INTEREST RATE SWAPS

9 Months Ended

Sep. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

INTEREST RATE SWAPS

5. INTEREST RATE SWAPS

During March 2013, we entered into interest rate swaps to add stability to interest expense and to manage exposure to interest rate movements. Our interest rate swaps, which were designated and qualified as a cash flow hedge, involve the receipt of variable rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The cash flow hedges, effective March 20, 2013, have a notional amount starting at $80.0 million through August 30, 2015, with an interest rate of 4.0%, and $20.0 million through December 31, 2014, with an interest rate of 3.9%. Our first interest settlement date was April 30, 2013.

We recorded the interest rate derivatives on the accompanying consolidated balance sheet at fair value, which was determined by the bank that holds the interest rate swaps. As of September 30, 2013, the fair value of the interest rate swaps was $0.3 million and was included in “Other long-term liabilities” in the accompanying consolidated balance sheet. During each of the three and nine months ended September 30, 2013, we recorded losses of $0.2 million as the effective portion of the change in fair value of our interest rate swaps, designated and qualified as cash flow hedges, in “Other comprehensive income (loss).” We will subsequently reclassify such value into earnings in the period that the hedged transaction affects earnings. We recognize the ineffective portion of the change in fair value of the derivative directly in earnings. We did not recognize any hedge ineffectiveness during each of the three and nine months ended September 30, 2013.

We will reclassify amounts reported in “Other comprehensive loss” related to the interest rate swaps to interest expense as we accrue interest payments on our variable-rate debt. During each of the three and nine months ended September 30, 2013, we reclassified less than $0.1 million as an increase to interest expense. Through September 30, 2014, we estimate that we will reclassify an additional $0.3 million as an increase to interest expense since the hedge interest rate currently exceeds the variable interest rate on the debt.