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Financing Arrangements

3 Months Ended

Mar. 29, 2020

Fair Value

The company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance establishes a fair value hierarchy based on the inputs used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:


•	Level One: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.


•	Level Two: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.


•	Level Three: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The aggregate fair value of the Company's interest rate swap and cross-currency swap as of March 29, 2020 are summarized in the table below (in thousands):



	Significant Other Observable Inputs
	Level 2
Derivative asset	$	3,768
Derivative liabilities	$	12,310

The carrying amounts of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments. Cash equivalents are carried at cost which approximates fair value at the balance sheet date and is a Level 1 financial instrument. As of March 29, 2020, the fair value of our gross debt (before netting debt issuance costs) was $496.1 million, or $131.8 million below our carrying cost of $602.3 million, and is a Level 2 financial instrument.

Financial Instruments

As of March 29, 2020 and December 31, 2019, the Company had restricted cash balances of $1.1 million and $1.2 million, respectively. These balances are recorded within prepaid and other current assets on the condensed consolidated balance sheets, and are included within cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows.

The Company has a receivables purchasing agreement with a bank whereby the Company can sell selected account receivables and receive between 90% and 100% of the purchase price upfront, net of applicable discount fee, and the residual amount as the receivables are collected. During the quarter, the Company sold a total of $14.5 million in receivables under the program, receiving $13.6 million in cash. The outstanding purchase price component of $0.8 million was recorded in prepaid expenses and other current assets on the condensed consolidated balance sheet at March 29, 2020.

The Company has a cross-currency swap agreement to hedge its net investment in non-U.S. subsidiaries against future volatility in exchange rates between the U.S. dollar and the Euro. The cross-currency swap agreement is pursuant to an International Swaps and Derivatives Association ("ISDA") Master Agreement with Deutsche Bank AG. The three-year cross-currency swap has a fixed notional value of $100.0 million at an annual rate of 2.4% and a maturity date of July 12, 2022. At inception, the cross-currency swap was designated as a net investment hedge. This hedging agreement mitigates foreign currency exchange rate exposure and is not for speculative trading purposes. The net investment hedge was deemed effective as of quarter-end.

The Company has an interest rate swap pursuant to an ISDA Master Agreement with Citizens Bank, National Association. The four-year interest rate swap has a fixed notional value of $400.0 million with a 1% LIBOR floor and a maturity date of April 12, 2022. The fixed rate of interest paid by the Company is comprised of our current credit spread of 350 basis points plus 2.6475% for a total interest rate of 6.1475%. The ISDA Master Agreement, together with its related schedules, contains customary representations, warranties and covenants.

The Company has designated the interest rate swap as a qualifying hedging instrument and is treating it as a cash flow hedge for accounting purposes pursuant to ASC 815, Derivatives and Hedging. The aggregate net fair value of the interest rate swap and cross-currency swap was $(8.5) million. These balances are recorded in other long-term liabilities of $6.0 million, accrued expenses and other current liabilities of $6.3 million, and other current assets of $3.8 million on our condensed consolidated balance sheet as of March 29, 2020. In addition, the Company recorded a long-term deferred tax asset of $2.8 million as of the same date.

The amount of gain (loss) recognized in other comprehensive (loss) income ("OCI") and reclassified from accumulated other comprehensive (loss) income ("AOCI") to income are summarized below:



	Three Months Ended
	March 29, 2020
Amount of loss recognized in OCI	$	(4,105	)

Amount of loss reclassified from AOCI into income	$	(1,093	)

The realized loss of $1.1 million was reclassified from other comprehensive loss to interest expense and was accrued on the swap during the three months ended March 29, 2020. Amounts expected to be reclassified from other comprehensive income into interest expense in the following 12 months is a loss of $6.2 million. Interest expense (including the effects of the cash flow hedges) related to the portion of the Company's term loan subject to the aforementioned interest-rate swap agreement was $6.0 million for the three months ended March 29, 2020.

Debt

As of March 29, 2020, total debt was $589.0 million compared to $636.3 million as of December 31, 2019. Total debt is net of unamortized term loan debt issuance costs of $13.3 million and $17.6 million at March 29, 2020 and December 31, 2019, respectively. The Company made interest payments of $8.8 million and $12.4 million during the three months ended March 29, 2020, and March 31, 2019, respectively.

During the three months ended March 29, 2020, the Company paid down $161.8 million on its term loan from proceeds received through the sale of the I&S business. On March 20, 2020, the Company drew down $80.0 million on its line of credit due to concerns about possible disruptions to global capital markets stemming from COVID-19.

During the three months ended March 29, 2020 the Company amended its term loan to lower the interest rate associated with the applicable margin calculation. The new terms lower the interest rate on the Company's term loan from LIBOR plus an applicable margin of 3.5% to LIBOR plus an applicable margin of 3.25%, based on its existing corporate family rating from Moody's. The applicable margin reduces to LIBOR plus an applicable margin of 3.00%, with a corporate family rating from Moody's of B1 or better.

As part of the debt repricing, the Company's outstanding loan balance was reallocated amongst the lender group. The Company evaluated the changes in outstanding loan balance for each individual lender to determine the amount of capitalized debt issuance costs that required adjustment. Through this exercise, the Company amortized $3.2 million of debt issuance costs, which were recorded as special charges.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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