Note 4 - Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 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, the Company maintains interest rate swap agreements and owns 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 September 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 losses, net of tax, recognized for the three and nine months ended September 30, 2024, was $(10,177) and $(9,925), respectively. The amount of gains, net of tax, recognized for the three and nine months ended September 30, 2023, was $1,045 and $2,309, 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. ("Wallbox") 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 upon exercise at a fixed price with anti-dilution protections for a period of time. During the third quarter of 2024, the Company received additional warrants in connection with an additional round of funding performed by Wallbox through the Company's anti-dilution protection rights. In accordance with U.S. GAAP, the Company is required to adjust the carrying value of these warrants to market value on a quarterly basis. Gains and losses attributable to the stock warrants are recognized in other expense, net in the condensed consolidated statements of comprehensive income. 

The gain attributable to the stock warrants was $6,606 and $339 for the three and nine months ended September 30, 2024, respectively. The gain for the three months ended September 30, 2024, was primarily due to the receipt of additional warrants during the third quarter of 2024.

Fair Value 

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

	September 30, 2024		December 31, 2023
Foreign currency contracts		(254)		(147	)
Interest rate swaps		25,360		38,601
Stock warrants		15,584		14,862

In the condensed consolidated balance sheets, the fair value of the foreign currency contracts is included in other accrued liabilities at September 30, 2024, and December 31, 2023. The fair value of the interest rate swaps and stock warrants is included in operating lease and other assets at both September 30, 2024, and December 31, 2023. Excluding the impact of credit risk, the fair value of the derivative contracts (excluding the stock warrants) as of September 30, 2024, and December 31, 2023, is an asset of $25,930 and $39,796, respectively, which represents the amount the Company would receive to exit all of the agreements on those dates.