Financial Instruments: Derivatives and Hedging

6 Months Ended

Jun. 30, 2011

Financial Instruments: Derivatives and Hedging

Financial Instruments: Derivatives and Hedging

6.     Financial Instruments: Derivatives and Hedging

The Company’s hedging activity was limited to an interest rate swap.  The purpose of the interest rate swap, which was terminated on February 22, 2011, was to fix the interest rate for the term of the loan and protect the Company from future interest rate increases on the Term Loan that is described in Note 5.

The fair value of the Company’s derivative instrument was determined using the net discounted cash flows of the expected cash flows of the derivative based on the market based interest rate curve. This financial instrument was classified within Level 2 of the fair value hierarchy and was classified as a liability on the condensed consolidated balance sheets.

The following table provides the fair value information for the Company’s interest rate swap as of December 31, 2010:

(dollars in thousands)	Notional Value		Strike Rate	Effective Date	Expiration Date	Fair Value
Interest Rate Swap	$	75,000	5.840%	10/2008	10/2011	$	(1,077)

The interest rate swap represented a cash flow hedge and was recorded at fair value and classified as a liability.  Changes in the recorded fair value of the interest rate swap were recorded to other comprehensive income. On February 22, 2011, the interest rate swap agreement applicable to the Term Loan with a value of approximately $75 million was terminated and a payment was made of approximately $982,000.  The payment to terminate the interest rate swap liability will be amortized into interest expense through October 15, 2011.  As of June 30, 2011, the unamortized balance was approximately $447,000.

The interest amortization for the Company’s terminated interest rate swap reclassified from Accumulated Other Comprehensive Income into interest expense during the three and six months ended June 30, 2011 was as follows:

	Three Months		Six Months
	Ended		Ended
(in thousands)	June 30,		June 30,
Income Statement Location	2011		2011
Interest expense	$	381	$	536

The effective portion of the loss on outstanding derivative recognized in Other Comprehensive Income for the three and six months ended June 30, 2011 was as follows:

	Three Months		Six Months
	Ended		Ended
(in thousands)	June 30,		June 30,
Income Statement Location	2011		2011
Interest rate swap	$	381	$	536