Note 4 - Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2024

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 in 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. The commodity and foreign currency forward contract gains and losses are not material to the Company’s condensed consolidated financial statements for the periods presented. 

Additionally, during the fourth quarter of 2023, the Company acquired stock warrants described in more detail below.

Interest Rate Swaps

In 2017, the Company entered into twenty interest rate swap agreements, the final four of which expired in  May 2023. In March 2020, the Company entered into three additional interest rate swap agreements, which were still outstanding as of June 30, 2024.

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 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/(losses), net of tax recognized, for the three and six months ended June 30, 2024, was $(1,730) and $252, respectively. The amount of gains, net of tax recognized, for the three and six months ended June 30, 2023, was $5,752 and $1,264, 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.

Stock Warrants

During the fourth quarter of 2023, the Company entered into a $30,000 agreement with Wallbox N.V. to purchase 5% of its Class A common stock ("Wallbox Shares") and acquire stock warrants, which provide the rights to an incremental approximate 5% ownership in the Class A common stock outstanding of Wallbox N.V. upon exercise at a fixed price with anti-dilution protections for a period of time. In accordance with GAAP, the Company is required to adjust the carrying value of these investments to market value on a quarterly basis. The Company recognized a loss of $2,117 and $8,136 for the three and six months ended June 30, 2024, respectively, primarily due to a decrease in the stock price of Wallbox N.V. during the period, of which $1,035 and $6,268 related to the stock warrants, respectively. 

Fair Value 

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

	June 30, 2024		December 31, 2023
Foreign currency contracts	$	(143)	$	(147	)
Interest rate swaps		38,938		38,601
Stock warrants		8,978		14,862

In the condensed consolidated balance sheets, the fair value of the foreign currency contracts is included in other accrued liabilities at  June 30, 2024, and prepaid expenses and other current assets as well as other accrued liabilities at December 31, 2023. The fair value of the interest rate swaps and stock warrants is included in operating lease and other assets at both June 30, 2024, and December 31, 2023. Excluding the impact of credit risk, the fair value of the derivative contracts as of June 30, 2024 and December 31, 2023 is an asset of $49,052 and $55,042, respectively, which represents the amount the Company would receive to exit all of the agreements on those dates.