Derivatives

9 Months Ended

Sep. 26, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Swap Agreements

The Company has entered into interest rate swap agreements to hedge its exposure to movements in USD LIBOR on its U.S. dollar-denominated debt. In 2018, the Company entered into an interest rate swap agreement (2018 Swap Agreement) with Citizens, which has a $15,000,000 notional value and expires on June 30, 2023. On a quarterly basis, the Company receives three-month USD LIBOR, which is subject to a zero percent floor, and pays a fixed rate of interest of 3.15% plus an applicable margin as defined in the Credit Agreement. In 2015, the Company entered into an interest rate swap agreement (2015 Swap Agreement) with Citizens which had a $10,000,000 notional value and expired on March 27, 2020. Under the 2015 Swap

Agreement, the Company received three-month USD LIBOR and paid a fixed rate of interest of 1.5% plus an applicable margin as defined in the Credit Agreement.

The interest rate swap agreements have been designated as cash flow hedges and are structured to be 100% effective. Unrealized gains and losses related to the fair values of the swap agreements are recorded to AOCI, net of tax. In the event of early termination of the 2018 Swap Agreement, the Company will receive from or pay to the counterparty the fair value of the interest rate swap agreement, and the unrealized gain or loss outstanding will be recognized in earnings.

The counterparty to the 2018 Swap Agreement could demand an early termination of that agreement if the Company were to be in default under the Credit Agreement, or any agreement that amends or replaces the Credit Agreement in which the counterparty is a member, and if it were to be unable to cure the default. See Note 6, Long-Term Obligations, for further details.

Forward Currency-Exchange Contracts

The Company uses forward currency-exchange contracts that have maturities of twelve months or less to hedge exposures resulting from fluctuations in currency exchange rates. Such exposures result from assets and liabilities that are denominated in currencies other than the functional currencies.

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. Deferred gains and losses are recognized in the statement of income in the period in which the underlying transaction occurs. The fair values of forward currency-exchange contracts that are designated as fair value hedges and forward currency-exchange contracts that are not designated as hedges are recognized currently in earnings.

The Company recognized within SG&A expenses in the accompanying condensed consolidated statement of income gains of $27,000 in the third quarter of 2020, losses of $14,000 in the third quarter of 2019, losses of $1,000 in the first nine months of 2020, and losses of $46,000 in the first nine months of 2019 associated with forward currency-exchange contracts that were not designated as hedges.

The following table summarizes the fair value of derivative instruments in the accompanying condensed consolidated balance sheet:


		September 26, 2020				December 28, 2019
	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 Current Assets	$	4	$	1,311	$	—	$	—
2015 Swap Agreement	Other Current Assets	$	—	$	—	$	11	$	10,000
Derivatives in a Liability Position:
Forward currency-exchange contracts	Other Current Liabilities	$	(14)	$	842	$	(75)	$	4,825
2018 Swap Agreement	Other Long-Term Liabilities	$	(1,202)	$	15,000	$	(770)	$	15,000

Derivatives Not Designated as Hedging Instruments:
Derivatives in an Asset Position:
Forward currency-exchange contracts	Other Current Assets	$	25	$	713	$	3	$	387
Derivatives in a Liability Position:
Forward currency-exchange contracts	Other Current Liabilities	$	(5)	$	686	$	(43)	$	2,545

(a) See Note 11, Fair Value Measurements and Fair Value of Financial Instruments, for the fair value measurements relating to these financial instruments.

(b) The total 2020 notional amounts are indicative of the level of the Company's recurring derivative activity.

The following table summarizes the activity in AOCI associated with derivative instruments designated as cash flow hedges as of and for the nine months ended September 26, 2020:


(In thousands)	Interest Rate Swap Agreements		Forward Currency- Exchange Contracts		Total
Unrealized Loss, Net of Tax, at December 28, 2019	$	(589)	$	(55)	$	(644)
Loss (gain) reclassified to earnings (a)	163		(18)		145
(Loss) gain recognized in AOCI	(487)		67		(420)
Unrealized Loss, Net of Tax, at September 26, 2020	$	(913)	$	(6)	$	(919)

(a) See Note 9, Accumulated Other Comprehensive Items, for the income statement classification.

As of September 26, 2020, the Company expects to reclassify losses of $351,000 from AOCI to earnings over the next twelve months based on the estimated cash flows of the 2018 Swap Agreement and the maturity dates of the forward currency-exchange contracts.