Management’s Discussion and Analysis of Financial Condition and Results of Operations38
long-term debt. We attempt to limit our exposure to interest rate risk by managing
the mix of our long-term fixed rate borrowings and short-term borrowings under
our bank credit facilities.
In 2003, we entered into three interest rate swap agreements, designated as fair
value hedges, which effectively converted $400 million of our fixed rate debt to
floating rate debt. In 2004, we terminated interest rate swap agreements with total
notional amounts of $400 million and entered into additional interest rate swap
agreements designated as fair value hedges with total notional amounts of 
$100 million, leaving interest rate swap agreements with total notional amounts 
of $100 million at December 31, 2004.
Under the terms of these agreements, we make payments based on specified spreads
over six-month LIBOR, and receive payments equal to the interest payments due
on the fixed rate debt. The interest rate swap agreements qualify for the “shortcut
method” allowed under SFAS No. 133, which allows an assumption of no 
ineffectiveness in the hedging relationship. As such, there is no income statement
impact from changes in the fair value of the hedging instruments.
The following table provides information about our interest rate swaps as of
December 31, 2004:
Maturity Date February 27, 2014
Notional Value $ 100 million
Estimated Fair Value $ (81,000)
Average Pay Rate* 4.18%
Average Receive Rate 5.875%
*Interest rates are determined in arrears. These rates have been estimated based on implied forward rates in
the yield curve.
As of December 31, 2004, after giving effect to the interest rate swaps discussed
above, long-term fixed rate borrowings represented approximately 97% of our total
borrowings. Assuming a 100 basis-point change in LIBOR, our annual inter est cost
would change by approximately $2 million.