Derivatives

Interest Rate Swap Agreement

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 and has designated the 2015 Swap Agreement as a cash flow hedge. 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 at year-end 2017 is included in other assets, with an offset to AOCI, net of tax, in the accompanying consolidated balance sheet.

The Company has structured the 2015 Swap Agreement 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 2015 Swap Agreement is remote based on the Company's financial position and the creditworthiness of the financial institution that issued the 2015 Swap Agreement.

The counterparty to the 2015 Swap Agreement could demand an early termination of the 2015 Swap Agreement if the Company were to be in default under the 2017 Credit Agreement, or any agreement that amends or replaces the 2017 Credit Agreement in which the counterparty is a member, and if the Company were to be unable to cure the default. An event of default under the 2017 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, a minimum consolidated interest coverage ratio of 3 to 1, and restrictions on liens, indebtedness, fundamental changes, dispositions of property, making certain restricted payments (including dividends and stock repurchases), investments, transactions with affiliates, sale and leaseback transactions, swap agreements, changing its fiscal year, arrangements affecting subsidiary distributions, entering into new lines of business, and certain actions related to a discontinued operation. At year-end 2017, the Company was in compliance with these covenants. The unrealized gain associated with the 2015 Swap Agreement was $126,000 at year-end 2017, which represents the estimated amount that the Company would receive from 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 anticipated currency exposures over the ensuing 12-month period, using forward currency-exchange contracts that have maturities of twelve months or less.

Forward currency-exchange contracts that hedge forecasted accounts receivable or accounts payable are designated as cash flow hedges. The fair value for these instruments is included in other current assets for unrecognized gains and in other current liabilities for unrecognized losses, with an offset in AOCI, 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 value of forward currency-exchange contracts that are not designated as hedges is recorded currently in earnings with gains reported in other current assets and losses reported in other current liabilities. The Company recognized within SG&A expenses in the accompanying consolidated statement of income losses of $1,367,000 in 2017, $797,000 in 2016 and $386,000 in 2015, 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 amount of the associated derivative contracts, and the location of these instruments in the accompanying consolidated balance sheet:



		December 30, 2017					December 31, 2016
(In thousands)	Balance Sheet Location	Asset (Liability) (a)			Notional Amount (b)		Asset (Liability) (a)			Notional Amount
Derivatives Designated as Hedging Instruments:
Derivatives in an Asset Position:
Interest rate swap agreement	Other Long-Term Assets	$	126		$	10,000	$	62		$	10,000
Derivatives in a Liability Position:
Forward currency-exchange contracts	Other Current Liabilities	$	—		$	—	$	(41	)	$	2,380
Derivatives Not Designated as Hedging Instruments:
Derivatives in an Asset Position:
Forward currency-exchange contracts	Other Current Assets	$	17		$	1,244	$	2		$	227
Derivatives in a Liability Position:
Forward currency-exchange contracts	Other Current Liabilities	$	(16	)	$	2,049	$	(237	)	$	17,185


(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 2017, except for the purchase of forward currency-exchange contracts entered into in the second quarter of 2017 in anticipation of consideration paid for the acquisition of NII FPG.

The following table summarizes the activity in AOCI associated with the Company's derivative instruments designated as cash flow hedges as of and for the period ended December 30, 2017:



(In thousands)	Interest Rate Swap Agreements		Forward Currency- Exchange Contracts			Total
Unrealized Gain (Loss), Net of Tax, at December 31, 2016	$	40	$	(28	)	$	12
Loss reclassified to earnings (a)	20		64			84
Gain (loss) recognized in AOCI	19		(36		)	(17		)
Unrealized Gain, Net of Tax, at December 30, 2017	$	79	$	—		$	79


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

At year-end 2017, the Company expects to reclassify $28,000 of the net unrealized gain included in AOCI to earnings over the next twelve months.