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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company is exposed to financial market risk related to foreign currency fluctuations and changes in interest rates. These exposures are actively monitored by management. To manage the volatility related to the exposure to changes in interest rates, the Company has entered into a derivative financial instrument. Management's objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in interest rates. Ribbon's policies and practices are to use derivative financial instruments only to the extent necessary to manage exposures. Ribbon does not hold or issue derivative financial instruments for trading or speculative purposes. The Company records derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a specific risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge, or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk even though hedge accounting does not apply or the Company elects not to apply hedge accounting. Cash Flow Hedge of Interest Rate Risk The Amended 2020 Term Loan Facility had an outstanding balance of $395.3 million at September 30, 2020. The 2020 Revolving Credit Facility was undrawn at September 30, 2020. The credit facilities under the 2020 Credit Agreement have variable interest rates based on LIBOR (see Note 10). As a result of exposure to interest rate movements, during March 2020, the Company entered into an interest rate swap arrangement, which effectively converted its $400 million term loan with its variable interest rate based upon one-month LIBOR to an aggregate fixed rate of 0.904%, plus a leverage-based margin as defined in the 2020 Credit Agreement. The Term A Loan continues to have a leverage-based margin and the Term B Loan has a fixed margin as defined in the 2020 Credit Agreement. The notional amount of this swap at September 30, 2020 was $400 million, and the swap matures on March 3, 2025, the same date the Term A Loan matures. The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company is using an interest rate swap as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The effective portion of changes in the fair value of designated derivatives that qualify as cash flow hedges is recorded in accumulated other comprehensive (loss) income in the condensed consolidated balance sheet and is subsequently reclassified into earnings in the period that the hedged forecasted transactions affect earnings. During the three and nine months ended September 30, 2020, such a derivative was used to hedge the variable cash flows associated with the credit facilities under the 2020 Credit Agreement and the Company has accounted for this derivative as an effective hedge. Any ineffective portion of the change in the fair value of the derivative would be recognized directly in earnings. Amounts reported in accumulated other comprehensive (loss) income related to the Company's derivative will be reclassified to interest expense as interest is accrued on the Company’s variable-rate debt. Based upon projected forward rates, the Company estimates as of September 30, 2020 that $3.1 million may be reclassified as an increase to interest expense over the next twelve months. The impact of the Company’s derivative financial instrument on its condensed consolidated statement of comprehensive income (loss) for the three and nine months ended September 30, 2020 was as follows (in thousands):
|  |  | Three months ended |  |  |  | Nine months ended |  |
|  | September 30, 2020 |  |  |  | September 30, 2020 |  |
Loss recognized in other comprehensive loss on derivative (effective portion) |  |  | $ | (121) |  |  |  |  | $ | (13,778) |  |  |
Amount reclassified from accumulated other comprehensive loss to interest expense (effective portion) |  |  | $ | 761 |  |  |  |  | $ | 921 |  |  |
The fair values and locations in the condensed consolidated balance sheet at September 30, 2020 of the Company's derivative liability designated as a hedging instrument were as follows (in thousands):
| Balance sheet location |  |  |  |
Interest rate derivative - liability derivative | Accrued expenses and other |  | $ | 3,075 |  |  |
Interest rate derivative - liability derivative | Other long-term liabilities |  | $ | 9,782 |  |  |
The Company has classified the interest rate derivative aggregating $12.9 million at September 30, 2020 as a Level 2 fair value measurement within the fair value hierarchy (see Note 1).

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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