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Derivatives | 9 Months Ended
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Sep. 29, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | Derivatives The Company uses derivative instruments primarily to reduce its exposure to changes in currency exchange rates and interest rates. When the Company enters into a derivative contract, the Company makes a determination as to whether the transaction is deemed to be a hedge for accounting purposes. If a contract is deemed a hedge, the Company formally documents the relationship between the derivative instrument and the risk being hedged. In this documentation, the Company specifically identifies the asset, liability, forecasted transaction, cash flow, or net investment that has been designated as the hedged item, and evaluates whether the derivative instrument is expected to reduce the risks associated with the hedged item. To the extent these criteria are not met, the Company does not use hedge accounting for the derivative. The changes in the fair value of a derivative not deemed to be a hedge are recorded currently in earnings. The Company does not hold or engage in transactions involving derivative instruments for purposes other than risk management. ASC 815, Derivatives and Hedging, requires that all derivatives be recognized on the balance sheet at fair value. For derivatives designated as cash flow hedges, the related gains or losses on these contracts are deferred as a component of AOCI. These deferred gains and losses are recognized in the statement of income in the period in which the underlying anticipated transaction occurs. For derivatives designated as fair value hedges, the unrealized gains and losses resulting from the impact of currency exchange rate movements are recognized in earnings in the period in which the exchange rates change and offset the currency gains and losses on the underlying exposures being hedged. The Company performs an evaluation of the effectiveness of the hedge both at inception and on an ongoing basis. The ineffective portion of a hedge, if any, and changes in the fair value of a derivative not deemed to be a hedge, are recorded in the accompanying condensed consolidated statement of income. Interest Rate Swap Agreements In May 2018, the Company entered into an interest rate swap agreement (2018 Swap Agreement) which has a $15,000,000 notional value and expires on June 30, 2023. In 2015, the Company also entered into an interest rate swap agreement (2015 Swap Agreement) which has a $10,000,000 notional value and expires on March 27, 2020. The swap agreements hedge the Company’s exposure to movements in the three-month LIBOR rate on U.S. dollar-denominated debt. On a quarterly basis, the Company receives a three-month LIBOR rate and pays a fixed rate of interest of 3.15% plus an applicable margin as defined in the revolving credit facility on the 2018 Swap Agreement and 1.50% plus an applicable margin as defined in the revolving credit facility on the 2015 Swap Agreement. The 2018 Swap Agreement is subject to a zero percent floor on the three-month LIBOR rate. The interest rate swap agreements are designated as cash flow hedges and, accordingly, unrecognized gains and losses are recorded to AOCI, net of tax. The Company has structured its 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 interest rate swap agreements is remote based on the Company's financial position and the creditworthiness of the financial institution that issued those agreements. The counterparty to the interest rate swap agreements could demand an early termination of those agreements 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. As of September 29, 2018, the Company was in compliance with these covenants. The fair values of the interest rate swap agreements represent the estimated amounts that the Company would receive from or pay to the counterparty in the event of 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 and unrecognized gains and losses are recorded to 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 values of forward currency-exchange contracts that are not designated as hedges are recorded currently in earnings. The Company recognized within SG&A expenses in the accompanying condensed consolidated statement of income losses of $67,000 in the third quarter of 2018, gains of $109,000 in the third quarter of 2017, losses of $40,000 in the first nine months of 2018 and losses of $1,384,000 in the first nine months of 2017 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 in the accompanying condensed consolidated balance sheet:
|  |  |  | September 29, 2018 |  | December 30, 2017
|  | Balance Sheet Location |  | Asset (Liability) (a) |  | Notional Amount (b) |  | Asset (Liability) (a) |  | Notional Amount
(In thousands) |  |  |  |  |
Derivatives Designated as Hedging Instruments: |  |  |  |  |  |  |  |
Derivatives in an Asset Position: |  |  |  |  |  |  |  |  |  |
Forward currency-exchange contract |  | Other Long-Term Assets |  | $ | 32 |  |  | $ | 842 |  |  | $ | — |  |  | $ | — |
2015 Swap Agreement |  | Other Long-Term Assets |  | $ | 202 |  |  | $ | 10,000 |  |  | $ | 126 |  |  | $ | 10,000 |
Derivatives in a Liability Position: |  |  |  |  |  |  |  |  |  |
Forward currency-exchange contracts |  | Other Current Liabilities |  | $ | (12 | ) |  | $ | 3,788 |  |  | $ | — |  |  | $ | — |
2018 Swap Agreement |  | Other Long-Term Liabilities |  | $ | (87 | ) |  | $ | 15,000 |  |  | $ | — |  |  | $ | — |
Derivatives Not Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |  |
Derivatives in an Asset Position: |  |  |  |  |  |  |  |  |  |  |  |  |  |
Forward currency-exchange contracts |  | Other Current Assets |  | $ | — |  |  | $ | — |  |  | $ | 17 |  |  | $ | 1,244 |
Derivatives in a Liability Position: |  |  |  |  |  |  |  |  |  |
Forward currency-exchange contracts |  | Other Current Liabilities |  | $ | (36 | ) |  | $ | 1,402 |  |  | $ | (16 | ) |  | $ | 2,049 |
(a) | See Note 10 for the fair value measurements relating to these financial instruments.
(b) | The total 2018 notional amounts are indicative of the level of the Company's recurring derivative activity.
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 nine months ended September 29, 2018:
(In thousands) |  | Interest Rate Swap Agreements |  | Forward Currency- Exchange Contracts |  | Total
Unrealized Gain, Net of Tax, at December 30, 2017 |  | $ | 79 |  |  | $ | — |  |  | $ | 79 |
Loss (gain) reclassified to earnings (a) |  | 4 |  |  | (18 | ) |  | (14 | )
Gain recognized in AOCI |  | 3 |  |  | 31 |  |  | 34 |
Unrealized Gain, Net of Tax, at September 29, 2018 |  | $ | 86 |  |  | $ | 13 |  |  | $ | 99 |
(a) See Note 8 for the income statement classification. As of September 29, 2018, the Company expects to reclassify $37,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the interest rate swap agreements and the maturity dates of the forward currency- exchange contracts.

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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