Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2013

Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income [Abstract]

Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income

7. Derivative Instruments, Hedging Activitiesand Accumulated Other Comprehensive Income

The Company’s objectives in using interest rate derivatives are to add stability to cash flows and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps (both those designated as cash flow hedges as well as those not designated as cash flow hedges) involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The Company entered into a pay-fixed, receive-variable interest rate swap of $63.3 million of notional principal in August 2010.  This interest rate swap was not designated as a cash flow hedge.  Changes in the fair value of interest rate swaps not designated as cash flow hedges are recorded in interest expense each reporting period.  The total outstanding notional amount of interest rate swaps not designated as cash flow hedges was $49.0 million as of June 30, 2013.  This swap expires in July 2013.  Changes in fair value recorded in interest expense for the three months ended June 30, 2013 and 2012 were decreases of $102 thousand and $79 thousand, respectively; for the six months ended June 30, 2013 and 2012, the changes were decreases of $206 thousand and $51 thousand, respectively.

The Company entered into a pay-fixed, receive-variable interest rate swap of $174.6 million of notional principal in September 2012.  This interest rate swap was designated as a cash flow hedge.  The total outstanding notional amount of cash flow hedges was $174.6 million as of June 30, 2013.

The effective portion of changes in the fair value of interest rate swaps designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The Company uses its derivatives to hedge the variable cash flows associated with existing variable-rate debt. The ineffective portion of the change in fair value of the derivative is recognized directly in earnings through interest expense. No hedge ineffectiveness was recognized during any of the periods presented.

Amounts reported in accumulated other comprehensive income related to the interest rate swap designated and that qualifies as a cash flow hedge are reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. As of June 30, 2013, the Company estimates that $1.6 million will be reclassified as an increase to interest expense during the next twelve months due to the interest rate swap since the hedge interest rate exceeds the variable interest rate on the debt.

The table below presents the fair value of the Company’s derivative financial instruments as well as its classification on the consolidated balance sheet as of June 30, 2013 and December 31, 2012 (in thousands; amounts in parentheses indicate debits):

	Derivatives
		Fair Value as of
	Balance Sheet	June 30,				December 31,
	Location	2013				2012
Derivatives not designated as hedging instruments:
Interest rate swaps	Accrued liabilities and other		$	33			$	239
Total derivatives not designated as cash flow hedges			$	33			$	239
Derivatives designated as hedging instruments:
Interest rate swaps	Accrued liabilities and other		$	1,561			$	1,613
	Deferred charges and other assets, net			(5,628	)			(177	)
Total derivatives designated as hedging instruments			$	(4,067	)		$	1,436

The fair value of interest rate swaps is determined using a pricing model with inputs that are observable in the market (level 2 fair value inputs).

The table below presents change in accumulated other comprehensive income by component for the six months ended June 30, 2013 (in thousands; amounts in parentheses indicate debits):

	Gains and (Losses) on Cash Flow Hedges			Income Taxes			Accumulated Other Comprehensive  Income(Loss)
Balance as of December 31, 2012	$	(1,436	)	$	573		$	(863	)
Other comprehensive income before reclassifications		4,698			(1,875	)		2,823
Amounts reclassified from accumulated other comprehensive income (to interest expense)		805			(321	)		484
Net current period other comprehensive income		5,503			(2,196	)		3,307
Balance as of June 30, 2013	$	4,067		$	(1,623	)	$	2,444