Derivative Financial Instruments

12 Months Ended

Dec. 31, 2019

Derivative Financial Instruments

Derivative Financial Instruments

7. Derivative Financial Instruments

In June 2019, we entered into the June 2019 Swap Agreements with an aggregate notional amount of $300.0 million to mitigate the risk of an increase in the LIBOR interest rate on the Second Amended and Restated Term Loan B. The term of the June 2019 Swap Agreements began in June 2019 and expires in June 2023. Upon execution, we designated and documented the June 2019 Swap Agreements as cash flow hedges. The June 2019 Swap Agreements serve as economic hedges and provide protection against rising interest rates.

In August 2019, we entered into the August 2019 Swap Agreements with an aggregate notional amount of $400.0 million to mitigate the risk of an increase in the LIBOR interest rate in effect on the Second Amended and Restated Term Loan B. The term of the August 2019 Swap Agreements began in August 2019 and expires in August 2024. Upon execution, we designated and documented the August 2019 Swap Agreements as cash flow hedges. The August 2019 Swap Agreements serve as economic hedges and provide protection against rising interest rates.

By utilizing a derivative instrument to hedge our exposure to LIBOR rate changes, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instrument is placed with counterparties that we believe pose minimal credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, commodity prices or currency exchange rates. We manage the market risk associated with derivative instruments by establishing and monitoring parameters that limit the types and degree of market risk that we may undertake. We hold and issue derivative instruments for risk management purposes only and do not utilize derivatives for trading or speculative purposes.

We record derivative instruments at fair value on our consolidated balance sheets. When in qualifying relationships, the effective portion of all cash flow designated derivatives are deferred in accumulated other comprehensive income (“AOCI”) and are reclassified to interest expense when the forecasted transaction takes place. Ineffective changes, if any, and changes in the fair value of derivatives that are not designated as hedging instruments are recorded directly to “interest expense” and “other expense, net”, respectively. Derivative assets and derivative liabilities that have maturity dates equal to or less than twelve months from the balance sheet date are included in prepaid expenses and other current assets and other accrued liabilities, respectively. Derivative assets and derivative liabilities that have maturity dates greater than twelve months from the balance sheet date are included in deposits and other assets and other long-term liabilities, respectively.

Our derivatives are measured on a recurring basis using Level 2 inputs. The fair value measurements of our derivatives are based on market prices that generally are observable for similar assets or liabilities at commonly quoted intervals.

Derivative assets recorded at fair value in our consolidated balance sheets as of December 31, 2019 and 2018, respectively, consisted of the following:

	Derivative Assets
(Amounts in thousands)	December 31, 2019		December 31, 2018
Derivatives Designated as Cash Flow Hedges
Interest Rate Swap Agreements — Current	$	485	$	—
Interest Rate Swap Agreements — Noncurrent		1,440		—
	$	1,925	$	—

Derivative liabilities recorded at fair value in our consolidated balance sheets as of December 31, 2019 and December 31, 2018, respectively, consisted of the following:

	Derivative Liabilities
(Amounts in thousands)	December 31, 2019		December 31, 2018
Derivatives Designated as Cash Flow Hedges
Interest Rate Swap Agreements — Current	$	(788)	$	—
Interest Rate Swap Agreements — Noncurrent		(2,667)		—
	$	(3,455)	$	—

As of December 31, 2019, we had no derivatives not designated as cash flow hedges.

Gains and losses before taxes on derivatives designated as cash flow hedges for the years ended December 31, 2019, 2018 and 2017 were as follows:

													Loss Recognized in
													Operations on Derivatives
	Loss						Loss Reclassified from						(Ineffective Portion and
	Recognized in AOCI						AOCI into Operations						Amount Excluded from
	(Effective Portion)						(Effective Portion)						Effectiveness Testing)
(Amounts in thousands)	2019		2018		2017		2019		2018		2017		2019		2018		2017
Interest Rate Swap Agreements	$	(484)	$	—	$	57	$	1,046	$	—	$	(769)	$	—	$	—	$	30
Total	$	(484)	$	—	$	57	$	1,046	$	—	$	(769)	$	—	$	—	$	30