Fair Value Measurement (Tables)

12 Months Ended

Dec. 31, 2017

Summary of Financial Liability Measured at Fair Value on a Recurring Basis

The table below summarizes the financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2017 and the (gain) loss recorded during the year ended December 31, 2017:



	Asset (Liability) Carrying Value at December 31, 2017			Quoted Prices in Active Markets for Identical (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		(Gain) loss for Year Ended December 31, 2017
Interest rate swap — cash flow hedge	$	971		$	—	$	971		$	—	$	37
Foreign currency hedges	$	(742	)	$	—	$	(742	)	$	—	$	(38	)

The table below summarizes the financial liability that was measured at fair value on a recurring basis as of December 31, 2016 and the (gain) loss recorded during the year ended December 31, 2016:



	Asset (Liability) Carrying Value at December 31, 2016			Quoted Prices in Active Markets for Identical (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		(Gain) loss for Year Ended December 31, 2016
Interest rate swap — cash flow hedge	$	753		$	—	$	753		$	—	$	(928	)
Foreign currency hedges	$	(601	)			$	(601	)			$	18

Reconciliation of Recurring Financial Liability Related to Interest Rate Swaps

Derivatives

Our earnings and cash flows are subject to fluctuations due to changes in foreign currency exchange rates and interest rates. We selectively use derivative financial instruments including foreign currency forward contracts and interest rate swaps to manage our exposure to these risks.

The use of derivative financial instruments exposes the Company to credit risk, which relates to the risk of nonperformance by a counterparty to the derivative contracts. We manage our credit risk by entering into derivative contracts with only highly rated financial institutions and by using netting agreements.

Foreign Currency Hedges

In January of 2016, we began using forward contracts to mitigate currency risk related to a portion of our forecasted foreign Euro denominated revenues and Mexican Peso denominated expenses. The currency forward contracts are designed as cash flow hedges and are recorded in the Consolidated Balance Sheets at fair value. At least quarterly, we assess the effectiveness of these hedging relationships based on the total change in their fair value using regression analysis. The effective portion of derivative gains and losses are recorded in accumulated other comprehensive loss until the hedged transaction affects earnings upon settlement, at which time they are reclassified to net sales and cost of goods sold. Ineffectiveness is recorded in other income (expense) in our Consolidated Statements of Earnings. If it becomes probable that an anticipated transaction that is hedged will not occur by the end of the originally specified time period, we reclassify the gains or losses related to that hedge from accumulated other comprehensive loss to other income (expense).

As of December 31, 2017, we were hedging a portion of our forecasted Peso expenses and Euro denominated revenue for the following twelve months. We continue to monitor the Company’s overall currency exposure and may elect to add cash flow hedges in the future. At December 31, 2017, we had a net unrealized loss of $683 in accumulated other comprehensive loss, of which $567 is expected to be reclassified to income within the next 12 months. The notional amount of foreign currency forward contracts outstanding was $33.2 million at December 31, 2017.

Interest Rate Swaps

We use interest rate swaps to convert the revolving credit facility’s variable rate of interest into a fixed rate on a portion of our debt balance. In the second quarter of 2012, we entered into four separate one-year interest rate swap agreements to fix interest rates on $50,000 of long-term debt for the periods January 2013 to January 2017. In the third quarter of 2012, we entered into four additional one-year interest rate swap agreements to fix interest rates on $25,000 of long-term debt for the periods January 2013 to January 2017. In the third quarter of 2016, we entered into three additional one-year interest rate swap agreements to fix interest rates on $50,000 of long-term debt for the periods August 2017 to August 2020. The difference to be paid or received under the terms of the swap agreements will be recognized as an adjustment to interest expense when settled.

These swaps are treated as cash flow hedges and consequently, the changes in fair value were recorded in other comprehensive income (loss). The estimated net amount of the existing gains or losses that are reported in accumulated other comprehensive income (loss) that is expected to be reclassified into earnings within the next twelve months is approximately $278.

The location and fair values of derivative instruments designated as hedging instruments in the Consolidated Balance Sheets as of December 31, 2017, are shown in the following table:



	As of December 31,
	2017		2016
Foreign currency hedges reported in Accrued expenses and other liabilities	$	742	$	601
Interest rate swaps reported in Other current assets	$	278	$	2
Interest rate swaps reported in Other assets	$	693	$	751

The Company has elected to net its foreign currency derivative assets and liabilities in the balance sheet in accordance with ASC 210-20 (Balance Sheet, Offsetting). On a gross basis, there were $97 foreign currency derivative assets and foreign currency derivative liabilities were $839.

The effect of derivative instruments on the Consolidated Statements of Earnings is as follows:



	Years Ended December 31,
	2017			2016			2015
Foreign Exchange Contracts:
Amounts reclassified from AOCI to earnings
Net sales	$	(488	)	$	(124	)	$	—
Cost of goods sold	497			111			—
Selling, general and administrative	45			1			—
Total amounts reclassified from AOCI to earnings	54			(12		)	—
Loss recognized in other expense for hedge ineffectiveness	(1		)	(1		)	—
Loss recognized in other expense for derivatives not designated as cash flow hedges	(15		)	(5		)	—
Total derivative gain (loss) on foreign exchange contracts recognized in earnings	38			(18		)	—

Interest Rate Swaps:
Interest Expense	$	(37	)	$	(928	)	$	(768	)
Total income (loss) on derivatives recognized in earnings	$	1		$	(946	)	$	(768	)

The table below provides a reconciliation of the recurring financial assets and liabilities related to interest rate swaps and foreign currency hedges:



	Interest Rate Swaps			Foreign Currency Hedges
Balance at January 1, 2016	$	(768	)	$	—
Settled in cash	—			54
Total gains (losses) for the period:
Included in earnings	928			(18		)
Included in other comprehensive earnings (loss)	593			(637		)
Balance at January 1, 2017	$	753		$	(601	)
Settled in cash	—			(132		)
Total gains (losses) for the period:
Included in earnings	—			38
Included in other comprehensive earnings (loss)	218			(47		)
Balance at December 31, 2017	$	971		$	(742	)