DERIVATIVE INSTRUMENTS AND FAIR VALUE

9 Months Ended

Sep. 30, 2012

DERIVATIVE INSTRUMENTS AND FAIR VALUE [Abstract]

DERIVATIVE INSTRUMENTS AND FAIR VALUE

3.  DERIVATIVE INSTRUMENTS AND FAIR VALUE

Our use of derivative instruments has been to hedge interest rates. These derivative contracts are entered into with a financial institution.  We do not use derivative instruments for trading purposes and we have procedures in place to monitor and control their use.

We record these derivative financial instruments on the condensed balance sheets at fair value.  For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

Any ineffective portion of the gain or loss on the derivative instrument for a cash flow hedge is recorded in the results of operations immediately.  For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the results of operations immediately.

In October 2008 and March 2012, the Company entered into interest rate swaps with the objective of reducing our exposure to cash flow volatility arising from interest rate fluctuations associated with certain debt.  The notional amount, maturity date, and currency of these contracts match those of the underlying debt.  The Company has designated these interest rate swap contracts as cash flow hedges.  The Company measures ineffectiveness by comparing the cumulative change in the forward contact with the cumulative change in the hedged item.  No material ineffectiveness was recognized in the quarter ended September 30, 2012.  As of September 30, 2012 and December 31, 2011, we had a net deferred loss associated with cash flow hedges of approximately $84,000 and $33,000, respectively, due to the interest rate swap which has been included in Other Liabilities.

As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties may fail to meet their contractual obligations.  Recent adverse developments in the global financial and credit markets could negatively impact the creditworthiness of our counterparties and cause one or more of our counterparties to fail to perform as expected.  To mitigate the counterparty credit risk, we only enter into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties.  To date, all counterparties have performed in accordance with their contractual obligations.

Fair Value

At September 30, 2012 and December 31, 2011, the fair values of cash, accounts receivable, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these instruments.

	September 30, 2012
	Carrying Amount		Fair Value
Debt
Short-term borrowings and long-term debt	$	21,906,235	$	21,906,235

	December 31, 2011
	Carrying Amount		Fair Value
Debt
Short-term borrowings and long-term debt	$	17,876,619	$	17,876,619

We estimated the fair value of debt using market quotes and calculations based on market rates.

The following table presents the fair values of those financial liabilities measured on a recurring basis as of September 30, 2012 and December 31, 2011:

			Fair Value Measurements September 30, 2012
Description	Total		Quoted Prices in Active  Markets for  Identical assets  (Level 1)		Significant  Other  Observable  Inputs (Level 2)		Significant  Unobservable  Inputs (Level 3)
Interest Rate Swap, net	$	84,239		--	$	84,239		--
Total	$	84,239		--	$	84,239		--
			Fair Value Measurements December 31, 2011
Description	Total		Quoted Prices  in Active  Markets for  Identical assets  (Level 1)		Significant  Other  Observable  Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Interest Rate Swap, net	$	32,988		--	$	32,988		--
Total	$	32,988		--	$	32,988		--

The fair value of the Company's interest rate swaps was determined by comparing the fixed rate set at the inception of the transaction to the "replacement swap rate," which represents the market rate for an offsetting interest rate swap with the same notional amounts and final maturity date.  The market value is then determined by calculating the present value of the interest differential between the contractual swap and the replacement swap.

As of September 30, 2012 and December 31, 2011, $84,239 and $32,988, respectively, was included in Other Liabilities related to the fair value of the Company's interest rate swap, and $55,598 and $21,772, respectively, net of tax of $28,641 and $11,216, was included in Accumulated Other Comprehensive Loss.