Item 8. Financial Statements and Supplementary Data.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Hasbro, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Hasbro, Inc. and subsidiaries (the “Company”) as of December 31, 2017 and December 25, 2016, the related consolidated statements of operations, comprehensive earnings, cash flows and shareholders’ equity and redeemable noncontrolling interests for each of the years in the three-year period ended December 31, 2017, and the related notes and financial statement schedule II (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 25, 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2018 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG

We have not been able to determine the specific year that we began serving as the Company’s auditor, however we are aware that we have served as the Company’s auditor since at least 1968.

Providence, Rhode Island

February 26, 2018

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HASBRO, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

December 31, 2017 and December 25, 2016

(Thousands of Dollars Except Share Data)

		2017				2016
ASSETS
Current assets
Cash and cash equivalents		$	1,581,234				1,282,285
Accounts receivable, less allowance for doubtful accounts of $31,400 in 2017 and $16,800 in 2016			1,405,399				1,319,963
Inventories			433,293				387,675
Prepaid expenses and other current assets			214,000				237,684
Total current assets			3,633,926				3,227,607
Property, plant and equipment, net			259,710				267,398
Other assets
Goodwill			573,063				570,555
Other intangibles, net			217,382				245,949
Other			605,902				779,857
Total other assets			1,396,347				1,596,361
Total assets		$	5,289,983				5,091,366
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings		$	154,957				172,582
Current portion of long-term debt			—				349,713
Accounts payable			348,476				319,525
Accrued liabilities			748,264				776,039
Total current liabilities			1,251,697				1,617,859
Long-term debt			1,693,609				1,198,679
Other liabilities			514,720				389,388
Total liabilities			3,460,026				3,205,926
Redeemable noncontrolling interests			—				22,704
Shareholders’ equity
Preference stock of $2.50 par value. Authorized 5,000,000 shares; none issued			—				—
Common stock of $0.50 par value. Authorized 600,000,000 shares; issued 209,694,630 shares in 2017 and 2016			104,847				104,847
Additional paid-in capital			1,050,605				985,418
Retained earnings			4,260,222				4,148,722
Accumulated other comprehensive loss			(239,425	)			(194,570	)
Treasury stock, at cost, 85,244,923 shares in 2017 and 85,207,677 shares in 2016			(3,346,292	)			(3,181,681	)
Total shareholders’ equity			1,829,957				1,862,736
Total liabilities, redeemable noncontrolling interests and shareholders’ equity		$	5,289,983				5,091,366

See accompanying notes to consolidated financial statements.

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HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

Fiscal Years Ended in December

(Thousands of Dollars Except Per Share Data)

		2017				2016				2015
Net revenues		$	5,209,782				5,019,822				4,447,509
Costs and expenses
Cost of sales			2,033,693				1,905,474				1,677,033
Royalties			405,488				409,522				379,245
Product development			269,020				266,375				242,944
Advertising			501,813				468,940				409,388
Amortization of intangible assets			28,818				34,763				43,722
Program production cost amortization			35,798				35,931				42,449
Selling, distribution and administration			1,124,793				1,110,769				960,795
Total expenses			4,399,423				4,231,774				3,755,576
Operating profit			810,359				788,048				691,933
Non-operating (income) expense
Interest expense			98,268				97,405				97,122
Interest income			(22,155	)			(9,367	)			(3,145	)
Other (income) expense, net			(51,904	)			7,521				(5,959	)
Total non-operating expense, net			24,209				95,559				88,018
Earnings before income taxes			786,150				692,489				603,915
Income taxes			389,543				159,338				157,043
Net earnings			396,607				533,151				446,872
Net loss attributable to noncontrolling interests			—				(18,229	)			(4,966	)
Net earnings attributable to Hasbro, Inc.		$	396,607				551,380				451,838
Per common share
Net earnings attributable to Hasbro, Inc.
Basic		$	3.17				4.40				3.61
Diluted		$	3.12				4.34				3.57
Cash dividends declared		$	2.28				2.04				1.84

See accompanying notes to consolidated financial statements.

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HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Earnings

Fiscal Years Ended in December

(Thousands of Dollars)

		2017				2016				2015
Net earnings		$	396,607				533,151				446,872
Other comprehensive earnings (loss):
Foreign currency translation adjustments			32,017				(5,033	)			(95,694	)
Unrealized holding (losses) gains on available-for-sale securities, net of tax			(390	)			166				(642	)
Net (losses) gains on cash flow hedging activities, net of tax			(90,302	)			25,748				86,155
Changes in unrecognized pension and postretirement amounts, net of tax			1,555				(20,829	)			6,892
Reclassifications to earnings, net of tax:
Net losses (gains) on cash flow hedging activities			6,390				(53,980	)			(50,527	)
Amortization of unrecognized pension and postretirement amounts			5,875				5,359				3,269
Other comprehensive loss			(44,855	)			(48,569	)			(50,547	)
Total comprehensive earnings			351,752				484,582				396,325
Total comprehensive loss attributable to noncontrolling interests			—				(18,229	)			(4,966	)
Total comprehensive earnings attributable to Hasbro, Inc.		$	351,752				502,811				401,291

See accompanying notes to consolidated financial statements.

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HASBRO, INC. AND SUBSIDIARIES

Consolidated Statement of Cash Flows

Fiscal Years Ended in December

(Thousands of Dollars)

		2017				2016				2015
Cash flows from operating activities
Net earnings		$	396,607				533,151				446,872
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation of property, plant and equipment			143,018				119,707				111,605
Impairment of goodwill			—				32,858				—
Amortization of intangible assets			28,818				34,763				43,722
Program production cost amortization			35,798				35,931				42,449
Deferred income taxes			112,105				(662	)			(18,954	)
Stock-based compensation			56,032				61,624				53,880
Other non-cash items			(44,001	)			(16,011	)			(19,629	)
Changes in operating assets and liabilities, net of acquired and disposed balances:
Increase in accounts receivable			(50,376	)			(149,923	)			(227,808	)
Increase in inventories			(25,301	)			(12,065	)			(99,353	)
Decrease in prepaid expenses and other current assets			24,450				7,422				83,124
Program production costs			(48,003	)			(48,690	)			(42,506	)
(Decrease) increase in accounts payable and accrued liabilities			(80,461	)			246,223				168,584
Net deemed repatriation tax(1)			181,305				—				—
Other, including long-term advances			(5,613	)			(27,015	)			29,380
Net cash provided by operating activities			724,378				817,313				571,366
Cash flows from investing activities
Additions to property, plant and equipment			(134,877	)			(154,900	)			(142,022	)
Investments and acquisitions, net of cash acquired			—				(12,436	)			—
Cash proceeds from dispositions			—				—				18,632
Other			3,396				28,945				19,743
Net cash utilized by investing activities			(131,481	)			(138,391	)			(103,647	)
Cash flows from financing activities
Net proceeds from borrowings with maturity greater than three months			493,878				—				—
Repayments of borrowings with maturity greater than three months			(350,000	)			—				—
Net (repayments of) proceeds from other short-term borrowings			(18,419	)			8,978				(87,310	)
Purchases of common stock			(151,311	)			(150,075	)			(87,224	)
Stock-based compensation transactions			29,431				42,207				43,322
Dividends paid			(276,973	)			(248,881	)			(225,797	)
Payments related to tax withholding for share-based compensation			(31,994	)			(21,969	)			(4,693	)
Other			(6,785	)			(5,758	)			(3,676	)
Net cash utilized by financing activities			(312,173	)			(375,498	)			(365,378	)
Effect of exchange rate changes on cash			18,225				2,111				(18,758	)
Increase in cash and cash equivalents			298,949				305,535				83,583
Cash and cash equivalents at beginning of year			1,282,285				976,750				893,167
Cash and cash equivalents at end of year		$	1,581,234				1,282,285				976,750
Supplemental information
Interest paid		$	89,294				88,525				93,106
Income taxes paid		$	115,753				98,913				144,137

(1)	See Note 22, “Subsequent Event,” for discussion on changes to tax guidance that will impact this line item

See accompanying notes to consolidated financial statements

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HASBRO, INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity and Redeemable Noncontrolling Interests

(Thousands of Dollars)

		Common Stock				Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock				Total Shareholders’ Equity				Redeemable Noncontrolling Interests
Balance, December 28, 2014		$	104,847				806,265				3,630,072				(95,454	)			(2,980,066	)		$	1,465,664			$	42,730
Net earnings attributable to Hasbro, Inc.			—				—				451,838				—				—				451,838				—
Net loss attributable to noncontrolling interests			—				—				—				—				—				—				(4,966	)
Other comprehensive loss			—				—				—				(50,547	)			—				(50,547	)			—
Stock-based compensation transactions			—				33,558				—				—				23,992				57,550				—
Purchases of common stock			—				—				—				—				(84,894	)			(84,894	)			—
Stock-based compensation expense			—				53,807				—				—				73				53,880				—
Dividends declared			—				—				(229,589	)			—				—				(229,589	)			—
Net contributions received from noncontrolling owners			—				—				—				—				—				—				2,406
Balance, December 27, 2015		$	104,847				893,630				3,852,321				(146,001	)			(3,040,895	)		$	1,663,902			$	40,170
Net earnings attributable to Hasbro, Inc.			—				—				551,380				—				—				551,380				—
Net loss attributable to noncontrolling interests			—				—				—				—				—				—				(18,229	)
Other comprehensive loss			—				—				—				(48,569	)			—				(48,569	)			—
Stock-based compensation transactions			—				30,230				—				—				10,479				40,709				—
Purchases of common stock			—				—				—				—				(151,331	)			(151,331	)			—
Stock-based compensation expense			—				61,558				—				—				66				61,624				—
Dividends declared			—				—				(254,979	)			—				—				(254,979	)			—
Net contributions received from noncontrolling owners			—				—				—				—				—				—				763
Balance, December 25, 2016		$	104,847				985,418				4,148,722				(194,570	)			(3,181,681	)		$	1,862,736			$	22,704
Net earnings attributable to Hasbro, Inc.			—				—				396,607				—				—				396,607				—
Impact of adoption of ASU 2016-09			—				916				(697	)			—				—				219
Acquisition of remaining interest in Backflip			—				22,704				—				—				—				22,704				(22,704	)
Other comprehensive loss			—				—				—				(44,855	)			—				(44,855	)			—
Stock-based compensation transactions			—				(13,021	)			—				—				(16,001	)			(29,022	)			—
Purchases of common stock			—				—				—				—				(150,054	)			(150,054	)			—
Stock-based compensation expense			—				54,588				—				—				1,444				56,032				—
Dividends declared			—				—				(284,410	)			—				—				(284,410	)			—
Balance, December 31, 2017		$	104,847				1,050,605				4,260,222				(239,425	)			(3,346,292	)		$	1,829,957			$	—

See accompanying notes to consolidated financial statements

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Thousands of Dollars and Shares Except Per Share Data)

(1) Summary of Significant Accounting Policies

Preparation of Consolidated Financial Statements

The preparation of the consolidated 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 consolidated financial statements and notes thereto. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of Hasbro, Inc. and all majority-owned subsidiaries (“Hasbro” or the “Company”). Investments representing 20% to 50% ownership interests in other companies are accounted for using the equity method. For those majority-owned subsidiaries that are not 100% owned by Hasbro, the interests of the minority owners are accounted for as noncontrolling interests.

All intercompany balances and transactions have been eliminated.

Fiscal Year

Hasbro’s fiscal year ends on the last Sunday in December. The fiscal year ended December 31, 2017 was a fifty-three week period while the years ended December 25, 2016 and December 27, 2015 were fifty-two week periods.

Cash and Cash Equivalents

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.

Marketable Securities

Included in marketable securities are investments in private investment funds. These investments are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets, and, due to the nature and business purpose of these investments, the Company has selected the fair value option which requires the Company to record the unrealized gains and losses on these investments in the consolidated statements of operations at the time they occur. Marketable securities also include common stock in a public company arising from a business relationship. This type of investment is also included in prepaid expenses and other current assets in the accompanying consolidated balance sheets; however, due to its nature and business purpose, the Company records unrealized gains and losses in accumulated other comprehensive loss in the consolidated balance sheets until it is sold or the decline in value is deemed to be other than temporary, at which point the gains or losses will be recognized in the consolidated statements of operations.

Accounts Receivable and Allowance for Doubtful Accounts

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. For customers on credit who are experiencing financial difficulties, management performs additional financial analyses before shipping orders. 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 shipping.

The Company records an allowance for doubtful accounts based on management’s assessment of the business environment, customers’ financial condition, historical collection experience, accounts receivable aging and customer disputes.

Accounts receivable, net on the consolidated balance sheet represents amounts due from customers less the allowance for doubtful accounts as well as allowances for discounts, rebates and returns.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

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, actual and projected sales volume, anticipated product selling price and product lines planned to be discontinued, slow-moving and obsolete inventory is written down to its estimated net realizable value. At both December 31, 2017 and December 25, 2016, substantially all inventory is comprised of finished goods.

Equity Method Investment

For the Company’s equity method investments, only the Company’s investment in and amounts due to and from the equity method investment are included in the consolidated balance sheets and only the Company’s share of the equity method investment’s earnings (losses) is included in other expense, net in the consolidated statements of operations. Dividends, cash distributions, loans or other cash received from the equity method investment, additional cash investments, loan repayments or other cash paid to the investee are included in the consolidated statements of cash flows.

The Company reviews its equity method investments for impairment on a periodic basis. If it has been determined that the fair value of the equity investment is less than its related carrying value and that this decline is other-than-temporary, the carrying value of the investment is adjusted downward to reflect these declines in value. The Company has one significant equity method investment, its 40% interest in a joint venture with Discovery Communications, Inc. (“Discovery”).

The Company and Discovery are party to an option agreement with respect to this joint venture. The Company has recorded a liability for this option agreement at fair value which is included in other liabilities in the consolidated balance sheets. Unrealized gains and losses on this option are recognized in the consolidated statements of operations as they occur.

See notes 5 and 12 for additional information.

Redeemable Noncontrolling Interests

Redeemable noncontrolling interests are those noncontrolling interests which are or may become redeemable at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon occurrence of an event. The financial results and position of the redeemable noncontrolling interest are included in their entirety in the Company’s consolidated statements of operations and consolidated balance sheets. The value of the redeemable noncontrolling interests is presented in the consolidated balance sheets as temporary equity between liabilities and shareholders’ equity. Earnings (losses) attributable to the noncontrolling interest are presented as a separate line on the consolidated statements of operations which is necessary to identify those earnings specifically attributable to Hasbro.

Through 2016, the Company had one investment with a redeemable noncontrolling interest which was the Company’s 70% majority interest in Backflip Studios, LLC (“Backflip”). During the first quarter of 2017, the remaining 30% of Backflip was acquired by Hasbro for no additional consideration, making it a wholly-owned subsidiary of the Company.

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: land improvements 15 to 19, buildings and improvements 15 to 25 and machinery and equipment (including computer hardware and software) 3 to 12. Depreciation expense is classified in the consolidated statements of operations based on the nature of the property and equipment being depreciated. Tools, dies and molds are depreciated over a three-year period or their useful lives, whichever is less, using an accelerated method. The Company generally owns all tools, dies and molds related to its products.

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

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

asset 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 Intangibles, Net

Goodwill results from acquisitions the Company has made over time. Substantially all of the other intangibles consist of the cost of acquired product rights. In establishing the value of such rights, the Company considers existing trademarks, copyrights, patents, license agreements and other product-related rights. These rights were valued on their acquisition date based on the anticipated future cash flows from the underlying product line. The Company has certain intangible assets related to the Tonka and Milton Bradley acquisitions that have an indefinite life.

Goodwill and intangible assets deemed to have indefinite lives are not amortized and are tested for impairment at least annually. The annual 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 that a reporting unit has an indication of impairment based on the qualitative assessment, it is required to perform a quantitative assessment. This quantitative two-step process begins with an estimation of fair value of the reporting unit using an income approach, which looks to the present value of expected future cash flows. The first step is a screen for potential impairment while the second step measures the amount of impairment if there is an indication from the first step that one exists. When performing the quantitative two-step impairment test, goodwill and intangible assets with indefinite lives are tested for impairment by comparing their carrying value to their estimated fair value, also calculated using the present value of expected future cash flows.

During the fourth quarter of 2017, the Company performed a qualitative assessment with respect to goodwill associated with all but two of its reporting units and determined that it was not necessary to perform a quantitative assessment for the goodwill of these reporting units. The Company performed the first step of the quantitative two-step annual impairment test on the goodwill associated with Backflip, the Company’s mobile gaming reporting unit, and goodwill associated with the Company’s Entertainment reporting unit in the fourth quarter of 2017 and no impairments were indicated as the estimated fair values were in excess of the carrying value of the related reporting units.

During the fourth quarter of 2016, the Company performed a qualitative assessment with respect to goodwill associated with all but its Backflip reporting unit and determined that it was not necessary to perform a quantitative assessment for the goodwill of these reporting units. The Company performed a quantitative two-step annual impairment test related to its goodwill associated with Backflip. As a result of the 2016 annual impairment test, the Company concluded the goodwill associated with the Backflip reporting unit was impaired and recorded a non-cash impairment charge of $32,858 for the year ended December 25, 2016. No other impairments were indicated. See further discussion in note 4.

The remaining intangibles having defined lives are being amortized over periods ranging from four to twenty years, primarily using the straight-line method.

The Company reviews other intangibles with defined 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.

Financial Instruments

Hasbro’s financial instruments include cash and cash equivalents, accounts receivable, short-term borrowings, accounts payable and certain accrued liabilities. At December 31, 2017, the carrying cost of these instruments approximated their fair value. The Company’s financial instruments at December 31, 2017 also include long-term

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

borrowings (see note 9 for carrying cost and related fair values) as well as certain assets and liabilities measured at fair value (see notes 12 and 16).

Revenue Recognition

Revenue from product sales is recognized upon the passing of title to the customer, generally at the time of shipment. Provisions for discounts, rebates and returns are made when the related revenues are recognized. The Company bases its estimates for discounts, rebates and returns on agreed customer terms and historical experience.

The Company enters into arrangements licensing its brands on specifically approved products or formats. The licensees pay the Company royalties based on their revenues derived from the brands, in some cases subject to minimum guaranteed amounts. Royalty revenues are recognized as they are reported as earned and payment becomes assured, over the life of the license agreement.

The Company produces television programming for license to third parties. Revenues from the distribution of television and other programming are recorded when the use of the content may be directed by the distributor and when certain other conditions are met.

Revenue from product sales less related provisions for discounts, rebates and returns, as well as royalty, television programming and digital gaming revenues comprise net revenues in the consolidated statements of operations.

In May 2014, the Financial Accounting Standards Board (“FASB”), in cooperation with the International Accounting Standards Board (“IASB”), issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (ASC 606). This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 – Revenue Recognition and most industry-specific guidance throughout the Codification. This new guidance provides a five-step model for analyzing contracts and transactions to determine when, how, and if revenue is recognized. Revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. For public companies, this standard is effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. ASU 2014-09 may be adopted on a full retrospective basis and applied to all prior periods presented, or on a modified retrospective basis through a cumulative adjustment recorded to opening retained earnings in the year of initial application. The Company adopted ASU 2014-09 on January 1, 2018 using the modified retrospective basis. Revenue recognition from the sale of finished product to our customers, which is the majority of our revenues, is not expected to change under the new standard in the periods following adoption. Within our Entertainment and Licensing segment, the timing of revenue recognition for minimum guarantees that we receive from licensees will change under the new standard. While the impact of this change will not be material to the year, it will impact the timing of revenue recognition within our Entertainment and Licensing segment such that under the new standard, we will record less revenues in our fourth quarter and more revenues within our first, second, and third quarters. No other areas of our business will be materially impacted by the new standard.

Costs of Sales

Cost of sales primarily consists of purchased materials, labor, tooling, manufacturing overheads and other inventory-related costs such as obsolescence.

Royalties

The Company enters into license agreements with strategic partners, inventors, designers and others for the use of intellectual properties in its products. 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 expense when the related revenue is recognized in the consolidated 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.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Advertising

Production costs of commercials are expensed in the fiscal year during which the production is first aired. The costs of other advertising and promotion programs are expensed in the fiscal year incurred.

Program Production Costs

The Company incurs costs in connection with the production of television programming and motion pictures. 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. 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.

Shipping and Handling

Hasbro expenses costs related to the shipment and handling of goods to customers as incurred. For 2017, 2016 and 2015, these costs were $190,999, $180,270 and $159,854, respectively, and are included in selling, distribution and administration expenses.

Operating Leases

Hasbro records lease expense on a straight-line basis inclusive of rent concessions and increases. Reimbursements from lessors for leasehold improvements are deferred and recognized as a reduction to lease expense over the remaining lease term.

Income Taxes

Hasbro 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. See Note 10 for further discussion on the Company’s accounting for the Tax Cuts and Jobs Act enacted in December 2017.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment 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 consolidated 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.

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 earnings include gains or losses resulting from foreign currency transactions and, when required, translation gains and losses resulting from the use of the U.S. dollar as the functional currency in highly inflationary economies. Other gains and losses resulting from translation of financial statements are a component of other comprehensive earnings (loss).

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Pension Plans, Postretirement and Postemployment Benefits

Pension expense and related amounts in the consolidated balance sheets are based on actuarial computations of current and future benefits. Actual results that differ from the actuarial assumptions are accumulated and, if outside a certain corridor, amortized over future periods and, therefore affect recognized expense in future periods. The corridor used for this purpose is equal to 10% of the greater of plan liabilities or market asset values, and future periods vary by plan, but generally equal the actuarially determined average expected future working lifetime of active plan participants. The Company’s policy is to fund amounts which are required by applicable regulations and which are tax deductible. The estimated amounts of future payments to be made under other retirement programs are being accrued currently over the period of active employment and are also included in pension expense. Hasbro has a contributory postretirement health and life insurance plan covering substantially all employees who retire under any of its United States defined benefit pension plans and meet certain age and length of service requirements. The cost of providing these benefits on behalf of employees who retired prior to 1993 is and will continue to be substantially borne by the Company. The cost of providing benefits on behalf of substantially all employees who retire after 1992 is borne by the employee. It also 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 measures the costs of these obligations based on actuarial computations.

Stock-Based Compensation

The Company has a stock-based employee compensation plan for employees and non-employee members of the Company’s Board of Directors. Under this plan the Company may grant stock options at or above the fair market value of the Company’s stock, as well as restricted stock, restricted stock units and contingent stock performance awards. All awards are measured at fair value at the date of the grant and amortized as expense on a straight-line basis over the requisite service period of the award. For awards contingent upon Company performance, the measurement of the expense for these awards is based on the Company’s current estimate of its performance over the performance period. For awards contingent upon the achievement of market conditions, the probability of satisfying the market condition is considered in the estimation of the grant date fair value. See note 13 for further discussion.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation – Stock Compensation. The ASU includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements including (1) a requirement to prospectively record all of the tax effects related to share-based payments at settlement (or expiration) through the income statement; (2) a requirement that all tax-related cash flows resulting from share-based payments be reported as operating activities on the statement of cash flows; (3) the removal of the requirement to withhold shares upon settlement of an award at the minimum statutory withholding requirement; (4) a requirement that all cash payments made to taxing authorities on the employees’ behalf for withheld shares shall be presented as financing activities in the statements of cash flows; and (5) entities will be permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards choosing either to estimate forfeitures as required today or recognize forfeitures as they occur. ASU 2016-09 was effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period. The Company adopted ASU 2016-09 in the first quarter of 2017. The impact of the adoption resulted in the following:

	•		Prospectively, the requirement to record all of the tax effects related to share-based payments at settlement through the income statement. For the year ended December 31, 2017, excess tax benefits of $32,116 were recorded to income tax expense.

	•		A requirement that all tax-related cash flows resulting from share-based payments be reported as operating activities, included with other income tax cash flows on the statement of cash flows. Previously, these amounts were reported as a cash inflow from financing activities. The Company elected to apply this requirement of the standard retrospectively. Accordingly, the cash flow statement for the years ended December 25, 2016 and December 27, 2015 have been restated to include $20,471 and $14,228, respectively, of cash flows from excess tax benefits, previously included as financing activities, in operating activities within the increase in accounts payable and other accrued liabilities. For the year ended December 31, 2017 excess tax benefits of $32,116 were reported as operating activities.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

	•		A requirement that all cash payments made to taxing authorities on the employees’ behalf for withheld shares shall be presented as financing activities in the statements of cash flows. Prior to adoption of ASU 2016-09, these cash flows were included as operating activities. This change was required to be applied on a retrospective basis and as a result, the Company has restated the consolidated statement of cash flows for the years ended December 25, 2016 and December 27, 2015. This change resulted in payments of $21,969 and $4,693 for the years ended December 25, 2016 and December 27, 2015, respectively, being included in financing activities. For the year ended December 31, 2017, such payments amounted to $31,994.

	•		Entities are permitted to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards choosing either to estimate forfeitures as previously required or recognize forfeitures as they occur. The Company elected to change its method of accounting for forfeitures from estimating the number of stock-based awards expected to vest, to accounting for forfeitures as they occur which resulted in a one-time charge, net of tax, of $700 to retained earnings recorded during the first quarter of 2017. Based upon the Company’s history of forfeitures, it is not expected that this election will have a material impact on its consolidated financial statements going forward however, as any impact will be based on future forfeitures, the actual impact could differ from the Company’s expectation.

Risk Management Contracts

Hasbro 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 future purchases of inventory and other cross-border currency requirements not denominated in the functional currency of the business unit, are primarily denominated in United States and Hong Kong dollars as well as 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 counterparty would not have a material adverse effect on the financial condition of the Company. Hasbro does not enter into derivative financial instruments for speculative purposes.

At the inception of the contracts, Hasbro designates its derivatives as either cash flow or fair value 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 ineffective portion of a hedging derivative, if any, is recognized in the consolidated statements of operations.

The Company records all derivatives, such as foreign currency exchange contracts, on the consolidated balance sheets at fair value. Changes in the derivative fair values that are designated as cash flow hedges and are effective are deferred and recorded as a component of Accumulated Other Comprehensive Loss (“AOCE”) until the hedged transactions occur and are then recognized in the consolidated 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 consolidated 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 consolidated statements of operations. In the event hedge accounting requirements are not met, gains and losses on such instruments are included in the consolidated statements of operations. The Company uses derivatives to economically hedge intercompany loans denominated 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 changes in the fair value of the intercompany loans.

Prior to the issuance of certain long-term notes due 2021 and 2044, the Company entered into a forward-starting interest rate swap contract to hedge the anticipated U.S. Treasury interest rates on the anticipated debt issuance. These instruments, which were designated and effective as hedges, were terminated on the date of the related debt issuance and the then fair value of these instruments was recorded to AOCE and amortized through the consolidated statements of operations using an effective interest rate method over the life of the related debt.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Net Earnings Per Common Share

Basic net earnings per share is computed by dividing net earnings by the weighted average number of shares outstanding for the year as well as awards that have not been issued but all contingencies have been met. Diluted net earnings per share is similar except that the weighted average number of shares outstanding is increased by dilutive securities, and net earnings are adjusted, if necessary, for certain amounts related to dilutive securities. Dilutive securities include shares issuable upon exercise of stock options for which the market price exceeds the exercise price, less shares which could have been purchased by the Company with the related proceeds. Dilutive securities also include shares issuable under restricted stock unit award agreements. Options and restricted stock unit awards totaling 499 and 277 for 2017 and 2016, respectively, were excluded from the calculation of diluted earnings per share because to include them would have been antidilutive. There were no antidilutive stock options or restricted stock unit awards to exclude from the diluted earnings per share calculation in 2015.

A reconciliation of net earnings and average number of shares for each of the three fiscal years ended December 31, 2017 is as follows:

		2017								2016								2015
		Basic				Diluted				Basic				Diluted				Basic				Diluted
Net earnings attributable to Hasbro, Inc.		$	396,607				396,607				551,380				551,380				451,838				451,838
Average shares outstanding			125,039				125,039				125,292				125,292				125,006				125,006
Effect of dilutive securities:
Options and other share-based awards			—				1,992				—				1,674				—				1,682
Equivalent shares			125,039				127,031				125,292				126,966				125,006				126,688
Net earnings attributable to Hasbro, Inc. per share		$	3.17				3.12				4.40				4.34				3.61				3.57

(2) Other Comprehensive Earnings (Loss)

Components of other comprehensive earnings (loss) are presented within the consolidated statements of comprehensive earnings. The following table presents the related tax effects on changes in other comprehensive earnings (loss) for each of the three fiscal years ended December 31, 2017.

		2017				2016				2015
Other comprehensive earnings (loss), tax effect:
Tax benefit (expense) on unrealized holding gains		$	221				(94	)			364
Tax benefit (expense) on cash flow hedging activities			4,850				1,340				(11,190	)
Tax (expense) benefit on unrecognized pension and postretirement amounts			(2,363	)			12,945				(928	)
Reclassifications to earnings, tax effect:
Tax (benefit) expense on cash flow hedging activities			(4,881	)			4,098				5,435
Tax (benefit) on amortization of unrecognized pension and postretirement amounts			(3,482	)			(3,038	)			(1,861	)
Total tax effect on other comprehensive earnings (loss)		$	(5,655	)			15,251				(8,180	)

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Changes in the components of accumulated other comprehensive earnings (loss), net of tax are as follows:

		Pension and Postretirement Amounts				Gains (Losses) on Derivative Instruments				Unrealized Holding Gains on Available for-Sale Securities				Foreign Currency Translation Adjustments				Total Accumulated Other Comprehensive Earnings (Loss)
2017
Balance at December 25, 2016		$	(118,401	)			51,085				1,424				(128,678	)			(194,570	)
Current period other comprehensive earnings (loss)			1,555				(90,302	)			(390	)			32,017				(57,120	)
Reclassifications from AOCE to earnings			5,875				6,390				—				—				12,265
Balance at December 31, 2017		$	(110,971	)			(32,827	)			1,034				(96,661	)			(239,425	)
2016
Balance at December 27, 2015		$	(102,931	)			79,317				1,258				(123,645	)			(146,001	)
Current period other comprehensive earnings (loss)			(20,829	)			25,748				166				(5,033	)			52
Reclassifications from AOCE to earnings			5,359				(53,980	)			—				—				(48,621	)
Balance at December 25, 2016		$	(118,401	)			51,085				1,424				(128,678	)			(194,570	)
2015
Balance at December 28, 2014		$	(113,092	)			43,689				1,900				(27,951	)			(95,454	)
Current period other comprehensive earnings (loss)			6,892				86,155				(642	)			(95,694	)			(3,289	)
Reclassifications from AOCE to earnings			3,269				(50,527	)			—				—				(47,258	)
Balance at December 27, 2015		$	(102,931	)			79,317				1,258				(123,645	)			(146,001	)

Gains (Losses) on Derivative Instruments

At December 31, 2017, the Company had remaining net deferred losses on foreign currency forward contracts, net of tax, of $15,781 in AOCE. These instruments hedge payments related to inventory purchased in the fourth quarter of 2017 or forecasted to be purchased from 2018 through 2022, intercompany expenses expected to be paid or received during 2018, 2019 and 2020 and cash receipts for sales forecasted to be made in 2018. These amounts will be reclassified into the consolidated statements of operations upon the sale of the related inventory or recognition of the related sales, royalties or expenses.

In addition to foreign currency forward contracts, the Company entered into hedging contracts on future interest payments related to the long-term notes due 2021 and 2044. At the date of debt issuance, these contracts were terminated and the fair value on the date of settlement was deferred in AOCE and is being amortized to interest expense over the life of the related notes using the effective interest rate method. At December 31, 2017, deferred losses, net of tax, of $17,046 related to these instruments remained in AOCE. For the year ended December 31, 2017, losses, net of tax of $1,170 related to these hedging instruments were reclassified from AOCE to net earnings. For each of the years ended December 25, 2016 and December 27, 2015, losses, net of tax of $1,148 related to these hedging instruments were reclassified from AOCE to net earnings.

In 2017, 2016 and 2015, net gains on cash flow hedging activities reclassified to earnings, net of tax, included (losses) gains of $(5,497), $1,428 and $1,111, respectively, as a result of hedge ineffectiveness.

Of the net deferred losses included in AOCE at December 31, 2017, the Company expects approximately $12,096 to be reclassified to the consolidated 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.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

See notes 14 and 16 for additional discussion on reclassifications from AOCE to earnings.

(3) Property, Plant and Equipment

		2017				2016
Land and improvements		$	3,350				3,096
Buildings and improvements			193,940				175,684
Machinery, equipment and software			405,209				390,720
			602,499				569,500
Less accumulated depreciation			422,052				383,713
			180,447				185,787
Tools, dies and molds, net of accumulated depreciation			79,263				81,611
Total property, plant and equipment, net		$	259,710				267,398

Expenditures for maintenance and repairs which do not materially extend the life of the assets are charged to operations as incurred. In 2017, 2016 and 2015 the Company recorded $143,018, $119,707 and $111,605, respectively, of depreciation expense.

(4) Goodwill and Intangibles

Goodwill

Changes in the carrying amount of goodwill, by operating segment, for the years ended December 31, 2017 and December 25, 2016 are as follows:

		U.S. and Canada				International				Entertainment and Licensing				Total
2017
Balance at December 25, 2016		$	296,978				169,833				103,744				570,555
Foreign exchange translation			—				866				1,642				2,508
Balance at December 31, 2017		$	296,978				170,699				105,386				573,063
2016
Balance at December 27, 2015		$	296,978				170,110				125,607				592,695
Acquired during the period			—				—				11,821				11,821
Impairment during the period			—				—				(32,858	)			(32,858	)
Foreign exchange translation			—				(277	)			(826	)			(1,103	)
Balance at December 25, 2016		$	296,978				169,833				103,744				570,555

A portion of the Company’s goodwill and other intangible assets reside in the Corporate segment of the business. For purposes of the goodwill impairment testing, these assets are allocated to the reporting units within the Company’s operating segments.

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 fiscal year ended December 31, 2017, no such events occurred. During its annual impairment tests of goodwill in the fourth quarter of 2017, the Company concluded that there was no impairment of its goodwill during the year.

During the fourth quarter of 2016 in conjunction with the Company’s annual review for impairment the Company completed step one of the annual goodwill impairment test for the Backflip reporting unit. Prior to the

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

fourth quarter of 2016, there were no triggering events that would have required the Company to test for impairment. The Company’s 2016 evaluation of the Backflip reporting unit was dependent in large part on the performance of launches that took place during the fourth quarter. Additionally, during the fourth quarter of 2016, the Company revised its expectations regarding the timing of future launches. The first step of the goodwill impairment analysis involved comparing the Backflip carrying value to its estimated fair value, which was calculated based on the Income Approach. Discounted cash flows serve as the primary basis for the Income Approach. The Company utilized forecasted cash flows for the Backflip reporting unit that included assumptions including but not limited to: expected revenues to be realized based on planned future mobile game releases, expected EBITDA margins derived in part based on expected future royalty costs, advertising and marketing costs, development costs, and overhead costs, and expected future tax rates. The cash flows beyond the forecast period were estimated using a terminal value growth rate of 3%. To calculate the fair value of the future cash flows under the Income Approach, a discount rate of 14% was utilized, representing the reporting unit’s estimated weighted-average cost of capital. Based on the results of the step one impairment test the Company determined that the fair value of the Backflip reporting unit was below its carrying value, and therefore, impairment was indicated. Because indicators of impairment existed, the Company commenced the second step of the goodwill impairment analysis to determine the implied fair value of goodwill for the Backflip reporting unit, which was determined in the same manner utilized to estimate the amount of goodwill recognized in a business combination.

As part of the second step of the 2016 goodwill impairment analysis, the Company assigned the fair value of the Backflip reporting unit, as calculated under the first step of the goodwill impairment analysis, to all the assets and liabilities, including identifiable intangibles assets, of that reporting unit. The implied fair value of goodwill was measured as the excess of the fair value of the Backflip reporting unit over the amounts assigned to its assets and liabilities. Based on this assessment, the Company recorded an impairment charge of $32,858 in the fourth quarter of 2016.

During 2016 the Company completed a qualitative assessment of goodwill for all reporting units with the exception of Backflip, and concluded there was no other impairment of goodwill.

The Company also completed its annual impairment tests of goodwill in the fourth quarter of 2015 and concluded that there was no impairment of its goodwill.

Other Intangibles, Net

A summary of the Company’s other intangibles, net at December 31, 2017 and December 26, 2016:

		2017				2016
Acquired product rights		$	789,940				789,689
Licensed rights of entertainment properties			256,555				256,555
Accumulated amortization			(904,851	)			(876,033	)
Amortizable intangible assets			141,644				170,211
Product rights with indefinite lives			75,738				75,738
Total other intangibles, net		$	217,382				245,949

Certain intangible assets relating to rights obtained in the Company’s acquisition of Milton Bradley in 1984 and Tonka in 1991 are not amortized. These rights were determined to have indefinite lives and are included as product rights with indefinite lives in the table above. The Company tests these assets for impairment on an annual basis in the fourth quarter of each year or when an event occurs or circumstances change that indicate that the carrying value may not be recoverable. The Company completed its annual impairment tests of indefinite-lived intangible assets in the fourth quarter of 2017, 2016, and 2015 concluding that there was no impairment of these assets. The Company’s other intangible assets are amortized over their remaining useful lives, and accumulated amortization of these other intangibles is reflected in other intangibles, net in the accompanying consolidated balance sheets.

Intangible assets, other than those with indefinite lives, are reviewed for indications of impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company will continue to incur amortization expense related to the use of acquired and licensed rights to produce various products. A portion of the amortization of these product rights will fluctuate depending on brand activation, related revenues

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

during an annual period and future expectations, as well as rights reaching the end of their useful lives. The Company currently estimates amortization expense related to the above intangible assets for the next five years to be approximately:

2018			17,000
2019			36,000
2020			40,000
2021			18,000
2022			17,000

(5) Equity Method Investment

The Company owns an interest in a joint venture, Discovery Family Channel (the “Network”), with Discovery Communications, Inc. (“Discovery”). The Company has determined that it does not meet the control requirements to consolidate the Network and accounts for the investment using the equity method of accounting. The Network was established to create a cable television network in the United States dedicated to high-quality children’s and family entertainment. In October 2009, the Company purchased an initial 50% share in the Network for a payment of $300,000 and certain future tax payments based on the value of certain tax benefits expected to be received by the Company. On September 23, 2014, the Company and Discovery amended their relationship with respect to the Network and Discovery increased its equity interest in the Network to 60% while the Company retained a 40% equity interest in the Network.

In connection with the amendment, the Company and Discovery entered into an option agreement related to the Company’s remaining 40% ownership in the Network, exercisable during the one-year period following December 31, 2021. The exercise price of the option agreement is based upon 80% of the then fair market value of the Network, subject to a fair market value floor. At December 31, 2017, and December 25, 2016, the fair market value of this option was $23,980 and $28,770, respectively and was included as a component of other liabilities. During 2017, 2016 and 2015, the Company recorded (gains) losses of $(4,790), $410 and $3,020 in other (income) expense, net relating to the change in fair value of this option.

The Company also has a related liability due to Discovery under the existing tax sharing agreement. The balance of the associated liability, including imputed interest, was $30,043 and $52,473 at December 31, 2017 and December 25, 2016, respectively, and is included as a component of other liabilities in the accompanying consolidated balance sheets. The Company recognized a gain of $19,911 in the fourth quarter of 2017 related to a reduction of this liability due to the reduction of the future payments under the agreement as a result of U.S. tax reform passed in December 2017. During 2017, 2016 and 2015, the Company made payments under the tax sharing agreement to Discovery of $6,785, $6,520 and $4,971, respectively.

The Company has a license agreement with the Network that requires the payment of royalties by the Company to the Network based on a percentage of revenue derived from products related to television shows broadcast by the joint venture. The license includes a minimum royalty guarantee of $125,000, which was paid in five annual installments of $25,000 per year, commencing in 2009, which can be earned out over approximately a 10-year period. As of December 31, 2017 and December 25, 2016, the Company had $55,072 and $66,017, respectively, of prepaid royalties related to this agreement, $15,958 and $7,203, respectively, of which are included in prepaid expenses and other current assets and $39,114 and $58,814, respectively, of which are included in other assets. The Company and the Network are also parties to an agreement under which the Company will provide the Network with an exclusive first look in the U.S. to license certain types of programming developed by the Company based on its intellectual property. In the event the Network licenses the programming from the Company to air, it is required to pay the Company a license fee.

As of December 31, 2017 and December 25, 2016 the Company’s investment in the Network totaled $237,996 and $242,397, respectively. The Company’s share in the earnings of the Network for the years ended December 31, 2017, December 25, 2016 and December 27, 2015 totaled $23,270, $23,764 and $19,045, respectively and is included as a component of other (income) expense, net in the consolidated statements of operations. The Company also enters into certain other transactions with the Network including the licensing of television programming and the purchase of advertising. During 2017, 2016 and 2015, these transactions were not material.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

(6) Program Production Costs

Program production costs are included in other assets and consist of the following at December 31, 2017 and December 25, 2016:

		2017				2016
Television programming
Released, less amortization		$	40,386				35,683
In production			31,596				25,062
Pre-production			326				1,833
Theatrical programming
In production			20,553				20,271
Total program production costs		$	92,861				82,849

Based on management’s total revenue estimates at December 31, 2017, all of the unamortized television programming costs relating to released productions are expected to be amortized during the next four years. Based on current estimates, the Company expects to amortize approximately $35,000 of the $40,386 of released programs during fiscal 2018.

(7) Financing Arrangements

At December 31, 2017, Hasbro had available an unsecured committed line and unsecured uncommitted lines of credit from various banks approximating $1,000,000 and $146,000, respectively. Substantially all of the short-term borrowings outstanding at the end of 2017 and 2016, such as the commercial paper program, represent borrowings made under, or supported by, these lines of credit. Borrowings under the lines of credit were made by certain international affiliates of the Company on terms and at interest rates generally extended to companies of comparable creditworthiness in those markets. The weighted average interest rates of the outstanding borrowings under the uncommitted lines of credit as of December 31, 2017 and December 25, 2016 were 4.32% and 8.17%, respectively. The Company had no borrowings outstanding under its committed line of credit at December 31, 2017. During 2017, Hasbro’s working capital needs were fulfilled by cash generated from operations, borrowings under lines of credit and utilization of its commercial paper program discussed below.

The unsecured committed line of credit, as amended on March 30, 2015 (the “Agreement”), provides the Company with a $1,000,000 committed borrowing facility through March 30, 2020. During the third quarter of 2017 and pursuant to the Agreement, the Company proposed and the Lenders agreed to increase the committed borrowing facility from $700,000 to $1,000,000. The Agreement contains certain financial covenants setting forth leverage and coverage requirements, and certain other limitations typical of an investment grade facility, including with respect to liens, mergers and incurrence of indebtedness. The Company was in compliance with all covenants as of and for the fiscal year ended December 31, 2017.

The Company pays a commitment fee (0.12% as of December 31, 2017) based on the unused portion of the facility and interest equal to a Base Rate or Eurocurrency Rate plus a spread on borrowings under the facility. The Base Rate is determined based on either the Federal Funds Rate plus a spread, Prime Rate or Eurocurrency Rate plus a spread. The commitment fee and the amount of the spread to the Base Rate or Eurocurrency Rate both vary based on the Company’s long-term debt ratings and the Company’s leverage. At December 31, 2017, the interest rate under the facility was equal to Eurocurrency Rate plus 1.125%.

The Company has an agreement with a group of banks providing a commercial paper program (the “Program”). Under the Program, at the Company’s request the banks may either purchase from the Company, or arrange for the sale by the Company of, unsecured commercial paper notes. Borrowings under the Program are supported by the aforementioned unsecured committed line of credit and the Company may issue notes from time to time up to an aggregate principal amount outstanding at any given time of $1,000,000 which was increased from $700,000 in December 2017. The maturities of the notes may vary but may not exceed 397 days. Subject to market conditions, the notes will be sold under customary terms in the commercial paper market and will be issued at a discount to par, or alternatively, will be sold at par and will bear varying interest rates based on a fixed or

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(Thousands of Dollars and Shares Except Per Share Data)

floating rate basis. The interest rates will vary based on market conditions and the ratings assigned to the notes by the credit rating agencies at the time of issuance. At December 31, 2017, the Company had notes outstanding under the Program of $137,500 with a weighted average interest rate of 1.85%. At December 25, 2016, the Company had notes outstanding under the Program of $163,300 with a weighted average interest rate of 0.97%.

(8) Accrued Liabilities

Components of accrued liabilities for the fiscal years ended on December 31, 2017 and December 25, 2016 are as follows:

		2017				2016
Royalties		$	148,858				158,353
Advertising			75,483				73,963
Payroll and management incentives			79,976				100,248
Dividends			70,936				63,501
Other			373,011				379,974
Total accrued liabilities		$	748,264				776,039

(9) Long-Term Debt

Components of long-term debt for the fiscal years ended on December 31, 2017 and December 25, 2016 are as follows:

		2017								2016
		Carrying Cost				Fair Value				Carrying Cost				Fair Value
6.35% Notes Due 2040		$	500,000				601,800				500,000				584,850
3.50% Notes Due 2027			500,000				488,300				—				—
6.30% Notes Due 2017			—				—				350,000				361,900
5.10% Notes Due 2044			300,000				313,320				300,000				297,600
3.15% Notes Due 2021			300,000				302,640				300,000				300,450
6.60% Debentures Due 2028			109,895				131,390				109,895				123,984
Total long-term debt			1,709,895				1,837,450				1,559,895				1,668,784
Less: Current portion			—				—				350,000				361,900
Less: Deferred debt expenses			16,286				—				11,216				—
Long-term debt		$	1,693,609				1,837,450				1,198,679				1,306,884

In September 2017, the Company issued $500,000 of Notes due in 2027 that bear interest at a fixed rate of 3.50% (the “3.50% Notes”). Net proceeds from the issuance of the 3.50% Notes, after deduction of $6,122 of underwriting discount and debt issuance expenses, totaled $493,878. These costs are being amortized over the life of the 3.50% Notes, or 10 years. The Company may redeem the 3.50% Notes at its option at the greater of the principal amount of the Notes or the present value of the remaining scheduled payments discounted using the effective interest rate on applicable U.S. Treasury bills at the time of repurchase, plus 25 basis points. In addition, three months prior to their maturity date, the Company may redeem at its option the 3.50% Notes, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the 3.50% Notes to be redeemed.

The proceeds from this debt issuance were used to repay the $350,000 aggregate principal amount of its 6.30% Notes that matured during the third quarter of 2017. The Company used the remaining net proceeds for general corporate purposes.

The Company may redeem the Notes due in 2021 and 2044 at its option at the greater of the principal amount of the Notes or the present value of the remaining scheduled payments discounted using the effective interest rate

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(Thousands of Dollars and Shares Except Per Share Data)

on applicable U.S. Treasury bills at the time of repurchase. Prior to the issuance of these Notes, the Company held forward-starting interest rate swap contracts to hedge the variability in the anticipated underlying U.S. Treasury interest rate associated with the expected issuance of the Notes. At the date of issuance, these contracts were terminated and the Company paid $33,306, the fair value of the contracts on that date, to settle. Of this amount, $6,373 related to 3.15% Notes Due 2021 and $26,933 related to 5.10% Notes Due 2044, which have been deferred in AOCE and are being amortized to interest expense over the life of the respective notes using the effective interest rate method.

The fair values of the Company’s long-term debt are considered Level 3 fair values (see note 12 for further discussion of the fair value hierarchy) and are measured using the discounted future cash flows method. In addition to the debt terms, the valuation methodology includes an assumption of a discount rate that approximates the current yield on a similar debt security. This assumption is considered an unobservable input in that it reflects the Company’s own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement.

The Company’s 3.15% Notes mature in 2021. All of the Company’s other long-term borrowings have contractual maturities that occur subsequent to 2021. The aggregate principal amount of long-term debt maturing in the next five years is $300,000.

(10) Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code which impacted 2017 including, but not limited to, reducing the U.S. federal corporate tax rate and requiring a one-time tax on certain unrepatriated earnings of foreign subsidiaries.

The Tax Act also puts in place new tax laws that will apply prospectively, which include, but are not limited to (i) reducing the U.S. federal corporate tax rate from 35 to 21 percent; (ii) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (iii) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (iv) creating a new limitation on deductible interest expense; and (v) imposing limitations on the deductibility of certain executive compensation.

U.S. GAAP requires the impact of tax legislation to be recorded in the period of enactment. Therefore, in connection with our initial analysis of the impact of the Tax Act, we recorded a provisional tax expense of $316,423 in the period ended December 31, 2017. This expense consists of $271,605 for the deemed repatriation tax and $44,818 of expense primarily due to the remeasurement of deferred taxes associated with the corporate rate reduction. The Company expects to utilize $90,300 of existing tax credits to reduce the $271,605 U.S. federal tax liability due to the deemed repatriation tax, which will result in $181,305 to be paid over eight years. This liability was included as a component of other liabilities as of December 31, 2017.

Staff Accounting Bulletin (SAB) 118 establishes a one-year measurement period to complete the accounting for the ASC 740 income tax effects of the Tax Act. An entity recognizes the impact of those amounts for which the accounting is complete. For matters that have not been completed, provisional amounts are recorded to the extent they can be reasonably estimated. For amounts for which a reasonable estimate cannot be determined, no adjustment is made until such estimate can be completed.

Other than the tax on global intangible low taxed income (GILTI) discussed below, the Company was able to make reasonable estimates of the impact of the Tax Act and have recorded provisional amounts for the deemed repatriation tax, the remeasurement of deferred taxes, and our reassessment of permanently reinvested earnings and valuation allowances. These estimates may be impacted as we further analyze available tax accounting methods and elections, earnings and profits computations, state tax conformity to federal tax changes and guidance issued by standard-setting bodies that provide interpretative guidance of the Tax Act.

See Note 22, “Subsequent Event,” for disclosure of additional tax guidance related to the Tax Act.

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Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

The components of earnings before income taxes, determined by tax jurisdiction, are as follows:

		2017				2016				2015
United States		$	168,370				146,013				155,120
International			617,780				546,476				448,795
Total earnings before income taxes		$	786,150				692,489				603,915

Income taxes attributable to earnings before income taxes are:

		2017				2016				2015
Current
United States		$	202,374				78,958				101,591
State and local			2,926				3,208				3,352
International			72,138				77,834				71,054
			277,438				160,000				175,997
Deferred
United States			105,174				11,989				(13,771	)
State and local			1,658				411				(472	)
International			5,273				(13,062	)			(4,711	)
			112,105				(662	)			(18,954	)
Total income taxes		$	389,543				159,338				157,043

A reconciliation of the statutory United States federal income tax rate to Hasbro’s effective income tax rate is as follows:

		2017				2016				2015
Statutory income tax rate			35.0	%			35.0	%			35.0	%
State and local income taxes, net			0.3				0.3				0.3
Tax on international earnings			(23.0	)			(15.8	)			(15.6	)
Change in unrecognized tax benefits			1.0				1.7				4.3
Share-based compensation			(4.1	)			—				—
Tax Cuts and Jobs Act of 2017			39.4				—				—
Other, net			1.0				1.8				2.0
			49.6	%			23.0	%			26.0	%

The components of deferred income tax expense (benefit) arise from various temporary differences and relate to items included in the consolidated statements of operations as well as items recognized in other comprehensive

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(Thousands of Dollars and Shares Except Per Share Data)

earnings. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2017 and December 25, 2016 are:

		2017				2016
Deferred tax assets:
Accounts receivable		$	31,424				32,277
Inventories			11,198				17,913
Loss and credit carryforwards			36,821				29,752
Operating expenses			15,961				48,024
Pension			8,372				35,255
Other compensation			36,856				66,220
Postretirement benefits			8,497				12,525
Interest rate hedge			6,012				10,286
Tax sharing agreement			5,514				17,339
Other			17,046				25,513
Gross deferred tax assets			177,701				295,104
Valuation allowance			(32,851	)			(24,065	)
Net deferred tax assets			144,850				271,039
Deferred tax liabilities:
Depreciation and amortization of long-lived assets			29,226				49,484
Equity method investment			12,829				7,056
Other			11,018				7,634
Deferred tax liabilities			53,073				64,174
Net deferred income taxes		$	91,777				206,865

At December 31, 2017 and December 25, 2016, the Company’s net deferred income taxes are recorded in the consolidated balance sheets as follows:

		2017				2016
Other assets			97,870				212,317
Other liabilities			(6,093	)			(5,452	)
Net deferred income taxes		$	91,777				206,865

The Company has a valuation allowance for certain deferred tax assets at December 31, 2017 of $32,851, which is an increase of $8,786 from $24,065 at December 25, 2016. The valuation allowance pertains to certain U.S. state and international loss and credit carryforwards, some of which have no expiration and others that would expire beginning in 2018.

We previously considered the earnings in our non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes. The Tax Act eliminates the deferral of U.S. income tax on these foreign earnings by imposing a transition tax which is a one-time mandatory deemed repatriation tax. As a result we now intend to repatriate substantially all of our accumulated foreign earnings. The Company still has significant cash needs outside the United States, and we are currently analyzing our global working capital and cash requirements. However, tax reform gives more companies flexibility to manage cash globally. We have recorded $1,657 of non-US local country withholding taxes as part of the provisional repatriation tax amount, which will be incurred due to certain future cash distributions. The Company has not finalized the timing of any actual cash distributions or the specific amounts and therefore we could still be subject to some additional foreign withholding taxes and U.S. state taxes. We will record these additional tax effects, if any, in the period that we complete our analysis and are able to make a reasonable estimate.

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(Thousands of Dollars and Shares Except Per Share Data)

The Tax Act contains a new law that requires a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations, also known as the tax on global intangible low taxed income (GILTI), beginning in 2018. The FASB has provided that companies subject to GILTI have the option to account for the GILTI tax as a period cost if and when incurred, or to recognize deferred taxes for temporary differences, including outside basis differences, expected to reverse as GILTI. Due to the complexity of the new GILTI rules, we are continuing to evaluate this provision of the Tax Act. We have not recorded any provisional amounts as of December 31, 2017 nor have we made an accounting policy choice of including taxable income related to GILTI as either a current period tax expense or factoring such amounts into our measurement of deferred taxes.

A reconciliation of unrecognized tax benefits, excluding potential interest and penalties, for the fiscal years ended December 31, 2017, December 25, 2016, and December 27, 2015 is as follows:

		2017				2016				2015
Balance at beginning of year		$	80,388				63,549				35,416
Gross increases in prior period tax positions			2,518				2,727				491
Gross decreases in prior period tax positions			(28,653	)			(3,103	)			(1,773	)
Gross increases in current period tax positions			34,056				34,155				32,547
Decreases related to settlements with tax authorities			(1,375	)			(11,662	)			(355	)
Decreases from the expiration of statute of limitations			(2,690	)			(5,278	)			(2,777	)
Balance at end of year		$	84,244				80,388				63,549

Unrecognized tax benefits as of December 31, 2017, December 25, 2016 and December 27, 2015, were $84,244, $80,388, and $63,549, respectively. If recognized, these tax benefits would have affected our income tax provision for fiscal years 2017, 2016, and 2015, by approximately $77,000, $70,000, and $59,000, respectively.

During 2017, 2016, and 2015 the Company recognized $2,431, $2,135, and $1,422, respectively, of potential interest and penalties, which are included as a component of income taxes in the accompanying consolidated statements of operations. At December 31, 2017, December 25, 2016, and December 27, 2015, the Company had accrued potential interest and penalties of $5,157, $3,966, and $4,778, respectively.

The Company and its subsidiaries file 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. The Company is no longer subject to U.S. federal income tax examinations for years before 2013. With few exceptions, the Company is no longer subject to U.S. state or local and non-U.S. income tax examinations by tax authorities in its major jurisdictions for years before 2012.

The Company believes it is reasonably possible that a decrease of up to $2,800 in unrecognized tax benefits may be necessary within the coming year as a result of a lapse of statute of limitations.

(11) Capital Stock

In February 2015, the Company’s Board of Directors authorized the repurchases of up to $500,000 in common stock. Purchases of the Company’s common stock may be made from time to time, subject to market conditions, and may be made in the open market or through privately negotiated transactions. The Company has no obligation to repurchase shares under the authorization and the time, actual number, and the value of the shares which are repurchased will depend on a number of factors, including the price of the Company’s common stock. In 2017, the Company repurchased 1,584 shares at an average price of $94.74. The total cost of these repurchases, including transaction costs, was $150,054. At December 31, 2017, $177,966 remained under the current authorizations.

(12) Fair Value of Financial Instruments

The Company measures certain assets at fair value in accordance with current accounting standards. The fair value hierarchy consists of three levels: Level 1 fair values are valuations 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 valuations 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

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(Thousands of Dollars and Shares Except Per Share Data)

assets or liabilities; and Level 3 fair values are valuations 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.

Current accounting standards permit entities to choose 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. The Company has elected the fair value option for certain investments using net asset value per share. At December 31, 2017 and December 25, 2016, these investments totaled $24,436 and $23,571, respectively, and are included in prepaid expenses and other current assets in the consolidated balance sheets. The Company recorded net gains (losses) of $1,500, $1,010 and $(682) on these investments in other expense (income), net for the years ended December 31, 2017, December 25, 2016 and December 27, 2015, respectively, relating to the change in fair value of such investments.

At December 31, 2017 and December 25, 2016, the Company had the following assets and liabilities measured at fair value in its consolidated balance sheets (excluding assets for which the fair value is measured using net asset value per share):

		Fair Value				Fair Value Measurements Using
			Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
December 31, 2017
Assets:
Available-for-sale securities		$	3,126				3,126				—				—
Derivatives			12,226				—				12,226				—
Total assets		$	15,352				3,126				12,226				—
Liabilities:
Derivatives		$	23,051				—				23,051				—
Option agreement			23,980				—				—				23,980
Total liabilities		$	47,031				—				23,051				23,980
December 25, 2016
Assets:
Available-for-sale securities		$	3,736				3,736				—				—
Derivatives			87,894				—				87,894				—
Total assets		$	91,630				3,736				87,894				—
Liabilities:
Derivatives		$	11,309				—				11,309				—
Option agreement			28,770				—				—				28,770
Total liabilities		$	40,079				—				11,309				28,770

Available-for-sale securities include equity securities of one company quoted on an active public market. The Company’s derivatives consist primarily of foreign currency forward contracts. The Company used current forward rates of the respective foreign currencies to measure the fair value of these contracts. The option agreement included in other liabilities at December 31, 2017 and December 25, 2016 is valued using an option pricing model based on the fair value of the related investment. Inputs used in the option pricing model include volatility and fair

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(Thousands of Dollars and Shares Except Per Share Data)

value of the underlying company which are considered unobservable inputs as they reflect the Company’s own assumptions about the inputs that market participants would use in pricing the asset or liability. The Company believes that this is the best information available for use in the fair value measurement. There were no changes in these valuation techniques during 2017.

The following is a reconciliation of the beginning and ending balances of the fair value measurements of the Company’s financial instruments which use significant unobservable inputs (Level 3):

		2017				2016
Balance at beginning of year		$	(28,770	)			(28,360	)
Net gains (losses) from change in fair value			4,790				(410	)
Balance at end of year		$	(23,980	)			(28,770	)

In addition to the above, the Company has three investments for which the fair value is measured using net asset value per share. At December 31, 2017 and December 25, 2016 these investments had fair values of $24,436 and $23,571, respectively. Two of the investments have net asset values that are predominantly based on underlying investments which are traded on an active market and are redeemable within 45 days. The third investment invests in hedge funds which are generally redeemable on a quarterly basis with 30 – 90 days’ notice.

(13) Stock Options, Other Stock Awards and Warrants

The Company has reserved 10,127 shares 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 31, 2017, December 25, 2016 and December 27, 2015 was $56,032, $61,624 and $53,880, respectively, and was recorded as follows:

		2017				2016				2015
Cost of sales		$	—				200				366
Product development			3,312				3,248				3,527
Selling, distribution and administration			52,720				58,176				49,987
			56,032				61,624				53,880
Income tax benefit			9,574				20,298				13,489
		$	46,458				41,326				40,391

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Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

The following table represents total stock compensation expense by award type related to stock performance awards, restricted stock units, stock options and awards made to non-employee members of the Company’s Board of Directors, for the years ended December 31, 2017, December 25, 2016 and December 27, 2015:

		2017				2016				2015
Stock performance awards		$	27,522				34,248				27,960
Restricted stock units			20,573				19,908				19,052
Stock options			6,342				5,838				5,419
Non-employee awards			1,595				1,630				1,449
			56,032				61,624				53,880
Income tax benefit			9,574				20,298				13,489
		$	46,458				41,326				40,391

Stock Performance Awards

In 2017, 2016 and 2015, 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 2019, December 2018, and December 2017 for the 2017, 2016 and 2015 awards, respectively. Each 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. For certain employees, the Stock Performance Awards also include an additional return on invested capital target 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 the cumulative results achieved.

Information with respect to Stock Performance Awards for 2017, 2016 and 2015 is as follows:

		2017				2016				2015
Outstanding at beginning of year			1,074				992				655
Granted			428				529				362
Forfeited			(28	)			(23	)			(25	)
Vested			(574	)			(424	)			—
Outstanding at end of year			900				1,074				992
Weighted average grant-date fair value:
Granted		$	99.58				74.69				61.85
Forfeited		$	74.86				61.86				53.45
Vested		$	52.21				47.21				—
Outstanding at end of year		$	77.27				62.19				53.17

Shares granted in 2017 include 227 shares related to the 2015 award, reflecting increases in the ultimate amount of shares to be issued based on the Company’s cumulative results achieved 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 2017. Similarly, shares granted in 2016 included 276 additional shares related to the 2014 award, and shares granted in 2015 included 90 additional shares related to the 2013 award. These shares were excluded from the calculation of the weighted average grant-date fair value of Stock Performance awards granted in 2016 and 2015.

During 2017, 2016 and 2015, the Company recognized $27,522, $34,248 and $27,960, respectively, of expense relating to Stock Performance 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 respective

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(Thousands of Dollars and Shares Except Per Share Data)

stock performance award 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 31, 2017, the amount of total unrecognized compensation cost related to these awards is approximately $23,068 and 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 2017, 2016 and 2015, the Company recognized compensation expense, net of forfeitures, on these awards of $20,573, $19,908 and $19,052, respectively. At December 31, 2017, the amount of total unrecognized compensation cost related to restricted stock units is $21,526 and the weighted average period over which this will be expensed is 22 months.

In October 2012, as part of an Amended and Restated Employment Agreement, (the “Agreement”), the Company’s Chief Executive Officer was awarded 587 shares to be granted in two tranches across 2013 and 2014, which were 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 provided 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. Per the agreement terms, at the completion of the service period, the recipient was to receive one quarter of the award for each stock price hurdle achieved after April 24, 2013. The four stock price hurdles were $45, $52, $56 and $60 which were required to be maintained for a period of at least thirty days using the average closing price over such period. In August 2014, the Agreement was further amended to include additional requirements. Specifically, if the third and fourth stock price hurdles were achieved, the number of shares ultimately issued was 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 was used to record compensation expense for the award. At December 31, 2017, all requirements of the Agreement were met and 587 shares were issued.

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 2017, 2016 and 2015 is as follows:

		2017				2016				2015
Outstanding at beginning of year			795				955				937
Granted			203				245				254
Forfeited			(41	)			(41	)			(52	)
Vested			(321	)			(364	)			(184	)
Outstanding at end of year			636				795				955
Weighted average grant-date fair value:
Granted		$	98.88				75.23				62.95
Forfeited		$	68.01				59.37				51.57
Vested		$	57.58				43.89				39.87
Outstanding at end of year		$	75.13				61.65				51.22

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Stock Options

Information with respect to stock options for each of the three fiscal years ended December 31, 2017 is as follows:

		2017				2016				2015
Outstanding at beginning of year			2,768				3,445				4,186
Granted			458				492				549
Exercised			(597	)			(1,143	)			(1,280	)
Expired or forfeited			(50	)			(26	)			(10	)
Outstanding at end of year			2,579				2,768				3,445
Exercisable at end of year			1,661				1,708				2,208
Weighted average exercise price:
Granted		$	98.80				74.42				61.77
Exercised		$	49.31				41.75				37.54
Expired or forfeited		$	57.33				56.43				46.38
Outstanding at end of year		$	62.12				53.21				46.41
Exercisable at end of year		$	50.02				45.50				41.36

With respect to the 2,579 outstanding options and 1,661 options exercisable at December 31, 2017, the weighted average remaining contractual life of these options was 3.69 years and 2.71 years, respectively. The aggregate intrinsic value of the options outstanding and exercisable at December 31, 2017 was $77,657 and $67,818, 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 2017, 2016 and 2015 was $18.25, $13.01 and $9.29, 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 2017, 2016 and 2015:

		2017				2016				2015
Risk-free interest rate			1.85	%			1.16	%			1.34	%
Expected dividend yield			2.31	%			2.74	%			2.98	%
Expected volatility			24	%			26	%			23	%
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 2017, 2016 and 2015 were $31,406, $47,992 and $41,906, respectively.

At December 31, 2017, the amount of total unrecognized compensation cost related to stock options was $8,228 and the weighted average period over which this will be expensed is 22 months.

Non-Employee Awards

In 2017, 2016 and 2015, the Company granted 16, 23 and 20 shares of common stock, respectively, to its non-employee members of its Board of Directors. Of these shares, the receipt of 10 shares from the 2017 grant, 16 shares from the 2016 grant and 16 shares from the 2015 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 $1,595 was recorded in selling, distribution and administration expense in the year ended December 31, 2017, $1,630 in the year ended December 25, 2016 and $1,449 in the year ended December 27, 2015.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

(14) Pension, Postretirement and Postemployment Benefits

Pension and Postretirement Benefits

The Company recognizes an asset or liability for each of its defined benefit pension plans equal to the difference between the projected benefit obligation of the plan and the fair value of the plan’s assets. Actuarial gains and losses and prior service costs that have not yet been included in income are recognized in the consolidated balance sheets in AOCE. Reclassifications to earnings from AOCE related to pension and postretirement plans are recorded to selling, distribution and administration expense.

Expenses related to the Company’s defined benefit pension and defined contribution plans for 2017, 2016 and 2015 were approximately $45,900, $45,200 and $36,000, respectively. Of these amounts, $36,000, $33,300 and $26,600, respectively, related to defined contribution plans in the United States and certain international subsidiaries. The remainder of the expense relates to defined benefit pension plans discussed below.

United States Plans

Prior to 2008, substantially all United States employees were covered under at least one of several non-contributory defined benefit pension plans maintained by the Company. Benefits under the two major plans which principally cover non-union employees, were based primarily on salary and years of service. One of these major plans is funded. Benefits under the remaining plans are based primarily on fixed amounts for specified years of service. In 2007, for the two major plans covering its non-union employees, the Company froze benefits being accrued effective at the end of December 2007. Following the August 2015 sale of its manufacturing facility in East Longmeadow, MA, the Company elected to freeze benefits related to its major plan covering union employees. Effective January 1, 2016, the plan covering union employees merged with and into the Hasbro Inc. Pension Plan, and ceased to exist as a separate plan on that date.

At December 31, 2017, the measurement date, the fair value of the funded plans’ assets were in excess of the projected benefit obligations in the amount of $25,603 while the unfunded plans of the Company had an aggregate accumulated and projected benefit obligation of $35,981. At December 25, 2016 the projected benefit obligations of the funded plans were in excess of the fair value of the plans’ assets in the amount of $28,340 while the unfunded plans of the Company had an aggregate accumulated and projected benefit obligation of $35,104.

Hasbro also provides certain postretirement health care and life insurance benefits to eligible employees who retire and have either attained age 65 with 5 years of service or age 55 with 10 years of service. The cost of providing these benefits on behalf of employees who retired prior to 1993 is and will continue to be substantially borne by the Company. The cost of providing benefits on behalf of substantially all employees who retire after 1992 is borne by the employee. The plan is not funded.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Reconciliations of the beginning and ending balances for the projected benefit obligation, the fair value of plan assets and the funded status are included below for the years ended December 31, 2017 and December 25, 2016.

		Pension								Postretirement
		2017				2016				2017				2016
Change in Projected Benefit Obligation
Projected benefit obligation — beginning		$	372,824				361,060				28,484				26,247
Service cost			1,290				2,100				691				532
Interest cost			15,303				16,106				1,179				1,175
Actuarial (gain) loss			27,670				17,353				3,432				2,380
Benefits paid			(22,579	)			(22,508	)			(1,633	)			(1,850	)
Expenses paid			(1,141	)			(1,287	)			—				—
Projected benefit obligation — ending		$	393,367				372,824				32,153				28,484
Accumulated benefit obligation — ending		$	393,367				372,824				32,153				28,484
Change in Plan Assets
Fair value of plan assets — beginning		$	309,380				259,329				—				—
Actual return on plan assets			44,562				8,961				—				—
Employer contribution			52,767				64,885				—				—
Benefits paid			(22,579	)			(22,508	)			—				—
Expenses paid			(1,141	)			(1,287	)			—				—
Fair value of plan assets — ending		$	382,989				309,380				—				—
Reconciliation of Funded Status
Projected benefit obligation		$	(393,367	)			(372,824	)			(32,153	)			(28,484	)
Fair value of plan assets			382,989				309,380				—				—
Funded status			(10,378	)			(63,444	)			(32,153	)			(28,484	)
Unrecognized net loss			132,088				138,529				5,853				2,420
Net amount		$	121,710				75,085				(26,300	)			(26,064	)
Accrued liabilities		$	(2,448	)			(2,553	)			(1,630	)			(1,599	)
Other liabilities			(7,930	)			(60,891	)			(30,523	)			(26,885	)
Accumulated other comprehensive earnings (loss)			132,088				138,529				5,853				2,420
Net amount		$	121,710				75,085				(26,300	)			(26,064	)

In fiscal 2018, the Company expects amortization of unrecognized net losses related to its defined benefit pension plans of $8,445 to be included as a component of net periodic benefit cost. The Company does not expect amortization in 2018 related to its postretirement plan.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Assumptions used to determine the year-end pension and postretirement benefit obligations are as follows:

		2017				2016
Pension
Weighted average discount rate			3.71	%			4.22	%
Mortality table			RP-2014/Scale BB				RP-2014/Scale BB
Postretirement
Discount rate			3.74	%			4.26	%
Health care cost trend rate assumed for next year			6.50	%			7.00	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)			5.00	%			5.00	%
Year that the rate reaches the ultimate trend			2024				2021

Hasbro’s pension plan assets (the “Plan Assets”) are intended to provide retirement benefits to participants in accordance with the benefit structure established by Hasbro, Inc. The Plan Asset investment managers, who exercise full investment discretion within guidelines outlined in the Plan Asset Investment Policy, are charged with managing the assets with the care, skill, prudence and diligence that a prudent investment professional in similar circumstance would exercise. Investment practices, at a minimum, must comply with the Employee Retirement Income Security Act (ERISA) and any other applicable laws and regulations.

The Plan Asset’s allocations are structured to meet a long-term targeted total return consistent with the ongoing nature of the pension plan liabilities. The shared long-term total return goal, presently 6.25%, includes income plus realized and unrealized gains and/or losses on the Plan’s assets. Utilizing generally accepted diversification techniques, the Plan Assets, in aggregate and at the individual portfolio level, are invested so that the total portfolio risk exposure and risk-adjusted returns best meet the pension plan long-term obligations to employees. The Company’s asset allocation includes alternative investment strategies designed to achieve a modest absolute return in addition to the return on an underlying asset class such as bond or equity indices. These alternative investment strategies may use derivatives to gain market returns in an efficient and timely manner; however, derivatives are not used to leverage the portfolio beyond the market value of the underlying assets. These alternative investment strategies are included in other equity, total return fund and fixed income asset categories at December 31, 2017 and December 25, 2016. Plan asset allocations are reviewed at least quarterly and rebalanced to achieve target allocation among the asset categories when necessary.

The Plan Assets’ investment managers are provided specific guidelines under which they are to invest the assets assigned to them. In general, investment managers are expected to remain fully invested in their asset class with further limitations of risk as related to investments in a single security, portfolio turnover and credit quality.

With the exception of the alternative investment strategies mentioned above, the Plan’s Investment Policy restricts the use of derivatives associated with leverage or speculation. In addition, the Investment Policy also restricts investments in securities issued by Hasbro, Inc. except through index-related strategies (e.g. an S&P 500 Index Fund) and/or commingled funds. In addition, unless specifically approved by the Investment Committee (which comprises members of management, established by the Board to manage and control pension plan assets), certain securities, strategies, and investments are ineligible for inclusion within the Plan Assets.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

The assets of the funded plans are managed by investment advisors. The fair values of the plan assets by asset class and fair value hierarchy level (excluding assets for which the fair value is measured using net asset value per share) as of December 31, 2017 and December 25, 2016 are as follows:

		Fair Value				Fair value measurements using:
			Quoted Prices in Active Markets For Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
2017
Equity:
Large Cap		$	38,400				38,400				—				—
Small Cap			25,300				25,300				—				—
International measured at net asset value(a)			43,900				43,900				—				—
Other measured at net asset value(a)			300				—				—				—
Fixed Income measured at net asset value(a)			217,200				—				—				—
Total Return Fund measured at net asset value(a)			26,900				26,900				—				—
Cash Equivalents measured at net asset value(a)			31,000				—				—				—
		$	383,000				134,500				—				—
2016
Equity:
Large Cap		$	29,100				29,100				—				—
Small Cap			29,200				29,200				—				—
International measured at net asset value(a)			40,100				40,100				—				—
Other measured at net asset value(a)			1,300				—				—				—
Fixed Income measured at net asset value(a)			119,500				—				—				—
Total Return Fund measured at net asset value(a)			29,000				29,000				—				—
Cash Equivalents measured at net asset value(a)			61,100				—				—				—
		$	309,300				127,400				—				—

(a)	Certain investments that are measured at fair value using the net asset value per share are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Schedule of Changes in Plan Assets disclosed previously in this note.

The Plan’s Level 1 assets consist of investments traded on active markets that are valued using published closing prices.

At December 31, 2017 the Company’s investments for which the fair value is measured using net asset value per share include the following; Fixed income funds—$217,200 of fixed income funds redeemable monthly with five days’ notice,, Cash and cash equivalents—$31,000 of cash and cash equivalents which are redeemable daily and public-private investment funds—$300 consisting of a public-private investment fund which is valued using the net asset value provided by the investment manager and invests in commercial mortgage-backed securities and non-agency residential mortgage-backed securities. The Company believes that the net asset values are the best information available for use in the fair value measurement of these funds.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

The following is a detail of the components of the net periodic benefit cost for the three years ended December 31, 2017.

		2017				2016				2015
Components of Net Periodic Cost
Pension
Service cost		$	1,290				2,100				1,918
Interest cost			15,303				16,106				15,683
Expected return on assets			(19,534	)			(17,013	)			(18,538	)
Amortization of prior service cost			—				—				65
Amortization of actuarial loss			9,082				7,361				7,468
Curtailment/settlement losses			—				—				781
Net periodic benefit cost		$	6,141				8,554				7,377
Postretirement
Service cost		$	691				532				567
Interest cost			1,179				1,175				1,154
Amortization of actuarial (gain) loss			—				—				(304	)
Curtailment gain			—				—				(3,842	)
Net periodic benefit cost (income)		$	1,870				1,707				(2,425	)

See note 17 for additional information on the 2015 curtailment (gain) loss.

Assumptions used to determine net periodic benefit cost of the pension plan and postretirement plan for each fiscal year follow:

		2017				2016				2015
Pension
Weighted average discount rate			4.22	%			4.58	%			4.22	%
Long-term rate of return on plan assets			6.25	%			6.75	%			7.00	%
Postretirement
Discount rate			4.26	%			4.64	%			4.49	%
Health care cost trend rate assumed for next year			7.00	%			7.00	%			6.50	%
Rate to which the cost trend rate is assumed to decline (ultimate trend rate)			5.00	%			5.00	%			5.00	%
Year that the rate reaches the ultimate trend rate			2021				2021				2020

If the health care cost trend rate were increased one percentage point in each year, the accumulated postretirement benefit obligation at December 31, 2017 and the aggregate of the benefits earned during the period and the interest cost would have both increased by approximately 0.6%.

Hasbro works with external benefit investment specialists to assist in the development of the long-term rate of return assumptions used to model and determine the overall asset allocation. Forecast returns are based on the combination of historical returns, current market conditions and a forecast for the capital markets for the next 5-7 years. All asset class assumptions are within certain bands around the long-term historical averages. Correlations are based primarily on historical return patterns.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Expected benefit payments under the defined benefit pension plans and the postretirement benefit plan for the next five years subsequent to 2017 and in the aggregate for the following five years are as follows:

		Pension				Postretirement
2018		$	20,803				1,660
2019			21,125				1,601
2020			21,315				1,552
2021			21,943				1,506
2022			22,391				1,467
2023-2027			117,813				6,922

International Plans

Pension coverage for employees of Hasbro’s international subsidiaries is provided, to the extent deemed appropriate, through separate defined benefit and defined contribution plans. At December 31, 2017 and December 25, 2016, the defined benefit plans had total projected benefit obligations of $127,012 and $118,492, respectively, and fair values of plan assets of $100,766 and $85,678, respectively. Substantially all of the plan assets are invested in equity and fixed income securities. The pension expense related to these plans was $3,473, $1,533 and $2,769 in 2017, 2016 and 2015, respectively. In fiscal 2018, the Company expects amortization of $(36) of prior service costs, $1,026 of unrecognized net losses and $2 of unrecognized transition obligation to be included as a component of net periodic benefit cost.

Expected benefit payments under the international defined benefit pension plans for the five years subsequent to 2017 and in the aggregate for the five years thereafter are as follows: 2018: $2,019; 2019: $2,179; 2020: $2,368; 2021: $2,524; 2022: $2,772; and 2023 through 2027: $17,806.

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 the Company’s health and life insurance contributions for employees who have left Hasbro’s employ under terms of its long-term disability plan.

(15) Leases

Hasbro occupies offices and uses certain equipment under various operating lease arrangements. The rent expense under such arrangements, net of sublease income which is not material, for 2017, 2016 and 2015 amounted to $63,615, $52,585 and $45,592, respectively.

Minimum rentals, net of minimum sublease income, which is not material, under long-term operating leases for the five years subsequent to 2017 and in the aggregate thereafter are as follows: 2018: $46,868; 2019: $41,330; 2020: $27,374; 2021: $22,930; 2022: $14,532; and thereafter: $21,927.

All leases expire prior to the end of 2037. Real estate taxes, insurance and maintenance expenses are generally obligations of the Company. It is expected that, in the normal course of business, leases that expire will be renewed or replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not be less than the amounts shown for 2018.

(16) Derivative Financial Instruments

Hasbro 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 future currency requirements related to purchases of inventory, product sales and other cross-border transactions not denominated in the functional currency of the business unit, are primarily denominated in United States and Hong Kong dollars, 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. Hasbro does not enter into derivative financial instruments for speculative purposes.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Cash Flow Hedges

Hasbro uses foreign currency forward contracts to reduce the impact of currency rate fluctuations on firmly committed and projected future foreign currency transactions. All of 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 anticipated inventory purchases and other cross-border transactions in years 2018 through 2022.

At December 31, 2017 and December 25, 2016, the notional amounts and fair values of assets (liabilities) for the Company’s foreign currency forward contracts designated as cash flow hedging instruments were as follows:

		2017								2016
		Notional Amount				Fair Value				Notional Amount				Fair Value
Hedged transaction
Inventory purchases		$	756,673				(13,695	)			945,728				60,520
Sales			423,315				16,144				290,181				9,775
Royalties and Other			196,889				(10,383	)			198,849				1,633
Total		$	1,376,877				(7,934	)			1,434,758				71,928

The Company has a master agreement with each of its counterparties that allows for the netting of outstanding forward contracts. The fair values of the Company’s foreign currency forward contracts designated as cash flow hedges are recorded in the consolidated balance sheet at December 31, 2017 and December 25, 2016 as follows:

		2017				2016
Prepaid expenses and other current assets
Unrealized gains		$	13,666				34,265
Unrealized losses			(10,319	)			(2,075	)
Net unrealized gain		$	3,347				32,190
Other assets
Unrealized gains		$	11,255				51,839
Unrealized losses			(2,376	)			(792	)
Net unrealized gain		$	8,879				51,047
Accrued liabilities
Unrealized gains		$	4,215				8,481
Unrealized losses			(15,484	)			(19,790	)
Net unrealized loss		$	(11,269	)			(11,309	)
Other liabilities
Unrealized gains		$	4,546				—
Unrealized losses			(13,437	)			—
Net unrealized loss		$	(8,891	)			—

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings to net earnings for the years ended December 31, 2017, December 25, 2016 and December 27, 2015 as follows:

		2017				2016				2015
Consolidated Statements of Operations Classification
Cost of sales		$	(1,905	)			57,786				66,378
Sales			5,315				7,467				(9,219	)
Royalties and other			(6,000	)			(5,776	)			(566	)
Net realized (losses) gains		$	(2,590	)			59,477				56,593

In addition, net (losses) gains of $(6,847), $400 and $1,169 were reclassified to earnings as a result of hedge ineffectiveness in 2017, 2016 and 2015, respectively.

Undesignated Hedges

The Company also enters into foreign currency forward contracts to minimize the impact of changes in the fair value of intercompany loans due to foreign currency changes. The Company does not use hedge accounting for these contracts as changes in the fair values of these contracts are substantially offset by changes in the fair value of the intercompany loans. As of December 31, 2017 and December 25, 2016, the total notional amount of the Company’s undesignated derivative instruments was $418,471 and $268,308, respectively.

At December 31, 2017 and December 25, 2016, the fair value of the Company’s undesignated derivative financial instruments are recorded in the consolidated balance sheets as follows:

		2017				2016
Prepaid expenses and other assets
Unrealized gains		$	—				5,854
Unrealized losses			—				(1,197	)
Net unrealized gain		$	—				4,657
Accrued liabilities
Unrealized gains		$	1,793				—
Unrealized losses			(4,684	)			—
Net unrealized loss		$	(2,891	)			—
Total unrealized gain (losses)		$	(2,891	)			4,657

The Company recorded net (losses) gains of $(4,267), $32,524 and $48,489 on these instruments to other (income) expense, net for 2017, 2016 and 2015, respectively, relating to the change in fair value of such derivatives, substantially offsetting gains and losses from the change in fair value of intercompany loans to which the instruments relate.

For additional information related to the Company’s derivative financial instruments see notes 2 and 12.

(17) Sale of Manufacturing Operations

On August 30, 2015, the Company completed the sale of its manufacturing operations to Cartamundi NV (“Cartamundi”) for approximately $54,400, approximately $18,600 of which was received on the date of sale with the remainder to be paid in 5 annual installments. Under the terms of the purchase and sale agreement, Cartamundi acquired the inventory and property, plant and equipment related to manufacturing operations in East Longmeadow, MA and the common stock of the Company’s manufacturing subsidiary in Waterford, Ireland. Inclusive of this transaction and other related costs, the Company recognized a gain of $6,573 on the sale recorded in other (income) expense, net in the consolidated statements of operations for the year ending December 27, 2015. These operations were a component of the Company’s Global Operations segment.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

In connection with this transaction, the Company also entered into a manufacturing services agreement under which Cartamundi will provide manufacturing services over a 5-year term. In connection with this agreement, the Company has agreed to minimum purchase commitments from Cartamundi over the term of the agreement. The Company and Cartamundi are also party to a warehousing agreement under which the Company leases designated warehouse space at the East Longmeadow, MA location, as well as a transition services agreement related to certain administrative functions each party is providing each other during a defined transition period. In connection with this transaction, the Company froze the benefits of one of its funded defined benefit pension plans covering union employees. In connection with these actions, the Company recognized a net curtailment benefit of $3,061 related to net prior service credits in the related defined benefit pension and post-retirement plans. This benefit is recorded in selling, distribution and administration expenses in the consolidated statements of operations for the year ending December 27, 2015. The Company has retained the frozen defined benefit pension plans related to its former employees of its East Longmeadow, MA and Waterford, Ireland businesses.

(18) Acquisition

On July 13, 2016, the Company acquired Boulder Media Limited (“Boulder”), an animation studio based in Dublin, Ireland. The consideration included an initial cash payment of approximately $13,177 and provisions for future earnout payments. Based on the Company’s analysis, goodwill in the amount of $11,821 was recorded.

(19) Commitments and Contingencies

Hasbro had unused open letters of credit and related instruments of approximately $36,500 and $42,100 at December 31, 2017 and December 25, 2016, respectively.

The Company enters into license agreements with strategic partners, inventors, designers and others for the use of intellectual properties in its products. Certain of these agreements contain provisions for the payment of guaranteed or minimum royalty amounts. Under terms of existing agreements as of December 31, 2017, Hasbro may, provided the other party meets their contractual commitment, be required to pay amounts as follows: 2018: $78,290; 2019: $61,181; 2020: $20,171; 2021: $27,046; 2022: $27,046; and thereafter: $15,859. At December 31, 2017, the Company had $81,586 of prepaid royalties, $ 31,444 of which are included in prepaid expenses and other current assets and $50,142 of which are included in other assets.

In addition to the above commitments, certain of the above contracts impose minimum marketing commitments on the Company. The Company may be subject to additional royalty guarantees totaling $50,000 that are not included in the amounts above that may be payable during the next four years contingent upon the quantity and types of theatrical movie releases by the licensor.

In connection with the Company’s agreement to form a joint venture with Discovery, the Company is obligated to make future payments to Discovery under a tax sharing agreement. The Company estimates these payments may total approximately $41,000 and may range from approximately $4,500 to $7,100 per year during the period 2018 to 2022, and approximately $14,700 in aggregate for all years occurring thereafter. These payments are contingent upon the Company having sufficient taxable income to realize the expected tax deductions of certain amounts related to the joint venture.

At December 31, 2017, the Company estimates payments related to inventory and tooling purchase commitments may total approximately $740,318, including contractual commitments under the manufacturing agreement with Cartamundi as follows: 2018: $110,827; 2019: $104,626; and 2020: $82,917. For additional information about these commitments, see Note 17.

Hasbro 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 consolidated financial statements.

(20) Segment Reporting

Segment and Geographic Information

Hasbro is a global play and entertainment company with a broad portfolio of brands and entertainment properties spanning toys, games, licensed products ranging from traditional to high-tech and digital, and film and television entertainment. The Company’s segments are (i) U.S. and Canada, (ii) International, (iii) Entertainment and Licensing, and (iv) Global Operations.

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Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

The U.S. and Canada segment includes the marketing and selling of action figures, arts and crafts and creative play products, electronic toys and related electronic interactive products, fashion and other dolls, infant products, play sets, preschool toys, plush products, sports action blasters and accessories, vehicles and toy-related specialty products, as well as traditional board games, and trading card and role-playing games primarily within the United States and Canada. Within the International segment, the Company markets and sells both toy and game products in markets outside of the U.S. and Canada, primarily in the European, Asia Pacific, and Latin and South American regions. The Company’s Entertainment and Licensing segment includes the Company’s consumer products licensing, digital gaming, movie and television entertainment operations. The Global Operations segment is responsible for sourcing finished products for the Company’s U.S. and Canada and International segments.

Segment performance is measured at the operating profit level. Included in Corporate and eliminations are certain corporate expenses, including the elimination of intersegment transactions and certain assets benefiting more than one segment. Intersegment sales and transfers are reflected in management reports at amounts approximating cost. Certain shared costs, including global development and marketing expenses and corporate administration, are allocated to segments based upon expenses and foreign exchange rates fixed at the beginning of the year, with adjustments to actual expenses and foreign exchange rates included in Corporate and eliminations. The accounting policies of the segments are the same as those referenced in note 1.

Results shown for fiscal years 2017, 2016 and 2015 are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise.

Information by segment and a reconciliation to reported amounts are as follows:

		Revenues from External Customers				Affiliate Revenue				Operating Profit (Loss)				Depreciation and Amortization				Capital Additions				Total Assets
2017
U.S. and Canada		$	2,690,527				8,157				509,942				19,457				5,849				2,749,384
International			2,233,579				382				228,669				9,527				4,669				2,499,985
Entertainment and
Licensing			285,579				21,889				96,400				5,526				7,637				626,193
Global Operations(a)			97				1,644,650				4,014				92,595				89,619				2,819,768
Corporate and eliminations(b)			—				(1,675,078	)			(28,666	)			44,731				27,103				(3,405,347	)
Consolidated Total		$	5,209,782				—				810,359				171,836				134,877				5,289,983
2016
U.S. and Canada		$	2,559,907				7,091				522,287				12,764				8,107				2,559,792
International			2,194,651				1,908				294,497				20,768				7,258				2,368,761
Entertainment and
Licensing			265,205				23,220				49,876				9,869				13,072				692,898
Global Operations(a)			59				1,617,370				19,440				78,249				89,051				2,326,566
Corporate and eliminations(b)			—				(1,649,589	)			(98,052	)			32,820				37,412				(2,856,651	)
Consolidated Total		$	5,019,822				—				788,048				154,470				154,900				5,091,366
2015
U.S. and Canada		$	2,225,518				5,339				430,707				14,946				3,508				2,654,270
International			1,971,875				15				255,365				20,434				7,029				2,345,847
Entertainment and
Licensing			244,685				23,144				76,868				16,251				387				567,753
Global Operations(a)			5,431				1,583,665				12,022				70,794				83,304				2,410,142
Corporate and eliminations(b)			—				(1,612,163	)			(83,029	)			32,902				47,794				(3,257,295	)
Consolidated Total		$	4,447,509				—				691,933				155,327				142,022				4,720,717

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Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

(a)	The Global Operations segment derives substantially all of its revenues, and thus its operating results, from intersegment activities.

(b)

Certain long-term assets, including property, plant and equipment, goodwill and other intangibles, which benefit multiple operating segments, are included in Corporate and eliminations. Allocations of certain expenses related to these assets to the individual operating segments are done at the beginning of the year based on budgeted amounts. Any differences between actual and budgeted amounts are reflected in Corporate and eliminations. Furthermore, Corporate and eliminations includes elimination of inter-company income statement transactions. One such example includes licensing and service arrangements with affiliates. Payments received in advance from affiliates are recognized as revenue and eliminated in consolidation as earned and payment becomes assured over the life of the contract. During 2017 and 2016, affiliate licensing and service fees of $298,693 and $283,078, respectively, that were received in 2016 and 2015, respectively, were recognized as revenue and eliminated in consolidation. Corporate and eliminations also includes the elimination of inter-company balance sheet amounts.

The following table represents consolidated International segment net revenues by major geographic region for the three fiscal years ended December 31, 2017.

		2017				2016				2015
Europe		$	1,381,949				1,404,478				1,236,846
Latin America			485,088				463,638				426,109
Asia Pacific			366,542				326,535				308,920
Net revenues		$	2,233,579				2,194,651				1,971,875

The following table presents consolidated net revenues by brand portfolio for the three fiscal years ended December 31, 2017.

		2017				2016				2015
Franchise brands		$	2,567,962				2,327,668				2,285,414
Partner brands			1,271,597				1,412,770				1,101,305
Hasbro gaming			893,019				813,433				662,319
Emerging brands			477,204				465,951				398,471
Net revenues		$	5,209,782				5,019,822				4,447,509

Information as to Hasbro’s operations in different geographical areas is presented below on the basis the Company uses to manage its business. Net revenues are categorized based on location of the customer, while long-lived assets (property, plant and equipment, goodwill and other intangibles) are categorized based on their location.

		2017				2016				2015
Net revenues
United States		$	2,732,034				2,575,696				2,278,613
International			2,477,748				2,444,126				2,168,896
			5,209,782				5,019,822				4,447,509
Long-lived assets
United States			894,597				933,848				932,790
International			155,558				150,054				178,239
		$	1,050,155				1,083,902				1,111,029

Principal international markets include Europe, Canada, Mexico and Latin America, Australia, and Hong Kong. Long-lived assets include property, plant and equipment, goodwill and other intangibles.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

Other Information

Hasbro markets its products primarily to customers in the retail sector. Although the Company closely monitors the creditworthiness of its customers, adjusting credit policies and limits as deemed appropriate, a substantial portion of its customers’ ability to discharge amounts owed is generally dependent upon the overall retail economic environment.

Sales to the Company’s three largest customers, Wal-Mart Stores, Inc., Toys “R” Us, Inc. and Target Corporation, amounted to 19%, 9% and 9%, respectively, of consolidated net revenues during 2017, 18%, 9% and 9%, respectively, of consolidated net revenues during 2016 and 16%, 9% and 9%, respectively, of consolidated net revenues during 2015. These sales were primarily within the U.S. and Canada segment.

Hasbro purchases certain components used in its manufacturing process and certain finished products from manufacturers in the Far East. The Company’s reliance on external sources of manufacturing can be shifted, over a period of time, to alternative sources of supply for products it sells, should such changes be necessary. However, if the Company were prevented from obtaining products from a substantial number of its current Far East suppliers due to political, labor or other factors beyond its control, the Company’s operations would be disrupted, potentially for a significant period of time, while alternative sources of product were secured. The imposition of trade sanctions, quotas or other protectionist measures by the United States or the European Union against a class of products imported by Hasbro from, or the loss of “normal trade relations” status with, China could significantly increase the cost of the Company’s products imported into the United States or Europe.

The Company has agreements which allow it to develop and market products based on properties owned by third parties including its license with Marvel Entertainment, LLC and Marvel Characters B.V. (together “Marvel”) and its license with Lucas Licensing Ltd. and Lucasfilm Ltd. (together “Lucas”). These licenses have multi-year terms and provide the Company with the right to market and sell designated classes of products based on Marvel’s portfolio of brands, including SPIDER-MAN and THE AVENGERS, and Lucas’s STAR WARS brand. Hasbro’s net revenues from these licenses can be significant in any given year based on the level of third party entertainment. Both Marvel and Lucas are owned by The Walt Disney Company.

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HASBRO, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements — (Continued)

(Thousands of Dollars and Shares Except Per Share Data)

(21) Quarterly Financial Data (Unaudited)

		Quarter
		First				Second				Third				Fourth				Full Year
2017
Net revenues		$	849,663				972,506				1,791,502				1,596,111				5,209,782
Operating profit			78,343				99,984				360,944				271,088				810,359
Earnings before income taxes			70,837				86,886				349,841				278,586				786,150
Net earnings (loss)			68,599				67,723				265,583				(5,298	)			396,607
Net earnings (loss) attributable to Hasbro, Inc.			68,599				67,723				265,583				(5,298	)			396,607
Per common share
Net earnings (loss) attributable to Hasbro, Inc.
Basic		$	0.55				0.54				2.12				(0.04	)			3.17
Diluted			0.54				0.53				2.09				(0.04	)			3.12
Market price
High		$	101.08				113.49				116.20				99.17				116.20
Low			77.20				94.76				91.57				87.92				77.20
Cash dividends declared		$	0.57				0.57				0.57				0.57				2.28
2016
Net revenues		$	831,180				878,945				1,679,757				1,629,940				5,019,822
Operating profit			85,916				84,874				362,101				255,157				788,048
Earnings before income taxes			59,213				67,020				346,324				219,932				692,489
Net earnings			46,971				49,419				256,162				180,599				533,151
Net earnings attributable to Hasbro, Inc.			48,751				52,106				257,798				192,725				551,380
Per common share
Net earnings attributable to Hasbro, Inc.
Basic		$	0.39				0.42				2.05				1.54				4.40
Diluted			0.38				0.41				2.03				1.52				4.34
Market price
High		$	79.40				88.53				87.00				87.96				88.53
Low			65.52				77.44				76.80				76.14				65.52
Cash dividends declared		$	0.51				0.51				0.51				0.51				2.04

(22) Subsequent Event

On February 13, 2018, the U.S. Treasury Department (“Treasury Department”) and the Internal Revenue Service (“IRS”) issued additional guidance on specific aspects of the Tax Act, as discussed in more detail below. The Company will account for this guidance in the period it was issued. This guidance impacts certain positions previously taken with respect to tax amounts recorded in our consolidated financial statements. We will adjust such amounts to reflect this guidance in our consolidated financial statements for the period ending April 1, 2018. We estimate the impact to be a one-time tax expense of approximately $48,000 that will reverse certain discrete benefits recorded in 2017 as well as increase our provisional deemed repatriation tax liability. In addition, our net deemed repatriation tax on the Statement of Cash Flows for the year ended December 31, 2017 will also be impacted by these adjustments. However, additional guidance may be issued requiring adjustments to this estimated amount and provisional amounts recorded which may materially impact our provision for income taxes in the period in which the adjustments are made.

The guidance issued by the Treasury Department and IRS announced modifications to procedures for changing the accounting period of foreign corporations owned by U.S. shareholders that are subject to the deemed repatriation tax under the Tax Act. Revenue Procedure 2018-17 (the “Rev. Proc.) prevents changes to the annual accounting periods of certain foreign corporations in 2017 under either the existing automatic or general procedures if such change could result in the avoidance, reduction, or delay of the deemed Repatriation Tax.

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