Derivative Instruments

3 Months Ended

Mar. 31, 2012

Derivative Instruments [Abstract]

Derivative Instruments

6. Derivative Instruments

We hold a number of interest rate derivative instruments to mitigate exposure to changes in interest rates, in particular one-month LIBOR, as all but $23.2 million of our borrowings at March 31, 2012 are at variable rates. As a matter of policy, we do not use derivatives for speculative purposes. In addition, WEST is required under its credit agreement to hedge a portion of its borrowings. At March 31, 2012, we were a party to interest rate swap agreements with notional outstanding amounts of $315.0 million, remaining terms of between sixteen and thirty-seven months and fixed rates of between 2.10% and 3.62%. The net fair value of the swaps at March 31, 2012 was negative $12.1 million, representing a net liability for us. The amount represents the estimated amount we would be required to pay if we terminated the swaps.

The Company estimates the fair value of derivative instruments using a discounted cash flow technique and, as of March 31, 2012, has used creditworthiness inputs that can be corroborated by observable market data evaluating the Company's and counterparties' risk of non-performance. Valuation of the derivative instruments requires certain assumptions for underlying variables and the use of different assumptions would result in a different valuation. Management believes it has applied assumptions consistently during the period. We apply hedge accounting and account for the change in fair value of our cash flow hedges through other comprehensive income for all derivative instruments.

Based on the implied forward rate for LIBOR at March 31, 2012, we anticipate that net finance costs will be increased by approximately $6.7 million for the 12 months ending March 31, 2013 due to the interest rate derivative contracts currently in place.

Fair Values of Derivative Instruments in the Consolidated Balance Sheets

The following table provides information about the fair value of our derivatives, by contract type:

		Fair Value
Derivatives Designated as Hedging Instruments	Balance Sheet Location	March 31, 2012		December 31, 2011
		(in thousands)
Interest rate contracts	Liabilities under derivative instruments	$	12,139	$	12,341

Earnings Effects of Derivative Instruments on the Consolidated Statements of Income

The following table provides information about the income effects of our cash flow hedging relationships for the three months ended March 31, 2012 and 2011:

	Location of Loss Recognized on Derivatives in the Statements of Income	Amount of Loss Recognized on Derivatives in the Statements of Income
		Three Months Ended March 31,
Derivatives in Cash Flow Hedging Relationships
		2012		2011
		(in thousands)
Interest rate contracts	Interest expense	$	2,448	$	3,366
Total		$	2,448	$	3,366

Our derivatives are designated in a cash flow hedging relationship with the effective portion of the change in fair value of the derivative reported in the cash flow hedges subaccount of accumulated other comprehensive income.

Effect of Derivative Instruments on Cash Flow Hedging

The following tables provide additional information about the financial statement effects related to our cash flow hedges for the three months ended March 31, 2012 and 2011:

Derivatives in Cash Flow Hedging Relationships	Amount of Gain Recognized in OCI on Derivatives (Effective Portion)				Location of Loss Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)
	Three Months Ended March 31,					Three Months Ended March 31,
	2012		2011			2012			2011
	(in thousands)					(in thousands)
Interest rate contracts*	$	202	$	2,589	Interest expense	$	(2,448	)	$	(3,366	)
Total	$	202	$	2,589	Total	$	(2,448	)	$	(3,366	)

* These amounts are shown net of $2.5 million and $2.9 million of interest payments reclassified to the income statement during the three months ended March 31, 2012 and 2011, respectively.

The effective portion of the change in fair value on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period during which the transaction being hedged affects earnings. The ineffective portion of the hedges is recorded in earnings in the current period. However, these are highly effective hedges and no significant ineffectiveness occurred in either period presented.

Counterparty Credit Risk

The Company evaluates the creditworthiness of the counterparties under its hedging agreements, all of which are large financial institutions in the United States and Germany with investment grade credit ratings. Based on those ratings, the Company believes that the counterparties are currently creditworthy and that their continuing performance under the hedging agreements is probable, and has not required those counterparties to provide collateral or other security to the Company. As of March 31, 2012, no hedging agreements exist under which the counterparties would owe the Company compensation upon termination due to their failure to perform under the applicable agreements.