Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 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 thereafter.

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 affect earnings. The Company does not offset fair value amounts recognized for derivative instruments in its consolidated balance sheets for presentation purposes. The following table summarizes the fair value of the hedging instruments, presented on a gross basis, including accrued interest, as of December 31, 2022 and January 1, 2022.


		Consolidated Balance Sheets
(in millions)	Balance Sheet Classification	December 31, 2022		January 1, 2022
Interest rate contracts, inclusive of accrued interest	Other non-current assets	$	19.7	$	—
Total		$	19.7	$	—

The following table summarizes the gains (losses) reclassified from accumulated other comprehensive income to the consolidated financial statements for the year ended December 31, 2022.


		Consolidated Statement of Operations
(in millions)	Location of Gain (Loss)	December 31, 2022		January 1, 2022		January 2, 2021
Cash flow hedges - interest rate contracts	Non-operating loss (income)	$	0.7	$	—	$	—
Total		$	0.7	$	—	$	—

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


(in millions)	December 31, 2022		January 1, 2022
Beginning balance	$	—	$	—
Amount recognized in other comprehensive income	20.0		—
Amount reclassified into earnings	(0.7)		—
Ending balance	$	19.3	$	—

The net of tax unrealized gain was $14.7 million as of December 31, 2022.

The Company expects to reclassify a net amount of gains of $12.2 million from accumulated other comprehensive (loss) gain to non-operating loss (income) within the next 12 months.