Derivative Financial Instruments

By utilizing a derivative instrument to hedge our exposure to LIBOR rate changes, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. To mitigate this risk, the hedging instrument is placed with counterparties that we believe pose minimal credit risk. Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates, commodity prices or currency exchange rates. We manage the market risk associated with derivative instruments by establishing and monitoring parameters that limit the types and degree of market risk that we may undertake. We hold and issue derivative instruments for risk management purposes only and do not utilize derivatives for trading or speculative purposes.

We record derivative instruments at fair value on our unaudited and audited condensed consolidated balance sheets. When in qualifying relationships, the effective portion of all cash flow designated derivatives are deferred in accumulated other comprehensive income (loss) ("AOCI") and are reclassified to interest expense when the forecasted transaction takes place. Ineffective changes, if any, and changes in the fair value of derivatives that are not designated as hedging instruments are recorded directly to interest expense and other (income) expense, net, respectively. Our derivatives are measured on a recurring basis using Level 2 inputs. The fair value measurements of our derivatives are based on market prices that generally are observable for similar assets or liabilities at commonly quoted intervals. Derivative assets and derivative liabilities that have maturity dates equal to or less than twelve months from the balance sheet date are included in prepaid and other current assets and other accrued liabilities, respectively. Derivative assets and derivative liabilities that have maturity dates greater than twelve months from the balance sheet date are included in deposits and other assets and other long-term liabilities, respectively.

In April 2014, we entered into three separate interest rate swap agreements (collectively, the "Interest Rate Swap Agreements") with an aggregate notional amount of $200.0 million to mitigate the risk of an increase in the LIBOR interest rate above the 0.75% minimum LIBOR rate in effect on the Term Loan B (as defined in "Item 1. Financial Statements – Notes to Consolidated Financial Statements (Unaudited) – Note 4" in this Quarterly Report). The term of the Interest Rate Swap Agreements began in June 2014 and expires in December 2017. Upon execution, we designated and documented the Interest Rate Swap Agreements as cash flow hedges. On March 31, 2017, the Interest Rate Swap Agreements were de-designated due to a change in the forecasted borrowings. The Interest Rate Swap Agreements continue to serve as economic hedges and provide protection against rising interest rates. Subsequent to the de-designation, the amounts recorded in accumulated other comprehensive income (loss) will be amortized into earnings through the original December 2017 maturity date.

Derivative instruments recorded at fair value in our unaudited and audited condensed consolidated balance sheets as of June 30, 2017 and December 31, 2016, respectively, consisted of the following:



	Derivative Liabilities
(Amounts in thousands)	June 30, 2017		December 31, 2016
Derivatives Designated as Cash Flow Hedges
Interest Rate Swap Agreements - Current	$	—	$	871
Derivatives Not Designated as Hedging Instruments
Interest Rate Swap Agreements - Current	291		—
	$	291	$	871

Gains and losses before taxes on derivatives not designated as hedging instruments included in our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2017 and June 30, 2016 were as follows:

Three Months Ended June 30, 2017 and June 30, 2016



	Amount of Loss Recognized in Income on Derivative
(Amounts in thousands)	2017			2016
Interest Rate Swap Agreements	$	(55	)	$	—
Total	$	(55	)	$	—

Six Months Ended June 30, 2017 and June 30, 2016



	Amount of Loss Recognized in Income on Derivative
(Amounts in thousands)	2017			2016
Interest Rate Swap Agreements	$	(55	)	$	—
Total	$	(55	)	$	—

Gains and losses before taxes on derivatives designated as cash flow hedges included in our unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2017 and June 30, 2016 were as follows:

Three Months Ended June 30, 2017 and June 30, 2016



	Gain (Loss) Recognized in AOCI (Effective Portion)					Loss Reclassified from AOCI into Operations (Effective Portion)						Loss Recognized in Operations on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
(Amounts in thousands)	2017		2016			2017			2016			2017		2016
Interest Rate Swap Agreements	$	—	$	(446	)	$	(158	)	$	(441	)	$	—	$	—
Total	$	—	$	(446	)	$	(158	)	$	(441	)	$	—	$	—

Six Months Ended June 30, 2017 and June 30, 2016



	Gain (Loss) Recognized in AOCI (Effective Portion)					Loss Reclassified from AOCI into Operations (Effective Portion)						Gain Recognized in Operations on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
(Amounts in thousands)	2017		2016			2017			2016			2017		2016
Interest Rate Swap Agreements	$	57	$	(1,530	)	$	(451	)	$	(883	)	$	30	$	—
Total	$	57	$	(1,530	)	$	(451	)	$	(883	)	$	30	$	—

The Interest Rate Swap Agreements were de-designated on March 31, 2017, and the amounts previously recorded in accumulated other comprehensive income will be amortized into earnings through the original December 2017 maturity date. As of June 30, 2017, approximately $0.3 million of unrealized losses related to the Interest Rate Swap Agreements prior to de-designation remain in accumulated other comprehensive income (loss), all of which is expected to be reclassified from accumulated other comprehensive income (loss) to operations within the next twelve months.