Derivative Financial Instruments

9 Months Ended

Sep. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company is subject to volatility in interest rates due to variable-rate debt. To manage this risk, the Company has entered into multiple interest rate swap agreements. The January 2019 agreement hedges $100 million of variable interest-rate debt, or 21%, of the Company’s outstanding variable-rate debt as of September 30, 2019. The August 2019 agreement hedges $225 million of variable interest-rate debt, or 47%, of the Company’s outstanding variable-rate debt as of September 30, 2019. Each agreement converts the Company’s variable-rate debt to a fixed-rate basis for the next five years, thus reducing the impact of interest rate changes on future interest expense. These agreements involve the receipt of variable-rate amounts in exchange for fixed-rate interest payments over the life of the respective agreement without an exchange of the underlying notional amount. The Company’s objective for utilizing these derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in interest rates.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. During the next twelve months, the Company estimates that an additional $0.1 million will be reclassified as an increase to interest expense. The Company classifies cash inflow and outflows from derivatives within operating activities on the Condensed Consolidated Statements of Cash Flows.

The Company is subject to volatility in foreign exchange rates due to foreign-currency denominated intercompany loans. The Company implemented cross-currency swaps to manage the foreign currency exchange rate risk on these intercompany loans. These agreements effectively mitigate the Company’s exposure to fluctuations in cash flows due to foreign exchange rate risk by converting the Company’s floating exchange rate to a fixed-rate basis for the life of the intercompany loans. These agreements involve the receipt of fixed USD amounts in exchange for payment of fixed AUD and NZD amounts over the life of the respective intercompany loan. The entirety of the Company’s outstanding intercompany loans receivable balances, $153.5 million AUD and $37.5 million NZD, were hedged under the cross-currency swap agreements at September 30, 2019.

For derivatives designated and that qualify as cash flow hedges of foreign exchange risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income and subsequently reclassified in the period(s) during which the hedged transaction affects earnings within the same income statement line item as the earnings effect of the hedged transaction. During the next twelve months, the Company estimates that an additional $0.3 million will be reclassified as a decrease to interest expense. The Company classifies cash inflow and outflows from derivatives within operating activities on the Condensed Consolidated Statements of Cash Flows.

The Company determines the fair value of these derivative instruments using a present value calculation with significant observable inputs classified as Level 2 of the fair value hierarchy. Derivative asset balances are recorded on the Condensed Consolidated Balance Sheets within “Other assets” and derivative liability balances are recorded on the Condensed Consolidated Balance Sheets within “Accounts payable and accrued expenses”. The following table illustrates the disclosure in tabular format of fair value amounts of derivative instruments at September 30, 2019 and December 31, 2018 (in thousands):



	Derivative Assets				Derivative Liabilities
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Derivatives formally designated as hedging instruments
Foreign exchange contracts	$	7,939	$	2,283	$	—	$	—
Interest rate contracts	762		—		4,399		—
Total derivatives formally designated as hedging instruments	$	8,701	$	2,283	$	4,399	$	—

The following tables present the amounts in the Condensed Consolidated Statements of Operations in which the effects of cash flow hedges are recorded and the effects of cash flow hedge activity on these line items for the three and nine months ended September 30, 2019 and 2018, including the impacts to Accumulated Other Comprehensive Income (AOCI) (in thousands):



	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative					Location of Gain or (Loss) Reclassified from AOCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income

	Three Months Ended September 30,						Three Months Ended September 30,
	2019		2018				2019		2018
Interest rate contracts	$	5	$	(204	)	Interest expense	$	102	$	286
Foreign exchange contracts	6,082		—			Foreign currency exchange gain, net	5,512		—
Foreign exchange contracts	—		—			Interest expense	110		—
Total designated cash flow hedges	$	6,087	$	(204	)		$	5,724	$	286



	Amount of Gain or (Loss) Recognized in Other Comprehensive Income on Derivative						Location of Gain or (Loss) Reclassified from AOCI into Income	Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income

	Nine Months Ended September 30,							Nine Months Ended September 30,
	2019			2018				2019		2018
Interest rate contracts	$	(3,633	)	$	(637	)	Interest expense	$	102	$	959
Foreign exchange contracts	5,736			—			Foreign currency exchange gain, net	6,005		—
Foreign exchange contracts	—			—			Interest expense	110		—
Total designated cash flow hedges	$	2,103		$	(637	)		$	6,217	$	959

Total interest expense recorded in the Condensed Consolidated Statements of Operations were $24.9 million and $22.8 million during the three months ended September 30, 2019 and 2018, respectively, and $70.6 million and $70.3 million during the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019, the Company recorded total foreign currency exchange loss, net in its Condensed Consolidated Statements of Operations of $0.1 million. The total foreign currency exchange loss for the three months ended September 30, 2019 was nominal. During the three and nine months ended September 30, 2018, the Company recorded total foreign currency exchange gain, net its Condensed Consolidated Statements of Operations of $0.7 million and $2.9 million.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of September 30, 2019 and December 31, 2018. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Condensed Consolidated Balance Sheet (in thousands):



September 30, 2019
Offsetting of Derivative Assets
									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
	Gross Amounts of Recognized Assets			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets presented in the Condensed Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received		Net Amount
Derivatives	$	8,701		$	—	$	8,701		$	(4,399	)	$	—	$	4,302

Offsetting of Derivative Liabilities
									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Liabilities presented in the Condensed Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received		Net Amount
Derivatives	$	(4,399	)	$	—	$	(4,399	)	$	4,399		$	—	$	—



December 31, 2018
Offsetting of Derivative Assets
							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Assets presented in the Condensed Consolidated Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives	$	2,283	$	—	$	2,283	$	—	$	—	$	2,283

Offsetting of Derivative Liabilities
							Gross Amounts Not Offset in the Condensed Consolidated Balance Sheet
	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheet		Net Amounts of Liabilities presented in the Condensed Consolidated Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amount
Derivatives	$	—	$	—	$	—	$	—	$	—	$	—

Refer to Note 20 for additional details regarding the impact of the Company’s derivatives on AOCI for the three and nine months ended September 30, 2019 and 2018, respectively.