The Company has a derivative contract (an interest rate swap) to mitigate the cash flow risk associated with changes in interest rates on its variable rate debt (refer to Note 3 – Debt). The Company accounts for its derivative contract in accordance with FASB ASC Topic 815 – Derivatives and Hedging (“Topic 815”), which requires all derivatives, including derivatives designated as accounting hedges, to be recorded on the balance sheet at fair value.

At June 30, 2021, the Company had a single interest rate swap contract that matures in 2022, with an initial notional amount of $95.0 million. The notional amount at June 30, 2021 was $47.0 million. The Company pays a base fixed rate of 1.65275% and in return receives the greater of (1) 1-month LIBOR, rounded up to the nearest 1/16 of a percent, or (2) 0.00%. The fair value of the swap on June 30, 2021 was a liability of $0.7 million (refer to Note 7 – Fair Value Measurements for information on determining the fair value). The liability is included in other non-current liabilities on the Consolidated Balance Sheets.

The swap has been designated and accounted for as a cash flow hedge of the forecasted interest payments on the Company’s debt. As long as the swap continues to be a highly effective hedge of the designated interest rate risk, changes in the fair value of the swap are recorded in accumulated other comprehensive income (loss), a component of equity in the Consolidated Balance Sheets. Any ineffective portion of a change in the fair value of a hedge is recorded in earnings.

As required under Topic 815, the swap’s effectiveness is assessed on a quarterly basis. Since its inception, and through June 30, 2021, the interest rate swap was considered highly effective. Accordingly, the entire negative fair value as of June 30, 2021 of $0.5 million, net of taxes, is recorded in accumulated other comprehensive income (loss). The Company expects $0.4 million of this loss, net of taxes, to be reclassified into earnings within the next 12 months. Realized gains or losses related to the interest rate swap are included as operating activities in the Consolidated Statements of Cash Flows.

The Company enters into foreign currency forward exchange contracts to mitigate the effects of adverse fluctuations in foreign currency exchange rates on transactions entered into in the normal course of business that are denominated in foreign currencies that differ from the local functional currency. These contracts generally have short durations and are recorded at fair value with both

realized and unrealized gains and losses recorded in other income (expense), net in the Consolidated Statements of Income because the Company does not designate these contracts as hedges for accounting purposes.

During the three months ended June 30, 2021, the Company entered into one foreign currency forward exchange contract, which settled by June 30, 2021. Accordingly, as of June 30, 2021, there is no amount recorded in the Consolidated Balance Sheets for this contract. During the three months ended June 30, 2020, the Company entered into three foreign currency forward exchange contracts, all of which settled by June 30, 2020. Accordingly, as of June 30, 2020, there were no amounts recorded in the Consolidated Balance Sheets for these contracts.

The Company’s derivative counterparties are investment grade financial institutions. The Company does not have any collateral arrangements with these counterparties and the derivative contracts do not contain credit risk related contingent features. The table below provides information regarding amounts recognized in the Consolidated Statements of Income for the derivative contracts for the periods indicated (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
Amount recorded in:	2021			2020			2021			2020
Interest expense (1)	$	(203	)	$	(252	)	$	(462	)	$	(239	)
Other expense, net (2)		(36	)		(157	)		(36	)		(157	)
Total	$	(239	)	$	(409	)	$	(498	)	$	(396	)

(1)

Consists of interest expense from the interest rate swap contract.

(2)

Consists of net realized gains and losses on foreign currency forward contracts.