Derivative Financial Instruments

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

As a result of its operating and financing activities, the Company is exposed to market risks from changes in interest and foreign currency exchange rates. These market risks may adversely affect the Company’s operating results, cash flows and financial position. The Company seeks to minimize risk from changes in interest and foreign currency exchange rates through the use of derivative financial instruments. Derivative contracts are not collateralized and are entered into with large, reputable financial institutions that are monitored for counterparty risk.

Foreign currency contracts

The Company operates in foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations. The Company uses derivative financial instruments to manage its exposure to foreign currency exchange rate risk, specifically U.S. Dollar (“USD”) – Canadian Dollar (“CAD”) cross currency swaps and forward sales of CAD. These instruments lock in the exchange rate for a portion of the estimated cash flows of the Company’s Canadian operations. As of September 30, 2023 and December 31, 2022, cross currency swaps with notional amounts of $275.0 million were outstanding. Additionally, as of September 30, 2023 and December 31, 2022, the Company’s forward contracts had USD equivalent gross notional amounts of $53.9 million and $42.1 million, respectively.

Interest rate swap contracts

The Company’s market risk is affected by changes in interest rates. The Company’s Senior Secured Credit Facilities bear interest based on market rates plus an applicable spread. Because the interest rate on the Company’s floating-rate debt is tied to market rates, the Company manages its exposure to interest rate movements by effectively converting a portion of its floating-rate debt to fixed-rate debt. Interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreement without exchange of the underlying notional amount.

The Company has agreements with each of its derivative counterparties that contain a provision whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on its indebtedness.

At September 30, 2023 and December 31, 2022, interest rate swaps with notional amounts of $275.0 million were outstanding.

The fair values of cross currency swap contracts, forward contracts and interest rate swap contracts were as follows:


(in thousands)	Balance Sheet Location	September 30, 2023		December 31, 2022
Derivatives not designated as hedging instruments:
Forward contracts	Derivative asset – current	$	104	$	237
Cross currency swaps	Derivative asset – current	22		6
Cross currency swaps	Derivative asset – non-current	26,132		22,987
Total derivatives in an asset position		$	26,258	$	23,230
Forward contracts	Accounts payable and accrued liabilities	$	—	$	14
Cross currency swaps	Accounts payable and accrued liabilities	39		66
Total derivatives in a liability position		$	39	$	80
Derivatives designated as hedging instruments:
Interest rate swaps	Derivative asset – current	$	9,880	$	8,382
Interest rate swaps	Derivative asset – non-current	5,084		8,090
Total derivatives in an asset position		$	14,964	$	16,472
Total deferred gain	Accumulated other comprehensive income	$	18,099	$	21,014

The impact of derivative financial instruments on the unaudited interim condensed consolidated statements of operations and comprehensive (loss) income was as follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Gain (loss) on forward contracts recognized in (loss) gain on foreign currency, net	$	555	$	871	$	(134)	$	1,041
Gain on cross currency swaps recognized in (loss) gain on foreign currency, net	$	6,933	$	12,426	$	3,003	$	13,340
Gain on interest rate swaps recognized in interest expense, net	$	2,961	$	795	$	8,084	$	378

The table below presents the effect of cash flow hedge accounting on other comprehensive (loss) income, net of tax:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
(in thousands)	September 30, 2023		October 1, 2022		September 30, 2023		October 1, 2022
Amount of gain recognized in other comprehensive (loss) income	$	1,655	$	8,415	$	5,170	$	19,867
Amount of gain reclassified from accumulated other comprehensive income into net (loss) income	$	2,962	$	795	$	8,085	$	414

Amounts reclassified from accumulated other comprehensive income into net income are recognized in interest expense. Within the next 12 months, the Company estimates that an additional $11.8 million of gains currently recognized within accumulated other comprehensive income will be reclassified as a decrease in interest expense.