Annual report pursuant to Section 13 and 15(d)

Derivative Financial Instruments

v3.19.3
Derivative Financial Instruments
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
On March 31, 2016, we entered into two interest rate swap agreements (collectively the “2016 Swap Agreements”), which are designed to mitigate our exposure to interest rate risk associated with a portion of our variable rate debt. The 2016 Swap Agreements cover an aggregate notional amount of $75.0 million from March 2016 to September 2019 by replacing the obligation’s variable rate with a blended fixed rate of 0.89%.
On December 24, 2018, we entered into two interest rate swap agreements (collectively the “2018 Swap Agreements”), which also are designed to mitigate our exposure to interest rate risk associated with a portion of our variable rate debt. The 2018 Swap Agreements cover an aggregate notional amount of $100.0 million from December 2018 to February 2022 by replacing the obligation’s variable rate with a blended fixed rate of 2.57%. We designated both the 2016 and 2018 Swap Agreements (collectively the “Swap Agreements”) as cash flow hedges of interest rate risk.
The effective portion of changes in the fair value of the Swap Agreements is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in the fair value of the Swap Agreements is recognized directly in earnings. Amounts reported in accumulated other comprehensive income related to the Swap Agreements will be reclassified to interest expense as interest payments are made on our variable rate debt. We estimate that during the next twelve months, an additional $0.9 million will be reclassified to earnings as a decrease to interest expense.
As of December 31, 2018, the Swap Agreements were still outstanding. The table below presents the notional and fair values of the Swap Agreements as well as their classification on the Consolidated Balance Sheets as of December 31, 2018 and 2017:
 
Balance Sheet Location
 
Notional
 
Fair Value
 
 
 
(in thousands)
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
Swap agreements as of December 31, 2018
Other assets
 
$
75,000

 
$
923

Swap agreements as of December 31, 2018
Other long-term liabilities
 
$
100,000

 
$
413

Swap agreements as of December 31, 2017
Other assets
 
$
75,000

 
$
1,329


As of December 31, 2018, we have not posted any collateral related to the Swap Agreements. If we had breached any of the Swap Agreement’s default provisions at December 31, 2018, we could have been required to settle our obligations under the Swap Agreements at their termination value of $0.5 million.
The table below presents the amount of gains and/or losses related to the effective and ineffective portions of the Swap Agreements and their location on the Consolidated Statements of Operations for the fiscal years ended December 31, 2018, 2017 and 2016:
 
 
Effective Portion
 
Ineffective Portion
Derivatives Designated as Cash Flow Hedges
 
Gain (Loss) Recognized in OCI
 
Location of Gain (Loss) Recognized in Income
 
Gain (Loss) Recognized in Income
 
Location of Gain (Loss) Recognized in Income
 
Gain (Loss) Recognized in Income
 
 
(in thousands)
Year ended December 31, 2018:
 
 
 
 
 
 
 
 
Swap agreements, net of tax
 
$
61

 
Interest expense and other
 
$
613

 
Interest expense and other
 
$
(73
)
Year ended December 31, 2017:
 
 
 
 
 
 
 
 
Swap agreements, net of tax
 
$
318

 
Interest expense and other
 
$
77

 
Interest expense and other
 
$
(54
)
Year ended December 31, 2016:
 
 
 
 
 
 
 
 
Swap agreements, net of tax
 
$
400

 
Interest expense and other
 
$
(136
)
 
Interest expense and other
 
$
152