Derivatives

9 Months Ended

Jul. 01, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Swaps - Cash Flow Hedge

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposure to some of its interest rate risk through the use of interest rate swaps, which are derivative financial instruments. The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive income (“AOCI”) to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings.

In fiscal 2019, the Company entered into an interest rate swap contract with an effective date of December 23, 2020 and a termination date of December 17, 2023 to hedge a portion of its variable rate debt. On August 25, 2022, the interest rate swap agreement was restructured (consistent with the 2021 Credit Agreement) to convert the benchmark interest rate from LIBOR to the SOFR rate effective September 23, 2022 with a termination date of December 17, 2023. The Company applied the practical and optional expedients in ASC 848, Reference Rate Reform, to evaluate the impact of modifying the contract, which resulted

in no change to the accounting for this derivative contract. The notional amount of this swap is $1.0 billion. The restructured interest rate swap fixes the SOFR component of the variable interest rate on $1.0 billion of the notional amount under the 2021 Credit Agreement at 1.23%. The critical terms of the restructured interest rate swap are designed to mirror the terms of the Company’s SOFR-based borrowings under the 2021 Credit Agreement and therefore are highly effective at offsetting the cash flows being hedged. The Company designated this derivative as a cash flow hedge of the variability of the SOFR-based interest payments on $1.0 billion of principal. Therefore, changes in the fair value of the swap are recorded in AOCI. The fair value of this derivative was in an asset position of $19.4 million as of July 1, 2023.

On March 23, 2023, the Company entered into two consecutive interest rate swap contracts with the first contract having an effective date of December 17, 2023 and terminating on December 27, 2024, and the second contract having an effective date of December 27, 2024 and terminating on September 25, 2026. The notional amount of these swaps is $500 million, and the first interest rate swap fixes the SOFR component of the variable interest rate at 3.46%, and the second interest rate swap fixes the SOFR component of the variable interest rate at 2.98%. The critical terms of the interest rate swaps are designed to mirror the terms of the Company’s SOFR-based borrowings under the 2021 Credit Agreement and therefore are highly effective at offsetting the cash flows being hedged. The Company designated this derivative as a cash flow hedge of the variability of the SOFR-based interest payments on $500 million of principal. Therefore, changes in the fair value of the swap are recorded in AOCI. The fair value of these swaps was an asset position of $12.3 million as of July 1, 2023.

Forward Foreign Currency Exchange Contracts and Foreign Currency Option Contracts

The Company enters into forward foreign currency exchange contracts and foreign currency option contracts to mitigate certain operational exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s cash and operations that are denominated in currencies other than the U.S. dollar, primarily the Euro, the UK Pound, the Australian dollar, the Canadian dollar, the Chinese Yuan and the Japanese Yen. These foreign currency contracts are entered into to support transactions made in the ordinary course of business and are not speculative in nature. The contracts are generally for periods of one year or less. The Company did not elect hedge accounting for these contracts and as of July 1, 2023 the notional amount was $103.9 million. The change in the fair value of these contracts is recognized directly in earnings as a component of other income (expense), net.

Realized and unrealized gains and losses from these contracts, which were the only derivative contracts not designated for hedge accounting, for the three and nine months ended July 1, 2023 and June 25, 2022, respectively, were as follows:


	Three Months Ended				Nine Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Amount of realized gain (loss) recognized in income
Forward foreign currency contracts	$	1.4	$	19.6	$	(1.3)	$	42.4
Foreign currency option contracts	(1.2)		—		(2.7)		—
	$	0.2	$	19.6	$	(4.0)	$	42.4
Amount of unrealized gain (loss) recognized in income
Forward foreign currency contracts	$	—	$	2.5	$	(13.8)	$	9.2
Foreign currency option contracts	1.0		—		(6.8)		—
	$	1.0	$	2.5	$	(20.6)	$	9.2
Amount of gain (loss) recognized in income
Total	$	1.2	$	22.1	$	(24.6)	$	51.6

Financial Instrument Presentation

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the balance sheet as of July 1, 2023:


	Balance Sheet Location	July 1, 2023		September 24, 2022
Assets:
Derivative instruments designated as a cash flow hedge:


Interest rate swap contracts	Prepaid expenses and other current assets	$	24.0	$	31.9
Interest rate swap contracts	Other assets	7.7		7.0
		$	31.7	$	38.9

Derivatives not designated as hedging instruments:
Forward foreign currency contracts	Prepaid expenses and other current assets	$	2.7	$	15.8
Foreign currency option contracts	Prepaid expenses and other current assets	—		10.6
		$	2.7	$	26.4

Liabilities:




Derivatives not designated as hedging instruments:
Forward foreign currency contracts	Accrued expenses	$	0.6	$	—

The following table presents the unrealized gain (loss) recognized in AOCI related to interest rate swaps for the following reporting periods:


	Three Months Ended				Nine Months Ended
	July 1, 2023		June 25, 2022		July 1, 2023		June 25, 2022
Amount of (loss) gain recognized in other comprehensive income, net of taxes:
Interest rate swaps	$	3.7	$	8.4	$	(5.6)	$	35.7

Total	$	3.7	$	8.4	$	(5.6)	$	35.7