Annual report pursuant to Section 13 and 15(d)

Interest Rate Swap Agreements

v2.4.0.6
Interest Rate Swap Agreements
12 Months Ended
Dec. 31, 2011
Interest Rate Swap Agreements [Abstract]  
INTEREST RATE SWAP AGREEMENTS

14.    INTEREST RATE SWAP AGREEMENTS

The Company is currently a party to five interest rate swap agreements that qualify for cash flow hedge accounting. No premium or discount was incurred upon the Company entering into any of its interest rate swap agreements because the pay rates and receive rates on the interest rate swap agreements represented prevailing rates for each counterparty at the time each of the interest rate swap agreements was consummated. The fair values of the interest rate swaps are recorded on the Company’s consolidated balance sheet as an asset or liability with the effective portion of the interest rate swaps’ gains or losses reported as a component of accumulated other comprehensive income (loss) and the ineffective portion reported in earnings. The changes in fair values are reclassified from accumulated other comprehensive income (loss) into earnings in the same period that the hedged items affect earnings. For the years ended December 31, 2009, 2010 and 2011, the Company reclassified $10,395, $11,771 and $15,929, respectively, from accumulated other comprehensive income (loss) into earnings.

The valuation technique used to determine fair value is the income approach and under this approach, the Company uses projected future interest rates as provided by counterparties to the interest rate swap agreements and the fixed rates that the Company is obligated to pay under these agreements. Therefore, the Company’s measurements use significant unobservable inputs, which fall in Level 3 of the U.S. GAAP hierarchy as defined by FASB ASC Topic 820-10-35.

 

Below is a summary of the Company’s current interest rate swap agreements designated as hedge agreements as of December 31, 2011:

 

                                                             

Amount

Designated

as a Hedge

    Nominal
Amount
   

Effective

Date

  Pay
Rate
    Receive Rate    

Expiration

Date

  Current
Liability  (1)
    Long-
Term
Liability  (2)
    Estimated
Total Fair
Value at
December 31,
2011
 
$ 106,632 (3)     $ 125,000     August 2007     4.9220%       3-Month LIBOR     August 2012   $ 3,375     $ —       $ 3,375  
$ 63,983 (4)     $ 75,000     November 2008     3.6300%       1-Month LIBOR     November 2012     2,124       —         2,124  
$ 175,000     $ 175,000     December 2010     1.3975%       1-Month LIBOR     September 2015     1,605       2,228       3,833  
$ 175,000     $ 175,000     December 2010     1.4000%       1-Month LIBOR     September 2015     1,632       2,271       3,903  
$ 100,000     $ 100,000     November 2011     1.7150%       1-Month LIBOR     April 2016     1,243       2,098       3,341  
                 

 

 

   

 

 

                           

 

 

   

 

 

   

 

 

 
$ 620,615     $ 650,000                             $ 9,979     $ 6,597     $ 16,576  
                 

 

 

   

 

 

                           

 

 

   

 

 

   

 

 

 

 

(1) 

Included in accrued other current liabilities on the consolidated balance sheet as of December 31, 2011.

(2) 

Included in other long-term liabilities on the consolidated balance sheet as of December 31, 2011.

(3) 

An additional $18,368 of this original $125,000 swap is no longer designated as a hedge as a result of the prepayment of the unextended portion of the Company’s term loan debt.

(4) 

An additional $11,017 of this original $75,000 swap is no longer designated as a hedge as a result of the prepayment of the unextended portion of the Company’s term loan debt.

During June 2011, the Company prepaid the remaining unextended portion of its term loan debt under its senior secured credit facility (see Note 13). As a result, the Company determined that a portion of the quarterly interest payments hedged by two of its current interest rate swap agreements and the quarterly interest payments related to its previously terminated interest rate swap agreement were probable not to occur and therefore reclassified approximately $2,760 of its accumulated other comprehensive loss related to these cash flow hedges to earnings, as a component of loss on early retirement of debt, during the year ended December 31, 2011.

The Company was previously a party to an interest rate swap agreement that was effective during 2007 with a counterparty that filed for bankruptcy during September 2008 and whose credit rating was downgraded as a result. Prior to the counterparty’s credit rating downgrade, the change in fair value of the interest rate swap was recorded as a component of accumulated other comprehensive income (loss). Subsequent to the counterparty’s credit rating downgrade, the change in fair value of the interest rate swap was recorded in earnings as a component of interest expense. The Company terminated the interest rate swap agreement during October 2008. The Company determined that the forecasted transactions hedged by this interest rate swap are still probable to occur, thus the total amount previously reported in accumulated other comprehensive income (loss) related to this interest rate swap agreement of $18,147 is being amortized on a straight-line basis to interest expense over the period during which the forecasted transactions are expected to occur, which is September 15, 2008 through August 13, 2012. The Company amortized approximately $4,633, $4,633 and $4,236 to interest expense during the years ended December 31, 2009, 2010 and 2011, respectively. The Company will amortize approximately $3,953 to interest expense over the next twelve months.

See Note 15 for additional information about the Company’s fair value measurements related to its interest rate swap agreements.