DERIVATIVE INSTRUMENTS

The Company is exposed to interest rate risks related to its business operations. To reduce the interest rate risk the Company uses an interest rate swap contract. The Company does not use derivatives for speculative trading purposes.

Cash flow hedge

To offset the variability of cash flows in interest payments associated with a portion of the Company’s variable rate debt, the Company entered into an interest rate swap contract in January 2018 which is designated as a cash flow hedge. The interest rate swap hedges one month LIBOR which effectively converts a portion of the variable-rate debt to a fixed interest rate. The interest rate swap effective date is December 31, 2018 and the maturity date is January 23, 2023. As of December 31, 2018, the Company’s interest rate swap agreement, which hedges certain long-term debt obligations, has an initial notional amount of $300.0 million, which decreases over time by $50 million increments as follows:



Period		Notional amount outstanding
Through December 2019		$300 million
January 2020 - December 2020		$250 million
January 2021 - December 2021		$200 million
January 2022 - December 2022		$150 million
January 2023		$100 million

The swap contract has a fixed rate of 2.63%. The following table illustrates the location and fair value of the Company’s interest rate swap at December 31, 2018 and December 31, 2017 (in thousands):



	Derivatives
	December 31, 2018		December 31, 2017
	Balance Sheet Location	Fair Value	Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate swap	Other current liabilities	$255	n/a	$0
Interest rate swap	Other noncurrent liabilities	1,434	n/a	—
Total derivatives designated as hedging instruments		$1,689		$0

The interest rate swap is included at its estimated fair value as an asset or a liability in the Consolidated Balance Sheet based on a discounted cash flow model using applicable market swap rates and certain assumptions. The fair value of the swap recorded in Accumulated Other Comprehensive Income (Loss) may be recognized in the Consolidated Statement of Operations if certain terms of the agreement change, are modified or if the loan is extinguished. The Company had no ineffectiveness related to its swap agreement as of December 31, 2018. The Company expects to reclassify in the next twelve months a loss of approximately $0.3 million from accumulated other comprehensive income (loss) into earnings, as a component of interest expense, related to the Company's interest rate swap based on the borrowing rates at December 31, 2018.