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Note 10 - Derivative Instruments and Hedging Activities | 9 Months Ended
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Sep. 30, 2024
Notes to Financial Statements |
Derivative Instruments and Hedging Activities Disclosure [Text Block] |
10. | 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. We held outstanding foreign currency forward contracts with notional amounts of $14.9 million and $25.8 million as of September 30, 2024 and December 31, 2023, respectively. The Company's foreign currency forward contracts related to the Chinese renminbi 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 consolidated balance sheet and are reclassified into the statement of operations within cost of goods sold in the period in which the hedged transaction affects earnings. Interest Rate Swap Agreements To partially mitigate risks associated with the variable interest rates on the revolver borrowings under the Company's credit agreement (as defined and described in Note 11, "Debt", below), in November 2021, we executed a pay-fixed, receive-variable interest rate swap agreement with each of two multinational financial institutions under which we, prior to the January 2023 amendment described below which transitioned the reference rate from LIBOR to SOFR, (i) paid interest at a fixed rate of 1.3055% and received variable interest of one-month LIBOR on a notional amount of $30.0 million and (ii) paid interest at a fixed rate of 1.3180% and received variable interest of one-month LIBOR on a notional amount of $30.0 million (as amended to date, 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. In January 2023, and in connection with related changes to its credit agreement, the Company amended the 2021 Swaps to transition the related reference rates in these agreements from LIBOR to SOFR, effective January 31, 2023. Under the amended 2021 Swaps, the Company is required to pay interest on the notional amount at the rate of 1.334% and 1.348%, respectively, in exchange for the daily SOFR rate plus 10 basis points. 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 consolidated balance sheet and are reclassified into the statement of operations within interest expense in the period in which the hedged transaction affects earnings. Fair Values of Derivative Financial Instruments See Note 6, "Fair Value Measurements" for the gross fair values of the Company's derivative assets and liabilities as of September 30, 2024 and December 31, 2023. 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, 2024 and 2023 were as follows:
|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Net (losses) gains recognized in AOCL: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | $ | 223 |  |  | $ | (385 | ) |  | $ | 35 |  |  | $ | (1,837 | )
Interest rate swap agreements |  |  | (892 | ) |  |  | 698 |  |  |  | 394 |  |  |  | 1,641 |
|  | $ | (669 | ) |  | $ | 313 |  |  | $ | 429 |  |  | $ | (196 | )
Net gains (losses) reclassified from AOCL to the consolidated statement of operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency forward contracts |  | $ | (50 | ) |  | $ | (311 | ) |  | $ | (401 | ) |  | $ | (197 | )
Interest rate swap agreements |  |  | 638 |  |  |  | 602 |  |  |  | 1,875 |  |  |  | 1,650 |
|  | $ | 588 |  |  | $ | 291 |  |  | $ | 1,474 |  |  | $ | 1,453 |
The gains and 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 for the three and nine months ended September 30, 2024 and 2023. 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, 2024 and 2023 were as follows:
|  |  | Three Months Ended |  |  | Nine Months Ended |
|  |  | September 30, |  |  | September 30, |
| Classification in Consolidated Statements of Operations |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Foreign currency forward contracts | Other (expense) income, net |  | $ | (13 | ) |  | $ | 54 |  |  | $ | 249 |  |  | $ | 88 |
|  |  | $ | (13 | ) |  | $ | 54 |  |  | $ | 249 |  |  | $ | 88 |

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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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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