Hedging Activities

9 Months Ended

Sep. 30, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Hedging Activities

7. HEDGING ACTIVITIES

We are exposed to market risk from adverse changes in interest rates. Derivatives are used as part of our strategy to manage this risk. The Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.  

On July 26, 2016, we entered into four interest rate swaps, two 1-month LIBOR swaps with a combined beginning notional value of $275.0 million and two 3-month LIBOR swaps with a combined beginning notional value of $275.0 million, each with a maturity date of July 17, 2021. The 1-month LIBOR swaps were effective July 29, 2016, with no amortization or variable interest rate floor. The 3-month LIBOR swaps will be effective June 30, 2017, with 1% amortization per year and a 75 basis points LIBOR floor. The contracts provide for the receipt of variable interest rate amounts from the counterparties in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional value.          

The Company has elected to apply hedge accounting and has designated these interest rate swaps as cash flow hedges of interest payments on a portion of our variable rate term loan debt maturing in 2021 or later. The initial and periodic assessments of hedge effectiveness were performed using regression analysis.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive loss and will be reclassified into earnings, as interest expense, when interest payments are made on the related debt. The pretax unrealized loss associated with our interest rate swaps, which is deferred in accumulated other comprehensive loss at September 30, 2016 is $1.1 million ($0.7 million after taxes). During the next 12 months, the Company estimates that an additional $1.2 million will be reclassified as an increase to interest expense.

As of September 30, 2016, the Company had the following outstanding interest rate derivatives that were designated as cash flow hedges of interest rate risk:

Interest Rate Derivative	Number of Instruments	Notional Value in Thousands
Interest Rate Swaps	Four	$550,000

At September, 30 2016, the Company had 1-month and 3-month LIBOR-based debt in excess of the hedged notional value. The fixed interest rates on the 1-month and 3-month interest rate swaps range from 0.99530% to 1.50200%.

The following table presents, in thousands, our derivative financial instruments as well as their classification in the Condensed Consolidated Balance Sheet as of September 30, 2016.

	Derivative Liabilities
	Balance Sheet
Derivatives designated as hedging instruments	Location	Fair Value
Interest rate swaps	Other long-term assets	$	683
Interest rate swaps	Accrued expenses		(1,184	)
Interest rate swaps	Other long-term liabilities		(582	)
Total derivatives designated as hedging instruments		$	(1,083	)

The table below presents, in thousands, the effect of the Company’s derivative financial instruments designated as cash flow hedges on the Consolidated Statements of Operations and the Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016:

Amount of Loss Recognized in

Location of Loss Reclassified

Amount of Loss Reclassified

Derivatives Designated

Other Comprehensive Loss on

from AOCL into Income

from AOCL into Income

as Cash Flow Hedges

Derivatives (Effective Portion)

(Effective Portion)

(Effective Portion)

Three Months Ended

Nine Months Ended

Three Months Ended

Nine Months Ended

September 30, 2016

September 30, 2016

September 30, 2016

September 30, 2016

Interest Rate Swaps

$

(1,320

)

$

(1,320

)

Interest Expense

$

(237

)

$

(237

)

Hedge ineffectiveness for cash flow hedges may impact net earnings when a change in the value of a hedge does not entirely offset the change in the value of the underlying hedged item. We do not exclude any component of the hedged instrument's gain or loss when assessing ineffectiveness. There was no ineffectiveness associated with our cash flow hedges for the quarter ended September 30, 2016. Any future ineffectiveness associated with our cash flow hedges will be recorded as additional interest expense.