DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

Risk Management Objective of Using Derivatives

We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in our payment of future cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash payments principally related to our borrowings.

Cash Flow Hedges of Interest Rate Risk

Our objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded on our Consolidated Balance Sheets in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. During the year ended December 31, 2019, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

We have entered into interest rate swaps to hedge the variability associated with the Credit Agreement. The following table presents the swaps held as of December 31, 2019.

Product	Fixed Rate		Notional (in thousands)	Index	Effective Date	Maturity Date
Swap	1.56	%	200,000	1 mo. USD-LIBOR-BBA	11/12/2015	11/9/2020
Swap	1.96	%	100,000	1 mo. USD-LIBOR-BBA	11/9/2018	11/9/2021
Swap	2.30	%	100,000	1 mo. USD-LIBOR-BBA	11/9/2020	11/9/2023
Swap (1)	2.00	%	100,000	1 mo. USD-LIBOR-BBA	11/9/2020	11/9/2022
Swap	1.91	%	150,000	1 mo. USD-LIBOR-BBA	11/9/2022	11/9/2024
Swap	1.63	%	50,000	3 mo. USD-LIBOR-BBA	7/31/2020	7/31/2030
(1) In November 2021, the notional amount of the swap increases to $200 million.

For the years ended December 31, 2019, 2018, and 2017, we recorded approximately $0, $0, and $54 thousand of income, respectively, related to hedge ineffectiveness in earnings. The hedge ineffectiveness is attributable to zero-percent floor and rounding mismatches in the hedging relationships.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on our variable-rate debt. We estimate that during 2019 an additional $0.4 million will be reclassified to earnings as a increase to interest expense.

As of December 31, 2019, we had two interest rate swaps outstanding with current notionals of $300 million that were designated as cash flow hedges of interest rate risk.

Non-designated Hedges

We do not use derivatives for trading or speculative purposes. During the years ended December 31, 2019 and 2018, we did not have any derivatives that were not designated as cash flow hedges for accounting purposes.

Tabular Disclosure of Fair Values of Derivative Instruments on the Consolidated Balance Sheets

The table below presents the fair value of our derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of December 31, 2019 and 2018.

	Derivative Assets					Derivative Liabilities
	Balance Sheet Location	Fair Value at December 31,				Balance Sheet Location	Fair Value at December 31,
(Dollars in thousands)		2019		2018			2019		2018
Derivatives designated as hedging instruments:
Interest rate swaps	Derivative assets	$	1,451	$	5,982	Derivative liabilities	$	5,005	$	—
Total		$	1,451	$	5,982		$	5,005	$	—

Tabular Disclosure of the Effect of Derivative Instruments on the Comprehensive Income Statement

The table below presents the effect of our interest rate swaps on the Comprehensive Income Statement for the years ending December 31, 2019, 2018, and 2017.

(Dollars in thousands)	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion)			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amounts Excluded from Effectiveness Testing)		Total Amount of Interest Expense Presented in the Consolidated Income Statements
Interest rate swaps
Year Ended December 31, 2019	$	(7,818	)	Interest expense	$	1,722		Interest expense	$	—	$	26,516
Year Ended December 31, 2018	3,257			Interest expense	2,235			Interest expense	—		19,959
Year Ended December 31, 2017	2,942			Interest expense	(1,355		)	Interest expense	54		19,469

Tabular Disclosure Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of our derivatives as of December 31, 2019 and 2018. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value which provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Assets Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
(In thousands)							Financial Instruments			Cash Collateral Received		Net Amount
December 31, 2019	$	1,451	$	—	$	1,451	$	(1,451	)	$	—	$	—
December 31, 2018	5,982		—		5,982		—			—		5,982

Offsetting of Derivative Liabilities
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts of Liabilities Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets
(In thousands)							Financial Instruments			Cash Collateral Posted		Net Amount
December 31, 2019	$	5,005	$	—	$	5,005	$	(1,451	)	$	—	$	3,554
December 31, 2018	—		—		—		—			—		—

Credit-risk-related Contingent Features

The agreement with our derivative counterparties provides that if we default on any of our indebtedness, including default for which repayment of the indebtedness has not been accelerated by the lender, then we could also be declared in default on our derivative obligations.

At December 31, 2019 the fair value of derivative in a net liability position related to these agreements was approximately $3.6 million and at December 31, 2018 the fair value of the derivative in a net asset position related to these agreements was $6.1 million. As of December 31, 2019, we have not posted any collateral related to these agreements. If we or our counterparty had

breached any of these provisions at December 31, 2019, we could have been required to settle our obligations under the agreements at their termination value of approximately $3.6 million.