Long-Term Debt, Capital Lease Obligations and Hedging Arrangements

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



	June 30, 2012			December 31, 2011
Revolving loans	$	—		$	—
Mortgage note payable due monthly through 2014, interest at
at a rate of 8.5%, collateralized by real property with
carrying values totaling $1.7 million	1,695			2,076
Term loans	87,328			87,389
Capital leases	186			320
Total long-term obligations	89,209			89,785
Less amounts due within one year	(967		)	(1,017		)
Long-term obligations, net of current portion	$	88,242		$	88,768

The scheduled or expected maturities of long-term obligations as of June 30, 2012, were as follows (in thousands):



For the twelve months ending June 30:
2013	$	967
2014	914
2015	—
2016	—
2017	87,328
	$	89,209

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 8.75% through December 31, 2012. 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 10.185% 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
	June 30, 2012			December 31, 2011
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:	Other Long-Term			Other Long-Term
Interest rate hedging agreements	Liabilities	$	2,299	Liabilities	$	2,049

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



	Amount of Loss in Other Comprehensive Loss						Gain Reclassified from Accumulated Other Comprehensive Loss to Income (ineffective portion)
	2012			2011			2012		2011
Derivatives designated as cash flow hedges:
Interest rate hedging agreements	$	(79	)	$	(651	)	$	—	$	—

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



	Amount of (Loss)/Gain in Other Comprehensive (Loss)/Income					Gain Reclassified from Accumulated Other Comprehensive Income to Income (ineffective portion)
	2012			2011		2012		2011
Derivatives designated as cash flow hedges:
Interest rate hedging agreements	$	(761	)	$	402	$	—	$	—