Note 4 - Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

4.   Derivative Instruments and Hedging Activities

The Company records all derivatives in accordance with ASC 815, Derivatives and Hedging, which requires derivative instruments to be reported on the condensed consolidated balance sheets at fair value and establishes criteria for designation and effectiveness of hedging relationships. The Company is exposed to market risk such as changes in commodity prices, foreign currencies and interest rates. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company periodically utilizes commodity derivatives and foreign currency forward purchase and sales contracts in the normal course of business. Because these contracts do not qualify for hedge accounting, the related gains and losses are recorded in the Company’s condensed consolidated statements of comprehensive income. These gains and losses are not material to the Company’s condensed consolidated financial statements for the periods presented.

Interest Rate Swaps

In 2017, the Company entered into twenty interest rate swap agreements, eight of which were still outstanding as of June 30, 2022. In December 2019, in conjunction with an amendment to its term loan, the Company amended those interest rate swaps to remove the LIBOR floor, which also resulted in minor reductions to the future dated swap fixed rates. In March 2020, the Company entered into three additional interest rate swap agreements, bringing the total outstanding interest rate swaps to eleven as of June 30, 2022.

In June 2022, in conjunction with the amendments to the Company's credit agreements discussed further in Note 11, “Credit Agreements,” to the condensed consolidated financial statements, the Company amended its interest rate swaps to match that of the underlying debt and reconfirmed hedge effectiveness. The Company formally documented all relationships between interest rate hedging instruments and the related hedged items, as well as its risk-management objectives and strategies for undertaking various hedge transactions. These interest rate swap agreements qualify as cash flow hedges and therefore, the effective portions of their gains or losses are reported as a component of accumulated other comprehensive loss (AOCL) in the condensed consolidated balance sheets.

The amount of gains, net of tax, recognized for the three and six months ended June 30, 2022 were $7,129 and $25,857, respectively. The amount of gains and losses, net of tax, recognized for the three and six months ended June 30, 2021 were $(2,752) and $12,243, respectively. The cash flows of the swaps are recognized as adjustments to interest expense each period. The ineffective portions of the derivatives’ changes in fair value, if any, are immediately recognized in earnings.

Fair Value 

The following table presents the fair value of all of the Company’s derivatives:

	June 30, 2022			December 31, 2021
Commodity contracts	$	(157	)	$	-
Foreign currency contracts		130			(36	)
Interest rate swaps		32,517			(2,074	)

The fair value of the commodity contracts is included in other accrued liabilities, and the fair value of the foreign currency contracts and interest rate swaps is included in other assets in the condensed consolidated balance sheets as of June 30, 2022. The fair values of the foreign currency contracts and interest rate swaps are included in other accrued liabilities and other long-term liabilities in the condensed consolidated balance sheets as of  December 31, 2021. Excluding the impact of credit risk, the fair value of the derivative contracts as of June 30, 2022 and December 31, 2021 is an asset of $33,682 and a liability of $2,148, respectively, which represents the amount the Company would receive or pay to exit all of the agreements on those dates.