Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Note 11. Derivative Instruments and Hedging Activities

The Company is exposed to certain risks during the normal course of its business arising from adverse changes in interest rates. The Company selectively uses derivative financial instruments (“derivatives”), including interest rate swaps, to manage interest rate risk. The Company does not hold or issue derivative instruments for speculative purposes. Fluctuations in interest rates can be volatile, and the Company’s risk management activities do not totally eliminate these risks. Consequently, these fluctuations could have a significant effect on the Company’s financial results.

The Company’s exposure to interest rate risk results primarily from its variable rate borrowings. On May 9, 2018, the Company entered into variable to fixed interest rate swap agreements for a notional amount of $1,361.2 million to hedge the outstanding principal balance of its then-existing variable rate term loan debt. The interest rate swap contracts expired in May of 2021.

Gains on derivatives designated as cash flow hedges included in the unaudited condensed consolidated statements of comprehensive income for nine months ended September 30, 2021 are shown in the table below:

	Nine months ended
	September 30,
	2021
	(in millions)
Interest rate swap contracts(1)
Gain recorded in AOCI on derivatives, before tax	$	8.5
Tax impact		(2.0)
Gain recorded in AOCI on derivatives, net	$	6.5

(1) Gains (losses) on derivatives reclassified from AOCI into income are included in “Interest expense” in the unaudited condensed consolidated statements of operations, the same line item as the earnings effect of the hedged item. Losses recognized for the nine months ended September 30, 2021 total $9.5 million.

For the periods presented, all cash flows associated with derivatives are classified as operating cash flows in the unaudited condensed consolidated statements of cash flows.