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Derivative Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | 9. Derivative Instruments and Hedging Activities Interest Rate Risk Management The Company engages in an interest rate hedging strategy for which the hedged transactions are forecasted interest payments on the Company’s 2018 Credit Facility, which are based on variable rates. During the first quarter of 2020, the Company entered into various interest rate swap agreements with effective dates ranging between February 2020 and March 2020. These agreements collectively provide for the Company to pay interest at a weighted-average fixed rate of 0.98% on aggregate notional amounts of $100.0 million under the 2018 Credit Facility until their respective expiration dates ranging between February 2022 and March 2023, while receiving interest based on LIBOR on the same notional amounts for the same periods. At inception, these swap agreements were designated as cash flow hedges against the variability in certain LIBOR-based borrowings under the 2018 Credit Facility, effectively fixing the interest rate on such notional amounts at a weighted-average effective rate of, depending on the Company's total leverage ratio, between 2.73% and 3.23%. These hedge relationships qualified as effective under FASB ASC Topic 815, Derivatives and Hedging, or ASC 815, and consequently all changes in the fair value of these interest rate swaps are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in interest expense, net within the Company’s condensed consolidated statement of income during the period when the hedged item and underlying transaction affect earnings. As of September 30, 2022 and December 31, 2021, the aggregate notional amounts of interest rate swap agreements outstanding were approximately $25.0 million and $100.0 million, respectively. As of September 30, 2022, the remaining $25.0 million notional swap agreement provides for the Company to pay interest at a fixed rate of 0.52%, effectively fixing the interest rate on such notional amounts at an effective rate of, depending on the Company’s total leverage ratio, between 2.27% and 2.77%. The fair values of the interest rate swap agreements are based on third-party bank quotes, and as of September 30, 2022 and December 31, 2021, the Company recorded assets at fair value of $0.4 million and liabilities at fair value of $0.1 million, respectively, relating to these interest rate swap agreements. Foreign Currency Instruments The Company designates certain foreign currency derivatives, primarily comprised of foreign currency forward contracts and option contracts, as freestanding derivatives for which hedge accounting does not apply. The changes in the fair market value of these freestanding derivatives are included in selling, general, and administrative expenses within the Company’s condensed consolidated statements of income. The Company primarily uses freestanding foreign currency derivatives to hedge foreign currency-denominated intercompany transactions and to partially mitigate the impact of foreign currency fluctuations. The fair value of the freestanding foreign currency derivatives is based on third-party quotes. The Company’s foreign currency derivative contracts are generally executed on a monthly basis. The Company designates as cash flow hedges those foreign currency forward contracts it enters into to hedge forecasted inventory purchases and intercompany management fees that are subject to foreign currency exposures. Forward contracts are used to hedge forecasted inventory purchases over specific months. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in cost of sales within the Company’s condensed consolidated statement of income during the period which approximates the time the hedged inventory is sold. The Company also hedges forecasted intercompany management fees over specific months. These contracts allow the Company to sell Euros in exchange for U.S. dollars at specified contract rates. Changes in the fair value of these forward contracts designated as cash flow hedges, excluding forward points, are recorded as a component of accumulated other comprehensive loss within shareholders’ deficit, and are recognized in selling, general, and administrative expenses within the Company’s condensed consolidated statement of income during the period when the hedged item and underlying transaction affect earnings. The Company has elected to record changes in the fair value of amounts excluded from the assessment of effectiveness currently in earnings. As of September 30, 2022 and December 31, 2021, the aggregate notional amounts of all foreign currency contracts outstanding designated as cash flow hedges were approximately $63.9 million and $54.5 million, respectively. As of September 30, 2022, these outstanding contracts were expected to mature over the next fifteen months. The Company’s derivative financial instruments are recorded on the condensed consolidated balance sheets at fair value based on third-party quotes. As of September 30, 2022, the Company recorded assets at fair value of $1.8 million and liabilities at fair value of $6.4 million relating to all outstanding foreign currency contracts designated as cash flow hedges. As of December 31, 2021, the Company recorded assets at fair value of $0.3 million and liabilities at fair value of $1.7 million relating to all outstanding foreign currency contracts designated as cash flow hedges. The Company assesses hedge effectiveness at least quarterly and the hedges remained effective as of September 30, 2022 and December 31, 2021. As of both September 30, 2022 and December 31, 2021, the majority of the Company’s outstanding foreign currency forward contracts had maturity dates of less than twelve months with the majority of freestanding derivatives expiring within one month. As of September 30, 2022, the Company had aggregate notional amounts of approximately $704.9 million of foreign currency contracts, inclusive of freestanding contracts and contracts designated as cash flow hedges. The following tables summarize the derivative activity during the three and nine months ended September 30, 2022 and 2021 relating to all the Company’s derivatives. Gains and Losses on Derivative Instruments The following table summarize s gains (losses) relating to derivative instruments recorded in other comprehensive income (loss) during the three and nine months ended September 30, 2022 and 2021:
|  | Amount of (Loss) Gain Recognized in Other Comprehensive Loss |
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, 2022 |  |  | September 30, 2021 |  |  | September 30, 2022 |  |  | September 30, 2021 |
|  | (in millions) |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |  | $ | (3.1 | ) |  | $ | 0.9 |  |  | $ | (7.4 | ) |  | $ | 0.7 |
Interest rate swaps |  |  | 0.1 |  |  |  | (0.1 | ) |  |  | 0.5 |  |  |  | (0.1 | )
As of September 30, 2022, the estimated amount of existing net losses related to cash flow hedges recorded in accumulated other comprehensive loss that are expected to be reclassified into earnings over the next twelve months was $5.9 million. The effect of cash flow hedging relationships on the Company’s condensed consolidated statements of income for the three and nine months ended September 30, 2022 and 2021 was as follows:
|  | Location and Amount of (Loss) Gain Recognized in Income on Cash Flow Hedging Relationships |
|  | Three Months Ended |
|  | September 30, 2022 |  |  | September 30, 2021 |
|  | Cost of sales |  |  | Selling, general, and administrative expenses |  |  | Interest expense, net |  |  | Cost of sales |  |  | Selling, general, and administrative expenses |  |  | Interest expense, net |
|  | (in millions) |
Total amounts presented in the condensed consolidated statements of income |  | $ | 285.1 |  |  | $ | 448.2 |  |  | $ | 34.5 |  |  | $ | 305.2 |  |  | $ | 486.3 |  |  | $ | 37.7 |
Foreign exchange currency contracts relating to inventory hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of loss reclassified from accumulated other comprehensive loss to income |  |  | (1.9 | ) |  |  | — |  |  |  | — |  |  |  | (0.8 | ) |  |  | — |  |  |  | — |
Amount of loss excluded from assessment of effectiveness recognized in income |  |  | (1.4 | ) |  |  | — |  |  |  | — |  |  |  | (0.9 | ) |  |  | — |  |  |  | — |
Foreign exchange currency contracts relating to intercompany management fee hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain reclassified from accumulated other comprehensive loss to income |  |  | — |  |  |  | 0.9 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Amount of gain excluded from assessment of effectiveness recognized in income |  |  | — |  |  |  | 0.2 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Interest rate swaps: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain (loss) reclassified from accumulated other comprehensive loss to income |  |  | — |  |  |  | — |  |  |  | 0.2 |  |  |  | — |  |  |  | — |  |  |  | (0.3 | )
Amount of gain excluded from assessment of effectiveness recognized in income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  | Location and Amount of (Loss) Gain Recognized in Income on Cash Flow Hedging Relationships |
|  | Nine Months Ended |
|  | September 30, 2022 |  |  | September 30, 2021 |
|  | Cost of sales |  |  | Selling, general, and administrative expenses |  |  | Interest expense, net |  |  | Cost of sales |  |  | Selling, general, and administrative expenses |  |  | Interest expense, net |
|  | (in millions) |
Total amounts presented in the condensed consolidated statements of income |  | $ | 908.0 |  |  | $ | 1,373.1 |  |  | $ | 95.9 |  |  | $ | 942.7 |  |  | $ | 1,498.9 |  |  | $ | 112.0 |
Foreign exchange currency contracts relating to inventory hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of loss reclassified from accumulated other comprehensive loss to income |  |  | (2.7 | ) |  |  | — |  |  |  | — |  |  |  | (1.5 | ) |  |  | — |  |  |  | — |
Amount of loss excluded from assessment of effectiveness recognized in income |  |  | (4.2 | ) |  |  | — |  |  |  | — |  |  |  | (3.0 | ) |  |  | — |  |  |  | — |
Foreign exchange currency contracts relating to intercompany management fee hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of gain (loss) reclassified from accumulated other comprehensive loss to income |  |  | — |  |  |  | 1.8 |  |  |  | — |  |  |  | — |  |  |  | (0.3 | ) |  |  | — |
Amount of gain excluded from assessment of effectiveness recognized in income |  |  | — |  |  |  | 0.2 |  |  |  | — |  |  |  | — |  |  |  | 0.1 |  |  |  | — |
Interest rate swaps: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amount of loss reclassified from accumulated other comprehensive loss to income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (0.7 | )
Amount of gain excluded from assessment of effectiveness recognized in income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
The following table summarizes gains (losses) recorded to income relating to derivative instruments not designated as hedging instruments during the three and nine months ended September 30, 2022 and 2021:
|  | Amount of Gain Recognized in Income |  |  |
|  | Three Months Ended |  |  | Nine Months Ended |  |  |
|  | September 30, 2022 |  |  | September 30, 2021 |  |  | September 30, 2022 |  |  | September 30, 2021 |  |  | Location of Gain Recognized in Income
|  | (in millions) |  |  |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange currency contracts |  | $ | 4.6 |  |  | $ | 2.8 |  |  | $ | 6.1 |  |  | $ | 3.7 |  |  | Selling, general, and administrative expenses
The Company reports its derivatives at fair value as either assets or liabilities within its condensed consolidated balance sheets. See Note 12, Fair Value Measurements, for information on derivative fair values and their condensed consolidated balance sheets location as of September 30, 2022 and December 31, 2021.

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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 https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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