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Derivative Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | Derivative Instruments and Hedging Activities The Company is exposed to certain risks such as foreign currency exchange rate risk, interest rate risk, and commodity price risk. To reduce its exposure to such risks, the Company selectively uses derivative financial instruments. All derivative transactions are authorized and executed pursuant to regularly reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes. All derivative instruments are recognized on the balance sheet at fair value. In accordance with ASC Topic 815, “Derivatives and Hedging,” the accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship. Changes in the fair value of derivatives that are designated as fair value hedges, along with the gain or loss on the hedged item, are recorded in current period earnings. For derivative instruments that are designated as cash flow hedges, the effective portion of gains and losses that result from changes in the fair value of derivative instruments is initially recorded in other comprehensive income (OCI) and subsequently reclassified into earnings when the hedged item affects income. The Company assesses, both at the inception of each hedge and on an on-going basis, whether the derivatives that are used in its hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any ineffective portion is immediately recognized in earnings. No component of a hedging derivative instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative instruments that do not qualify for hedge accounting are recorded at fair value, and any changes in fair value are recorded in current period earnings. The Company sells its products internationally, and in most markets those sales are made in the foreign country’s local currency. As a result, the Company’s earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign currency. The Company utilizes foreign currency exchange contracts to mitigate the effects of the Euro, the Australian dollar, the Japanese yen, the Brazilian real, the Canadian dollar and the Mexican peso. The foreign currency exchange contracts are entered into with banks and allow the Company to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate. The Company utilizes commodity contracts to hedge portions of the cost of certain commodities consumed in the Company’s motorcycle production and distribution operations. The Company’s foreign currency exchange contracts and commodity contracts generally have maturities of less than one year. The Company periodically utilizes treasury rate lock contracts to fix the interest rate on a portion of the principal related to the anticipated issuance of long-term debt. To the extent effective, the gains and losses on the fair value of the treasury rate lock are recorded in accumulated other comprehensive loss until the forecasted debt is issued. Gains and losses are subsequently reclassified into earnings over the life of the debt. The Company periodically utilizes interest rate swaps to reduce the impact of fluctuations in interest rates on its long-term debt. The following tables summarize the fair value of the Company’s derivative financial instruments (in thousands):
|  | September 30, 2018 |  | December 31, 2017 |  | September 24, 2017
Derivatives Designated As Hedging Instruments Under ASC Topic 815 |  | Notional Value |  | Asset Fair Value(a) |  | Liability Fair Value(b) |  | Notional Value |  | Asset Fair Value(a) |  | Liability Fair Value(b) |  | Notional Value |  | Asset Fair Value(a) |  | Liability Fair Value(b)
Foreign currency contracts(c) |  | $ | 512,071 |  |  | $ | 11,687 |  |  | $ | 718 |  |  | $ | 675,724 |  |  | $ | 1,388 |  |  | $ | 21,239 |  |  | $ | 746,378 |  |  | $ | 439 |  |  | $ | 32,352 |
Commodity contracts(c) |  | 925 |  |  | 9 |  |  | — |  |  | 915 |  |  | — |  |  | 69 |  |  | 1,273 |  |  | — |  |  | 62 |
Treasury rate locks(c) |  | 50,000 |  |  | 52 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Interest rate swap - medium-term notes(c) |  | 450,000 |  |  | 550 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total |  | $ | 1,012,996 |  |  | $ | 12,298 |  |  | $ | 718 |  |  | $ | 676,639 |  |  | $ | 1,388 |  |  | $ | 21,308 |  |  | $ | 747,651 |  |  | $ | 439 |  |  | $ | 32,414 |
|  | September 30, 2018 |  | December 31, 2017 |  | September 24, 2017
Derivatives Not Designated As Hedging Instruments Under ASC Topic 815 |  | Notional Value |  | Asset Fair Value(a) |  | Liability Fair Value(b) |  | Notional Value |  | Asset Fair Value(a) |  | Liability Fair Value(b) |  | Notional Value |  | Asset Fair Value(a) |  | Liability Fair Value(b)
Commodity contracts |  | $ | 5,207 |  |  | $ | 233 |  |  | $ | 213 |  |  | $ | 4,532 |  |  | $ | 381 |  |  | $ | — |  |  | $ | 4,234 |  |  | $ | 285 |  |  | $ | — |
Total |  | $ | 5,207 |  |  | $ | 233 |  |  | $ | 213 |  |  | $ | 4,532 |  |  | $ | 381 |  |  | $ | — |  |  | $ | 4,234 |  |  | $ | 285 |  |  | $ | — |
(a) | Included in other current assets
(b) | Included in accrued liabilities
(c) | Derivative designated as a cash flow hedge
The following tables summarize the amount of gains and losses related to derivative financial instruments designated as cash flow hedges (in thousands):
|  | Amount of Gain/(Loss) Recognized in OCI, before tax
|  | Three months ended |  | Nine months ended
Cash Flow Hedges |  | September 30, 2018 |  | September 24, 2017 |  | September 30, 2018 |  | September 24, 2017
Foreign currency contracts |  | $ | 4,508 |  |  | $ | (35,687 | ) |  | $ | 31,253 |  |  | $ | (59,335 | )
Commodity contracts |  | 5 |  |  | (5 | ) |  | (7 | ) |  | (191 | )
Treasury rate locks |  | 52 |  |  | — |  |  | 93 |  |  | (719 | )
Interest rate swap - medium-term notes |  | 486 |  |  | — |  |  | (400 | ) |  | — |
Total |  | $ | 5,051 |  |  | $ | (35,692 | ) |  | $ | 30,939 |  |  | $ | (60,245 | )
|  | Amount of Gain/(Loss) Reclassified from AOCL into Income |  |
|  | Three months ended |  | Nine months ended |  | Expected to be Reclassified
Cash Flow Hedges |  | September 30, 2018 |  | September 24, 2017 |  | September 30, 2018 |  | September 24, 2017 |  | Over the Next Twelve Months
Foreign currency contracts(a) |  | $ | 5,695 |  |  | $ | (7,901 | ) |  | $ | (58 | ) |  | $ | (1,428 | ) |  | $ | 14,709 |
Commodity contracts(a) |  | — |  |  | (16 | ) |  | (85 | ) |  | 49 |  |  | 21 |
Treasury rate locks(b) |  | (123 | ) |  | (126 | ) |  | (374 | ) |  | (315 | ) |  | (475 | )
Interest rate swap - medium-term notes(b) |  | (661 | ) |  | — |  |  | (950 | ) |  | — |  |  | (178 | )
Total |  | $ | 4,911 |  |  | $ | (8,043 | ) |  | $ | (1,467 | ) |  | $ | (1,694 | ) |  | $ | 14,077 |
(a) | Gain/(loss) reclassified from accumulated other comprehensive loss (AOCL) into income is included in cost of goods sold
(b) | Gain/(loss) reclassified from AOCL into income is included in interest expense
For the three and nine months ended September 30, 2018 and September 24, 2017, the cash flow hedges were highly effective and, as a result, the amount of hedge ineffectiveness was not material. No amounts were excluded from effectiveness testing. The following table summarizes the amount of gains and losses related to derivative financial instruments not designated as hedging instruments (in thousands):
|  | Amount of Gain/(Loss) Recognized in Income on Derivative
|  | Three months ended |  | Nine months ended
Derivatives Not Designated As Hedges |  | September 30, 2018 |  | September 24, 2017 |  | September 30, 2018 |  | September 24, 2017
Commodity contracts(a) |  | $ | (85 | ) |  | $ | 433 |  |  | $ | 59 |  |  | $ | 259 |
Total |  | $ | (85 | ) |  | $ | 433 |  |  | $ | 59 |  |  | $ | 259 |
(a) | Gain/(loss) recognized in income is included in cost of goods sold
The Company is exposed to credit loss risk in the event of non-performance by counterparties to these derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to these derivative financial instruments to fail to meet its obligations. To manage credit loss risk, the Company evaluates counterparties based on credit ratings and, on a quarterly basis, evaluates each hedge’s net position relative to the counterparty’s ability to cover its position.

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- References No definition available. + Details
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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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