Derivative Instruments

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

The Company’s objective in using derivative instruments is to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate swaps, including forward-starting swaps, as a primary part of its cash flow hedging strategy, which involves the receipt of variable interest–rate payments in exchange for fixed–rate payments without exchange of the underlying notional amount. The Company does not use derivative financial instruments for trading or speculative purposes.

The Company has 16 interest rate swaps with four different counterparties with maturity dates that run concurrently. The interest rate swaps each have one-year terms that run consecutively which began in July 2016 and will end in July 2020 with predetermined fixed pay rates that increase with each new term to more closely align with the one–month LIBOR forward curve as of the trade date of the swaps. The Company pays a weighted–average fixed rate of 0.85% during the first one-year term ending in July 2017, which will increase to a weighted–average rate of approximately 1.11%, 1.39%, and 1.69% in the second, third and fourth one-year terms, respectively. At March 31, 2017, the Company’s interest rate swaps effectively converted $1.0 billion of the Company’s variable interest rate debt (based on one-month LIBOR that is subject to a minimum of 0.75%) to a fixed rate of 3.45%.

The Company’s interest rate swaps were designated and qualified as cash flow hedges of forecasted interest payments. The fair value of the interest rate swaps, as well as their classification on the Condensed Consolidated Balance Sheets, is presented below (amounts in thousands):

	Fair Value
	March 31, 2017		December 31, 2016
Prepaid expenses and other current assets	$	477	$	19
Other assets, net	11,788		10,661
Other accrued liabilities	—		8

The Company defers the gain or loss on the effective portion of the change in fair value of its interest rate swaps as a component of other comprehensive income until the interest payments being hedged are recorded as interest expense, at which time the amounts in accumulated other comprehensive income are reclassified as an adjustment to interest expense. At March 31, 2017, approximately $0.6 million of deferred net gains from the Company’s interest rate swaps is expected to be reclassified from accumulated other comprehensive income into earnings during the next twelve months, which includes the amortization of deferred losses from a previously terminated interest rate swap. The Company recognizes the gain or loss on any ineffective portion of the change in fair value of its interest rate swaps in the period in which the change occurs as a component of Change in fair value of derivative instruments in the Condensed Consolidated Statements of Income.

Information about gains and losses on derivative financial instruments held by the Company and their location within the condensed consolidated financial statements is presented below (amounts in thousands):

Derivatives in Cash Flow Hedging Relationships	Amount of Gain (Loss) on Derivatives Recognized in Other Comprehensive Income (Loss) (Effective Portion)					Location of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)	Amount of Loss Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion)						Location of Gain (Loss) on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) on Derivatives Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Three Months Ended March 31,						Three Months Ended March 31,							Three Months Ended March 31,
	2017		2016				2017			2016				2017		2016
Interest rate swaps	$	1,393	$	(1,515	)	Interest expense, net	$	(1,535	)	$	(1,266	)	Change in fair value of derivative instruments	$	39	$	(3	)

The Company has not posted any collateral related to its interest rate swap agreements; however, the Company’s obligations under the interest rate swap agreements are subject to the security and guarantee arrangements applicable to the Company’s credit facility. The interest rate swap agreements contain a cross-default provision under which the Company could be declared in default on its obligation under such agreements if certain conditions of default exist on the Company’s credit facility. At March 31, 2017, the termination value of the Company’s interest rate swaps, including accrued interest, was a net asset of $12.3 million.