Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income

9 Months Ended

Sep. 30, 2015

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

Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income

6. 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 $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 the cash flow hedge was $157.2 million as of September 30, 2015.  The outstanding notional amount decreases as the Company makes scheduled principal payments on the debt.

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 September 30, 2015, the Company estimates that $1.1 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 instrument as well as its classification on the consolidated balance sheet as of September 30, 2015 and December 31, 2014 (in thousands):

	Derivatives
		Fair Value as of
	Balance Sheet Location	September 30, 2015		December 31, 2014
Derivatives designated as hedging instruments:
Interest rate swap
Accrued liabilities and other		$	(1,141)	$	(1,309	)
Deferred charges and other assets, net			402		3,180
Total derivatives designated as hedging instruments		$	739	$	1,871

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 nine months ended September 30, 2015 (in thousands):

	Gains and (Losses) on Cash Flow Hedges			Income Tax (Expense) Benefit			Accumulated  Other  Comprehensive Income (Loss)
Balance as of December 31, 2014	$	1,871		$	(749	)	$	1,122
Other comprehensive loss before reclassifications		(3,791	)		1,521			(2,270	)
Amounts reclassified from accumulated other comprehensive income (to interest expense)		1,181			(471	)		710
Net current period other comprehensive loss		(2,610	)		1,050			(1,560	)
Balance as of September 30, 2015	$	(739	)	$	301		$	(438	)