13.

Derivatives

The Company uses interest-rate-related derivative instruments to manage its exposure related to changes in interest rates on its variable-rate debt instruments. The Company does

not

enter into derivative instruments for any purpose other than cash flow hedging. The Company does

not

speculate using derivative instruments.

By using derivative financial instruments to hedge exposures to changes in interest rates, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, the Company is

not

exposed to the counterparty’s credit risk in those circumstances. The Company minimizes counterparty credit risk in derivative instruments by entering into transactions with carefully selected major financial institutions based upon their credit profile.

Market risk is the adverse effect on the value of a derivative instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that

may

be undertaken.

The Company assesses interest rate risk by continually identifying and monitoring changes in interest rate exposures that

may

adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate risk attributable to both the Company’s outstanding and forecasted debt obligations as well as the Company’s offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company’s future cash flows.

The Company uses variable-rate LIBOR debt to finance its operations. The debt obligations expose the Company to variability in interest payments due to changes in interest rates. Management believes that it is prudent to limit the variability of a portion of its interest payments. To meet this objective, management enters into LIBOR based interest rate swap agreements to manage fluctuations in cash flows resulting from changes in the benchmark interest rate of LIBOR. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. Under the terms of the interest rate swaps, the Company receives LIBOR based variable interest rate payments and makes fixed interest rate payments, thereby creating the equivalent of fixed-rate debt for the notional amount of its debt hedged.

As disclosed in Note

12,

January 31, 2018,

the Company entered into a Financing Agreement comprised of a

$64.0

million term loan and up to a

$25.0

million revolving line of credit. Shortly after entering into this Financing Agreement, the Company entered into an interest rate swap contract with PNC Bank with a notional amount of

$36.0

million and a termination date of

January 1, 2023

in order to hedge the risk of changes in the effective benchmark interest rate (LIBOR) associated with the Company’s Term Loan. The swap contract converted specific variable-rate debt into fixed-rate debt and fixed the LIBOR rate associated with a portion of the term loan under the Financing Agreement at

2.72%.

The interest rate swap was designated as a cash flow hedge instrument in accordance with ASC

815

“Derivatives and Hedging”.

The following table presents the notional amount and fair value of the Company’s derivative instruments as of

March 31, 2020

and

December 31, 2019.

		March 31, 2020
		Notional Amount		Fair Value (a)
Derivatives instruments	Balance sheet classification		(in thousands)
Interest rate swaps	Other long term liabilities	$	27,289	$	(747	)

		December 31, 2019
		Notional Amount		Fair Value (a)
Derivatives instruments	Balance sheet classification		(in thousands)
Interest rate swaps	Other long term liabilities	$	28,821	$	(603	)

(a) See Note

for the fair value measurements related to these financial instruments.

All of the Company’s derivative instruments are designated as hedging instruments. The Company has structured its interest rate swap agreements to be

100%

effective and as a result, there was

impact to earnings resulting from hedge ineffectiveness. Changes in the fair value of interest rate swaps designated as hedging instruments that effectively offset the variability of cash flows associated with variable-rate, long-term debt obligations are reported in accumulated other comprehensive income (AOCI). These amounts subsequently are reclassified into interest expense as a yield adjustment of the hedged interest payments in the same period in which the related interest affects earnings. The Company’s interest rate swap agreement was deemed to be fully effective in accordance with ASC

815,

and, as such, unrealized gains and losses related to these derivatives were recorded as AOCI.

The following table summarizes the effect of derivatives designated as cash flow hedging instruments and their classification within comprehensive loss for the

three

months ended

March 31, 2020

and

2019:

Derivatives in Hedging Relationships	Amount of gain (loss) recognized in OCI on derivative (effective portion)
	Three Months Ended March 31,
	2020			2019
	(in thousands)
Interest rate swaps	$	(216	)	$	(196	)

The following table summarizes the reclassifications out of accumulated other comprehensive loss for the

three

months ended

March 31, 2020

and

2019:

Details about AOCI Components	Amount reclassified from AOCI into income (effective portion)
	Three Months Ended March 31,				Location of amount reclassified from AOCI
	2020		2019		into income (effective portion)
	(in thousands)
Interest rate swaps	$	72	$	17	Interest expense

As of

March 31, 2020,

$0.4

million of deferred losses on derivative instruments accumulated in AOCI are expected to be reclassified to earnings during the next

twelve

months. Transactions and events expected to occur over the next

twelve

months that will necessitate reclassifying these derivatives’ losses to earnings include the repricing of variable-rate debt.