Derivative Instruments

9 Months Ended

Sep. 29, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

Interest Rate Risk Management

In the third quarter of 2017 and the first quarter of 2019, the Company entered into interest rate swap transactions in notional amounts of $100 million and $150 million, respectively, 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 these interest rate swaps 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 amounts.

Cash Flow Interest Rate Swap

Both of the interest rate swaps described above are designated and qualify as cash flow hedges of forecasted interest payments. The Company reports the effective portion of the fair value gain or loss on the swaps 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 interest expense 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 interest rate swaps as of September 29, 2019 was $250 million.

Forward Contracts

Our 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). As of September 29, 2019, all foreign currency forward contracts have expired.

The table below sets forth the fair value of derivative instruments as of September 29, 2019 (in thousands):



	Asset Derivatives as of September 29, 2019			Liability Derivatives as of September 29, 2019
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivative instruments designated as hedging instruments:
Foreign currency contracts	Other current assets	$	—	Accrued expenses	$	—
Interest rate swap contracts	Other current assets	—		Accrued expenses	7,588
		$	—		$	7,588

The table below sets forth the fair value of derivative instruments as of December 30, 2018 (in thousands):



	Asset Derivatives as of December 30, 2018			Liability Derivatives as of December 30, 2018
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivative instruments designated as hedging instruments:
Foreign currency contracts	Other current assets	$	651	Other current liabilities	$	—
Interest rate swap contract	Other current assets	$	1,794	Other current liabilities	—
		$	2,445		—

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 29, 2019. The amount of hedged items expected to be reclassified from accumulated other comprehensive income in the next 12 months is not significant.

The following table summarizes the 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 29, 2019, and September 30, 2018 (in thousands):



	Three Months Ended						Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
				(In thousands)
Foreign currency contracts gain (loss)	$	627		$	(167	)	$	468		$	(167	)
Interest rate swap contracts (loss) gain	(1,568		)	453			(9,382		)	2,732
(Loss) gain recognized in accumulated other comprehensive income	$	(941	)	$	286		$	(8,914	)	$	2,565

The following table summarizes the losses reclassified from accumulated other comprehensive income during the three and nine months ended September 29, 2019 (in thousands):



		Three Months Ended		Nine Months Ended
	Statement of Operations Location	September 29, 2019		September 29, 2019
		(In thousands)
Foreign currency contracts	Cost of sales	$	450	$	450