Derivative financial instruments

12 Months Ended

Dec. 31, 2011

Derivative financial instruments [Abstract]

Derivative financial instruments

Note 6: Derivative financial instruments

Fair value hedges – We have entered into interest rate swaps to hedge against changes in the fair value of a portion of our long-term debt. We entered into these swaps, which we designated as fair value hedges, to achieve a targeted mix of fixed and variable rate debt, where we receive a fixed rate and pay a variable rate based on the London Interbank Offered Rate (LIBOR). Changes in the fair value of the interest rate swaps and the related long-term debt are included in interest expense in the consolidated statements of income. When the change in the fair value of the interest rate swaps and the hedged debt are not equal (i.e., hedge ineffectiveness), the difference in the changes in fair value affects the reported amount of interest expense in our consolidated statements of income. Information regarding hedge ineffectiveness in each period is provided in Note 7. The fair value of the interest rate swaps related to our debt due in 2012 is included in other current assets on the consolidated balance sheet as of December 31, 2011 and in other non-current assets on the consolidated balance sheet as of December 31, 2010. The fair value of the interest rate swaps related to our debt due in 2014 is included in other non-current assets on the consolidated balance sheets.

Information regarding interest swaps as of December 31, 2011 was as follows:

	Notional amount		Fair value of interest rate swaps		Increase in debt due to fair value adjustment
Fair value hedge related to long-term debt due in 2012	$	84,847	$	1,309	$	780
Fair value hedge related to long-term debt due in 2014		198,000		3,230		2,788
Total fair value hedges	$	282,847	$	4,539	$	3,568

Information regarding interest rate swaps as of December 31, 2010 was as follows:

	Notional amount		Fair value of interest rate swaps		Increase in debt due to fair value adjustment
Fair value hedge related to long-term debt due in 2012	$	210,000	$	5,456	$	4,879

During the first quarter of 2011, we retired $195,463 of our ten-year bonds due in 2012 (see Note 13). In conjunction with this debt retirement, we settled a portion of the interest rate swaps and received cash payments of $2,548. Interest rate swaps remaining after the settlement were redesignated as fair value hedges during March 2011. In conjunction with the debt retirement, we recognized $3,094 of the fair value adjustment to the hedged debt, decreasing the loss on early debt extinguishment. The $1,355 remaining fair value adjustment to the hedged debt as of the date hedge accounting was discontinued is being recorded as a decrease to interest expense over the term of the remaining debt.

Cash flow hedges – During 2004, we entered into $225,000 of forward starting interest rate swaps to hedge, or lock-in, the interest rate on a portion of the debt we issued in October 2004 (see Note 13). The termination of the lock agreements in 2004 yielded a deferred pre-tax loss of $17,877. During 2002, we entered into forward interest rate lock agreements to effectively hedge the annual interest rate on a portion of the notes issued in December 2002 (see Note 13). The termination of the lock agreements in December 2002 yielded a deferred pre-tax loss of $4,026. These losses are reflected, net of tax, in accumulated other comprehensive loss in our consolidated balance sheets and are being reclassified ratably to our statements of income as increases to interest expense over the term of the related debt. We expect to recognize $1,757 of the deferred pre-tax losses in interest expense during 2012.