Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Cash Flow Hedges of Interest Rate Risk

As required by Codification Topic "Derivatives and Hedging" ("FASB ASC 815"), we record all derivatives on the balance sheet at fair value. Our objective in utilizing interest rate derivatives is to add stability to our interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate swaps as part of our interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in our exchange for 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 the designated derivative that qualifies as a cash flow hedge is recorded on the Consolidated Balance Sheets in accumulated other comprehensive income (loss) and is subsequently reclassified into earnings on the Consolidated Statements of Income and Comprehensive Income in the period that the hedged forecasted transaction affects earnings. Any ineffective portion of the change in fair value of the derivative will be recognized directly in earnings.

Our previous Swap, entered into in 2014, matured during 2017. In connection with our Term Loan, we entered into the 2017 Swap (see Note 8 to the Consolidated Financial Statements for information about the Term Loan) allowing us to trade the variable interest rate for a fixed interest rate on the Term Loan. The 2017 Swap fixes the underlying LIBOR rate on the Term Loan at 1.85% per annum for the first three years and matures on November 1, 2020. Based on the leverage as of December 31, 2017, our spread over LIBOR is 1.20% resulting in an estimated all-in interest rate of 3.05% per annum.

We have designated the 2017 Swap as a cash flow hedge. No gain or loss was recognized in the Consolidated Statements of Income and Comprehensive Income related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedge during the year ended December 31, 2017.

Additionally, no gain or loss was recognized in the Consolidated Statements of Income and Comprehensive Income related to hedge ineffectiveness or to amounts excluded from effectiveness testing on our cash flow hedge during the years ended December 31, 2017, 2016 and 2015 on our previous interest rate swap that matured on August 1, 2017.

Amounts reported in accumulated other comprehensive loss on the Consolidated Balance Sheets related to derivatives are reclassified to interest expense as interest payments are made on our variable-rate debt. During the next twelve months, we estimate that an additional $0.2 million will be reclassified as a decrease to interest expense. This estimate may be subject to change as the underlying LIBOR rate changes.

The table below presents the fair value of our derivative financial instrument as well as our classification on our Consolidated Balance Sheets as of December 31, 2017 and 2016 (amounts in thousands).

	Balance Sheet Location	December 31, 2017		December 31, 2016
Interest Rate Swap - 2017	Escrow deposits, goodwill and other assets, net	$	942	N/A
Interest Rate Swap - 2014	Accrued expenses and accounts payable	N/A		$	227

The table below presents the effect of our derivative financial instrument on the Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 (amounts in thousands).

Derivatives in Cash Flow Hedging Relationship	Amount of (gain)/loss recognized in OCI on derivative (effective portion)							Location of loss reclassified from accumulated OCI into income (effective portion)	Amount of loss reclassified from accumulated OCI into income (effective portion)
	December 31, 2017			December 31, 2016		December 31, 2015			December 31, 2017		December 31, 2016		December 31, 2015
Interest Rate Swap	$	(869	)	$	813	$	1,900	Interest Expense	$	300	$	1,139	$	1,728

We determined that no adjustment was necessary for non-performance risk on our derivative obligation. As of December 31, 2017, we have not posted any collateral related to this agreement.