Financial Instruments

12 Months Ended

Jan. 02, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

FINANCIAL INSTRUMENTS

Derivatives are measured at fair value and recognized as either assets or liabilities. Derivatives that do not qualify as a hedge must be adjusted to fair value in earnings. If a derivative does qualify, changes in the fair value will either be offset against the change in the fair value of the hedged assets, liabilities or firm commitments or recognized in other accumulated comprehensive income until the hedged item is recognized in earnings.

(a)Foreign Exchange

The company periodically enters into derivative instruments, principally forward contracts to reduce exposures pertaining to fluctuations in foreign exchange rates. The fair value of these forward contracts was an unrealized loss of $2.2 million at the end of the year.

(b)Interest Rate

The company has entered into interest rate swaps to fix the interest rate applicable to certain of its variable-rate debt. The agreements swap one-month LIBOR for fixed rates. The company has designated these swaps as cash flow hedges and all changes in fair value of the swaps are recognized in accumulated other comprehensive income. The fair value of these instruments was a liability of $51.1 million and a liability of $23.3 million as of January 2, 2021 and December 28, 2019, respectively. The change in fair value of these swap agreements in 2020 was a loss of $20.7 million, net of taxes.

A summary of the company’s interest rate swaps is as follows (in thousands):


		Twelve Months Ended
	Location	Jan 2, 2021		Dec 28, 2019
Fair value	Other assets	$	—	$	1,830
Fair value	Accrued expenses	$	14,075	$	—
Fair value	Other non-current liabilities	$	37,018	$	25,120
Amount of gain/(loss) recognized in other comprehensive income	Other comprehensive income	$	(43,317)	$	(31,396)
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Interest expense	$	(15,514)	$	1,256

Interest rate swaps are subject to default risk to the extent the counterparty is unable to satisfy its settlement obligations under the interest rate swap agreements. The company reviews the credit profile of the financial institutions that are counterparties to such swap agreements and assesses their creditworthiness prior to entering into the interest rate swap agreements and throughout the term. The interest rate swap agreements typically contain provisions that allow the counterparty to require early settlement in the event that the company becomes insolvent or is unable to maintain compliance with its covenants under its existing debt agreement.