Derivative Instruments

We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our non-U.S. investments. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes derivative financial instruments and debt issued in foreign currencies to offset a portion of these risks.

Foreign Currency Forward Contracts Designated as Cash Flow Hedges

For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is deferred as a component of other comprehensive income (“OCI”), and reclassified into earnings in the same period or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings.

Foreign Currency Forward Contracts and Cross Currency Swap Contracts Designated as Net Investment Hedges

We use foreign currency forward and cross currency forward swap contracts to hedge a portion of the net investment in foreign subsidiaries against fluctuations in foreign exchange rates. For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. Dollar of the instrument is recorded as a cumulative translation adjustment component of OCI.

In the second quarter of 2018, we redesignated these derivative financial instruments that qualify as hedges of net investments in foreign operations using the spot method in order to more closely align the underlying economics of the hedged transactions. The changes in fair values and the excluded components of derivative instruments designated as net investment hedges are recognized as a cumulative translation adjustment component of OCI. The cross currency basis spread is recognized in interest expense on the Consolidated Statement of Comprehensive Income using the swap accrual process. Prior to the adoption of ASU 2017-12, all settlements and changes in fair values of these derivative instruments were recognized as a cumulative transaction adjustment component of OCI and there had been no ineffectiveness on these hedging relationships.

During the six months ended June 30, 2018 and 2017, we settled certain net investment hedges necessitating cash payments of $27,774,000 and generating cash proceeds of $19,665,000, respectively. The balance of the cumulative translation adjustment will be reclassified to earnings if the hedged investment is sold or substantially liquidated.

Derivative Contracts Undesignated

We use foreign currency exchange contracts to manage existing exposures to foreign currency exchange risk. Gains and losses resulting from the changes in fair value of these instruments are recorded in interest expense on the consolidated statement of comprehensive income, and are substantially offset by net revaluation impacts on foreign currency denominated balance sheet exposures.

In addition, we have several interest rate cap contracts related to variable rate secured debt agreements. Gains and losses resulting from the changes in fair values of these instruments are also recorded in interest expense.

The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands):



	June 30, 2018			December 31, 2017
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	575,000		$	575,000
Denominated in Pounds Sterling	£	891,640		£	550,000

Financial instruments designated as net investment hedges:
Denominated in Canadian Dollars	$	250,000		$	250,000
Denominated in Pounds Sterling	£	1,050,000		£	1,050,000

Derivatives designated as cash flow hedges:
Denominated in Canadian Dollars	$	—		$	36,000

Derivative instruments not designated:
Denominated in U.S. Dollars	$	408,007		$	408,007
Forward purchase contracts denominated in Canadian Dollars	$	(500,000	)	$	—
Forward sales contracts denominated in Canadian Dollars	$	580,000		$	80,000
Forward purchase contracts denominated in Pounds Sterling	£	(350,000	)	£	—
Forward sales contracts denominated in Pounds Sterling	£	350,000		£	—

The following presents the impact of derivative instruments on the Consolidated Statements of Comprehensive Income for the periods presented (in thousands):



		Three Months Ended June 30,					Six Months Ended June 30,
	Location	2018		2017			2018		2017
Gain (loss) on derivative instruments designated as hedges recognized in income	Interest expense	$	4,091	$	1,732		$	3,822	$	4,189

Gain (loss) on derivative instruments not designated as hedges recognized in income	Interest expense	$	734	$	(703	)	$	2,453	$	(935	)

Gain (loss) on foreign exchange contracts and term loans designated as net investment hedge recognized in OCI	OCI	$	150,703	$	(97,539	)	$	88,005	$	(141,880	)