through January 17, 2024, which is the which is the date the financial statements were available to be issued.
During the second quarter of 2023, the Company determined that a triggering event occurred following a downward revision of the Company’s financial forecast, driven by challenging industry conditions that included the strike by the Writers Guild of America. As a result, the Company performed a quantitative impairment test and determined that the goodwill related to the Film and TV business was impaired. During the second quarter of 2023, the Company recorded pre-tax non-cash impairment charges of $296,167 thousand as the carrying value of the goodwill exceeded its expected fair value, as determined using a discounted cash flow model which is primarily based on management’s future revenue and cost estimates. These impairment charges consisted of a $231,000 thousand goodwill impairment charge associated with goodwill assigned to the Film and TV business, recorded within Impairment of Goodwill and a $65,167 thousand intangible asset impairment charge related to the Company’s definite-lived intangible eOne Trade Name. These charges are recorded in General and Administration costs, within the Combined Statements of Operations for the quarter and six months ended July 2, 2023.
On December 27, 2023, Hasbro completed the sale of all of the issued and outstanding equity interests of the eOne Film and Television business to Lionsgate. See Footnote 1 for additional information on the Transaction.
30
EX-99.2
Exhibit 99.2
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Condensed Combined Financial Statements
For the Nine Months Ended October 1, 2023 and September 25, 2022
(Unaudited)
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
TABLE OF CONTENTS
| Condensed Combined Balance Sheets as of October 1, 2023 and December 25, 2022 | 1 |
|---|---|
| Condensed Combined Statements of Operations for the nine months ended October 1, 2023 and<br>September 25, 2022 | 2 |
| Condensed Combined Statements of Comprehensive Loss for the nine months ended October 1, 2023<br>and September 25, 2022 | 3 |
| Condensed Combined Statements of Cash Flows for the nine months ended October 1, 2023 and<br>September 25, 2022 | 4 |
| Condensed Combined Statements of Parent Equity and Redeemable<br>Non-Controlling Interest for the nine months ended October 1, 2023 and September 25, 2022 | 5 |
| Notes to Condensed Combined Financial Statements | 6 |
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Condensed Combined Balance Sheets
October 1, 2023 and December 25, 2022
(Thousands of Dollars)
| December 25,2022 | |||
|---|---|---|---|
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents, including restricted cash of 4,133 in 2023 and 13,600 in<br>2022 | 71,022 | $ | 91,077 |
| Accounts receivable, less allowance for credit losses of 1,398 in 2023 and 2,266 in<br>2022 | 85,186 | 157,749 | |
| Inventories | 2,730 | 2,974 | |
| Prepaid expenses and other current assets | 410,374 | 423,456 | |
| Total current assets | 569,312 | **** | 675,256 |
| Operating lease<br>right-of-use assets | 29,233 | 38,233 | |
| Property, plant and equipment, net | 22,273 | 28,696 | |
| Investment in productions and investments in acquired content rights | 731,855 | 694,002 | |
| Goodwill | — | 231,000 | |
| Other intangibles, net | 42,402 | 118,995 | |
| Other | 113,029 | 115,091 | |
| Total assets | 1,508,104 | $ | 1,901,273 |
| LIABILITIES, NONCONTROLLING INTERESTS AND PARENT EQUITY | |||
| Current liabilities | |||
| Production financing | 150,096 | $ | 194,781 |
| Accounts payable | 22,631 | 29,833 | |
| Deferred revenue | 26,484 | 22,991 | |
| Accrued participation and residuals | 229,823 | 267,037 | |
| Accrued liabilities | 136,727 | 207,252 | |
| Total current liabilities | 565,761 | **** | 721,894 |
| Long-term operating lease liabilities | 25,643 | 31,012 | |
| Deferred revenue | 1,098 | 714 | |
| Other liabilities | 13,785 | 32,175 | |
| Total liabilities | 606,287 | **** | 785,795 |
| Commitments and contingencies (Note 14) | |||
| Redeemable noncontrolling interests | — | — | |
| Parent equity | |||
| Net parent investment | 929,651 | 1,143,855 | |
| Accumulated other comprehensive loss | (27,834) | (28,377) | |
| Total parent equity | 901,817 | **** | 1,115,478 |
| Total liabilities, noncontrolling interests and parent equity | 1,508,104 | $ | 1,901,273 |
All values are in US Dollars.
See accompanying notes to Condensed Combined Financial Statements.
1
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Condensed Combined Statements of Operations
For the Nine Months Ended October 1, 2023 and September 25, 2022
(Thousands of Dollars)
| 2023 | 2022 | |||
|---|---|---|---|---|
| Net revenues | $ | 419,325 | $ | 518,174 |
| Costs and expenses: | ||||
| Direct operating | 320,545 | 394,479 | ||
| Distribution and marketing | 28,384 | 12,548 | ||
| General and administration | 87,555 | 98,221 | ||
| Depreciation and amortization | 18,476 | 19,584 | ||
| Impairment of goodwill and trade name | 296,167 | — | ||
| Total costs and expenses | **** | 751,127 | **** | 524,832 |
| Operating loss | **** | (331,802) | **** | (6,658) |
| Interest expense | 29,389 | 7,261 | ||
| Interest income | (5,481) | (1,951) | ||
| Other expense, net | 2,759 | 311 | ||
| Loss before income taxes | $ | (358,469) | $ | (12,279) |
| Income tax provision (benefit) | (38,349) | 11,237 | ||
| Net loss | **** | (320,120) | **** | (23,516) |
| Less: Net earnings attributable to noncontrolling interests | — | 576 | ||
| Net loss attributable to Entertainment One Film and Television Business | $ | (320,120) | $ | (24,092) |
See accompanying notes to Condensed Combined Financial Statements.
2
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Condensed Combined Statements of Comprehensive Loss
For the Nine Months Ended October 1, 2023 and September 25, 2022
(Thousands of Dollars)
| 2023 | 2022 | |||
|---|---|---|---|---|
| Net loss | $ | (320,120) | $ | (23,516) |
| Other comprehensive earnings (loss): | ||||
| Foreign currency translation adjustments, net of tax | 1,894 | (37,978) | ||
| Net gains on cash flow hedging activities, net of tax | 408 | 8,083 | ||
| Reclassifications to earnings, net of tax: | ||||
| Net losses on cash flow hedging activities | (1,759) | (1,186) | ||
| Other comprehensive earnings (loss), net of tax | **** | 543 | **** | (31,081) |
| Total comprehensive loss, net of tax | **** | (319,577) | **** | (54,597) |
| Total comprehensive earnings attributable to noncontrolling interests | — | 576 | ||
| Total comprehensive loss attributable to Entertainment One Film and TelevisionBusiness | $ | (319,577) | $ | (55,173) |
See accompanying notes to Condensed Combined Financial Statements.
3
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Condensed Combined Statements of Cash Flows
For the Nine Months Ended October 1, 2023 and September 25, 2022
(Thousands of Dollars)
| 2023 | 2022 | |||
|---|---|---|---|---|
| Cash flows from operating activities: | ||||
| Net loss | $ | (320,120) | $ | (23,516) |
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||
| Depreciation of property, plant and equipment | 6,815 | 5,293 | ||
| Amortization of intangible assets | 11,661 | 14,291 | ||
| Program cost amortization | 249,848 | 318,966 | ||
| Share-based compensation funded by Parent | 8,223 | 3,019 | ||
| Non-cash lease expense | 9,049 | 6,560 | ||
| Deferred income taxes | (41,902) | (38) | ||
| Impairment of goodwill and trade name | 296,167 | — | ||
| Other non-cash items | (1,351) | 6,897 | ||
| Changes in assets and liabilities: | ||||
| Decrease in accounts receivable | 47,262 | 4,799 | ||
| Decrease (increase) in inventories | 245 | (290) | ||
| Decrease in prepaid expenses and other current assets | 27,817 | 4,221 | ||
| Program spend | (304,052) | (453,483) | ||
| Increase (decrease) in accounts payable | (7,503) | 10,071 | ||
| Increase (decrease) in accrued liabilities | (41,829) | 39,422 | ||
| Decrease in accrued participation and residuals | (37,829) | (11,922) | ||
| Increase in deferred revenue | 3,845 | 14,438 | ||
| Decrease in Other noncurrent liabilities | (7,357) | (1,279) | ||
| Decrease (increase) in Other noncurrent assets | 27,347 | (41,186) | ||
| Net cash used in operating activities | **** | (73,664) | **** | (103,737) |
| Investing activities: | ||||
| Additions to Property, plant and equipment | (478) | (4,972) | ||
| Net cash used in investing activities | **** | (478) | **** | (4,972) |
| Financing activities: | ||||
| Buyout of redeemable noncontrolling interest | — | (18,500) | ||
| Distributions to noncontrolling interests | — | (1,900) | ||
| Net proceeds from borrowings | 117,944 | 204,032 | ||
| Repayments of borrowings | (162,029) | (188,752) | ||
| Financing transactions with Parent, net | 97,445 | 79,895 | ||
| Net cash provided by financing activities | **** | 53,360 | **** | 74,775 |
| Effect of exchange rate changes on cash and cash equivalents | 727 | (980) | ||
| Change in cash and cash equivalents and restricted cash | **** | (20,055) | **** | (34,914) |
| Cash, cash equivalents and restricted cash at beginning of period | 91,077 | 132,880 | ||
| Cash, cash equivalents and restricted cash at end of period | $ | 71,022 | $ | 97,966 |
| Supplemental information | ||||
| Income taxes paid | $ | (8,948) | $ | (2,824) |
| Interest paid | $ | (9,626) | $ | (202) |
See accompanying notes to Condensed Combined Financial Statements.
4
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Condensed Combined Statements of Parent Equity and Redeemable Non-Controlling Interest
For the Nine Months Ended October 1, 2023 and September 25, 2022
(Thousands of Dollars)
| 2023 | 2022 | |||
|---|---|---|---|---|
| Net Parent Investment | ||||
| Balance at the beginning of the period | $ | 1,143,855 | $ | 1,028,975 |
| Net loss attributable to Entertainment One Film and Television Business | (320,120) | (24,092) | ||
| Share-based compensation funded by Parent | 8,223 | 3,019 | ||
| Net contributions from Parent | 97,693 | 86,737 | ||
| Balance at the end of the period | $ | 929,651 | $ | 1,094,639 |
| Accumulated Other Comprehensive Earnings (Loss), net of tax | ||||
| Balance at the beginning of the period | $ | (28,377) | $ | 5,278 |
| Other comprehensive earnings (loss) | 543 | (31,081) | ||
| Balance at the end of the period | **** | (27,834) | **** | (25,803) |
| Total Parent Equity | $ | 901,817 | $ | 1,068,836 |
| Redeemable Non-Controlling Interest | ||||
| Balance at the beginning of the period | $ | — | $ | 23,938 |
| Distributions paid to noncontrolling owners and other foreign exchange | — | (1,500) | ||
| Buyout of redeemable noncontrolling interest | — | (23,014) | ||
| Net earnings attributable to noncontrolling interests | — | 576 | ||
| Balance at the end of the period | $ | — | $ | — |
See accompanying notes to Condensed Combined Financial Statements.
5
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
| (1) | Description of Business and Basis of Presentation |
|---|
Description of Business
The accompanying Condensed Combined Financial Statements include the accounts of operations that comprise the Entertainment One (“eOne”) Film and Television operations of Hasbro, Inc. (“Hasbro” or the “Parent”) (the “Company”). The eOne Film and Television business produces scripted and unscripted television and motion pictures with global distribution and an extensive film and television library. To the extent that an asset, liability, revenue, or expense is directly associated with the Company, it is reflected in the accompanying Condensed Combined Financial Statements.
On August 3, 2023, Hasbro and certain of its wholly and majority owned subsidiaries entered into a definitive agreement (the “Purchase Agreement”) to sell the Company’s film and television business to Lionsgate (the “Purchaser” or “Lionsgate”) for approximately $500,000 thousand (the “Transaction”). Upon consummation of the Transaction, the historical operations of the Company will be transferred to the Purchaser, and Hasbro and the Purchaser will enter into various commercial agreements designed to continue to serve their respective customers. The sale will include employees, a content library of nearly 6,500 titles, active productions for non-Hasbro owned IP and the eOne unscripted business, which will include rights for certain Hasbro-based shows.
The business does not include Hasbro’s Allspark operations, nor any active productions for Hasbro-owned IP such as Dungeons & Dragons. Consequently, these assets are not included in the accompanying Condensed Combined Financial Statements of the Company.
The accompanying Condensed Combined Financial Statements reflect the pushdown of acquisition accounting for the assets and liabilities which were directly attributable to the Company, and which existed as of the Lionsgate acquisition.
Basis Of Presentation
The Condensed Combined Financial Statements represent the operations of the Company and have been prepared on a “carve-out” basis. The Condensed Combined Financial Statements have been derived from Hasbro’s Consolidated Financial Statements and accounting records, and reflect the Condensed Combined Statements of Operations, Statements of Comprehensive Earnings, Balance Sheets, Cash Flows and Equity in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).
Hasbro provides certain corporate functions to the Company and costs associated with these provided services have been allocated to the Company. These allocations include treasury functions, tax services and employment legal functions. The costs of such services have been allocated to the Company based on an allocation metric which best represents the Company’s portion of corporate expenses incurred, primarily using the relative percentage of operating income. Management believes such allocations to be reasonable; however, they may not be indicative of the actual expenses that would have been incurred had the Company been operating as an independent company for the period presented. The cost allocations for these items are included in in “General and administration” in the Condensed Combined Statement of Operations. The total amounts of these cost allocations were approximately $299 thousand and $100 thousand for the nine months ended October 1, 2023 and September 25, 2022, respectively. See note 15.
Hasbro maintains a number of share-based compensation programs at a corporate level. The Company’s employees participate in those programs, and as such, the Company was charged a portion of the expenses associated with these programs. The Company was directly attributed share-based compensation expenses of $8,223 thousand and $3,019 thousand for the nine months ended October 1, 2023 and September 25, 2022, respectively. The charges are included in “General and administration” in the Condensed Combined Statements of Operations.
6
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
Substantially all employees attributable to the Company are covered by defined contribution plans held by the Company, rather than Hasbro. These related expenses are all directly attributable to the Company and resulting liabilities are in Accrued liabilities in the Condensed Combined Balance Sheet.
“Net Parent Investment” represents Hasbro’s interest in the net assets of the Company. The net parent investment balance represents the cumulative net investment by Hasbro in the Company through the periods presented, including any prior net earnings (loss) or comprehensive earnings (loss) attributed to the Company. Certain transactions between the Company, including allocated expenses, are also included in and reflected as a change in the Company’s net parent investment in the Condensed Combined Balance Sheets.
The Company frequently engages in various activities with Hasbro, resulting in accounts receivable and accounts payable positions. These balances do not settle in cash and have been eliminated through Net Parent Investment for the periods presented. Additionally, intercompany transactions within the Film and Television business have been eliminated for the periods presented.
The Condensed Combined Financial Statements may not be indicative of future performance and do not necessarily reflect the Condensed Combined Statements of Operations, Balance Sheets, and Statement of Cash Flows had the Company operated as an independent business from Hasbro during the periods presented.
Preparation of Condensed Combined Financial Statements
The preparation of the Condensed Combined Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the Condensed Combined Financial Statements and notes thereto. Actual results could differ from those estimates.
The nine-month periods ended October 1, 2023 and September 25, 2022 were 40-week and 39-week periods, respectively. The results of operations for the nine months ended October 1, 2023 are not necessarily indicative of results to be expected for the full year 2023, nor were those of the comparable 2022 period representative of those actually experienced for the full year 2022.
The Condensed Combined Financial Statements may not be indicative of future performance and do not necessarily reflect the Condensed Combined Statement of Operations, Balance Sheet, and Statement of Cash Flows would have been had the Company operated as an independent business from Hasbro during the periods presented. To the extent that an asset, liability, revenue, or expense is directly associated with the Company, it is reflected in the accompanying Condensed Combined Financial Statements.
Impairment of Reporting Unit
During the second quarter of 2023, the Company determined that a triggering event occurred following a downward revision of the Company’s financial forecast, driven by challenging industry conditions that included the strike by the Writers Guild of America. As a result, the Company performed a quantitative impairment test and determined that the Company’s reporting unit was impaired. During the second quarter of 2023, the Company recorded pre-tax non-cash impairment charges of $296,167 thousand as the carrying value of the reporting unit exceeded its expected fair value, as determined using a discounted cash flow model which is primarily based on management’s future revenue and cost estimates. These impairment charges consisted of a $231,000 thousand goodwill impairment charge associated with goodwill and a $65,167 thousand intangible asset impairment charge related to the Company’s definite-lived intangible eOne Trade Name, recorded in Impairment of goodwill and trade name, within the Consolidated Statements of Operations for the nine months ended October 1, 2023.
7
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
| (2) | Revenue Recognition |
|---|
Contract Assets
In the ordinary course of business, the Entertainment One Film & TV Business enters into contracts to license their intellectual property, providing licensees right-to-use or access such intellectual property for use in the production and for use within content for distribution over streaming platforms and for television and film. The Company also licenses owned television and film content for distribution to third parties in formats that include broadcast, theatrical and digital streaming. Through these arrangements, the Company may receive advanced royalty payments from licensees, either in advance of a licensees’ subsequent sales to customers or prior to the completion of the Company’s performance obligation. The Company defers revenues on all licenses until the respective performance obligations are satisfied. The Company records the aggregate deferred revenues as contract liabilities, with the current portion recorded within Accrued Liabilities and the long-term portion recorded as Other Liabilities in the Company’s Condensed Combined Balance Sheets. The Company records contract assets, primarily related to (1) minimum guarantees being recognized in advance of contractual invoicing, which are recognized ratably over the terms of the respective license periods, and (2) film and television distribution revenues recorded for content delivered, where payment will occur over the license term.
The Company’s contract assets are classified within the following financial statement line items in the Condensed Combined Balance Sheets at October 1, 2023 and December 25, 2022 as follows:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Prepaid expenses and other current assets | $ | 84,025 | $ | 109,607 |
| Other | 301,599 | 319,045 | ||
| Contract assets | $ | 385,624 | $ | 428,652 |
Deferred Revenue
Deferred revenue relates primarily to customer cash advances or deposits received prior to when the Company satisfies the corresponding performance obligation. Revenues of $16,430 thousand were recognized during the nine months ended October 1, 2023, related to the balance of deferred revenue at December 25, 2022.
Unsatisfied Performance Obligations
Unsatisfied performance obligations relate primarily to in-production television content to be delivered in the future under existing agreements with partnering content providers such as broadcasters, distributors, television networks and subscription video on demand services. As of October 1, 2023, unrecognized revenue attributable to unsatisfied performance obligations expected to be recognized in the future was $120,516 thousand. Of this amount, we expect to recognize approximately $95,616 thousand in 2023, $22,801 thousand in 2024, and $1,959 thousand in 2025, and $140 thousand in 2026. These amounts include only fixed consideration.
Accounts Receivable and Allowance for Credit Losses
The Company’s balance for accounts receivable on the Condensed Combined Balance Sheets as of October 1, 2023 and December 25, 2022 are primarily from contracts with customers. The Company had no material expense for credit losses in the nine months ended October 1, 2023 or September 25, 2022.
8
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
Disaggregation of revenues
The Company disaggregates its revenues from contracts with customers by category: Home Video and Digital, Broadcast and Licensing and Production and Other. Information by major revenue stream and a reconciliation to reported amounts for the nine months ended October 1, 2023 and September 25, 2022 are as follows:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Home Video, Digital and Theatrical | $ | 18,873 | $ | 19,766 |
| Broadcast and Licensing | 138,208 | 129,528 | ||
| Production and Other | 262,244 | 368,880 | ||
| Total revenues | $ | 419,325 | $ | 518,174 |
| (3) | Other Comprehensive Loss | |||
| --- | --- |
Components of other comprehensive loss are presented within the Condensed Combined Statements of Comprehensive Loss. The following table presents the related tax effects on changes in other comprehensive loss for each of the nine months ended October 1, 2023 and September 25, 2022.
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Other comprehensive earnings (loss), tax effect: | ||||
| Tax (expense) benefit on cash flow hedging activities | $ | (33) | $ | (1,911) |
| Tax (expense) benefit on foreign currency translation amounts | — | — | ||
| Reclassifications to earnings, tax effect: | ||||
| Tax expense (benefit) on net (gains) losses on cash flow hedging activities | 13 | 232 | ||
| Total tax effect on other comprehensive loss attributable to Entertainment One Film andTelevision Business Film and Television | $ | (20) | $ | (1,679) |
Changes in the components of accumulated other comprehensive loss, net of tax for each of the nine months ended October 1, 2023 and September 25, 2022 are as follows:
| (In thousands) | Gains (Losses)<br>on Derivative<br>Instruments | Foreign<br>Currency<br>Translation<br>Adjustments | Total<br>Accumulated<br>Other<br>Comprehensive<br>Earnings (Loss) | |||
|---|---|---|---|---|---|---|
| 2023 | ||||||
| Balance at December 25, 2022 | $ | 1,296 | $ | (29,673) | $ | (28,377) |
| Current period other comprehensive earnings (loss) | 408 | 1,894 | 2,302 | |||
| Reclassifications from AOCE to earnings | (1,759) | — | (1,759) | |||
| Balance at October 1, 2023 | $ | (55) | $ | (27,779) | $ | (27,834) |
| 2022 | ||||||
| Balance at December 26, 2021 | $ | 1,886 | $ | 3,392 | $ | 5,278 |
| Current period other comprehensive earnings (loss) | 8,083 | (37,978) | (29,895) | |||
| Reclassifications from AOCE to earnings | (1,186) | — | (1,186) | |||
| Balance at September 25, 2022 | $ | 8,783 | $ | (34,586) | $ | (25,803) |
9
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
Gains (Losses) on Derivative Instruments
At October 1, 2023, the Company had remaining net deferred losses on foreign currency forward contracts, net of tax, of $55 thousand in AOCE. These instruments hedge payments related to television and movie production costs paid in 2023 or expected to be paid in 2024 or 2025. These amounts will be reclassified into the Condensed Combined Statements of Operations upon recognition of the related costs.
The company expects net deferred gains included in AOCE at October 1, 2023, to be reclassified to the Condensed Combined Statements of Operations within the next 12 months. However, the amount ultimately realized in earnings is dependent on the fair value of the hedging instruments on the settlement dates.
See note 12 for additional discussion on reclassifications from AOCE to earnings.
| (4) | Property, Plant and Equipment | |||
|---|---|---|---|---|
| (In thousands) | October 1,<br>2023 | December 25,2022 | ||
| --- | --- | --- | --- | --- |
| Computer software and hardware | $ | 27,980 | $ | 27,802 |
| Furniture and fixtures | 2,612 | 2,466 | ||
| Leasehold improvements | 16,148 | 16,108 | ||
| Less accumulated depreciation | (24,467) | (17,680) | ||
| Total property, plant and equipment, net | $ | 22,273 | $ | 28,696 |
Expenditures for maintenance and repairs which do not materially extend the life of the assets are charged to operations as incurred. In the nine months ended October 1, 2023 and September 25, 2022, the Company recorded $6,815 thousand and $5,293 thousand, respectively, of depreciation expense.
See note 11 for additional discussion on right of use assets.
| (5) | Goodwill and Other Intangible Assets |
|---|
Goodwill
Changes in the carrying amount of goodwill, for the nine months ended October 1, 2023 are as follows:
| (In thousands) | Goodwill | |
|---|---|---|
| Balance as of December 25, 2022 | $ | 231,000 |
| Impairment during the period ^(1)^ | (231,000) | |
| Balance as of October 1, 2023 | $ | — |
| ^(1)^ | See note 1 for discussion of goodwill impairment recorded during the second quarter of 2023. | |
| --- | --- |
10
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
Other Intangible Assets, Net
The following table represents a summary of the Company’s other intangible assets, net at October 1, 2023 and December 25, 2022:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Exclusive content agreements and libraries | $ | 89,726 | $ | 89,481 |
| Trade name ^(1)^ | — | 85,000 | ||
| Accumulated amortization | (47,324) | (55,486) | ||
| Total other intangibles assets, net | $ | 42,402 | $ | 118,995 |
| ^(1)^ | See note 1 for discussion of eOne Trade name impairment recorded during the second quarter of 2023. | |||
| --- | --- |
The Company’s other intangible assets are amortized straight line over their remaining useful lives, and accumulated amortization of these other intangibles is reflected in other intangible assets, net in the accompanying Condensed Combined Balance Sheets.
Intangible assets are reviewed for indications of impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. See note 1 for discussion of eOne Trade name impairment recorded during the second quarter of 2023.
| (6) | Investments in Productions and Investments in Acquired Content Rights |
|---|
Investments in productions and investments in acquired content rights are predominantly monetized on a title-by-title basis and are recorded within other assets in the Company’s Condensed Combined Balance Sheets, to the extent they are considered recoverable against future revenues. These amounts are being amortized to program cost amortization using a model that reflects the consumption of the asset as it is released through various channels including broadcast licenses, theatrical release and home entertainment. Amounts capitalized are reviewed periodically on an individual film basis and any portion of the unamortized amount that appears not to be recoverable from future net revenues is expensed as part of program cost amortization during the period the loss becomes evident. The Company’s unamortized investments in productions and investments in acquired content rights consisted of the following at October 1, 2023 and December 25, 2022:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Investment in Films and Television Programs: | ||||
| Individual monetization | ||||
| Released, net of amortization | $ | 463,657 | $ | 489,756 |
| Completed and not released | 68,741 | 78,644 | ||
| In production | 76,013 | 21,915 | ||
| Pre-production | 123,444 | 103,687 | ||
| Total program investments | $ | 731,855 | $ | 694,002 |
The Company recorded $249,848 thousand of program cost amortization related to released programming in the nine months ended October 1, 2023, consisting of the following:
| (In thousands) | Investment in<br>Production | Investment in<br>Content | Total | |||
|---|---|---|---|---|---|---|
| Program cost amortization | $ | 219,847 | $ | 30,001 | $ | 249,848 |
11
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
| (7) | Accrued Liabilities |
|---|
Components of accrued liabilities for the nine months ended October 1, 2023 and December 25, 2022 are as follows:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Accrued expenses IIP & IIC | $ | 48,012 | $ | 78,923 |
| Severance | 12,215 | 21,131 | ||
| Payroll | 6,417 | 20,793 | ||
| Current lease liability | 7,035 | 8,155 | ||
| Accrued taxes | 25,755 | 20,089 | ||
| Other | 37,293 | 58,161 | ||
| Total accrued liabilities | $ | 136,727 | $ | 207,252 |
| (8) | Production Financing | |||
| --- | --- |
Production Financing
The Company uses production financing to fund certain of its television and film 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.
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 October 1, 2023 was 7.5%.
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 $250,000 thousand. The Revolving Production Financing Agreement also provides the Company with the option to request a commitment increase up to an aggregate additional amount of $150,000 thousand subject to agreement of the lenders. The Revolving Production Financing Agreement extends through November 22, 2024. The Company uses the RPCF to fund certain of the Company’s original film and TV production costs. Borrowings under the RPCF are non-recourse to the Company’s assets.
The Company has U.S. dollar production credit facilities and Canadian dollar and U.S. dollar production loans with various banks. For all periods presented, the carrying value approximated fair value. The carrying amounts of each component of Production Financing were as follows:
| (In thousands) | Production<br>Loans | Credit<br>Facilities | Total<br>Production<br>Financing | |||
|---|---|---|---|---|---|---|
| As of October 1, 2023 | $ | 8,185 | $ | 141,911 | $ | 150,096 |
12
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
The following table represents movements in production financing during the first nine months of 2023:
| (In thousands) | ProductionFinancing | |
|---|---|---|
| Balance at December 25, 2022 | $ | 194,781 |
| Drawdown | 117,939 | |
| Repayments | (162,029) | |
| Foreign exchange differences | (595) | |
| Balance at October 1, 2023 | $ | 150,096 |
| (9) | Income Taxes | |
| --- | --- |
In preparing the Film and TV carve-out financial statements, The Company has determined the tax provision for those operations on a separate return basis. The tax provision and the related tax disclosures set out below are not necessarily representative of the tax provision and the related tax disclosures that may arise in the future.
The Company files income tax returns in the United States and various state and international jurisdictions. In the normal course of business, the Company is regularly audited by U.S. federal, state and local, and international tax authorities in various tax jurisdictions.
Our effective tax rate (“ETR”) from continuing operations was 10.7% for the nine months ended October 1, 2023 and (91.5%) for the nine months ended September 25, 2022. The following items caused the year-to-date ETR to be significantly different from the prior year ETR:
| • | During the nine months ended October 1, 2023, the Company recorded a net discrete tax benefit of<br>$14,046 thousand primarily associated with a tax benefit on the impairment of eOne trade name in the UK. During the nine months ended October 1, 2023, the Company also recorded a $3,553 thousand tax expense related to non-recoverable withholding tax in Canada and the US. |
|---|---|
| • | During the nine months ended September 25, 2022, the Company recorded a net discrete tax benefit of<br>$1,747 thousand primarily associated with certain provision to return adjustments in the UK. During the nine months ended September 25, 2022, the Company also recorded $11,275 thousand of tax expense related to non-recoverable withholding tax in Canada and the US. |
| --- | --- |
| (10) | Fair Value of Financial Instruments |
| --- | --- |
The Company measures certain financial instruments at fair value. The fair value hierarchy consists of three levels: Level 1 fair values are based on quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access; Level 2 fair values are those based on quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities; and Level 3 fair values are based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. There have been no transfers between levels within the fair value hierarchy.
Accounting standards permit entities to measure many financial instruments and certain other items at fair value and establish presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar assets and liabilities.
13
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
At October 1, 2023 and December 25, 2022, the Company had the following assets and liabilities measured using Level 2 fair value indicators in its Condensed Combined Balance Sheets:
| (In thousands) | Fair Value | |
|---|---|---|
| October 1, 2023 | ||
| Assets: | ||
| Derivatives | $ | 1,890 |
| Total assets | $ | 1,890 |
| Liabilities: | ||
| Derivatives | $ | 4,676 |
| Total liabilities | $ | 4,676 |
| December 25, 2022 | ||
| Assets: | ||
| Derivatives | $ | 6,744 |
| Total assets | $ | 6,744 |
| Liabilities: | ||
| Derivatives | $ | 2,266 |
| Total liabilities | $ | 2,266 |
The Company’s derivatives consist of foreign currency forward contracts. The Company uses current forward rates of the respective foreign currencies to measure the fair value of these contracts.
| (11) | Leases |
|---|
The Company occupies offices under various operating lease arrangements. The Company has no finance leases. The leases have remaining terms of 1 to 7 years, some of which include options to extend lease terms or options to terminate current lease terms at certain times, subject to notice requirements set out in the lease agreement. Payments under certain of the lease agreements may be subject to adjustment based on a consumer price index or other inflationary indices. The lease liability for such lease agreements as of the adoption date, was based on fixed payments as of the adoption date. Any adjustments to these payments based on the related indices will be recorded to expense as incurred. Leases with an expected term of 12 months or less are not capitalized. Lease expense under such leases is recorded straight line over the life of the lease. The Company expenses non-lease components as incurred for real estate leases.
The rent expense under such arrangements and similar arrangements that do not qualify as leases under ASU 2016-02, net of sublease income amounted to $7,820 thousand and $10,335 thousand, respectively, for each of the nine months period ended October 1, 2023 and September 25, 2022, and was not material to the Company’s financial statements nor were expenses related to short term leases (expected term less than twelve months) or variable lease payments during those same periods.
All leases expire prior to 2030. Real estate taxes, insurance and maintenance expenses are generally obligations of the Company. Operating leases often contain renewal options. In those locations in which the Company continues to operate, management expects that, in the normal course of business, leases that expire will be renewed or replaced by leases on other properties.
14
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
Information related to the Company’s leases for the nine months ended October 1, 2023 and September 25, 2022 is as follows:
| (In thousands) | 2023 | 2022 | ||||
|---|---|---|---|---|---|---|
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||
| Operating cash flows from operating leases | $ | 7,043 | $ | 7,697 | ||
| Right-of-useassets obtained in exchange for lease: | ||||||
| Operating leases net of lease modifications | 29,233 | 40,409 | ||||
| Weighted Average Remaining Lease Term: | ||||||
| Operating leases | 4.9 years | 5.6 years | ||||
| Weighted Average Discount Rate: | ||||||
| Operating leases | 1.8 | % | 1.7 | % |
The following is a reconciliation of future undiscounted cash flows to the operating liabilities, and the related right of use assets, included in our Condensed Combined Balance Sheets as of October 1, 2023:
| (In thousands) | October 1,2023 | |
|---|---|---|
| 2023 (excluding the nine-month period ended October 1, 2023) | $ | 2,007 |
| 2024 | 7,677 | |
| 2025 | 7,745 | |
| 2026 | 5,530 | |
| 2027 | 5,208 | |
| 2028 and thereafter | 5,966 | |
| Total future lease payments | 34,133 | |
| Less imputed interest | 1,455 | |
| Present value of future operating lease payments | 32,678 | |
| Less current portion of operating lease liabilities<br>^(1)^ | 7,035 | |
| Non-current operating lease liability ^(2)^ | 25,643 | |
| Operating lease<br>right-of-use assets, net ^(3)^ | $ | 29,233 |
| ^(1)^ | Included in Accrued liabilities on the Condensed Combined Balance Sheets | |
| --- | --- | |
| ^(2)^ | Included in Other liabilities on the Condensed Combined Balance Sheets | |
| --- | --- | |
| ^(3)^ | Included in Operating lease<br>right-of-use assets on the Condensed Combined Balance Sheets | |
| --- | --- | |
| (12) | Derivative Financial Instruments | |
| --- | --- |
The Company uses foreign currency forward and option contracts to mitigate the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. These over-the-counter contracts, which hedge future currency requirements related to television and film production cost and production financing facilities (see note 8) as well as other cross-border transactions not denominated in the functional currency of the business unit, are primarily denominated in United States and Canadian Dollars, Pound Sterling and Euros. All contracts are entered into with a number of counterparties, all of which are major financial institutions. The Company believes that a default by a single counterparty would not have a material adverse effect on the financial condition of the Company. The Company does not enter into derivative financial instruments for speculative purposes.
15
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
Cash Flow Hedges
All the Company’s designated foreign currency forward contracts are considered to be cash flow hedges. These instruments hedge a portion of the Company’s currency requirements associated with certain production financing loans and other cross-border transactions, primarily in years 2023 and to a lesser extent, 2024.
At October 1, 2023 and December 25, 2022, the notional amounts and fair values of the Company’s foreign currency forward and option contracts designated as cash flow hedging instruments were as follows:
| 2023 | 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| (In thousands) | Notional<br>Amount | Fair Value | Notional<br>Amount | Fair Value | ||||
| Hedged Item | ||||||||
| Foreign Currency denominated expense | 28,669 | (44) | 78,298 | 1,706 |
The fair values of the Company’s foreign currency forward contracts designated as cash flow hedges are recorded in the Condensed Combined Balance Sheets at October 1, 2023 and December 25, 2022, as follows:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Prepaid expenses and other current assets | ||||
| Unrealized gains | $ | 55 | $ | 2,051 |
| Unrealized losses | — | — | ||
| Net unrealized gains | $ | 55 | $ | 2,051 |
| Accrued liabilities | ||||
| Unrealized gains | $ | — | $ | — |
| Unrealized losses | (98) | (292) | ||
| Net unrealized losses | $ | (98) | $ | (292) |
Net gains on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net loss for the nine months ended October 1, 2023 and September 25, 2022 as follows:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Condensed Combined Statements of Operations Classification | ||||
| Other expense, net | 1,759 | 1,186 | ||
| Net realized gains | $ | 1,759 | $ | 1,186 |
Undesignated Hedges
To manage transactional exposure to fair value movements on certain monetary assets and liabilities denominated in foreign currencies, the Company has implemented a balance sheet hedging program. The Company does not use hedge accounting for these contracts as changes in the fair values of these contracts are offset by changes in the fair value of the balance sheet items. As of October 1, 2023 and December 25, 2022, the total notional amounts of the Company’s undesignated derivative instruments were $289,536 thousand and $296,474 thousand, respectively.
16
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
At October 1, 2023 and December 25, 2022, the fair value of the Company’s undesignated derivative financial instruments are recorded in the Condensed Combined Balance Sheets as follows:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| Prepaid expenses and other current assets | ||||
| Unrealized gains | $ | 1,836 | $ | 4,693 |
| Unrealized losses | — | — | ||
| Net unrealized gains | **** | 1,836 | **** | 4,693 |
| Accrued liabilities | ||||
| Unrealized gains | — | — | ||
| Unrealized losses | (4,577) | (1,974) | ||
| Net unrealized losses | (4,577) | (1,974) | ||
| Total unrealized (losses) gains, net | $ | (2,741) | $ | 2,719 |
The Company recorded net gains (losses) of $905 thousand and $(8,712) thousand on these instruments to other expense, net for the nine months ended October 1, 2023 and September 25, 2022, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains and losses from the change in fair value of the items to which the instruments relate.
For additional information related to the Company’s derivative financial instruments see notes 3 and 10.
| (13) | Restructuring Actions |
|---|
During 2020, the Company took certain integration actions related to the acquisition of eOne by Hasbro in 2019. Substantially all of the remaining cash payments related to these programs are expected to be made by the end of 2024.
During 2022, in support of Blueprint 2.0, the Parent announced an Operational Excellence program in which the Company took certain restructuring actions, including global workforce reductions, resulting in severance and other employee charges.
The detail of activity related to the Company’s programs as of October 1, 2023 is as follows:
| (In thousands) | Integration<br>Program | Operational<br>Excellence<br>Program | ||
|---|---|---|---|---|
| Remaining amounts to be paid as of December 25, 2022 | $ | 963 | $ | 20,168 |
| Payments made in the nine months ended October 1, 2023 | — | (8,916) | ||
| Remaining amounts to be paid as of October 1, 2023 | **** | 963 | **** | 11,252 |
| (14) | Commitments and Contingencies | |||
| --- | --- |
The Company is party to certain legal proceedings, as well as certain asserted and unasserted claims. Amounts accrued, as well as the total amount of reasonably possible losses with respect to such matters, individually and in the aggregate, are not deemed to be material to the Condensed Combined Financial Statements.
See note 11 for additional information on the Company’s future lease payment commitments. See note 8 for additional information on the Company’s long-term debt and production financing repayments.
17
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
| (15) | Related Parties |
|---|
The Company has not historically operated as a standalone business and the Condensed Combined Financial Statements are derived from the Consolidated Financial Statements and accounting records of Hasbro. The following disclosure summarizes activity between the Company and Hasbro. The Company historically settles intercompany transaction between entities and will net settle intercompany transactions to equity prior to close.
Cost Allocations from Hasbro
Hasbro provides certain services including treasury, tax and legal functions to the Company. The Consolidated Financial Statements reflect an allocation of these costs. See note 1 for a discussion of these costs and the methodology used to allocate them.
These allocations are reflected in the Condensed Combined Statement of Operations for nine-month period ended October 1, 2023 and September 25, 2022, as follows:
| (In thousands) | 2023 | 2022 | ||
|---|---|---|---|---|
| General and administration expenses | $ | 299 | $ | 100 |
Management believes these cost allocations are a reasonable reflection of the utilization of services provided to, or the benefit derived by, the Company during the periods presented. The allocations may not, however, be indicative of the actual expenses that would have been incurred had the Company operated as a standalone public company. Actual costs that may have been incurred if the Company had been a standalone public company would depend on a number of factors, including the chosen organizational structure, whether the functions were outsourced or performed by Company’s employees, and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.
Net Parent Investment
“Net Parent Investment” represents Hasbro’s interest in the net assets of the Company. The net parent investment balance represents the cumulative net investment by Hasbro in the Company through the periods presented, including any prior net earnings (loss) or comprehensive earnings (loss) attributed to the Company. Certain transactions between the Company and other related parties, including allocated expenses, are also included in and reflected as a change in the Company’s net parent investment in the Condensed Combined Balance Sheets.
| (In thousands) | October 1,<br>2023 | December 25,<br>2022 | ||
|---|---|---|---|---|
| Net Parent Investment | ||||
| Corporate allocations | 299 | 1,008 | ||
| Share-based compensation funded by Parent | 8,223 | 4,506 | ||
| Net increase in Net Parent Investment | $ | 8,522 | $ | 5,514 |
Related Party Distribution Arrangements
In the ordinary course of business, the Company distributes Hasbro IP-related content through various physical and digital distribution arrangements. Expenses related to these related party distribution arrangements may not be indicative of the actual expenses the Company would have incurred as a separate, stand-alone company or of the costs the Company will incur in the future.
Expenses related to these arrangements were $3,008 thousand and $2,345 thousand in the Condensed Combined Statement of Operations for the nine months period ended October 1, 2023 and September 25, 2022, respectively.
18
Entertainment One Film and Television Business
(A Business of Hasbro, Inc.)
Notes to Condensed Combined Financial Statements
(Thousands of Dollars)
| (16) | Subsequent Events |
|---|
The Company has performed an evaluation of subsequent events for disclosure through December 21, 2023, which is the date the financial statements were available to be issued.
19
EX-99.3
Exhibit 99.3
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On December 27, 2023 (the “Closing”), Lionsgate Entertainment Corp. (“Lionsgate”, “LGEC”, or the “Company”), pursuant to the Share Purchase Agreement (the “Agreement”) entered into on August 3, 2023 with Hasbro, Inc. (“Hasbro”), completed the acquisition of all of the issued and outstanding equity interests of the companies constituting the Entertainment One television and film (“eOne”) business for an aggregate purchase price of $385.1 million, which reflects the cash purchase price of $375.0 million and an amount for estimated purchase price adjustments including cash, debt and working capital, and the assumption by the buyers of certain production financing indebtedness (the “Acquisition”). Lionsgate funded the Acquisition with a combination of cash on hand and a drawdown of $375.0 million under its revolving credit facility, (the “Financing Transaction”).
The following unaudited pro forma condensed combined financial information presents the combination of the historical consolidated financial statements of Lionsgate and eOne, and is intended to provide you with information about how the Acquisition and the Financing Transaction might have affected Lionsgate’s historical financial statements.
The unaudited pro forma condensed combined statements of operations for the nine months ended December 31, 2023 and year ended March 31, 2023 combines the historical statements of operations of Lionsgate and eOne for such periods on a pro forma basis as if the Acquisition and Financing Transaction had been consummated on April 1, 2022, the beginning of the earliest period presented. Lionsgate’s fiscal year ends on March 31 and eOne’s fiscal year ends on the last Sunday in December. The pro forma condensed combined financial information is presented on the basis of Lionsgate’s fiscal year and combines the historical results of the fiscal periods of Lionsgate and eOne. A pro forma condensed combined balance sheet is not required as the Acquisition has already been reflected in the historical balance sheet as of December 31, 2023, included in Lionsgate’s interim report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on February 8, 2024.
The unaudited pro forma condensed combined financial statements constitute forward-looking information and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated.
The following unaudited pro forma condensed combined financial information gives effect to the following:
| • | The Acquisition, inclusive of the following: |
|---|---|
| • | reclassification of certain eOne historical financial information to conform to Lionsgate’s presentation of<br>similar revenues and expenses; |
| --- | --- |
| • | other adjustments including expense associated with the allocation of the purchase price to the acquired assets<br>(i.e. depreciation and amortization expense); |
| --- | --- |
| • | the related interest expense effects for the Financing Transaction; and |
| --- | --- |
| • | the related income tax effects of the pro forma adjustments. |
| --- | --- |
The Acquisition was accounted for under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Under the acquisition method of accounting, the total estimated purchase price has been allocated to the tangible and intangible assets acquired and liabilities assumed of eOne based on a preliminary estimate of their fair value. The preliminary allocation of the estimated purchase price is based upon management’s estimates based on information currently available and is subject to revision as a more detailed analysis is completed and additional information on the fair value of the assets and liabilities become available and final appraisals and analyses are completed. The Company is still evaluating the fair value of film and television programs and libraries, projects in development, intangible assets, and income taxes, in addition to ensuring all other assets and liabilities and contingencies have been identified and recorded. Differences between these preliminary estimates and the final acquisition accounting could occur and these differences could be material. A change in the fair value of the net assets of eOne may change the amount of the purchase price allocable to goodwill, and could have a material impact on the accompanying unaudited pro forma condensed combined statements of operations.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The pro forma financial information has been prepared by management in accordance with SEC Regulation S-X Article 11, Pro Forma Financial Information, as amended, and are not necessarily indicative of the financial position or results of operations that would have been realized if the aforementioned transactions had been completed on the dates indicated, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon available information and certain assumptions that Lionsgate believes are reasonable. Actual results and valuations may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial statements. In addition, the unaudited pro forma condensed combined financial statements do not reflect any revenue enhancements, anticipated synergies, operating efficiencies, or cost savings that may be achieved related to the Acquisition, nor do they reflect any costs or expenditures that may be required to achieve any possible synergies. In addition, the unaudited pro forma condensed combined financial statements are not necessarily indicative of Lionsgate’s results of operations and financial position for any future period.
The unaudited pro forma condensed combined financial information was derived from and should be read together with the accompanying notes to the unaudited pro forma condensed combined financial information, Lionsgate’s historical consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its annual report on Form 10-K for the fiscal year ended March 31, 2023, and interim report on Form 10-Q as of and for the nine months ended December 31, 2023. The unaudited pro forma condensed combined financial information should also be read together with eOne’s historical audited combined statement of operations for the fiscal ended December 25, 2022 and unaudited combined financial statements as of and for the nine months ended October 1, 2023 and the related notes filed as an exhibit to this Current Report on Form 8-K/A as exhibit 99.1 and 99.2, respectively.
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED DECEMBER 31, 2023
(Amounts in millions, except per share amounts)
| Lionsgate(Historical) | eOne(as reclassified)(Note 3) | TransactionAdjustments(Note 5) | Notes | FinancingAdjustments(Note 5) | Notes | Pro FormaCombined | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | 2,899.1 | $ | 419.3 | $ | 3,318.4 | |||||||||||||
| Expenses: | |||||||||||||||||||
| Direct operating | 1,549.1 | 320.5 | (49.5 | ) | (AA) | 1,820.1 | |||||||||||||
| Distribution and marketing | 686.0 | 28.4 | 714.4 | ||||||||||||||||
| General and administration | 368.1 | 87.5 | 455.6 | ||||||||||||||||
| Depreciation and amortization | 138.9 | 18.5 | (13.5 | ) | (BB) | 143.9 | |||||||||||||
| Restructuring and other | 371.0 | — | 371.0 | ||||||||||||||||
| Goodwill and intangible asset impairment | 663.9 | 296.2 | 960.1 | ||||||||||||||||
| Total expenses | 3,777.0 | 751.1 | (63.0 | ) | — | 4,465.1 | |||||||||||||
| Operating loss | (877.9 | ) | (331.8 | ) | 63.0 | — | (1,146.7 | ) | |||||||||||
| Interest expense | (192.9 | ) | (29.4 | ) | (20.1 | ) | (DD) | (242.4 | ) | ||||||||||
| Interest and other income | 6.5 | 5.5 | 12.0 | ||||||||||||||||
| Other expense | (19.6 | ) | (2.8 | ) | (22.4 | ) | |||||||||||||
| Gain on extinguishment of debt | 21.2 | — | 21.2 | ||||||||||||||||
| Gain on investments, net | 2.7 | — | 2.7 | ||||||||||||||||
| Equity interests income | 5.7 | — | 5.7 | ||||||||||||||||
| Loss before income taxes | (1,054.3 | ) | (358.5 | ) | 63.0 | (20.1 | ) | (1,369.9 | ) | ||||||||||
| Income tax provision | (12.5 | ) | 38.4 | — | (CC) | — | (EE) | 25.9 | |||||||||||
| Net loss | (1,066.8 | ) | (320.1 | ) | 63.0 | (20.1 | ) | (1,344.0 | ) | ||||||||||
| Less: Net loss attributable to noncontrolling interests | 3.3 | — | 3.3 | ||||||||||||||||
| Net loss attributable to Lions Gate Entertainment Corp. shareholders | $ | (1,063.5 | ) | $ | (320.1 | ) | $ | 63.0 | $ | (20.1 | ) | $ | (1,340.7 | ) | |||||
| Per share information attributable to Lions Gate Entertainment Corp. shareholders: | |||||||||||||||||||
| Basic net loss per common share | $ | (4.56 | ) | $ | (5.75 | ) | |||||||||||||
| Diluted net loss per common share | $ | (4.56 | ) | $ | (5.75 | ) | |||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||
| Basic | 233.1 | 233.1 | |||||||||||||||||
| Diluted | 233.1 | 233.1 |
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
LIONS GATE ENTERTAINMENT CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 2023
(Amounts in millions, except per share amounts)
| Lionsgate(Historical) | eOne(as reclassified)(Note 3) | TransactionAdjustments(Note 5) | Notes | FinancingAdjustments(Note 5) | Notes | Pro FormaCombined | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues | $ | 3,854.8 | $ | 827.8 | $ | 4,682.6 | |||||||||||||
| Expenses: | |||||||||||||||||||
| Direct operating | 2,312.5 | 634.5 | (91.6 | ) | (AA) | 2,855.4 | |||||||||||||
| Distribution and marketing | 801.7 | 19.3 | 821.0 | ||||||||||||||||
| General and administration | 531.1 | 127.4 | 658.5 | ||||||||||||||||
| Depreciation and amortization | 180.3 | 26.0 | (19.7 | ) | (BB) | 186.6 | |||||||||||||
| Restructuring and other | 411.9 | 23.8 | 435.7 | ||||||||||||||||
| Goodwill and intangible asset impairment | 1,475.0 | — | 1,475.0 | ||||||||||||||||
| Total expenses | 5,712.5 | 831.0 | (111.3 | ) | — | 6,432.2 | |||||||||||||
| Operating loss | (1,857.7 | ) | (3.2 | ) | 111.3 | — | (1,749.6 | ) | |||||||||||
| Interest expense | (221.2 | ) | (14.0 | ) | (26.9 | ) | (DD) | (262.1 | ) | ||||||||||
| Interest and other income | 6.4 | 3.2 | 9.6 | ||||||||||||||||
| Other expense | (26.9 | ) | 6.7 | (20.2 | ) | ||||||||||||||
| Gain on extinguishment of debt | 57.4 | — | 57.4 | ||||||||||||||||
| Gain on investments, net | 44.0 | — | 44.0 | ||||||||||||||||
| Equity interests income | 0.5 | — | 0.5 | ||||||||||||||||
| Loss before income taxes | (1,997.5 | ) | (7.3 | ) | 111.3 | (26.9 | ) | (1,920.4 | ) | ||||||||||
| Income tax provision | (21.3 | ) | (12.7 | ) | — | (CC) | — | (EE) | (34.0 | ) | |||||||||
| Net loss | (2,018.8 | ) | (20.0 | ) | 111.3 | (26.9 | ) | (1,954.4 | ) | ||||||||||
| Less: Net loss (income) attributable to noncontrolling interests | 8.6 | (0.6 | ) | 8.0 | |||||||||||||||
| Net loss attributable to Lions Gate Entertainment Corp. shareholders | $ | (2,010.2 | ) | $ | (20.6 | ) | $ | 111.3 | $ | (26.9 | ) | $ | (1,946.4 | ) | |||||
| Per share information attributable to Lions Gate Entertainment Corp. shareholders: | |||||||||||||||||||
| Basic net loss per common share | $ | (8.82 | ) | $ | (8.54 | ) | |||||||||||||
| Diluted net loss per common share | $ | (8.82 | ) | $ | (8.54 | ) | |||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||
| Basic | 227.9 | 227.9 | |||||||||||||||||
| Diluted | 227.9 | 227.9 |
See Notes to Unaudited Pro Forma Condensed Combined Financial Information
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
| 1. | Basis of Presentation |
|---|
The unaudited pro forma condensed combined financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Article 11 of Regulation S-X. The accompanying pro forma financial information is based on the historical consolidated financial statements of Lionsgate and the historical combined financial statements of eOne after giving effect to the Acquisition and the Financing Transaction, as well as certain reclassifications (see Note 3).
The pro forma financial information was prepared using the acquisition method of accounting in accordance with ASC 805 with Lionsgate as the acquirer of eOne. Under the acquisition method of accounting, Lionsgate recorded the preliminary estimated fair value of assets acquired and liabilities assumed from eOne upon acquisition, December 27, 2023. Fair value is defined in ASC 820, Fair ValueMeasurements and Disclosures (“ASC 820”) as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective, and it is possible the application of reasonable judgment could result in different assumptions resulting in a range of alternative estimates using the same facts and circumstances. The preliminary allocation of the estimated purchase price is based upon management’s estimates based on information currently available and is subject to revision as a more detailed analysis is completed and additional information on the fair value of the assets and liabilities become available and final appraisals and analysis are completed. The Company is still evaluating the fair value of film and television programs and libraries, projects in development, intangible assets, and income taxes, in addition to ensuring all other assets and liabilities and contingencies have been identified and recorded. Differences between these preliminary estimates and the final acquisition accounting could occur and these differences could be material. A change in the fair value of the net assets of eOne may change the amount of the purchase price allocable to goodwill, and could have a material impact on the accompanying unaudited pro forma condensed combined statements of operations.
The unaudited pro forma condensed combined statements of operations for the nine months ended December 31, 2023 and fiscal year ended March 31, 2023 give pro forma effect to the Acquisition and Financing Transaction as if they had been consummated on April 1, 2022. Lionsgate’s fiscal year ends on March 31 and eOne’s fiscal year ends on the last Sunday in December. The pro forma condensed combined financial information is presented on the basis of Lionsgate’s fiscal year and combines the historical results of the fiscal periods of Lionsgate and eOne. As the eOne acquisition occurred on December 27, 2023, the historical statement of operations of LG Studios for the nine months ended December 31, 2023 includes four days of activity of eOne, which was not material. A pro forma condensed combined balance sheet is not presented herein as the acquisition has already been reflected in Lionsgate’s historical balance sheet as of December 31, 2023.
The unaudited pro forma condensed combined statement of operations for the nine months ended December 31, 2023 has been prepared using, and should be read in conjunction with, the following:
| • | Lionsgate’s unaudited condensed consolidated statement of operations for the nine months ended<br>December 31, 2023 and the related notes as included in Lionsgate’s interim report on Form 10-Q for the nine months ended December 31, 2023; and |
|---|---|
| • | eOne’s unaudited combined statement of operations data for the nine months ended October 1, 2023 and<br>the related notes as filed as an exhibit to this Current Report on Form 8-K/A. |
| --- | --- |
The unaudited pro forma condensed combined statement of operations for the fiscal year ended March 31, 2023 has been prepared using, and should be read in conjunction with, the following:
| • | Lionsgate’s audited consolidated statement of operations for the fiscal year ended March 31, 2023 and<br>the related notes included in Lionsgate’s annual report on Form 10-K for the fiscal year ended March 31, 2023; |
|---|
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
| • | eOne’s audited combined statement of operations for the fiscal year ended December 25, 2022 and the<br>related notes filed as an exhibit to this Current Report on Form 8-K/A. |
|---|
The foregoing historical financial statements have been prepared in accordance with GAAP. The unaudited pro forma condensed combined financial information has been prepared based on the aforementioned historical financial statements and the assumptions and adjustments as described in the notes to the unaudited pro forma condensed combined financial information. Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented.
The unaudited pro forma condensed combined financial information does not give effect to any synergies, operating efficiencies, tax savings or cost savings that may be associated with the Acquisition.
The pro forma adjustments reflecting the completion of Acquisition are based on currently available information and assumptions and methodologies that management believes are reasonable under the circumstances. The pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. Management believes that its assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Acquisition based on information available to management at the current time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial information is not necessarily indicative of what the actual results of operations would have been had the Acquisition taken place on the date indicated, nor are they indicative of the future consolidated results of operations or financial position of the post-combination company. The unaudited pro forma condensed combined financial information should be read together with Lionsgate’s historical consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its annual report on Form 10-K for the fiscal year ended March 31, 2023, and interim report on Form 10-Q for the nine months ended December 31, 2023. The unaudited pro forma condensed combined financial information should be read together with eOne’s historical audited combined statement of operations for the fiscal ended December 25, 2022 and unaudited combined financial statements as of and for the nine months ended October 1, 2023 and the related notes filed as exhibit 99.1 and 99.2, respectively, to this Current Report on Form 8-K/A. These historical eOne financial statements have been adjusted to conform to Lionsgate’s account classification policies, as described in the notes to the pro forma financial statements. See Note 3.
| 2. | Accounting Policies |
|---|
As part of preparing the unaudited pro forma condensed combined financial information, Lionsgate conducted an initial review of the accounting policies and practices of eOne to determine if differences in accounting policies and practices require reclassification of results of operations to conform to Lionsgate’s accounting policies and practices. Preliminary reclassifications were identified and are reflected in the unaudited pro forma condensed combined financial information (see Note 3). Lionsgate will continue its detailed review of eOne’s accounting policies and practices following the Acquisition. As a result of that review, Lionsgate may identify additional differences between the accounting policies and practices of the companies that, when conformed, could have a material impact on the consolidated financial statements of the combined company.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
| 3. | eOne Historical Financial Statement Reclasses |
|---|
Certain preliminary reclassification adjustments have been made to the historical presentation of eOne financial information in order to conform to a combined Lionsgate statement of operations, see Note 2.
The following summarizes reclassification adjustments to eOne’s historical statement of operations for the fiscal year ended March 31, 2023 for purposes of the unaudited pro forma condensed combined statement of operations for the fiscal year ended March 31, 2023. There were no material reclassification adjustments to eOne’s historical statement of operations for the nine months ended December 31, 2023 identified.
| eOne(Historical) | Reclassification | eOne(as reclassified) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in millions) | |||||||||||
| Net revenues | $ | 827.8 | $ | — | $ | 827.8 | |||||
| Costs and expenses: | |||||||||||
| Direct operating | 634.5 | — | 634.5 | ||||||||
| Distribution and marketing | 19.3 | — | 19.3 | ||||||||
| General and administration | 151.2 | (23.8 | ) | (1 | ) | 127.4 | |||||
| Depreciation and amortization | 26.0 | — | 26.0 | ||||||||
| Restructuring and other | — | 23.8 | (1 | ) | 23.8 | ||||||
| Total costs and expenses | 831.0 | — | 831.0 | ||||||||
| Operating loss | (3.2 | ) | — | (3.2 | ) | ||||||
| Interest expense | (14.0 | ) | — | (14.0 | ) | ||||||
| Interest income | 3.2 | — | 3.2 | ||||||||
| Other expense, net | 6.7 | — | 6.7 | ||||||||
| Loss before income taxes | (7.3 | ) | — | (7.3 | ) | ||||||
| Income tax benefit | (12.7 | ) | — | (12.7 | ) | ||||||
| Net loss | (20.0 | ) | — | (20.0 | ) | ||||||
| Less: Net earnings attributable to noncontrolling interests | (0.6 | ) | — | (0.6 | ) | ||||||
| Net loss attributable to Entertainment One Film and Television Business | $ | (20.6 | ) | $ | — | $ | (20.6 | ) | |||
| (1) | Adjustment to conform eOne’s classification of restructuring and other expense of $23.8 million from<br>general and administration expense to restructuring and other consistent with Lionsgate’s classification. | ||||||||||
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| 4. | Preliminary Consideration and Fair Value Estimate of Assets Acquired and Liabilities Assumed | ||||||||||
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Lionsgate accounted for the Acquisition as a business combination in accordance with GAAP. Accordingly, the purchase price attributable to the Acquisition was allocated to the assets acquired and liabilities assumed based on their preliminary estimated fair values. See Note 2 of Lionsgate’s interim report on Form 10-Q as of and for the nine months ended December 31, 2023 for information on the purchase consideration, fair value estimates of the assets acquired and liabilities assumed, and resulting goodwill as of the December 27, 2023 acquisition date.
| 5. | Adjustments to unaudited pro forma condensed combined financial information |
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The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed combined financial information has been prepared to illustrate the effect of the Acquisition and Financing Transaction and has been prepared for informational purposes only.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Transaction adjustments to the unaudited pro forma condensed combined statements of operations
The unaudited pro forma condensed combined statement of operations for the nine months ended December 31, 2023 and the fiscal year ended March 31, 2023 includes the following adjustments:
| (AA) | Reflects estimated differences of $49.5 million and $91.6 million in amortization expense for the<br>nine months ended December 31, 2023 and the fiscal year ended March 31, 2023, respectively, resulting from the preliminary allocation of purchase consideration to investments in film and television programs, subject to amortization, and<br>adjusting the content library to the preliminary fair value. See Note 2 of Lionsgate’s interim report on Form 10-Q as of and for the nine months ended December 31, 2023 for information on the<br>estimated fair values as of the acquisition date, useful lives and amortization method of acquired investments in film and television programs. |
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The amortization expense reflected in the unaudited pro forma condensed combined statement of operations may not be reflective of actual amortization expense on a go-forward basis.
| (BB) | Reflects estimated differences of $13.5 million and $19.7 million for the nine months ended<br>December 31, 2023 and the fiscal year ended March 31, 2023, respectively, in amortization and depreciation expense resulting from the preliminary allocation of purchase consideration to definite-lived intangible assets subject to<br>amortization and property and equipment. See Note 2 of Lionsgate’s interim report on Form 10-Q as of and for the nine months ended December 31, 2023 for information on the estimated fair values as of<br>the acquisition date, useful lives and amortization method of acquired definite-lived intangible assets subject to amortization and property and equipment. |
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| (CC) | No income tax adjustment is reflected for the nine months ended December 31, 2023 and fiscal year ended<br>March 31, 2023 based on Lionsgate’s estimated annual effective tax rate for the fiscal years ending March 31, 2024 and 2023, respectively, and Lionsgate having a full valuation allowance on its net deferred tax asset.<br> |
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Financing Adjustment to unaudited pro forma condensed combined statements of operations
| (DD) | Reflects the estimated incremental interest expense resulting from the Financing Transaction to fund the<br>Acquisition for the nine months ended December 31, 2023 and the fiscal year ended March 31, 2023. The unaudited pro forma condensed combined financial information reflects an assumed interest rate of 7.16%, based on the Secured Overnight<br>Financing Rate (“SOFR”) as of December 27, 2023 and terms of Lionsgate’s revolving credit facility. If the actual annual interest rate of the credit facility were to vary by 1/8th of a percent, the pro forma adjustment for<br>interest expense would change by $0.5 million. |
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| (EE) | No adjustment is reflected for the nine months ended December 31, 2023 and fiscal year ended<br>March 31, 2023 based on Lionsgate’s estimated annual effective tax rate for the fiscal year ending March 31, 2024 and 2023 and Lionsgate having a full valuation allowance on its net deferred tax asset. |
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