Item 3. Quantitative and Qualitative Disclosures About Market Risk
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to certain market risks during the ordinary course of business due to adverse changes in interest rates. The exposure to interest rate risk primarily results
from the Company’s variable-rate borrowing. The Company may elect to use derivative financial instruments to manage risks from fluctuations in interest rates. The Company does not purchase or hold derivatives for trading or speculative purposes.
Fluctuations in interest rates can be volatile and the Company’s risk management activities do not eliminate these risks.
In May 2022, we entered into an interest rate swap agreement, effective on June 30, 2022, which has a $150 million notional value, and a maturity date of June 30, 2027. Beginning in July 2022, we receive 1-month SOFR, and
pay a fixed rate of interest of 2.815% plus an additional margin on a quarterly basis. The total interest rate in any period will also include an applicable margin based on our Consolidated Leverage Ratio.
We designated the interest rate swap as a cash flow hedge and structured it to be highly effective. Consequently, unrealized gains and losses related to the fair value of the interest rate swap are recorded to accumulated
other comprehensive income (loss), net of tax.
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