Annual report pursuant to Section 13 and 15(d)

Derivatives and Risk Management

v3.20.4
Derivatives and Risk Management
 12 Months Ended
Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Risk Management . Derivatives and Risk Management
Changes in interest rates impact our results of operations. In an effort to manage our exposure to this risk, we enter into derivative contracts and may adjust our derivative portfolio as market conditions change.
Designated as Cash Flow Hedge
For derivative contracts designated as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of Accumulated Other Comprehensive Income (“AOCI”) and reclassified into earnings in the same period in which the hedged transaction affects earnings. The effective portion of the derivative represents the change in fair value of the hedge that offsets the change in fair value of the hedged item. To the extent the change in the fair value of the hedge does not perfectly offset the change in the fair value of the hedged item, the ineffective portion of the hedge is immediately recognized in earnings.
Not Designated as Accounting Hedge
For derivative contracts de-designated as accounting hedges, the change in the fair value is reflected through earnings. These changes in fair value are mark-to-market adjustments (“MTM adjustments”). MTM adjustments are defined as fair value changes recorded in periods other than the settlement period. Such fair value changes are not necessarily indicative of the actual settlement value of the underlying hedge in the contract settlement period. The AOCI related to the interest rate cap prior to the de-designation is being amortized over the remaining maturity period.
Derivative Position as of December 31, 2020:
(in thousands)
Notional Balance
Final Maturity
Date
Other
Assets
AOCI, Net
of Tax
Designated as hedges:
Interest rate cap (cash flow hedge)
 $ 102,500  U.S. dollars December 2021 $ —  $ (89)
Not designated as hedges:
Interest rate cap
 $ 102,500  U.S. dollars December 2021 $ —  $ (75)
Derivative Position as of December 26, 2019:
(in thousands)
Notional Balance
Final Maturity
Date
Other
Assets
AOCI, Net
of Tax
Designated as hedges:
Interest rate cap (cash flow hedge)
 $ 102,500  U.S. dollars December 2021 $ 20  $ 236 
Not designated as hedges:
Interest rate cap
 $ 102,500  U.S. dollars December 2021 $ —  $ (43)
Designated Hedge Gain (Losses)
Gains (losses) related to our designated hedge contracts are as follows:
Effective Portion Reclassified
From AOCI to Earnings		 Effective Portion Recognized in
Other Comprehensive Income (Loss)
Fiscal Year Ended Fiscal Year Ended
(in thousands) December 31,
2020		 December 26,
2019		 December 27,
2018		 December 31,
2020		 December 26,
2019		 December 27,
2018
Interest rate cap (cash flow hedge) $ —  $ —  $ —  $ 357  $ (379) $ 391 
Interest rate swaps (cash flow hedges) $ —  $ —  $ —  $ —  $ —  $ — 
Interest Rate Risk
Our exposure to market risk from adverse changes in interest rates is primarily associated with our long-term debt obligations, which carry variable interest rates. Market risk associated with our variable interest rate long-term debt relates to the potential reduction in fair value and negative impact to future earnings, respectively, from an increase in interest rates.
In an effort to manage our exposure to the risk associated with our variable interest rate long term debt, we periodically enter into interest rate derivative contracts. We designate interest rate derivative contracts used to convert the interest rate exposure on a portion of our debt portfolio from a floating rate to a capped rate as cash flow hedges.
Credit Risk
To manage credit risk associated with our interest rate hedging program, we select counterparties based on their credit ratings and limit our exposure to any one counterparty.
The counterparties to our derivative contracts are financial institutions with investment grade credit ratings. To manage our credit risk related to our derivative financial instruments, we periodically monitor the credit risk of our counterparties, limit our exposure in the aggregate and to any single counterparty, and adjust our hedging position, as appropriate. The impact of credit risk, as well as the ability of each party to fulfill its obligations under our derivative financial instruments, is considered in determining the fair value of the contracts. Credit risk has not had a significant effect on the fair value of our derivative contracts. We do not have any credit risk-related contingent features or collateral requirements with our derivative financial instruments.