Quarterly report pursuant to Section 13 or 15(d)

Derivative Financial Instruments

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Derivative Financial Instruments
9 Months Ended
Sep. 30, 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 “Swap Agreements”), which are designed to mitigate our exposure to interest rate risk associated with a portion of our variable rate debt. The 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%. We designated 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 $1.2 million will be reclassified to earnings as a decrease to interest expense.
As of September 30, 2018, 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 September 30, 2018 and December 31, 2017:
 
Balance Sheet Location
 
Notional
 
Fair Value
 
 
 
(in thousands)
Derivatives designated as cash flow hedging instruments:
 
 
 
 
 
Swap agreements as of September 30, 2018
Other assets
 
$
75,000

 
$
1,286

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

 
$
1,329


As of September 30, 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 September 30, 2018, we could have been required to settle our obligations under the Swap Agreements at their termination value of $1.3 million.
The tables below present the amount of gains and losses related to the effective and ineffective portions of the Swap Agreements and their location in the Condensed Consolidated Statements of Operations and the Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017, in thousands:
 
 
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
Three months ended September 30, 2018:
 
 
 
 
 
 
 
 
Swap agreements, net of tax
 
$
44

 
Interest expense and other
 
$
170

 
Interest expense and other
 
$
(10
)
Three months ended September 30, 2017:
 
 
 
 
 
 
 
 
Swap agreements, net of tax
 
$
29

 
Interest expense and other
 
$
39

 
Interest expense and other
 
$
(13
)

 
 
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
Nine months ended September 30, 2018:
 
 
 
 
 
 
 
 
Swap agreements, net of tax
 
$
410

 
Interest expense and other
 
$
413

 
Interest expense and other
 
$
(40
)
Nine months ended September 30, 2017:
 
 
 
 
 
 
 
 
Swap agreements, net of tax
 
$
102

 
Interest expense and other
 
$
30

 
Interest expense and other
 
$
(41
)