Derivatives

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

NOTE H. DERIVATIVES

The Company is subject to interest rate risk related to the Senior Secured Credit Facility and entered into interest rate swaps to manage a portion of this exposure. The Company amended the contractual terms of its interest rate swaps in the second quarter of 2023. These amendments transitioned the reference rates from LIBOR to the forward-looking term rate based on SOFR ("Term SOFR") and were only a result of reference rate reform. During this transition period, the Company utilized optional expedients permitting the Company not to de-designate the existing cash flow hedging relationships and to continue to qualify for hedge accounting based upon a qualitative subsequent assessment concluding that the hedging relationships remained highly effective. When the transition of the reference rates was completed, the Company performed an initial quantitative assessment that demonstrated a highly effective hedging relationship that qualifies for hedge accounting under the hypothetical derivative method.

As of September 30, 2023, the Company held interest rate swap contracts that, in the aggregate, effectively hedge $500 million of the variable rate debt associated with the Term Loan at the Term SOFR weighted average fixed rate of 2.81% through September 2025.

Fair value adjustments are recorded as a component of Accumulated other comprehensive loss, net of tax (“AOCL”) in the Condensed Consolidated Balance Sheets. Balances in AOCL are reclassified to earnings when transactions related to the underlying risk are settled. See "Note F. Fair Value of Financial Instruments” for information regarding the fair value of the Company’s interest rate swaps.

The following tabular disclosures further describe the Company’s interest rate derivatives qualifying and designated for hedge accounting and their impact on the financial condition of the Company (dollars in millions):

		Fair Value
	Balance Sheet Location	September 30, 2023		December 31, 2022
Derivative Assets:
Interest rate swaps	Other current assets	$	11	$	7
	Other non-current assets		10		11
Total derivative assets		$	21	$	18

The balance of net derivative gains recorded in AOCL as of September 30, 2023 and December 31, 2022 was $21 million and $18 million, respectively. See "Note O. Accumulated Other Comprehensive Loss” for information regarding activity recorded as a component of AOCL during the three and nine months ended September 30, 2023 and 2022. As of September 30, 2023, the Company had $14 million of derivative gains recorded in AOCL expected to be reclassified to earnings within the next twelve months.