Interest Rate Swaps

12 Months Ended

Dec. 26, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Swaps:

The Company entered into an interest rate swap agreement which became effective on March 18, 2020, with a maturity date of March 18, 2025. The notional amount of this swap agreement is fixed at $200 million.

The Company previously had interest rate swap agreements associated with the February 2016 Term Loan and the June 2017 Term Loan, each of which was settled in full on November 10, 2020 and is no longer in effect.

The Company’s interest rate swap agreements are executed for risk management and are not held for trading purposes. The objective of the interest rate swap agreements is to mitigate interest rate risk associated with future changes in interest rates. To accomplish this objective, the interest rate swap agreements are intended to hedge the variable cash flows associated with the variable rate term loan borrowings under the Senior Credit Facility. The interest rate swap agreements entitle the Company to receive, at specified intervals, a variable rate of interest based on LIBOR in exchange for the payment of a fixed rate of interest throughout the life of the agreement, without exchange of the underlying notional amount.

The Company has designated its interest rate swap agreements as cash flow hedges and accounts for the underlying activity in accordance with hedge accounting. The interest rate swaps are presented within the Consolidated Balance Sheets at fair value. In accordance with hedge accounting, the gains and losses on interest rate swaps that are designated and qualify as cash flow hedges are recorded as a component of Other Comprehensive Income (“OCI”), net of related income taxes, and reclassified into earnings in the same income statement line and period during which the hedged transactions affect earnings.

As of December 26, 2020, amounts to be reclassified from Accumulated Other Comprehensive Income (“AOCI”) into interest during the next twelve months are not expected to be material. No significant amounts were excluded from the assessment of cash flow hedge effectiveness as of December 26, 2020.

The assets and liabilities measured at fair value related to the Company’s interest rate swaps, excluding accrued interest, were as follows (in thousands):


Derivatives Designated as Cash Flow Hedges	Balance Sheet Location	December 26, 2020		December 28, 2019
Interest rate swaps (short-term portion)	Other current assets	$	—	$	558
Interest rate swaps (long-term portion)	Other assets	—		91
Total derivative assets		$	—	$	649

Interest rate swaps (short-term portion)	Other accrued expenses	$	1,227	$	90
Interest rate swaps (long-term portion)	Other long-term liabilities	3,137		292
Total derivative liabilities		$	4,364	$	382

The offset to the interest rate swap asset or liability is recorded as a component of equity, net of deferred taxes, in AOCI, and will be reclassified into earnings over the term of the underlying debt as interest payments are made. On November 10, 2020, the Company terminated two interest rate swap agreements which resulted in the reclassification of settlement losses from AOCI to the Consolidated Statements of Income as part of interest expense.

The following table summarizes the changes in AOCI, net of tax, related to the Company’s interest rate swaps (in thousands):


	Fiscal Year
	2020		2019
Beginning fiscal year AOCI balance	$	199	$	3,814
Current fiscal year loss recognized in OCI	(5,666)		(4,332)
Amounts reclassified from AOCI	2,224		—
Cumulative adjustment as a result of ASU 2017-12 adoption	—		717
Other comprehensive loss, net of tax	(3,442)		(3,615)
Ending fiscal year AOCI balance	$	(3,243)	$	199

Cash flows related to the interest rate swaps are included in operating activities on the Consolidated Statements of Cash Flows.

The following table summarizes the impact of pre-tax gains and losses derived from the Company’s interest rate swaps (in thousands):


		Fiscal Year
	Financial Statement Location	2020		2019		2018
Amount of (losses)/gains recognized in OCI during the period	Other comprehensive (loss)/income	$	(4,631)	$	(5,556)	$	612

The following table summarizes the impact of taxes affecting AOCI as a result of the Company’s interest rate swaps (in thousands):


	Fiscal Year
	2020		2019
Income tax benefit of interest rate swaps on AOCI	$	(1,189)	$	(1,224)

Credit-risk-related contingent features

In accordance with the underlying interest rate swap agreements, the Company could be declared in default on its interest rate swap obligations if repayment of the underlying indebtedness (i.e., the Company’s term loans) is accelerated by the lender due to the Company's default on such indebtedness.

If the Company had breached any of the provisions in the underlying agreements at December 26, 2020, it could have been required to post full collateral or settle its obligations under the Company’s interest rate swap agreements. However, as of December 26, 2020, the Company had not breached any of these provisions or posted any collateral related to the underlying interest rate swap agreements.