Derivative Instruments

12 Months Ended

Jan. 02, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

Interest Rate Risk Management

From time to time, the Company enters into interest rate swap transactions 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.

Cash Flow Interest Rate Swaps

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). In the fourth quarter of 2020, the Company terminated its designated interest rate swap transactions with a total notional value of $250 million. Hedge accounting was also discontinued at that time. The termination resulted in a loss of $3.9 million recorded in interest expense in the consolidated statements of operations in 2020 as it was 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 2, 2022 and January 3, 2021, the remaining accumulated other comprehensive loss associated with the terminated interest rate swaps was $3.8 million and $8.7 million, respectively, and will be amortized to earnings over the remaining term of the interest rate swaps prior to termination. We expect that approximately $2.8 million, before tax, 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.

Forward Contracts

The Company, from time to time, is 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 are 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 are reflected as a component of other comprehensive income (or other comprehensive loss). As of January 2, 2022 and January 3, 2021, there were no active forward currency contracts.

Derivative Transactions Not Designated as Hedging Instruments

Our EAAA segment, from time to time, purchases 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 2, 2022, the Company had no outstanding foreign currency options.

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 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 other comprehensive income (loss), net of tax:


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

Gains and losses from derivatives designated as cash flow hedges reclassified from accumulated other comprehensive loss into net income (loss) are discussed in Note 21 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	2021		2020		2019
		(in thousands)
Foreign currency options gain (loss)	Other expense	$	408	$	13	$	(627)