Derivative Information

6 Months Ended

Jun. 30, 2012

Derivative Information

Derivative Information

Note 13 — Derivative Information

We follow the provisions of FASB ASC Topic 815, “Derivatives and Hedging Activities,” which establish accounting and disclosure standards regarding a company’s derivative instruments and hedging activities.

We were required by our original Credit Facility to convert 50% of the outstanding term loan into a fixed interest rate for a period not less than two years.  Our objective of entering into hedge transactions (or interest rate swaps) using derivative financial instruments was to reduce the variability of cash flows associated with variable-rate loans and comply with the terms of our Credit Facility.  As changes in interest rates impact future interest payments, the hedges provided an offset to the rate changes.  The swap agreements expired in June 2011.  The Amendment to our Credit Facility did not require us to enter into any hedge agreements.

In April 2007, we entered into interest rate swap agreements with notional values of $312.5 million, at a fixed rate of 5.09%, and $125.0 million, at a fixed rate of 4.97%, both of which expired in June 2011.  These swap arrangements effectively changed the underlying debt from a variable interest rate to a fixed interest rate for the term of the swap agreements.  All of the swap agreements were issued by Credit Suisse International.  The swap agreements were designated as, and met the criteria for, cash flow hedges and were not considered speculative in nature.

With our amended Credit Facility, our interest rate swaps ceased to be effective and hedge accounting was discontinued effective March 22, 2011 and going forward, primarily related to the LIBOR floor of 1.5% as established under the Amendment.  As a result, our deferred losses of $4,928,000 recorded in other comprehensive income were frozen and were amortized into earnings over the original remaining term of the hedged transaction.  All subsequent changes in the fair value of the swaps were recorded directly to interest expense.  For the three months ended June 30, 2011, we recorded a loss of $4,480,000 related to amortization of our deferred losses and a gain of $5,246,000 related to the change in fair value of the interest rate swaps.  The net amount of $766,000 is a non-cash gain and did not impact the amount of cash interest paid during the period.  For the six months ended June 30, 2011, we recorded a loss of $4,928,000 related to amortization of our deferred losses and a gain of $6,439,000 related to the change in fair value of the interest rate swaps.  The net amount of $1,511,000 is a non-cash gain and did not impact the amount of cash interest paid during the period.

A summary of the effect of cash flow hedges on our financial statements for the three and six months ended June 30, 2011 was as follows (dollar amounts in thousands):

			Effective Portion
			Income Statement
			Location of
	Amount of		Swap Interest	Swap Interest
	Gain (Loss)		Reclassified From	Reclassified From
	Recognized		Accumulated	Accumulated		Ineffective Portion
	in Other		Other	Other		Income
Type of Cash	Comprehensive		Comprehensive	Comprehensive		Statement	Amount
Flow Hedge	Income		Income	Income		Location	Recognized
Three Months Ended June 30, 2011:
Interest rate swaps	$	-	-	$	-	Interest expense	$	(766)
Six Months Ended June 30, 2011:
Interest rate swaps	$	89	Interest expense	$	4,672	Interest expense	$	(1,511)