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Financial Instruments

6 Months Ended

Jun. 30, 2012

6. Financial Instruments

Derivative Financial Instruments

During the three and six months ended June 30, 2012 and 2011, Procurian was party to an interest rate swap hedge agreement with PNC Bank to mitigate the risk of fluctuations in the variable interest rate related to Procurian’s term loan with PNC Bank. The net mark-to-market adjustments recognized by Procurian, which are detailed in the table below, represent the change in value of the swap related to the fluctuations in the applicable interest rates during the relevant periods. This instrument is set to mature in 2015. See Note 7, “Debt.”

During the three months ended June 30, 2012, Procurian purchased average rate currency options and forward contracts with quarterly expirations to mitigate the risk of currency fluctuations at Procurian’s operations in Europe (including the United Kingdom), Asia and South America. During the three and six months ended June 30, 2011, Procurian utilized average rate currency options with quarterly expirations to mitigate the risk of currency fluctuations at Procurian’s operations in Europe (including the United Kingdom), Asia and South America. The net mark-to-market adjustments recognized by Procurian, which are detailed in the table below, represent the premiums paid for the options by Procurian, as well as the change in value of the options related to the fluctuation of exchange rates during the relevant period.

The following table presents the classifications and fair values of our derivative instruments as of June 30, 2012 and December 31, 2011 (in thousands):


Consolidated Balance Sheets
Derivative	Classification	June 30, 2012			December 31, 2011

Average rate currency options and forward contracts	Prepaids and other current assets	$	117		$	—

Interest rate swap	Accrued expenses	$	(6	)	$	(36	)

The following table presents the mark-to-market impact on earnings resulting from ICG’s hedging activities for the three and six months ended June 30, 2012 and 2011, respectively (in thousands):


		Three Months ended June 30,						Six Months Ended June 30,
Derivative	Classification	2012			2011			2012			2011

Average rate currency options and forward contracts	Other income (loss), net	$	(123	)	$	6		$	(123	)	$	(142	)
Interest rate swap	Interest income (expense)	$	18		$	(55	)	$	30		$	(32	)

Fair Value Measurements

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value, which are as follows:

Level 1 – Observable inputs such as quoted market prices for identical assets and liabilities in active public markets.

Level 2 – Observable inputs other than Level 1 prices based on quoted prices in markets with insufficient volume or infrequent transactions, or valuations in which all significant inputs are observable for substantially the full term of the asset or liability.

Level 3 – Unobservable inputs to the valuation techniques that are significant to the fair value of the asset or liability.

Assets and liabilities are measured at fair value based on one or more of the following three valuation techniques:

Market Approach – Fair value is determined based on prices and other relevant information generated by market transactions involving identical or comparable assets and liabilities.

Income Approach – Fair value is determined by converting relevant future amounts to a single present amount based on market expectations (including present value techniques and option pricing models).

Cost Approach – Fair value represents the amount that currently would be required to replace the service capacity of the relevant asset (often referred to as replacement cost).

The fair value hierarchy of ICG’s financial assets measured at fair value on a recurring basis at June 30, 2012 and December 31, 2011 were as follows (in thousands):


	Asset (liability) as of June 30, 2012			Valuation Technique (Approach)	Level 1		Level 2			Level 3

Cash equivalents (money market accounts and commercial paper investments)	$	50,337		Market	$	50,337	$	—		$	—
Hedges of interest rate risk ⁽¹⁾		(6	)	Market		—		(6	)		—
Acquisition contingent consideration obligations		(1,197	)	Income		—		—			(1,197	)

	$	49,134			$	50,337	$	(6	)	$	(1,197	)


	Asset (liability) as of December 31, 2011			Valuation Technique (Approach)	Level 1		Level 2			Level 3

Cash equivalents (money market accounts and commercial paper investments)	$	111,775		Market	$	111,775	$	—		$	—
Hedges of interest rate risk ⁽¹⁾		(36	)	Market		—		(36	)		—
Acquisition contingent consideration obligations		(1,197	)	Income		—		—			(1,197	)

	$	110,542			$	111,775	$	(36	)	$	(1,197	)

⁽¹⁾	ICG’s counterparties under the arrangements provide quarterly statements of market values of those instruments based on significant inputs that are observable or can be derived principally from, or corroborated by, observable market data for substantially the full term of the asset or liability.