Derivative Financial Instruments

12 Months Ended

Dec. 27, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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, television and film production cost and production financing loans (see note 11) 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

Hasbro 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, certain production financing loans and other cross-border transactions in years 2021 through 2022.

At December 27, 2020 and December 29, 2019, the notional amounts and fair values of assets (liabilities) for the Company’s foreign currency forward contracts designated as cash flow hedging instruments were as follows:


	2020			2019
	Notional Amount		Fair Value	Notional Amount	Fair Value
Hedged transaction
Inventory purchases	$	316,772	(10,024)	398,800	8,727
Sales	111,630		1,353	124,920	4,037
Production financing and other	89,908		353	19,499	140
Total	$	518,310	(8,318)	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 sheet at December 27, 2020 and December 29, 2019 as follows:


	2020		2019
Prepaid expenses and other current assets
Unrealized gains	$	2,328	12,133
Unrealized losses	(1,628)		(3,955)
Net unrealized gain	$	700	8,178
Other assets
Unrealized gains	$	1,108	6,652
Unrealized losses	—		—
Net unrealized gain	$	1,108	6,652
Accrued liabilities
Unrealized gains	$	3,009	293
Unrealized losses	(12,951)		(2,219)
Net unrealized loss	$	(9,942)	(1,926)
Other liabilities
Unrealized gains	$	—	—
Unrealized losses	(184)		—
Net unrealized loss	$	(184)	—

Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings to net earnings for the years ended December 27, 2020, December 29, 2019 and December 30, 2018 as follows:


	2020		2019	2018
Consolidated Statements of Operations Classification
Cost of sales	$	21,189	16,689	3,909
Sales	2,947		5,644	3,479
Royalties and other	1,247		193	(527)
Net realized gains (losses)	$	25,383	22,526	6,861

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 December 27, 2020 and December 29, 2019, the total notional amounts of the Company’s undesignated derivative instruments were $590,620 and $307,351, respectively.

At December 27, 2020 and December 29, 2019, the fair value of the Company’s undesignated derivative financial instruments are recorded in the consolidated balance sheets as follows:


	2020		2019
Prepaid expenses and other current assets
Unrealized gains	$	3,507	—
Unrealized losses	(521)		—
Net unrealized gain	$	2,986	—
Accrued liabilities
Unrealized gains	$	3	13
Unrealized losses	(2,561)		(3,820)
Net unrealized loss	$	(2,558)	(3,807)
Total unrealized losses	$	428	(3,807)

The Company recorded net (losses) gains of $(27,657), $13,443 and $11,698 on these instruments to other (income) expense, net for 2020, 2019 and 2018, 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 instruments relate.

eOne Purchase Hedges

During the third quarter of 2019 the Company hedged a portion of its exposure to fluctuations in the British pound sterling and other transactions 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. The Company recorded realized gains of $79,990 on matured contracts to other (income) expense, net for the year ended December 29, 2019. These contracts matured on December 30, 2019 (the closing date of the transaction) and the related net gains or losses recognized in the Company's 2020 results were immaterial to the Company's consolidated financial statements.

For additional information related to the Company’s derivative financial instruments see notes 4 and 14.