Derivative Financial Instruments

9 Months Ended

Oct. 01, 2017

Derivative Financial Instruments (Thousands of Dollars) [Abstract]

(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 2017 through 2022.

At October 1, 2017, September 25, 2016 and December 25, 2016, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:

	October 1, 2017				September 25, 2016				December 25, 2016
	Notional		Fair		Notional		Fair		Notional		Fair
Hedged transaction	Amount		Value		Amount		Value		Amount		Value
Inventory purchases	$	894,529		(16,597)		1,045,400		23,662		945,728		60,520
Sales		579,421		17,215		318,283		(559)		290,181		9,775
Royalties and Other		266,670		(12,567)		233,367		(4,111)		198,849		1,633
Total	$	1,740,620		(11,949)		1,597,050		18,992		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 sheets at October 1, 2017, September 25, 2016 and December 25, 2016 as follows:

	October 1,		September 25,		December 25,
	2017		2016		2016
Prepaid expenses and other current assets
Unrealized gains	$	10,207		34,179		34,265
Unrealized losses		(7,977)		(9,247)		(2,075)
Net unrealized gains	$	2,230		24,932		32,190

Other assets
Unrealized gains	$	11,631		20,974		51,839
Unrealized losses		(3,139)		(7,524)		(792)
Net unrealized gains	$	8,492		13,450		51,047

Accrued liabilities
Unrealized gains	$	5,354		4,352		8,481
Unrealized losses		(20,999)		(19,420)		(19,790)
Net unrealized losses	$	(15,645)		(15,068)		(11,309)

Other liabilities
Unrealized gains	$	8,325		992		-
Unrealized losses		(15,351)		(5,314)		-
Net unrealized losses	$	(7,026)		(4,322)		-

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 October 1, 2017 and September 25, 2016 as follows:

	Quarter Ended				Nine Months Ended
	October 1,		September 25,		October 1,		September 25,
	2017		2016		2017		2016
Statements of Operations Classification
Cost of sales	$	(5,971)		13,863		6,614		40,999
Net Revenues		2,316		7,125		3,332		7,541
Other		(2,311)		(1,505)		(2,716)		(2,236)
Net realized (losses) gains	$	(5,966)		19,483		7,230		46,304

In addition, losses of $9 and $6,495 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine-month periods ended October 1, 2017, respectively. Net (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.

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 October 1, 2017, September 25, 2016 and December 25, 2016 the total notional amounts of the Company's undesignated derivative instruments were $339,227, $264,029 and $268,308, respectively.

At October 1, 2017, September 25, 2016 and December 25, 2016, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:

	October 1,		September 25,		December 25,
	2017		2016		2016
Prepaid expenses and other current assets
Unrealized gains	$	2,606		812		5,854
Unrealized losses		(1,353)		(79)		(1,197)
Net unrealized gain	$	1,253		733		4,657

Total unrealized gain, net	$	1,253		733		4,657

The Company recorded net losses of $2,976 and $2,251 on these instruments to other income, net for the quarter and nine-month periods ended October 1, 2017, respectively, and net gains of $6,533 and $14,867 on these instruments to other income, net for the quarter and nine-month periods ended September 25, 2016, 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.