The Company selectively uses derivative instruments to reduce market risk associated with changes in interest rates and foreign currency. The use of derivatives is intended for hedging purposes only and the Company does not enter into derivative instruments for speculative purposes. The Company’s derivative contracts do not require cash collateral.

The Company’s interest rate risk relates primarily to interest rate exposures on variable rate debt including the Senior Secured Credit Facilities. Refer to Note 9–Borrowings for additional information on the currently outstanding components of the Senior Secured Credit Facilities. The Company entered into a series of interest rate cap and swap agreements to hedge the related risk of the variability to the Company’s cash flows due to the rates specified for these credit facilities.

The Company designates certain interest rate derivative instruments as cash flow hedges, including a portion of the outstanding interest rate swaps. The Company records gains and losses due to changes in fair value of the derivatives within OCI and reclassifies these amounts to Interest expense, net in the same period or periods for which the underlying hedged transaction affects earnings. In the event the Company determines the hedged transaction is no longer probable to occur or concludes the hedge relationship is no longer effective, the hedge is prospectively de-designated. The pre-tax unrealized loss of $11.8 million within OCI as of January 2, 2022 is expected to be reclassified to earnings in the next 12 months.

The Company entered into a series of interest rate cap agreements to hedge its interest rate exposures related to its variable rate borrowings under the Senior Secured Credit Facilities. On July 19, 2019, the Company entered into an interest rate swap agreement, which fixed a portion of the variable interest due on the Company’s variable rate debt on September 27, 2019.

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-04 Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. During fiscal year 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

The following table summarizes the interest rate derivative agreements as of January 2, 2022:


Effective date	Expiration date	Interest rate cap amount	Notional amount (a)		Hedge designation
December 31, 2020	December 31, 2023	3.5%	$	1,500.0	Not designated

Effective date

Expiration
date

Description

Fixed
rate

Floating
rate

Notional
amount(a)

Hedge
description

September 27,
2019

December 31,
2023

Pay fixed, receive float

1.635%

1-month LIBOR
rate

1,500.0

Cash Flow hedge

(a) The notional value of this instrument is expected to be $1,000 million in fiscal 2022 and $500 million in fiscal 2023.

The Company previously entered into an interest rate cap that was designated as a cash flow hedge. During the fiscal quarter ended September 29, 2019, the Company de-designated its 3.5% interest rate caps upon entering into the interest rate swap agreement that hedges a portion of the Company’s borrowings under the Senior Secured Credit Facilities. Upon de-designation, the Company began prospectively recognizing mark-to-market gains and losses within Other expense, net on the interest rate caps. The remaining loss on the interest rate caps that was deferred in AOCI was being amortized to Interest expense, net until the Company concluded that a portion of the interest on the Company’s previously hedged borrowings was no longer probable of being paid due to the pay down of a portion of the borrowings using proceeds from the IPO in January 2021. Accordingly, $0.6 million of losses that had previously been deferred within AOCI were released into Interest expense, net during the fiscal quarter ended April 4, 2021. During the fiscal year ended January 2, 2022, the Company reclassified $3.7 million of deferred losses from AOCI to Interest expense, net. As of January 2, 2022 and January 3, 2021, the remaining balance of the deferred loss in AOCI was $5.6 million and $9.8 million, respectively.

In February 2021, the Company concluded that a portion of the interest on the Company’s previously hedged borrowings related to the interest rate swap was no longer probable of being paid due to the pay down of a portion of the borrowings using the proceeds from the IPO. Due to this reduction in the hedged borrowings, the Company de-designated the hedging relationship, and contemporaneously re-designated the remaining borrowings. Accordingly, $3.1 million of losses that had previously been deferred within AOCI were released into Interest expense, net during the fiscal quarter ended April 4, 2021. As of January 2, 2022, the remaining balance of the deferred loss in AOCI was $13.9 million.

The Company has currency risk exposures relating primarily to foreign currency denominated monetary assets and liabilities and forecasted foreign currency denominated intercompany and third-party transactions. The Company uses foreign currency forward, option contracts and cross currency swaps to manage its currency risk exposures. The Company’s foreign currency forward contracts are denominated primarily in Australian Dollar, Brazilian Real, British Pound, Canadian Dollar, Chilean Peso, Chinese Yuan/Renminbi, Colombian Peso, Euro, Indian Rupee, Japanese Yen, Mexican Peso, Philippine Peso, Swiss Franc and the Thai Baht.

The Company designates certain foreign currency forward contracts as cash flow hedges. The Company records gains and losses due to changes in fair value of the derivatives within OCI and reclassifies these amounts to Cost of revenue in the same period or periods for which the underlying hedged transaction affects earnings. In the event the Company determines the hedged transaction is no longer probable to occur or concludes the hedge relationship is no longer effective, the hedge is de-designated prospectively. The pre-tax unrealized gain of $1.4 million within OCI as of January 2, 2022 is expected to be reclassified to earnings in the next 12 months.

Foreign exchange risk is also managed through the use of foreign currency debt. During the fiscal year ended January 2, 2022, €260.0 million ($296.0 million) of the Company’s senior secured Euro Term Loan Facility has been designated as, and is effective as, economic hedges of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the Euro-denominated debt instruments are included in foreign currency translation adjustments within AOCI.

The Company also enters into foreign currency forward contracts that are not part of designated hedging relationships, which are intended to mitigate exchange rate risk of monetary assets and liabilities and related forecasted transactions. The Company records these non-designated derivatives at mark-to-market with gains and losses recognized currently in earnings within Other expense, net.

Concurrent with the issuance of the 2028 Notes, the Company entered into U.S. Dollar to Japanese Yen cross currency swaps for total notional of $350.0 million at a weighted average interest rate of 5.56%, with a five-year term to lower interest expense on the 2028 Notes. These cross currency swaps were not designated for hedge accounting, and consequently, changes in their fair value were

recorded to Other expense, net. The Company terminated the cross currency swaps on April 1, 2021 and received $12.8 million of cash from net settlement during the fiscal year ended January 2, 2022.

Gains and losses from designated derivative and non-derivative instruments within AOCI during the fiscal years ended January 2, 2022 and January 3, 2021, are recorded as follows:


Designated Hedging Instruments	Amount of loss (gain) recognized in OCI on hedges			Location of amounts reclassified from AOCI into income	Amount of loss (gain) reclassified from AOCI into income
Fiscal Year Ended January 2, 2022
Cash flow hedges:
Foreign currency forward contracts	$	(4.2	)	Cost of revenue	$	2.3
Interest rate derivatives		(7.5	)	Interest expense, net		26.9
Net investment hedges:
Foreign currency-denominated debt (a)		(9.4	)	N/A	N/A
Fiscal Year Ended January 3, 2021
Cash flow hedges:
Foreign currency forward contracts	$	2.3		Cost of revenue	$	(5.3	)
Interest rate derivatives		47.1		Interest expense, net		(1.0	)

(a)

The amount of loss (gain) recognized in OCI for the foreign-currency denominated debt is presented within the CTA component of OCI. These gains and losses will remain in CTA until the related hedged item affects earnings, which would occur upon disposal or complete or substantial liquidation of the underlying hedged entities.

The following table presents the effect of the Company’s designated derivative instruments within Interest expense, net and Cost of revenue in the consolidated statements of operations:


	Fiscal Year Ended January 2, 2022					Fiscal Year Ended January 3, 2021
	Interest expense, net		Cost of revenue			Interest expense, net			Cost of revenue
Total amount of line item in consolidated financial statements of operations where effects of hedges were presented:	$	146.0	$	1,006.8		$	198.2		$	908.2
Effects of cash flow hedging relationships
Loss (Gain) on cash flow hedging relationships:
Foreign currency forward contracts:
Amount of gain reclassified from AOCI into income	N/A		$	(2.3	)	N/A			$	(5.3	)
Amount reclassified from AOCI into income due to a forecast transaction that is no longer probable of occurring	N/A			—		N/A				—
Interest rate derivative contracts:
Amount of loss (gain) reclassified from AOCI into income	$	26.9	N/A			$	(1.0	)	N/A
Amount excluded from the assessment of effectiveness recognized in earnings based on changes in fair value		3.7	N/A				—		N/A

Fair value (gains) and losses of derivative contracts, as determined using Level 2 inputs, that do not qualify for hedge accounting treatment are recorded in other expense, net and were as follows:


	Fiscal Year Ended
Non-designated hedging instruments	January 2, 2022			January 3, 2021			December 29, 2019
Interest rate cap derivatives	$	(0.2	)	$	1.5		$	16.0
Foreign currency derivatives		32.1			(2.1	)		(1.8	)
Cross currency swaps		(24.0	)		6.0			—

The following table presents the location and fair values of designated hedging instruments recognized within the consolidated balance sheets. The fair values of designated hedging instruments have been determined using Level 2 inputs.


	January 2, 2022		January 3, 2021
Interest rate derivatives:
Accrued liabilities	$	—	$	0.1
Other liabilities		13.9		44.1
Foreign currency forward contracts:
Other current assets		4.5		4.2
Accrued liabilities		4.3		10.0

The following table presents the location and fair values of non-designated hedging instruments recognized within the consolidated balance sheets. The fair values of non-designated hedging instruments have been determined using Level 2 inputs.


	January 2, 2022		January 3, 2021
Interest rate derivatives:
Accrued liabilities	$	—	$	0.1
Other liabilities		5.2		11.1
Foreign currency forward contracts:
Other current assets		0.9		0.3
Accrued liabilities		1.1		0.1
Cross currency interest rate swap contracts:
Other current assets		—		2.0
Other liabilities		—		10.8