DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2012

DERIVATIVE FINANCIAL INSTRUMENTS

8. DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate swaps are used to adjust the proportion of total debt that is subject to variable interest rates. The interest rate swaps require the Company to pay an amount equal to a specific fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount. The notional amounts are not exchanged. No other cash payments are made unless the contract is terminated prior to its maturity, in which case the contract would likely be settled for an amount equal to its fair value. The Company enters interest rate swaps with a number of major financial institutions to minimize counterparty credit risk.

The interest rate swaps qualify and are designated as hedges of the amount of future cash flows related to interest payments on variable rate debt. Therefore, the interest rate swaps are recorded in the consolidated balance sheet at fair value and the related gains or losses are deferred in shareholders’ equity as Accumulated Other Comprehensive Loss (“AOCL”). These deferred gains and losses are amortized into interest expense during the period or periods in which the related interest payments affect earnings. However, to the extent that the interest rate swaps are not perfectly effective in offsetting the change in value of the interest payments being hedged, the ineffective portion of these contracts is recognized in earnings immediately. Ineffectiveness was immaterial in the nine months ended September 30, 2012 and 2011.

The Company has six interest rate swap agreements in effect at September 30, 2012 as detailed below to effectively convert a total of $245 million of variable-rate debt to fixed-rate debt.

Notional Amount	Effective Date		Expiration Date		Fixed Rate Paid			Floating Rate Received
$20 Million		9/4/05		9/4/13		4.4350	%		6 month LIBOR
$75 Million		9/1/2011		8/1/18		2.3700	%		1 month LIBOR
$50 Million		9/1/2011		8/1/18		2.3700	%		1 month LIBOR
$50 Million		12/30/11		12/29/17		1.6125	%		1 month LIBOR
$25 Million		12/30/11		12/29/17		1.6125	%		1 month LIBOR
$25 Million		12/30/11		12/29/17		1.6125	%		1 month LIBOR

The interest rate swap agreements are the only derivative instruments, as defined by FASB ASC Topic 815 “Derivatives and Hedging”, held by the Company. During the nine months ended September 30, 2012, and 2011, the net reclassification from AOCL to interest expense was $3.7 million and $9.8 million, respectively, based on payments made under the swap agreements. Based on current interest rates, the Company estimates that payments under the interest rate swaps will be approximately $4.9 million for the twelve months ended September 30, 2013. Payments made under the interest rate swap agreements will be reclassified to interest expense as settlements occur. The fair value of the swap agreements, including accrued interest, was a liability of $16.5 million and $10.7 million at September 30, 2012, and December 31, 2011 respectively.

(dollars in thousands)	Jan. 1, 2012 to Sep. 30, 2012			Jan. 1, 2011 to Sep. 30,  2011
Adjustments to interest expense:
Realized loss reclassified from accumulated other comprehensive loss to interest expense	$	(3,707	)	$	(9,841	)
Adjustments to other comprehensive income (loss):
Realized loss reclassified to interest expense		3,707			9,841
Unrealized loss from changes in the fair value of the effective portion of the interest rate swaps		(9,676	)		(7,952	)
(Loss) gain included in other comprehensive income (loss)	$	(5,969	)	$	1,889