Derivatives

Interest Rate Swaps

The Company entered into interest rate swap agreements in 2015 and 2006 and has designated these agreements as cash flow hedges. On January 16, 2015, the Company entered into a swap agreement (2015 Swap Agreement) to hedge its exposure to movements in the three-month LIBOR rate on future outstanding debt. The 2015 Swap Agreement expires on March 27, 2020 and has a $10,000,000 notional value. Under the 2015 Swap Agreement, on a quarterly basis, the Company receives a three-month LIBOR rate and pays a fixed rate of interest of 1.50% plus an applicable margin. The fair value of the 2015 Swap Agreement as of January 2, 2016 is included in other assets, with an offset to accumulated other comprehensive items (net of tax) in the accompanying consolidated balance sheet.

The Company entered into a swap agreement in 2006 (the 2006 Swap Agreement) to convert a portion of the Company's outstanding debt from a floating to a fixed rate of interest. The swap agreement has the same terms and quarterly payment dates as the corresponding debt, and reduces proportionately in line with the amortization of the debt. Under the 2006 Swap Agreement, the Company receives a three-month LIBOR rate and pays a fixed rate of interest of 5.63% plus an applicable margin. The fair value of the 2006 Swap Agreement as of January 2, 2016 is included in other current liabilities, with an offset to accumulated other comprehensive items (net of tax) in the accompanying consolidated balance sheet.

The Company has structured the interest rate swap agreements to be 100% effective, and as a result, there is no current impact to earnings resulting from hedge ineffectiveness. Management believes that any credit risk associated with the swap agreements is remote based on the Company's financial position and the creditworthiness of the financial institution issuing the swap agreements.

The counterparty to the swap agreements could demand an early termination of the swap agreements if the Company is in default under the 2012 Credit Agreement, or any agreement that amends or replaces the 2012 Credit Agreement in which the counterparty is a member, and the Company is unable to cure the default. An event of default under the 2012 Credit Agreement includes customary events of default and failure to comply with financial covenants, including a maximum consolidated leverage ratio of 3.5 to 1 and a minimum consolidated interest coverage ratio of 3 to 1. As of January 2, 2016, the Company was in compliance with these covenants. The unrealized loss associated with the swap agreements was $53,000 as of January 2, 2016, which represents the estimated amount that the Company would pay to the counterparty in the event of an early termination.

Forward Currency-Exchange Contracts

The Company uses forward currency-exchange contracts primarily to hedge exposures resulting from fluctuations in currency exchange rates. Such exposures result primarily from portions of the Company's operations and assets and liabilities that are denominated in currencies other than the functional currencies of the businesses conducting the operations or holding the assets and liabilities. The Company typically manages its level of exposure to the risk of currency-exchange fluctuations by hedging a portion of its currency exposures anticipated over the ensuing 12-month period, using forward currency-exchange contracts that have maturities of 12 months or less.

Forward currency-exchange contracts that hedge forecasted accounts receivable or accounts payable are designated as cash flow hedges. The fair values for these instruments are included in other current assets for unrecognized gains and in other current liabilities for unrecognized losses, with an offset in accumulated other comprehensive items (net of tax). For forward currency-exchange contracts that are designated as fair value hedges, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item are recognized currently in earnings. The fair values of forward currency-exchange contracts that are not designated as hedges are recorded currently in earnings. The Company recognized losses of $386,000 and $14,000 in 2015 and 2014, respectively, and a gain of $146,000 in 2013 included in selling, general, and administrative expenses associated with forward currency-exchange contracts that were not designated as hedges. Management believes that any credit risk associated with forward currency-exchange contracts is remote based on the Company's financial position and the creditworthiness of the financial institutions issuing the contracts.

The following table summarizes the fair value of the Company's derivative instruments designated and not designated as hedging instruments, the notional values of the associated derivative contracts, and the location of these instruments in the consolidated balance sheet:



		2015					2014
(In thousands)	Balance Sheet Location	Asset (Liability) (a)			Notional Amount (b)		Asset (Liability) (a)			Notional Amount (b)
Derivatives Designated as Hedging Instruments:
Derivatives in an Asset Position:
Forward currency-exchange contracts	Other Long-Term Assets	$	—		$	—	$	775		$	17,012
Interest rate swap agreement	Other Long-Term Assets	$	38		$	10,000	$	—		$	—
Derivatives in a Liability Position:
Forward currency-exchange contracts	Other Current Liabilities	$	(101	)	$	6,525	$	—		$	—
Interest rate swap agreement	Other Current Liabilities	$	(91	)	$	5,250	$	—		$	—
Interest rate swap agreement	Other Long-Term Liabilities	$	—		$	—	$	(377	)	$	5,750
Derivatives Not Designated as Hedging Instruments:
Derivatives in an Asset Position:
Forward currency-exchange contracts	Other Current Assets	$	2,536		$	15,612	$	—		$	—
Derivatives in a Liability Position:
Forward currency-exchange contracts	Other Current Liabilities	$	—		$	—	$	(12	)	$	784


(a)	See Note 10 for the fair value measurements relating to these financial instruments.


(b)	The total notional amount is indicative of the level of the Company's derivative activity during 2015 and 2014.

The following table summarizes the activity in accumulated other comprehensive items associated with the Company's derivative instruments designated as cash flow hedges as of and for the period ended January 2, 2016:



(In thousands)	Interest Rate Swap Agreements			Forward Currency- Exchange Contracts			Total
Unrealized loss, net of tax, at January 3, 2015	$	(366	)	$	(426	)	$	(792	)
Loss (gain) reclassified to earnings (a)	270			(1,379		)	(1,109		)
(Loss) gain recognized in AOCI	(66		)	1,738			1,672
Unrealized loss, net of tax, at January 2, 2016	$	(162	)	$	(67	)	$	(229	)


(a)	See Note 13 for the income statement classification.

As of January 2, 2016, $294,000 of the net unrealized loss included in AOCI is expected to be reclassified to earnings over the next twelve months.