Note 6 - Derivative Instruments

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE

6

– DERIVATIVE INSTUMENTS

Interest Rate Risk Management

In the

third

quarter of

2017,

the Company entered into an interest rate swap transaction to fix the variable interest rate on a portion of its term loan borrowing in order to manage a portion of its exposure to interest rate fluctuations. The Company’s objective and strategy with respect to this interest rate swap is to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability to cash flows relating to interest payments on a portion of its outstanding debt. The Company is meeting its objective by hedging the risk of changes in its cash flows (interest payments) attributable to changes in LIBOR, the designated benchmark interest rate being hedged (the “hedged risk”), on an amount of the Company’s debt principal equal to the outstanding swap notional amount.

Cash Flow Interest Rate Swap

The Company’s interest rate swap is designated and qualifies as a cash flow hedge of forecasted interest payments. The Company reports the effective portion of the fair value gain or loss on the swap as a component of other comprehensive income (or other comprehensive loss). Gains or losses (if any) on any ineffective portion of derivative instruments in cash flow hedging relationships are recorded in the period in which they occur as a component of other expense (or other income) in the Consolidated Condensed Statement of Operations and as a component of operating activities in the Consolidated Condensed Statement of Cash Flows.  The aggregate notional amount of the swap as of

September 30, 2018

was

$100

million.

Forward Contracts

The recently acquired nora operations are party to currency forward contracts designed to hedge the cash flow risk of intercompany sales from the manufacturing facility in Europe to the Americas.  The Company’s objective and strategy with respect to these currency forward contracts is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to receipt of payment on intercompany sales.  The Company is meeting its objective by hedging the risk of changes in its cash flows (intercompany payments for inventory) attributable to changes in the U.S. dollar/Euro exchange rate (the “hedged risk”). Changes in fair value attributable to components other than exchange rates will be excluded from the assessment of effectiveness and amortized to earnings on a straight-line basis.  Changes in fair value related to the effective portion of these contracts will be reflected as a component of other comprehensive income (or other comprehensive loss). A portion of these forward contracts expire each month, with the final contract expiring in

September

of

2019.

  These contracts cover approximately

70%

of the expected intercompany sales activity between the nora European manufacturing facility and the U.S. subsidiary and at this time the Company believes these are probable transactions given historical performance as well as budget projections.  The current notional value of these forward currency contracts and the future intercompany sales these instruments hedge is approximately

$52

million.

The table below sets forth the fair value of derivative instruments as of

September 30, 2018 (

in thousands):

	Asset Derivatives as of			Liability Derivatives as of
	September 30, 2018			September 30, 2018
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
Derivative instruments designated as hedging instruments:
Foreign currency contracts	Other current assets	$	1,757	Other current liabilities		--
Interest rate swap contract	Other current assets		3,636	Other current liabilities		--
		$	5,393			--

The table below sets forth the fair value of derivative instruments as of

December 31, 2017 (

in thousands):

	Asset Derivatives as of			Liability Derivatives as of
	December 31, 2017			December 31, 2017
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
Derivative instruments designated as hedging instruments:
Interest rate swap contract	Other current assets	$	904	Other current liabilities		--

There was

no

significant impact to earnings from the changes in fair value of derivatives designated as cash flow hedges or from amounts excluded from the assessment of hedge effectiveness during the

three

and

nine

months ended

September 30, 2018. 

There was

no

significant impact from the reclassification of hedged items from accumulated other comprehensive income during the

three

and

nine

months ended

September 30, 2018.

The amount of hedged items expected to be reclassified from accumulated other comprehensive income in the next

12

months is

not

significant.

The following tables summarize the pre-tax impact that changes in the fair value of derivatives designated as cash flow hedges and included in the assessment of hedge effectiveness had on accumulated other comprehensive income during the

three

and

nine

months ended

September 30, 2018 (

in thousands):

	Gain (Loss) Recognized in Accumulated
Three months ended September 30, 2018	Other Comprehensive Income
Foreign currency contracts	$	(167	)
Interest rate swap contract	$	453

	Gain (Loss) Recognized in Accumulated
Nine months ended September 30, 2018	Other Comprehensive Income
Foreign currency contracts	$	(167	)
Interest rate swap contract	$	2,732