United states securities and exchange commission

 

We have elected not to offset the fair value of derivatives subject to master netting agreements, but to report them on a gross basis on our consolidated balance sheets.

The following table summarizes the cash flow hedge gains and losses:

Derivatives in Cash Flow Hedging Relationships		Gain (Loss) Recognized in Other Comprehensive Income (“OCI”) for the Year Ended December 31,									Loss Reclassified from Accumulated OCI into Income for the Year Ended December 31,									Gain (Loss) Recognized in Income (Ineffective Portion and Amount Excluded from Effectiveness Testing) for the Year ended December 31,
		2017			2016			2015			2017			2016			2015			2017			2016			2015
		(in thousands)
Interest rate swaps		$	4,700		$	2,713		$	(1,701)		$	5,265		$	8,798		$	10,440		$	—		$	—		$	—
Foreign currency forward contracts		$	—	$ -	$	1,584	$ -	$	(1,584)		$	—	$ -	$	—	$ -	$	—		$	—	$ -	$	—	$ -	$	(296)

 

As of December 31, 2017, the estimated amount of net losses associated with derivative instruments that would be reclassified from accumulated other comprehensive loss to earnings during the next twelve months was $0.8 million. During the years ended December 31, 2017, 2016 and 2015, we reclassified $4.5 million, $8.0 million and $9.6 million to interest expense and $0.8 million, $0.8 million and $0.8 million to depreciation from accumulated other comprehensive loss, respectively.

 

Value_Measurements'>Note 13—Fair Value Measurements

We estimated fair value by using appropriate valuation methodologies and information available to management as of December 31, 2017 and 2016. Considerable judgment is required in developing these estimates, and accordingly, estimated values may differ from actual results.

F-23
 

PACIFIC DRILLING S.A. (DEBTOR IN POSSESSION) AND SUBSIDIARIES

Notes to Consolidated Financial Statements―Continued
The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximated their carrying value due to their short-term nature. It is not practicable to estimate the fair value of our receivable from SHI (see Note 5),  SSCF debt and 2013 Revolving Credit Facility. The following table presents the carrying value and estimated fair value of our cash and cash equivalents and other debt instruments:

		December 31,
		2017						2016
		Carrying			Estimated Fair			Carrying			Estimated Fair
		Value			Value			Value			Value
			(in thousands)
Cash and cash equivalents		$	308,948		$	308,948		$	585,980		$	585,980
2017 Senior Secured Notes			439,364			243,847			438,880			208,698
2018 Senior Secured Term Loan B			718,125			290,841			722,706			256,931
2020 Senior Secured Notes			750,000			307,500			750,000			270,000

 

We estimate the fair value of our cash equivalents using significant other observable inputs, representative of a Level 2 fair value measurement, including the net asset values of the investments. As of December 31, 2017 and December 31, 2016, the aggregate carrying amount of our cash equivalents was $220.7 million and $0, respectively. We estimate the fair values of our variable-rate and fixed-rate debt using quoted market prices to the extent available and significant other observable inputs, which represent Level 2 fair value measurements.

The following table presents the carrying value and estimated fair value of our financial instruments recognized at fair value on a recurring basis: 

		December 31, 2016
					Fair Value Measurements Using
		Carrying
		Value			Level 1		Level 2			Level 3
Liabilities:			(in thousands)
Interest rate swaps		$	(3,922)		—		$	(3,922)		—

 

We use an income approach to value assets and liabilities for outstanding interest rate swaps. These contracts are valued using a discounted cash flow model that calculates the present value of future cash flows under the terms of the contracts using market information as of the reporting date, such as prevailing interest rates and forward rates. The determination of the fair values above incorporated various factors, including the impact of the counterparty’s non-performance risk with respect to our financial assets and our non-performance risk with respect to our financial liabilities.

See Note 12 for further discussion of our use of derivative instruments and their fair values.

 

Note 14—Commitments and Contingencies

Operating Leases— We lease office space in countries in which we operate. As of December 31, 2017, the future minimum lease payments under the non-cancelable operating leases with lease terms in excess of one year was as follows:

		(In thousands)
Years Ending December 31,
2018		$	2,218
2019			2,158
2020			2,135
2021			2,174
2022			2,213
Thereafter			3,961
Total future minimum lease payments		$	14,859