5. Derivative Instruments and Hedging Activities

The Company accounts for derivatives and hedging activities in accordance with ASC 815, “Derivatives and Hedging” (ASC 815). As required by ASC 815, the Company records all derivatives on the balance sheet at fair value and adjusts to market on a quarterly basis. In addition, to comply with the provisions of ASC 820, “Fair Value Measurements” (ASC 820), credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. In accordance with ASC 820, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. There is no impact of netting, because the Company has only one derivative. The Company classifies its derivative valuations in Level 2 of the fair value hierarchy.

On June 24, 2021, the Company entered into an interest rate swap, which hedged $450 million of variable rate exposure on the Term Loan Facility at a blended rate of 2.19%, and was designated as a cash flow hedge. The Company subsequently amended its interest rate swap to be based on SOFR rather than LIBOR, which resulted in an updated swap rate of 2.16%.

On September 27, 2024, the Company terminated the previous $450 million interest rate swap, and entered into a new interest rate swap in the notional amount of $500 million with a blended interest rate of 2.83%. On this same date, the Company also entered into a new interest rate swap for $300 million with an interest rate of 3.37%. These interest rate swap agreements are designated as cash flow hedges.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate 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.

Tabular Disclosure

The Company estimates that approximately $14.5 million will be reclassified from accumulated other comprehensive income as a reduction to interest expense during the next twelve months.