Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain market risks in the normal course of business. Our current market risk exposures are primarily related to interest rates and foreign currency fluctuations. The following information about our market sensitive financial instruments contains forward-looking statements.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to long-term debt obligations and derivatives. Our policy authorizes, with Board of Directors' approval, the limited use of derivative instruments to hedge specific interest rate risks.
Debt and derivatives
At December 30, 2022 and December 31, 2021, we had $4.9 billion and $5.1 billion, respectively, of debt, which included $1.5 billion and $1.7 billion, respectively, related to our senior unsecured term loans that have a variable stated interest rate that is determined based on either the London Interbank Offered Rate ("LIBOR") or the Stated Overnight Financing Date ("SOFR") rate plus a margin. As a result, we may experience fluctuations in interest expense.
As of December 30, 2022, we hold $500 million of unsecured notes due May 2023. We anticipate refinancing this obligation during fiscal 2023, at which time we will be subject to current market rates which may vary significantly from the existing rates on our debt.
We have interest rate swap agreements to hedge the cash flows of a portion of our variable rate senior unsecured term loan ("Variable Rate Loan"). Under the terms of the interest rate swap agreements, we receive variable interest payments based on the one-month LIBOR rate and pay interest at a fixed rate. As of December 30, 2022, the notional value of the interest rate swap agreements was $1.0 billion. The interest rate swap agreements effectively converted a portion of our variable rate borrowing to a fixed rate borrowing. The fair value of our interest rate swap agreements with respect to our Variable Rate Loan was an asset of $20 million, as of December 30, 2022, and a liability of $53 million, as of December 31, 2021.
The counterparties to these agreements are financial institutions. We do not hold or issue derivative financial instruments for trading or speculative purposes. We cannot predict future market fluctuations in interest rates and their impact on our interest rate swaps. The net hypothetical 10% movement in the one-month LIBOR or SOFR rate would not have a significant impact on our annual interest expense. For additional information related to our interest rate swap agreements and debt, see "Note 12—Derivative Instruments" and "Note 13—Debt," respectively, of the notes to the consolidated financial statements contained within this Annual Report on Form 10-K.
Cash and Cash Equivalents
As of December 30, 2022 and December 31, 2021, our cash and cash equivalents included investments in several large institutional money market accounts. For fiscal 2022 and fiscal 2021, a hypothetical 10% interest rate movement would not have a significant impact on the value of our holdings or on interest income.
Foreign Currency Risk
Although the majority of our transactions are denominated in U.S. dollars, some of our transactions are denominated in foreign currencies. Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and certain intercompany transactions denominated in currencies other than our (or one of our subsidiaries') functional currency. Our foreign operations represented 8% of total revenues for fiscal 2022, 2021 and 2020.
Leidos Holdings, Inc. Annual Report - 55
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