Derivative Financial Instruments

12 Months Ended

Dec. 31, 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 December 31, 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 December 31, 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 $0.2 million will be reclassified as an increase to interest expense. The Company classifies cash inflows and outflows from derivatives within operating activities on the 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. 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 December 31, 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 $0.1 million will be reclassified as a decrease to interest expense. The Company classifies cash inflows and outflows from derivatives within operating activities on the Consolidated Statements of Cash Flows.

The Company is subject to volatility in foreign currencies against its functional currency, the US dollar. Periodically, the Company uses foreign currency derivatives including currency forward contracts to manage its exposure to fluctuations in the CAD-USD exchange rate. While these derivatives are hedging the fluctuations in foreign currencies, they do not meet the strict hedge accounting requirements to be classified as hedging instruments. As a result, the changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of December 31, 2019, the Company had two outstanding foreign exchange forward contracts, which were entered into in conjunction with the funding of the Nova Cold Acquisition that were not designated as hedges in a qualifying hedging relationship. The first contract was entered into in December 2019 with a notional to purchase 217.0 million CAD and sell USD maturing on January 2, 2020. The second contract was entered into simultaneously with a notional to sell 217 million CAD and purchase USD maturing on January 31, 2020. The net unrealized gain

(loss) on the change in fair value of the outstanding foreign exchange forward contracts included within “Foreign currency exchange gain (loss), net” on the accompanying Consolidated Statement of Operations for the year ended December 31, 2019 was less than ($0.1) million.

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 accompanying Consolidated Balance Sheets within “Other assets” and derivative liability balances are recorded on the accompanying Consolidated Balance Sheets within “Accounts payable and accrued expenses”. The following table presents the fair value of the derivative financial instruments within “Other assets” and “Accounts payable and accrued expenses” as of December 31, 2019 and 2018 (in thousands):



	Derivative Assets				Derivative Liabilities
	As of December 31,				As of December 31,
	2019		2018		2019		2018
Designated derivatives
Foreign exchange contracts	$	1,376	$	2,283	$	—	$	—
Interest rate contracts	2,933		—		3,505		—

Undesignated derivatives
Foreign exchange forwards	2,546		—		2,589		—
Total fair value of derivatives	$	6,855	$	2,283	$	6,094	$	—

The following tables present the effect of the Company’s designated derivative financial instruments on the accompanying Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017, 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
	As of December 31,									As of December 31,
	2019			2018			2017			2019			2018			2017
Interest rate contracts	$	(571	)	$	(1,422	)	$	1,422	Interest expense	$	248		$	(1,191	)	$	(1,547	)
Foreign exchange contracts	(879		)	2,283			—		Foreign currency exchange gain, net	(264		)	3,449			—
Foreign exchange contracts	—			—			—		Interest expense	58			—			—
Total designated cash flow hedges	$	(1,450	)	$	861		$	1,422		$	42		$	2,258		$	(1,547	)

Total interest expense recorded in the Consolidated Statements of Operations was $94.4 million, $93.3 million and $114.9 million during the years ended December 31, 2019, 2018 and 2017, respectively. Total “Foreign currency exchange gain (loss), net”, recorded in the accompanying Consolidated Statements of Operations was nominal, $2.9 million and ($3.6) million during the years ended December 31, 2019, 2018, and 2017, respectively.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of December 31, 2019 and 2018, respectively. 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 accompanying Consolidated Balance Sheets (in thousands):



December 31, 2019
Offsetting of Derivative Assets
									Gross Amounts Not Offset in the Consolidated Balance Sheet
	Gross Amounts of Recognized Assets			Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received		Net Amount
Derivatives	$	6,855		$	—	$	6,855		$	(3,966	)	$	—	$	2,889

Offsetting of Derivative Liabilities
									Gross Amounts Not Offset in the Consolidated Balance Sheet
	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet			Financial Instruments			Cash Collateral Received		Net Amount
Derivatives	$	(6,094	)	$	—	$	(6,094	)	$	3,966		$	—	$	(2,128	)



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

As of December 31, 2019, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $3.6 million. As of December 31, 2019, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at December 31, 2019, it could have been required to settle its obligations under the agreements at their termination value of $3.6 million.

The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness.

Refer to Note 22 for additional details regarding the impact of the Company’s derivatives on AOCI for the years ended December 31, 2019, 2018 and 2017, respectively.