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Financial Instruments: Derivatives and Hedging

3 Months Ended

Mar. 31, 2012

Financial Instruments: Derivatives and Hedging

Financial Instruments: Derivatives and Hedging

4. Financial Instruments: Derivatives and Hedging

The Company’s hedging activity was limited to an interest rate swap. The purpose of the interest rate swap, which was terminated on February 22, 2011, was to fix the interest rate for the term of the loan and protect the Company from future interest rate increases on the Term Loan that is described in Note 3.

The fair value of the Company’s derivative instrument was determined using the net discounted cash flows of the expected cash flows of the derivative based on the market based interest rate curve. This financial instrument was classified within Level 2 of the fair value hierarchy and was classified as a liability on the condensed consolidated balance sheets.

The interest rate swap represented a cash flow hedge and was recorded at fair value and classified as a liability. Changes in the recorded fair value of the interest rate swap were recorded to other comprehensive income. On February 22, 2011, the Company used approximately $983,000 to terminate the interest rate swap agreement applicable to the Term Loan. The payment to terminate the interest rate swap liability was amortized into interest expense through October 15, 2011.

The interest amortization for the Company’s terminated interest rate swap reclassified from Accumulated Other Comprehensive Income into interest expense for the three months ended March 31, 2011 was $155,000 and for the year ended December 31, 2011 was $983,000. The effective portion of the loss on outstanding derivative recognized in Other Comprehensive Income for the three months ended March 31, 2011 was $155,000 and for the year ended December 31, 2011 was $983,000.