Derivative Financial Instruments

12 Months Ended

Dec. 31, 2017

Derivative Financial Instruments [Abstract]

(16) 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

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 and other cross-border transactions in years 2018 through 2022.

At December 31, 2017 and December 25, 2016, 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:

	2017				2016

Hedged transaction	Notional		Fair		Notional		Fair
	Amount		Value		Amount		Value
Inventory purchases	$	756,673		(13,695)		945,728		60,520

Sales		423,315		16,144		290,181		9,775
Royalties and Other		196,889		(10,383)		198,849		1,633
Total	$	1,376,877		(7,934)		1,434,758		71,928

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 31, 2017 and December 25, 2016 as follows:

	2017		2016
Prepaid expenses and other current assets
Unrealized gains	$	13,666		34,265
Unrealized losses		(10,319)		(2,075)
Net unrealized gain	$	3,347		32,190

Other assets
Unrealized gains	$	11,255		51,839
Unrealized losses		(2,376)		(792)
Net unrealized gain	$	8,879		51,047

Accrued liabilities
Unrealized gains	$	4,215		8,481
Unrealized losses		(15,484)		(19,790)
Net unrealized loss	$	(11,269)		(11,309)

Other liabilities
Unrealized gains	$	4,546		—
Unrealized losses		(13,437)		—
Net unrealized loss	$	(8,891)		—

Net gains (losses) on cash flow hedging activities have been reclassified from other comprehensive earnings to net earnings for the years ended December 31, 2017, December 25, 2016 and December 27, 2015 as follows:

	2017		2016		2015
Consolidated Statements of Operations Classification
Cost of sales	$	(1,905)		57,786		66,378
Sales		5,315		7,467		(9,219)
Royalties and other		(6,000)		(5,776)		(566)
Net realized (losses) gains	$	(2,590)		59,477		56,593

In addition, net (losses) gains of $(6,847), $400 and $1,169 were reclassified to earnings as a result of hedge ineffectiveness in 2017, 2016 and 2015, 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 December 31, 2017 and December 25, 2016, the total notional amount of the Company’s undesignated derivative instruments was $418,471 and $268,308, respectively.

At December 31, 2017 and December 25, 2016, the fair value of the Company’s undesignated derivative financial instruments are recorded in the consolidated balance sheets as follows:

	2017		2016
Prepaid expenses and other assets
Unrealized gains	$	-		5,854
Unrealized losses		-		(1,197)
Net unrealized gain	$	-		4,657

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

Total unrealized gain (losses)	$	(2,891)		4,657

The Company recorded net (losses) gains of $(4,267), $32,524 and $48,489 on these instruments to other (income) expense, net for 2017, 2016 and 2015, 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.

For additional information related to the Company’s derivative financial instruments see notes 2 and 12.