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Foreign Currency Forward Contracts

9 Months Ended

Sep. 30, 2023

Note 13 – Foreign Currency Forward Contracts

The Company’s operations and expenditures in its normal course of business are subject to opportunities and risks related to foreign currency fluctuations. The Company utilizes foreign currency forward contracts to protect against downward currency exposure by

hedging Mexican Peso denominated expenses against the risk of variability in foreign currency exchange rates between the Mexican Peso and the U.S. Dollar.

During the second and third quarters of 2023, the Company entered into forward contracts to hedge the Company’s anticipated and probable Mexican Peso denominated expenses against the foreign currency rate exposure. The contracts have terms between one and 12 months and require the Company to exchange currencies at agreed-upon rates at each settlement date. The counterparties to the contracts consist of a limited number of major domestic and international financial institutions. The Company classifies these contracts as cash flow hedges in accordance with ASC 815, Derivatives and Hedging. The Company does not have any non-designated derivatives.

The Company will assess the assumed effectiveness of the contracts at each reporting period. The foreign currency derivatives are recorded on the balance sheet at fair value. The Company records unrealized gains or losses related to changes in the fair value of the forward contracts in other comprehensive income as long as the contracts are assumed to be effective. Amounts accumulated in other comprehensive income (loss) are reclassified to the consolidated statement of operations when the hedged item impacts earnings or upon determination that the contract is no longer assumed to be effective.

The notional amounts of outstanding foreign currency derivatives are as follows:


	September 30,		December 31,
Notional Amount	2023		2022
Derivative instruments designated as hedges:
Foreign currency derivatives	$	9,143	$	-

The fair value of outstanding foreign currency derivatives designated as hedges are as follows:


	September 30,		December 31,
Fair Value	2023		2022
Prepaid expenses
Foreign currency derivatives	$	34	$	-

The pre-tax realized gain on foreign currency derivatives is recognized in the Condensed Consolidated Statements of Operations as follows:


		Amount of (Gain)/Loss Recognized					Amount of (Gain)/Loss Recognized
		Three Months Ended September 30,					Nine Months Ended September 30,
	Location of Realized (Gain)/Loss Recognized in the Condensed Consolidated Statements of Operations	2023			2022		2023			2022
Derivative instruments designated as cash flow hedges:
Foreign currency derivatives	Cost of goods sold	$	(8	)	$	-	$	(8	)	$	-

- Definition

The entire disclosure for foreign currency transactions and translation. This may include description of foreign currency transactions, foreign currency gains and losses, explanation of change in cumulative translation adjustment, description of effect of subsequent foreign currency exchange rate change, cumulative translation adjustment movement, foreign currency translation adjustment by component movement, translation adjustment for net investment hedge movement, adjustment for long-term intercompany transactions, schedule of long-term intercompany balances and any other foreign currency transactions and translation related items.

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