Derivative Financial Instruments

3 Months Ended

Apr. 01, 2018

Derivative Financial Instruments (Thousands of Dollars) [Abstract]

(9) 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 2018 through 2022.

At April 1, 2018, April 2, 2017 and December 31, 2017, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:

	April 1, 2018				April 2, 2017				December 31, 2017
	Notional		Fair		Notional		Fair		Notional		Fair
Hedged transaction	Amount		Value		Amount		Value		Amount		Value
Inventory purchases	$	718,925		(31,453)		974,235		35,711		756,673		(13,695)
Sales		375,441		7,323		423,828		1,083		423,315		16,144
Royalties and Other		178,896		(11,602)		324,008		(1,345)		196,889		(10,383)
Total	$	1,273,262		(35,732)		1,722,071		35,449		1,376,877		(7,934)

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 April 1, 2018, April 2, 2017 and December 31, 2017 as follows:

	April 1,		April 2,		December 31,
	2018		2017		2017
Prepaid expenses and other current assets
Unrealized gains	$	458		23,241		13,666
Unrealized losses		(405)		(3,204)		(10,319)
Net unrealized gains	$	53		20,037		3,347

Other assets
Unrealized gains	$	5,996		39,032		11,255
Unrealized losses		(3,089)		(3,052)		(2,376)
Net unrealized gains	$	2,907		35,980		8,879

Accrued liabilities
Unrealized gains	$	8,218		9,041		4,215
Unrealized losses		(30,826)		(28,591)		(15,484)
Net unrealized losses	$	(22,608)		(19,550)		(11,269)

Other liabilities
Unrealized gains	$	2,846		149		4,546
Unrealized losses		(18,930)		(1,167)		(13,437)
Net unrealized losses	$	(16,084)		(1,018)		(8,891)

Net gains on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net earnings for the quarters ended April 1, 2018 and April 2, 2017 as follows:

	Quarter Ended
	April 1,		April 2,
	2018		2017
Statements of Operations Classification
Cost of sales	$	(3,891)		9,874
Sales		332		541
Other		(1,423)		31
Net realized gains	$	(4,982)		10,446

In addition, losses of $718 and $4,958 were reclassified to earnings as a result of hedge ineffectiveness for the quarters ended April 1, 2018 and April 2, 2017, 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 April 1, 2018, April 2, 2017 and December 31, 2017 the total notional amounts of the Company's undesignated derivative instruments were $132,945, $62,806 and $418,471, respectively.

At April 1, 2018, April 2, 2017 and December 31, 2017, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:

	April 1,		April 2,		December 31,
	2018		2017		2017
Accrued liabilities
Unrealized gains	$	383		289		1,793
Unrealized losses		(1,119)		(316)		(4,684)
Net unrealized loss		(736)		(27)		(2,891)

Total unrealized gain, net	$	(736)		(27)		(2,891)

The Company recorded net (losses) gains of $(6,700) and $3,581 on these instruments to other income, net for the quarters ended April 1, 2018 and April 2, 2017, 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 5 and 7.