Notes to Financial Statements
NOTE 6—Fair Value of Financial Instruments
The Company’s financial instruments consist primarily
of cash in banks, receivables, debt, interest rate swaps, forward
foreign currency contracts, and call options on fuel contracts.
The carrying amounts for cash and cash equivalents, receivables,
and short-term debt approximate fair value due to the short-term
nature of these instruments. The carrying and fair values of
long-term debt were $991.1 million and $951.1 million, respectively,
at December 31, 2000 and $1,011.1 million and $999.6 million,
respectively, at December 31, 1999. The fair value of the long-term
fixed rate debt was estimated based on current quotes from bond
traders making a market in the debt instrument. The fair value
of debt with variable rates approximates the net carrying value.
At December 31, 2000, the Company had outstanding call options
on fuel contracts with notional amounts totaling approximately
$3 million. At December 31, 2000 and 1999, the Company had outstanding
forward foreign currency contracts with notional amounts totaling
approximately $5 million and $9 million, respectively. The fair
value of these contracts was insignificant at December 31, 2000
and 1999. The Company also had off-balance-sheet standby letters
of credit with a notional amount of $56.8 million with no unrealized
gain or loss at December 31, 2000.
At December 31, 2000, the Company was a party to five interest-rate
swap agreements in which the Company exchanged its floating-rate
obligation on (a) $193.0 million denominated in U.S. dollars
for a fixed-rate payment obligation of 5.669% per annum through
January 21, 2004, (b) $27.8 million denominated in British pounds
for a fixed-rate payment obligation of 5.850% per annum through
January 21, 2004, and (c) $10.4 million denominated in Canadian
dollars for a fixed-rate payment obligation of 5.6675% per annum
through January 21, 2004. The notional amount of each interest-rate
swap agreement matches the repayment schedule of the Term Facilities
(See Note 12—Debt). In the unlikely event that the counterparty
fails to meet the terms of the interest-rate swap agreement,
the Company’s exposure is limited to the interest-rate
differential on the notional amount at each quarterly settlement
period over the life of the agreements. The Company does not
anticipate nonperformance by the counterparty. The fair values
of interest-rate swap agreements are the estimated amounts that
the Company would receive to terminate the agreements at the
reporting date, taking into account current interest rates,
the market expectation for future interest rates and the current
creditworthiness of the Company. The fair value of outstanding
interest-rate swap agreements as of December 31, 2000 and 1999,
based upon quoted market prices, was $0.6 million and $7.3 million,
respectively.
None of the Company’s financial instruments represents
a concentration of credit risk because the Company deals with
a variety of major banks worldwide, and its accounts receivable
are spread among a number of customers and geographic areas.
None of the Company’s off-balance-sheet financial instruments
would result in a significant loss to the Company if the other
party failed to perform according to the terms of its agreement,
as any such loss would generally be limited to the unrealized
gain on any contract.
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