Quarterly report pursuant to Section 13 or 15(d)

Derivatives

v3.10.0.1
Derivatives
9 Months Ended
Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
Derivatives
Interest Rate Swaps
The Company uses interest rate swaps to hedge variable interest payments due on certain of its term loans and aggregation facility. These swaps allow the Company to incur fixed interest rates on these loans and receive payments based on variable interest rates with the swap counterparty based on the one or three month LIBOR on the notional amounts over the life of the swaps.
The interest rate swaps have been designated as cash flow hedges. The credit risk adjustment associated with these swaps is the risk of non-performance by the counterparties to the contracts. In the nine months ended September 30, 2018, the hedge relationships on the Company’s interest rate swaps have been assessed as highly effective as the critical terms of the interest rate swaps match the critical terms of the underlying forecasted hedged transactions. Accordingly, changes in the fair value of these derivatives are recorded as a component of accumulated other comprehensive income, net of income taxes. Changes in the fair value of these derivatives are subsequently reclassified into earnings, and are included in interest expense, net in the Company’s statements of operations, in the period that the hedged forecasted transactions affects earnings.
The Company recorded an unrealized gain of $8.5 million and $30.3 million for the three and nine months ended September 30, 2018 respectively, net of applicable tax expense of $(3.1) million and $(10.7) million, respectively. The Company recorded an unrealized loss of $0.5 million and $5.0 million for the three and nine months ended September 30, 2017 respectively, net of applicable tax benefit of $0.3 million and $3.2 million, respectively. The Company recognized interest expense on derivatives of $0.7 million and $2.4 million for the three and nine months ended September 30, 2018, respectively, net of tax benefit of $0.3 million and $0.8 million, respectively. The Company recognized interest expense on derivatives of $0.1 million and $1.0 million for the three and nine months ended September 30, 2017, respectively, net of tax expense of $0.1 million and $0.7 million, respectively.
During the three months ended September 30, 2018, the Company accelerated the reclassification of an amount in other comprehensive income to earnings as a result of a hedged forecasted transaction becoming probable to not occur due to a refinancing which repaid the hedged debt. The related interest rate swap was also terminated. The accelerated amount resulted in a gain of $6.9 million recognized as Other expenses (income), net in the Consolidated Statement of Operations.
During the next 12 months, the Company expects to reclassify $1.8 million of net gains on derivative instruments from accumulated other comprehensive income to earnings. There were no undesignated derivative instruments recorded by the Company as of September 30, 2018.

At September 30, 2018, the Company had designated derivative instruments classified as derivative assets as reported in other assets of $27.6 million and derivative liabilities as reported in other liabilities of $0.1 million in the Company’s balance sheet. At December 31, 2017, the Company had designated derivative instruments classified as hedges of variable interest payments as derivative assets that are reported in other assets of $1.9 million and derivative liabilities as reported in other liabilities of $8.6 million in the Company’s balance sheet. At September 30, 2018, the Company had the following derivative instruments (dollars in thousands):
Type
 
Quantity
 
Effective Dates
 
Maturity Dates
 
Hedge Interest Rates
 
Notional Amount
 
Adjusted Net Fair Market Value
Interest rate swap
 
1

 
5/21/2018
 
9/20/2020
 
2.69%
 
$
109,305

 
$
228

Interest rate swaps
 
2

 
4/29/2016 - 12/30/2016
 
8/31/2022 - 9/30/2022
 
1.27%- 2.37%
 
$
24,952

 
$
897

Interest rate swaps
 
10

 
7/31/2017 - 1/31/2019
 
4/30/2024 - 10/31/2024
 
2.16%- 2.69%
 
$
347,687

 
$
11,797

Interest rate swaps
 
3

 
4/30/2021
 
10/30/2026 - 10/31/2026
 
2.89% - 3.08%
 
$
102,720

 
$
383

Interest rate swap
 
1

 
9/20/2020
 
6/20/2030
 
2.57%
 
$
67,013

 
$
1,374

Interest rate swap
 
1

 
9/30/2022
 
9/30/2031
 
3.23%
 
$
8,642

 
$
(44
)
Interest rate swap
 
1

 
9/20/2020
 
4/20/2032
 
2.60%
 
$
33,409

 
$
775

Interest rate swaps
 
5

 
1/31/2019 - 10/31/2024
 
7/31/2034
 
2.48% - 3.04%
 
$
144,379

 
$
4,562

Interest rate swaps
 
5

 
7/31/2017 - 4/30/2024
 
7/31/2035
 
2.56% - 2.95%
 
$
151,869

 
$
3,330

Interest rate swaps
 
5

 
1/31/2018 - 10/18/2024
 
10/31/2036
 
2.62% - 2.95%
 
$
183,671

 
$
3,802

Interest rate swaps
 
3

 
10/30/2026 - 10/31/2026
 
1/31/2038
 
3.01% - 3.16%
 
$
101,135

 
$
408