6.	Financial Instruments

Derivative Financial Instruments

In 2010, Procurian entered into 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 are detailed in the table below and represent the change in value of the swap related to the fluctuations in the applicable interest rates during the relevant periods. That instrument was terminated by Procurian on August 1, 2012. On August 9, 2012, Procurian entered into a new interest rate swap hedge agreement with PNC Bank related to $10.0 million of its outstanding term loan balance that is effective beginning August 9, 2013. See Note 8, “Debt.”

During the years ended December 31, 2012, 2011 and 2010, Procurian utilized average rate currency options with quarterly expirations to mitigate the risk of currency fluctuations at Procurian’s operations in the United Kingdom, Europe, Asia and South America. The net mark-to-market adjustments recognized by Procurian are detailed in the table below and 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.

In 2010, ICG managed its exposure to price fluctuations of Blackboard through the use of cashless collar contracts. The income or loss attributed to these contracts was primarily driven by the change in the closing price of Blackboard common stock from the beginning to the end of the relevant quarter, the impact of which is detailed in the table below.

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


Consolidated Balance Sheets
Derivative	Classification	December 31, 2012			December 31, 2011
Interest rate swap	Accrued expenses	$	(90	)	$	(36	)

The following table presents the mark-to-market impact on earnings resulting from ICG’s hedging activities for the years ended December 31, 2012, 2011 and 2010, respectively (in thousands):


Consolidated Statements of Operations
		Year ended December 31,
Derivative	Classification	2012			2011			2010
Average rate currency options	Other income (loss), net	$	(262	)	$	(195	)	$	(60	)
Interest rate swap	Interest income (expense)	$	54		$	(24	)	$	(12	)
Cashless collar contracts	Other income (loss), net	$	—		$	—		$	547

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 was as follows (in thousands):


	Asset (liability) at December 31, 2012			Valuation Technique (Approach)		Level 1		Level 2			Level 3

Cash equivalents (money market accounts and commercial paper investments)	$	23,598			Market	$	23,598	$	—		$	—
Hedges of interest rate risk⁽¹⁾		(90	)		Market		—		(90	)		—

	$	23,508				$	23,598	$	(90	)	$	—


	Asset (liability) at 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 respective 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.

During the year ended December 31, 2012, GovDelivery determined that the estimated fair value of its acquisition contingent consideration obligations had changed with respect to a prior acquisition. The contingent consideration liability had an estimated fair value of $0.7 million, which was determined at the acquisition date, and was written down to the current estimated fair value of zero which resulted in a gain of $0.7 million that is included in “Impairment related and other” on ICG’s Consolidated Statements of Operations. In conjunction with this determination, GovDelivery also performed an impairment analysis of intangible assets and goodwill that were recorded related to the acquisition. See Note 3, “Goodwill and Intangibles, net”.

As discussed in Note 3, “Goodwill and Intangibles, net,” ICG’s non-financial assets measured on a non-recurring basis using the market approach were as follows (in thousands):


	As of December 31,
	2012		2011
	(in thousands)
Significant unobservable inputs (Level 3):
Goodwill (annual impairment assessment)	$	107,794	$	21,843
Acquired intangible assets (periodic assessment, as necessary)		84,715		14,431

	$	192,509	$	36,274