Financial Instruments

3 Months Ended

Apr. 02, 2022

Notes To Financial Statements [Abstract]

Foreign Exchange: The company uses foreign currency forward, foreign exchange swaps and option purchase and sales contracts to hedge its exposure to changes in foreign currency exchange rates. The company’s primary hedging activities are to mitigate its exposure to changes in exchange rates on intercompany and third party trade receivables and payables. The company does not currently enter into derivative financial instruments for speculative purposes. In managing its foreign currency exposures, the company identifies and aggregates naturally occurring offsetting positions and then hedges residual balance sheet exposures. The notional amount of foreign currency contracts outstanding was $350.2 million and $350.5 million as of April 2, 2022 and January 1, 2022, respectively. The fair value of the forward and option contracts was a loss of $3.0 million at the end of the first quarter of 2022.

Interest Rate: The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The agreements swap one-month LIBOR for fixed rates. In February 2022, the company entered into an additional floating-to-fixed interest rate swap agreement that uses a daily Secured Overnight Financing Rate ("SOFR") in lieu of LIBOR. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income. As of April 2, 2022, the fair value of these instruments was a asset of $24.0 million. The change in fair value of these swap agreements in the first three months of 2022 was a gain of $31.1 million, net of taxes.

The following table summarizes the company’s fair value of interest rate swaps (in thousands):


	Condensed Consolidated Balance Sheet Presentation	Apr 2, 2022		Jan 1, 2022
Fair value	Prepaid expense and other	$	623	—
Fair value	Other assets	$	25,501	$	3,645
Fair value	Accrued expenses	$	67	$	1,171
Fair value	Other non-current liabilities	$	2,039	$	20,464

The impact on earnings from interest rate swaps was as follows (in thousands):


		Three Months Ended
	Presentation of Gain/(loss)		Apr 2, 2022		Apr 3, 2021
Gain/(loss) recognized in accumulated other comprehensive income	Other comprehensive income		$	38,047	$	11,716
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Interest expense		$	(3,961)	$	(5,023)

Interest rate swaps are subject to default risk to the extent the counterparties are unable to satisfy their settlement obligations under the interest rate swap agreements. The company reviews the credit profile of the financial institutions that are counterparties to such swap agreements and assesses their creditworthiness prior to entering into the interest rate swap agreements and throughout the term. The interest rate swap agreements typically contain provisions that allow the counterparty to require early settlement in the event that the company becomes insolvent or is unable to maintain compliance with its covenants under its existing debt agreements.