Note 12—Derivative Instruments

Cash Flow Hedges

Interest Rate Swap

In July 2017, we entered into an interest rate swap to hedge our exposure to interest rate risk. The agreement has a notional value of $100.0 million, was effective as of December 1, 2017 and expires on December 1, 2021. The notional amount of the swap matches the corresponding principal amount of a portion of our borrowings under the Credit Facility. During the term of the agreement, we have a fixed interest rate of 1.9275 percent on the notional amount and Citizens Bank, National Association, as counterparty to the agreement, will pay us interest at a floating rate based on the 1 month USD-LIBOR-BBA swap rate on the notional amount. Interest payments are made quarterly on a net settlement basis.

We designated the interest rate swap as a hedging instrument and it qualified for hedge accounting upon inception and at December 31, 2018. To continue to qualify for hedge accounting, the instrument must retain a “highly effective” ability to hedge interest rate risk for borrowings under the Credit Facility. We are required to test hedge effectiveness at the end of each financial reporting period. If a derivative qualifies for hedge accounting, changes in fair value of the hedge instrument are recognized in accumulated other comprehensive income (loss) (AOCI) and subsequently reclassified into earnings in the period that the hedged transaction affects earnings. The reclassification into earnings is recorded as a component of our interest expense within other expense, net. If the instrument were to lose some or all of its hedge effectiveness, changes in fair value for the “ineffective” portion of the instrument would be recorded immediately in earnings.

The fair values of the interest rate swap and their respective locations in our consolidated balance sheets at December 31, 2018 and June 30, 2018 were as follows:


Description	Balance Sheet Location	December 31, 2018		June 30, 2018
		(in thousands)
Derivative interest rate swap
Short-term derivative asset	Prepaid expenses and other current assets	$	562	$	407
Long-term derivative asset	Other assets	$	917	$	2,183

The following tables present the effect of our derivative interest rate swap and related tax effects in AOCI for the six months ended December 31, 2018 and 2017.


	June 30, 2018		Amount of Gain (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)			Amount of Gain (Loss) Reclassified from AOCI into Net Income (Loss) (Effective Portion) ⁽¹⁾			Income Tax Benefit (Provision) in OCI on Derivative Instruments			December 31, 2018
	(in thousands)
Derivative interest rate swap	$	2,590	$	(974	)	$	137		$	—		$	1,479


	June 30, 2017		Amount of Gain (Loss) Recognized in OCI on Derivative Instruments (Effective Portion)			Amount of Gain (Loss) Reclassified from AOCI into Net Income (Loss) (Effective Portion) ⁽¹⁾			Income Tax Benefit (Provision) in OCI on Derivative Instruments			December 31, 2017
	(in thousands)
Derivative interest rate swap	$	—	$	569		$	(48	)	$	(248	)	$	369

⁽¹⁾	Recorded as interest income (expense) within other expense, net in our consolidated statements of comprehensive income (loss).

During the three and six months ended December 31, 2018, we concluded that no portion of the hedge was ineffective.

As of December 31, 2018, there was $1.5 million of unrealized gain in accumulated other comprehensive loss. We expect to reclassify approximately $0.6 million of this unrealized gain from accumulated other comprehensive loss to earnings over the next twelve months.