Derivative Financial Instruments

6 Months Ended

Jul. 01, 2018

Derivative Financial Instruments (Thousands of Dollars) [Abstract]

(10) 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 July 1, 2018, July 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:

	July 1, 2018				July 2, 2017				December 31, 2017
	Notional		Fair		Notional		Fair		Notional		Fair
Hedged transaction	Amount		Value		Amount		Value		Amount		Value
Inventory purchases	$	647,255		10,248		942,896		259		756,673		(13,695)
Sales		342,123		11,291		618,755		15,229		423,315		16,144
Royalties and Other		151,689		(4,575)		308,407		(9,545)		196,889		(10,383)
Total	$	1,141,067		16,964		1,870,058		5,943		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 July 1, 2018, July 2, 2017 and December 31, 2017 as follows:

	July 1,		July 2,		December 31,
	2018		2017		2017
Prepaid expenses and other current assets
Unrealized gains	$	17,388		12,220		13,666
Unrealized losses		(5,307)		(4,059)		(10,319)
Net unrealized gains	$	12,081		8,161		3,347

Other assets
Unrealized gains	$	12,774		22,468		11,255
Unrealized losses		(2,700)		(5,257)		(2,376)
Net unrealized gains	$	10,074		17,211		8,879

Accrued liabilities
Unrealized gains	$	911		6,403		4,215
Unrealized losses		(3,118)		(23,421)		(15,484)
Net unrealized losses	$	(2,207)		(17,018)		(11,269)

Other liabilities
Unrealized gains	$	807		2,079		4,546
Unrealized losses		(3,791)		(4,490)		(13,437)
Net unrealized losses	$	(2,984)		(2,411)		(8,891)

Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net earnings for the quarter and six-month periods ended July 1, 2018 and July 2, 2017 as follows:

	Quarter Ended				Six Months Ended
	July 1,		July 2,		July 1,		July 2,
	2018		2017		2018		2017
Statements of Operations Classification
Cost of sales	$	(950)		2,711		(4,841)		12,585
Net revenues		430		475		762		1,016
Other		1,339		(436)		(84)		(405)
Net realized (losses) gains	$	819		2,750		(4,163)		13,196

In addition, losses of $2,118 and $2,836 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and six-month periods ended July 1, 2018, respectively. Net losses of $1,528 and $6,486 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and six-month periods ended July 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 July 1, 2018, July 2, 2017 and December 31, 2017 the total notional amounts of the Company's undesignated derivative instruments were $140,151, $163,969 and $418,471, respectively.

At July 1, 2018, July 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:

	July 1,		July 2,		December 31,
	2018		2017		2017
Prepaid expenses and other current assets
Unrealized gains	$	1,120		-		-
Unrealized losses		(724)		-		-
Net unrealized gains	$	396		-		-

Accrued liabilities
Unrealized gains	$	-		55		1,793
Unrealized losses		-		(2,870)		(4,684)
Net unrealized losses		-		(2,815)		(2,891)

Total unrealized gains (losses), net	$	396		(2,815)		(2,891)

The Company recorded net gains of $10,451 and $3,751 on these instruments to other (income) expense, net for the quarter and six-month periods ended July 1, 2018, respectively, and net (losses) gains of $(2,856) and $725 on these instruments to other (income) expense, net for the quarter and six-month periods ended July 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 6 and 8.