Derivative Financial Instruments

12 Months Ended

Dec. 25, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Foreign Exchange Derivative Contracts

We operate and sell our products in various global markets. As a result, we are exposed to changes in foreign currency exchange rates. We utilize foreign currency forward contracts to hedge against future movements in foreign exchange rates that affect certain existing foreign currency denominated assets and liabilities and forecasted foreign currency revenue and expense transactions. Under this program, our strategy is to have increases or decreases in our foreign currency exposures mitigated by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatility associated with foreign currency transaction gains or losses.

We do not use derivative financial instruments for speculative or trading purposes. For accounting purposes, certain of our foreign currency forward contracts are not designated as hedging instruments and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Consolidated Balance Sheets with changes in fair value recorded within Other income, net in our Consolidated Statements of Income for both realized and unrealized gains and losses. Certain of our foreign currency forward contracts are designated as cash flow hedges, and, accordingly, we record the fair value of these contracts as of the end of our reporting period in our Consolidated Balance Sheets with changes in fair value recorded as a component of Accumulated other comprehensive income (loss) and reclassified into earnings in the same period in which the hedged transaction affects earnings, and in the same line item on the Consolidated Statements of Income as the impact of the hedge transaction. At December 25, 2021, we expect to reclassify $0.5 million of the amount accumulated in other comprehensive loss to earnings during the next 12 months, due to the recognition in earnings of the hedged forecasted transactions.

The fair value of our foreign exchange derivative contracts was determined based on current foreign currency exchange rates and forward points. All of our foreign exchange derivative contracts outstanding at December 25, 2021 will mature by the fourth quarter of fiscal 2022.

The following table provides information about our foreign currency forward contracts outstanding as of December 25, 2021 (in thousands):


Currency	Contract Position	Contract Amount (Local Currency)	Contract Amount (U.S. Dollars)
Euro	Buy	(9,774)	$	(11,579)
Euro	Sell	5,906	6,680
Japanese Yen	Sell	1,902,670	16,629
Korean Won	Buy	(1,901,547)	(1,603)
Taiwan Dollar	Sell	47,548	1,718
Total USD notional amount of outstanding foreign exchange contracts			$	11,845

Our foreign currency contracts are classified within Level 2 of the fair value hierarchy as they are valued using pricing models that utilize observable market inputs.

The location and amount of gains (losses) related to non-designated derivative instruments in the Consolidated Statements of Income were as follows (in thousands):


	Location of Gain (Loss) Recognized on Derivatives	Fiscal Year Ended
Derivatives Not Designated as Hedging Instruments		December 25, 2021		December 26, 2020		December 28, 2019
Foreign exchange forward contracts	Other income, net	$	1,585	$	(1,437)	$	248

The location and amount of gains (losses) related to derivative instruments designated as cash flow hedges on our Consolidated Statements of Income was as follows (in thousands):


	Amount of Gain or (Loss) Recognized in Accumulated OCI on Derivative		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income
Fiscal 2021	$	(1,096)	Cost of revenues	$	184
			Research and development	3
			Selling, general and administrative	64
				$	251

Fiscal 2020	$	1,142	Cost of revenues	$	89
			Research and development	77
			Selling, general and administrative	25
				$	191

Fiscal 2019	$	93	Cost of revenues	$	(526)
			Research and development	(75)
			Selling, general and administrative	(172)
				$	(773)

Interest Rate Swaps

Pursuant to our interest rate and risk management strategy, during fiscal 2016 we entered into an interest rate swap agreement with HSBC and other lenders to hedge the interest payments on the CMI Term Loan for the notional amount of $95.6 million. As future levels of LIBOR over the life of the loan were uncertain, we entered into these interest-rate swap agreements to hedge the exposure in interest rate risks associated with the movement in LIBOR rates. By entering into the agreements, we converted a floating rate interest at one-month LIBOR plus 2.00% into a fixed rate interest at 2.94%. The interest rate swap agreement ended as of March 28, 2020.

During fiscal 2020 we entered into an interest rate swap agreement with Union Bank to hedge the interest payments on the Building Term Loan for the notional amount of $18.0 million. As future levels of LIBOR over the life of the loan are uncertain, we entered into this interest-rate swap agreement to hedge the exposure in interest rate risks associated with movement in LIBOR rates. By entering into the agreement, we convert a floating rate interest at one-month LIBOR plus 1.75% into a fixed

rate interest at 2.75%. The interest rate swap also included a 0% floor that was effective for one year from the date of the swap. As of December 25, 2021, the notional amount of the loan that is subject to this interest rate swap was $16.5 million. See Note 5, Debt, for additional information.

For accounting purposes, the interest-rate swap contracts qualify for and are designated as cash flow hedges. All hedging relationships are formally documented, and the hedges are designed to offset changes to future cash flows on hedged transactions. We evaluate hedge effectiveness at hedge inception and on an ongoing basis.

The fair value of our interest rate swap contracts are determined at the end of each reporting period based on valuation models that use interest rate yield curves as inputs. The cash flows associated with the interest rate swaps are reported in Net cash provided by operating activities in our Consolidated Statements of Cash Flows and the fair value of the interest rate swap contracts are recorded within Accrued Liabilities and Other assets.

The impact of the interest rate swaps on the Consolidated Statements of Income was as follows (in thousands):


	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
Fiscal 2021	$	451	Other income, net	$	(154)
Fiscal 2020	(119)		Other income, net	(64)
Fiscal 2019	(86)		Other income, net	548