Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Derivative Instruments and Hedging Activities

v3.6.0.2
Derivative Instruments and Hedging Activities
12 Months Ended
Dec. 31, 2016
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities

Note G – Derivative Instruments and Hedging Activities

Cash Flow Hedges

In December of 2016, the Company entered into an interest rate swap agreement to reduce our exposure to interest rate fluctuations on our variable rate debt obligations.  This derivative financial instruments is accounted for at fair value as a cash flow hedge 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 FASB ASC Topic 815, see Note B-Summary of Significant Accounting Policies for

more information on our accounting policy related to derivative instruments and hedging activities.  

 

Under this agreement, we receive a variable rate of interest based on LIBOR (as discussed in Note F), and we pay a fixed rate of interest at 1.59%.  The interest rate swap agreement was effective as of December 30, 2016 and a termination date of December 31, 2019. As of December 31, 2016 and 2015, the total notional amount of the Company’s interest rate swaps were $50 million and $0 respectively.  

 

The fair value of the interest rate swap will be included in other long term assets or liabilities, when applicable.  As of December 31, 2016, the fair value of the interest rate swap was not considered to be significant due to the short time the instrument was outstanding and the change in LIBOR over that time period, therefore, no amount is included on the balance sheet for this instrument.  As the specific terms and notional amounts of the derivative financial instrument match those of the fixed-rate debt being hedged, the derivative instruments are assumed to be perfectly effective hedges and accordingly, there is no impact to the Company's consolidated statements of operations. Gains and losses on this interest rate swap agreement will be recorded in accumulated other comprehensive income and will be reclassified to interest expense in the period during which the hedged transaction affects earnings.  At December 31, 2016, there was no impact to AOCI as it was determined that there was not a significant change to record.  The fair value of this instrument will be evaluated on a quarterly basis and adjusted accordingly.  As of December 31, 2016, the Company estimates that it will reclassify gains/losses on derivative instruments of $795,000 from accumulated other comprehensive income to earnings during the next twelve months as the anticipated cash flows occur.