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Fair Value of Financial Instruments | 9 Months Ended
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Sep. 30, 2023
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants as of the measurement date. Fair value is measured using the fair value hierarchy and related valuation methodologies as defined in the authoritative literature. This hierarchical valuation methodology provides a fair value framework that describes the categorization of assets and liabilities in three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows: Level 1 - Quoted prices in active markets for identical assets and liabilities. Level 2 - Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations, in which all significant inputs are observable in active markets. Level 3 -Significant unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability. The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, debt, interest rate swaps and foreign currency derivatives. Cash and cash equivalents, accounts receivable and accounts payable carrying values as of September 30, 2023 and December 31, 2022 approximate fair value due to the short-term maturities of these financial instruments. As of September 30, 2023 and December 31, 2022, the carrying amounts of the Huntington Term Loan and Huntington Revolving Loan approximated fair value due to the short-term nature of the underlying variable rate SOFR agreements. The Company had Level 2 fair value measurements at September 30, 2023 relating to the Company’s interest rate swaps and foreign currency derivatives. Derivative and hedging activities Derivatives are formally assessed both at inception and at least quarterly thereafter, to ensure that derivatives used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer probable of occurring, hedge accounting is discontinued, and any future mark-to-market adjustments are recognized in earnings. The effective portion of gain or loss is reported in other comprehensive income and the ineffective portion is reported in earnings. The impacts of these contracts were largely offset by gains and losses resulting from the impact of changes in exchange rates on transactions denominated in the foreign currency. As of September 30, 2023, the Company had no ineffective portion related to the cash flow hedges. Foreign Currency Derivatives The Company conducted business in foreign countries and paid certain expenses in foreign currencies; therefore, the Company was exposed to foreign currency exchange risk between the U.S. Dollar and foreign currencies, which could impact the Company’s operating income and cash flows. To mitigate risk associated with foreign currency exchange, the Company entered into forward contracts to exchange a fixed amount of U.S. Dollars for a fixed amount of foreign currency, which will be used to fund future foreign currency cash flows. At inception, all forward contracts are formally documented as cash flow hedges and are measured at fair value each reporting period. The notional contract value of foreign currency derivatives was $20,222,000 and $13,851,000 as of September 30, 2023 and December 31, 2022, respectively. Interest Rate Swap The Company entered into an interest rate swap contract to fix the interest rate on an initial aggregate amount of $25,000,000 thereby reducing exposure to interest rate changes. The interest rate swap pays a fixed rate of 2.95% to the swap counterparty in exchange for daily SOFR. At inception, all interest rate swaps were formally documented as cash flow hedges and are measured at fair value each reporting period. See Note 11, "Debt", for additional information. The notional contract value of the interest rate swap was $23,542,000 and $24,479,000 as of September 30, 2023 and December 31, 2022, respectively. Financial statement impacts The following table detail amounts related to our derivatives designated as hedging instruments (in thousands):
|  | Fair Value of Derivative Instruments September 30, 2023
|  | Asset Derivatives |  | Liability Derivatives
|  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Foreign exchange contracts |  | Prepaid expenses other current assets |  | $ | 190 |  |  | Accrued other liabilities |  | $ | 67 |
| Other non-current assets |  | $ | — |  |  | Other non-current liabilities |  | $ | — |
Interest rate swaps |  | Prepaid expenses other current assets |  | $ | 536 |  |  | Accrued other liabilities |  | $ | — |
| Other non-current assets |  | $ | 595 |  |  | Other non-current liabilities |  | $ | — |
|  | Fair Value of Derivative Instruments December 31, 2022
|  | Asset Derivatives |  | Liability Derivatives
|  | Balance Sheet Location |  | Fair Value |  | Balance Sheet Location |  | Fair Value
Foreign exchange contracts |  | Prepaid expenses other current assets |  | $ | 72 |  |  | Accrued other liabilities |  | $ | 157 |
| Other non-current assets |  | $ | — |  |  | Other non-current liabilities |  | $ | — |
Interest rate swaps |  | Prepaid expenses other current assets |  | $ | 280 |  |  | Accrued other liabilities |  | $ | — |
| Other non-current assets |  | $ | 485 |  |  | Other non-current liabilities |  | $ | — |
The following tables summarize the amount of unrealized and realized gain (loss) recognized in Accumulated Other Comprehensive Income ("AOCI") for the three months ended September 30, 2023 and 2022 (in thousands):
Derivatives in subtopic 815-20 Cash Flow Hedging Relationship: |  | Amount of Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income on Derivative |  | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income(A) |  | Amount of Realized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income
|  | 2023 |  | 2022 |  |  |  | 2023 |  | 2022
Foreign exchange contracts |  | $ | 88 |  |  | $ | (626) |  |  | Cost of goods sold |  | $ | 897 |  |  | $ | — |
|  |  |  |  |  | Selling, general and administrative expense |  | $ | 89 |  |  | $ | — |
Interest rate swaps |  | $ | 334 |  |  | $ | 767 |  |  | Interest expense |  | $ | 125 |  |  | $ | (38) |
The following tables summarize the amount of unrealized and realized gain (loss) recognized in AOCI for the nine months ended September 30, 2023 and 2022 (in thousands):
Derivatives in subtopic 815-20 Cash Flow Hedging Relationship: |  | Amount of Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income on Derivative |  | Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income(A) |  | Amount of Realized Gain (Loss) Reclassified from Accumulated Other Comprehensive Income
|  | 2023 |  | 2022 |  |  |  | 2023 |  | 2022
Foreign exchange contracts |  | $ | 2,073 |  |  | $ | (626) |  |  | Cost of goods sold |  | $ | 1,697 |  |  | $ | — |
|  |  |  |  |  | Selling, general and administrative expense |  | $ | 168 |  |  | $ | — |
Interest rate swaps |  | $ | 707 |  |  | $ | 767 |  |  | Interest expense |  | $ | 341 |  |  | $ | (38) |
(A) The foreign currency derivative activity reclassified from AOCI is allocated to cost of goods sold and selling, general and administrative expense based on the percentage of foreign currency spend.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Publisher FASB -URI https://asc.fasb.org//1943274/2147482106/820-10-50-2 + Details
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