Financial Derivative Instruments

9 Months Ended

Sep. 30, 2013

Financial Derivative Instruments [Abstract]

Financial Derivative Instruments

Note 8. Financial Derivative Instruments

We utilize interest-rate swap agreements to manage our exposure to interest rate fluctuations on a portion of our variable-interest rate debt. We have effectively changed our exposure to varying cash flows on the variable-rate portion of our debt into fixed-rate cash flows, therefore reducing the impact of interest rate changes on future cash interest payments. We do not enter into derivative instruments for any purpose other than to manage interest rate exposure. We do not engage in interest rate speculation using derivative instruments.

We account for derivatives in accordance with FASB ASC Topic 815, "Derivatives and Hedging." ASC 815 requires all derivative instruments be recorded on the balance sheet as either an asset or a liability measured at its fair value, and changes in the derivatives' fair value be recognized in earnings unless specific hedge accounting criteria are met. If a derivative is designated as a hedge, the effective portion of changes in the fair value of derivatives is recorded as a component of accumulated other comprehensive income in shareholders' equity, net of tax, which is subsequently, reclassified into earnings when the underlying hedged transaction is recognized in earnings. Amounts related to our derivatives will be reclassified from accumulated other comprehensive income to interest expense as interest payments are accrued or made on our variable rate debt. The estimated amount expected to be reclassified as an increase to interest expense within the next twelve months is $74,000 at September 30, 2013. The ineffective portion of the fair value of derivatives is recognized directly in earnings. Hedge ineffectiveness is attributable to the swaps having a non-zero fair value at the time they were designated. If we were to terminate our interest rate swap positions, any related balance in accumulated other comprehensive income would immediately be recognized in earnings or reclassified into earnings as the interest payments are made dependent on the facts and circumstances of the termination. The changes in the fair value of derivatives that are not designated as hedges are recognized immediately in earnings. As of January 1, 2013 our interest rate swaps were designated as cash flow hedging instruments. As of December 31, 2012 our interest rate swaps were not designated as hedging instruments.

Listed below are the interest rate swap agreements outstanding as of September 30, 2013 which were designated as cash flow hedges of interest rate risk and have the effect of locking our interest rates on a portion of our existing variable interest rate debt.

Interest Rate Swap Agreement Effective Dates	Notional Amount		Rate
September 2011 - September 2014	$	24,000,000		1.66	%
September 2011 - March 2015	$	24,000,000		1.91	%
September 2011 - September 2015	$	24,000,000		2.14	%

The following table presents the fair value of our derivative instruments included in our Consolidated Balance Sheets as either current or long-term liabilities as of September 30, 2013 and December 31, 2012.

		Fair value as of
(Dollars in thousands)		September 30, 2013		December 31, 2012
Interest rate derivatives designated as cash flow hedges
Pay-fixed swaps liabilities	Financial derivative instruments	$	1,674	$	-
Interest rate derivatives not designated as cash flow hedges
Pay-fixed swaps liabilities	Financial derivative instruments	$	-	$	2,432

The table below illustrates the effect of derivative instruments on consolidated operations for the three and nine months ended September 30, 2013 and 2012. Our derivative instruments were designated as cash flow hedges for the periods ended September 30, 2013. For the periods ended September 30, 2012 our derivative instruments were not designated as hedges.

		Three Months Ended September 30				Nine Months Ended September 30
(Dollars in thousands)	Location of Loss	2013		2012		2013		2012
Interest rate derivatives designated as cash flow hedges
Losses recognized on effective portion of derivative instruments	Other comprehensive income	$	99	$	-	$	39	$	-
Losses reclassified from accumulated OCI into income	Interest expense		28		-		74		-
Losses recognized in income on ineffective portion and amount excluded from effectiveness testing	Interest expense		8		-		9		-
Interest rate derivatives not designated as cash flow hedges
Losses recognized on derivative instruments	Interest expense	$	-	$	131	$	-	$	295