Long-Term Debt and Capital Lease Obligations

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements [Abstract]

Long-Term Debt and Capital Lease Obligations

(3) Long-Term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consisted of the following as of the periods indicated (in thousands):

	September 30, 2011		December 31, 2010
Revolving loans	$	-	$	-
Mortgage notes payable due monthly through 2014, interest at
a rate of 8.5%, collateralized by real property with
carrying values totaling $1.8 million		2,260		7,979
Term loans		139,922		147,492
Capital leases		399		509
Total long-term obligations		142,581		155,980
Less amounts due within one year		(11,033)		(11,050)
Long-term obligations, net of current portion	$	131,548	$	144,930

The scheduled or expected maturities of long-term obligations as of September 30, 2011, were as follows (in thousands):

For the twelve months ending September 30:
2012	$	11,033
2013		10,947
2014		10,679
2015		10,000
2016		10,000
Thereafter		89,922
	$	142,581

We manage interest expense using a mix of fixed and variable rate debt, and, to help manage borrowing costs, we may enter into interest rate swap agreements. Under these arrangements, we agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount. We also may enter into interest rate cap agreements that effectively limit the maximum interest rate that we pay on an agreed to notional principal amount. We use interest rate hedges to manage interest rate risk related to borrowings. Our intent is to only enter into such arrangements that qualify for hedge accounting treatment in accordance with GAAP. Accordingly, we designate all such arrangements as cash-flow hedges and perform initial and quarterly effectiveness testing using the hypothetical derivative method. To the extent that such arrangements are effective hedges, changes in fair value are recognized through other comprehensive income. Ineffectiveness, if any, would be recognized in earnings.

Our credit agreement requires that at least 50% of our term loans be subject to at least a three-year hedging agreement. To satisfy this requirement, we executed two hedging instruments on January 18, 2011; a two-year interest rate cap and a two-year "forward starting" interest rate swap. The two-year interest rate cap limits our exposure to increases in interest rates for $82.5 million of debt through December 31, 2012. This cap is effective when LIBOR rises above 1.75%, effectively fixing the interest rate on $82.5 million of our term loans at 7.5% for two years. The fee for this interest rate cap arrangement was $0.3 million, which will be amortized to interest expense over the life of the arrangement. The two-year "forward starting" interest rate swap effectively converts the interest rate on $82.5 million of our term loans to a fixed rate from January 1, 2013 through December 31, 2014. LIBOR is fixed at 3.185%, making the all-in rate effectively a fixed 8.935% for this portion of the term loans. There was no fee for this swap agreement. Both arrangements qualify for hedge accounting treatment.

The fair values of our hedging agreements as presented in the consolidated balance sheets are as follows (in thousands):

	Derivatives
	September 30, 2011			December 31, 2010
	Balance Sheet			Balance Sheet
	Location		Fair Value	Location		Fair Value
Derivatives designated as
hedging instruments:
Interest rate hedging	Other Long-Term
agreements	Liabilities	$	1,922	N/A	$	-

The effect of the interest rate swap agreements on our consolidated comprehensive income, net of related taxes, for the three months ended September 30 is as follows (in thousands):

							Gain Reclassified from Accumulated
		Amount of (Loss)/Gain in					Other Comprehensive Income
		Other Comprehensive (Loss)/Income					to Income (ineffective portion)
		2011			2010		2011		2010
Derivatives designated as cash
flow hedges:
Interest rate hedging agreements	$	(535	)	$	1,020	$	-	$	-

The effect of the interest rate hedging agreements on our consolidated comprehensive income, net of related taxes, for the nine months ended September 30 is as follows (in thousands):

							Gain Reclassified from Accumulated
		Amount of (Loss)/Gain in					Other Comprehensive Income
		Other Comprehensive (Loss)/Income					to Income (ineffective portion)
		2011			2010		2011		2010
Derivatives designated as cash
flow hedges:
Interest rate hedging agreements	$	(1,153	)	$	3,029	$	-	$	-

The amounts stated above for (loss)/gain from changes in the fair value of our hedging agreements are our only sources of other comprehensive (loss)/income, resulting in comprehensive income of $4.6 million and $22.1 million for the three and nine months ended September 30, 2011, respectively. Comprehensive income for the three and nine months ended September 30, 2010 was $8.6 million and $30.8 million, respectively.