The Company is exposed to risks from changes in interest rates related to the 2021 Term Loan (See Note 11. Long-Term Debt). The Company uses derivative financial instruments, specifically, interest rate swap contracts, in order to manage its exposure to interest rate movements. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. Our primary objective in holding derivatives is to reduce the volatility of cash flows associated with changes in interest rates. The Company does not enter into derivative transactions for speculative or trading purposes.

In March of 2022, the Company entered into two interest rate swap agreements. As of June 30, 2022, the two outstanding interest rate swap agreements each had a notional value of $67.5 million. The Company has not recorded any amounts due to ineffectiveness for the six months ended June 30, 2022. The notional value of each interest rate swap agreement is expected to match the corresponding principal amount of a portion of our borrowings under the 2021 Term Loan. The swap agreements became effective as of March 31, 2022 and mature on March 31, 2025. During this period, the two notional amounts will have fixed interest rates of 2.0135% and 2.012%, and the counterparties to each of the agreements will pay the Company interest at a floating rate based on the one-month USD-LIBOR swap rate on the notional amounts. Interest payments will be made monthly on a net settlement basis.

The derivative interest rate swaps are designated and qualify as cash flow hedges. Consequently, the change in the estimated fair value of the effective portion of the derivative is recognized in accumulated other comprehensive income (“AOCI”) on our Condensed Consolidated Balance Sheets and reclassified to interest expense, net, when the underlying transaction has an impact on earnings. The Company expects to recognize approximately $1.5 million of net pre-tax gains from accumulated other comprehensive income as a

reduction of interest expense in the next twelve months associated with its interest rate swap. The Company recognizes derivative instruments and hedging activities on a gross basis as either assets or liabilities on the Company’s Condensed Consolidated Balance Sheets and measures them at fair value. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the earnings effect of the hedged forecasted transactions in a cash flow hedge. To receive hedge accounting treatment, all hedging relationships are formally documented at the inception of the hedge, and the hedges must be highly effective in offsetting changes to future cash flows on hedged transactions.

The fair values of the interest rate swaps and their respective locations in our condensed consolidated balance sheets at June 30, 2022 were as follows:


(in thousands)
Description	Balance Sheet Location	June 30, 2022
Short-term derivative asset	Prepaid expenses and other current assets	$	1,453
Long-term derivative asset	Other assets		1,887