6.	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 were effective as of 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.

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 gain or loss recognized during the three months ended June 30, 2017. Ineffectiveness losses of approximately $0.1 million were recognized during the six months ended June 30, 2017 and are recorded as an increase to interest expense. The ineffectiveness is due to a LIBOR rate floor that is included in the hedged debt but not in the related 1-month LIBOR swaps.

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 pre-tax unrealized gain associated with our interest rate swaps, which is deferred in accumulated other comprehensive loss at June 30, 2017 was $10.8 million ($6.7 million after taxes) and at December 31, 2016 was $13.0 million ($8.1 million after taxes). During the next 12 months, the Company estimates that an additional $0.8 million will be reclassified as a decrease to interest expense.

As of June 30, 2017, 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 June 30, 2017, 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%.

All derivative instruments are recognized in the Condensed Consolidated Balance Sheets at fair value (refer to Note 7 for additional information related to fair value measurement). The following table presents, in thousands, our derivative financial instruments as well as their classification in the Condensed Consolidated Balance Sheet as of June 30, 2017 and December 31, 2016.

	Derivative Assets / (Liabilities)
		Fair Value
Derivatives designated as hedging instruments	Balance Sheet Location	June 30, 2017			December 31, 2016
Interest rate swaps	Other current assets	$	1,014		$	—
Interest rate swaps	Other long-term assets		11,003			14,528
Interest rate swaps	Accrued expenses		(193	)		(356	)
Total derivatives designated as hedging instruments		$	11,824		$	14,172

The table below presents 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 months ended June 30, 2017 (in thousands):

Derivatives Designated as Cash Flow Hedges

Amount of Gain

(Loss)

Recognized

in OCL on

Derivatives

(Effective

Portion)

Location of Gain

(Loss) Reclassified

from AOCL

into Income

(Effective Portion)

Amount of Gain

(Loss)

Reclassified

from AOCL

into Income

(Effective

Portion)

Location of Loss

Recognized in

Income on

Derivative

(Ineffective

Portion and

Amount Excluded

from

Effectiveness

Testing)

Amount of Loss

Recognized in

Income on

Derivative

(Ineffective

Portion

and Amount

Excluded from

Effectiveness

Testing)

Interest Rate Swaps

(3,004

)

Interest Expense

Other

Derivatives Designated as Cash Flow Hedges

Amount of Gain

(Loss)

Recognized

in OCL on

Derivatives

(Effective

Portion)

Location of Gain

(Loss) Reclassified

from AOCL

into Income

(Effective Portion)

Amount of Gain

(Loss)

Reclassified

from AOCL

into Income

(Effective

Portion)

Location of Loss

Recognized in

Income on

Derivative

(Ineffective

Portion and

Amount Excluded

from

Effectiveness

Testing)

Amount of Loss

Recognized in

Income on

Derivative

(Ineffective

Portion

and Amount

Excluded from

Effectiveness

Testing)

Interest Rate Swaps

2,412

Interest Expense

(141

)

Other

The Company held no derivative financial instrument during the first six months of 2016.

The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. The Company has been in compliance with all financial debt covenants during the periods covered by this report.