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Fair Value Measurement and Interest Rate Swaps
 9 Months Ended
Sep. 29, 2024
Fair Value Disclosures and Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Fair Value Measurement and Interest Rate Swaps Fair Value Measurement and Interest Rate Swaps
Fair value is defined as an exit price, representing an amount that would be received to sell an asset or the amount paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The inputs used to measure fair value are prioritized into the following three-tiered value hierarchy:
•Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•Level 2: Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active or inputs, other than quoted prices in active markets, which are observable either directly or indirectly.
•Level 3: Unobservable inputs for which there is little or no market data.

The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The classification of fair value measurement within the hierarchy is based upon the lowest level of input that is significant to the measurement.

The Company’s financial instruments consist of cash and cash equivalents, accounts receivables, interest rate swap contracts, long-term debt, and redeemable non-controlling interest. The variable interest rate on the long-term debt is reflective of current market borrowing rates. As such, the Company has determined that the carrying value of these financial instruments approximates fair value.
Interest Rate Swaps

The Company is subject to interest rate risk with regard to existing and future issuances of debt. The Company utilizes interest rate swap contracts to reduce its exposure to fluctuations in variable interest rates for future interest payments on existing debt. The Company is party to interest rate swap contracts to convert the variable interest rate to a fixed interest rate on the borrowings under the term loans.

The Company recognizes any differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense over the life of the swaps. The Company has designated these swaps as cash flow hedges and records the estimated fair value of the swaps to Accumulated other comprehensive income (loss) (“AOCI”) on its Consolidated Balance Sheets. If it becomes probable the forecasted transactions will not occur, the hedge relationship will be de-designated and amounts accumulated in AOCI will be reclassified to Interest and other non-operating expenses, net in the current period.
On March 31, 2023, the Company amended the terms of its interest rate swaps to implement a forward-looking interest rate based on SOFR in place of LIBOR. Since the interest rate swaps were affected by reference rate reform, the Company applied the expedients and exceptions provided in Topic 848 to preserve the past presentation of its derivatives without de-designating the existing hedging relationships. All interest rate swap amendments were executed with the existing counterparties and did not change the notional amounts, maturity dates, or other critical terms of the hedging relationships. The interest rate swaps will continue to be net settled on a quarterly basis with the counterparties for the difference between the fixed rates and the variable rates based upon three-month Term SOFR (subject to a floor of 0.23839% for interest rate swaps 7, 8, and 9) as applied to the notional amounts of each interest rate swap.

On March 23, 2021, the Company restructured the interest rate swap positions of its forward-starting interest rate swaps 4, 5, and 6 to extend the terms to maturity using a strategy referred to as a “blend and extend” in order to continue to manage its exposure to interest rate risk on borrowings under the term loans. Refer to “Note 9. Long-Term Debt” for additional information regarding the Company’s term loans. As a result of these transactions, all existing agreements for forward-starting interest rate swaps 4, 5, and 6 at that time were amended and restructured as new agreements designated by the Company as interest rate swaps 7, 8, and 9 with the same counterparties. Each of the liability positions of the forward-starting interest rate swaps were blended into the amended interest rate swap agreements and the term of the hedged positions were extended to mature on March 23, 2025. Due to the size of the initial net investment amounts resulting from the termination values of the forward-starting interest rate swaps that were rolled into the interest rate swap arrangements, interest rate swaps 7, 8, and 9 were determined to be hybrid debt instruments containing embedded at-market interest rate swap derivatives. As a result, the Company bifurcated the derivative instruments from the debt host instruments for accounting purposes. Refer to “Note 9. Long-Term Debt” for additional information regarding the Company’s hybrid debt instruments.

The following table provides additional details related to the swap contracts designated as hedging instruments as of September 29, 2024:
Derivatives designated as hedging instrumentsInception DateAmended Effective DateMaturity DateNotional Amount
(in millions)		Fixed Interest RateType of Hedge
Interest rate swap 7March 23, 2021March 31, 2023March 23, 2025$50.0 0.73300 %Cash flow
Interest rate swap 8March 23, 2021March 31, 2023March 23, 2025$90.0 0.74300 %Cash flow
Interest rate swap 9March 23, 2021March 31, 2023March 23, 2025$70.0 0.75424 %Cash flow

The following table provides additional details related to interest rate swap 3, which was designated as a hedging instrument and terminated upon maturity on January 14, 2024:
Derivatives designated as hedging instrumentsInception DateAmended Effective DateMaturity DateNotional Amount
(in millions)		Fixed Interest RateType of Hedge
Interest rate swap 3December 17, 2018April 14, 2023January 14, 2024$34.0 2.73040%Cash flow

The Company recognizes the unrealized gains or unrealized losses for interest rate swap contracts as either assets or liabilities at fair value on its Consolidated Balance Sheets. The interest rate swap contracts are subject to master netting arrangements. The Company has elected not to offset the fair value of assets with the fair value of liabilities related to these contracts. The following table summarizes the fair value of the derivative instruments and the respective lines in which they were recorded in the Consolidated Balance Sheets as of September 29, 2024 and December 31, 2023 (in millions):
Derivative Assets
September 29, 2024December 31, 2023
Derivatives designated as hedging instrumentsBalance Sheet LocationFair ValueBalance Sheet LocationFair Value
Interest rate contractsPrepaid expenses and other current assets$3.5 Prepaid expenses and other current assets$8.4 
Other assets— Other assets1.3 
Total derivative assets$3.5 $9.7 
For determining the fair value of the interest rate swap contracts, the Company uses significant observable market data or assumptions (Level 2 inputs) that market participants would use in pricing similar assets or liabilities, including assumptions about counterparty risk. The fair value estimates reflect an income approach based on the terms of the interest rate swap contracts and inputs corroborated by observable market data including interest rate curves.

For the three and nine months ended September 29, 2024 and October 1, 2023, there was no ineffectiveness recognized in earnings. The after-tax amount of unrealized gain on derivative instruments included in AOCI related to the interest rate swap contracts expected to be reclassified to earnings during the next twelve months was $2.6 million as of September 29, 2024. The ultimate amount recognized will vary based on fluctuations of interest rates through the maturity dates.

The tables below provide details regarding pre-tax amounts in AOCI and gain (loss) reclassified into income for derivatives designated as cash flow hedges for the three and nine months ended September 29, 2024 and October 1, 2023 (in millions):
Three Months Ended
September 29, 2024October 1, 2023
Derivatives in Cash Flow Hedging RelationshipsGain (Loss) Recorded in OCIClassification of Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Reclassified from
AOCI into Income		Gain (Loss) Recorded in OCIClassification of Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Reclassified from
AOCI into Income
Interest rate contracts$(0.9)Interest and other non-operating expenses, net$2.4 $1.2 Interest and other non-operating expenses, net$2.6 
Nine Months Ended
September 29, 2024October 1, 2023
Derivatives in Cash Flow Hedging RelationshipsGain (Loss) Recorded in OCIClassification of Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Reclassified from
AOCI into Income		Gain (Loss) Recorded in OCIClassification of Gain (Loss) Reclassified from AOCI into IncomeGain (Loss) Reclassified from
AOCI into Income
Interest rate contracts$1.1 Interest and other non-operating expenses, net$7.3 $4.2 Interest and other non-operating expenses, net$6.9 

For the three months ended September 29, 2024 and October 1, 2023, there was no gain (loss) reclassified from AOCI into income for derivatives not designated as hedging instruments.

The table below provides details regarding gain (loss) reclassified from AOCI into income for derivatives not designated as hedging instruments for the nine months ended September 29, 2024 and October 1, 2023 (in millions):
Nine Months Ended
Gain (Loss) Reclassified from AOCI into Income
Derivatives not designated as hedging instrumentsLocation of Gain (Loss)September 29, 2024October 1, 2023
Interest rate contractsInterest and other non-operating expenses, net$— $(0.1)

Failure of the swap counterparties to make payments would result in the loss of any potential benefit to the Company under the swap agreements. In this case, the Company would still be obligated to pay the variable interest payments underlying the debt agreements. Additionally, failure of the swap counterparties would not eliminate the Company’s obligation to continue to make payments under the existing swap agreements if it continues to be in a net pay position.