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Financial Instruments and Risk Management | 9 Months Ended
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Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Financial Instruments and Risk Management |
NOTE 10 — FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In the normal course of business, the Company's financial position, results of operations and cash flows are routinely subject to a variety of risks. These risks include risks associated with financial markets, primarily currency exchange rate risk and, to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established policies and business practices designed to mitigate them. The Company does not engage in speculative trading in any financial market. The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated non-functional currency denominated purchases and sales. Subsidiaries that use European euros, Canadian dollars, Japanese yen, Chinese renminbi, or Korean won as their functional currency are primarily exposed to changes in functional currency equivalent cash flows from anticipated United States dollar inventory purchases. Subsidiaries that use United States dollars and euros as their functional currency also have non-functional currency denominated sales for which the Company hedges the Canadian dollar and British pound sterling. The Company seeks to manage these risks by using currency forward contracts formally designated and effective as cash flow hedges. Hedge effectiveness is generally determined by evaluating the ability of a hedging instrument's cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. Time value components ("forward points") for forward contracts are included in the fair value of the cash flow hedge. These costs or benefits will be included in Accumulated other comprehensive income (loss) until the underlying hedge transaction is recognized in either Net sales or Cost of sales, at which time, the forward points will also be recognized as a component of Net income. The Company also uses currency forward contracts not formally designated as hedges to manage the consolidated currency exchange rate risk associated with the remeasurement of non-functional currency denominated monetary assets and liabilities by subsidiaries that use United States dollars, euros, Canadian dollars, yen, renminbi, or won as their functional currency. Non-functional currency denominated monetary assets and liabilities consists of cash and cash equivalents, short-term investments, receivables, payables, deferred income taxes, and intercompany loans and dividends. The gains and losses generated on these currency forward contracts not formally designated as hedges are expected to be largely offset in Other non-operating income (expense), net by the gains and losses generated from the remeasurement of the non-functional currency denominated monetary assets and liabilities. The following table presents the gross notional amount of outstanding derivative instruments:
(in thousands) |  | September 30, 2023 |  | December 31, 2022 |  | September 30, 2022
Derivative instruments designated as cash flow hedges: |  |  |  |  |  |
Currency forward contracts |  | $ | 548,424 |  |  | $ | 514,365 |  |  | $ | 459,189 |
Derivative instruments not designated as hedges: |  |  |  |  |  |
Currency forward contracts |  | $ | 477,843 |  |  | $ | 448,838 |  |  | $ | 287,825 |
As of September 30, 2023, $16.8 million of deferred net gains on both outstanding and matured derivatives recorded in Accumulated other comprehensive income (loss) are expected to be reclassified to Net income during the next twelve months as a result of underlying hedged transactions also being recorded in Net sales, Cost of sales, or Other non-operating income (expense), net in the unaudited Condensed Consolidated Statements of Operations. When outstanding derivative contracts mature, actual amounts ultimately reclassified to Net sa les, Cost of sales, or Other non-operating income (expense), net in the unaudited Condensed Consolidated Statements of Operations are dependent on United States dollar exchange rates in effect against the euro, pound sterling, renminbi, Canadian dollar, won, and yen as well as the euro exchange rate in effect against the pound sterling. As of September 30, 2023, the Company's derivative contracts had a remaining maturity of less than three years. The maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts with that counterparty, was $7.5 million as of September 30, 2023. All of the Company's derivative counterparties have credit ratings that are investment grade or higher. The Company is a party to master netting arrangements that contain features that allow counterparties to net settle amounts arising from multiple separate derivative transactions or net settle in the case of certain triggering events such as a bankruptcy or major default of one of the counterparties to the transaction. The Company has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions. The following table presents the balance sheet classification and fair value of derivative instruments:
(in thousands) | Balance Sheet Classification |  | September 30, 2023 |  | December 31, 2022 |  | September 30, 2022
Derivative instruments designated as cash flow hedges: |  |  |  |  |  |  |
Derivative instruments in asset positions: |  |  |  |  |  |  |
Currency forward contracts | Prepaid expenses and other current assets |  | $ | 17,121 |  |  | $ | 20,306 |  |  | $ | 32,289 |
Currency forward contracts | Other non-current assets |  | 6,511 |  |  | 7,153 |  |  | 13,919 |
Derivative instruments in liability positions: |  |  |  |  |  |  |
Currency forward contracts | Accrued liabilities |  | 972 |  |  | 1,249 |  |  | — |
Currency forward contracts | Other long-term liabilities |  | 104 |  |  | 1,770 |  |  | 436 |
Derivative instruments not designated as cash flow hedges: |  |  |  |  |  |  |
Derivative instruments in asset positions: |  |  |  |  |  |  |
Currency forward contracts | Prepaid expenses and other current assets |  | 4,485 |  |  | 3,027 |  |  | 2,912 |
Derivative instruments in liability positions: |  |  |  |  |  |  |
Currency forward contracts | Accrued liabilities |  | 1,389 |  |  | 2,533 |  |  | 1,514 |
The following table presents the statement of operations effect and classification of derivative instruments:
| Statement Of Operations Classification |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
(in thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022 |  |
Currency Forward Contracts: |  |  |  |  |  |  |  |  |  |  |
Derivative instruments designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |
Gain recognized in other comprehensive income (loss), net of tax | — |  | $ | 9,876 |  |  | $ | 17,191 |  |  | $ | 10,602 |  |  | $ | 31,780 |  |  |
Gain (loss) reclassified from accumulated other comprehensive income (loss) to income for the effective portion | Net sales |  | (236) |  |  | (28) |  |  | 10 |  |  | (204) |  |  |
Gain reclassified from accumulated other comprehensive income (loss) to income for the effective portion | Cost of sales |  | 8,874 |  |  | 4,114 |  |  | 18,149 |  |  | 5,373 |  |  |
Gain (loss) reclassified from accumulated other comprehensive income (loss) to income as a result of cash flow hedge discontinuance | Other non-operating income (expense), net |  | — |  |  | — |  |  | (2) |  |  | 222 |  |  |
Derivative instruments not designated as cash flow hedges: |  |  |  |  |  |  |  |  |  |  |
Gain recognized in income | Other non-operating income (expense), net |  | 3,313 |  |  | 1,341 |  |  | 2,033 |  |  | 2,638 |  |  |

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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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