The Company’s financial instruments include cash equivalents, accounts receivable, other receivables, accounts payable, accrued liabilities and long-term debt. The Company believes that the carrying values of these instruments approximate fair value because of their short-term nature. The Company uses derivative instruments to manage the variability of foreign currency obligations and interest rates. The Company does not enter into derivatives for speculative purposes.

On July 30, 2021, the Company entered into forward currency exchange contracts designated as cash flow hedges of forecasted foreign currency expenses with a notional amount of $10.2 million as of December 31, 2022. Changes in the fair value of the derivatives are recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets until earnings are affected by the variability of the cash flows. During the year ended December 31, 2022, the Company recorded an unrealized loss of $0.6 million ($0.4 million net of tax) on the forward currency exchange contracts in other comprehensive income and transferred unrealized gains of $0.5 million to cost of sales. During the year ended December 31, 2021, the Company recorded an unrealized loss of $0.2 million ($0.1 million net of tax) on the forward currency exchange contracts in other comprehensive income and transferred unrealized losses $0.4 million to cost of sales. See Note 19. The Company also has forward currency exchange contracts in place as of December 31, 2022 that have not been designated as accounting hedges and, therefore, changes in fair value are recorded within the condensed consolidated statements of income.

As of December 31, 2022, the fair value estimates for the Company’s forward currency exchange contracts were based on Level 2 inputs of the fair value hierarchy, which includes obtaining directly or indirectly observable values from third parties active in the relevant markets. Inputs in the fair value of the foreign currency forward contracts include prevailing forward and spot prices for currencies. The Company enters into forward currency exchange contracts for its operations in Mexico, Europe and Asia.

The Company has an interest rate swap agreement with a notional amount of $121.9 million and $129.4 million as of December 31, 2022 and 2021, respectively, to hedge a portion of its interest rate exposure on outstanding borrowings under the Credit Agreement. Under this interest rate swap agreement, the Company receives variable rate interest payments based on the one-month LIBOR rate

and pays fixed rate interest payments. The fixed interest rate for the contract is 2.928%. The effect of this swap is to convert a portion of the floating rate interest expense on the borrowing under the Credit Agreement to fixed interest rate expense. Based on the terms of the interest rate swap contract and the underlying borrowings outstanding under the Credit Agreement, the interest rate contract was determined to be highly effective, and thus qualifies and has been designated as a cash flow hedge. As such, changes in the fair value of the interest rate swap are recorded in other comprehensive income on the accompanying consolidated balance sheets until earnings are affected by the variability of cash flows.

The fair value of the interest rate swap agreements was a $0.6 million asset as of December 31, 2022 and a $4.3 million liability as of December 31, 2021 recorded in accrued liabilities in the consolidated balance sheets. During the year ended December 31, 2022, the Company recorded unrealized losses of $5.0 million ($3.7 million net of tax) on the swaps in other comprehensive loss. During the year ended December 31, 2021 the Company recorded unrealized gains of $4.7 million ($3.5 million net of tax) on the swap in other comprehensive loss. During the year ended December 31, 2020, the Company recorded unrealized losses of $2.7 million ($2.0 million net of tax) on the swap in other comprehensive loss and transferred unrealized gains of $1.5 million ($1.1 million net of tax) on the terminated swap to interest expense. See Note 19.

As of December 31, 2022, the fair value estimate for the Company’s interest rate swap agreement were based on Level 2 inputs of the fair value hierarchy, as we obtained the valuation from a third party active in relevant markets. The valuation of the swap is primarily measured through various pricing models or discounted cash flow analysis that incorporate observable market parameters, such as interest rate yield curves and volatility.

The following table presents the fair value of the Company's derivative instruments:


	Fair Values of Derivative Instruments
	Asset Derivatives					Liability Derivatives
	Balance Sheet	December 31,		December 31,		Balance Sheet	December 31,		December 31,
(in thousands)	Location	2022		2021		Location	2022		2021
Derivatives designated as hedging instruments:
Forward currency exchange contracts	Other current assets	$	407	$	—	Accrued liabilities	$	—	$	178
Interest rate swap	Other current assets	$	639	$	—	Accrued liabilities	$	—	$	4,332

Financial instruments that subject the Company to credit risk consist of cash and cash equivalents and restricted cash and trade accounts receivable. The Company maintains cash and cash equivalents with recognized financial institutions. One of the most significant credit risks is the ultimate realization of accounts receivable. This risk is mitigated by (i) sales to well established companies, (ii) ongoing credit evaluation of customers, and (iii) frequent contact with customers, thus enabling management to monitor current changes in business operations and to respond accordingly. Management considers these concentrations of credit risks in establishing our allowance for doubtful accounts and believes these allowances are adequate. The Company had one customer whose gross accounts receivable exceeded 10% of total gross accounts receivable as of December 31, 2022. That customer represented 17% of our total gross accounts receivable.