Note 8. Derivative Financial Instruments and Fair Value

The Company is exposed to various market risks including, but not limited to, foreign currency exchange rates and market interest rates. The Company strives to control its exposure to these risks through our normal operating activities and, where appropriate, through the use of derivative financial instruments. Derivative financial instruments are measured at fair value on a recurring basis using various pricing models that incorporate observable market parameters, such as interest rate yield curves and foreign currency rates, and are classified as Level 2 within the fair value hierarchy.

For a designated cash flow hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded in AOCI(L) in the consolidated balance sheets. When the underlying hedged transaction is realized, the gain or loss previously included in AOCI(L) is recorded in earnings and reflected in the consolidated statements of operations on the same line as the gain or loss on the hedged item attributable to the hedged risk. The gain or loss associated with changes in the fair value of derivatives not designated as hedges are recorded immediately in the consolidated statements of operations on the same line as the associated risk. For a designated net investment hedge, the effective portion of the change in the fair value of the derivative financial instrument is recorded as a cumulative translation adjustment in AOCI(L) in the consolidated balance sheets.

Net investment hedges

The Company is exposed to the risk that adverse changes in foreign currency exchange rates could affect its net investment in non-U.S. subsidiaries. To manage this risk, the Company designates certain qualifying derivative and non-derivative instruments, including cross-currency swaps and foreign currency-denominated debt, as net investment hedges of certain non-U.S. subsidiaries.

The Company had a fixed-rate, cross-currency swap, with a notional value of $60.0 million (€54.8 million), that settled in December 2024 with a gross gain of approximately $3.1 million. The cross-currency swap was designated as a hedge of the Company’s net investment in its euro-denominated subsidiaries. The gain will remain in AOCI(L) until the hedged net investment is sold or substantially liquidated.

Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter, under the spot-to-spot method. The Company recognizes the changes in fair value of the derivative, which represents the interest rate differential of the cross-currency swap, through interest expense. In fiscal 2025 and fiscal 2024, the Company recorded gains of $0.7 million and $0.7 million, respectively, in interest expense, net in the consolidated statements of operations.

During fiscal 2025, the Company had €275.0 million of long-term borrowings under its Amended Credit Agreement which was designated as a net investment hedge of the foreign currency exposure of its investment in its euro-denominated subsidiaries. On December 18, 2024, the Company de-designated the euro-denominated borrowings as a net investment hedge. As of the date of de-designation, the cumulative gain, net of tax, of $9.0 million remained recorded in accumulated other comprehensive loss (“AOCI(L)”) and will continue to be reclassified only upon a substantial liquidation of the Company’s investment in its euro-denominated subsidiaries. Due to changes in the value of the euro-denominated long-term borrowings designated as a net investment hedge, in fiscal 2025 (through the date of de-designation), a gain, net of tax, of $4.8 million was recognized within the currency translation component of other comprehensive loss.

As of August 2, 2025, the Company designated €55.0 million of long-term borrowings under its revolving credit facility (see Note 10, “Debt”) as a net investment hedge of the foreign currency exposure of its investment in its euro-denominated subsidiaries. Due to changes in the value of the euro-denominated borrowings while designated, the Company recognized gains, net of tax, of $0.8 million in fiscal 2026 within the currency translation component of other comprehensive loss.

Interest rate swaps

The Company utilizes interest rate swaps to limit its exposure to market fluctuations on its variable-rate borrowings. The interest rate swaps effectively convert a portion of the Company’s variable rate borrowings to a fixed rate based upon a determined notional amount. The Company has an interest rate swap maturing on October 31, 2027, with a notional value of $154.9 million (€132.0 million) and had two interest rate swaps that matured on August 31, 2023, with a notional value of $100.0 million. The interest rate swaps are designated as cash flow hedges.

Hedge effectiveness is assessed at the inception of the hedging relationship and quarterly thereafter. The effective portion of the periodic changes in fair value is recognized in AOCI(L). Subsequently, the accumulated gains and losses recorded in AOCI(L) are reclassified to income in the period during which the hedged cash flow affects earnings, which are expected to be immaterial over the next 12 months. No ineffectiveness was recognized in fiscal 2026, fiscal 2025, or fiscal 2024.

Derivatives not designated as hedges

The Company uses short-term foreign currency forward contracts to reduce the volatility on earnings that exchange rate fluctuations have on non-functional currency balance sheet exposures. These forward contracts are not designated as hedging instruments. Gains and losses on these forward contracts are recognized in other expense (income), net, along with the foreign currency gains and losses on monetary assets and liabilities in the consolidated statements of operations.

As of May 2, 2026 and May 3, 2025, the Company held foreign currency forward contracts with a notional value of $126.3 million and $107.2 million, respectively. In fiscal 2026, fiscal 2025, and fiscal 2024, the Company recognized a gain of $2.7 million, a gain of $1.7 million, and a loss of $4.1 million, respectively, related to foreign currency forward contracts included in other expense (income), net on the consolidated statements of operations.

Effect of derivative instruments on comprehensive income (loss)

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Asset and Liability Instruments

The carrying value of cash and cash equivalents, short and long-term receivables, accounts payable, and short-term and long-term debt approximates fair value.

Fair value of derivative instruments on the balance sheet

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets may be measured at fair value on a nonrecurring basis. These assets include long-lived assets and intangible assets, which may be written down to fair value as a result of impairment.

Goodwill and Indefinite-Lived Intangible Assets

The basis of the goodwill impairment analysis is the Company’s current forecast, and its annual budget and long-range plan. This includes a projection of future cash flows, which requires the Company to make significant assumptions and estimates about the extent and timing of future cash flows and revenue growth rates. These represent Company-specific inputs and assumptions about the use of the assets, as observable inputs are not available (level 3). These estimates and assumptions are subject to a high degree of uncertainty. Due to the many variables inherent in estimating fair value and the relative size of the goodwill balance, differences in assumptions could have a material effect on the results of the analysis.

In the goodwill impairment analysis, for reporting units with goodwill tested using a quantitative approach, fair values are estimated using a combination of the income approach and market approach. The Company applies a 50% weighting to the income approach and a 50% weighting to the market approach. The most significant inputs in estimating the fair value of the Company’s reporting units under the income approach are (i) projected earnings before interest, taxes, depreciation and amortization margin, (ii) the revenue growth rate, and (iii) the discount rate, which is risk-adjusted based on the aforementioned inputs. See Note 7, “Goodwill and Other Intangible Assets”, for additional information on the goodwill and indefinite-lived intangible asset impairments.