12.	Derivatives

We utilize derivative financial instruments to hedge certain interest rate risks associated with our long-term debt and commodity price risks associated with forecasted future natural gas requirements. These derivatives qualify for hedge accounting since the hedges are highly effective, and we have designated and documented contemporaneously the hedging relationships involving these derivative instruments. While we intend to continue to meet the conditions for hedge accounting, if hedges do

not

qualify as highly effective or if we do

not

believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in our earnings. Our contracts with counterparties generally contain right of offset provisions. These provisions effectively reduce our exposure to credit risk in situations where the Company has gain and loss positions outstanding with a single counterparty. It is our policy to offset on the Consolidated Balance Sheets the amounts recognized for derivative instruments executed with the same counterparty under a master netting agreement.

We do

not

believe we are exposed to more than a nominal amount of credit risk in our natural gas hedges and interest rate swaps as the counterparties are established financial institutions. The counterparties for the derivative agreements are rated BBB+ or better as of

December

31,

2019,

by Standard and Poor’s.

Fair Values

The following table provides the fair values of our derivative financial instruments for the periods presented, all of which are cash flow hedges:

December 31,		Fair Value of Derivative Assets
(dollars in thousands)	Balance Sheet Location	2019		2018
Interest rate swaps	Prepaid and other current assets	$	—	$	1,425
Natural gas contracts	Prepaid and other current assets		—		226
Natural gas contracts	Other assets		—		39
Total derivative assets		$	—	$	1,690

		Fair Value of Derivative Liabilities
Interest rate swaps	Accrued liabilities	$	2,931	$	—
Interest rate swaps	Other long-term liabilities		11,632		5,713
Natural gas contracts	Accrued liabilities		836		—
Natural gas contracts	Other long-term liabilities		3		—
Total derivative liabilities		$	15,402	$	5,713

The following table presents cash settlements (paid) received related to the below derivatives:

Year ended December 31,
(dollars in thousands)	2019			2018
Natural gas contracts	$	(651	)	$	426
Interest rate swaps		993			159
Total	$	342		$	585

The following table provides a summary of the impacts of derivative gain (loss) of our cash flow hedges on the Consolidated Statements of Operations and other comprehensive income (OCI):

Year ended December 31,
(dollars in thousands)	Location	2019			2018
Derivative gain (loss) recognized in OCI:
Natural gas contracts	OCI	$	(1,755	)	$	1,194
Interest rate swaps	OCI		(9,375	)		(4,436	)
Total		$	(11,130	)	$	(3,242	)

Derivative gain (loss) reclassified from accumulated OCI to current earnings:
Natural gas contracts	Cost of Sales	$	(651	)	$	426
Interest rate swaps	Interest expense		901			285
Total		$	250		$	711

Natural Gas Contracts

We use natural gas swap contracts related to forecasted future North American natural gas requirements. The objective of these commodity contracts is to limit the fluctuations in prices paid due to price movements in the underlying commodity. We consider our forecasted natural gas requirements in determining the quantity of natural gas to hedge. We combine the forecasts with historical observations to establish the percentage of forecast eligible to be hedged, typically ranging from

percent to

percent of our anticipated requirements,

months in the future, or more, depending on market conditions. The fair values of these instruments are determined from market quotes.

The following table presents the notional amount of our natural gas derivatives on the Consolidated Balance Sheets:

		Notional Amounts
Derivative Types	Unit of Measure	December 31, 2019		December 31, 2018
Natural gas contracts	Millions of British Thermal Units (MMBTUs)		2,460,000		3,150,000

Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is

longer probable to occur, and any previously deferred gains or losses would be recorded to earnings immediately. Changes in the fair value of these hedges are recorded in other comprehensive income (loss). As the natural gas contracts mature, the accumulated gains (losses) for the respective contracts are reclassified from accumulated other comprehensive loss to current expense in cost of sales in our Consolidated Statements of Operations.

Based on our current valuation, we estimate that accumulated losses for natural gas contracts currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next

twelve

months will result in

$0.8

million of loss to our Consolidated Statements of Operations.

Interest Rate Swaps

The table below lists the interest rate swaps we executed as part of our risk management strategy to mitigate the risks associated with the fluctuating interest rates under our Term Loan B. The interest rate swaps effectively convert a portion of our Term Loan B debt from a variable interest rate to a fixed interest rate, thus reducing the impact of interest rate changes on future income.

Swap execution date	Effective date	Expiration date	Notional amount	Fixed swap rate
April 1, 2015	January 11, 2016	January 9, 2020	$220.0 million		4.85	%
September 24, 2018	January 9, 2020	January 9, 2025	$200.0 million		6.19	%	(1)

________________________

(

)

In the event our Term Loan B is refinanced, the fixed interest rate will be

3.19

percent plus the new refinanced credit spread.

Our interest rate swaps are valued using the market standard methodology of netting the discounted expected future variable cash receipts and the discounted future fixed cash payments. The variable cash receipts are based on an expectation of future interest rates derived from observed market interest rate forward curves.

Our interest rate swaps qualify and are designated as cash flow hedges at

December

31,

2019,

and are accounted for under FASB ASC

815

“Derivatives and Hedging”. Hedge accounting is applied only when the derivative is deemed to be highly effective at offsetting changes in fair values or anticipated cash flows of the hedged item or transaction. For hedged forecasted transactions, hedge accounting is discontinued if the forecasted transaction is

longer probable to occur, and any previously deferred gains or losses are recorded to earnings immediately. Changes in the fair value of these hedges are recorded in other comprehensive income (loss). Based on our current valuation, we estimate that accumulated losses currently carried in accumulated other comprehensive loss that will be reclassified into earnings over the next

twelve

months will result in an increase to interest expense of

$2.9

million in our Consolidated Statements of Operations.