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Derivative Instruments and Hedging Activities | 6 Months Ended
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Jun. 28, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | Derivative Financial Instruments and Hedging Activities The Company is exposed to risks from fluctuations in foreign currency exchange rates, interest rates and commodity prices. 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. The Company sells products in foreign currencies and utilizes foreign currency exchange contracts to mitigate the effects of foreign currency exchange rate fluctuations related to the Euro, Australian dollar, Japanese yen, Brazilian real, Canadian dollar, Mexican peso, Chinese yuan, Thai baht, Indian rupee, and Pound sterling. The Company's foreign currency exchange contracts generally have maturities of less than one year. The Company utilizes commodity contracts to mitigate the effects of commodity price fluctuations related to metals and fuel consumed in the Company’s motorcycle operations. The Company's 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 an anticipated issuance of long-term debt, interest rate swaps to reduce the impact of fluctuations in interest rates on medium-term notes with floating interest rates, and cross-currency swaps to mitigate the effect of foreign currency exchange rate fluctuations on foreign currency-denominated debt. The Company also utilizes interest rate caps to facilitate certain asset-backed securitization transactions. All derivative financial instruments are recognized on the Consolidated balance sheets at fair value. In accordance with ASC Topic 815, Derivatives and Hedging (ASC Topic 815), the accounting for changes in the fair value of a derivative financial 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 derivative financial instruments that are designated as cash flow hedges are initially recorded in other comprehensive income (loss) (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 ongoing basis, whether the derivative financial instruments that are designated as cash flow hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. No component of a designated hedging derivative financial instrument’s gain or loss is excluded from the assessment of hedge effectiveness. Derivative financial instruments not designated as hedges are not speculative and are used to manage the Company’s exposure to foreign currency, commodity risks, and interest rate risks. Changes in the fair value of derivative financial instruments not designated as hedging instruments are recorded directly in income. The notional and fair values of the Company's derivative financial instruments under ASC Topic 815 were as follows (in thousands):
| Derivative Financial Instruments Designated as Cash Flow Hedging Instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| June 28, 2020 |  |  |  |  |  | December 31, 2019 |  |  |  |  |  | June 30, 2019 |  |  |  |
| Notional Value |  | Other Current Assets |  | Accrued Liabilities |  | Notional Value |  | Other Current Assets |  | Accrued Liabilities |  | Notional Value |  | Other Current Assets |  | Accrued Liabilities
Foreign currency contracts | $ | 359,754 |  |  | $ | 3,108 |  |  | $ | 1,537 |  |  | $ | 434,321 |  |  | $ | 3,505 |  |  | $ | 3,661 |  |  | $ | 495,736 |  |  | $ | 6,638 |  |  | $ | 3,490 |
Commodity contracts | 581 |  |  | — |  |  | 49 |  |  | 616 |  |  | — |  |  | 80 |  |  | 627 |  |  | — |  |  | 69 |
Cross-currency swap | 1,367,460 |  |  | 24,288 |  |  | 29,975 |  |  | 660,780 |  |  | 8,326 |  |  | — |  |  | — |  |  | — |  |  | — |
Interest rate swaps | 450,000 |  |  | — |  |  | 9,120 |  |  | 900,000 |  |  | — |  |  | 9,181 |  |  | 900,000 |  |  | — |  |  | 11,920 |
| $ | 2,177,795 |  |  | $ | 27,396 |  |  | $ | 40,681 |  |  | $ | 1,995,717 |  |  | $ | 11,831 |  |  | $ | 12,922 |  |  | $ | 1,396,363 |  |  | $ | 6,638 |  |  | $ | 15,479 |
| Derivative Financial Instruments Not Designated as Hedging Instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| June 28, 2020 |  |  |  |  |  | December 31, 2019 |  |  |  |  |  | June 30, 2019 |  |  |  |
| Notional Value |  | Other Current Assets |  | Accrued Liabilities |  | Notional Value |  | Other Current Assets |  | Accrued Liabilities |  | Notional Value |  | Other Current Assets |  | Accrued Liabilities
Foreign currency contracts | $ | 173,805 |  |  | $ | 1,295 |  |  | $ | 247 |  |  | $ | 220,139 |  |  | $ | 721 |  |  | $ | 865 |  |  | $ | 317,344 |  |  | $ | 273 |  |  | $ | 1,816 |
Commodity contracts | 7,401 |  |  | 214 |  |  | 491 |  |  | 8,270 |  |  | 95 |  |  | 147 |  |  | 7,710 |  |  | 5 |  |  | 260 |
Interest rate cap | 1,277,389 |  |  | 152 |  |  | — |  |  | 375,980 |  |  | 2 |  |  | — |  |  | 481,509 |  |  | 4 |  |  | — |
| $ | 1,458,595 |  |  | $ | 1,661 |  |  | $ | 738 |  |  | $ | 604,389 |  |  | $ | 818 |  |  | $ | 1,012 |  |  | $ | 806,563 |  |  | $ | 282 |  |  | $ | 2,076 |
The amounts of gains and losses related to derivative financial instruments designated as cash flow hedges were as follows (in thousands):
| Gain/(Loss) Recognized in OCI |  |  |  |  |  |  |  | Gain/(Loss) Reclassified from AOCL into Income |  |  |  |  |  |
| Three months ended |  |  |  | Six months ended |  |  |  | Three months ended |  |  |  | Six months ended |  |
| June 28, 2020 |  | June 30, 2019 |  | June 28, 2020 |  | June 30, 2019 |  | June 28, 2020 |  | June 30, 2019 |  | June 28, 2020 |  | June 30, 2019
Foreign currency contracts | $ | (4,062) |  |  | $ | (2,865) |  |  | $ | 12,837 |  |  | $ | 1,287 |  |  | $ | 5,305 |  |  | $ | 7,668 |  |  | $ | 8,705 |  |  | $ | 10,121 |
Commodity contracts | (28) |  |  | (70) |  |  | (157) |  |  | (40) |  |  | (53) |  |  | (7) |  |  | (188) |  |  | (17) |
Cross-currency swap | 35,595 |  |  | — |  |  | (14,014) |  |  | — |  |  | 36,915 |  |  | — |  |  | 24,009 |  |  | — |
Treasury rate locks | — |  |  | — |  |  | — |  |  | — |  |  | (122) |  |  | (123) |  |  | (246) |  |  | (245) |
Interest rate swaps | (1,176) |  |  | (5,856) |  |  | (6,509) |  |  | (8,861) |  |  | (3,453) |  |  | (830) |  |  | (6,569) |  |  | (1,436) |
| $ | 30,329 |  |  | $ | (8,791) |  |  | $ | (7,843) |  |  | $ | (7,614) |  |  | $ | 38,592 |  |  | $ | 6,708 |  |  | $ | 25,711 |  |  | $ | 8,423 |
The location and amount of gains and losses recognized in income related to derivative financial instruments designated as cash flow hedges were as follows (in thousands):
| Motorcycles cost of goods sold |  | Selling, administrative & engineering expense |  | Interest expense |  | Financial Services interest expense
| Three months ended June 28, 2020 |  |  |  |  |  |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 561,646 |  |  | $ | 224,365 |  |  | $ | 7,769 |  |  | $ | 62,187 |
Gain/(loss) reclassified from AOCL into income: |  |  |  |  |  |  |
Foreign currency contracts | $ | 5,305 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commodity contracts | $ | (53) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Cross-currency swap | $ | — |  |  | $ | 36,915 |  |  | $ | — |  |  | $ | — |
Treasury rate locks | $ | — |  |  | $ | — |  |  | $ | (90) |  |  | $ | (32) |
Interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (3,453) |
| Three months ended June 30, 2019 |  |  |  |  |  |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 979,266 |  |  | $ | 307,617 |  |  | $ | 7,784 |  |  | $ | 52,673 |
Gain/(loss) reclassified from AOCL into income: |  |  |  |  |  |  |
Foreign currency contracts | $ | 7,668 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commodity contracts | $ | (7) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Treasury rate locks | $ | — |  |  | $ | — |  |  | $ | (91) |  |  | $ | (32) |
Interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (830) |
| Motorcycles cost of goods sold |  | Selling, administrative & engineering expense |  | Interest expense |  | Financial Services interest expense
| Six months ended June 28, 2020 |  |  |  |  |  |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,342,514 |  |  | $ | 502,336 |  |  | $ | 15,524 |  |  | $ | 114,660 |
Gain/(loss) reclassified from AOCL into income: |  |  |  |  |  |  |
Foreign currency contracts | $ | 8,705 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commodity contracts | $ | (188) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Cross-currency swaps | $ | — |  |  | $ | 24,009 |  |  | $ | — |  |  | $ | — |
Treasury rate locks | $ | — |  |  | $ | — |  |  | $ | (181) |  |  | $ | (65) |
Interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (6,569) |
| Six months ended June 30, 2019 |  |  |  |  |  |
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,827,464 |  |  | $ | 576,242 |  |  | $ | 15,515 |  |  | $ | 104,997 |
Gain/(loss) reclassified from AOCL into income: |  |  |  |  |  |  |
Foreign currency contracts | $ | 10,121 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commodity contracts | $ | (17) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Treasury rate locks | $ | — |  |  | $ | — |  |  | $ | (181) |  |  | $ | (64) |
Interest rate swaps | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1,436) |
The amount of net loss included in Accumulated other comprehensive loss (AOCL) at June 28, 2020, estimated to be reclassified into income over the next 12 months was $16.8 million. The amount of gains and losses recognized in income related to derivative financial instruments not designated as hedging instruments were as follows (in thousands). Gains and losses on foreign currency contracts and commodity contracts were recorded in Motorcycles cost of goods sold and the interest rate cap was recorded in Financial Services interest expense.
| Amount of Gain/(Loss) Recognized in Income |  |  |  |  |  |
| Three months ended |  |  |  | Six months ended |  |
| June 28, 2020 |  | June 30, 2019 |  | June 28, 2020 |  | June 30, 2019
Foreign currency contracts | $ | (522) |  |  | $ | (1,004) |  |  | $ | 1,672 |  |  | $ | (117) |
Commodity contracts | 558 |  |  | (310) |  |  | (993) |  |  | 7 |
Interest rate cap | (427) |  |  | (141) |  |  | (427) |  |  | (141) |
| $ | (391) |  |  | $ | (1,455) |  |  | $ | 252 |  |  | $ | (251) |
The Company is exposed to credit loss risk in the event of non-performance by counterparties to its derivative financial instruments. Although no assurances can be given, the Company does not expect any of the counterparties to its derivative financial instruments to fail to meet their 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 their position.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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