Risk Management Activities And Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Risk Management Activities And Fair Value Measurements [Abstract]

Risk Management Activities And Fair Value Measurements

13. Risk Management Activities and Fair Value Measurements

The Company is exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading purposes.

The Company formally documents all significant relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives to specific assets and liabilities on the balance sheet or to specific firm commitments or anticipated transactions. The Company assesses all hedging relationships to determine whether the criteria for hedge accounting are met. To qualify for hedge accounting, the hedging relationship must be appropriately documented at inception of the hedge and there must be reasonable assurance, both at the inception and throughout the term of the hedge, that the hedging relationship will be effective. Effectiveness requires a high degree of correlation of changes in fair values or cash flows between the hedged item and the hedging instrument. Effectiveness is assessed on an ongoing basis through the term of the hedge in order to determine if hedge accounting remains appropriate.

Interest Rate Swaps

The Company is exposed to interest rate volatility with regard to existing variable rate debt. The Company has entered into variable-to-fixed interest rate swaps on variable rate term debt and revolving debt to limit its exposure to changing interest rates and future cash flows for interest. The interest rate swaps provide for the Company to pay an amount equal to a specified 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 swaps are accounted for as cash flow hedges. The effective portions of changes in fair value of the interest rate swaps are recorded in Accumulated Other Comprehensive Income and are recognized into earnings in the same period in which the hedged forecasted transaction affects earnings. Ineffective portions of changes in fair value are recognized into earnings as they occur. At September 30, 2011, the notional amount of the swap was $5.0 million, with the average pay rate being 5.07% and the average receive rate being 0.25%. The swap matures on December 31, 2011.

The Company primarily applies the income approach for recurring fair value measurements and endeavours to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs.

FASB ASC 820-10-05 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to measurements based on unobservable inputs (Level 3 measurement).

Liabilities measured at fair value on a recurring basis include the following as of September 30, 2011:

	Fair Value Measurements Using						Liabilities
(in thousands)	Level 1		Level 2		Level 3		At Fair Value
Liabilities
Interest rate swaps	$	—	$	59	$	—	$	59
Total liabilities	$	—	$	59	$	—	$	59

The following table presents the fair value of derivative instruments for the three and nine months ended September 30:

	Notional Amount		Fair Value		Balance Sheet Location		Gain in OCI Three months ended September 30, 2011		Gain in OCI Nine months ended September 30, 2011
Interest rate swaps	$	5,000	$	59		Other liabilities	$	124	$	459

Hedges of net investment in self-sustaining operations:

United States dollar denominated debt of $69.7 million held by an entity with a Canadian dollar functional currency is designated as a hedge against the Company's exposure for a portion of its net investment in self-sustaining U.S. dollar denominated subsidiaries with a view to reducing the impact of foreign exchange fluctuations. The foreign exchange effect of both the U.S. dollar debt and the net investment in U.S. dollar denominated subsidiaries is reported in other comprehensive income. As at September 30, 2011, the Company's net investment in U.S. dollar denominated subsidiaries totaled $273.1 million. No ineffectiveness has been recorded in earnings as the notional amounts of the hedging item equals the portion of the net investment balance being hedged.