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HEDGING INSTRUMENTS | 9 Months Ended
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Sep. 30, 2025
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
HEDGING INSTRUMENTS | HEDGING INSTRUMENTS Disclosure within this note is presented to provide transparency about how and why we use derivative and non-derivative instruments (collectively “hedging instruments”), how the instruments and related hedged items are accounted for, and how the instruments and related hedged items affect our financial position, results of operations, and cash flows. We recognize all hedging instrument assets and liabilities at fair value at the balance sheet date. Instruments that do not qualify for hedge accounting treatment are recorded at fair value through earnings. To qualify for hedge accounting treatment, cash flow and net investment hedges must be highly effective in offsetting changes to expected future cash flows or fair value on hedged transactions. If the hedging instrument qualifies for hedge accounting, changes in the fair value of the hedging instrument from the effective portion of the hedge are deferred in AOCI, net of tax, and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. We immediately record in earnings the extent to which a hedging instrument is not effective in achieving offsetting changes in fair value. We de-designate hedging instruments from hedge accounting when the likelihood of the hedged transaction occurring becomes less than probable. For de-designated instruments, the gain or loss from the time of de-designation through maturity of the instrument is recognized in earnings. Any gain or loss in AOCI at the time of de-designation is reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Refer to “Note 14. Accumulated Other Comprehensive Income” for further information regarding the effect of hedging instruments on our unaudited condensed consolidated statements of income for the three and nine months ended September 30, 2025, and 2024. We enter into master netting arrangements with the counterparties to our derivative transactions, which permit certain outstanding receivables and payables to be offset in the event of default. Our derivative contracts do not require either party to post cash collateral. We elect to present our derivative assets and liabilities in the unaudited condensed consolidated balance sheets on a gross basis. All cash flows related to our foreign currency exchange contracts are classified as operating cash flows, which is consistent with the cash flow treatment of the underlying items being hedged. We are exposed to certain risks related to our ongoing business operations. We utilize hedging instruments to manage a portion of our foreign currency exchange risk and interest rate risk. The primary purpose of our foreign currency hedging activities is to protect against the volatility associated with foreign currency transactions, including transactions denominated in the euro, British pound, Japanese yen, Canadian dollar, and Australian dollar. We also utilize natural hedges to mitigate our transaction and commitment exposures. Our corporate policy prescribes the range of allowable hedging activity. We enter into foreign currency exchange contracts with large well-capitalized multinational financial institutions, and we do not hold or engage in transactions involving derivative instruments for purposes other than risk management. Our accounting policies for these contracts are based on our designation of such instruments as hedging transactions. Our subsidiaries enter into foreign currency exchange contracts to manage the exchange risk associated with their forecasted intercompany inventory purchases and sales for the next year. From time to time, we may also enter into other foreign currency exchange contracts, cross currency swaps, or foreign-denominated debt issuances to minimize the impact of foreign currency fluctuations associated with specific balance sheet exposures, including net investments in certain foreign subsidiaries. Cash Flow Hedges We have designated our foreign currency exchange contracts and our interest rate swap as cash flow hedges because these derivative instruments reduce our exposure to variability in the cash flows of forecasted transactions attributable to foreign currency exchange and to interest rates on variable interest obligations under the terms of the Credit Facility. Unless noted otherwise, we have also designated our derivative instruments as qualifying for hedge accounting treatment. We did not de-designate any instruments from hedge accounting treatment during the three and nine months ended September 30, 2025, or 2024. As of September 30, 2025, the estimated amount of losses, net of tax, from our foreign exchange contracts which are expected to be reclassified out of AOCI and into earnings within the next 12 months is $2.5 million if exchange rates do not fluctuate from the levels as of September 30, 2025. Upon the maturity of the term loan on October 20, 2025, the amount of gains, net of tax, from our interest rate swap contract, that will be reclassified out of AOCI and into earnings is less than $0.1 million. Interest Rate Swap: We entered into an interest rate swap contract to manage the effect of variable interest obligations on amounts borrowed under the terms of the Credit Facility. Beginning on March 31, 2023, the variable interest rate associated with $250.0 million of borrowings outstanding under the Credit Facility became effectively fixed at 3.9% plus the applicable credit spread, through October 20, 2025. Foreign Currency Exchange Contracts: We target to hedge approximately 75% to 85% of the estimated exposure from intercompany product purchases and sales denominated in the euro, British pound, Canadian dollar, Japanese yen, and Australian dollar. We have additional unhedged foreign currency exposures related to intercompany foreign transactions and emerging markets where it is not practical to hedge. We primarily utilize foreign currency exchange contracts with durations of less than 24 months. Quarterly, we enter into contracts to hedge incremental portions of anticipated foreign currency transactions for the current and following year. As a result, our risk with respect to foreign currency exchange rate fluctuations and the notional value of foreign currency exchange contracts may vary throughout the year. The U.S. dollar is the currency purchased or sold in all of our foreign currency exchange contracts. The notional amount of foreign currency exchange contracts to hedge forecasted intercompany inventory purchases and sales totaled $333.4 million and $325.7 million as of September 30, 2025, and December 31, 2024, respectively. The following table presents the effects of cash flow hedge accounting on our unaudited condensed consolidated statements of income and comprehensive income, and provides information regarding the location and amounts of pretax gains or losses of derivatives:
(in thousands) |  | Financial statement line items in which effects of cash flow hedges are recorded |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  |  | 2025 |  | 2024 |  | 2025 |  | 2024
Foreign currency exchange contracts |  | Cost of revenue |  | $ | 421,885 |  |  | $ | 379,505 |  |  | $ | 1,211,658 |  |  | $ | 1,134,949 |
Amount of gain (loss) reclassified from accumulated other comprehensive income into net income |  |  |  | $ | (1,965) |  |  | $ | 512 |  |  | $ | 600 |  |  | $ | 3,043 |
Interest rate swap contract |  | Interest expense |  | $ | (10,655) |  |  | $ | (7,697) |  |  | $ | (29,642) |  |  | $ | (23,707) |
Amount of gain reclassified from accumulated other comprehensive income into net income |  |  |  | $ | 278 |  |  | $ | 860 |  |  | $ | 939 |  |  | $ | 2,796 |
Net Investment Hedges, Euro-Denominated Notes In June 2015, we issued and sold through a private placement an aggregate principal amount of €88.9 million in euro-denominated 1.785% Series C Senior Notes that were due June 18, 2025. We designated these euro-denominated notes as a hedge of our euro net investment in certain foreign subsidiaries to reduce the volatility caused by changes in foreign currency exchange rates in the euro relative to the U.S. dollar. As a result of this designation, gains and losses from the change in the translated U.S. dollar value of these euro-denominated notes are recorded in AOCI rather than earnings. We recorded losses of $9.0 million, net of tax, within AOCI as a result of this net investment hedge for the nine months ended September 30, 2025, and losses of $3.1 million and $0.7 million for the three and nine months ended September 30, 2024, respectively. No gains or losses were recorded in the current period, as the euro-denominated notes matured in the second quarter of 2025. At the maturity of the 1.785% Series C Senior Notes on June 18, 2025, we paid the notional amount of €88.9 million, equivalent to $103.4 million at the date of payment. The related cumulative unrealized loss of $2.5 million, net of tax, will be reclassified to earnings when the foreign subsidiaries are sold or substantially liquidated. Refer to “Note 13. Debt” to the consolidated financial statements included in our 2024 Annual Report for further information regarding the issuance of these euro-denominated notes. Net Investment Hedges, Cross Currency Swaps We have entered into cross currency swap contracts as a hedge of our net investment in certain foreign subsidiaries to reduce the volatility caused by changes in foreign currency exchange rates relative to the U.S. dollar. The cross currency swaps outstanding as of September 30, 2025, have maturity dates beginning on March 31, 2028, through September 11, 2032. The following table presents the outstanding cross currency swaps notional amounts that will be delivered to and received from the counterparties at maturity:
(in thousands)
Maturity Date |  | Notional Amount to be Delivered at Maturity |  | Notional Amount to be Received at Maturity
3/31/2028 |  | € | 35,000 |  |  | $ | 37,755 |
6/30/2028 |  | € | 90,000 |  |  | $ | 98,217 |
6/29/2029 |  | € | 20,000 |  |  | $ | 21,268 |
7/17/2028 |  | € | 76,000 |  |  | $ | 88,113 |
7/31/2028 |  | € | 39,000 |  |  | $ | 45,735 |
9/11/2032 |  | ¥ | 3,683,750 |  |  | $ | 25,000 |
On June 18, 2025, we settled two cross currency swaps at maturity for a total notional amount of €15 million. As a result of this settlement, we received a net amount of $0.1 million. The changes in fair value of the cross currency swap contracts are recorded in AOCI and will be reclassified to earnings when the foreign subsidiaries are sold or substantially liquidate d or all or a portion of the hedge no longer qualifies for hedge accounting treatment. During the three and nine months ended September 30, 2025, we recorded gains of $1.1 million and losses of $13.0 million, respectively, net of tax, within AOCI as a result of these net investment hedges, and losses of $3.8 million and $0.4 million during the three and nine months ended September 30, 2024, respectively. We receive quarterly interest payments from the counterparties based on a fixed interest rate until maturity of the cross currency swaps. This interest rate component is excluded from the assessment of hedge effectiveness and is recognized as a reduction to interest expense over the life of the hedge instrument. We recognized ap proximately $0.8 million and $1.6 million r elated to the excluded component as a reduction of interest expense for the three and nine months ended September 30, 2025, respectively, and $0.4 million and $1.1 million for the three and nine months ended September 30, 2024, respectively. Fair Values of Derivative and Non-Derivative Instruments Designated as Hedges in Consolidated Balance Sheets The fair values of hedging instruments and their respective classification on our unaudited condensed consolidated balance sheets and amounts subject to offset under master netting arrangements consisted of the following:
(in thousands) |  |  |  | Hedging Assets
|  |  |  | September 30, 2025 |  | December 31, 2024
Derivatives and non-derivatives designated as hedging instruments |  | Balance Sheet Classification |  |  |  |
Foreign currency exchange contracts |  | Other current assets |  | $ | 1,988 |  |  | $ | 16,921 |
Cross currency swaps |  | Other current assets |  | — |  |  | 1,839 |
Interest rate swap contract |  | Other current assets |  | 51 |  |  | 710 |
Foreign currency exchange contracts |  | Other long-term assets |  | 324 |  |  | — |
Cross currency swaps |  | Other long-term assets |  | 480 |  |  | 1,662 |
Total derivative instruments presented as hedging instruments on the balance sheet |  |  |  | 2,843 |  |  | 21,132 |
Gross amounts subject to master netting arrangements not offset on the balance sheet |  |  |  | (1,641) |  |  | — |
Net amount |  |  |  | $ | 1,202 |  |  | $ | 21,132 |
(in thousands) |  |  |  | Hedging Liabilities
|  |  |  | September 30, 2025 |  | December 31, 2024
Derivatives and non-derivatives designated as hedging instruments |  | Balance Sheet Classification |  |  |  |
Foreign currency exchange contracts |  | Accrued liabilities |  | $ | 5,583 |  |  | $ | — |
Cross currency swaps |  | Other long-term liabilities |  | 14,062 |  |  | 33 |
Foreign currency exchange contracts |  | Other long-term liabilities |  | 946 |  |  | — |
Total derivative instruments presented as hedging instruments on the balance sheet |  |  |  | 20,591 |  |  | 33 |
Non-derivative foreign currency denominated debt designated as net investment hedge on the balance sheet (1) |  | Short-term debt |  | — |  |  | 92,803 |
Total hedging instruments presented on the balance sheet |  |  |  | 20,591 |  |  | 92,836 |
Gross amounts subject to master netting arrangements not offset on the balance sheet |  |  |  | (1,641) |  |  | — |
Net amount |  |  |  | $ | 18,950 |  |  | $ | 92,836 |
(1) Amounts represent reported carrying amounts of our foreign currency-denominated debt. Refer to “Note 18. Fair Value Measurements” for information regarding the fair value of our long-term debt.

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