Quarterly report pursuant to Section 13 or 15(d)

Note 9 - Derivative Financial Instruments and Hedging Activities

v3.21.1
Note 9 - Derivative Financial Instruments and Hedging Activities
3 Months Ended
Mar. 31, 2021
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

9.

Derivative Financial Instruments and Hedging Activities

 

During the quarter ended March 31, 2021, the Company adopted a derivative investment policy which provides guidelines and objectives related to managing financial and operational exposures arising from market changes in short term interest rates. In accordance with this policy, the Company can enter into interest rate swaps or similar instruments, will endeavor to evaluate all the risks inherent in a transaction before entering into a derivative financial instrument and will not enter into derivative financial instruments for speculative or trading purposes. Hedging relationships are formally documented at the inception of the hedge and hedges must be highly effective in offsetting changes to future cash flows on hedged transactions at the inception of a hedge and on an ongoing basis to be designated for hedge accounting treatment. 

 

The Company is exposed to interest rate risk related to its variable rate debt obligations under the 2021 Credit Agreement. In order to manage the volatility in interest rate markets, in February 2021, the Company entered into two interest rate swaps agreements to manage exposure arising from this risk. On a combined basis, the agreements have a constant notional amount over a five-year term that ends on February 5, 2026. The agreements both pay the Company 30-day LIBOR on the notional amount and the Company pays a fixed rate of interest equal to 0.73%. These derivative instruments are considered cash flow hedges. The Company does not have any other derivative financial instruments.

 

The table below presents the gross fair value amounts of our derivative financial instruments and the associated notional amounts designated as cash flow hedges (in thousands):

 

 

March 31, 2021 (a)

 
 

Balance Sheet Location

 

Notional

   

Fair Value Derivative

Assets

 

Derivatives designated as hedges:

                 

Cash Flow Hedges

                 

Interest Rate Swaps

Other Current Assets

  $ 20,000     $ 158  

 

(a) No derivative instruments existed at December 31, 2020.

               

 

The table below presents the effect of our derivative financial instruments designated as hedging instruments in the income statement and in AOCI:

 

   

Three Months Ended
March 31, 2021 (a)

 
   

Gain/(Loss) on

derivatives recognized

in Interest Expense (b)

   

Total Interest

Expense (c)

   

Gain/(Loss)

Recognized in

AOC (d)

 

Cash Flow Hedges

                       

Interest Rate Swaps

  $ (10 )   $ (322 )   $ 158  

 

(a) No derivatives instruments existed for the three months ended March 31, 2020

(b) Reclassified from AOCI

(c) As presented in the Income Statement

(d) $125 thousand expense expected to be reclassified into earnings within the next 12 months

 

The Company did not incur any hedge ineffectiveness during the three months ended March 31, 2021.