Derivative and Hedging Activities

We are exposed to certain risks arising from operating internationally, including fluctuations in interest rates on our outstanding term loan borrowings and fluctuations in foreign exchange rates primarily related to the translation of euro-denominated net monetary liabilities, including intercompany balances, held by subsidiaries with a U.S. dollar functional currency. We manage these exposures within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and we do not use derivatives for speculative trading purposes.

To achieve a desired mix of floating and fixed interest rates on our variable rate debt, we entered into interest rate swap agreements in March 2017 which are effective from March 3, 2017 until July 12, 2021. These agreements hedge contractual term loan interest rates. As of September 30, 2017, the interest rate swap agreements had a notional amount of $300.0 million. As a result of these agreements, the interest rate on a portion of our term loan borrowings was fixed at 1.895%, plus the borrowing spread, until July 12, 2021.

The effective portion of changes in the fair value of derivatives designated as and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value is recognized directly in earnings. The impact on accumulated other comprehensive loss and earnings from derivative instruments that qualified as cash flow hedges for the three and nine months ended September 30, 2017 was as follows (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
Interest Rate Contracts:	2017			2016		2017			2016
Loss recognized in accumulated other comprehensive loss, net of tax	$	(59	)	$	—	$	(2,234	)	$	—
Loss reclassified from accumulated other comprehensive loss to interest expense, net of tax	$	451		$	—	$	1,278		$	—

Assuming no change in LIBOR-based interest rates from market rates as of September 30, 2017, $1.2 million of losses recognized in accumulated other comprehensive loss will be reclassified to earnings over the next 12 months. The gains related to the ineffective portion of derivative instruments that qualified as cash flow hedges for the three and nine months ended September 30, 2017 were minimal.

We enter into foreign exchange forward contracts, with durations of up to 365 days, designed to limit the exposure to fluctuations in foreign exchange rates related to the translation of certain non-U.S. dollar denominated liabilities, including intercompany balances. Hedge accounting is not applied to these derivative instruments as gains and losses on these hedge transactions are designed to offset gains and losses on underlying balance sheet exposures. As of September 30, 2017, the notional amount of foreign exchange contracts where hedge accounting is not applied was $330.6 million. The foreign exchange loss in our condensed consolidated statements of income included gains of $2.8 million and $11.8 million associated with foreign exchange contracts not designated as hedging instruments for the three and nine months ended September 30, 2017, respectively.

The cash flow effects of our derivative contracts for the nine months ended September 30, 2017 are included within net cash provided by operating activities in the condensed consolidated statements of cash flows.

The following table summarizes the fair value of outstanding derivatives as of September 30, 2017 (in thousands):



	September 30, 2017
	Asset Derivatives			Liability Derivatives
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Interest rate contracts	Other non-current assets	$	201	Accrued liabilities	$	1,322
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Other current assets	12,124		Accrued liabilities	291
Total fair value of derivative instruments		$	12,325		$	1,613

Although we do not offset derivative assets and liabilities within our condensed consolidated balance sheets, our International Swap and Derivatives Association agreements provide for net settlement of transactions that are due to or from the same counterparty upon early termination of the agreement due to an event of default or other termination event. The following table summarizes the potential effect on our condensed consolidated balance sheets of offsetting our interest rate contracts and foreign exchange forward contracts subject to such provisions (in thousands):



	September 30, 2017
	Gross Amounts of Recognized Assets/Liabilities			Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Assets/Liabilities Presented in the Consolidated Balance Sheet			Gross Amounts Not Offset in the Consolidated Balance Sheet
Description	Gross Amounts of Recognized Assets/Liabilities			Gross Amounts Offset in the Consolidated Balance Sheet					Derivative Financial Instruments			Cash Collateral Received (Pledged)		Net Amount
Derivative assets	$	1,938		$	—	$	1,938		$	(560	)	$	—	$	1,378
Derivative liabilities	$	(560	)	$	—	$	(560	)	$	560		$	—	$	—

There were no outstanding derivatives as of December 31, 2016.