Derivative Financial Instruments

9 Months Ended

Sep. 25, 2016

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 2016 through 2021.

At September 25, 2016, September 27, 2015 and December 27,2015, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:

	September 25, 2016				September 27, 2015				December 27, 2015
	Notional		Fair		Notional		Fair		Notional		Fair
Hedged transaction	Amount		Value		Amount		Value		Amount		Value
Inventory purchases	$	1,045,400		23,662		1,122,827		124,422		1,380,488		108,521
Sales		318,283		(559)		213,841		(3,352)		97,350		803
Royalties and Other		233,367		(4,111)		57,360		(2,512)		54,360		(1,886)
Total	$	1,597,050		18,992		1,394,028		118,558		1,532,198		107,438

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 25, 2016, September 27, 2015 and December 27,2015 as follows:

	September 25,		September 27,		December 27,
	2016		2015		2015
Prepaid expenses and other current assets
Unrealized gains	$	34,179		81,718		78,910
Unrealized losses		(9,247)		(9,717)		(5,932)
Net unrealized gain	$	24,932		72,001		72,978
Other assets
Unrealized gains	$	20,974		48,111		35,366
Unrealized losses		(7,524)		(989)		(710)
Net unrealized gains	$	13,450		47,122		34,656
Accrued liabilities
Unrealized gains	$	4,352		62		-
Unrealized losses		(19,420)		(566)		-
Net unrealized loss	$	(15,068)		(504)		-
Other liabilities
Unrealized gains	$	992		-		241
Unrealized losses		(5,314)		(61)		(437)
Net unrealized loss	$	(4,322)		(61)		(196)

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 25, 2016 and September 27, 2015as follows:

	Quarter Ended				Nine Months Ended
	September 25,		September 27,		September 25,		September 27,
	2016		2015		2016		2015
Statements of Operations Classification
Cost of sales	$	13,863		19,244		40,999		41,990
Sales		7,125		(4,507)		7,541		(8,506)
Other		(1,505)		(377)		(2,236)		(322)
Net realized gains	$	19,483		14,360		46,304		33,162

In addition, (losses) gains of $(549) and $4,271 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine-month periods ended September 25, 2016, respectively. Net gains of $275 and $842 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine-month periods ended September 27, 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 fluctuations. Due to the nature of the derivative contracts involved, the Company does not use hedge accounting for these contracts.  At September 25, 2016, September 27, 2015 and December 27,2015 the total notional amounts of the Company's undesignated derivative instruments were $264,029, $263,247 and $341,389, respectively.

At September 25, 2016, September 27, 2015 and December 27,2015, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:

	September 25,		September 27,		December 27,
	2016		2015		2015
Prepaid expenses and other current assets
Unrealized gains	$	812		93		-
Unrealized losses		(79)		-		-
Net unrealized gain		733		93		-
Accrued liabilities
Unrealized gains		-		360		416
Unrealized losses		-		(493)		(1,460)
Net unrealized loss		-		(133)		(1,044)
Total unrealized gain (loss), net	$	733		(40)		(1,044)

The Company recorded net gains of $6,533 and $14,867 on these instruments to other (income) expense, net for the quarter and nine-month periods ended September 25, 2016, respectively, and $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, 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.