| Derivative Instruments and Hedging Activities |
11. 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 3.48%. These hedge relationships qualified as effective under FASB ASC Topic 815, , 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 within the Company’s consolidated statement of income during the period when the hedged item and underlying transaction affect earnings. The fair values of the interest rate swap agreements are based on third-party bank quotes, and as of December 31, 2020, the Company recorded liabilities at fair value of $1.0 million 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 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 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 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 December 31, 2020 and 2019, the aggregate notional amounts of all foreign currency contracts outstanding designated as cash flow hedges were approximately $56.4 million and $66.4 million, respectively. As of December 31, 2020, these outstanding contracts were expected to mature over the next fifteen months. The Company’s derivative financial instruments are recorded on the consolidated balance sheets at fair value based on third-party quotes. As of December 31, 2020, the Company recorded liabilities at fair value of $3.9 million relating to all outstanding foreign currency contracts designated as cash flow hedges. As of December 31, 2019, the Company recorded assets at fair value of $0.1 million and liabilities at fair value of $1.9 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 December 31, 2020 and 2019. As of both December 31, 2020 and 2019, 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. The tables below provide information about the details of all foreign currency forward contracts that were outstanding as of December 31, 2020 and 2019:
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Weighted-
Average
Contract Rate |
|
|
|
|
|
|
(in millions, except weighted-average contract rate) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy British pound sell Euro |
|
|
|
0.92 |
|
|
|
$ |
3.4 |
|
|
|
$ |
0.1 |
|
Buy British pound sell U.S. dollar |
|
|
|
1.34 |
|
|
|
|
1.5 |
|
|
|
|
— |
|
Buy Chinese yuan sell Euro |
|
|
|
8.14 |
|
|
|
|
52.1 |
|
|
|
|
(0.1 |
) |
Buy Chinese yuan sell U.S. dollar |
|
|
|
7.13 |
|
|
|
|
99.3 |
|
|
|
|
8.5 |
|
Buy Colombian peso sell U.S. dollar |
|
|
|
3,422.09 |
|
|
|
|
1.1 |
|
|
|
|
— |
|
Buy Danish krone sell U.S. dollar |
|
|
|
6.10 |
|
|
|
|
1.0 |
|
|
|
|
— |
|
Buy Euro sell Australian dollar |
|
|
|
1.61 |
|
|
|
|
1.4 |
|
|
|
|
— |
|
Buy Euro sell British pound |
|
|
|
0.91 |
|
|
|
|
2.6 |
|
|
|
|
— |
|
Buy Euro sell Canadian dollar |
|
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1.56 |
|
|
|
|
1.1 |
|
|
|
|
— |
|
Buy Euro sell Chilean peso |
|
|
|
896.37 |
|
|
|
|
2.6 |
|
|
|
|
(0.1 |
) |
Buy Euro sell Hong Kong dollar |
|
|
|
9.49 |
|
|
|
|
4.4 |
|
|
|
|
— |
|
Buy Euro sell Indian rupee |
|
|
|
90.29 |
|
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|
|
4.9 |
|
|
|
|
(0.1 |
) |
Buy Euro sell Indonesian rupiah |
|
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|
17,189.96 |
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|
|
4.1 |
|
|
|
|
— |
|
Buy Euro sell Israeli shekel |
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3.98 |
|
|
|
|
0.9 |
|
|
|
|
— |
|
Buy Euro sell Kazakhstani tenge |
|
|
|
520.25 |
|
|
|
|
3.1 |
|
|
|
|
— |
|
Buy Euro sell Malaysian ringgit |
|
|
|
4.98 |
|
|
|
|
1.2 |
|
|
|
|
— |
|
Buy Euro sell Mexican peso |
|
|
|
26.22 |
|
|
|
|
55.7 |
|
|
|
|
(3.4 |
) |
Buy Euro sell Peruvian nuevo sol |
|
|
|
4.41 |
|
|
|
|
1.6 |
|
|
|
|
— |
|
Buy Euro sell Philippine peso |
|
|
|
59.13 |
|
|
|
|
1.2 |
|
|
|
|
— |
|
Buy Euro sell Russian ruble |
|
|
|
92.13 |
|
|
|
|
7.7 |
|
|
|
|
(0.1 |
) |
Buy Euro sell South African rand |
|
|
|
18.00 |
|
|
|
|
5.4 |
|
|
|
|
— |
|
Buy Euro sell Taiwan dollar |
|
|
|
34.30 |
|
|
|
|
1.2 |
|
|
|
|
— |
|
| Buy Euro sell Turkish lira |
|
|
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|
|
|
|
|
|
|
|
|
|
|
) |
|
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|
Weighted-
Average
Contract Rate |
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|
|
|
|
(in millions, except weighted-average contract rate) |
Buy Euro sell Vietnamese dong |
|
|
|
27,872.81 |
|
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|
17.5 |
|
|
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|
0.2 |
|
Buy Indonesian rupiah sell U.S. dollar |
|
|
|
14,115.17 |
|
|
|
|
7.1 |
|
|
|
|
0.1 |
|
Buy Kazakhstani tenge sell Euro |
|
|
|
517.65 |
|
|
|
|
2.4 |
|
|
|
|
— |
|
Buy Korean won sell U.S. dollar |
|
|
|
1,114.85 |
|
|
|
|
10.0 |
|
|
|
|
0.2 |
|
Buy Mexican peso sell U.S. dollar |
|
|
|
19.97 |
|
|
|
|
35.1 |
|
|
|
|
— |
|
Buy Norwegian krone sell U.S. dollar |
|
|
|
8.66 |
|
|
|
|
2.2 |
|
|
|
|
— |
|
Buy Russian ruble sell Euro |
|
|
|
90.11 |
|
|
|
|
1.2 |
|
|
|
|
— |
|
Buy Swedish krona sell U.S. dollar |
|
|
|
8.25 |
|
|
|
|
2.7 |
|
|
|
|
— |
|
Buy Taiwan dollar sell U.S. dollar |
|
|
|
27.67 |
|
|
|
|
15.2 |
|
|
|
|
— |
|
Buy U.S. dollar sell Australian dollar |
|
|
|
0.76 |
|
|
|
|
2.0 |
|
|
|
|
— |
|
Buy U.S. dollar sell Chinese yuan |
|
|
|
6.75 |
|
|
|
|
47.1 |
|
|
|
|
(1.3 |
) |
Buy U.S. dollar sell Colombian peso |
|
|
|
3,525.72 |
|
|
|
|
4.2 |
|
|
|
|
(0.1 |
) |
Buy U.S. dollar sell Euro |
|
|
|
1.20 |
|
|
|
|
24.9 |
|
|
|
|
(0.4 |
) |
Buy U.S. dollar sell Korean won |
|
|
|
1,107.10 |
|
|
|
|
16.3 |
|
|
|
|
(0.3 |
) |
Buy U.S. dollar sell Mexican peso |
|
|
|
21.94 |
|
|
|
|
11.3 |
|
|
|
|
(0.6 |
) |
Buy U.S. dollar sell Philippine peso |
|
|
|
48.51 |
|
|
|
|
8.2 |
|
|
|
|
(0.1 |
) |
Buy U.S. dollar sell Thai baht |
|
|
|
31.08 |
|
|
|
|
3.2 |
|
|
|
|
(0.1 |
) |
| |
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|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
$ |
471.0 |
|
|
|
$ |
2.3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
Average
Contract Rate |
|
|
|
|
|
|
(in millions, except weighted-average contract rate) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy British pound sell Euro |
|
|
|
0.86 |
|
|
|
$ |
3.3 |
|
|
|
$ |
— |
|
Buy British pound sell U.S. dollar |
|
|
|
1.30 |
|
|
|
|
2.7 |
|
|
|
|
0.1 |
|
Buy Chinese yuan sell Euro |
|
|
|
7.99 |
|
|
|
|
58.4 |
|
|
|
|
0.4 |
|
Buy Chinese yuan sell U.S. dollar |
|
|
|
7.16 |
|
|
|
|
73.8 |
|
|
|
|
1.9 |
|
Buy Colombian peso sell U.S. dollar |
|
|
|
3,323.67 |
|
|
|
|
1.7 |
|
|
|
|
— |
|
Buy Euro sell Australian dollar |
|
|
|
1.62 |
|
|
|
|
1.1 |
|
|
|
|
— |
|
Buy Euro sell British pound |
|
|
|
0.86 |
|
|
|
|
4.9 |
|
|
|
|
(0.1 |
) |
Buy Euro sell Hong Kong dollar |
|
|
|
8.70 |
|
|
|
|
4.1 |
|
|
|
|
— |
|
Buy Euro sell Indonesian rupiah |
|
|
|
15,632.92 |
|
|
|
|
13.0 |
|
|
|
|
(0.1 |
) |
| |
|
|
|
1,297.40 |
|
|
|
|
1.7 |
|
|
|
|
— |
|
Buy Euro sell Malaysian ringgit |
|
|
|
4.62 |
|
|
|
|
2.9 |
|
|
|
|
— |
|
Buy Euro sell Mexican peso |
|
|
|
22.41 |
|
|
|
|
63.3 |
|
|
|
|
(1.8 |
) |
Buy Euro sell Peruvian nuevo sol |
|
|
|
3.73 |
|
|
|
|
1.1 |
|
|
|
|
— |
|
Buy Euro sell Philippine peso |
|
|
|
56.66 |
|
|
|
|
12.0 |
|
|
|
|
0.1 |
|
Buy Euro sell Russian ruble |
|
|
|
70.47 |
|
|
|
|
1.7 |
|
|
|
|
— |
|
Buy Euro sell South African rand |
|
|
|
15.95 |
|
|
|
|
2.7 |
|
|
|
|
— |
|
Buy Euro sell Taiwan dollar |
|
|
|
33.66 |
|
|
|
|
3.8 |
|
|
|
|
— |
|
| |
|
|
|
33.66 |
|
|
|
|
2.8 |
|
|
|
|
— |
|
Buy Euro sell U.S. dollar |
|
|
|
1.12 |
|
|
|
|
61.5 |
|
|
|
|
0.4 |
|
Buy Euro sell Vietnamese dong |
|
|
|
26,052.72 |
|
|
|
|
31.7 |
|
|
|
|
(0.1 |
) |
Buy Indonesian rupiah sell U.S. dollar |
|
|
|
14,080.00 |
|
|
|
|
7.2 |
|
|
|
|
0.1 |
|
Buy Norwegian krone sell U.S. dollar |
|
|
|
8.96 |
|
|
|
|
1.1 |
|
|
|
|
— |
|
Buy Swedish krona sell U.S. dollar |
|
|
|
9.36 |
|
|
|
|
0.6 |
|
|
|
|
— |
|
Buy Taiwan dollar sell U.S. dollar |
|
|
|
29.89 |
|
|
|
|
4.1 |
|
|
|
|
— |
|
Buy U.S. dollar sell Colombian peso |
|
|
|
3,304.37 |
|
|
|
|
1.9 |
|
|
|
|
— |
|
Buy U.S. dollar sell Euro |
|
|
|
1.12 |
|
|
|
|
134.9 |
|
|
|
|
(0.4 |
) |
Buy U.S. dollar sell Mexican peso |
|
|
|
22.54 |
|
|
|
|
3.7 |
|
|
|
|
(0.3 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
$ |
501.7 |
|
|
|
$ |
0.2 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| The following tables summarize the derivative activity during the years ended December 31, 2020, 2019, and 2018 relating to all the Company’s derivatives. Gains and Losses on Derivative Instrument s
The following table summarizes gains (losses) relating to derivative instruments recorded in other comprehensive loss during the years ended December 31, 2020, 2019, and 2018:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain (Loss) Recognized in Other
Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts relating to inventory and intercompany management fee hedges |
|
|
$ |
2.3 |
|
|
|
$ |
(1.9 |
) |
|
|
$ |
(3.6 |
) |
| |
|
|
|
(1.6 |
) |
|
|
|
— |
|
|
|
|
— |
| As of December 31, 2020, 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 $3.9 million. The effect of cash flow hedging relationships on the Company’s consolidated statements of income for the years ended December 31, 2020, 2019, and 2018 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss)
Recognized in Income on Cash Flow
Hedging Relationships |
|
|
|
|
|
|
|
|
|
|
Selling,
general, and
administrative |
|
|
|
|
|
Total amounts presented in the consolidated statements of income |
|
|
$ |
1,150.6 |
|
|
|
$ |
2,075.0 |
|
|
|
$ |
133.0 |
|
| |
|
|
|
Foreign exchange currency contracts relating to inventory hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive loss to income |
|
|
|
5.1 |
|
|
|
|
— |
|
|
|
|
— |
|
Amount of loss excluded from assessment of effectiveness recognized in income(1) |
|
|
|
(3.3 |
) |
|
|
|
— |
|
|
|
|
— |
|
| |
|
|
|
Foreign exchange currency contracts relating to intercompany management fee hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss reclassified from accumulated other comprehensive loss to income |
|
|
|
— |
|
|
|
|
(0.2 |
) |
|
|
|
— |
|
Amount of gain excluded from assessment of effectiveness recognized in income |
|
|
|
— |
|
|
|
|
0.1 |
|
|
|
|
— |
|
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss reclassified from accumulated other comprehensive loss to income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
(0.5 |
) |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts presented in the consolidated statements of income |
|
|
$ |
958.0 |
|
|
|
$ |
1,940.3 |
|
|
|
$ |
153.0 |
|
| |
|
|
|
Foreign exchange currency contracts relating to inventory hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss reclassified from accumulated other comprehensive loss to income |
|
|
|
(0.2 |
) |
|
|
|
— |
|
|
|
|
— |
|
Amount of loss excluded from assessment of effectiveness recognized in income(1) |
|
|
|
(3.3 |
) |
|
|
|
— |
|
|
|
|
— |
|
| |
|
|
|
Foreign exchange currency contracts relating to intercompany management fee hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive loss to income |
|
|
|
— |
|
|
|
|
1.0 |
|
|
|
|
— |
|
Amount of gain excluded from assessment of effectiveness recognized in income |
|
|
|
— |
|
|
|
|
0.2 |
|
|
|
|
— |
|
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive loss to income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Amount of gain excluded from assessment of effectiveness recognized in income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss)
Recognized in Income on Cash Flow
Hedging Relationships |
|
|
|
|
|
|
|
|
|
|
Selling,
general, and
administrative
expenses |
|
|
|
|
|
Total amounts presented in the consolidated statements of income |
|
|
$ |
919.3 |
|
|
|
$ |
1,955.2 |
|
|
|
$ |
181.0 |
|
| |
|
|
|
Foreign exchange currency contracts relating to inventory hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive loss to income |
|
|
|
3.6 |
|
|
|
|
— |
|
|
|
|
— |
|
Amount of loss excluded from assessment of effectiveness recognized in income(1) |
|
|
|
— |
|
|
|
|
(2.9 |
) |
|
|
|
— |
|
| |
|
|
|
Foreign exchange currency contracts relating to intercompany management fee hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of loss reclassified from accumulated other comprehensive loss to income |
|
|
|
— |
|
|
|
|
(3.8 |
) |
|
|
|
— |
|
Amount of gain excluded from assessment of effectiveness recognized in income |
|
|
|
— |
|
|
|
|
0.8 |
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location and Amount of Gain (Loss)
Recognized in Income on Cash Flow
Hedging Relationships |
|
|
|
|
|
|
|
|
|
|
Selling,
general, and
administrative
expenses |
|
|
|
|
|
| |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain reclassified from accumulated other comprehensive loss to income |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
Amount of gain excluded from assessment of effectiveness recognized in incom e
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
(1) |
As a result of adopting ASU 2017-12 during the first quarter of 2019, for the years ended December 31, 2020 and 2019, the Company recognized gains (losses) excluded from the assessment of effectiveness on foreign exchange currency contracts relating to inventory hedges in cost of sales within its consolidated statements of income. Prior to the adoption of ASU 2017-12, for the year ended December 31, 2018, the Company recognized gains (losses) excluded from the assessment of effectiveness on foreign exchange currency contracts relating to inventory hedges in selling, general, and administrative expenses within its consolidated statement of income. | The following table summarizes gains (losses) recorded to income relating to derivative instruments not designated as hedging instruments during the December 31, 2020, 2019, and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amount of Gain (Loss)
Recognized in Income |
|
|
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized
in Income |
| |
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange currency contracts |
|
$ |
2.5 |
|
|
$ |
1.0 |
|
|
$ |
(4.0 |
) |
|
Selling, general, and administrative expenses | The Company reports its derivatives at fair value as either assets or liabilities within its consolidated balance sheets. See Note 13, , for information on derivative fair values and their consolidated balance sheet locations as of December 31, 2020 and 2019. |