Derivative Financial Instruments

3 Months Ended

Mar. 30, 2024

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 manage 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. Refer to Note 4 for information on the fair value of our derivative instruments.

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 March 30, 2024 and December 30, 2023, cross currency swaps with notional amounts of $275.0 million were outstanding. Additionally, as of March 30, 2024 and December 30, 2023, the Company’s forward contracts had USD equivalent gross notional amounts of $59.8 million and $33.2 million, respectively. In April 2024, the Company terminated its cross currency swaps, resulting in net proceeds of $28.1 million.

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 margin. 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 March 30, 2024 and December 30, 2023, interest rate swaps with notional amounts of $275.0 million were outstanding. In April 2024, the Company terminated its interest rate swaps, resulting in net proceeds of $10.3 million.

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


(in thousands)	Balance Sheet Location	March 30, 2024		December 30, 2023
Derivatives not designated as hedging instruments:
Forward contracts	Derivative asset – current	$	8	$	—
Cross currency swaps	Derivative asset – current	26,102		—
Cross currency swaps	Derivative asset – non-current	—		20,831
Total derivatives in an asset position		$	26,110	$	20,831
Forward contracts	Accounts payable and accrued liabilities	$	108	$	384
Cross currency swaps	Accounts payable and accrued liabilities	78		466
Total derivatives in a liability position		$	186	$	850
Derivatives designated as hedging instruments:
Interest rate swaps	Derivative asset – current	$	10,023	$	7,691
Interest rate swaps	Derivative asset – non-current	—		2,688
Total derivatives in an asset position		$	10,023	$	10,379
Total deferred gain	Accumulated other comprehensive income	$	12,220	$	13,045

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


	Thirteen Weeks Ended
(in thousands)	March 30, 2024		April 1, 2023
Gain (loss) on forward contracts recognized in (loss) gain on foreign currency, net	$	271	$	(65)
Gain on cross currency swaps recognized in (loss) gain on foreign currency, net	$	5,614	$	689
Gain on interest rate swaps recognized in interest expense, net	$	3,024	$	2,394

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


	Thirteen Weeks Ended
(in thousands)	March 30, 2024		April 1, 2023
Gain (loss) recognized in other comprehensive loss	$	2,199	$	(1,253)
Gain reclassified from accumulated other comprehensive income into net loss	$	3,024	$	2,394

Amounts reclassified from accumulated other comprehensive income into net loss are recognized in interest expense, net. Within the next 12 months, the Company estimates that an additional $10.8 million of gains currently recognized within accumulated other comprehensive income will be reclassified as a decrease in interest expense, net.