Derivative Financial Instruments

9 Months Ended

Sep. 27, 2015

Derivative Financial Instruments (Thousands of Dollars) [Abstract]

Derivative Financial Instruments

(8) 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.

Cash Flow Hedges

The Company 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, product sales and other cross-border transactions in 2015 through 2020.

At September 27, 2015, September 28, 2014 and December 28, 2014, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:

	September 27, 2015					September 28, 2014					December 28, 2014
Hedged transaction	Notional Amount		Fair Value			Notional Amount		Fair Value			Notional Amount		Fair Value
Inventory purchases	$	1,122,827		124,422			716,028		45,501			863,232		69,049
Sales		213,841		(3,352	)		195,364		(6,484	)		139,946		829
Other		57,360		(2,512	)		29,242		(1,992	)		51,213		(1,008	)
Total	$	1,394,028		118,558			940,634		37,025			1,054,391		68,870

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 sheets at September 27, 2015, September 28, 2014 and December 28, 2014 as follows:

	September 27, 2015			September 28, 2014			December 28, 2014
Prepaid expenses and other current assets
Unrealized gains	$	81,718			24,242			46,594
Unrealized losses		(9,717	)		(6,356	)		(11,508	)
Net unrealized gain	$	72,001			17,886			35,086
Other assets
Unrealized gains	$	48,111			23,127			34,234
Unrealized losses		(989	)		(964	)		(172	)
Net unrealized gains	$	47,122			22,163			34,062
Accrued liabilities
Unrealized gains	$	62			2,519			447
Unrealized losses		(566	)		(5,539	)		(725	)
Net unrealized loss	$	(504	)		(3,020	)		(278	)
Other liabilities
Unrealized gains	$	-			22			-
Unrealized losses		(61	)		(26	)		-
Net unrealized loss	$	(61	)		(4	)		-

Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net earnings for the quarter and nine-month periods ended September 27, 2015 and September 28, 2014 as follows:

	Quarter Ended						Nine Months Ended
	September 27, 2015			September 28, 2014			September 27, 2015			September 28, 2014
Statements of Operations Classification
Cost of sales	$	19,244			(3,165	)		41,990			(3,363	)
Sales		(4,507	)		(3,477	)		(8,506	)		(4,340	)
Other		(377	)		(923	)		(322	)		(1,533	)
Net realized gains (losses)	$	14,360			(7,565	)		33,162			(9,236	)

In addition, gains of $275 and $842, respectively, were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine-month periods ended September 27, 2015, and net gains of $62 were reclassified to earnings as a result of hedge ineffectiveness for the nine-month periods ended September 28, 2014.

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 fluctuations. Due to the nature of the derivative contracts involved, the Company does not use hedge accounting for these contracts.  At September 27, 2015, September 28, 2014 and December 28, 2014 the total notional amounts of the Company's undesignated derivative instruments were $263,247, $413,065 and $294,571, respectively.

At September 27, 2015, September 28, 2014 and December 28, 2014, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:

	September 27, 2015			September 28, 2014			December 28, 2014
Prepaid expenses and other current assets
Unrealized gains	$	93			4,876			-
Unrealized losses		-			(3,450	)		-
Net unrealized gain		93			1,426			-
Accrued liabilities
Unrealized gains		360			-			1,733
Unrealized losses		(493	)		-			(4,046	)
Net unrealized loss		(133	)		-			(2,313	)
Other liabilities
Unrealized gains		-			303			-
Unrealized losses		-			(705	)		-
Net unrealized loss		-			(402	)		-
Total unrealized gain (loss), net	$	(40	)		1,024			(2,313	)

The Company recorded net gains of $21,070 and $40,024 on these instruments to other (income) expense, net for the quarter and nine-month periods ended September 27, 2015, respectively, and net losses of $20,050 and $19,988 on these instruments to other (income) expense, net for the quarter and nine-month periods ended September 28, 2014, 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 contracts relate.

For additional information related to the Company's derivative financial instruments see Notes 4 and 6.