Derivative Instruments

12 Months Ended

Jan. 03, 2021

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 under the Facility 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 was 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 met 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 were designated and qualified as cash flow hedges of forecasted interest payments. The Company reports the changes in fair value of derivatives designated as hedging instruments as a component of other comprehensive income (or other comprehensive loss). Both of the interest rate swaps were terminated in the fourth quarter of 2020, and hedge accounting was also discontinued. This resulted in a loss of $3.9 million recorded in interest expense in the consolidated statement of operations as it is probable that a portion of the original forecasted transactions related to the portion of the hedged debt that was repaid will not occur by the end of the originally specified time period. As of January 3, 2021, the remaining accumulated other comprehensive loss of $8.7 million associated with the interest rate swaps will be amortized to earnings over the remaining term of the interest rate swaps prior to termination.

Forward Contracts

Our nora 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. The Company is meeting its objective by hedging the risk of changes in its cash flows (intercompany payments for inventory) attributable to changes in the U.S. dollar/Euro exchange rate (the “hedged risk”). Changes in fair value attributable to components other than exchange rates will be excluded from the assessment of effectiveness and amortized to earnings on a straight-line basis. Changes in fair value related to the effective portion of these contracts will be reflected as a component of other comprehensive income (or other comprehensive loss). As of January 3, 2021 and December 29, 2019, 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 January 3, 2021, the Company had outstanding foreign currency options with an aggregate notional amount of $12.9 million.

The table below sets forth the fair value of derivative instruments as of January 3, 2021:


	Asset Derivatives as of January 3, 2021			Liability Derivatives as of January 3, 2021
	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	$	—
Derivative instruments not designated as hedging instruments:
Foreign currency options	Other current assets	37		Accrued expenses	—
		$	37		$	—

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 $4.2 million related to the terminated interest rate swaps 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 and included in the assessment of hedge effectiveness had on accumulated other comprehensive loss, net of tax:


	Fiscal Year
	2020		2019		2018
	(in thousands)
Foreign currency contracts gain (loss)	$	—	$	468	$	(468)
Interest rate swap contracts gain (loss)	(2,027)		(5,957)		890
Gain (loss) recognized in other comprehensive income (loss)	$	(2,027)	$	(5,489)	$	422

Gains and losses from derivatives designated as cash flow hedges reclassified from accumulated other comprehensive loss into net income (loss) are discussed in Note 23 entitled “Items Reclassified From Accumulated Other Comprehensive Loss.”

The following table summarizes gains and losses on derivatives not designated as hedging instruments within the consolidated statements of operations:


		Fiscal Year
	Statement of Operations Location	2020		2019		2018
		(in thousands)
Foreign currency options gain (loss)	Other expense	$	13	$	(627)	$	992