Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging ActivitiesThe Company records all derivatives on its consolidated balance sheet at fair value. As of September 30, 2023, 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 Secured Overnight Financing Rate ("Term SOFR"). As of December 31, 2022, the Company had outstanding interest rate derivatives with third parties in which the Company paid a fixed interest rate and received a rate equal to the one-month LIBOR. During the nine months ended September 30, 2023, the Company amended its interest rate swap agreements to change the benchmark rate under the agreements from LIBOR to Term SOFR. As discussed

in Note 1(j), General Information - Recently Adopted Accounting Pronouncements, during the nine months ended September 30, 2023, the Company adopted ASU No. 2020-04, Reference Rate Reform ("Topic 848"). As a result of the adoption of this standard, the amendments to the Company's interest rate swap agreements did not have an impact on the accounting for such derivative instruments. The notional amount associated with the Company's interest rate swap agreements that were outstanding as of September 30, 2023 was $250 million and have maturity dates in March 2024 and January 2026. In April 2022, the Company entered into forward-dated interest rate swap agreements with third parties. 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. A portion of these forward-dated interest rate swap agreements became effective in February 2023 and a portion will become effective in 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, 2023 and December 31, 2022 (in thousands):

	September 30, 2023		December 31, 2022
Balance Sheet Location	Asset
Prepaid and other current assets	$	6,340	$	5,748
Other assets	4,147		3,728
Total	$	10,487	$	9,476

During the three months ended September 30, 2023 and 2022, as a result of the effect of cash flow hedge accounting, the Company recognized a gain, net of tax, of $0.5 million and $8.5 million, respectively, in other comprehensive income. In addition, during the three months ended September 30, 2023 and 2022, $0.4 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, 2023 and 2022, as a result of the effect of cash flow hedge accounting, the Company recognized a gain, net of tax, of $1.1 million and $17.5 million, respectively, in other comprehensive income. In addition, during the nine months ended September 30, 2023 and 2022, $1.4 million and $2.2 million, respectively, was reclassified from other comprehensive income and recognized as a reduction to interest expense, net, in the accompanying consolidated statements of operations.