Derivative Instruments

9 Months Ended

Oct. 04, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

Interest Rate Risk Management

In the third quarter of 2017 and the first quarter of 2019, the Company entered into interest rate swap transactions in notional amounts of $100 million and $150 million, respectively, to fix the variable interest rate on a portion of its term loan borrowing in order to manage a portion of its exposure to interest rate fluctuations. The Company’s objective and strategy with respect to these interest rate swaps is to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability to cash flows relating to interest payments on a portion of its outstanding debt. The Company is meeting its objective by hedging the risk of changes in its cash flows (interest payments) attributable to changes in LIBOR, the designated benchmark interest rate being hedged (the “hedged risk”), on an amount of the Company’s debt principal equal to the outstanding swap notional amounts.

Cash Flow Interest Rate Swaps

Both of the interest rate swaps described above are designated and qualify as cash flow hedges of forecasted interest payments. The Company reports the changes in fair value of the swaps as a component of other comprehensive income (or other comprehensive loss). The aggregate notional amount of the interest rate swaps as of October 4, 2020 was $250 million.

Forward Contracts

Our European operations, from time to time, are party to currency forward contracts designed to hedge the cash flow risk of intercompany sales from the manufacturing facility in Europe to the Americas. The Company’s objective and strategy with respect to these currency forward contracts is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to receipt of payment on intercompany sales. As of October 4, 2020, there were no active forward currency contracts.

Derivative Transactions Not Designated as Hedging Instruments

Our Asia-Pacific operations, from time to time, purchase foreign currency options to economically hedge inventory purchases denominated in foreign currencies other than their functional currency. The Company’s objective with respect to these foreign currency options is to protect the Company against adverse fluctuations in currency rates by reducing its exposure to variability in cash flows related to payment on inventory purchases. These options are classified as non-designated derivative instruments. Gains and losses on the changes in fair value of these foreign currency options are recognized in earnings each period. As of October 4, 2020, the Company had outstanding foreign currency options with an aggregate notional amount of $16.9 million.

The table below sets forth the fair value of derivative instruments as of October 4, 2020:


	Asset Derivatives as of October 4, 2020			Liability Derivatives as of October 4, 2020
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)
Derivative instruments designated as hedging instruments:
Interest rate swap contracts	Other current assets	$	—	Accrued expenses	$	13,685
Derivative instruments not designated as hedging instruments:
Foreign currency options	Other current assets	232		Accrued expenses	—
		$	232		$	13,685

The table below sets forth the fair value of derivative instruments as of December 29, 2019:


	Asset Derivatives as of December 29, 2019			Liability Derivatives as of December 29, 2019
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
	(In thousands)
Derivative instruments designated as hedging instruments:
Interest rate swap contracts	Other current assets	$	—	Accrued expenses	$	5,801
Derivative instruments not designated as hedging instruments:
Foreign currency options	Other current assets	251		Accrued expenses	—
		$	251		$	5,801

We expect that approximately $5.2 million related to cash flow hedges will be reclassified from accumulated other comprehensive loss as an increase to interest expense in the next 12 months.

The following table summarizes the impact that changes in the fair value of derivatives designated as cash flow hedges had on accumulated other comprehensive loss, net of tax, during the three and nine months ended October 4, 2020 and September 29, 2019:


	Three Months Ended				Nine Months Ended
	October 4, 2020		September 29, 2019		October 4, 2020		September 29, 2019
	(In thousands)
Foreign currency contracts gain	$	—	$	627	$	—	$	468
Interest rate swap contracts gain (loss)	864		(1,568)		(5,627)		(9,382)
Gain (loss) recognized in accumulated other comprehensive loss	$	864	$	(941)	$	(5,627)	$	(8,914)

Gains and losses from derivatives designated as cash flow hedges reclassified from accumulated other comprehensive income (loss) into net income (loss) are discussed in Note 14 entitled “Items Reclassified From Accumulated Other Comprehensive Loss.”

The following tables summarize gains and losses on derivatives not designated as hedging instruments within the consolidated condensed statements of operations for the three and nine months ended October 4, 2020 and September 29, 2019:

Three Months Ended

Statement of Operations Location

October 4, 2020

September 29, 2019

(In thousands)

Foreign currency options gain (loss)

Other expense

325