Derivative Financial Instruments

9 Months Ended

Sep. 27, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Hasbro uses foreign currency forward contracts and zero-cost collar options 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, television and film production cost and production financing loans (see Note 7) as well as 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 and zero-cost collar options 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 and zero-cost collar options 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, certain production financing loans and other cross-border transactions in 2020 through 2022.

At September 27, 2020, September 29, 2019 and December 29, 2019, the notional amounts and fair values of the Company's foreign currency forward contracts designated as cash flow hedging instruments were as follows:


	September 27, 2020			September 29, 2019			December 29, 2019
Hedged transaction	Notional Amount		Fair Value	Notional Amount		Fair Value	Notional Amount		Fair Value
Inventory purchases	$	315,924	9,148	$	420,839	24,462	$	398,800	8,727
Sales	111,760		3,940	212,062		7,231	124,920		4,037
Production financing and other	115,228		2,199	16,935		(137)	19,499		140
Total	$	542,912	15,287	$	649,836	31,556	$	543,219	12,904

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 27, 2020, September 29, 2019 and December 29, 2019 as follows:


	September 27, 2020		September 29, 2019	December 29, 2019
Prepaid expenses and other current assets
Unrealized gains	$	13,357	22,529	12,133
Unrealized losses	(1,737)		(1,333)	(3,955)
Net unrealized gains	$	11,620	21,196	8,178

Other assets
Unrealized gains	$	4,218	10,609	6,652
Unrealized losses	(179)		(249)	—
Net unrealized gains	$	4,039	10,360	6,652

Accrued liabilities
Unrealized gains	$	680	—	293
Unrealized losses	(992)		—	(2,219)
Net unrealized losses	$	(312)	—	(1,926)

Other liabilities
Unrealized gains	$	13	—	—
Unrealized losses	(73)		—	—
Net unrealized losses	$	(60)	—	—

Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings (loss) to net earnings for the quarters and nine months ended September 27, 2020 and September 29, 2019 as follows:


	Quarter Ended			Nine Months Ended
	September 27, 2020		September 29, 2019	September 27, 2020		September 29, 2019
Statements of Operations Classification
Cost of sales	$	7,116	4,678	$	16,680	9,278
Net revenues	1,237		1,889	2,413		3,366
Other	859		(23)	1,410		129
Net realized gains	$	9,212	6,544	$	20,503	12,773

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. Additionally, with the acquisition of eOne during the first quarter of 2020, the Company continued eOne's balance sheet hedging program designed to manage transactional exposure to fair value movements on certain of eOne's foreign currency denominated monetary assets and liabilities. The Company does not use hedge accounting for these contracts as changes in the fair values of these contracts are offset by changes in the fair value of the balance sheet item. As of September 27, 2020, September 29, 2019 and December 29, 2019 the total notional amounts of the Company's undesignated derivative instruments were $538,892, $308,867 and $307,351, respectively.

At September 27, 2020, September 29, 2019 and December 29, 2019, the fair values of the Company's undesignated derivative financial instruments were recorded in the consolidated balance sheets as follows:


	September 27, 2020		September 29, 2019	December 29, 2019
Prepaid expenses and other current assets
Unrealized gains	$	3,294	2,630	—
Unrealized losses	(3,217)		(301)	—
Net unrealized gains	$	77	2,329	—

Accrued liabilities
Unrealized gains	$	—	164	13
Unrealized losses	—		(203)	(3,820)
Net unrealized losses	$	—	(39)	(3,807)






Total unrealized gains (losses), net	$	77	2,290	(3,807)

The Company recorded net losses of $(6,914) and $(20,142) on these instruments to other (income) expense, net for the quarter and nine months ended September 27, 2020, respectively, and net gains of $10,121 and $16,705 on these instruments to other (income) expense, net for the quarter and nine months ended September 29, 2019, 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.

eOne Purchase Price Hedge

During the third quarter of 2019 the Company hedged a portion of its exposure to fluctuations in the British pound sterling in relation to the eOne Acquisition using a series of both foreign exchange forward and option contracts. These contracts did not qualify for hedge accounting and, as such, were marked to market through the Company's Consolidated Statement of Operations. For tax purposes these contracts qualified as nontaxable integrated tax hedges. These contracts matured on December 30, 2019 (the closing date of the transaction) and net gains or losses recognized on these contracts in the Company's 2020 results were immaterial.

For additional information related to the Company's derivative financial instruments see Notes 5 and 10.