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Fair Value of Assets and Liabilities

12 Months Ended

Dec. 31, 2022

For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, the Company classifies each fair value measurement as follows:

Level 1—Valuations based on unadjusted quoted prices for identical assets or liabilities in active markets;

Level 2—Valuations based upon quoted prices for similar instruments, prices for identical or similar instruments in markets that are not active, or model-derived valuations, all of whose significant inputs are observable, and

Level 3—Valuations based upon one or more significant unobservable inputs.

There were no transfers in or out of Level 1, Level 2 and Level 3 during the year ended December 31, 2022.

Following is a description of the valuation methodologies used for instruments measured at fair value and their classification in the valuation hierarchy.

Cash Equivalents

Cash equivalents primarily consist of money market funds, which are held with an institution with sound credit rating and are highly liquid. The Company classified cash equivalents as Level 1 and are valued at cost, which approximates fair value.

Investments in Equity Securities

Investments in equity securities listed on a national market or exchange are valued at the last sales price and classified within Level 1 of the valuation hierarchy. Such securities are further detailed in Note 1, Summary of Significant Accounting Policies and Other Information.

Other Investments

The Company had certain convertible debt and convertible preferred stock investments that were accounted for under the cost method reflected in Investments and Other assets in the Consolidated Balance Sheets. During the fiscal year ended January 1, 2022, the Company impaired the remaining book value of these investments and recorded an impairment charge of $0.5 million in Other expense (income), net in the Consolidated Statements of Net Income. As of December 31, 2022 and January 1, 2022, the balances of these investments were zero.

Derivatives Designated as Hedging Instruments

On May 12, 2022, the Company entered into an interest rate swap agreement to manage interest rate risk exposure, effectively converting the interest rate on the Company's SOFR based floating-rate loans to a fixed-rate. The interest rate swap, with a notional value of $200 million, was designated as a cash flow hedge against the variability of cash flows associated with the Company's SOFR based loans scheduled to mature on June 30, 2027. The fair value of the interest rate swap was valued using an independent third-party valuation model. Pursuant to this model, changes in fair value of derivatives that are designated as cash flow hedges are deferred in accumulated other comprehensive (loss) income until the underlying transactions are recognized in earnings. The primary inputs into the valuation of the interest rate swap are interest yield curves, interest rate volatility, credit risk, credit spreads and other market information. The interest rate swap is classified within Level 2 of the fair value hierarchy, since all significant inputs are corroborated by observable market data.

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. The Company seeks to minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings and monitoring the total value of positions with individual counterparties. In the event of a default by one of our counterparties, the Company may not receive payments provided for under the terms of our derivatives.

Derivatives Not Designated as Hedging Instruments

On July 14, 2022, the Company entered into a foreign currency exchange forward contract to mitigate the currency fluctuation risk between the Euro and U.S. dollar on its Euro denominated Senior Notes, Series A due 2023. The notional value of the forward contract at July 14, 2022 was €117.0 million and expires on December 7, 2023. The foreign currency contract was not designated as a hedge instrument and is marked to market on a monthly basis. As a result, changes in fair value are reported in Foreign exchange loss (gain) in the Consolidated Statements of Net Income. The fair value of the foreign currency forward contract was valued by a third party using market exchange rates and classified as a Level 2 input under the fair value hierarchy.

As of December 31, 2022, the fair values of our derivative financial instrument and their classifications on the Consolidated Balance Sheets were as follows:

(in thousands)

Consolidated Balance Sheet Classification

Fiscal Year Ended December 31, 2022

Derivatives Designated as Hedging Instruments

Interest rate swap agreement:

Designated as cash flow hedge

Prepaid expenses and other current assets

3,939

Other long-term assets

4,740

Derivatives Not Designated as Hedging Instruments

Foreign exchange forward contract

Prepaid expenses and other current assets

6,186

The pre-tax gains recognized on derivative financial instruments in the Consolidated Statements of Operations for the fiscal year ended December 31, 2022 were as follows:

(in thousands)

Classification of Gain Recognized in the Consolidated Statements of Operations

Fiscal Year Ended December 31, 2022

Derivatives designated as cash flow hedges

Interest rate swap agreement

Interest expenses, net

(100)

Derivatives Not Designated as Hedging Instruments

Foreign exchange forward contract

Foreign exchange loss (gain)

(6,128)

The pre-tax gain recognized on derivative financial instruments in the Consolidated Statements of Comprehensive Income for the fiscal year ended December 31, 2022 was as follows:

(in thousands)

Fiscal Year Ended December 31, 2022

Derivatives designated as cash flow hedges

Interest rate swap agreement

(8,679)

A pre-tax gain of $3.9 million from accumulated other comprehensive income (loss) to earnings is expected to be recognized during the next twelve months.

Mutual Funds

The Company has a non-qualified Supplemental Retirement and Savings Plan that provides additional retirement benefits for certain management employees and named executive officers by allowing participants to defer a portion of their annual compensation. The Company maintains investment accounts for participants through which participants make investment elections. The marketable securities are classified as Level 1 under the fair value hierarchy as they are maintained in mutual funds with readily determinable fair value and recorded in Other long-term assets on the Consolidated Balance sheet.

There were no changes during the fiscal year ended December 31, 2022 to the Company’s valuation techniques used to measure asset and liability fair values on a recurring basis. As of December 31, 2022 and January 1, 2022, the Company did not hold any non-financial assets or liabilities that are required to be measured at fair value on a recurring basis.

Defined Benefit Plan Assets / Non-qualified Supplemental Retirement and Savings Plan Investments

See Note 11, Benefit Plans, for description of valuation methodologies and investment balances for defined benefit plan assets and investments related to the Company’s Non-Qualified Supplemental Retirement and Savings Plan.

The following table presents assets measured at fair value by classification within the fair value hierarchy as of December 31, 2022:


	Fair Value Measurements Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash equivalents	$	304,101	$	—	$	—	$	304,101
Investments in equity securities	10,653		—		—		10,653
Mutual funds	14,094		—		—		14,094
Total:	$	328,848	$	—	$	—	$	328,848

The following table presents assets measured at fair value by classification within the fair value hierarchy as of January 1, 2022:


	Fair Value Measurements Using
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Cash equivalents	$	12,475	$	—	$	—	$	12,475
Investments in equity securities	26,070		—		—		26,070
Mutual funds	15,021		—		—		15,021
Total:	$	53,566	$	—	$	—	$	53,566

In addition to the methods and assumptions used for the financial instruments recorded at fair value as discussed above, the following methods and assumptions are used to estimate the fair value of other financial instruments that are not marked to market on a recurring basis. The Company’s other financial instruments include cash and cash equivalents, short-term investments, trade receivables and its long-term debt. Due to their short-term maturity, the carrying amounts of cash and cash equivalents, short-term investments and trade receivables approximate their fair values. The Company’s revolving and term loan debt facilities’ fair values approximate book value at December 31, 2022 and January 1, 2022, as the rates on these borrowings are variable in nature.

The carrying value and estimated fair values of the Company’s Euro Senior Notes, Series A and Series B and USD Senior Notes, Series A and Series B, as of December 31, 2022 and January 1, 2022 were as follows:


	December 31, 2022				January 1, 2022
(in thousands)	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Euro Senior Notes, Series A due 2023	$	124,716	$	122,270	$	132,444	$	134,119
Euro Senior Notes, Series B due 2028	101,265		87,119		107,540		110,837
USD Senior Notes, Series A due 2022	—		—		25,000		25,055
USD Senior Notes, Series B due 2027	100,000		93,764		100,000		104,828
USD Senior Notes, Series A due 2025	50,000		48,145		50,000		51,720
USD Senior Notes, Series B due 2030	125,000		112,028		125,000		131,837
USD Senior Notes, due 2032	100,000		90,131		—		—

Impairments

During the fourth quarter of 2022, the Company recorded a $2.9 million intangible asset impairment charge in Restructuring, impairment, and other charges in the Consolidated Statements of Net Income, for certain acquired technology and patent intangible assets due to a change in use and projected cash flows within the Electronics segment. See Note 5, Goodwill and Other Intangible Assets, for further discussion. Additionally, the Company recorded a non-cash impairment charge of $1.7 million for certain machinery and equipment within Electronics segment due to a decision to cease further production of a product line during the fourth quarter of 2022. The fair value of the patent, technology and machinery and equipment were measured on a nonrecurring basis using Level 3 inputs under the fair value hierarchy. The Company's accounting and finance management determines the valuation policies and procedures for Level 3 fair value measurements and is responsible for the development and determination of unobservable inputs.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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