Derivative Instruments and Hedging Activities

In December of 2016 and June of 2018, the Company entered into interest rate swap agreements to reduce our exposure to interest rate fluctuations on our variable rate debt obligations. These derivative financial instruments are accounted for at fair value as cash flow hedges, which effectively modifies our exposure to interest rate risk by converting a portion of our floating rate debt to a fixed rate obligation, thus reducing the impact of interest rate changes on future interest expense. We account for derivatives in accordance with ASC Topic 815.

Under these agreements, we receive a variable rate of interest based on LIBOR and we pay a fixed rate of interest. The following table summarizes the interest rate swap agreements as of June 30, 2018 and December 31, 2017.



	December 2016 Hedge		June 2018 Hedge
Notional Amount	$50 million		$20 million (1)
Effective Date	December 30, 2016		June 29, 2018
Index	One month LIBOR		One month LIBOR
Maturity	December 31, 2019		December 31, 2021
Rate	1.59	%	2.98	%

⁽¹⁾The notional amount increases to $70 million upon maturity of December 2016 hedge on December 31, 2019.

The fair value of the interest rate swaps will be included in other long term assets or liabilities, when applicable. As of June 30, 2018 and December 31, 2017, the fair value of the derivative financial instruments were $0.4 million and $0.4 million which was included in the balance sheet as other assets and reflected in AOCI. The instrument will be evaluated on a monthly basis and resulting increases or decreases will be recorded as a component of AOCI and will be reclassified to interest expense in the period during which the hedged transaction affects earnings. Cash flows from the interest rate swap are included in operating activities on the consolidated statement of cash flows. The Company performed an effectiveness assessment and determined that the interest rate swaps are highly effective and, thus, there is no impact to the Company's consolidated statements of operations. As of June 30, 2018, the Company estimates that it will reclassify gains or losses on derivative instruments of $0.2 million from AOCI to earnings during the next twelve months as the anticipated cash flows occur.