Derivative Financial Instruments
|9 Months Ended|
Sep. 30, 2021
|Derivative Financial Instruments [Abstract]|
|Derivative Financial Instruments||
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company’s primary exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in foreign currency exchange rates. The Company primarily focuses on mitigating changes in cash flows resulting from sales denominated in currencies other than the U.S. dollar. The Company manages this risk primarily by using currency forward and option contracts. If the anticipated transactions are deemed probable, the resulting relationships are formally designated as cash flow hedges. The Company accounts for these contracts as cash flow hedges and tests effectiveness by determining whether changes in the expected cash flow of the derivative offset, within a range, changes in the expected cash flow of the hedged item.
During the nine months ending September 30, 2021, the Company held currency forward contracts to mitigate currency fluctuations related to the estimated cash purchase price of Rhino-Rack totaling AUD 193,650 with a maturity date of July 1, 2021. These contracts were not designated as accounting hedges and the changes in fair value of the instruments are recognized in earnings. During the three and nine months ended September 30, 2021, gains (losses) of $232 and $(4,281) were recorded in other, net expense, respectively.
At September 30, 2021, the Company’s derivative contracts had remaining maturities of less than one year. The counterparties to these transactions had both long-term and short-term investment grade credit ratings. The maximum net exposure of the Company’s credit risk to the counterparties is generally limited to the aggregate unrealized loss of all contracts with that counterparty. At September 30, 2021, there was no such exposure to the counterparties. The Company’s exposure of counterparty credit risk is limited to the aggregate unrealized gain of $639 on all contracts at September 30, 2021. The Company’s derivative counterparties have strong credit ratings and as a result, the Company does not require collateral to facilitate transactions.
The Company held the following contracts designated as hedging instruments as of September 30, 2021 and December 31, 2020:
For contracts that qualify as effective hedge instruments, the effective portion of gains and losses resulting from changes in fair value of the instruments are included in accumulated other comprehensive income and reclassified to sales in the period the underlying hedged transaction is recognized in earnings. Gains (losses) of $201 and $(376) were reclassified to sales during the three months ended September 30, 2021 and 2020, respectively, and $(542) and $206 were reclassified to sales during the nine months ended September 30, 2021 and 2020, respectively.
The following table presents the balance sheet classification and fair value of derivative instruments as of September 30, 2021 and December 31, 2020:
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.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef