NOTE L — DERIVATIVE FINANCIAL INSTRUMENTS

We are exposed to certain risks arising from both our business operations and economic conditions. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our debt funding and the use of derivative financial instruments. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash payments principally related to our borrowings.

Cash Flow Hedges of Interest Rate Risk

Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish these objectives, 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 counter-party in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded on our consolidated balance sheet in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

During the three and nine months ended September 30, 2018, such derivatives were used to hedge certain variable cash flows associated with existing variable-rate debt, whereby we pay the counter-party a fixed rate of 2.77% and receive floating payments based on the 1-month LIBOR. As of September 30, 2018, our swaps had a notional value outstanding of $325.0 million. The remaining contractual term of the interest rate swap is 5.5 years. We had no swaps outstanding as of December 31, 2017.

Changes in Net Gain or Loss on Cash Flow Hedges Included in Accumulated Other Comprehensive Income (Loss)

The following table presents the activity of cash flow hedges included in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2018:


(in thousands)	Cash Flow Hedges
Balance as of June 30, 2018	$	24
Unrealized gain recognized in other comprehensive income (loss), net of tax		1,171
Reclassification to interest expense, net		567
Balance as of September 30, 2018	$	1,762

Balance as of December 31, 2017	$	—
Unrealized gain recognized in other comprehensive income (loss), net of tax		251
Reclassification to interest expense, net		1,511
Balance as of September 30, 2018	$	1,762

The following table presents the fair value of derivative assets and liabilities within the condensed consolidated balance sheets as of September 30, 2018 and December 31, 2017:


	As of September 30, 2018				As of December 31, 2017
(in thousands)	Assets		Liabilities		Assets		Liabilities
Derivatives designated as cash flow hedging instruments:
Other assets	$	2,819	$	—	$	—	$	—
Accrued expenses and other current liabilities		—		515		—		—