6. Financial Instruments

Derivative Financial Instruments

Procurian is 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 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. See Note 7, “Debt.”

During the three and six months ended June 30, 2013, Procurian entered into forward contracts with monthly expirations to mitigate the risk of currency fluctuations at Procurian’s operations in Europe, Asia and South America. During the three months ended June 30, 2012, Procurian utilized average rate currency options and forward contracts with quarterly expirations to mitigate the risk of currency fluctuations at Procurian’s operations Europe, Asia and South America. The net mark-to-market adjustments recognized by Procurian were recorded on ICG’s Statements of Operations. The adjustments are detailed in the table below and represent the change in value of those instruments related to the fluctuation of exchange rates during the relevant period, as well as the premiums paid by Procurian for the options; there were no outright premiums paid for the forward contracts.

The following table presents the classifications and fair values of our derivative instruments as of June 30, 2013 and December 31, 2012 (in thousands):

Consolidated Balance Sheets
Derivative		Classification		June 30, 2013				December 31, 2012
Interest rate swap		Accrued expenses		$		(248	)	$		(90		)

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, 2013 and 2012, respectively (in thousands):

Three Months Ended

June 30,

Six Months Ended

June 30,

Derivative

Classification

2013

2012

2013

2012

Average rate currency options and forward contracts

Other income (loss), net

(26

)

(123

)

(136

)

(123

)

Interest rate swap

Interest income (expense)

(157

)

(158

)

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 June 30, 2013
Cash equivalents (money market accounts and commercial paper investments)	$	81,019		Market	$	81,019	$	—		$	—
Hedges of interest rate risk(1)		(248	)	Market		—		(248	)		—
	$	80,771			$	81,019	$	(248	)	$	—

	Asset (liability) at December 31, 2012			Valuation Technique (Approach)	Level 1
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	)	$	—

(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.