DERIVATIVE FINANCIAL INSTRUMENTS

6 Months Ended

Jul. 03, 2020

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

5. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses certain interest rate derivative contracts to hedge interest rate exposures on its variable rate debt. The Company’s hedging program is not designated for trading or speculative purposes.

The Company recognizes derivative instruments as either assets or liabilities on the accompanying consolidated balance sheets at fair value. The Company records changes in the fair value (i.e., gains or losses) of the derivatives that have been designated as cash flow hedges in its consolidated balance sheets as accumulated other comprehensive income (loss) and in its condensed consolidated statements of comprehensive (loss) income as a loss or gain on cash flow hedge valuation.

On January 31, 2019, the Company entered into an interest rate swap agreement that the Company designated as cash flow hedge to fix the variable interest rate on a portion of the Company’s Term A Loan (as defined below in Note 6. “Debt Obligations”). The interest rate swap agreement total notional amount of $35.0 million, has a fixed annual interest rate of 2.47% and expires on January 31, 2022. As of July 3, 2020, the effective portion of the Company’s interest rate swap agreement designated as a cash flow hedge before tax effects was $1.0 million, of which no amounts were reclassified from accumulated other comprehensive income to interest expense in the six months ended July 3, 2020. The Company expects to reclassify $0.7 million from accumulated other comprehensive loss to interest expense within the next twelve months.

The fair values of the Company’s outstanding derivatives designated as hedging instruments were as follows:

		Fair Value of Derivative
		Instruments as of
	Balance Sheet Location	July 3, 2020		December 27, 2019
		(in thousands)
Interest rate swap agreement	Accrued liabilities	$	(658)	$	(241)
Interest rate swap agreement	Other noncurrent (liabilities) assets	$	(351)	$	(306)

The impact of the effective portions of derivative instruments in cash flow hedging relationships and fair value relationships on other comprehensive income were not material for the three months ended July 3, 2020 and were $0.4 million for the six months ended July 3, 2020, as compared to $0.2 million and $0.4 million for the three and six month ended June 28, 2019, respectively.

The accumulated balances and reporting period activities for the three and six months ended July 3, 2020 related to reclassifications out of accumulated other comprehensive loss are summarized as follows:

	Gain (Loss) on		Accumulated Other
	Derivative Instruments		Comprehensive Loss
	(in thousands)
Balances at December 27, 2019	$	(396)	$	(396)
Other comprehensive loss before reclassifications		(568)		(568)
Amounts reclassified from accumulated other comprehensive income		—		—
Income tax benefit related to derivative instruments		119		119
Net current-period other comprehensive loss		(845)		(845)
Balances at April 3, 2020	$	(845)	$	(845)
Other comprehensive loss before reclassifications	$	105	$	105
Amounts reclassified from accumulated other comprehensive income:		—		—
Income tax benefit (expense) related to derivative instruments		(22)		(22)
Net current-period other comprehensive loss		83		83
Balances at July 3, 2020	$	(762)	$	(762)