Derivative Financial Instruments

12 Months Ended

Dec. 31, 2016

Derivative Financial Instruments

Derivative Financial Instruments

5. Derivative Financial Instruments

        The Company uses derivative financial instruments to manage certain exposures to the variability of interest rates and foreign currency exchange rates. The Company's objective is to offset increases and decreases in expenses resulting from these exposures with gains and losses on the derivative contracts, thereby reducing volatility of earnings.

Interest Rate Swaps

        The Company is exposed to interest rate fluctuations in the normal course of its business, including through its Credit Facilities. The interest payments on the facility are calculated using a variable-rate of interest. The Company has entered into an interest rate swap agreement with an original notional value of $72.5 million (equal to the outstanding balance of the Credit Facilities at July 8, 2016) and, effectively, converted the Eurodollar portion of the variable-rate interest payments to fixed-rate interest payments through July 2020. The Company's previous swap agreement with a remaining notional value of $72.5 million was terminated on July 8, 2016.

        The Company estimates the fair values of interest rate swaps based on quoted prices and market observable data of similar instruments. If the Credit Facilities or the interest rate swap agreement is terminated prior to maturity, the fair value of the interest rate swap recorded in accumulated other comprehensive income (loss) may be recognized in the Consolidated Statement of Income based on an assessment of the agreements at the time of termination. The fair value of the interest rate swap terminated on July 8, 2016 was not material. The Company did not discontinue any other cash flow hedges in any of the periods presented.

        The Company measures the effectiveness of its cash flow hedge by comparing the change in fair value of the hedged variable interest payments with the change in fair value of the interest rate swap. The Company recognizes ineffective portions of the hedge, as well as amounts not included in the assessment of effectiveness, in the Consolidated Statement of Income. As of December 31, 2016, no portion of the gains or losses from the Company's hedging instrument was excluded from the assessment of effectiveness. Hedge ineffectiveness was not material for any of the periods presented.

        The Company's derivative financial instrument in cash flow hedging relationships consisted of the following (in thousands):

		Fair Value
	Balance Sheet Location	December 31, 2016		January 2, 2016
Interest rate swap	Other assets, net	$	1,808	$	92

        The before-tax effect of derivative instruments in cash flow hedging relationships was as follows (in thousands):

	Gain (Loss) Recognized in OCI on Derivatives (Effective Portion) during the Year Ended								Location of Loss Reclassified into Income	Loss Reclassified from Accumulated OCI into Income (Effective Portion) during the Year Ended
	December 31, 2016		January 2, 2016			January 3, 2015				December 31, 2016			January 2, 2016			January 3, 2015
Interest rate swaps	$	1,466	$	(728	)	$	(799	)	Interest expense	$	(249	)	$	(489	)	$	(618	)

        The Company expects to reclassify $0.1 million of its interest rate swap gains included in accumulated other comprehensive income (loss) as of December 31, 2016 into earnings in the next 12 months, which would be offset by higher interest payments.

Foreign Currency Forward Contracts

        The Company uses foreign currency forward contracts to manage exposure to foreign exchange risk. As of December 31, 2016 and January 2, 2016, the Company held one foreign currency forward contract denominated in Norwegian Krone with a notional value of $3.9 million and $5.1 million, respectively. The fair value of the contracts was not material as of December 31, 2016 and January 2, 2016. The contract held as of December 31, 2016 has a maturity date of March 29, 2017 and it was not designated as a hedging instrument.

        The before-tax effect of derivative instruments not designated as hedging instruments was as follows (in thousands):

	Year Ended
Gain (Loss) Recognized in Income	December 31, 2016			January 2, 2016		January 3, 2015		Location
Foreign currency forward contracts	$	(92	)	$	935	$	1,075	Other, net