FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Assets and Liabilities Measured at Fair Value on a Recurring Basis Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). For the Company, these financial assets and liabilities include its derivative instruments. The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis. The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency exchange rates, and uses derivatives to manage these exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. All derivatives are recorded at fair value on the balance sheet. Interest Rate Swaps The Company periodically enters into interest rate swap agreements in order to reduce the cash flow risk caused by interest rate changes on its outstanding floating rate borrowings. Under these swap agreements, the Company pays a fixed rate of interest and receives a floating rate equal to one-month London Interbank Offered Rate (“LIBOR”). The variable rate received from the swap agreements and the variable rate paid on the outstanding debt will have the same rate of interest, excluding the credit spread, and will reset and pay interest on the same date. The Company has designated these swap agreements as cash flow hedges based on concluding the hedged forecasted transaction is probable of occurring within the period the cash flow hedge is anticipated to affect earnings. The unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and are subsequently reclassified into earnings when interest on the related debt is accrued. The fair value of the Company’s swap agreements are determined through the use of a cash flow model that utilizes observable market data inputs. These observable market data inputs include LIBOR, swap rates, and credit spread curves. In addition, the Company receives a fair value estimate from the swap agreement counterparty to verify the reasonableness of the Company’s estimate. The estimated fair value of the swap agreements represents the amount the Company would receive (pay) to terminate the contracts. Information regarding the Company’s outstanding interest rate swaps designated as cash flow hedges as of September 27, 2019 is as follows (dollars in thousands): Notional Amount Start Date End Date Pay Fixed Rate Receive Current Floating Rate Fair Value Balance Sheet Location $ 200,000 Jun 2017 Jun 2020 1.1325 % 2.0536 % $ 883 Accrued expenses and other current liabilities 75,000 Jul 2019 Jul 2020 1.8900 2.0536 (90 ) Accrued expenses and other current liabilities 400,000 Apr 2019 Apr 2020 2.4150 2.0421 (1,306 ) Accrued expenses and other current liabilities 200,000 Jun 2020 Jun 2023 2.1785 (a) (3,753 ) Other long-term liabilities __________ (a) The interest rate swap is not in effect until June 2020. As of December 28, 2018, the Company had outstanding an interest rate swap with a notional amount of $200 million. The fair value as of December 28, 2018 was $4.2 million and was included in Other assets in the Condensed Consolidated Balance Sheets. Foreign Currency Contracts The Company periodically enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate fluctuations in its international operations. The Company has designated these foreign currency forward contracts as cash flow hedges. The unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and are reclassified to earnings in the same periods during which the hedged transactions affect earnings. (14.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) Information regarding outstanding foreign currency forward contracts designated as cash flow hedges as of September 27, 2019 is as follows (dollars in thousands): Notional Amount Start Date End Date $/Foreign Currency Fair Value Balance Sheet Location $ 5,249 Jul 2019 Dec 2019 0.0500 Peso $ 26 Accrued expenses and other current liabilities 6,042 Jul 2019 Dec 2019 0.0504 Peso (12 ) Accrued expenses and other current liabilities 8,339 Oct 2019 Dec 2019 1.1119 Euro (95 ) Accrued expenses and other current liabilities 11,166 Jan 2020 Jun 2020 0.0490 Peso 68 Accrued expenses and other current liabilities Information regarding outstanding foreign currency contracts designated as cash flow hedges as of December 28, 2018 is as follows (dollars in thousands): Notional Amount Start Date End Date $/Foreign Currency Fair Value Balance Sheet Location $ 12,621 Jan 2019 Jun 2019 1.1686 Euro $ (149 ) Accrued Expenses 10,991 Jan 2019 Jun 2019 0.0523 Peso (494 ) Accrued Expenses 10,535 Jan 2019 Jun 2019 1.1705 Euro (141 ) Accrued Expenses 11,019 Jan 2019 Jun 2019 0.0483 Peso (316 ) Accrued Expenses 10,499 Jul 2019 Dec 2019 0.0500 Peso 368 Accrued Expenses The fair value of foreign currency contracts are determined through the use of cash flow models that utilize observable market data inputs to estimate fair value. These observable market data inputs include foreign exchange rates and credit spread curves. In addition, the Company receives fair value estimates from the foreign currency contract counterparties to verify the reasonableness of the Company’s estimates. Derivative Instruments with Hedge Accounting Designation The following tables present the fair values of derivative instruments formally designated as hedging instruments as of September 27, 2019 and December 28, 2018 (in thousands). Fair Value Fair Value Hierarchy Assets Liabilities September 27, 2019 Interest rate swaps Level 2 $ — $ 4,266 Foreign currency contracts Level 2 — 13 December 28, 2018 Interest rate swaps Level 2 $ 4,171 $ — Foreign currency contracts Level 2 — 732 (14.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) The following tables present the amounts in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the three and nine months ended September 27, 2019 and September 28, 2018 (in thousands): Three Months Ended September 27, 2019 September 28, 2018 Total Amount of Gain (Loss) on Cash Flow Hedge Activity Total Amount of Gain (Loss) on Cash Flow Hedge Activity Sales $ 303,587 $ (500 ) $ 305,088 $ (252 ) Cost of sales 210,201 309 213,165 393 Interest expense 12,337 444 54,526 482 Nine Months Ended September 27, 2019 September 28, 2018 Total Amount of Gain (Loss) on Cash Flow Hedge Activity Total Amount of Gain (Loss) on Cash Flow Hedge Activity Sales $ 932,457 $ (1,294 ) $ 911,978 $ (254 ) Cost of sales 653,477 1,137 637,758 988 Interest expense 39,779 1,847 85,355 1,114 The following tables present the amounts affecting the Condensed Consolidated Statements of Operations for the three and nine months ended September 27, 2019 and September 28, 2018 (in thousands): Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives Amount of Gain (Loss) Reclassified from AOCI into Earnings Three months ended, Location of Gain (Loss) Reclassified from AOCI into Earnings Three months ended, September 27, September 28, September 27, September 28, Interest rate swap $ (991 ) $ 415 Interest expense $ 444 $ 482 Foreign exchange forwards (400 ) 384 Sales (500 ) (252 ) Foreign exchange forwards (68 ) 625 Cost of sales 309 393 Nine Months Ended Location of Gain (Loss) Reclassified from AOCI into Earnings Nine Months Ended September 27, September 28, September 27, September 28, Interest rate swap $ (6,590 ) $ 2,524 Interest expense $ 1,847 $ 1,114 Foreign exchange forwards (1,099 ) (92 ) Sales (1,294 ) (254 ) Foreign exchange forwards 1,661 1,893 Cost of sales 1,137 988 The Company expects to reclassify net losses totaling $0.5 million related to its cash flow hedges from AOCI into earnings during the next twelve months. (14.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued) Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Fair value standards also apply to certain assets and liabilities that are measured at fair value on a nonrecurring basis. The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short-term nature of these items. Borrowings under the Company’s Revolving Credit Facility, TLA Facility and TLB Facility accrue interest at a floating rate tied to a standard short-term borrowing index, selected at the Company’s option, plus an applicable margin. The carrying amount of this floating rate debt approximates fair value based upon the respective interest rates adjusting with market rate adjustments. Equity Investments The Company holds long-term, strategic investments in companies to promote business and strategic objectives. These investments are included in Other Long-Term Assets on the Condensed Consolidated Balance Sheets. Non-marketable equity securities are equity securities without readily determinable fair value. The Company has elected the practicability exception to use an alternative approach that measures the securities at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. If an impairment is recognized on the Company’s non-marketable equity securities during the period, these assets are classified as Level 3 within the fair value hierarchy based on the nature of the fair value inputs. Equity investments are comprised of the following (in thousands): September 27, December 28, Equity method investment $ 15,977 $ 15,148 Non-marketable equity securities 6,092 7,667 Total equity investments $ 22,069 $ 22,815 The components of (Gain) Loss on Equity Investments, Net for each period were as follows (in thousands): Three Months Ended Nine Months Ended September 27, September 28, September 27, September 28, Equity method investment income $ (986 ) $ (291 ) $ (909 ) $ (5,545 ) Impairment charges — — 1,575 — Observable price adjustments on non-marketable equity securities — — — — Total (gain) loss on equity investments, net $ (986 ) $ (291 ) $ 666 $ (5,545 ) In May 2019, the Company determined that an investment in one of its non-marketable equity securities was impaired and determined the fair value to be zero based upon available market information. An impairment charge of $1.6 million was recognized during the second quarter of 2019. This assessment was based on qualitative indications of impairment. Factors that significantly influenced the determination of the impairment loss included the equity security’s investee’s financial condition, priority claims to the equity security, distributions rights and preferences, and status of the regulatory approval required to bring its product to market. The Company’s equity method investment is in a Chinese venture capital fund focused on investing in life sciences companies. As of September 27, 2019 , the Company owned 6.7% of this fund. |