Derivative Financial Instruments

As of June 25, 2019, we have entered into one derivative instrument designated as a cash flow hedge for risk management purposes. The derivative instrument is used to mitigate our exposure to interest rate fluctuations.

Interest Rate Cap

During fiscal 2018, we entered into an interest rate cap with a notional value of $200.0 million and 3.00% per annum strike rate to hedge the variability of the monthly 1-month LIBOR interest payments on a portion of our Term Loan B. The hedged monthly interest payments began on July 31, 2018 and end on the expiration of the interest rate cap on June 30, 2022. Any variability in the 1-month LIBOR interest payment on the Term Loan Facility beyond 3.00% per annum is offset by the net proceeds received upon exercising the interest rate cap. The interest rate cap was designated as a cash flow hedge at inception.

The hedge effectiveness for the designated interest rate cap is based on the changes in the interest rate cap’s intrinsic value. Accordingly, we will exclude all the change in the time value of the interest rate cap from the assessment. The excluded component will be amortized over the life of the derivative instrument and recognized in Interest, net of capitalized interest in the Consolidated Statements of Operations. The amount of gains (losses) that are reported in accumulated other comprehensive income (loss) at the reporting date that are expected to be reclassified into earnings within the next 12 months is $0.5 million.

Credit Risk

We are exposed to credit risk of the counterparty with which we entered into the derivative. This is the risk of the counterparty’s non-performance pursuant to the derivative contract. The risk will continue to exist as long as the derivative is in an asset position, creating a liability for the counterparty. However, the risk is deemed to be minimal as the counterparty has investment grade credit ratings. We will monitor the counterparty’s credit ratings and our market position with the counterparty on an ongoing basis. The interest rate cap does not contain any credit-risk related contingent features.

Quantitative Disclosures on Derivative Instruments

The following tables present the required quantitative disclosures for our derivative instrument, including its estimated fair values (all estimated using Level 2 inputs) and their financial statement presentation for the fiscal quarters ended June 25, 2019 and June 26, 2018, respectively.

Derivative instruments recorded at fair value in our unaudited condensed consolidated balance sheets as of June 25, 2019 and December 25, 2018, respectively, consisted of the following:



	Derivative Assets
(Amounts in thousands)	June 25, 2019			December 25, 2018
Derivatives designated as hedging instruments	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Interest rate cap	Other current assets	$	132	Other current assets	$	1,075
Total derivatives designated as hedging instruments		$	132		$	1,075

The effect of cash flow hedges on accumulated other comprehensive income (loss) for the 13 weeks ended June 25, 2019 and the 13 weeks ended June 26, 2018, was as follows (Amounts in thousands):



Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative*					Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income				Classification of Gain or (Loss) Recognized in income related to Amount Excluded from Effectiveness Testing	Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
	13 Weeks Ended						13 Weeks Ended					13 Weeks Ended
	June 25, 2019			June 26, 2018			June 25, 2019		June 26, 2018			June 25, 2019		June 26, 2018
Interest rate cap	$	(120	)	$	—	Interest, net of capitalized interest	$	—	$	—	Interest, net of capitalized interest	$	121	$	—

*The portion of gain/loss recognized in Accumulated Other Comprehensive Income related to the component excluded from the assessment of effectiveness was a loss of $0.1 million.

The effect of cash flow hedges on accumulated other comprehensive income (loss) for the 26 weeks ended June 25, 2019 and the 26 weeks ended June 26, 2018, was as follows (Amounts in thousands):



Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in Accumulated Other Comprehensive Income (Loss) on Derivative*					Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income				Classification of Gain or (Loss) Recognized in income related to Amount Excluded from Effectiveness Testing	Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
	26 Weeks Ended						26 Weeks Ended					26 Weeks Ended
	June 25, 2019			June 26, 2018			June 25, 2019		June 26, 2018			June 25, 2019		June 26, 2018
Interest rate cap	$	(943	)	$	—	Interest, net of capitalized interest	$	—	$	—	Interest, net of capitalized interest	$	243	$	—

*The portion of gain/loss recognized in Accumulated Other Comprehensive Income related to the component excluded from the assessment of effectiveness was a loss of $0.9 million.

The effect of cash flow hedges on Consolidated Statements of Operations for the 13 weeks ended June 25, 2019 and the 13 weeks ended June 26, 2018, was as follows:



	Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
	13 Weeks Ended
(Amounts in thousands)	June 25, 2019		June 26, 2018
Gain or (loss) on cash flow hedging relationships
Interest Rate Cap:
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income	$	—	$	—
Amount excluded from effectiveness testing using an amortization approach⁽¹⁾	121		—
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income as a result that a forecasted transaction is no longer probable of occurring	—		—


(1)	The portion of the amount of loss reclassified from accumulated other comprehensive income (loss) to income includes $0.1 million related to the amortization of the excluded component.

The effect of cash flow hedges on Consolidated Statements of Operations for the 26 weeks ended June 25, 2019 and the 26 weeks ended June 26, 2018, was as follows:



	Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
	26 Weeks Ended
(Amounts in thousands)	June 25, 2019		June 26, 2018
Gain or (loss) on cash flow hedging relationships
Interest Rate Cap:
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income	$	—	$	—
Amount excluded from effectiveness testing using an amortization approach⁽¹⁾	243		—
Amount of gain or (loss) reclassified from accumulated other comprehensive income (loss) into income as a result that a forecasted transaction is no longer probable of occurring	—		—


(1)	The portion of the amount of loss reclassified from accumulated other comprehensive income (loss) to income includes $0.2 million related to the amortization of the excluded component.