8. Derivatives

We are exposed to market risks associated with changes in interest rates. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes.

Interest Rate Risk

At June 30, 2017, the Partnership was a party to the following interest rate swaps, which were entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates:



Expiration Date	Notional Value (in millions)
May 2018	$	300
May 2019	100
May 2020	100
	$	500

As of June 30, 2017, the weighted average effective fixed interest rate on the interest rate swaps was 1.6%. We have designated these interest rate swaps as cash flow hedging instruments so that any change in their fair values is recognized as a component of comprehensive income (loss) and is included in accumulated other comprehensive income (loss) to the extent the hedge is effective. As the swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate, we currently do not expect a significant amount of ineffectiveness on these hedges. We perform quarterly calculations to determine whether the swap agreements are still effective and to calculate any ineffectiveness. We recorded $0.1 million of interest expense during the six months ended June 30, 2017 as compared to an immaterial amount of interest income during the six months ended June 30, 2016 due to ineffectiveness related to interest rate swaps. We estimate that $2.0 million of deferred pre-tax losses attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at June 30, 2017, will be reclassified into earnings as interest expense at then current values during the next twelve months as the underlying hedged transactions occur. Cash flows from derivatives designated as hedges are classified in our condensed consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions, unless the derivative contract contains a significant financing element; in this case, the cash settlements for these derivatives are classified as cash flows from financing activities in our condensed consolidated statements of cash flows.

The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):



		Fair Value Asset (Liability)
	Balance Sheet Location	June 30, 2017			December 31, 2016
Derivatives designated as hedging instruments:
Interest rate swaps	Other long-term assets	$	254		$	413
Interest rate swaps	Accrued liabilities	(1,298		)	(3,226		)
Interest rate swaps	Other long-term liabilities	(23		)	(377		)
Total derivatives		$	(1,067	)	$	(3,190	)



	Pre-tax Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivatives			Location of Pre-tax Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)	Pre-tax Loss Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)
Derivatives designated as cash flow hedges:
Interest rate swaps
Three months ended June 30, 2017	$	(336	)	Interest expense	$	(830	)
Three months ended June 30, 2016	(3,518		)	Interest expense	(1,159		)
Six months ended June 30, 2017	363			Interest expense	(1,843		)
Six months ended June 30, 2016	(9,450		)	Interest expense	(2,275		)

The counterparties to the derivative agreements are major financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us. The Partnership has no specific collateral posted for its derivative instruments.