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Derivative Financial Instruments and Hedging Activities | 3 Months Ended
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Mar. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Financial 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, Singapore dollar, Thai baht, 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 its motorcycle operations. The Company's commodity contracts generally have maturities of less than one year. The Company periodically utilizes treasury rate and swap rate lock contracts to fix the interest rate on a portion of the principal related to an anticipated issuance of long-term debt and cross-currency swaps to mitigate the effect of foreign currency exchange rate fluctuations on its 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 (loss) income (OCI) and subsequently reclassified into income 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. Cash flow activity associated with the Company's derivative financial instruments is recorded in Cash flows from operating activities on the Consolidated statement of cash flow. 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
| March 31, 2023 |  | December 31, 2022 |  | March 27, 2022
| Notional Value |  | Assets(a) |  | Liabilities(b) |  | Notional Value |  | Assets(a) |  | Liabilities(b) |  | Notional Value |  | Assets(a) |  | Liabilities(b)
Foreign currency contracts | $ | 530,175 |  |  | $ | 3,134 |  |  | $ | 12,659 |  |  | $ | 550,160 |  |  | $ | 6,054 |  |  | $ | 13,440 |  |  | $ | 585,451 |  |  | $ | 18,832 |  |  | $ | 3,576 |
Commodity contracts | 906 |  |  | — |  |  | 339 |  |  | 1,361 |  |  | — |  |  | 410 |  |  | 964 |  |  | 316 |  |  | — |
Cross-currency swaps | 2,127,240 |  |  | — |  |  | 34,685 |  |  | 1,367,460 |  |  | — |  |  | 36,101 |  |  | 1,367,460 |  |  | 18,835 |  |  | — |
Swap rate lock contracts | 324,843 |  |  | — |  |  | 1,780 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
| $ | 2,983,164 |  |  | $ | 3,134 |  |  | $ | 49,463 |  |  | $ | 1,918,981 |  |  | $ | 6,054 |  |  | $ | 49,951 |  |  | $ | 1,953,875 |  |  | $ | 37,983 |  |  | $ | 3,576 |
| Derivative Financial Instruments Not Designated as Hedging Instruments
| March 31, 2023 |  | December 31, 2022 |  | March 27, 2022
| Notional Value |  | Assets(a) |  | Liabilities(b) |  | Notional Value |  | Assets(a) |  | Liabilities(b) |  | Notional Value |  | Assets(a) |  | Liabilities(b)
Foreign currency contracts | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 230,336 |  |  | $ | 587 |  |  | $ | 722 |
Commodity contracts | 11,229 |  |  | 99 |  |  | 755 |  |  | 10,803 |  |  | 310 |  |  | 310 |  |  | 11,866 |  |  | 2,435 |  |  | — |
Interest rate caps | 938,768 |  |  | 1,414 |  |  | — |  |  | 1,058,827 |  |  | 2,373 |  |  | — |  |  | 412,478 |  |  | 2,060 |  |  | — |
| $ | 949,997 |  |  | $ | 1,513 |  |  | $ | 755 |  |  | $ | 1,069,630 |  |  | $ | 2,683 |  |  | $ | 310 |  |  | $ | 654,680 |  |  | $ | 5,082 |  |  | $ | 722 |
(a)Includes $1.4 million and $2.4 million of interest rate caps recorded in Other long-term assets as of March 31, 2023 and December 31, 2022, respectively, with all remaining amounts recorded in Other current assets. (b)Includes $27.9 million and $24.2 million of cross-currency swaps recorded in Other long-term liabilities as of March 31, 2023 and December 31, 2022, respectively, with all remaining amounts recorded in Accrued liabilities. The amounts of gains and losses related to the Company's 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 |  |  |  | Three months ended
|  |  |  |  | March 31, 2023 |  | March 27, 2022 |  |  |  |  |  | March 31, 2023 |  | March 27, 2022
Foreign currency contracts |  |  |  |  | $ | (1,706) |  |  | $ | 8,444 |  |  |  |  |  |  | $ | 6,290 |  |  | $ | 5,655 |
Commodity contracts |  |  |  |  | (309) |  |  | 562 |  |  |  |  |  |  | (379) |  |  | 226 |
Cross-currency swaps |  |  |  |  | 1,416 |  |  | (16,236) |  |  |  |  |  |  | 21,625 |  |  | (25,800) |
Treasury rate lock contracts |  |  |  |  | 1,139 |  |  | — |  |  |  |  |  |  | (66) |  |  | (127) |
Swap rate lock contracts |  |  |  |  | (1,780) |  |  | — |  |  |  |  |  |  | (5) |  |  | — |
|  |  |  |  | $ | (1,240) |  |  | $ | (7,230) |  |  |  |  |  |  | $ | 27,465 |  |  | $ | (20,046) |
The location and amount of gains and losses recognized in income related to the Company's derivative financial instruments designated as cash flow hedges were as follows (in thousands):
| Motorcycles and related products cost of goods sold |  | Selling, administrative & engineering expense |  | Interest expense |  | Financial services interest expense
| Three months ended March 31, 2023
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 1,007,301 |  |  | $ | 285,863 |  |  | $ | 7,720 |  |  | $ | 73,549 |
Gain/(loss) reclassified from AOCL into income: |  |  |  |  |  |  |
Foreign currency contracts | $ | 6,290 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commodity contracts | $ | (379) |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Cross-currency swaps | $ | — |  |  | $ | 21,625 |  |  | $ | — |  |  | $ | — |
Treasury rate lock contracts | $ | — |  |  | $ | — |  |  | $ | (91) |  |  | $ | 25 |
Swap rate lock contracts | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (5) |
| Three months ended March 27, 2022
Line item on the Consolidated statements of operations in which the effects of cash flow hedges are recorded | $ | 895,536 |  |  | $ | 239,625 |  |  | $ | 7,711 |  |  | $ | 42,099 |
Gain/(loss) reclassified from AOCL into income: |  |  |  |  |  |  |
Foreign currency contracts | $ | 5,655 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commodity contracts | $ | 226 |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Cross-currency swaps | $ | — |  |  | $ | (25,800) |  |  | $ | — |  |  | $ | — |
Treasury rate lock contracts | $ | — |  |  | $ | — |  |  | $ | (91) |  |  | $ | (36) |
The amount of net loss included in Accumulated other comprehensive loss (AOCL) at March 31, 2023, estimated to be reclassified into income over the next 12 months was $17.6 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 and related products cost of goods sold. Gains and losses on interest rate caps were recorded in Selling, administrative & engineering expense.
|  |  |  |  | Amount of Gain/(Loss) Recognized in Income
|  |  | Three months ended
|  |  |  |  | March 31, 2023 |  | March 27, 2022
Foreign currency contracts |  |  |  |  | $ | (627) |  |  | $ | (3,506) |
Commodity contracts |  |  |  |  | (99) |  |  | 2,387 |
Interest rate caps |  |  |  |  | (958) |  |  | 1,700 |
|  |  |  |  | $ | (1,684) |  |  | $ | 581 |
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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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