XML 23 R13.htm IDEA: XBRL DOCUMENT

Note 6 - Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2022

NOTE 6—FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Derivative Instruments and Hedging Activities

The Company’s derivative assets and liabilities consist principally of foreign exchange forward contracts and interest rate caps and are carried at fair value based on significant observable inputs (Level 2 inputs). Derivatives entered into by the Company are typically executed over-the-counter and are valued using internal valuation techniques, as quoted market prices are not readily available. The valuation technique and inputs depend on the type of derivative and the nature of the underlying exposure. The Company principally uses discounted cash flows along with fair value models that primarily use market observable inputs. These models take into account a variety of factors including, where applicable, maturity, currency exchange rates, interest rate yield curves and counterparty credit risks.

Currency Risk. The Company uses currency exchange forward contracts to manage its exposure to changes in currency exchange rates associated with certain of its non-U.S. dollar denominated receivables and payables. The Company primarily economically hedges a portion of its current-year currency exposure to the Canadian and New Zealand dollars, the Brazilian Real, the South African Rand, the Euro and the British pound sterling. The fluctuations in the value of these forward contracts largely offset the impact of changes in the value of the underlying risk they economically hedge.

Interest Rate Risk. The Company previously used interest rate caps to manage the risk related to its previously existing variable rate corporate debt.

The Company recorded the effective portion of changes in the fair value of its cash flow hedges to other comprehensive income (loss), net of tax, and subsequently reclassified these amounts into earnings in the period during which the hedged transaction was recognized. Any changes in fair values of hedges that are determined to be ineffective are immediately reclassified from accumulated other comprehensive income (loss) into earnings. The Company reclassified $0.6 million from other comprehensive income (loss) to earnings for the period ended March 31, 2022 due to the termination of a cash flow hedge relationship between the Company’s interest rate caps and the Company’s underlying corporate variable rate debt, which was repaid during February 2022.

The Company held the following derivative instruments with absolute notional values as of June 30, 2022:

(In thousands)	*Absolute Notional Value*
Interest rate caps	$	100,000
Foreign exchange contracts		13,872

Estimated fair values (Level 2) of derivative instruments were as follows:

	*As of June 30, 2022*				*As of December 31, 2021*
	(unaudited)
(In thousands)	*Fair Value, Asset Derivatives*		*Fair Value, Liability Derivatives*		*Fair Value, Asset Derivatives*		*Fair Value, Liability Derivatives*
Derivative instruments designated as cash flow hedging instruments:
Interest rate cap ^(a)	$	-	$	-	$	9	$	-
Total	$	-	$	-	$	9	$	-
Derivative instruments not designated as cash flow hedging instruments:
Interest rate cap ^(a)	$	346	$	-	$	-	$	-
Foreign exchange forward ^(b)		119		-		664		-
Total	$	465	$	-	$	664	$	-

	(a)	Recorded in other current assets.
	(b)	Recorded in prepaid expenses and other current assets.

Changes in the fair value of the Company’s hedging instruments are recorded in accumulated other comprehensive income. The effects of derivatives recognized in the Company’s condensed consolidated financial statements were as follows:

	*For the three months ended June 30,*						*For the six months ended June 30,*
(In thousands)	*2022*			*2021*			*2022*			*2021*
	(unaudited)						(unaudited)
Derivative instruments designated as cash flow hedging instruments:
Interest rate cap ^(a)	$	-		$	(86	)	$	-		$	(163	)
Foreign exchange forward ^(b)		-			(79	)		-			(496	)

Derivative instruments not designated as cash flow hedging instruments:
Interest rate cap ^(a)		154			-			(297	)		-
Foreign exchange forward ^(c)		(676	)		-			(546	)		(80	)
Total	$	(522	)	$	(165	)	$	(843	)	$	(739	)

	(a)	For the three months ended June 30, 2022 recognized as income in interest expense, net. For the six months ended June 30, 2022, $0.3 million was recognized as income in interest expense, net and $0.6 million was reclassified from other comprehensive income (loss) to interest expense, net. For the three and six months ended June 30, 2021, recognized, net of tax, as a component of other comprehensive income (loss) within stockholders’ equity.
	(b)	For the three and six months ended June 30, 2021, $0.1 million was recognized as a loss on foreign currency in the condensed consolidated statements of income, and a $0.0 million and a $0.4 million gain, respectively, was recognized, net of tax, as a component of other comprehensive income (loss) within stockholders’ equity.
	(c)	Gains (losses) related to derivative instruments are expected to be largely offset by (losses) gains on the underlying exposures being hedged and recognized in gain (loss) on foreign currency.

In connection with the acquisition of Classic Journeys, the purchase agreement includes a contingent consideration earnout, see Note 11—Acquisitions, which is required to be recorded at fair value at each period. The possible contingent acquisition consideration earnout is either zero or $0.6 million, depending on the achievement of certain average annual net profits targets for the years ended December 31, 2022 and 2023 by the acquired operation. As of June 30, 2022, the contingent liability had a value of $0.3 million using a Level 3 valuation method, which was recorded in other long-term liabilities.

The carrying amounts of cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to the short-term nature of these instruments. The Company estimates the approximate fair value of its long-term debt to be $483.6 million as of June 30, 2022, based on the terms of the agreements and comparable market data as of June 30, 2022. As of June 30, 2022 and December 31, 2021, the Company had no other significant liabilities that were measured at fair value on a recurring basis.