Derivative Financial Instruments

9 Months Ended

Sep. 29, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments:

Derivative financial instruments are used within our overall risk management program to manage certain interest rate and foreign currency risks. By utilizing a derivative instrument to hedge exposure to LIBOR rate changes, we are exposed to counterparty credit risk, in particular the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, hedging instruments are placed with a counterparty that we believe poses minimal credit risk. We do not use derivative financial instruments for trading purposes.

We have four interest rate swap agreements that mature on December 31, 2020 and convert $500 million of variable-rate debt to a rate of 4.39%. We also have four additional interest rate swap agreements that convert the same notional amount to a rate of 4.63% for the period December 31, 2020 through December 31, 2023. None of the interest rate swap agreements are designated as hedging instruments. The fair market value of the swap portfolio was recorded in the unaudited condensed consolidated balance sheets within "Derivative Liability" as of September 29, 2019 and December 31, 2018 and within "Other Assets" as of September 23, 2018 as follows:

(In thousands)	September 29, 2019			December 31, 2018			September 23, 2018
Derivatives not designated as hedging instruments:
Interest rate swaps	$	(27,773	)	$	(6,705	)	$	4,123

Instruments that do not qualify for hedge accounting or were de-designated are prospectively adjusted to fair value each reporting period through "Net effect of swaps" within the unaudited condensed consolidated statements of operations and comprehensive income. The amounts that were previously recorded as a component of AOCI prior to the de-designation are reclassified to earnings, and a corresponding realized gain or loss is recognized when the forecasted cash flow occurs. As a result of the first quarter 2016 amendments, the previously existing interest rate swap agreements were de-designated, and the amounts previously recorded in AOCI were amortized into earnings through the original December 31, 2018 maturity date. Therefore, all losses in AOCI related to the effective cash flow hedge contracts prior to de-designation had been reclassified into earnings as of December 31, 2018.

The (gains) losses recognized in net income on derivatives not designated as cash flow hedges were recorded in "Net effect of swaps" for the periods presented as follows:

	Three months ended					Nine months ended
(In thousands)	September 29, 2019		September 23, 2018			September 29, 2019		September 23, 2018
Change in fair market value	$	3,910	$	(3,581	)	$	21,068	$	(12,845	)
Amortization of amounts in AOCI	—		2,364			—		7,094
Net effect of swaps	$	3,910	$	(1,217	)	$	21,068	$	(5,751	)