|
Note 13—DERIVATIVE FINANCIAL INSTRUMENTS
Intrepid is exposed to global market risks, including the effect of changes in commodity prices and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. Intrepid does not enter into or hold derivatives for trading purposes. While all derivatives are used for risk management purposes and were originally entered into as economic hedges, they have not been designated as hedging instruments.
Intrepid's predecessor historically managed a portion of its floating interest rate exposure using interest rate derivative contracts. Forward LIBOR-based contracts reduced the predecessor's risk from interest rate movements as gains and losses on such contracts partially offset the impact of changes in its variable-rate debt. Although Intrepid repaid its assumed debt obligations immediately subsequent to the closing of its IPO in April 2008, it has not yet closed its positions in the derivative financial instruments that were also assumed from the predecessor.
A tabular presentation of the outstanding interest rate derivatives as of September 30, 2011, follows:
|
|
|
|
|
|
|
|
|
Termination Date |
|
Notional Amount |
|
Weighted Average
Fixed Rate |
|
|
|
(In thousands)
|
|
|
|
|
December 31, 2011 |
|
$ |
29,400 |
|
|
5.2 |
% |
|
December 31, 2012 |
|
$ |
22,800 |
|
|
5.3 |
% |
The following table presents the fair values of the derivative instruments included within the consolidated balance sheets as of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2011 |
|
December 31, 2010 |
|
|
Derivatives not designated as hedging instruments |
|
Balance Sheet Location |
|
Fair Value |
|
Balance Sheet Location |
|
Fair Value |
|
| |
Interest rate contracts |
|
Other current liabilities |
|
$ |
1,157 |
|
Other current liabilities |
|
$ |
1,399 |
|
| |
Interest rate contracts |
|
Other non-current liabilities |
|
|
268 |
|
Other non-current liabilities |
|
|
939 |
|
| |
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments |
|
Net liability |
|
$ |
1,425 |
|
Net liability |
|
$ |
2,338 |
|
| |
|
|
|
|
|
|
|
|
|
The following table presents the amounts of gain or (loss) recognized in income on derivatives affecting the consolidated statements of operations for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Nine months ended |
|
|
Derivatives not designated as hedging instruments |
|
Location of gain (loss)
recognized in income
on derivative |
|
September 30, 2011 |
|
September 30, 2010 |
|
September 30, 2011 |
|
September 30, 2010 |
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Realized loss |
|
Interest expense |
|
$ |
(370 |
) |
$ |
(406 |
) |
$ |
(1,082 |
) |
$ |
(1,364 |
) |
| |
Unrealized gain |
|
Interest expense |
|
|
368 |
|
|
56 |
|
|
913 |
|
|
173 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Total loss |
|
Interest expense |
|
$ |
(2 |
) |
$ |
(350 |
) |
$ |
(169 |
) |
$ |
(1,191 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Intrepid can be exposed to credit-related losses in the event of non-performance by counterparties to derivative contracts. Intrepid believes the counterparties to the contracts to be credit-worthy trading entities, and therefore credit risk of counterparty non-performance is unlikely. U.S. Bank is the counterparty to the interest rate derivative contracts, but, as Intrepid is in a liability position at September 30, 2011, with respect to these interest rate derivative contracts, counterparty risk is not applicable. There were no derivative instruments with credit-risk-related contingent features at September 30, 2011. |