Derivative Financial Instruments

3 Months Ended

Mar. 31, 2016

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

(6)  Derivative Financial Instruments

From time to time, the Company may employ interest rate swaps in an attempt to achieve a more balanced debt portfolio between fixed and variable interest.  The Company does not use derivative financial instruments for trading or speculative purposes.

The Company has three interest rate swap agreements related to its fixed rate debt maturing in 2021 for notional amounts of $100 million each, whereby the Company is entitled to receive semi-annual interest payments at a fixed rate of 7 1/8% per annum and is obligated to make semi-annual interest payments at floating rates, which are adjusted every 90 days, based on LIBOR plus a fixed margin. The swap agreements, scheduled to terminate on December 15, 2021, are designated as fair value hedges of a portion of the Company’s 7 1/8% senior notes, as the derivatives have been tested to be highly effective in offsetting changes in the fair value of the underlying notes.  As these derivatives are classified as fair value hedges, the changes in the fair value of the derivatives are offset against the changes in the fair value of the underlying note in interest expense, net.  The Company recorded a derivative asset relating to these swaps of $9.6 million and $6.9 million within intangible and other long term assets in the consolidated balance sheets at March 31, 2016 and December 31, 2015, respectively. 

The location and effect of the derivative instruments on the condensed consolidated statement of operations, presented on a pre-tax basis, are as follows (in thousands):

		Three Months Ended March 31,
Effect of derivative instrument	Location of (gain) loss  recognized	2016		2015
Interest rate swap	Interest expense, net	$	(5,197)	$	(3,448)
Hedged item - debt	Interest expense, net		2,490		2,185
		$	(2,707)	$	(1,263)

For the three months ended March 31, 2016 and 2015,  approximately $2.7 million and $1.3 million of interest income, respectively, was related to the ineffectiveness associated with these fair value hedges.  Hedge ineffectiveness represents the difference between the changes in fair value of the derivative instruments and the changes in fair value of the fixed rate debt attributable to changes in the benchmark interest rate.