NOTE

– 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 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 Swap

Both of the interest rate swaps described above are designated and qualify as cash flow hedges of forecasted interest payments. The Company reports the effective portion of the fair value gain or loss on the swaps as a component of other comprehensive income (or other comprehensive loss). Gains or losses (if any) on any ineffective portion of derivative instruments in cash flow hedging relationships are recorded in the period in which they occur as a component of other expense (or other income) in the Consolidated Condensed Statement of Operations and as a component of operating activities in the Consolidated Condensed Statement of Cash Flows. The aggregate notional amount of the interest rate swaps as of

March 31, 2019

was

$250

million.

Forward Contracts

Our nora operations 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). A portion of these forward contracts expire each month, with the final contract expiring in

September

2019.

These contracts cover approximately

70%

of the expected intercompany sales activity between the nora European manufacturing facility and the U.S. subsidiary and at this time the Company believes these are probable transactions given historical performance as well as budget projections. As of

March 31, 2019,

the notional value of these forward currency contracts and the future intercompany sales these instruments hedge is approximately

$24

million.

The table below sets forth the fair value of derivative instruments as of

March 31, 2019 (

in thousands):

	Asset Derivatives as of			Liability Derivatives as of
	March 31, 2019			March 31, 2019
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
Derivative instruments designated as hedging instruments:
Foreign currency contracts	Other current assets	$	0	Accrued expenses	$	115
Interest rate swap contracts	Other current assets		828	Accrued expenses		1,977
		$	828		$	2,092

The table below sets forth the fair value of derivative instruments as of

December 30, 2018 (

in thousands):

	Asset Derivatives as of			Liability Derivatives as of
	December 30, 2018			December 30, 2018
	Balance Sheet			Balance Sheet
	Location	Fair Value		Location	Fair Value
Derivative instruments designated as hedging instruments:
Foreign currency contracts	Other current assets	$	651	Other current liabilities		-
Interest rate swap contracts	Other current assets	$	1,794	Other current liabilities		-
		$	2,445			-

There was

significant impact to earnings from the changes in fair value of derivatives designated as cash flow hedges or from amounts excluded from the assessment of hedge effectiveness during the

three

months ended

March 31, 2019.

There was

significant impact from the reclassification of hedged items from accumulated other comprehensive income during the

three

months ended

March 31, 2019.

The amount of hedged items expected to be reclassified from accumulated other comprehensive income in the next

months is

not

significant.

The following table summarizes the pre-tax 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 income during the

three

months ended

March 31, 2019 (

in thousands):

	Loss Recognized in Accumulated
Three months ended March 31, 2019	Other Comprehensive Income
Foreign currency contracts	$	363
Interest rate swap contracts		2,943
	$	3,306