Financial Instruments and Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Financial Instruments and Fair Value Measurements

The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

Level One: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level Two: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level Three: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying values of financial instruments, including Trade receivables, other receivables and Accounts payable, approximate their fair values due to their short-term maturities. The estimated fair value of the Company’s debt of $573.2 million and $259.3 million as of December 31, 2023 and 2022, respectively, was based on current interest rates for similar types of borrowings and is in Level Two of the fair value hierarchy. The estimated fair values may not represent actual values of the financial instruments that could be realized as of the balance sheet date or that will be realized in the future.

As of December 31, 2023, the Company held $26.0 million in Level Three liabilities arising from contingent consideration related to acquisitions. The fair value of the contingent consideration liabilities is determined using unobservable inputs and the inputs vary based on the nature of the purchase agreements. These inputs can include the estimated amount and timing of projected cash flows, the risk-adjusted discount rate used to present value the projected cash flows, and the probability of the acquired company attaining certain targets stated within the purchase agreements. A change in these unobservable inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date due to the nature of uncertainty inherent to the estimates. The gross range of outcomes for contingent consideration arrangements that have a fixed limit is zero to $8.5 million. There is one contingent consideration arrangement as of December 31, 2023 that has no limit and is based on a percentage of sales in excess of a benchmark over a five-year period.

There were no other transfers in or out of Level One, Two or Three during the year ended December 31, 2023.


	Total Contingent Consideration Rollforward
	Beginning Balance		Additions		Charges		Interest		Payments		Foreign Exchange		Ending Balance
	(In thousands)
Contingent Consideration	$	27,809	$	1,818	$	(832)	$	—	$	(2,736)	$	(33)	$	26,026

Deferred Compensation Plans

The Company maintains deferred compensation plans for the benefit of certain employees and non-executive officers. As of December 31, 2023 and 2022, the fair values of these plans were $14.4 million and $10.3 million, respectively. These plans are deemed to be Level Two within fair value hierarchy.

Derivatives

The Company periodically enters into foreign currency derivative contracts. As the Company has manufacturing sites internationally in Europe, Africa, and Asia and sells its products globally, the Company is exposed to movements in the exchange rates of various currencies. As a result, the Company enters into foreign currency swaps and forward contracts to mitigate this exchange rate risk. As the Company’s borrowings under the Credit Facility include variable interest rates, the Company may periodically enter into interest rate swap or collar agreements to mitigate interest rate risk. Commodity

derivative contracts can be used to manage costs of raw materials used in the Company’s production processes. There were no changes during the periods presented in the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis.

Cash Flow Hedges

The Company’s objective in using forward currency contracts is to add stability to the Company’s earnings and to protect the U.S. Dollar value of forecasted transactions. To accomplish this objective, the Company has entered into forward currency contract agreements between the U.S. Dollar and the Mexican Peso as part of its risk management strategy. These forward currency contract agreements are designated and qualify as cash flow hedges.

The gain or loss on a derivative instrument designated as a cash flow hedge is recorded in Unrealized gain (loss) on hedging activities, net of tax within the Company’s Consolidated Statements of Comprehensive Income (Loss) until the underlying third-party transaction occurs. When the underlying third-party transaction occurs, the Company recognizes the gain or loss in earnings within Cost of Sales in its Consolidated Statements of Operations. The contracts are recorded at fair value and deemed to be Level Two in the fair value hierarchy.

At December 31, 2023, the Company’s forward currency contracts have a Mexican Peso notional amount of approximately $840.0 million, equivalent to a U.S. Dollar aggregate notional amount of $47.9 million. During the year ended December 31, 2023, the Company recognized a realized gain of $0.2 million on its Consolidated Statements of Operations related to its forward currency contracts designated as cash flow hedges. There was nothing recognized in 2022 as the Mexican Peso forward currency program was established in the second quarter of 2023.

Net Investment Hedges

On April 18, 2023, the Company entered into cross-currency swap agreements to hedge its net investment in its Swiss Franc-denominated subsidiaries against adverse movements in exchange rates between the U.S. Dollar and the Swiss Franc. These swap agreements are designated and qualify as net investment hedges. These contracts have a Swiss Franc notional amount of approximately ₣403 million and a U.S. Dollar aggregate notional amount of $450 million at December 31, 2023.

Cross-currency swaps involve the receipt of functional-currency fixed-rate amounts from a counterparty in exchange for the Company making foreign-currency fixed-rate payments over the life of the agreement. For derivatives designated as net investment hedges, the gain or loss on the derivative is reported in the Consolidated Balance Sheet as part of Accumulated other comprehensive income (loss) and in the Company’s Consolidated Statements of Comprehensive Income (Loss) as part of the foreign currency translation adjustment. Amounts are reclassified out of Accumulated other comprehensive loss into earnings when the hedged net investment is either sold or substantially liquidated.

During the three months and year ended December 31, 2023, the Company received interest income on its cross-currency swap derivatives of $2.6 million and $7.3 million, respectively, which is included within Interest expense, net in the Consolidated Statements of Operations.

The following table presents the effect of the Company’s designated hedging instruments on Accumulated other comprehensive income (loss) for the year ended December 31, 2023 and 2022:


	Year Ended December 31,
		2023		2022
		(In thousands)
Gain (loss) on cross-currency swaps		$	(36,893)	$	—
Gain (loss) on forward currency contracts		247		—
		$	(36,646)	$	—

Non-Designated Hedging Instruments

The Company also used non-designated forward currency contracts for the purpose of managing its exposure to currency exchange rate risk related to the Euro-denominated purchase price of Novastep and Lima, which closed in June 2023 and January 2024, respectively. During the second quarter of 2023, the Company recognized a realized loss of $1.5 million on its Consolidated Statements of Operations related to the settlement of the Novastep non-designated forward currency contract. The loss is recorded in Other income, net on the Consolidated Statements of Operations. During the fourth quarter of 2023, the Company recorded an unrealized gain of $24.3 million on its Consolidated Statements of Operations related to the outstanding

Lima non-designated forward currency contracts. The gain is recorded in Other income, net on the Consolidated Statements of Operations. The Lima forward remained outstanding as of December 31, 2023 and was subsequently settled on January 3, 2024 upon the closing of the Lima acquisition for a realized gain of $13.2 million, which will reflect a loss of $11.1 million in the first quarter of 2024.

The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2023 and 2022:


		December 31,
(In thousands)	Location on Consolidated Balance Sheets (1)	2023		2022
Derivative Assets
Designated Hedging Instruments
Forward currency contracts	Other current assets	$	432	$	—
Cross-currency swaps	Other current assets	10,061		—


		10,493		—
Non-Designated Hedging Instruments
Forward currency contracts	Other current assets	24,311		—
Total Derivative Assets		$	34,804	$	—

Derivative Liabilities
Designated Hedging Instruments
Forward currency contracts	Accrued liabilities	$	278	$	—


Cross-currency swaps	Other long-term liabilities	46,953		—
Total Derivative Liabilities		$	47,231	$	—

(1) The Company classifies derivative assets and liabilities as current when the settlement date of the contract is one year or less.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of trade accounts receivable. Concentrations of credit risk are considered to exist when there are amounts collectible from multiple counterparties with similar characteristics, which could cause their ability to meet contractual obligations to be similarly impacted by economic or other conditions. The Company performs credit evaluations of its customers prior to delivery or commencement of services and normally does not require collateral. Letters of credit are occasionally required when the Company deems necessary. There are no customers that represent more than 10% of the Company’s Accounts receivable, net as of December 31, 2023 and 2022.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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