Derivatives

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

9. Derivatives

We are exposed to market risks associated with changes in the variable interest rate of the Credit Facility. We use derivative instruments to manage our exposure to fluctuations in this variable interest rate and thereby minimize the risks and costs associated with financial activities. We do not use derivative instruments for trading or other speculative purposes.

At June 30, 2019, the following interest rate swaps, entered into to offset changes in expected cash flows due to fluctuations in the associated variable interest rates, were outstanding (in millions):



Expiration Date	Notional Value
May 2020	$	100
March 2022	300
	$	400

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. We have no collateral posted for the derivative instruments.

We have designated these interest rate swaps as cash flow hedging instruments. Changes in the fair value of the interest rate swaps are recognized as a component of other comprehensive income (loss) until the hedged transaction affects earnings. At that time, amounts are reclassified into earnings to interest expense, the same statement of operations line item to which the earnings effect of the hedged item is recorded. 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.

We expect the hedging relationship to be highly 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 perform quarterly qualitative prospective and retrospective hedge effectiveness assessments unless facts and circumstances related to the hedging relationships change such that we can no longer assert qualitatively that the cash flow hedge relationships were and continue to be highly effective. We estimate that $0.3 million of the deferred pre-tax gain attributable to interest rate swaps included in accumulated other comprehensive income at June 30, 2019 will be reclassified into earnings as interest income at then-current values during the next 12 months as the underlying hedged transactions occur.

As of June 30, 2019, the weighted average effective fixed interest rate on the interest rate swaps was 1.8%.

The following table presents the effect of the derivative instruments designated as cash flow hedging instruments in our condensed consolidated balance sheets (in thousands):



	June 30, 2019			December 31, 2018
Other current assets	$	336		$	3,185
Other assets	—			4,122
Total derivative assets	$	336		$	7,307

Other liabilities	$	(1,574	)	$	—

The following tables present the effect of the derivative instruments designated as cash flow hedging instruments on our condensed consolidated statements of operations (in thousands):



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Pre-tax gain (loss) recognized in other comprehensive income (loss)	$	(4,529	)	$	2,245		$	(6,828	)	$	6,941
Pre-tax gain (loss) reclassified from accumulated other comprehensive income (loss) into interest expense	791			(39		)	1,717			(513		)



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Total amount of interest expense in which the effects of cash flow hedges are recorded	$	25,954	$	23,337	$	49,571	$	45,884
Amount of gain reclassified from accumulated other comprehensive income (loss) into interest expense	791		207		1,717		153

See Note 10 (“Fair Value Measurements”) and Note 17 (“Accumulated Other Comprehensive Income (Loss)”) for further details on our derivative instruments.