The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates, and the Company seeks to mitigate a portion of this risk by entering into derivative contracts. The derivatives the Company currently uses are interest rate swaps and interest rate caps. The Company recognizes derivatives as either assets or liabilities at fair value on the accompanying interim unaudited consolidated balance sheets and does not designate the derivatives as hedging instruments. Changes in the fair value of derivatives are therefore recorded in earnings throughout the term of the respective derivatives.

In October 2018, the Company entered into two interest rate swap agreements to limit its exposure to interest rate risk on its variable rate debt. In July 2021, the Company amended its interest rate swap agreements to extend the expiration dates to June 30, 2026 and reduce the fixed rate paid under the swaps. As amended, the Company pays a fixed rate of 2.08% and receives the one-month LIBOR rate, subject to a 0.50% floor. The aggregate notional amount of the interest rate swaps remained unchanged at $520.0 million at July 2, 2022 and January 1, 2022, respectively. The fair value of the interest rate swaps at July 2, 2022 and January 1, 2022 was a $15.8 million asset included in other long-term assets and a $15.3 million liability included in other long-term liabilities on the accompanying interim unaudited consolidated balance sheets, respectively. The Company does not apply hedge accounting to these agreements and records all mark-to-market adjustments directly to other income in the accompanying interim unaudited consolidated statements of operations, which are included within cash flows from operating activities in the accompanying interim unaudited consolidated statements of cash flows. The net settlements incurred with swap counterparties under the swap agreements prior to the amendment were recognized through cash flows from operating activities in the accompanying interim unaudited consolidated statements of cash flows. Subsequent to the interest rate swap amendment in July 2021, the net settlements are recognized through cash flows from financing activities in the accompanying interim unaudited consolidated statements of cash flows due to an other-than-insignificant financing element on the interest rate swaps resulting from the amendment.

On February 9, 2022, the Company entered into interest rate cap agreements for an aggregate notional amount of $880.0 million and a cap rate of 3.00%. The premium paid for the interest rate cap agreements was $11.7 million. The cap agreements have an expiration date of February 28, 2027, and provide that the counterparty will pay the Company the amount by which LIBOR exceeds 3.00% in a given measurement period. The fair value of the interest rate cap agreements at July 2, 2022 was $25.4 million and is included in other long-term assets on the accompanying interim unaudited consolidated balance sheets. The Company does not apply hedge accounting to these agreements and records all mark-to-market adjustments directly to other income in the accompanying interim unaudited consolidated statements of operations, which are included within cash flows from operating activities in the accompanying interim unaudited consolidated statements of cash flows.

The following gains from these derivatives not designated as hedging instruments were recognized in the Company’s accompanying interim unaudited consolidated statements of operations for the three and six-month periods ended July 2, 2022 and July 3, 2021, respectively (amounts in thousands):


	Statement of Operations	For the three-month periods ended
	Classification	July 2, 2022		July 3, 2021
Interest rate cap agreement	Other income (expense)	$	1,119	$	-
Interest rate swap agreements	Other income (expense)	$	5,414	$	2,033


	Statement of Operations	For the six-month periods ended
	Classification	July 2, 2022		July 3, 2021
Interest rate cap agreements	Other income (expense)	$	13,664	$	-
Interest rate swap agreements	Other income (expense)	$	31,125	$	4,853

The Company does not utilize financial instruments for trading or other speculative purposes.