Annual report pursuant to section 13 and 15(d)

Warrants And Derivative Financial Instruments

v2.3.0.11
Warrants And Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2011
Warrants And Derivative Financial Instruments [Abstract]  
Warrants And Derivative Financial Instruments
7. Warrants and Derivative Financial Instruments

The Company has determined that the warrants discussed in Note 2, issued in connection with the IPO including the Overallotment Units, should be classified as liabilities when outstanding. Changes in the fair values of these instruments are reflected as adjustments to the amount of the recorded liabilities and the corresponding gain or loss is recorded in the Company's statement of operations within "Gain (loss) on derivatives". At the date of the conversion of each warrant or portion thereof, or exercise of the warrants or portion thereof, as the case may be, the corresponding liability is reclassified as equity.

On February 16, 2010 the Company announced an Offer to Exchange common stock for outstanding warrants. At the time, the Company had 35.1 million outstanding warrants. The exchange offer expired on March 17, 2010. Holders of the Company's warrants had the option to exchange their warrants for either One (1) share of Common Stock for every thirty-five (35) Warrants tendered, or One (1) share of Common Stock for every twenty-five (25) Warrants tendered, provided the recipient agreed to be subject to a lock-up provision precluding transfer of the shares of Common Stock received for six months following the expiration of the Exchange Offer. The lock-up provision expired in September 2010. Based on the final count, 25.6 million Warrants were properly tendered; 24.8 million were tendered for shares of Common Stock subject to a lock-up and 0.9 million were tendered for unrestricted shares of Common Stock. Under the terms of the Exchange Offer, the Company issued an aggregate of 1.0 million shares of Common Stock in exchange for the tendered Warrants. There were 8.3 million publicly held warrants (issued in connection with the IPO) and 1.1 million privately held warrants remaining after the exchange.

The fair value of the Company's 8.3 million warrants issued in connection with the IPO outstanding at December 31, 2010 were liabilities of less than $0.1 million or $0.01 per warrant and are included in derivative liabilities within the Company's balance sheet.

These remaining 8.3 million publicly held warrants (issued in connection with the IPO) and 1.1 million privately held warrants expired on April 11, 2011 and the Company recorded a realized gain of $0.1 million as a result of the expiration.

On June 11, 2010, the Company terminated the single interest rate swap agreement that fixed its LIBOR-based variable rate on a then outstanding loan. The interest rate swap was terminated through a cash settlement in the amount of $0.4 million, which was the fair value of the interest rate swap as of the date of the termination. The fair value of the Company's interest rate swap outstanding at December 31, 2009 was a liability of $0.6 million. The Company elected not to designate the swap as a cash flow hedge. The fair value of the swap was therefore shown on the Company's consolidated balance sheet and the unrealized changes in the value of the swap are shown in the Company's consolidated statement of operations within "Gain (loss) on derivatives".

On July 20, 2010, the Company entered into a single interest rate swap with a July 30, 2010 effective date. The interest rate swap agreement, which expires in June 2014, had a notional value of $15.6 million and $18.3 million on December 31, 2011 and 2010, respectively, which represented approximately 65% of the outstanding underlying debt, and a fixed rate of 1.40%. The fair value of the interest rate swap outstanding at December 31, 2011 and 2010 was a liability of $0.3 million and $0.1 million, respectively. The Company has designated the swap as a cash flow hedge. The fair value of the swap is presented on the Company's consolidated balance sheet within derivative liabilities, unrealized changes in the value are included in other comprehensive loss within the stockholders' equity section on the Company's consolidated balance sheet and any realized changes are included in the Company's consolidated statement of operations within interest expense.

The following table presents the fair values of the Company's derivative instruments as of December 31, 2011 and 2010 (in thousands):

 

Description

   

Balance Sheet Location

    2011      2010  

Derivative Designated as a Cash Flow
Hedge

                   

Interest rate swap

    Derivative liabilities    $ 258       $ 100   

Derivatives Not Designated as Hedging
Instruments

                   

Warrants

    Derivative liabilities      —           83   
     

 

 

     

 

 

  

Total

       $ 258       $ 183   
     

 

 

     

 

 

  

The following table presents the pretax impact that changes in the fair values of derivatives designated as hedging instruments had on Accumulated Other Comprehensive Loss ("AOCL") and earnings during the year ended December 31, 2011 (in thousands):

 

Description

   Loss Recognized
in OCL		    

Location of
Gain (Loss)
Reclassified from
AOCL into Income
(Effective Portion)

   Gain (Loss)
Reclassified from
AOCL into Income
(Effective Portion)		    

Location of
Gain (Loss)
Recognized in Income
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)

   Gain (Loss)
Recognized in Income
(Ineffective Portion
and Amount Excluded
from Effectiveness
Testing)		  

Interest rate swap

   $ 158      Gain (loss) on derivatives   $ —        Gain (loss) on derivatives   $ —     
 

 

 

      

 

 

      

 

 

  

Total

   $ 158        $ —          $ —     
 

 

 

      

 

 

      

 

 

  

The following table presents the pretax gains (losses) that changes in the fair values of derivatives not designated as hedging instruments had on earnings during the year ended December 31, 2011 and 2010 (in thousands):

 

Description

   

Location of Gain (Loss) Recognized
in Income

    December 31,
2011		      December 31,
2010		  

Warrants

    Gain (loss) on derivatives    $ 83       $ (73 ) 

Interest rate swap

    Gain (loss) on derivatives      —           280   
     

 

 

     

 

 

  

Total

       $ —           207   
     

 

 

     

 

 

  

 

The following tables present the methods used to establish fair value measurements for each of the derivatives (in thousands):

 

            Fair Value Measurements at Reporting Date Using  

Description

    December 31,
2011		      Quoted
Prices in
Active Markets
for Identical
Liabilities
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		  

Warrant liability

    $ —         $ —         $ —         $ —     

Interest rate swap liability

      258         —           258         —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 258       $ —         $ 258       $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

 

            Fair Value Measurements at Reporting Date Using  

Description

    December 31,
2010		      Quoted
Prices in
Active Markets
for Identical
Liabilities
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		  

Warrant liability

    $ 83       $ 83       $ —         $ —     

Interest rate swap liability

      100         —           100         —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 183       $ 83       $ 100       $ —