Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

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

Under these hedging agreements, the Company receives 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.

	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
Fixed 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 are included in other assets or liabilities, when applicable.  As of September 30, 2019 and December 31, 2018, the fair value of the derivative financial instruments included in other long-term assets were $0.04 million and $0.48 million, respectively. As of September 30, 2019 and December 31, 2018, the fair value of the derivative financial instruments included in other long-term liabilities were $2.3 million and $0.9 million, respectively. Fair value adjustments are recorded as an adjustment to accumulated other comprehensive earnings, except that any gains and losses on ineffectiveness of the interest rate swap would be recorded as an adjustment to other expense (income), net. Fair value adjustments will be reclassified to interest expense in the period during which the hedged transaction affects earnings, whether upon termination or maturity. Hedge effectiveness is assessed quarterly. The Company determined that the interest rate swaps are highly effective and, thus, there is no impact to the Company’s Consolidated Statements of Operations. Upon termination of the interest rate swap agreement, the Company will reclassify gains or losses on derivative instruments from accumulated other comprehensive income (“AOCI”) to earnings. The December 2016 interest rate swap agreement matures in December 2019. Upon maturity, gains or losses, if any, on this derivative instrument will be reclassified from AOCI to earnings. Based on interest rates in effect at September 30, 2019, the Company estimates the amount reclassified from AOCI to earnings during the next twelve months as the anticipated cash flows occur will be immaterial. There were no amounts reclassified for gains or losses on derivative instruments during the three and nine months ended September 30, 2019.