Derivative Instruments and Hedging Activities

9 Months Ended

Oct. 01, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

17. Derivative Instruments and Hedging Activities

Derivative Instruments - Cash Flow Hedges

The Company’s cash flow hedges are designed to mitigate the risk of exposure to variability in expected future cash flows of recognized assets, liabilities, or any unrecognized forecasted transactions. In July 2022, the Company entered into various interest rate swaps that are designated as cash flow hedges on a substantial portion of the outstanding debt the Company issued to fund the Sound United acquisition. The interest rate swaps reduce the variability of cash flow payments for the Company by converting the variable interest rate on the Company’s long-term debt to an average fixed interest rate of 2.75%. These contracts, carried at fair value, have maturities of approximately five years. All hedging relationships were highly effective at achieving offsetting changes in cash flows attributable to the risk being hedged. The Company used a regression analysis at hedge inception to assess the effectiveness of cash flow hedge and periodically hereafter.

The Company records gains and losses from the changes in the fair value of these instruments as a component of other comprehensive income (loss). Deferred gains or losses from these designated cash flow hedges are reclassified into earnings in the period that the hedged items affects earnings. The Company does not offset fair value amounts recognized for derivative instruments in its condensed consolidated balance sheets for presentation purposes. The following table summarizes the fair value of the hedging instruments, presented on a gross basis, as of October 1, 2022 and January 1, 2022.


		Condensed Consolidated Balance Sheets
(in millions)	Balance sheet classification	October 1, 2022		January 1, 2022
Interest rate contracts	Other non-current assets	$	19.4	$	—
Total		$	19.4	$	—

The following table summarizes the gains (losses) reclassified from accumulated other comprehensive income to the condensed consolidated financial statements for the three and nine months ended October 1, 2022.


		Condensed Consolidated Statement of Operations
(in millions)	Location of gain (loss)	Three Months Ended October 1, 2022		Nine Months Ended October 1, 2022
Cash flow hedges - interest rate contracts	Non-operating loss (income)	$	0.8	$	0.8
Total		$	0.8	$	0.8

The following tables summarize the changes in accumulated other comprehensive income related to the hedging instruments:


(in millions)	Amounts
Beginning balance as of July 3, 2022	$	—
Amount recognized in other comprehensive income	18.6
Amount reclassified into earnings	0.8
Ending Balance as of October 1, 2022	$	19.4

The net of tax gain was $14.7 million as of October 1, 2022.

Derivative Instruments - Foreign Currency Forwards

The Company used foreign currency derivative instruments in the form of forward contracts to hedge certain monetary assets and liabilities, primarily receivables and payables denominated in foreign currencies. The Company’s objective is to partially offset gains or losses resulting from these exposures with opposing gains or losses on the forward contracts, thereby reducing volatility of earnings created by these foreign currency exposures. In conjunction with the Sound United acquisition, the Company acquired multiple foreign currency forward contracts. The fair values of the forward contracts are estimated at each period end based on quoted market prices and are recorded as either net asset or liability on the accompanying condensed consolidated balance sheets. These contracts are considered economic hedges but were not designated as hedges. These contracts are recorded net at fair value on the condensed consolidated balance sheets, classified as Level 2 in the fair value hierarchy. As of October 1, 2022, all derivative contracts have matured and were terminated. The gains and losses were recognized in the condensed consolidated statement of operations and were immaterial for the three and nine months ended October 1, 2022.