Derivative Financial Instruments

9 Months Ended

Sep. 28, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

In March 2021, we entered into eight interest rate swap agreements (“Swap Agreements”) with several financial institutions for a combined notional value of $560 million. The Swap Agreements were entered into to reduce the consolidated interest rate risk associated with variable rate, long-term debt.

During 2023, we modified the Swap Agreements blending the asset positions of the original interest rate swap agreements into new interest swap agreements and extending the term of our hedged positions. The new pay-fixed interest rate swap agreements qualify as hybrid instruments in accordance with Accounting Standards Codification 815, Derivatives and Hedging, consisting of financing components and embedded at-market derivatives that were designated as cash flow hedges. We also amended the Swap Agreements to transition from a hedge of LIBOR-based cash flows to a hedge of SOFR-based cash flows.

Refer to Note 12. Derivative Financial Instruments in our 2023 Annual Report on Form 10-K for further discussion.

As part of our acquisition of Snap One, we acquired an interest rate cap with a notional value of $345 million and a strike rate of 4.79%, which effectively caps SOFR on the notional amount at that rate (the “Interest Rate Cap”). We are required to pay a premium of $7 million at the maturity date of December 31, 2025. The Interest Rate Cap qualifies as a hybrid instrument consisting of a financing component and an embedded at-market derivative that was designated as a cash flow hedge on our A&R Term B Facility as of the Snap One acquisition date.

The Swap Agreements and Interest Rate Cap (referred to collectively as “interest rate derivatives”) are adjusted to fair value on a quarterly basis. The following tables summarizes the fair value and presentation of derivative instruments in the Unaudited Consolidated Balance Sheets as well as the changes in fair value recorded in accumulated other comprehensive loss:


	Fair Value of Derivative Assets
(in millions)	Financial Statement Line Item	September 28, 2024		December 31, 2023





Derivatives designated as hedging instruments:
Interest rate derivatives	Other current assets	$	13	$	20
Interest rate derivatives	Other assets	2		10
Total derivative assets designated as hedging instruments		$	15	$	30

	Fair Value of Derivative Liabilities
(in millions)	Financial Statement Line Item	September 28, 2024		December 31, 2023
Derivatives designated as hedging instruments:

Interest rate derivatives	Other liabilities	$	6	$	—
Total derivative liabilities designated as hedging instruments		$	6	$	—

Unrealized gain	Accumulated other comprehensive loss	$	8	$	25

The following table summarizes the effect of derivative instruments designated as cash flow hedges in other comprehensive income and the Unaudited Consolidated Statements of Operations:


	Three Months Ended				Nine Months Ended
(in millions)	September 28, 2024		September 30, 2023		September 28, 2024		September 30, 2023
Gains recorded in accumulated other comprehensive loss, beginning of period	$	20	$	40	$	25	$	42
Current period gain (loss) recognized in/reclassified from other comprehensive income	(12)		—		(15)		7
Gains reclassified from accumulated other comprehensive loss to net income	—		(2)		(2)		(11)
Gains recorded in accumulated other comprehensive loss, end of period	$	8	$	38	$	8	$	38

Unrealized gains expected to be reclassified from accumulated other comprehensive loss in the next 12 months are estimated to be $8 million as of September 28, 2024.