Derivative

9 Months Ended

Sep. 29, 2020

Derivative

Derivative

8. Derivative

On March 13, 2020, we entered into an interest rate swap agreement to manage our exposure to interest rate movements on our Facility. The agreement became effective on April 1, 2020 and matures on April 1, 2025. The interest rate swap entitles us to receive a variable rate of interest based on the one-month LIBO rate in exchange for the payment of a fixed interest rate of 0.802%. The notional amount of the swap agreement is $280.0 million through March 31, 2023 and $140.0 million from April 1, 2023 through April 1, 2025. The differences between the variable LIBO rate and the interest rate swap rate are settled monthly. We determined that at September 29, 2020, the interest rate swap agreement was an effective hedging agreement.

At September 29, 2020, the fair value of our interest rate swap was a liability of $5.4 million and was included in long-term other liabilities in the condensed consolidated balance sheet. Changes in the valuation of the interest rate swap are initially included as a component of accumulated other comprehensive loss (AOCL) and subsequently reclassified to earnings as realized. We reclassified $0.5 million and $0.7 million out of AOCL in the thirteen and thirty-nine weeks ended September 29, 2020, respectively, for the monthly settlement of the interest rate swap. These amounts were recorded in interest and other expense, net on the consolidated statement of income. No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings for the nine months ended September 29, 2020.

The following table summarizes the changes in AOCL, net of tax, related to the interest rate swap (in thousands):

Balance, December 31, 2019	$	—
Other comprehensive loss before reclassifications		(4,726)
Amounts reclassified from AOCL		667
Other comprehensive loss, net of tax		(4,059)
Balance, September 29, 2020	$	(4,059)

We classified this interest rate swap within Level 2 of the valuation hierarchy described in Note 9. Our counterparty under this arrangement provided monthly statements of the market values of this instrument based on significant inputs that were observable or could be derived principally from, or corroborated by, observable market data for substantially the full term of the asset or liability. The impact on the derivative liability for the Company’s and the counterparty’s non-performance risk to the derivative trade was considered when measuring the fair value of derivative liability.