Derivative Instruments and Hedging Activities

Effective April 1, 2010, in order to reduce the volatility of cash outflows that arise from changes in interest rates, the Company entered into two interest rate swap agreements. These interest rate swap agreements were intended to hedge the Company’s mortgage loan related to its headquarters facility in Middletown, Rhode Island by fixing the interest rates specified in the mortgage loan to 5.9% for half of the principal amount outstanding and 6.1% for the remaining half of the principal amount outstanding as of April 1, 2010 until the mortgage loan expired on April 16, 2019. The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive (loss) income (AOCI) to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. As the Company made the required principal and interest payments under the mortgage loan and the related interest rate swaps were settled, the Company reclassified the amounts recorded in AOCI related to the changes in the fair value of the settled interest rate swaps to earnings. To the extent there was any hedge ineffectiveness, changes in fair value relating to the ineffective portion were immediately recognized in earnings in other income (expense) in the consolidated statements of operations. The interest rate swap was recorded within accrued other liabilities on the balance sheet. The critical terms of the interest rate swaps were designed to mirror the terms of the Company’s mortgage loans. The Company designated these derivatives as cash flow hedges of the variability of the LIBOR-based interest payments on principal over a nine-year period, which ended on April 1, 2019. On April 1, 2019, the two interest rate swaps matured and the Company made its final payment for its mortgage loan thereafter.

As of December 31, 2018, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:



Interest Rate Derivatives	Notional (in thousands)		Asset (Liability)			Effective Date	Maturity Date	Index	Strike Rate
Interest rate swap	$	1,299	$	(5	)	April 1, 2010	April 1, 2019	1-month LIBOR	5.91	%
Interest rate swap	$	1,299	$	(6	)	April 1, 2010	April 1, 2019	1-month LIBOR	6.07	%