Note 5 - Derivative Financial Instruments

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

5. Derivative Financial Instruments

We periodically utilize derivative instruments for hedging and non-trading purposes to manage exposure to changes in interest rates and to maintain an appropriate mix of fixed and variable-rate debt. At inception of a derivative contract, we document relationships between derivative instruments and hedged items, as well as our risk-management objective and strategy for undertaking various derivative transactions, and assess hedge effectiveness. If it is determined that a derivative is not highly effective as a hedge, or if a derivative ceases to be a highly effective hedge, we discontinue hedge accounting prospectively.

We entered into a receive fixed-rate and pay variable-rate interest rate swap agreement simultaneously with the issuance of our $350 million of 3.30% senior notes due August 2022, to effectively convert this fixed-rate debt to variable-rate. The notional amount of this interest rate swap agreement equaled that of the corresponding fixed-rate debt. The applicable interest rate under this agreement was based on LIBOR plus an established margin. The swap originally expired when the corresponding senior notes matured, however, this swap was retired during second quarter 2022. See Note 7, Fair Value Measurements, for disclosure of relevant fair value. This derivative met the required criteria to be designated as a fair value hedge, and as the specific terms and notional amount of this derivative instrument matched those of the fixed-rate debt being hedged, this derivative instrument was assumed to perfectly hedge the related debt against changes in fair value due to changes in the benchmark interest rate. Accordingly, any change in the fair value of this interest rate swap recorded in earnings was offset by a corresponding change in the fair value of the related debt.