XML 26 R13.htm IDEA: XBRL DOCUMENT v3.24.3
Financial Instruments and Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Financial Instruments and Fair Value Measurements Financial Instruments and Fair Value Measurements
Financial Instruments
A financial instrument is cash or a contract that imposes an obligation to deliver or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The fair value of debt approximates the carrying value of debt, due to the variable interest rate on our Credit Facility and the maturity of the remaining outstanding debt.
Derivative Instruments and Hedging Activities
On September 30, 2024, the Company had open Mexican peso-denominated foreign currency forward contracts. The Company used foreign currency forward contracts solely for hedging and not for speculative purposes during 2024 and 2023. Management believes that its use of these instruments to reduce risk is in the Company’s best interest. The counterparties to these financial instruments are financial institutions with investment grade credit ratings.
Foreign Currency Exchange Rate Risk
Foreign currency transactions are remeasured into the functional currency using translation rates in effect at the time of the transaction with the resulting adjustments included on the condensed consolidated statements of operations within other (income) expense, net. These foreign currency transaction (gains) losses, including the impact of hedging activities, were $(320) and $(1,359) for the three months ended September 30, 2024 and 2023, respectively, and $(646) and $2,099 for the nine months ended September 30, 2024 and 2023, respectively.
The Company conducts business internationally and, therefore, is exposed to foreign currency exchange rate risk. The Company uses derivative financial instruments as cash flow hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures.
Cash Flow Hedges
The Company entered into foreign currency forward contracts to hedge the Mexican peso currency in 2024 and 2023. These forward contracts were executed to hedge forecasted transactions and have been accounted for as cash flow hedges. As such, gains and losses on derivatives qualifying as cash flow hedges are recorded in accumulated other comprehensive loss, to the extent that hedges are effective, until the underlying transactions are recognized in earnings. Unrealized amounts in accumulated other comprehensive loss fluctuate based on changes in the fair value of hedge derivative contracts at each reporting period. The cash flow hedges were highly effective. The effectiveness of the transactions was measured using regression analysis and forecasted future purchases of the currency.
In certain instances, the foreign currency forward contracts may not qualify for hedge accounting or are not designated as hedges and, therefore, are marked-to-market with gains and losses recognized in the Company’s condensed consolidated statements of operations as a component of other (income) expense, net. At September 30, 2024, all of the Company’s foreign currency forward contracts were designated as cash flow hedges.
The Company’s foreign currency forward contracts offset a portion of the gains and losses on the underlying foreign currency denominated transactions as follows:
Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedges
The Company holds Mexican peso-denominated foreign currency forward contracts with a notional amount at September 30, 2024 of $31,183, which expire ratably on a monthly basis from October 2024 to December 2025. The notional amounts at December 31, 2023 related to Mexican peso-denominated foreign currency forward contracts were $26,613.
The Company evaluated the effectiveness of the Mexican peso denominated forward contracts held as of September 30, 2024 and concluded that the hedges were highly effective.
Interest Rate Risk
Interest Rate Risk – Cash Flow Hedge
On February 18, 2020, the Company entered into a floating-to-fixed interest rate swap agreement (the “Swap”) with a notional amount of $50,000 to hedge its exposure to interest payment fluctuations on a portion of its Credit Facility borrowings. The Swap matured on March 10, 2023. The Swap was designated as a cash flow hedge of the variable interest rate obligation under the Company's Fourth Amended and Restated Credit Agreement, as amended, (the “Fourth Amended and Restated Credit Agreement”). Accordingly, the change in fair value of the Swap was recognized in accumulated other comprehensive loss. The Swap agreement required monthly settlements on the same days that the Fourth Amended and Restated Credit Agreement interest payments were due. The Swap's maturity date of March 10, 2023, was before the Fourth Amended and Restated Credit Agreement maturity date of June 5, 2024. Under the Swap terms, the Company paid a fixed interest rate and received a floating interest rate based on the one-month LIBOR, with a floor. The critical terms of the Swap were aligned with the terms of the Fourth Amended and Restated Credit Agreement, resulting in no hedge ineffectiveness. The difference between amounts to be received and paid under the Swap were recognized as a component of interest expense, net on the condensed consolidated statements of operations. The Swap settlements reduced interest expense, net by $290 for the nine months ended September 30, 2023.
The notional amounts and fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
Notional amounts (A)
Prepaid expenses
 and other current assets		Accrued expenses and
other current liabilities
September 30,
2024		December 31,
2023		September 30,
2024		December 31,
2023		September 30,
2024		December 31,
2023
Derivatives designated as hedging instruments:
Cash flow hedges:
Forward currency contracts$31,183 $26,613 $— $1,858 $2,032 $— 
_____________________________
(A)Notional amounts represent the gross contract of the derivatives outstanding in U.S. dollars.
Gross amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net (loss) income for the three months ended September 30 were as follows:
(Loss) gain recorded in other
comprehensive income (loss)
(Loss) gain reclassified from
other comprehensive income
(loss) into net (loss) income (A)
2024202320242023
Derivatives designated as cash flow hedges:
Forward currency contracts$(1,629)$67 $(435)$227 
_____________________________
(A)
(Losses) gains reclassified from other comprehensive income (loss) into net (loss) income recognized in selling, general and administrative expenses (“SG&A”) in the Company’s condensed consolidated statements of operations were $(142) and $54 for the three months ended September 30, 2024 and 2023, respectively. (Losses) gains reclassified from other comprehensive income (loss) into net (loss) income recognized in cost of goods sold (“COGS”) in the Company’s condensed consolidated statements of operations were $(293) and $173 for the three months ended September 30, 2024 and 2023, respectively.
Gross amounts recorded for the cash flow and net investment hedges in other comprehensive (loss) income and in net loss for the nine months ended September 30 were as follows:
(Loss) gain recorded in other
comprehensive (loss) income
Gain reclassified from
other comprehensive (loss) income into net loss (A)
2024202320242023
Derivatives designated as cash flow hedges:
Forward currency contracts$(3,257)$483$633$278
Interest rate swap$—$(4)$—$290
(A)
Gains reclassified from other comprehensive (loss) income into net loss recognized in SG&A in the Company’s condensed consolidated statements of operations were $109 and $66 for the nine months ended September 30, 2024 and 2023, respectively. Gains reclassified from other comprehensive (loss) income into net loss recognized in COGS in the Company’s condensed consolidated statements of operations were $524 and $212 for the nine months ended September 30, 2024 and 2023, respectively. Gains reclassified from other comprehensive (loss) income into net loss recognized in interest expense, net in the Company’s condensed consolidated statements of operations were $0 and $290 for the nine months ended September 30, 2024 and 2023, respectively.
Cash flows from derivatives used to manage foreign currency exchange and interest rate risks are classified as operating activities within the condensed consolidated statements of cash flows.
Fair Value Measurements
Certain assets and liabilities held by the Company are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values estimated using Level 2 inputs, other than quoted prices, are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward currency and cross-currency contracts, inputs include forward foreign currency exchange rates. For the interest rate swap, inputs included LIBOR. Fair values estimated using Level 3 inputs consist of significant unobservable inputs.
The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of inputs used.
September 30,
2024		December 31,
2023
Fair values estimated using
Fair
value		Level 1
inputs		Level 2
inputs		Level 3
inputs		Fair
value
Financial assets carried at fair value:
Forward currency contracts$— $— $— $— $1,858 
Total financial assets carried at fair value$— $— $— $— $1,858 
Financial liabilities carried at fair value:
Forward currency contracts$2,032 $— $2,032 $— $— 
Total financial liabilities carried at fair value$2,032 $— $2,032 $— $— 
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the nine months ended September 30, 2024.