Derivative Financial Instruments

6 Months Ended

Jun. 30, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

7. DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable interest rates. The interest rate swaps require the Company to pay an amount equal to a specific fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount. The notional amounts are not exchanged. No other cash payments are made unless the contract is terminated prior to its maturity, in which case the contract would likely be settled for an amount equal to its fair value. The Company enters into interest rate swaps with a number of major financial institutions to minimize counterparty credit risk.

The interest rate swaps qualify and are designated as hedges of the amount of future cash flows related to interest payments on variable rate debt. Therefore, the interest rate swaps are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as Accumulated Other Comprehensive Loss (“AOCL”). These deferred gains and losses are recognized in interest expense during the period or periods in which the related interest payments affect earnings. However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was de minimis for the three and six months ended June 30, 2015, and 2014.

The Company has interest rate swap agreements in effect at June 30, 2015 as detailed below to effectively convert a total of $325 million of variable-rate debt to fixed-rate debt.

Notional Amount	Effective Date		Expiration Date		Fixed Rate Paid			Floating Rate Received
$125 Million		9/1/2011		8/1/18		2.3700	%		1 month LIBOR
$100 Million		12/30/11		12/29/17		1.6125	%		1 month LIBOR
$100 Million		9/4/13		9/4/18		1.3710	%		1 month LIBOR
$100 Million		12/29/17		11/29/19		3.9680	%		1 month LIBOR
$125 Million		8/1/18		6/1/20		4.1930	%		1 month LIBOR

The interest rate swap agreements are the only derivative instruments, as defined by FASB ASC Topic 815 “Derivatives and Hedging”, held by the Company. During the three months ended June 30, 2015 and 2014, the net reclassification from AOCL to interest expense was $1.4 million and $1.4 million, respectively, based on payments made under the swap agreements. During the six months ended June 30, 2015 and 2014, the net reclassification from AOCL to interest expense was $2.7 million and $2.7 million, respectively, based on payments made under the swap agreements. Based on current interest rates, the Company estimates that payments under the interest rate swaps will be approximately $5.4 million for the 12 months ended June 30, 2016. Payments made under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements, including accrued interest, was a liability of $14.9 million and $13.3 million at June 30, 2015 and December 31, 2014, respectively.

The Company’s agreements with its interest rate swap counterparties contain provisions pursuant to which the Company could be declared in default of its derivative obligations if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender. The interest rate swap agreements also incorporate other loan covenants of the Company. Failure to comply with the loan covenant provisions would result in the Company being in default on the interest rate swap agreements. As of June 30, 2015, the Company had not posted any collateral related to the interest rate swap agreements. If the Company had breached any of these provisions as of June 30, 2015, it could have been required to settle its obligations under the agreements at their net termination cost of $14.9 million.

The changes in AOCL for the three and six months ended June 30, 2015 and June 30, 2014 are summarized as follows:

(dollars in thousands)	Apr. 1, 2015 to Jun. 30, 2015			Apr. 1, 2014 to Jun. 30, 2014			Jan. 1, 2015 to Jun. 30, 2015			Jan. 1, 2014 to Jun. 30, 2014
Accumulated other comprehensive loss beginning of period	$	(16,992	)	$	(8,331	)	$	(13,005	)	$	(6,402	)
Realized loss reclassified from accumulated other comprehensive loss to interest expense		1,359			1,381			2,718			2,742
Unrealized loss from changes in the fair value of the effective portion of the interest rate swaps		1,062			(5,107	)		(4,284	)		(8,397	)
Loss included in other comprehensive loss		2,421			(3,726	)		(1,566	)		(5,655	)
Accumulated other comprehensive loss end of period	$	(14,571	)	$	(12,057	)	$	(14,571	)	$	(12,057	)