Helios Technologies Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments & Hedging Activities

Derivative Instruments & Hedging Activities

9 Months Ended

Oct. 01, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS & HEDGING ACTIVITIES

8. DERIVATIVE INSTRUMENTS & HEDGING ACTIVITIES

The Company addresses certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments and hedging activities.

The fair value of the Company’s derivative financial instruments included in the Consolidated Balance Sheets is presented as follows:


	Asset Derivatives					Liability Derivatives
	Balance Sheet	Fair Value (1)		Fair Value (1)		Balance Sheet	Fair Value (1)		Fair Value (1)
	Location	October 1, 2022		January 1, 2022		Location	October 1, 2022		January 1, 2022
Derivatives designated as hedging instruments:
Interest rate swap contracts	Other assets	$	11,997	$	1,521	Other non-current liabilities	$	—	$	3,248
Derivatives not designated as hedging instruments:
Forward foreign exchange contracts	Other current assets		2,625		866	Other current liabilities		73		51
Forward foreign exchange contracts	Other assets		423		174	Other non-current liabilities		—		—
Total derivatives		$	15,045	$	2,561		$	73	$	3,299
(1) See Note 4 for information regarding the inputs used in determining the fair value of derivative assets and liabilities.

The amount of gains and losses related to the Company’s derivative financial instruments for the nine months ended October 1, 2022 and October 2, 2021, are presented as follows:


	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivatives (Effective Portion)				Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Earnings (Effective Portion)
	October 1, 2022		October 2, 2021		into Earnings (Effective Portion)	October 1, 2022			October 2, 2021
Derivatives in cash flow hedging relationships:
Interest rate swap contracts	$	13,726	$	3,718	Interest expense, net	$	(1,447	)	$	(3,137	)

Interest expense presented in the Consolidated Statements of Operations, in which the effects of cash flow hedges are recorded, totaled $11,719 and $12,965 for the nine months ended October 1, 2022 and October 2, 2021, respectively.


	Amount of Gain or (Loss) Recognized in Earnings on Derivatives				Location of Gain or (Loss) Recognized
	October 1, 2022		October 2, 2021		in Earnings on Derivatives
Derivatives not designated as hedging instruments:
Forward foreign exchange contracts	$	6,433	$	3,401	Foreign currency transaction gain / loss, net

Interest Rate Swap Contracts

The Company has entered into interest rate swap transactions to hedge the variable interest rate payments on its credit facilities. In connection with the transactions, the Company pays interest based upon a fixed rate as agreed upon with the respective counterparties and receives variable rate interest payments based on the one-month LIBOR. The interest rate swaps are designated as hedging instruments and are accounted for as cash flow hedges. The aggregate notional amount of the swaps was $245,000 as of October 1, 2022. The notional amount decreases periodically through the dates of expiration in April 2023 and October 2025. The contracts are settled with the respective counterparties on a net basis at each settlement date.

Forward Foreign Exchange Contracts

The Company has entered into forward contracts to economically hedge translational and transactional exposure associated with various business units whose local currency differs from the Company’s reporting currency. The Company’s forward contracts are not designated as hedging instruments for accounting purposes.

At October 1, 2022, the Company had seven forward foreign exchange contracts with an aggregate notional value of €27,500, maturing at various dates through March 2024.

Net Investment Hedge

The Company utilizes foreign currency denominated debt to hedge currency exposure in foreign operations. The Company has designated €90,000 of borrowings on the revolving credit facility as a net investment hedge of a portion of the Company’s European operations. The carrying value of the euro denominated debt totaled $88,193 as of October 1, 2022 and is included in the Revolving line of credit line item in the Consolidated Balance Sheets. The gain on the net investment hedge recorded in accumulated other comprehensive income as part of the currency translation adjustment was $10,868, net of tax, for the nine months ended October 1, 2022.