Annual report pursuant to Section 13 and 15(d)
Derivative Instruments and Hedging Activities
|12 Months Ended|
Dec. 31, 2019
|Derivative Instruments and Hedging Activities Disclosure [Abstract]|
|Derivative Instruments and Hedging Activities||Derivative Instruments and Hedging Activities
Cash Flow Hedges
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. On December 31, 2019, the interest rate swap agreement entered into in December of 2016 matured. Upon maturity, no gains or losses on the derivative instrument were reclassified from AOCI to earnings. Concurrently, the notional amount of the interest rate swap agreement entered into in June of 2018 increased from $20 million to $70 million with no change in the terms of the agreement.
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. We account for derivatives in accordance with ASC Topic 815. See Note B for more information on our accounting policy related to derivative instruments and hedging activities. The fair value measurements of the Company’s interest rate swaps are classified within Level 2 of the fair value hierarchy.
Under the hedging agreement outstanding as of December 31, 2019, 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 agreement.
The fair value of the interest rate swaps are included in other assets or liabilities, when applicable. As of December 31, 2019 and December 31, 2018, the fair value of the derivative financial instruments included in other long-term assets were $0 and $0.5 million, respectively. As of December 31, 2019 and December 31, 2018, the fair value of the derivative financial instruments included in other long-term liabilities were $2.0 million and $0.9 million, respectively. Fair value adjustments are recorded as an adjustment to AOCI, 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 swap is highly effective and, thus, there is no impact to the Company’s Consolidated Statements of Operations from changes in fair value. Upon maturity or termination, gains or losses, if any, on this derivative instrument will be reclassified from AOCI to earnings. There were no amounts reclassified for gains or losses on derivative instruments during the years ended December 31, 2019 and 2018.
The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef