Interest Rate Swaps

9 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Interest Rate Swaps

INTEREST RATE SWAPS

Our credit facility exposes us to short-term changes in market interest rates as our interest obligations on these instruments are periodically re-determined based on the prevailing Eurodollar rate. We enter into interest rate swaps to limit our exposure to fluctuations in interest rates. We do not engage in derivative transactions for speculative or trading purposes and we are not a party to leveraged derivatives.

Currently, we have five executed interest rate swap agreements outstanding covering $250 million of our borrowings under the credit facility. In February 2012, we temporarily suspended four swaps for periods ranging from two to five months due to the repayment of borrowings under the credit facility following the issuance of the Notes. During the quarter ended June 30, 2012, two of the suspended swaps became active again, resulting in a total of three interest rate swap agreements in effect to fix the interest rate on $150.0 million of our borrowings under the credit facility at 3.5%. The remaining two suspended swaps will become active again in the quarter ended September 30, 2012. When all five swaps are active, the swaps fix the interest rate on $250 million of borrowings under the credit facility at a weighted average interest rate of 3.4% through September 2014.

Fair Value of Derivatives

The following table presents the carrying amount of our cash flow hedge derivative contracts included in the Consolidated Balance Sheets as of June 30, 2012 and September 30, 2011 (in thousands):

		June 30		September 30
Type of Contract	Balance Sheet Classification	2012		2011
Short term interest rate swaps	Accrued liabilities	$	1,481	$	988
Long term interest rate swaps	Other long-term liabilities	1,235		631
Total derivative contracts, net		$	2,716	$	1,619

We record the interest rate derivative contracts at fair value on our consolidated balance sheets (See Note 8). Hedging effectiveness is evaluated each quarter end using the “Dollar Off-Set Method”. Each quarter, changes in the fair values will adjust the balance sheet asset or liability, with an offset to Other Comprehensive Income (“OCI”) for the effective portion of the hedge.

For the three and nine months ended June 30, 2012, we recognized a loss of approximately $0.6 million and $1.1 million, respectively, in OCI as a result of changes in fair value of our interest rate swaps as of June 30, 2012, net of realized losses incurred via settlement payments throughout the period, and as a result of a loss realized from hedge ineffectiveness.

For interest rate swaps, we evaluate all material terms between the swap and the underlying debt obligation. Any change in fair value resulting from ineffectiveness is recognized immediately in earnings. For the nine months ended June 30, 2012, we recognized a $0.4 million loss on our condensed consolidated statement of operations due to hedge ineffectiveness. No loss was recognized during the quarter ended June 30, 2012 due to ineffectiveness.