Annual report pursuant to Section 13 and 15(d)

Interest Rate Swap Agreements

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Interest Rate Swap Agreements
12 Months Ended
Dec. 31, 2013
Interest Rate Swap Agreements
13. INTEREST RATE SWAP AGREEMENTS

The Company is currently a party to three interest rate swap agreements that are used to hedge interest rate risk associated with the variable interest rates on the Company’s term loan debt and qualify for cash flow hedge accounting. 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 loss and the ineffective portion reported in earnings. The changes in fair values are reclassified from accumulated other comprehensive loss into earnings in the same period that the hedged items affect 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. There were no changes in valuation techniques during the period and no transfers in or out of Level 3. See Note 14 for a summary of unrealized gains or losses recorded in accumulated other comprehensive loss and earnings.

Below is a summary of the Company’s interest rate swap agreements, all of which are designated as cash flow hedges, as of December 31, 2013:

 

Nominal
Amount

  Effective Date     Pay Rate     Receive Rate     Expiration Date     Current
Liability  (1)
    Long-Term
Liability (2)
    Estimated
Total Fair
Value at
December 31,
2013
 

$175,000

    December 2010        1.3975     1-Month LIBOR        September 2015      $ 1,943      $ 1,195      $ 3,138   

$175,000

    December 2010        1.4000     1-Month LIBOR        September 2015        1,984        1,228        3,212   

$100,000

    November 2011        1.7150     1-Month LIBOR        April 2016        1,440        1,386        2,826   

 

         

 

 

   

 

 

   

 

 

 

$450,000

          $ 5,367      $ 3,809      $ 9,176   

 

         

 

 

   

 

 

   

 

 

 

 

(1) 

Included in accrued other current liabilities on the consolidated balance sheet as of December 31, 2013.

(2) 

Included in other long-term liabilities on the consolidated balance sheet as of December 31, 2013.

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 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 loss related to this interest rate swap agreement of $18,147 was amortized on a straight-line basis to interest expense over the period during which the forecasted transactions were expected to occur, which was September 15, 2008 through August 13, 2012. The Company amortized approximately $4,236 and $2,470 to interest expense during the years ended December 31, 2011 and 2012, respectively.

The changes in accumulated other comprehensive loss, net of taxes, related to the Company’s interest rate swap agreements for the years ended December 31, 2011, 2012 and 2013 were as follows:

 

     Interest Rate Swap Liabilities  
     2011     2012     2013  

Beginning balances — January 1

   $ (11,726   $ (12,357   $ (8,867
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss before reclassifications, net of taxes

     (18,759     (11,959     (2,668

Amounts reclassified from accumulated other comprehensive loss to interest expense

     20,165        15,449        5,819   
  

 

 

   

 

 

   

 

 

 

Net other comprehensive income (loss)

     1,406        3,490        3,151   

Loss included in earnings

     (2,037     —          —     
  

 

 

   

 

 

   

 

 

 

Ending balances — December 31

   $ (12,357 )   $ (8,867 )   $ (5,716 )