Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments

v3.19.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2019
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 changes in the fair value of the Swap Agreements are recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects 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 $0.4 million will be reclassified to earnings as a decrease to interest expense.
As of March 31, 2019, the Swap Agreements were still outstanding. The table below presents the notional and fair value of the Swap Agreements as well as their classification in the Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018:
 
Balance Sheet Location
 
Notional
 
Fair Value
 
 
 
(in thousands)
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
Swap agreements as of March 31, 2019
Other assets
 
$
75,000

 
$
590

Swap agreements as of March 31, 2019
Other long-term liabilities
 
$
100,000

 
$
1,129

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


As of March 31, 2019, we have not posted any collateral related to the Swap Agreements. If we had breached any of the Swap Agreement’s default provisions at March 31, 2019, we could have been required to settle our obligations under the Swap Agreements at their termination value of $0.6 million.
The tables below present the amount of gains and losses related to the Swap Agreements and their location in the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018, in thousands:
Derivatives Designated as Cash Flow Hedges
 
Gain (Loss) Recognized in OCI
 
Location of Gain (Loss) Recognized in Income
 
Gain (Loss) Recognized in Income
Three months ended March 31, 2019:
 
 
 
 
Swap agreements, net of tax
 
$
(586
)
 
Interest expense and other
 
$
220

Three months ended March 31, 2018:
 
 
 
 
Swap agreements, net of tax
 
$
258

 
Interest expense and other
 
$
99


Gains and losses on our cash flow hedges are net of income tax expense (benefit) of $0.2 million and $(0.1) million during the three months ended March 31, 2019 and 2018, respectively. Cash flows from the Swap Agreements is included within the operating activities in the Condensed Consolidated Statements of Cash Flows, as the Company’s accounting policy is to present cash flows from hedging instruments in the same category as the item being hedged.