Note 13 - Derivative Financial Instruments

9 Months Ended

Sep. 30, 2020

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

13. DERIVATIVE FINANCIAL INSTRUMENTS

As a matter of policy, the Company uses derivatives for risk management purposes, and does not use derivatives for speculative purposes. From time to time, the Company may enter into foreign currency forward contracts to hedge foreign currency cash flow transactions. For cash flow hedges, a gain or loss is recorded in the Consolidated Statements of Operations upon settlement of the hedge. All of the Company’s hedges that are designated as hedges for accounting purposes were highly effective; therefore, no notable amounts of hedge ineffectiveness were recorded in the Company’s Consolidated Statements of Operations for either the settlement of cash flow hedges or the outstanding hedged balance. The Company’s cash flow hedges were in a net deferred loss position of $10.1 million and $4.6 million at September 30, 2020 and December 31, 2019, respectively. The change during the period was due to unfavorable movements in short-term interest rates relative to the hedged position. The Company presents derivative instruments in the consolidated financial statements on a gross basis. Deferred losses were recorded in other non-current liabilities and other comprehensive income on the Consolidated Balance Sheets. The net periodic change of the Company’s cash flow hedges was recorded on the foreign currency translation adjustment and derivative transactions line of the Consolidated Statements of Equity.

The Company also engages in regular inter-company trade activities and receives royalty payments and management fees from certain of its wholly-owned entities, paid in local currency, rather than the Company’s functional currency, U.S. dollars. From time to time, the Company utilizes foreign currency forward exchange contracts to mitigate the currency risk associated with the anticipated future payments from certain of its international entities. No contracts were utilized during the first nine months of 2020. During the first nine months of 2019, a loss of $0.2 million was recorded upon settlement of foreign currency forward exchange contracts. Gains and losses of this nature are recorded to “Other income (expense)” in the Consolidated Statements of Operations.

In October 2015, the Company entered into an interest rate swap agreement for a notional amount of $262.5 million, which expired in October 2020. The notional amount of this swap mirrored the amortization of a $262.5 million portion of the Company’s $350.0 million term loan drawn from the original Credit Facility. The swap required the Company to make a monthly fixed rate payment of 1.46% calculated on the amortizing $262.5 million notional amount and provided for the Company to receive a payment based upon a variable monthly LIBOR interest rate calculated by amortizing the $262.5 million same notional amount. The receipt of the monthly LIBOR-based payment offset a variable monthly LIBOR-based interest cost on a corresponding $262.5 million portion of the Company’s term loan from the original Credit Facility. This interest rate swap was used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement and was accounted for as a cash flow hedge.

On March 12, 2018, the Company entered into an interest rate swap forward agreement that began in October 2020 and expires in February 2023 to coincide with the amortization period of the amended Credit Facility. The swap requires the Company to make a monthly fixed rate payment of 2.937% calculated on the amortizing $170.6 million notional amount, and provides for the Company to receive a payment based upon a variable monthly LIBOR interest rate calculated on the same amortizing $170.6 million notional amount. The receipt of the monthly LIBOR-based payment offsets the variable monthly LIBOR-based interest cost on a corresponding $170.6 million portion of the Company’s term loan from the amended Credit Facility. This interest rate swap is used to partially hedge the interest rate risk associated with the volatility of monthly LIBOR rate movement and is accounted for as a cash flow hedge.

The following table summarizes the Company’s derivative position at September 30, 2020:

	Position		Notional Amount		Weighted Average Remaining Maturity In Years		Average Exchange Rate
Interest Rate Swap		—	$	170,625,000		2.25		—

The following table provides a summary of the fair value amounts of our derivative instruments, all of which are Level 2 inputs as defined in Note 2 (in thousands):

Designation of Derivatives	Balance Sheet Location	September 30, 2020			December 31, 2019
Derivatives Designated as Hedging Instruments:
Interest Rate Swaps	Other non-current assets	$	—		$	261
	Total Assets	$	—		$	261
Interest Rate Swaps	Other non-current liabilities	$	10,078		$	4,899
	Total Liabilities	$	10,078		$	4,899
	Total Derivative Assets	$	—		$	261
	Total Derivative Liabilities		10,078			4,899
	Total Net Derivative Liability	$	(10,078	)	$	(4,638	)