DERIVATIVE INSTRUMENTS AND FAIR VALUE

3 Months Ended

Mar. 31, 2012

DERIVATIVE INSTRUMENTS AND FAIR VALUE [Abstract]

DERIVATIVE INSTRUMENTS AND FAIR VALUE

3.        DERIVATIVE INSTRUMENTS AND FAIR VALUE

Our use of derivative instruments has been to hedge interest rates. These derivative contracts are entered into with financial institutions.  We do not use derivative instruments for trading purposes and we have procedures in place to monitor and control their use.

We record these derivative financial instruments on the condensed balance sheets at fair value.  For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Any ineffective portion of the gain or loss on the derivative instrument for a cash flow hedge is recorded in the results of operations immediately.  For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the results of operations immediately.  See below for a discussion of our use of derivative instruments, management of credit risk inherent in derivative instruments and fair value information.

In October 2008 and March 2012, the Company entered into interest rate swaps with the objective of reducing our exposure to cash flow volatility arising from interest rate fluctuations associated with certain debt.  The notional amount, maturity date, and currency of these contracts match those of the underlying debt.  The Company has designated these interest rate swap contracts as cash flow hedges.  The Company measures ineffectiveness by comparing the cumulative change in the forward contact with the cumulative change in the hedged item.  No material ineffectiveness was recognized in the quarter ended March 31, 2012.  As of March 31, 2012 and December 31, 2011, we had a net deferred loss associated with cash flow hedges of approximately $71,000 and $33,000, respectively, due to the interest rate swap which has been included in Other Liabilities.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties may fail to meet their contractual obligations.  Recent adverse developments in the global financial and credit markets could negatively impact the creditworthiness of our counterparties and cause one or more of our counterparties to fail to perform as expected.  To mitigate the counterparty credit risk, we only enter into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties.  To date, all counterparties have performed in accordance with their contractual obligations.

Fair Value

At March 31, 2012 and December 31, 2011, the fair values of cash, accounts receivable, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these instruments.

	March 31, 2012
	Carrying Amount	Fair Value
Debt
Short-term borrowings and long-term debt	$23,645,786	$23,645,786

	December 31, 2011
	Carrying Amount	Fair Value
Debt
Short-term borrowings and long-term debt	$17,876,619	$17,876,619

We estimated the fair value of debt using market quotes and calculations based on market rates.

The following table presents the fair values of those financial liabilities measured on a recurring basis as of March 31, 2012 and December 31, 2011:

		Fair Value Measurements March 31, 2012
Description	Total	Quoted Prices in Active Markets for Identical assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Interest Rate Swap, net	$ 71,288	--	$ 71,288	--
Total	$ 71,288	--	$ 71,288	--
		Fair Value Measurements December 31, 2011
Description	Total	Quoted Prices in Active Markets for Identical assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Interest Rate Swap, net	$32,988	--	$32,988	--
Total	$32,988	--	$32,988	--

The fair value of the Company's interest rate swap was determined by comparing the fixed rate set at the inception of the transaction to the "replacement swap rate," which represents the market rate for an offsetting interest rate swap with the same notional amounts and final maturity date.  The market value is then determined by calculating the present value interest differential between the contractual swap and the replacement swap.

As of March 31, 2012 and December 31, 2011, $71,288 and $32,988, respectively, was included in Other Liabilities related to the fair value of the Company's interest rate swap, and $47,050 and $21,772, respectively, net of tax of $24,238 and $11,216, was included in Accumulated Other Comprehensive Loss.

The change in unrealized loss from the Company's interest rate swaps of $(25,278) and $7,736 is included in other comprehensive income for the three months ended March 31, 2012 and 2011, respectively.