Derivatives And Hedging

9 Months Ended

Sep. 30, 2011

Derivatives And Hedging [Abstract]

Derivatives And Hedging

Note 5. Derivatives and Hedging

Our policy is to manage interest cost using a mixture of fixed-rate and variable-rate debt. To manage our interest rate risk, we occasionally hedge the future cash flows of our debt transactions, as well as changes in the fair value of our debt instruments, principally through interest rate contracts with major financial institutions. Interest rate contracts that meet specific criteria are accounted for as either assets or liabilities as a fair value or cash flow hedge.

Cash Flow Hedges of Interest Rate Risk:

Our objective in using interest rate contracts is to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we primarily use interest rate contracts as part of our interest rate risk management strategy. Interest rate contracts designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount or capping floating rate interest payments.

The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive loss and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings.

As of September 30, 2011 and December 31, 2010, respectively, we had three and two active interest rate contracts designated as cash flow hedges with an aggregate notional amount of $27.3 million and $11.8 million, respectively. These contracts have maturities through September 2017 and either fix or cap interest rates ranging from 2.3% to 5.0%. We have determined that these contracts are highly effective in offsetting future variable interest cash flows. As of September 30, 2011 and December 31, 2010, the fair value of these derivatives included in net other assets was $.04 million and $.09 million, respectively, and included in net other liabilities was $.7 million and $.1 million, respectively.

As of September 30, 2011 and December 31, 2010, the balance in accumulated other comprehensive loss relating to cash flow interest rate contracts was $10.6 million and $11.7 million, respectively, and will be reclassified to net interest expense as interest payments are made on our fixed-rate debt. Amounts reclassified from accumulated other comprehensive loss to net interest expense were $.7 million and $.6 million for the three months ended September 30, 2011 and 2010, respectively, and $1.9 million during both the nine months ended September 30, 2011 and 2010. Within the next 12 months, approximately $2.6 million of the balance in accumulated other comprehensive loss is expected to be amortized to net interest expense related to settled interest rate contracts.

Fair Value Hedges of Interest Rate Risk:

We are exposed to changes in the fair value of certain of our fixed-rate obligations due to changes in benchmark interest rates, such as LIBOR. We use interest rate contracts to manage our exposure to changes in fair value on these instruments attributable to changes in the benchmark interest rate. Interest rate contracts designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for us making variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Changes in the fair value of interest rate contracts designated as fair value hedges, as well as changes in the fair value of the related debt being hedged, are recorded in earnings each reporting period.

As of September 30, 2011 and December 31, 2010, we had four interest rate contracts, maturing through October 2017, with an aggregate notional amount of $119.6 million and $120.4 million, respectively, that were designated as fair value hedges and convert fixed interest payments at rates from 4.2% to 7.5% to variable interest payments ranging from .3% to 4.3% and .3% to 4.4%, respectively. We have determined that our fair value hedges are highly effective in limiting our risk of changes in the fair value of fixed-rate notes attributable to changes in interest rates.

For the three and nine months ended September 30, 2011, we recognized a net reduction in interest expense of $1.8 million and $5.3 million, respectively, related to our fair value hedges, which includes net settlements and any amortization adjustment of the basis in the hedged item. For the three and nine months ended September 30, 2010, we recognized a net reduction in interest expense of $1.5 million and $4.7 million, respectively, related to our fair value hedges, which includes net settlements and any amortization adjustment of the basis in the hedged item. Also, for the three and nine months ended September 30, 2010, we recognized a gain of $.3 million and $.9 million, respectively, associated with hedge ineffectiveness with no such activity in the related periods of 2011.

A summary of the changes in fair value of our interest rate contracts is as follows (in thousands):

	Gain (Loss) on     Contracts			Gain (Loss) on     Borrowings				Gain (Loss)     Recognized in Income
Three Months Ended September 30, 2011:
Interest expense, net		$	3,562		$	(3,562	)		$	-
Nine Months Ended September 30, 2011:
Interest expense, net		$	4,056		$	(4,056	)		$	-
Three Months Ended September 30, 2010:
Interest expense, net		$	6,851		$	(6,523	)		$	328
Nine Months Ended September 30, 2010:
Interest expense, net		$	20,744		$	(19,865	)		$	879

The interest rate contracts at September 30, 2011 and December 31, 2010 were reported at their fair values as follows (in thousands):

	Assets				Liabilities
	Balance Sheet Location		Amount		Balance Sheet Location		Amount
Designated Hedges:
September 30, 2011		Other Assets, net	$	11,200		Other Liabilities, net	$	655
December 31, 2010		Other Assets, net	$	7,192		Other Liabilities, net	$	108

A summary of our derivatives is as follows (in thousands):

Derivatives            Hedging       Relationships	Amount of Gain (Loss) Recognized in Other Comprehensive Income on Derivative (Effective Portion)	Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Loss into Income (Effective Portion)	Location of Gain (Loss) Recognized in Income on Derivative	Amount of Gain (Loss) Recognized  in Income on Derivative	Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Three Months Ended     September 30, 2011:
Cash Flow Interest Rate     Contracts	$            542	Interest expense, net	$            (654)			Interest expense, net	$	-
Fair Value Interest Rate     Contracts				Interest expense, net	$            4,577
Nine Months Ended     September 30, 2011:
Cash Flow Interest Rate     Contracts	$            844	Interest expense, net	$         (1,892)			Interest expense, net	$	(12	)
Fair Value Interest Rate     Contracts				Interest expense, net	$            7,149
Three Months Ended     September 30, 2010:
Cash Flow Interest Rate     Contracts	$            301	Interest expense, net	$            (619)			Interest expense, net	$	(39	)
Fair Value Interest Rate     Contracts				Interest expense, net	$            2,232	Interest expense, net	$	328
Nine Months Ended     September 30, 2010:
Cash Flow Interest Rate     Contracts	$            301	Interest expense, net	$         (1,947)			Interest expense, net	$	(39	)
Fair Value Interest Rate     Contracts				Interest expense, net	$        19,774	Interest expense, net	$	879