DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2015

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

10.DERIVATIVE FINANCIAL INSTRUMENTS

The Company’s objective in using interest rate derivatives is to add stability to interest expense 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 designated as cash flow hedges involve the receipt of variable 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.  During October 2013, the Company entered into two Interest Rate Swaps with a combined notional of $25,000 (representing 50% of the Term Loan balance at that time) that amortize quarterly to a notional of $6,673 at maturity.  The notional amount changes over time as loan payments are made.  As of March 31, 2015 the amount hedged was $21,000.

The effective portion of changes in the fair value of derivatives 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.  During the first quarter of 2015, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.  The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.  There was no hedge ineffectiveness recorded in the Company’s earnings during the three months ended March 31, 2015 and March 31, 2014, respectively.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt.  The Company estimates that an additional $155 will be reclassified as an increase to interest expense over the next year.

Additionally, the Company does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the condensed consolidated balance sheets as of March 31, 2015 (in thousands):

		Fair Value
Derivative Instrument	Balance Sheet Location	March 31, 2015			December 31, 2014
Interest Rate Swaps	Accrued liabilities	$	(102	)	$	(2	)
	Total Liabilities	$	(102	)	$	(2	)

The effect of the Company’s derivative financial instruments on the condensed consolidated statements of income and comprehensive income is as follows (in thousands):

	Net deferral in OCI of							Net reclassification from AOCI
	derivatives (effective portion)						Statement of	into income (effective portion)
Derivative	For the quarter ended March 31,						earnings	For the quarter ended March 31,
Instruments	2015			2014			classification	2015			2014
Interest Rate Swaps	$	(151	)	$	(68	)	Interest expense	$	(51	)	$	(58	)

	Amount recognized in income
	(ineffective portion and amount
	excluded from effectiveness
Statement of	testing)
earnings	For the quarter ended March 31,
classification	2015		2014
Other (expense)	$	—	$	—