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Accounting for Derivatives
 12 Months Ended
Dec. 31, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Accounting for Derivatives
10. Accounting for Derivatives

We are exposed to market risks associated with changes in interest rates. We use derivative financial instruments to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt obligations. We do not use derivative financial instruments for trading or other speculative purposes.

Interest Rate Risk

During the year ended December 31, 2015, the Partnership entered into an interest rate swap with a notional value of $100.0 million. At December 31, 2015, the Partnership was a party to interest rate swaps with a total notional value of $500.0 million, pursuant to which it makes fixed payments and receives floating payments. The Partnership entered into these swaps to offset changes in expected cash flows due to fluctuations in the associated variable interest rates. The Partnership’s interest rate swaps expire over varying dates, with interest rate swaps having a notional amount of $300.0 million expiring in May 2018, interest rate swaps having a notional amount of $100.0 million expiring in May 2019 and the remaining interest rate swaps having a notional amount of $100.0 million expiring in May 2020. As of December 31, 2015, the weighted average effective fixed interest rate on the interest rate swaps was 1.6%. We have designated these interest rate swaps as cash flow hedging instruments so that any change in their fair values is recognized as a component of comprehensive income (loss) and is included in accumulated other comprehensive income (loss) to the extent the hedge is effective. As the swap terms substantially coincide with the hedged item and are expected to offset changes in expected cash flows due to fluctuations in the variable rate, we currently do not expect a significant amount of ineffectiveness on these hedges. We perform quarterly calculations to determine whether the swap agreements are still effective and to calculate any ineffectiveness. We recorded $0.4 million of interest income during the year ended December 31, 2015 due to ineffectiveness related to interest rate swaps. There was no ineffectiveness related to interest rate swaps during the years ended December 31, 2014 and 2013. We estimate that $3.5 million of deferred pre-tax losses attributable to interest rate swaps and included in our accumulated other comprehensive income (loss) at December 31, 2015, will be reclassified into earnings as interest expense at then current values during the next twelve months as the underlying hedged transactions occur. Cash flows from derivatives designated as hedges are classified in our consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions, unless the derivative contract contains a significant financing element; in this case, the cash settlements for these derivatives are classified as cash flows from financing activities in our consolidated statements of cash flows.

In May 2013, the Partnership amended its interest rate swap agreements with a notional value of $250.0 million to adjust the fixed interest rates and extend the maturity dates to May 2018 consistent with the maturity date of the Partnership Credit Agreement. These amendments effectively created new derivative contracts and terminated the old derivative contracts. As a result, we designated the new hedge relationships under the amended terms and de-designated the original hedge relationships as of the termination date. The original hedge relationships qualified for hedge accounting and were included at their fair value in our consolidated balance sheet as a liability and accumulated other comprehensive income (loss). The fair value of the interest rate swap agreements immediately prior to the execution of the amendments was a liability of $8.8 million. The associated amount in accumulated other comprehensive income (loss) was being amortized into interest expense through November 2015.

The following tables present the effect of derivative instruments on our consolidated financial position and results of operations (in thousands):

 
 
December 31, 2015
 
December 31, 2014
 
Balance Sheet Location
Fair Value
 Asset (Liability)
 
Fair Value
 Asset (Liability)
Derivatives designated as hedging instruments:
 
 

 
 

Interest rate swaps
Intangible and other assets, net
$
45

 
$
712

Interest rate swaps
Accrued liabilities
(4,608
)
 
(4,958
)
Interest rate swaps
Other long-term liabilities
(1,421
)
 
(150
)
Total derivatives
 
$
(5,984
)
 
$
(4,396
)


 
Pre-tax Gain (Loss)
Recognized in Other
Comprehensive
Income (Loss) on
Derivatives
 
Location of Pre-tax
Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive
Income (Loss)
into Income (Loss)
 
Pre-tax Gain (Loss)
Reclassified from
Accumulated Other
Comprehensive
Income (Loss)
into Income (Loss)
Derivatives designated as cash flow hedges:
 

 
 
 
 

Interest rate swaps
 

 
 
 
 

Year ended December 31, 2015
$
(8,901
)
 
Interest expense
 
$
(7,259
)
Year ended December 31, 2014
(5,879
)
 
Interest expense
 
(5,657
)
Year ended December 31, 2013
3,057

 
Interest expense
 
(6,124
)


The counterparties to the derivative agreements are major international financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us. The Partnership has no specific collateral posted for its derivative instruments. The counterparties to the interest rate swaps are also lenders under the Partnership’s senior secured credit facility and, in that capacity, share proportionally in the collateral pledged under the related facility.