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Derivatives
12 Months Ended
Dec. 31, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives

NOTE 12. Derivatives

Interest Rate Swap

On March 27, 2020, the Company entered into the Swap to manage interest rate risk associated with a portion of its floating-rate long-term debt. The Company does not purchase or hold any derivative instruments for trading or speculative purposes. Under the terms of the original Swap agreement, the Company paid interest at a fixed rate of interest on a quarterly basis and received interest at the three-month LIBOR rate in effect for that quarter.

On September 26, 2022, the Company and the Swap counterparty executed an amendment to the Swap to update LIBOR conventions to SOFR conventions and to modify the fixed rate for the change from three-month LIBOR to three-month Term SOFR effective on October 6, 2022. There was no change to the $450 million notional value, the July 1, 2026 expiration date, the quarterly payment frequency or the designated three-month maturity from the Swap Amendment. The interest rate effectively fixed by the Swap on $450 million of the Company’s outstanding term loan debt through July 1, 2026 changed from 3.215% to 3.149% as a result of the amendment to the Swap.

The Company elected to apply certain optional expedients available under ASC 848 providing relief from contract modification and hedge accounting requirements to the amendments to the Swap agreement. As a result, the Company was not required to evaluate whether the modifications to the Swap agreement resulted in the establishment of a new contract or the continuation of an existing contract and elected not to remeasure the contract at the modification date or reassess its previous accounting determination. The modified contract is accounted for, and presented as, a continuation of the existing contract. The Company also elected to change

the contractual terms of the Swap without dedesignating the existing hedging relationship and redesignating a new hedging relationship.

The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how the Company reflects the change in fair value of the derivative instrument. A derivative qualifies for hedge accounting treatment if, at inception, it meets defined correlation and effectiveness criteria. These criteria require that the anticipated cash flows and/or changes in fair value of the hedging instrument substantially offset those of the position being hedged. The Swap was assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. Since inception, the Swap was deemed to be highly effective.

The Swap was designated as a cash flow hedge. Accordingly, the Swap was measured at fair value with mark-to-market gains or losses deferred and included in AOCI, net of tax, to the extent the hedge was determined to be effective. Gains or losses from the Swap are reclassified to interest expense in the same period during which the hedged transaction affected earnings. Cash flows from the Swap are classified as operating cash flows in the Consolidated Statements of Cash Flows consistent with the classification of cash flows from the hedged transactions.

On October 30, 2023, the Company monetized the gain on the Swap and entered into an agreement to terminate the Swap ("Swap Termination Agreement"). The Swap Termination Agreement was effective on October 30, 2023. Under the Swap Termination Agreement, the Swap counterparty agreed to pay the Company $43.4 million in cash, which was comprised of the $45.8 million value of the Swap on the termination date inclusive of $1.4 million of interest receivable less $2.4 million in swap unwind costs.

As a result of the Swap Termination Agreement, the Company recorded a $44.4 million deferred gain in AOCI, before tax, replacing the $44.4 million fair value of the Swap in AOCI, before tax. The deferred gain on the Swap monetization is being amortized on a straight-line basis through July 1, 2026 and is included in interest expense and other financing costs on the Consolidated Statements of Operations. For the year ended December 31, 2023, the Company recorded $2.8 million in amortization of deferred gain on Swap monetization. As of December 31, 2023, the unamortized deferred gain on Swap monetization was $41.6 million, before tax. The Swap unwind costs of $2.4 million were recorded in general and administrative costs on the Consolidated Statement of Operations for the year ended December 31, 2023.

Due to the termination of the Swap, there was no amount receivable from the Swap counterparty at December 31, 2023. The amount receivable at December 31, 2022 of $3.0 million is recorded in other assets on the Consolidated Balance Sheets.

The following tables summarize the classification of the Swap in our consolidated financial statements (in thousands):

Balance Sheets

Description

 

December 31, 2023

 

 

December 31, 2022

 

Other assets

Fair value of interest rate swap

 

$

 

 

$

46,931

 

 

Notional amount

 

 

 

 

 

450,000

 

 

 

 

 

Year ended December 31,

 

Statements of Operations

Description

 

2023

 

 

2022

 

 

2021

 

Interest income (expense) and other financing costs

Reclassification from AOCI – Swap income/expense

 

$

15,726

 

 

$

3,684

 

 

$

(3,602

)

Interest income (expense and other financing costs

Reclassification from AOCI – Amortization of Swap deferred gain

 

 

2,785

 

 

 

 

 

 

 

Total

 

 

$

18,511

 

 

$

3,684

 

 

$

(3,602

)

 

 

 

 

Year ended December 31,

 

Statements of Comprehensive Income

Description

 

2023

 

 

2022

 

 

2021

 

Other comprehensive income (loss)

Swap income (loss), net of tax

 

$

(1,970

)

 

$

29,719

 

 

$

13,468

 

Other comprehensive income (loss)

Amortization of deferred gain on terminated Swap, net of tax

 

 

(2,184

)

 

 

 

 

 

 

Total

 

 

$

(4,154

)

 

$

29,719

 

 

$

13,468