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Note 9 - Derivative Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2022
Notes to Financial Statements |
Derivative Instruments and Hedging Activities Disclosure [Text Block] |
9. | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Our primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk, when deemed appropriate. We enter into these contracts in the normal course of business to mitigate risks and not for speculative purposes. Foreign Currency Forward Contracts Under our risk management strategy, we periodically use foreign currency forward contracts to manage our short-term exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates. These cash flow exposures result from portions of our forecasted operating expenses, primarily compensation and related expenses, which are transacted in currencies other than the U.S. dollar, most notably the Chinese Renminbi and the Mexican Peso. These foreign currency forward contracts generally have maturities of no longer than twelve months, although occasionally we will execute a contract that extends beyond twelve months, depending upon the nature of the underlying risk. The foreign currency forward contracts related to the Chinese Renminbi have been designated for hedge accounting. We held outstanding foreign currency forward contracts with notional amounts of $14.9 million and $17.1 million as of September 30, 2022 and December 31, 2021, respectively. Interest Rate Swap Agreements To partially mitigate risks associated with the variable interest rates on the revolver borrowings under the credit agreement (further described in Note 10, "Debt"), in December 2021, we executed a pay-fixed, receive-variable interest rate swap agreement with each of two multinational financial institutions under which we (i) pay interest at a fixed rate of 1.3055% and receive variable interest of one-month LIBOR on a notional amount of $30.0 million and (ii) pay interest at a fixed rate of 1.3180% and receive variable interest of one-month LIBOR on a notional amount of $30.0 million (the “2021 Swaps”). The effective date of the 2021 Swaps was December 31, 2021, and settlements with the counterparties began on January 31, 2022 and occur on a monthly basis. The 2021 Swaps will terminate on August 31, 2026. The 2021 Swaps are designated as cash flow hedges for accounting purposes and as such, changes in their fair value are recognized in accumulated other comprehensive loss in the condensed consolidated balance sheets and are reclassified into the condensed consolidated statements of operations within interest expense in the period in which the hedged transaction affects earnings. Fair Values of Derivative Financial Instruments The fair values of our derivative financial instruments and their classifications in our condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 were as follows:
| Balance Sheet Classification |  | September 30, 2022 |  |  | December 31, 2021 |
Derivative assets: |  |  |  |  |  |  |  |  |
Foreign currency forward contracts: |  |  |  |  |  |  |  |  |
Designated as cash flow hedges | Other current assets |  | $ | - |  |  | $ | 57 |
Interest rate swap agreements: |  |  |  |  |  |  |  |  |
Designated as a cash flow hedge | Other assets |  |  | 5,946 |  |  |  | - |
Total derivative assets |  | $ | 5,946 |  |  | $ | 57 |
Derivative liabilities: |  |  |  |  |  |  |  |  |
Foreign currency forward contracts: |  |  |  |  |  |  |  |  |
Designated as cash flow hedges | Other current liabilities |  | $ | 995 |  |  | $ | - |
Not designated as hedging instruments | Other current liabilities |  |  | - |  |  |  | 19 |
Interest rate swap agreements: |  |  |  |  |  |  |  |  |
Designated as a cash flow hedge | Other long-term liabilities |  |  | - |  |  |  | 116 |
Total derivative liabilities |  | $ | 995 |  |  | $ | 135 |
Derivative Financial Instruments in Cash Flow Hedging Relationships The effects of derivative financial instruments designated as cash flow hedges on accumulated other comprehensive loss (“AOCL”) and on the condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 were as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Net (losses) gains recognized in AOCL: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | $ | (671 | ) |  | $ | - |  |  | $ | (1,196 | ) |  | $ | - |
Interest rate swap agreements |  |  | 2,206 |  |  |  | - |  |  |  | 5,939 |  |  |  | - |
|  | $ | 1,535 |  |  | $ | - |  |  | $ | 4,743 |  |  | $ | - |
Net (losses) gains reclassified from AOCL to the consolidated statement of operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | $ | (308 | ) |  | $ | - |  |  | $ | (381 | ) |  | $ | - |
Interest rate swap agreements |  |  | 136 |  |  |  | - |  |  |  | (122 | ) |  |  | - |
|  | $ | (172 | ) |  | $ | - |  |  | $ | (503 | ) |  | $ | - |
The losses related to the foreign currency forward contracts are included as a component of currency translation adjustment on the accompanying condensed consolidated statements of comprehensive income at September 30, 2022 and December 31, 2021. Derivative Financial Instruments Not Designated as Hedging Instruments Gains recognized on derivative financial instruments not designated as hedging instruments in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022 and 2021 were as follows:
|  |  | Three Months Ended |  |  | Nine Months Ended |
|  |  | September 30, |  |  | September 30, |
| Classification in Consolidated Statements of Operations |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Foreign currency forward contracts | Other (expense) income, net |  |  | 17 |  |  |  | 31 |  |  |  | 58 |  |  |  | 82 |
|  |  | $ | 17 |  |  | $ | 31 |  |  | $ | 58 |  |  | $ | 82 |

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- Definition 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. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI https://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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