DERIVATIVES AND HEDGING

9 Months Ended

Sep. 30, 2022

DERIVATIVES AND HEDGING

DERIVATIVES AND HEDGING

NOTE 15. DERIVATIVES AND HEDGING

We are exposed to market risks associated with changes in the variable interest rate of our Credit Facility. We have used derivative instruments, in the form of interest rate swaps, to manage our exposure to fluctuations in this variable interest rate and thereby minimize the risks and costs associated with financial activities. We do not use derivative instruments for trading or other speculative purposes.

In March 2022, our $300.0 million notional value of interest rate swaps expired. We previously entered into these swaps to offset changes in expected cash flows due to fluctuations in the associated variable interest rates and designated them as cash flow hedges. There was no nonperformance by any counterparty during the terms of the interest rate swaps and no collateral was posted for the instruments.

Prior to expiration, during the third quarter of 2021, we dedesignated $125.0 million notional value of our interest rate swaps. The fair value of this interest rate swap immediately prior to dedesignation was a liability of $1.6 million. The associated amount in accumulated other comprehensive loss related to this interest rate swap was amortized into interest expense over the remaining term of the swap through March 2022. Changes in the fair value of the dedesignated interest rate swap after dedesignation and prior to expiration were recorded in interest expense.

The remaining $175.0 million notional value of our interest rate swaps were designated as (highly effective) cash flow hedging instruments until their expiration. Changes in the fair value of cash flow hedging instruments are recognized as a component of other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts are reclassified into earnings to interest expense, the same statement of operations line item to which the earnings effect of the hedged item is recorded. Cash flows from derivatives designated as hedges are classified in our unaudited condensed consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions unless the derivative contract contains a significant financing element, in which case, the cash settlements for those derivatives are classified as cash flows from financing activities.

The following table presents the effect of our derivative instruments on our unaudited condensed consolidated statements of operations:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Total amount of interest expense in which the effects of cash flow hedges and undesignated interest rate swaps are recorded	$	25,177	$	25,508	$	74,879	$	82,711
Interest rate swaps designated as cash flow hedging instruments:
Pre-tax loss recognized in other comprehensive income	$	—	$	(581)	$	(512)	$	(670)
Pre-tax loss reclassified from accumulated other comprehensive loss into interest expense		—		(1,867)		(1,758)		(4,440)
Interest rate swaps not designated as hedging instruments:
Gain recognized in interest expense	$	—	$	532	$	523	$	532

The following table presents the effect of our derivative instruments on our unaudited condensed consolidated balance sheets:

	September 30, 2022		December 31, 2021
Interest rate swaps designated as cash flow hedging instruments
Accrued liabilities	$	—	$	727
Interest rate swaps not designated as hedging instruments
Accrued liabilities		—		523
Total derivative liabilities	$	—	$	1,250

Please see Note 9 and Note 16 for additional details on our derivative instruments.