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DERIVATIVES | 9 Months Ended
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Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVES | DERIVATIVES Interest Rate Swap Agreements The Company's total outstanding notional value of interest rate swaps was $50.0 million at September 30, 2022. The Company designated a portion of these interest rate swaps as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The hedge periods of these agreements commenced in April 2018 and expire in March 2023. The original notional values are reduced over these periods. The aggregate notional value of designated interest rate swaps was $25.0 million at September 30, 2022. In June 2019, the Company entered into additional interest rate swap agreements, with an aggregate notional value of $25.0 million at September 30, 2022. These non-designated interest rate swaps serve as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings and expire in February 2025. Foreign Exchange Contracts The Company is party from time to time to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases denominated in foreign currencies. Fluctuations in the value of certain foreign currencies as compared to the USD may positively or negatively affect the Company’s revenues, gross margins, operating expenses, and retained earnings, all of which are expressed in USD. Where the Company deems it prudent, the Company engages in hedging programs using foreign currency forward contracts aimed at limiting the impact of foreign currency exchange rate fluctuations on earnings. The Company purchases foreign currency forward contracts with terms less than 18 months to protect against currency exchange risks associated with the payment of merchandise purchases to foreign suppliers. The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure. The aggregate gross notional value of foreign exchange contracts at September 30, 2022 was $3.5 million. These foreign exchange contracts have been designated as hedges in order to apply hedge accounting. The Company is exposed to market risks as well as changes in foreign currency exchange rates as measured against the USD and each other, and to changes to the credit risk of derivative counterparties. The Company attempts to minimize these risks primarily by using foreign currency forward contracts and by maintaining counterparty credit limits. These hedging activities provide only limited protection against currency exchange and credit risk. Factors that could influence the effectiveness of the Company’s hedging programs include those impacting currency markets and the availability of hedging instruments and liquidity of the credit markets. All foreign currency forward contracts that the Company enters into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure. The Company does not enter into such contracts for speculative purposes, and as of September 30, 2022, the Company did not have any foreign currency forward contract derivatives that are not designated as hedges. These foreign exchange contracts have been designated as hedges in to order to apply hedge accounting. The fair values of the Company’s derivative financial instruments included in the condensed consolidated balance sheets are presented as follows (in thousands):
Derivatives designated as hedging instruments | Balance Sheet Location |  | September 30, 2022 |  | December 31, 2021
Interest rate swaps | Prepaid expenses and other current assets |  | $ | 179 |  |  | $ | — |
| Accrued expenses |  | — |  |  | 288 |
| Other long-term liabilities |  | — |  |  | 292 |
Foreign exchange contracts | Prepaid expenses and other current assets |  | 663 |  |  | 461 |
Derivatives not designated as hedging instruments | Balance Sheet Location |  | September 30, 2022 |  | December 31, 2021
Interest rate swaps | Other assets |  | $ | 1,310 |  |  | $ | — |
| Other long-term liabilities |  | — |  |  | 680 |
The fair values of the interest rate swaps have been obtained from the counterparties to the agreements and were based on Level 2 observable inputs using proprietary models and estimates about relevant future market conditions. The fair values of the foreign exchange contracts were based on Level 2 observable inputs using quoted market prices for similar assets in an active market. The counterparties to the derivative financial instruments are major international financial institutions. The Company is exposed to credit risk for the net exchanges under these agreements, but not for the notional amounts. As of September 30, 2022, the Company did not anticipate non-performance by any of its counterparties. The amounts of gains and losses, realized and unrealized, related to the Company’s derivative financial instruments designated as hedging instruments are recognized in other comprehensive (loss) income, net of taxes, as follows (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives designated as hedging instruments | 2022 |  | 2021 |  | 2022 |  | 2021
Interest rate swaps | $ | 87 |  |  | $ | 147 |  |  | $ | 570 |  |  | $ | 540 |
Foreign exchange contracts | 267 |  |  | 845 |  |  | 1,342 |  |  | 515 |
| $ | 354 |  |  | $ | 992 |  |  | $ | 1,912 |  |  | $ | 1,055 |
Realized gains and losses on the interest rate swaps that are reported in other comprehensive (loss) income are reclassified into earnings as the interest expense on the debt is recognized. The Company had no terminated or matured interest rate swaps during the three and nine months ended September 30, 2022. Realized gains and losses on foreign exchange contracts that are reported in other comprehensive (loss) income are reclassified into cost of sales as the underlying inventory purchased is sold. During the three months ended September 30, 2022, the Company reclassified $0.3 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $0.03 million related to realized interest rate swap losses and a gain of $0.3 million related to foreign exchange contracts recognized in cost of sales. During the nine months ended September 30, 2022, the Company reclassified $0.3 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $0.3 million related to realized interest rate swap losses and a gain of $0.6 million related to foreign exchange contracts recognized in cost of sales. At September 30, 2022, the estimated amount of existing net gains expected to be reclassified into earnings within the next 12 months was $2.0 million. During the three months ended September 30, 2021, the Company reclassified $0.5 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $0.2 million related to realized interest rate swap losses and a loss of $0.3 million related to foreign exchange contracts recognized in cost of sales. During the nine months ended September 30, 2021, the Company reclassified $1.3 million of cash flow hedges in accumulated other comprehensive losses to earnings. This was comprised of $0.7 million related to realized interest rate swap losses and a loss of $0.6 million related to foreign exchange contracts recognized in cost of sales. Interest and mark to market gains (losses) related to the Company’s derivative financial instruments not designated as hedging instruments that were recognized in earnings are as follows (in thousands):
|  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivatives not designated as hedging instruments | Location of gain (loss) |  | 2022 |  | 2021 |  | 2022 |  | 2021
Interest rate swaps | Mark to market gain on interest rate derivatives |  | $ | 637 |  |  | $ | 120 |  |  | $ | 1,990 |  |  | $ | 664 |
| Interest expense |  | 18 |  |  | (116) |  |  | (165) |  |  | (342) |
|  |  | $ | 655 |  |  | $ | 4 |  |  | $ | 1,825 |  |  | $ | 322 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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