Financial Instruments

12 Months Ended

Dec. 31, 2022

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 notional amount of foreign currency contracts outstanding was $562.5 million and $350.5 million as of December 31, 2022 and January 1, 2022, respectively. The fair value of these forward contracts was an unrealized loss of $0.5 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. In February 2022, the company entered into an additional floating-to-fixed interest rate swap agreement that uses a daily Secured Overnight Financing Rate ("SOFR") in lieu of LIBOR. 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 an asset of $65.0 million and a liability of $18.0 million as of December 31, 2022 and January 1, 2022, respectively. The change in fair value of these swap agreements in 2022 was a gain of $61.6 million, net of taxes.

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


		Twelve Months Ended
	Location	Dec 31, 2022		Jan 1, 2022
Fair value	Prepaid expenses	$	6,805	$	—
Fair value	Other assets	$	58,180	$	3,645
Fair value	Accrued expenses	$	—	$	1,171
Fair value	Other non-current liabilities	$	—	$	20,464
Amount of gain/(loss) recognized in other comprehensive income	Other comprehensive income	$	79,472	$	14,634
Gain/(loss) reclassified from accumulated other comprehensive income (effective portion)	Interest expense	$	(3,503)	$	(18,469)

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.