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Note 5 - Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

5.	Derivative Instruments and Hedging Activities

Commodities

The Company is exposed to price fluctuations in commodities including steel, copper and aluminum; and periodically utilizes commodity derivatives to mitigate the impact of these potential price fluctuations on its financial results. These derivatives typically have maturities of less than eighteen months. At December 31, 2022 and 2021, the Company had no commodity contracts outstanding.

Because these contracts do not qualify for hedge accounting, the related gains and losses are recorded in cost of goods sold in the Company’s consolidated statements of comprehensive income. Net pre-tax gains recognized were $29, $613, and $2,185 for the years ended December 31, 2022, 2021 and 2020, respectively.

Foreign Currencies

The Company is exposed to foreign currency exchange risk as a result of transactions denominated in currencies other than the U.S. Dollar. The Company periodically utilizes foreign currency forward purchase and sales contracts to manage the volatility associated with certain foreign currency purchases and sales in the normal course of business. Contracts typically have maturities of twelve months or less. As of December 31, 2022 and 2021, the Company had thirty-four and eleven foreign currency contracts outstanding, respectively.

Because these contracts do not qualify for hedge accounting, the related gains and losses are recorded in “other, net” in the Company’s consolidated statements of comprehensive income. Net pre-tax gains (losses) recognized for the years ended December 31, 2022, 2021 and 2020 were $579, $(416), and $355, respectively.

Interest Rate Swaps

In 2017, the Company entered into twenty interest rate swap agreements, four of which were still outstanding as of December 31, 2022. In March 2020, the Company entered into three additional interest rate swap agreements, bringing the total outstanding interest rate swaps to seven as of December 31, 2022.

In June 2022, in conjunction with the amendments to the Company's credit agreements discussed further in Note 12, “Credit Agreements,” to the consolidated financial statements, the Company amended its interest rate swaps to match the underlying debt and reconfirmed hedge effectiveness. The Company formally documented all relationships between interest rate hedging instruments and the related hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions. These interest rate swap agreements qualify as cash flow hedges and therefore, the effective portions of their gains or losses are reported as a component of accumulated other comprehensive loss (AOCL) in the consolidated balance sheets.

The amount of after-tax unrealized gains (losses) recognized for the years ended December 31, 2022, 2021 and 2020 were $38,494, $20,529, and $(14,285), respectively. The cash flows of the swaps are recognized as adjustments to interest expense each period. The ineffective portions of the derivatives’ changes in fair value, if any, are immediately recognized in earnings.

Fair Value

The following table presents the fair value of the Company’s derivatives:

		December 31, 2022				December 31, 2021
Foreign currency contracts		$	94			$	(36)
Interest rate swaps			49,279				(2,074	)

The fair values of the foreign currency contracts and interest rate swaps are included in prepaid expenses and other current assets and operating lease and other assets in the consolidated balance sheet as of December 31, 2022. The fair values of the foreign currency contracts and interest rate swaps are included in other accrued liabilities and other long-term liabilities in the consolidated balance sheet as of December 31, 2021. Excluding the impact of credit risk, the fair value of the derivative contracts as of December 31, 2022, is an asset of $51,184, which represents the net amount the Company would receive to exit all of the agreements on that date. Excluding the impact of credit risk, the fair value of the derivative contracts as of December 31, 2021, is a liability of $2,148, which represents the net amount the Company would pay to exit all of the agreements on that date.