Interest Rate Derivatives

9 Months Ended

Sep. 26, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company is party to pay-fixed and receive-floating interest rate swap agreements to offset the variability of cash flows in LIBOR-indexed debt interest payments, subject to a 1.0% floor, attributable to changes in the benchmark interest rate from March 13, 2017 to March 13, 2021 related to its credit agreement. During the first quarter of 2020, in accordance with the original agreements with the counterparties, the notional amount of one swap decreased from $105.0 million to $70.0 million. There were no other changes in the terms of the agreements. Also, during the first quarter of 2020, the Company entered into a forward-starting interest rate collar that will hedge variability of cash flows of LIBOR-indexed debt interest payments from March 13, 2021 to July 18, 2024, following the maturity of the interest rate swap agreements, with an aggregate notional amount of $375 million.

During the second quarter of 2020, as a result of the partial repayment of the Company’s LIBOR based debt balances, certain forecasted hedged transactions were deemed not probable of occurring. The Company subsequently discontinued hedge accounting on $78.0 million of interest rate swap notional and $58.0 million of interest rate collar notional, reclassifying net unrealized losses of approximately $2.5 million from AOCL to interest expense, net during the nine months ended September 26, 2020. Additionally, due to changes in the interest rates applicable to the Company’s term loan and revolver, the interest rate collar ceased to be a highly effective hedge. Losses on the change in fair value of the interest rate collar of approximately $2.6 million were recorded in interest expense, net during the nine months ended September 26, 2020. Interest expense, net related to derivatives considered to be highly effective hedges for the three and nine months ended September 26, 2020 was $2.0 million and $5.9 million, respectively.

Changes in the cash flows of interest rate swap derivatives designated as hedges are expected to be highly effective in offsetting the changes in interest payments on a principal balance equal to the designated derivative’s notional amount, attributable to the hedged risk. Derivatives qualifying as hedges are included in the same section of the Condensed Consolidated Statements of Cash Flows as the underlying assets and liabilities being hedged. Cash flows during the nine months ended September 26, 2020 related to derivatives not qualifying as hedges were included in the operating section of the Condensed Consolidated Statements of Cash Flows and were not material. As of September 26, 2020, the Company expects to reclassify approximately $3.5 million of unrealized losses on derivative instruments, net of tax, from AOCL into earnings in the next 12 months as the derivative instruments mature. See Note 14. “Accumulated Other Comprehensive Loss” for further details.

Our positions related to interest rate derivative contracts are as follows:


In thousands		Balance Sheet Classification	As of September 26, 2020		As of December 28, 2019
Derivatives designated as hedging instruments under ASC 815
	Interest rate swaps	Other Payables and Accrued Expenses	$	3,602	$	6,382
	Interest rate swaps	Other Liabilities	—		1,603
Total derivative liabilities designated as hedging instruments			$	3,602	$	7,985

Derivatives not designated as hedging instruments under ASC 815
	Interest rate swap	Other Payables and Accrued Expenses	$	584	$	—
	Interest rate collar	Other Payables and Accrued Expenses	1,923		—
	Interest rate collar	Other Liabilities	9,324		—
Total derivative liabilities not designated as hedging instruments			$	11,831	$	—