Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments, Hedging Activities and Accumulated Other Comprehensive Income (Loss)

Derivative Instruments, Hedging Activitiesand Accumulated Other Comprehensive Income (Loss)

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 $139.7 million as of September 30, 2016.  The outstanding notional amount decreases as the Company makes scheduled principal payments on the debt.

In May 2016, the Company entered into a pay-fixed, receive-variable interest rate swap of $256.6 million of notional principal with three counterparties.   This interest rate swap was designated as a cash flow hedge.  The total outstanding notional amount of the cash flow hedge was $287.3 million as of September 30, 2016.  The outstanding notional amount increases with each expected draw on the term debt and decreases as the Company makes scheduled principal payments on the debt.  In combination with the swap entered into in 2012 described above, the Company is hedging approximately 50% of the expected outstanding debt (including expected draws under the delayed draw term loan) associated with the nTelos acquisition.

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 (loss) 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 (loss) related to the interest rate swaps designated and  qualified 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, 2016, the Company estimates that $2.3 million will be reclassified as an increase to interest expense during the next twelve months due to the interest rate swaps 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 condensed consolidated balance sheet as of September 30, 2016 and December 31, 2015 (in thousands):

	Derivatives
		Fair Value as of
	Balance Sheet Location	September 30, 2016			December 31, 2015
Derivatives designated as hedging instruments:
Interest rate swap
	Accrued liabilities and other	$	(2,283	)	$	(682	)
	Other liabilities	(1,355		)	—
	Deferred charges and other assets, net	—			1,370
Total derivatives designated as hedging instruments		$	(3,638	)	$	688

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 (loss) by component for the nine months ended September 30, 2016 (in thousands):

	Gains and (Losses) on Cash Flow  Hedges			Income Tax  (Expense)  Benefit			Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2015	$	688		$	(273	)	$	415
Other comprehensive loss before reclassifications	(5,832		)	2,363			(3,469		)
Amounts reclassified from accumulated other comprehensive income (to interest expense)	1,506			(610		)	896
Net current period other comprehensive loss	(4,326		)	1,753			(2,573		)
Balance as of September 30, 2016	$	(3,638	)	$	1,480		$	(2,158	)