Derivative

12 Months Ended

Jan. 03, 2023

Derivative

Derivative

12. Derivative

We terminated our interest rate swap agreement, which was designated as a cash flow hedge, in fiscal 2021. This interest rate swap, which would have matured on April 1, 2025, was established to manage our exposure to interest rate movements on our credit facility. The interest rate swap entitled 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 was $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 were settled monthly. Prior to termination, the interest rate swap was determined to be an effective hedging agreement.

For derivatives designated as a cash flow hedge, changes in fair value are initially included as a component of accumulated other comprehensive loss (“AOCL”) and subsequently reclassified to earnings as interest expense when the hedged forecasted

transaction occurs. Any ineffective portion of changes in the fair value are immediately recognized in earnings as interest expense. We classify cash inflows and outflows from derivatives within operating activities on the consolidated statements of cash flows. No gains or losses representing amounts excluded from the assessment of effectiveness were recognized in earnings in fiscal 2021 or fiscal 2020.

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

	Fiscal year ended
	December 28, 2021		December 29, 2020
Beginning balance	$	(3,464)	$	—
Other comprehensive loss before reclassifications		2,514		(4,612)
Amounts reclassified from AOCI		950		1,148
Other comprehensive loss, net of tax		3,464		(3,464)
Ending balance	$	—	$	(3,464)

We classified this interest rate swap within Level 2 of the valuation hierarchy described in Note 3. 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 our and the counterparty’s non-performance risk to the derivative trade was considered when measuring the fair value of derivative liability.