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Derivative Financial Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2019
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, 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, as well as cross-currency swaps to mitigate the effect of foreign currency exchange rate fluctuations on foreign 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 (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 used in cash flow hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. No component of a 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 earnings.
The notional and recorded fair values of the Company's derivative financial instruments under ASC Topic 815, at December 31, were as follows (in thousands):
 
 
Derivative Financial Instruments
Designated as Cash Flow Hedging Instruments
 
 
2019
 
2018
 
 
Notional
Value
 
Other
Current Assets
 
Accrued Liabilities
 
Notional
Value
 
Other
Current Assets
 
Accrued Liabilities
 
 
Foreign currency contracts
$
434,321

 
$
3,505

 
$
3,661

 
$
442,976

 
$
15,071

 
$
313

 
Commodity contracts
616

 
—

 
80

 
827

 
—

 
46

 
Cross-currency swap
660,780

 
8,326

 
—

 
—

 
—

 
—

 
Interest rate swaps
900,000

 
—

 
9,181

 
900,000

 
—

 
4,494

 
 
$
1,995,717

 
$
11,831

 
$
12,922

 
$
1,343,803

 
$
15,071

 
$
4,853

 
 
Derivative Financial Instruments
Not Designated as Hedging Instruments
 
 
2019
 
2018
 
 
Notional
Value
 
Other
Current Assets
 
Accrued Liabilities
 
Notional
Value
 
Other
Current Assets
 
Accrued Liabilities
 
 
Foreign currency contracts
$
220,139

 
$
721

 
$
865

 
$
—

 
$
—

 
$
—

 
Commodity contracts
8,270

 
95

 
147

 
5,239

 
—

 
463

 
Interest rate cap
375,980

 
2

 
—

 
—

 
—

 
—

 
 
$
604,389

 
$
818

 
$
1,012

 
$
5,239

 
$
—

 
$
463

 
The amount of gains and losses related to derivative financial instruments designated as cash flow hedges for the years ended December 31, were as follows (in thousands): 
 
Gain/(Loss)
Recognized in OCI
 
Gain/(Loss)
Reclassified from AOCL into Income
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Foreign currency contracts
$
8,235

 
$
41,657

 
$
(53,964
)
 
$
21,433

 
$
11,492

 
$
(7,202
)
Commodity contracts
(103
)
 
34

 
(246
)
 
(70
)
 
24

 
—

Cross-currency swap
8,326

 
—

 
—

 
12,156

 
—

 
—

Treasury rate locks
—

 
41

 
(719
)
 
(492
)
 
(498
)
 
(442
)
Interest rate swaps
(9,981
)
 
(6,046
)
 
—

 
(5,295
)
 
(1,552
)
 
—

 
$
6,477

 
$
35,686

 
$
(54,929
)
 
$
27,732

 
$
9,466

 
$
(7,644
)
The location and amount of gains and losses recognized in income related to derivative financial instruments designated as cash flow hedges for the years ended December 31, were as follows (in thousands):
 
Motorcycles
cost of goods sold
 
Selling, administrative &
engineering expense
 
Interest expense
 
Financial Services interest expense
 
2019
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded
$
3,229,798

 
$
1,199,056

 
$
31,078

 
$
210,438

 
 
 
 
 
 
 
 
Gain/(loss) reclassified from AOCL into income:
 
 
 
 
 
 
 
Foreign currency contracts
$
21,433

 
$
—

 
$
—

 
$
—

Commodity contracts
$
(70
)
 
$
—

 
$
—

 
$
—

Cross-currency swap
$
—

 
$
12,156

 
$
—

 
$
—

Treasury rate locks
$
—

 
$
—

 
$
(362
)
 
$
(130
)
Interest rate swaps
$
—

 
$
—

 
$
—

 
$
(5,295
)
 
2018
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded
$
3,351,796

 
$
1,258,098

 
$
30,884

 
$
193,187

 
 
 
 
 
 
 
 
Gain/(loss) reclassified from AOCL into income:
 
 
 
 
 
 
 
Foreign currency contracts
$
11,492

 
$
—

 
$
—

 
$
—

Commodity contracts
$
24

 
$
—

 
$
—

 
$
—

Treasury rate locks
$
—

 
$
—

 
$
(362
)
 
$
(136
)
Interest rate swaps
$
—

 
$
—

 
$
—

 
$
(1,552
)
 
2017
Line item on the Consolidated statements of income in which the effects of cash flow hedges are recorded
$
3,272,330

 
$
1,180,176

 
$
31,004

 
$
180,193

 
 
 
 
 
 
 
 
Gain/(loss) reclassified from AOCL into income:
 
 
 
 
 
 
 
Foreign currency contracts
$
(7,202
)
 
$
—

 
$
—

 
$
—

Treasury rate locks
$
—

 
$
—

 
$
(362
)
 
$
(80
)
 
The amount of net gain included in Accumulated other comprehensive loss (AOCL) at December 31, 2019, estimated to be reclassified into income over the next twelve months was $16.4 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). 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
 
2019
 
2018
 
2017
Foreign currency contracts
$
191

 
$
—

 
$
—

Commodity contracts
17

 
(430
)
 
503

Interest rate cap
(143
)
 
—

 
—

 
$
65

 
$
(430
)
 
$
503

 
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.