Derivative Financial Instruments

9 Months Ended

Sep. 30, 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 September 30, 2018, October 1, 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:

	September 30, 2018				October 1, 2017				December 31, 2017
	Notional		Fair		Notional		Fair		Notional		Fair
Hedged transaction	Amount		Value		Amount		Value		Amount		Value
Inventory purchases	$	555,661		6,827		894,529		(16,597)		756,673		(13,695)
Sales		319,421		13,027		579,421		17,215		423,315		16,144
Royalties and Other		117,534		(2,420)		266,670		(12,567)		196,889		(10,383)
Total	$	992,616		17,434		1,740,620		(11,949)		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 September 30, 2018, October 1, 2017 and December 31, 2017 as follows:

	September 30,		October 1,		December 31,
	2018		2017		2017
Prepaid expenses and other current assets
Unrealized gains	$	15,414		10,207		13,666
Unrealized losses		(4,079)		(7,977)		(10,319)
Net unrealized gains	$	11,335		2,230		3,347

Other assets
Unrealized gains	$	9,591		11,631		11,255
Unrealized losses		(1,455)		(3,139)		(2,376)
Net unrealized gains	$	8,136		8,492		8,879

Accrued liabilities
Unrealized gains	$	596		5,354		4,215
Unrealized losses		(1,182)		(20,999)		(15,484)
Net unrealized losses	$	(586)		(15,645)		(11,269)

Other liabilities
Unrealized gains	$	1,035		8,325		4,546
Unrealized losses		(2,486)		(15,351)		(13,437)
Net unrealized losses	$	(1,451)		(7,026)		(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 nine-month periods ended September 30, 2018 and October 1, 2017 as follows:

	Quarter Ended				Nine Months Ended
	September 30,		October 1,		September 30,		October 1,
	2018		2017		2018		2017
Statements of Operations Classification
Cost of sales	$	3,358		(5,971)		(1,483)		6,614
Net revenues		1,328		2,316		2,090		3,332
Other		(17)		(2,311)		(101)		(2,716)
Net realized (losses) gains	$	4,669		(5,966)		506		7,230

In addition, losses of $1,532 and $4,368 were reclassified to earnings as a result of hedge ineffectiveness for the quarter and nine-month periods ended September 30, 2018, respectively. Net 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.

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 September 30, 2018, October 1, 2017 and December 31, 2017 the total notional amounts of the Company's undesignated derivative instruments were $311,331, $339,227 and $418,471, respectively.

At September 30, 2018, October 1, 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:

	September 30,		October 1,		December 31,
	2018		2017		2017
Prepaid expenses and other current assets
Unrealized gains	$	2,060		2,606		-
Unrealized losses		(1,452)		(1,353)		-
Net unrealized gains	$	608		1,253		-

Accrued liabilities
Unrealized gains	$	12		-		1,793
Unrealized losses		(33)		-		(4,684)
Net unrealized losses		(21)		-		(2,891)

Other Liabilities
Unrealized gains	$	30		-		-
Unrealized losses		(85)		-		-
Net unrealized losses		(55)		-		-


Total unrealized gains (losses), net	$	532		1,253		(2,891)

The Company recorded net gains of $5,030 and $8,781 on these instruments to other (income) expense, net for the quarter and nine-month periods ended September 30, 2018, respectively, and net losses of $2,976 and $2,251 on these instruments to other (income) expense, net for the quarter and nine-month periods ended October 1, 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.