Derivative Financial Instruments

6 Months Ended

Jun. 30, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

Note 10. Derivative Financial Instruments

In April 2011, as contemplated by the credit facility, the Company entered into two forward-starting interest rate swap agreements with a total notional amount of $350 million. These interest rate swaps take effect in January 2013 and have a maturity date of July 2015. At April 27, 2011 (“designation date”), the Company designated and qualified these interest rate swaps as cash flow hedges. These interest rate swap agreements are highly effective as a hedge of the Company’s variable rate debt. Subsequent to the April 27, 2011 designation date, the effective portion of the changes in fair value of the designated swaps is recorded in accumulated OCI and is thereafter recognized to derivative interest expense as the interest on the variable debt affects earnings, which hedged interest accruals do not begin until January 2013. Any ineffective portions of the changes in the fair value of designated interest rate swaps will be recognized directly to earnings as derivative interest expense in the Company’s statements of operations. At June 30, 2011, changes in fair value of the designated interest rate swap agreements totaling $2.1 million, net of tax, were reflected in accumulated OCI. As of June 30, 2011, the Company estimates that none of the unrealized losses included in OCI related to these swaps will be realized and reported in earnings within the next twelve months. The fair value of the interest rate swap liability at June 30, 2011 was $3.4 million. The fair values of the interest rate swaps are based on valuations provided by third parties, derivative pricing models, and credit spreads derived from the trading levels of the Company’s first lien term loan. Refer to Note 11 for further discussion of the Company’s fair value methodology.

In December 2010, in conjunction with its IPO and debt refinancing transactions, the Company terminated its last two remaining interest rate swap agreements related to its refinanced debt and paid $66.4 million to the counterparties to settle the outstanding liabilities. In accordance with Topic 815, Derivatives and Hedging, the balance of unrealized losses recorded in accumulated OCI on the date of termination is required to remain in accumulated OCI and be amortized to expense through the term of the hedged interest payments, which extends to the original maturity of the swaps in August 2012. At June 30, 2011 and December 31, 2010, unrealized losses totaling $11.5 million and $20.2 million after taxes, respectively, were reflected in accumulated OCI. As of June 30, 2011, the Company estimates that $11.0 million of unrealized losses included in accumulated OCI related to the terminated swaps will be realized and reported in earnings within the next twelve months.

As of June 30, 2011 and December 31, 2010, information about classification of fair value of the Company’s interest rate derivative contracts, all of which are designated as hedging instruments under Topic 815, is as follows (in thousands):

		Fair Value
	Balance Sheet	June 30,		December 31,
Derivative Liabilities Description	Classification	2011		2010
Interest rate derivative contracts designated as hedging instruments under Topic 815:	Fair value of interest rate swaps	$	3,412	$	—
Total derivatives		$	3,412	$	—

For the three and six month periods ended June 30, 2011 and 2010, information about amounts and classification of gains and losses from the Company’s interest rate derivative contracts that were designated as hedging instruments under Topic 815 is as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
Amount of loss recognized in OCI on derivative (effective portion)	$	3,412		$	—		$	3,412		$	—
Amount of loss reclassified from accumulated OCI into income as “Derivative interest expense” (effective portion)	$	(4,003	)	$	(9,941	)	$	(8,683	)	$	(20,903	)

For the three and six months ended June 30, 2011 and 2010, information about amounts and classification of gains and losses on the Company’s interest rate derivative contracts that were not designated as hedging instruments under Topic 815 is as follows (in thousands):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2011		2010			2011		2010
Amount of loss recognized in income on derivative as “Derivative interest expense”	$	—	$	(8,351	)	$	—	$	(21,103	)