Note 12 - Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

12.     DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Our primary objective for holding derivative financial instruments is to manage foreign currency exchange rate risk and interest rate risk, when deemed appropriate. We enter into these contracts in the normal course of business to mitigate risks and not for speculative purposes.

Foreign Currency Forward Contracts

Under our risk management strategy, we periodically use foreign currency forward contracts to manage our short-term exposures to fluctuations in operational cash flows resulting from changes in foreign currency exchange rates. These cash flow exposures result from portions of our forecasted operating expenses, primarily compensation and related expenses, which are transacted in currencies other than the U.S. dollar, most notably the Chinese Renminbi and the Mexican Peso.  These foreign currency forward contracts generally have maturities of no longer than twelve months, although occasionally we will execute a contract that extends beyond twelve months, depending upon the nature of the underlying risk.

We held outstanding foreign currency forward contracts with notional amounts of $17.1 million and $0.4 million as of December 31, 2021 and 2020, respectively.  

Interest Rate Swap Agreements

To partially mitigate risks associated with the variable interest rates on the revolver borrowings under the New Credit Agreement, in November 2021, we executed a pay-fixed, receive-variable interest rate swap agreement with each of two multinational financial institutions under which we (i) pay interest at a fixed rate of 1.3055% and receive variable interest of one-month LIBOR on a notional amount of $30.0 million and (ii) pay interest at a fixed rate of 1.3180% and receive variable interest of one-month LIBOR on a notional amount of $30.0 million (the “2021 Swaps”).  The effective date of the 2021 Swaps was December 31, 2021, and settlements with the counterparties began on January 31, 2022 and occur on a monthly basis. The 2021 Swaps swill terminate on August 31, 2026.

The 2021 Swaps are designated as cash flow hedges for accounting purposes and as such, changes in their fair value are recognized in accumulated other comprehensive income (loss) in the consolidated balance sheet and are reclassified into the statement of operations within interest expense in the period in which the hedged transaction affects earnings. 

Fair Values of Derivative Financial Instruments

The fair values of our derivative financial instruments and their classifications in our consolidated balance sheets as of December 31, 2021 were as follows:

		December 31,
	Balance Sheet Classification	2021		2020
Derivative assets:
Foreign currency forward contracts:
Designated as cash flow hedges	Other current assets	$	57	$	-
Not designated as hedging instruments	Other current assets		-		12
Total derivative assets		$	57	$	12
Derivative liabilities:
Foreign currency forward contracts:
Not designated as hedging instruments	Other current liabilities	$	19	$	-
Interest rate swap agreements:
Designated as a cash flow hedge	Other long-term liabilities		116		-
Total derivative liabilities		$	135	$	-

Derivative Financial Instruments in Cash Flow Hedging Relationships

The effects of derivative financial instruments designated as cash flow hedges on accumulated other comprehensive loss (“AOCL”) and on the consolidated statement of operations for the years ended December 31, 2021 and 2020 were as follows:  

	December 31,
	2021			2020
Net gains (losses) recognized in AOCL:
Foreign currency forward contracts	$	57		$	-
Interest rate swap agreements		(116	)		-
	$	(59	)	$	-

The gain related to the foreign currency forward contracts is included as a component of currency translation adjustment on the accompanying statement of other comprehensive income at December 31, 2021.  The loss related to the interest rate swap agreements is included as a component of unrealized holding (losses) gains on marketable securities on the accompanying statement of other comprehensive income at December 31, 2021.  There were no net gains (losses) reclassified from AOCL to the consolidated statements of operations during 2021 or 2020.

Derivative Financial Instruments Not Designated as Hedging Instruments

(Losses) gains recognized on derivative financial instruments not designated as hedging instruments in our consolidated statements of operations for the years ended December 31, 2021 and 2020 were as follows: 

		Year Ended December 31,
	Classification in Consolidated Statements of Operations	2021		2020
Foreign currency forward contracts	Other (expense) income, net	$	62	$	134
Interest rate swap agreements	Other (expense) income, net		-		-
		$	62	$	134