NOTE 9—Financial Instruments

Our financial instruments are classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table summarizes the valuation of our financial instrument pricing levels as of December 31, 2012 and 2011:

	Total			Level 1		Level 2			Level 3
2012:
Available-for-sale securities	$	239,000		$	239,000	$	—		$	—

2011:
Available-for-sale securities	$	213,000		$	213,000	$	—		$	—
Interest rate swap	(147,000		)	—		(147,000		)	—

Our investments in available-for-sale securities consist of mutual funds. These investments are included in other assets, net on our consolidated balance sheets.

We previously had an interest rate swap agreement effectively converting a portion of the outstanding borrowings under our revolving credit agreement to a fixed-rate, thereby hedging against the impact of potential interest rate changes on future interest expense. The interest rate swap expired in April 2012. At December 31, 2011, the interest rate swap had a negative fair value of $147,000 which is recorded in other liabilities. The fair value of the interest rate swap was based on quotes from the issuer of the swap and represents the estimated amounts that we would expect to pay to terminate the swap. We recognized $83,000 and $272,000, net of income taxes, in unrealized gains on our interest rate swap during 2012 and 2011, respectively.

The carrying amounts of other financial instruments reported in the balance sheet for current assets and current liabilities approximates their fair values because of the short maturity of these instruments.