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Hedging Activity and Fair Value Measurements
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Hedging Activity and Fair Value Measurements

Note 8. Hedging Activity and Fair Value Measurements

 

Hedging Activity

 

During the quarter ended September 30, 2019 we entered into several foreign currency non-delivery forward and collar contracts to hedge the fluctuations in the exchange rate between the Colombian Peso and the U.S. Dollar. Our contracts are designated as cash flow hedges since they are highly effective in offsetting changes in the cash flows attributable to forecasted Colombian Peso denominated costs and expenses.

 

Guidance under the Financial Instruments Topic 825 of the Codification requires us to record our hedge contracts at fair value and consider our credit risk for contracts in a liability position, and our counter-party’s credit risk for contracts in an asset position, in determining fair value. We assess our counter-party’s risk of non-performance when measuring the fair value of financial instruments in an asset position by evaluating their financial position, including cash on hand, as well as their credit ratings.

 

As of September 30, 2019, the fair value of foreign currency non-delivery forward and collar contracts was in a net liability position of $1,390. We had 20 outstanding forward and collar contracts to exchange 44 million U.S. Dollars to Colombian Pesos through August 2020. We assessed the risk of non-performance of the Company to these contracts and determined it was insignificant and, therefore, did not record any adjustment to fair value as of September 30, 2019.

 

We assess the effectiveness of our foreign currency non-delivery forward and collar contracts by comparing the change in the fair value of the forward contract to the change in the expected cash to be paid for the hedged item. The effective portion of the gain or loss on our foreign currency non-delivery forward and collar contracts is reported as a component of accumulated other comprehensive loss and is reclassified into earnings in the same line item in the income statement as the hedged item in the same period or periods during which the transaction affects earnings. The amount of losses, net, recognized in the “accumulated other comprehensive loss” line item in the accompanying condensed consolidated balance sheet as of September 30, 2019, that we expect will be reclassified to earnings within the next eleven months, is $1,390.

 

The fair value of our foreign currency hedges are classified in the accompanying consolidated balance sheets as of September 30, 2019, are as follows:

 

    Derivative Assets     Derivative Liabilities  
    September 30, 2019     September 30, 2019  
Derivatives designated as hedging instruments under Subtopic 815-20:   Balance Sheet Location   Fair
Value		     Balance Sheet Location   Fair Value  
                     
Derivative instruments:                        
Non-Delivery forward and collar contracts   Other current assets   $ 55     Accrued liabilities   $ (1,445 )
Total derivative instruments   Total derivative assets   $ 55     Total derivative liabilities   $ (1,445 )

 

The ending accumulated balance for the foreign currency non-delivery forward and collar contracts included in accumulated other comprehensive losses, net of tax, was $941 as of September 30, 2019, comprised of a derivative loss of $1,390 and an associated net tax benefit of $449.

 

The following table presents the gains (losses) on derivative financial instruments, and their classifications within the accompanying condensed consolidated financial statements, for the three and nine months ended September, 2019:

 

    Derivatives in Cash Flow Hedging Relationships  
    Amount of Gain or (Loss)    

Location of Gain or (Loss)

Reclassified from

Accumulated

  

Amount of Gain or (Loss)

Reclassified from

  
    Recognized in OCI (Loss) on     OCI (Loss) into   Accumulated  
    Derivatives     Income   OCI (Loss) into Income  
    Three Months Ended         Three Months Ended  
    September 30,     September 30,         September 30,     September 30,  
    2019     2018         2019     2018  
                             
Non-delivery Forwards and Collar Contracts   $    (1,390 )   $              -     General and administrative expense   $        (28 )   $               -  
                                     

 

    Derivatives in Cash Flow Hedging Relationships  
    Amount of Gain or (Loss)    

Location of Gain or (Loss)

Reclassified from

Accumulated

  

Amount of Gain or (Loss)

Reclassified from

  
    Recognized in OCI (Loss) on     OCI (Loss) into   Accumulated  
    Derivatives     Income   OCI (Loss) into Income  
    Nine Months Ended         Nine Months Ended  
    September 30,     September 30,         September 30,     September 30,  
    2019     2018         2019     2018  
                             
Non-delivery Forwards and Collar Contracts   $ (1,390 )   $          -     General and administrative expense   $      (28 )   $         -  
                                     

 

Fair Value Measurements

 

The Company accounts for financial assets and liabilities in accordance with accounting standards that define fair value and establish a framework for measuring fair value. The hierarchy prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s assumptions used to measure assets and liabilities at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

 

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and advances from customers approximate their fair value due to their relatively short-term maturities. The Company bases its fair value estimate for long term debt obligations on its internal valuation that all debt is floating rate debt based on current interest rates in Colombia.

 

As of September 30, 2019, financial instruments carried at amortized cost that do not approximate fair value consist of long-term debt. See Note 7 - Debt. The fair value of long-term debt was calculated based on an analysis of future cash flows discounted with our average cost of debt which is based on market rates, which are level 2 inputs.

 

The following table summarizes the fair value and carrying amounts of our long-term debt:

 

    September 30, 2019     December 31, 2018  
Fair Value     266,906       234,163  
Carrying Value     247,776       220,709