Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2013

Derivative Instruments and Hedging Activities [Abstract]

Derivative Instruments and Hedging Activities

Note 14.  Derivative Instruments and Hedging Activities

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.

In August 2010, the Company entered into a pay fixed, receive variable interest rate swap of $63.3 million of notional principal.  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 were recorded in interest expense each reporting period.  The total outstanding notional amount of interest rate swaps not designated as cash flow hedges was $52.2 million as of December 31, 2012.  This swap expired in July 2013.  Changes in fair value recorded in interest expense for the years ended December 31, 2013 and 2012, were decreases of $239 thousand and $213 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 December 31, 2013 and 2012.

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 qualify as cash flow hedges are reclassified to interest expense as interest payments are accrued on the Company’s variable-rate debt. As of December 31, 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 December 31, 2013 and 2012 (in thousands; amounts in parentheses indicate debits):

		Fair Value as of
	Balance Sheet Location		December 31, 2013			December 31, 2012
Derivatives not designated as hedging instruments:
Interest rate swaps	Accrued liabilities and other	$	-		$	239
Total derivatives not designated as cash flow hedges		$	-		$	239
Derivatives designated as hedging instruments:
Interest rate swaps	Accrued liabilities and other	$	1,590		$	1,613
	Deferred charges and other assets, net		(5,926	)		(177	)
Total derivatives designated as hedging instruments		$	(4,336	)	$	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 changes in accumulated other comprehensive income by component for the twelve months ended December 31, 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		4,111			(1,647	)		2,464
Amounts reclassified from accumulated other comprehensive income (to interest expense)		1,661			(668	)		993
Net current period other comprehensive income		5,772			(2,315	)		3,457
Balance as of December 31, 2013	$	4,336		$	(1,742	)	$	2,594