Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

(7)          Derivative Instruments and Hedging Activities

The Company records all derivatives on its consolidated balance sheet at fair value. As of September 30, 2022 and December 31, 2021, the Company had outstanding interest rate derivatives with third parties in which the Company pays a fixed interest rate and receives a rate equal to the one-month LIBOR. The notional amount associated with interest rate swap agreements that were outstanding as of September 30, 2022 and December 31, 2021 was $250 million and have maturity dates in February 2023 and March 2024. In April 2022, the Company entered into additional forward-dated interest rate swap agreements with third parties in which the Company will pay a fixed interest rate and receive a rate equal to the one month-LIBOR. The purpose of these forward-dated interest rate swap agreements is to ensure that the Company operates within its derivatives policy by maintaining a total notional amount of $250 million under the Company’s outstanding interest rate swap agreements through the maturity date of the Company’s current credit agreement. These forward-dated interest rate swap agreements become effective in February 2023 and March 2024 and mature in January 2026. The Company has designated its swaps as effective cash flow hedges of interest rate risk. Accordingly, changes in the fair value of the interest rate swaps are recorded as a component of accumulated other comprehensive income within stockholders’ equity and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

The table below presents the fair value of the Company’s derivatives related to its interest rate swap agreements, which are designated as hedging instruments, as well as their classification in the consolidated balance sheets at September 30, 2022 and December 31, 2021 (in thousands):

		September 30, 2022		December 31, 2021
Balance Sheet Location	Asset (Liability)
Other current assets	$	4,471	$	—
Other long-term assets		5,621		—
Other current liabilities		—		(5,098)
Other long-term liabilities		—		(2,359)
Total	$	10,092	$	(7,457)

During the three months ended September 30, 2022 and 2021, as a result of the effect of cash flow hedge accounting, the Company recognized a gain of $8.5 million and $1.4 million, respectively, in other comprehensive income. In addition, during the three months ended September 30, 2022 and 2021, $0.8 million and $0.8 million, respectively, was reclassified from other comprehensive income and recognized as a reduction to interest expense, net, in the accompanying consolidated statements of operations. During the nine months ended September 30, 2022 and 2021, as a result of the effect of cash flow hedge accounting, the Company recognized a gain of $17.5 million and $5.4 million, respectively, in other comprehensive income. In addition, during the nine months ended September 30, 2022 and 2021, $2.2 million and $2.1 million, respectively, was reclassified from other comprehensive income and recognized as a reduction to interest expense, net, in the accompanying consolidated statements of operations.