Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Derivative Instruments and Hedging Activities

v3.10.0.1
Derivative Instruments and Hedging Activities
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities
Note H – 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 our exposure to interest rate fluctuations on our variable rate debt obligations.  These derivative financial instruments are 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 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 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.

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 swap will be included in long-term assets or long-term liabilities, when applicable. At December 31, 2018, we recorded the fair value of these derivative financial instruments of which $0.5 million was included as an other long-term asset and $0.9 million was included as a long-term liability. These amounts were also reflected in AOCI.  At December 31, 2017, the fair value of the derivative financial instruments was $0.4 million, which was included in the balance sheet as other assets and reflected in AOCI.  The instruments 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.  Any 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 December 31, 2018, the Company estimates that any amounts reclassified from AOCI to earnings during the next twelve months will be immaterial.