INTEREST RATE SWAP AGREEMENTS

9 Months Ended

Sep. 30, 2013

INTEREST RATE SWAP AGREEMENTS

INTEREST RATE SWAP AGREEMENTS

(7) INTEREST RATE SWAP AGREEMENTS

The Company is exposed to certain risks related to its business operations.  The primary risks that the Company managed by using derivatives was interest rate risk.  The Company used financial instruments, including interest rate swap agreements, to reduce the Company’s risk to this exposure.  The Company does not use derivatives for speculative trading purposes and is not a party to leveraged derivatives.  The Company recognized all of its derivative instruments as either assets or liabilities at fair value.

Fair value was determined in accordance with the accounting guidance for Fair Value Measurements.  See Note 8 — Fair Value Measurements.  The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type of hedging relationship.  For derivatives designated as hedges under the accounting guidance for derivative instruments and hedging activities, the Company formally assesses, both at inception and periodically thereafter, whether the hedging derivatives are highly effective in offsetting changes in either the fair value or cash flows of the hedged item.  The Company’s derivatives that are not designated and do not qualify as hedges under the accounting guidance for derivative instruments and hedging activities were adjusted to fair value through current earnings.

On October 15, 2007, the Company entered into a five-year interest rate swap agreement with a notional amount of $100.0 million from which it received periodic payments at the 3 month LIBOR-based variable rate and made periodic payments at a fixed rate of 5.135%, with settlement and rate reset dates every January 31, April 30, July 31, and October 31.  The interest rate swap agreement was effective beginning October 31, 2007 and expired on October 31, 2012.  On March 19, 2008, the Company entered into a 4.5 year interest rate swap agreement effective April 30, 2008 with a notional amount of $35.0 million from which it received periodic payments at the 3 month LIBOR-based variable rate and made periodic payments at a fixed rate of 3.430%, with settlement and rate reset dates every January 31, April 30, July 31, and October 31.  The interest rate swap was effective beginning April 30, 2008 and expired on October 31, 2012.  The fair value of the swap agreements were zero at inception.  The Company entered into the interest rate swap agreements to limit the effect of variable interest rates on the Company’s floating rate debt.  The interest rate swap agreements were originally designated as cash flow hedges of the variable rate interest payments due on $135.0 million of the term loans and the revolving credit facility issued June 24, 2003, and accordingly, the effective portion of gains and losses on the fair value of the interest rate swap agreements were previously reported in accumulated other comprehensive loss and reclassified to earnings in the same period in which the hedged interest payment affected earnings.

On October 31, 2012, the Company’s remaining interest rate swap agreements expired.  The Company is currently not a party to any interest rate swap agreements.

The following is the location and amount of gains and losses on derivative instruments in the statement of operations for the nine months ended September 30, 2013 and 2012 (in thousands):

	Interest Rate Swap Agreements
	9/30/2013		9/30/2012
Derivatives not designated as hedging instruments:
Amount of Gain recognized in income on Statement of Operations	$	—	$	3,448
Location of Gain recognized in Statement of Operations	Gain on derivative instrument