NOTE 5: DERIVATIVE INSTRUMENTS

During the normal course of operations, we are exposed to market risks including interest rates, foreign currency exchange rates and commodity prices. From time to time, and consistent with our risk management policies, we use derivative instruments to balance the cost and risk of such expenses. We do not use derivative instruments for trading or other speculative purposes.

The accounting for gains and losses that result from changes in the fair value of derivative instruments depends on whether the derivatives have been designated and qualify as hedging instruments and the type of hedging relationship. The interest rate agreements described below were designated as either cash flow hedges or fair value hedges. Changes in fair value of cash flow hedges are recorded in accumulated other comprehensive income (AOCI) and are reclassified into interest expense in the same period the hedged items affect earnings. Changes in fair value of fair value hedges are recorded as interest expense consistent with the change in the fair value of the hedged items attributable to the risk being hedged.

CASH FLOW HEDGES

During 2007, we entered into fifteen forward starting interest rate locks on $1,500,000,000 of future debt issuances to hedge the risk of higher interest rates. Upon the 2007 and 2008 issuances of the related fixed-rate debt, underlying interest rates were lower than the rate locks and we terminated and settled these forward starting locks for cash payments of $89,777,000. This amount was booked to AOCI and is being amortized to interest expense over the term of the related debt.

This amortization was reflected in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31 as follows:



in thousands	Location on Statement	2017	2016	2015
Cash Flow Hedges
Loss reclassified from AOCI
(effective portion)	Interest expense	$ (3,070)	$ (2,008)	$ (9,759)

The losses reclassified from AOCI for the years ended December 31, 2017 and 2015 include the acceleration of deferred losses in the amount of $1,405,000 and $7,208,000, respectively, referable to the debt purchases as described in Note 6.

For the 12-month period ending December 31, 2018, we estimate that $399,000 of the pretax loss in AOCI will be reclassified to earnings.

FAIR VALUE HEDGES

In June 2011, we entered into two interest rate-swap agreements totaling $650,000,000. In August 2011, we terminated and settled these interest rate swap agreements for $25,382,000 of cash proceeds. The resulting gain was added to the carrying value of the related debt and was amortized as a reduction to interest expense over the terms of the related debt using the effective interest method.

This deferred gain amortization was reflected in the accompanying Consolidated Statements of Comprehensive Income for the years ended December 31 as follows:



in thousands	2017	2016	2015
Deferred Gain on Settlement
Amortized to earnings as a reduction to interest expense	$ 0	$ 0	$ 3,036

The deferred gain was fully amortized in December 2015, concurrent with the retirement of the 10.125% notes due 2015.