Stock Options, Other Stock Awards and Warrants

12 Months Ended

Dec. 25, 2016

Stock Options, Other Stock Awards and Warrants [Abstract]

Stock Options, Other Stock Awards and Warrants

(13)Stock Options, Other Stock Awards and Warrants

Hasbro has reserved 9,279shares of its common stock for issuance upon exercise of options and other awards granted or to be granted under stock incentive plans for employees and for non-employee members of the Board of Directors (collectively, the "plans"). These awards generally vest and are expensed in equal annual amounts over three to five years. The plans provide that options be granted at exercise prices not less than the market value of the underlying common stock on the date the option is granted and options and share awards are adjusted for such changes as stock splits and stock dividends. Options are exercisable for periods of no more than seven years after date of grant. Upon exercise in the case of stock options, grant in the case of restricted stock or vesting in the case of performance based contingent stock and restricted stock unit grants, shares are issued out of available treasury shares. The Company’s current plan permits the granting of awards in the form of stock, stock appreciation rights, stock awards and cash awards in addition to stock options.

Total compensation expense related to stock options, restricted stock units, including those awards made to non-employee members of its Board of Directors, and stock performance awards for the years ended December 25, 2016, December 27, 2015 and December 28, 2014 was $61,624, $53,880 and $36,152, respectively, and was recorded as follows:

	2016		2015		2014
Cost of sales	$	200		366		395
Product development		3,248		3,527		3,874
Selling, distribution and administration		58,176		49,987		31,883
		61,624		53,880		36,152
Income tax benefit		20,298		13,489		11,745
	$	41,326		40,391		24,407

The following table represents total compensation expense by award type related to stock performance awards, restricted stock units, stock options and awards made to non-employee members of its Board of Directors, for the years ended December 25, 2016, December 27, 2015 and December 28, 2014:

	2016		2015		2014
Stock performance awards	$	34,248		27,960		11,315
Restricted stock units		19,908		19,052		15,643
Stock Options		5,838		5,419		7,473
Non-employee awards		1,630		1,449		1,834
Cash-settled restricted stock units		—		—		(113)
		61,624		53,880		36,152
Income tax benefit		20,298		13,489		11,745
	$	41,326		40,391		24,407

Stock Performance Awards

In 2016, 2015 and 2014, as part of its annual equity grant to executive officers and certain other employees, the Company issued contingent stock performance awards (the "Stock Performance Awards"). These awards provide the recipients with the ability to earn shares of the Company's common stock based on the Company's achievement of stated cumulative operating performance targets over the three fiscal years ended December 2018, December 2017, and December 2016 for the 2016, 2015 and 2014awards, respectively. Each 2014 Stock Performance Award has a target number of shares of common stock associated with such award which may be earned by the recipient if the Company achieves the stated diluted earnings per share and revenue targets while the 2015and 2016 Stock Performance Awards include an additional return on invested capital target for certain employees in addition to the diluted earnings per share and revenue targets. The ultimate amount of the award may vary from 0% to 200% of the target number of shares, depending on actual results.

Information with respect to Stock Performance Awards for 2016, 2015 and 2014 is as follows:

		2016		2015		2014
Outstanding at beginning of year			992		655		943
	Granted		529		362		322
	Forfeited		(23)		(25)		(32)
	Cancelled		—		—		(578)
	Vested		(424)		—		—
Outstanding at end of year			1,074		992		655
Weighted average grant-date fair value:
	Granted	$	74.69		61.85		52.11
	Forfeited	$	61.86		53.45		43.21
	Cancelled	$	—		—		36.14
	Vested	$	47.21		—		—
Outstanding at end of year		$	62.19		53.17		49.57

Shares granted in 2016 include 276 shares related to the 2014 award, reflecting increases in the ultimate amount of shares to be issued based on the Company’s actual results during the performance period.These shares are excluded from the calculation of the weighted average grant-date fair value of Stock Performance awards granted in 2016. Shares granted in 2015 include 90 shares related to the 2013 award, reflecting an increase in the ultimate amount of shares to be issued based on the Company’s actual results during the performance period. These shares are excluded from the calculation of the weighted average grant-date fair value of Stock Performance awards granted in 2015. Shares cancelled in 2014 represent the cancellation of the Stock Performance Awards granted during 2012 based on failure to meet the targets set forth by the agreement.

During 2016, 2015 and 2014, the Company recognized $34,248, $27,960 and $11,315, respectively, of expense relating to these awards. Awards are valued at the market value of the underlying common stock at the dates of grant and are expensed over the performance period. On a periodic basis the Company reviews the actual and forecasted performance of the Company against the stated targets for each award. The total expense is adjusted upward or downward based on the expected amount of shares to be issued as defined in the agreement. If minimum targets as detailed under the award are not met, no additional compensation expense will be recognized and any previously recognized compensation expense will be reversed.At December 25, 2016, the amount of total unrecognized compensation cost related to these awards is approximately $23,495and the weighted average period over which this will be expensed is 19 months.

Restricted Stock Units

The Company, as part of its annual equity grant to executive officers and certain other employees, issues restricted stock or grants restricted stock units. These shares or units are nontransferable and subject to forfeiture for periods prescribed by the Company. These awards are valued at the market value of the underlying common stock at the date of grant and are subsequently amortized over the periods during which the restrictions lapse, generally between three and five years. During 2016, 2015 and 2014, the Company recognized compensation expense, net of forfeitures, on these awards of $19,908, $19,052 and $15,643, respectively. At December 25, 2016, the amount of total unrecognized compensation cost related to restricted stock units is $29,360 and the weighted average period over which this will be expensed is 19 months.

In October 2012, as part of an Amended and Restated Employment Agreement, the Company's Chief Executive Officer was awarded 587 shares to be granted in two tranches across 2013 and 2014, which are being expensed from 2013 through 2017. 468 shares of this award were considered granted in 2013 while the remaining 119 shares were granted in February 2014. These awards provide the recipient with the ability to earn shares of the Company's common stock based on the Company's achievement of four stated stock price hurdles and continued employment through December 31, 2017. At the completion of the service period, the recipient will receive one quarter of the award for each stock price hurdle achieved after April 24, 2013. The four stock price hurdles are $45, $52, $56 and $60 which must be met for a period of at least thirty days using the average closing price over such period. In August 2014, the Amended and Restated Employment Agreement was further amended to include additional requirements. Specifically, if the third and fourth stock price hurdles are achieved, the number of shares ultimately issued will be dependent on the average stock price for the thirty day period immediately prior to December 31, 2017. This amendment did not result in any incremental fair value to the award which is used to record compensation expense for the award.

The Company used a Monte Carlo simulation valuation model to determine the fair value of these awards. The following inputs were used in the simulation that resulted in an average grant date fair value for this award of $35.56:

	Inputs
Grant date stock price	$47.28
Stock price volatility	26.12%
Risk-free interest rate	0.65%
Dividend yield	3.38%

Excluding the aforementioned award for 587 shares, information with respect to the remaining Restricted Stock Awards and Restricted Stock Units for 2016, 2015 and 2014 is as follows:

		2016		2015		2014
Outstanding at beginning of year			955		937		702
	Granted		245		254		281
	Forfeited		(41)		(52)		(39)
	Vested		(364)		(184)		(7)
Outstanding at end of year			795		955		937
Weighted average grant-date fair value:
	Granted	$	75.23		62.95		52.06
	Forfeited	$	59.37		51.57		44.44
	Vested	$	43.89		39.87		41.19
Outstanding at end of year		$	61.65		51.22		45.74

Stock Options

Information with respect to stock options for the three years ended December 25, 2016 is as follows:

		2016		2015		2014
Outstanding at beginning of year			3,445		4,186		5,543
	Granted		492		549		684
	Exercised		(1,143)		(1,280)		(1,951)
	Expired or forfeited		(26)		(10)		(90)
Outstanding at end of year			2,768		3,445		4,186
Exercisable at end of year			1,708		2,208		2,374
Weighted average exercise price:
	Granted	$	74.42		61.77		52.11
	Exercised	$	41.75		37.54		31.07
	Expired or forfeited	$	56.43		46.38		39.85
Outstanding at end of year		$	53.21		46.41		41.68
Exercisable at end of year		$	45.50		41.36		38.90

With respect to the 2,768 outstanding options and 1,708options exercisable at December 25, 2016, the weighted average remaining contractual life of these options was 3.87 years and 2.92 years, respectively. The aggregate intrinsic value of the options outstanding and exercisable at December 25, 2016was $69,619and $56,135, respectively. Substantially all unvested outstanding options are expected to vest.

The Company uses the Black-Scholes valuation model in determining the fair value of stock options. The expected life of the options used in this calculation is the period of time the options are expected to be outstanding and has been determined based on historical exercise experience. The weighted average fair value of options granted in fiscal 2016, 2015 and 2014 was $13.01, $9.29and $8.40, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the fiscal years 2016, 2015 and 2014:

	2016	2015	2014
Risk-free interest rate	1.16%	1.34%	1.42%
Expected dividend yield	2.74%	2.98%	3.30%
Expected volatility	26%	23%	26%
Expected option life	5 years	5 years	5 years

The intrinsic values, which represent the difference between the fair market value on the date of exercise and the exercise price of the option, of the options exercised in fiscal 2016, 2015 and 2014 were $47,992, $41,906and $44,890, respectively.

At December 25, 2016, the amount of total unrecognized compensation cost related to stock options was $6,603and the weighted average period over which this will be expensed is 22 months.

Non-Employee Awards

In 2016, 2015 and 2014, the Company granted 23, 20 and 34 shares of common stock, respectively, to its non-employee members of its Board of Directors. Of these shares, the receipt of 16 shares from the 2016 grant, 16 shares from the 2015 grant and 26 shares from the 2014 grant has been deferred to the date upon which the respective director ceases to be a member of the Company's Board of Directors. These awards were valued at the market value of the underlying common stock at the date of grant and vested upon grant. In connection with these grants, compensation cost of $1,630 was recorded in selling, distribution and administration expense in the year ended December 25, 2016, $1,449 in the year ended December 27, 2015 and $1,834 in the year ended December 28, 2014.