Financial Instruments

12 Months Ended

Dec. 31, 2021

Investments, All Other Investments [Abstract]

FINANCIAL INSTRUMENTSThe carrying amounts of our cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments and are classified as Level 1 in the fair value hierarchy. The carrying value of bank debt approximates fair value, as the interest rate on the bank debt is variable and approximates current market rates. As a result, the fair value measurement of our bank debt is classified as Level 2 in the fair value hierarchy.

Concentrations of Credit Risk - Financial instruments that may subject us to concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with highly-rated financial institutions, limiting the amount of credit exposure with any one financial institution. Our client base consists of large numbers of geographically diverse customers dispersed throughout the United States; thus, concentration of credit risk with respect to accounts receivable is not significant.

Available-For-Sale Debt Securities - Available-for-sale debt securities consist primarily of corporate and municipal bonds. The net par values of these securities total $37.0 million and $24.9 million at December 31, 2021 and 2020, respectively. The bonds have maturity dates or callable dates ranging from January 2022 through November 2025, and are included in “Funds held for clients — current” in the accompanying Consolidated Balance Sheets based on our intent and ability to sell these investments at any time under favorable conditions.

At December 31, 2021, unrealized losses on the securities were not material and have not been recognized as a credit loss because the bonds are investment grade quality and management is not required or does not intend to sell prior to an expected recovery in value. The bond issuers continue to make timely principal and interest payments.

The following table summarizes our bond activity for the years ended December 31, 2021 and 2020 (in thousands):


	2021		2020
Fair value at January 1	$	25,708	$	60,659
Purchases	26,980		3,447
Redemptions	(6,530)		(22,078)
Maturities	(8,347)		(15,409)
Change in bond premium	1,517		(857)
Fair market value adjustment	(658)		(54)
Fair value at December 31	$	38,670	$	25,708

In addition to the available-for-sale securities discussed above, we also held other depository assets in the amount of $1.1 million at December 31, 2021. We did not have any depository items at December 31, 2020. Those depository assets are classified as Level 1 in the fair value hierarchy.

Interest Rate Swaps - We utilize interest rate swaps to manage interest rate risk exposure associated with our floating-rate debt under the 2018 credit facility, or the forecasted acquisition of such liability. Under these interest rate swap contracts, we receive cash flows from counterparties at variable rates based on LIBOR and pay the counterparties a fixed rate. To mitigate counterparty credit risk, we only enter into contracts with selected major financial institutions with investment grade ratings and continually assess their creditworthiness. There are no credit risk-related contingent features in our interest rate swaps nor do the swaps contain provisions under which we would be required to post collateral. We do not purchase or hold any derivative instruments for trading or speculative purposes.

The designation of a derivative instrument as a hedge and its ability to meet the hedge accounting criteria determine how we reflect 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.

We had no fair value hedging instruments at December 31, 2021 or 2020. Our interest rate swaps are designated as cash flow hedges. Accordingly, the interest rate swaps are recorded as either an asset or liability in the accompanying Consolidated Balance Sheets at fair value. The mark-to-market gains or losses on the swaps are deferred and included as a component of accumulated other comprehensive loss (“AOCL”), net of tax, to the extent the hedge is determined to be effective, and reclassified to interest expense in the same period during which the hedged transaction affects earnings. The interest rate swaps are assessed for effectiveness and continued qualification for hedge accounting on a quarterly basis. For the years ended December 31, 2021 and 2020, the interest rate swaps were deemed to be highly effective.

The following table summarizes our outstanding interest rate swaps and their classification in the accompanying Consolidated Balance Sheets at December 31, 2021 and 2020 (in thousands). Refer to Note 7, Fair Value Measurements, to the accompanying consolidated financial statements for additional disclosures regarding fair value measurements.


	December 31, 2021
	Notional Amount		Fair Value		Balance Sheet Location
Interest rate swap	$	20,000	$	(120)	Other current liability
Interest rate swaps	$	45,000	$	(496)	Other non-current liabilities
Interest rate swap	$	50,000	$	405	Other non-current asset


	December 31, 2020
	Notional Amount		Fair Value		Balance Sheet Location
Interest rate swap	$	10,000	$	(13)	Other current liability
Interest rate swaps	$	85,000	$	(2,552)	Other non-current liabilities

During the fourth quarter of 2021, we entered into a new 5-year interest rate swap with a notional value of $30 million and fixed rate of 1.249%. One interest rate swap with a notional value of $10 million and fixed rate of 1.120% expired during the first quarter of 2021. As of December 31, 2021, we have four interest rate swaps outstanding. Under the terms of the interest rate swaps, we pay interest at a fixed rate plus applicable margin as stated in the agreements, and receive interest that varies with the one-month LIBOR. The notional value, fixed rate of interest and expiration date of each interest rate swap as of December 31, 2021 is (i) $20.0 million – 1.770% - May, 2022, (ii) $15.0 million – 2.640% - June, 2023, (iii) $50.0 million - 0.885% - April, 2025 and (iv) $30.0 million - 1.249% - December, 2026.

During the next twelve months, the amount of the December 31, 2021 AOCL balance that will be reclassified to earnings is expected to be immaterial. The following table summarizes the effects of the interest rate swap on our accompanying Consolidated Statements of Comprehensive Income for the years ended December 31, 2021 and 2020 (in thousands):


	Gain (loss) recognized in AOCL, net of tax				Loss reclassified from AOCL into expense
	Twelve Months Ended December 31,				Twelve Months Ended December 31,				Location
	2021		2020		2021		2020
Interest rate swaps	$	929	$	(1,525)	$	(1,152)	$	(974)	Interest expense