Derivative Financial Instruments

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Swap Contract

Our risk management objectives are to ensure that business and financial exposures to risk that have been identified and measured are minimized using the most effective and efficient methods to reduce, transfer and, when possible, eliminate such exposures. Operating decisions contemplate associated risks and management strives to structure proposed transactions to avoid or reduce risk whenever possible.

We have assessed our vulnerability to certain business and financial risks, including interest rate risk associated with our variable-rate long-term debt. To mitigate this risk, effective January 23, 2014, we entered into an interest rate swap contract with BofA for 75% of the term loan ("Term Loan") balance, to hedge the variability of interest payments associated with our variable-rate borrowings under our Term Loan with BofA. The Term Loan contract and the interest rate swap terminate on September 30, 2023. The Term Loan contract had a total notional value of $6.1 million as of June 30, 2020. Through this swap agreement, we pay interest at a fixed rate of 2.86% and receive interest at a floating-rate of the one-month LIBOR, which was 0.18% at June 30, 2020. It is likely that LIBOR will no longer be used as a reference rate by most, if not all, financial institutions before year-end 2021.

Since the interest rate swap hedges the variability of interest payments on variable rate debt with similar terms, it qualifies for cash flow hedge accounting treatment.

As of June 30, 2020, an unrealized net loss of $0.5 million was recorded in Accumulated other comprehensive loss as a result of this hedge. The effective portion of the gain or loss on the derivative is reclassified into Interest expense in the same period during which we record Interest expense associated with the related debt. There was no hedge ineffectiveness during the first six months of 2020 or 2019.

The fair value of our derivative instrument recorded as a component of Other liabilities on our Consolidated Balance Sheets was as follows (in thousands):


	June 30, 2020		December 31, 2019
Fair value of interest rate swap liability	$	(507)	$	(278)

The effect of our interest rate swap contract that was accounted for as a derivative instrument on our Consolidated Statements of Operations was as follows (in thousands):


Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) Recognized in Accumulated OCI (Effective Portion)		Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated OCI into Income (Effective Portion)
Three Months Ended June 30,
2020	$	(6)	Interest expense	$	37
2019	$	(120)	Interest expense	$	6

Six Months Ended June 30,
2020	$	(230)	Interest expense	$	56
2019	$	(182)	Interest expense	$	12