FINANCIAL INSTRUMENTS AND FAIR VALUE

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

FINANCIAL INSTRUMENTS AND FAIR VALUE

NOTE D –FINANCIAL INSTRUMENTS AND FAIR VALUE

Financial Instruments

We are exposed to certain risks relating to our ongoing business operations. Prior to June 1, 2012 when our interest rate swaps expired, we managed our interest rate risk using interest rate swaps associated with outstanding borrowings under our credit agreement since our interest rates are floating rates based on LIBOR.  Our interest rate swaps were intended to convert a portion of our floating rate debt to a fixed rate.  We did not use interest rate swaps for speculative or trading purposes.  We hold no other derivative financial instruments.  Our interest rate swaps were recorded as liabilities at fair value on our condensed consolidated balance sheets.  We entered into interest rate swaps that were designed to hedge our interest rate risk but were not designated as “hedging instruments”, as defined under guidance issued by the Financial Accounting Standards Board (“FASB”).  Changes in the fair value of these instruments were recognized as interest expense on our condensed consolidated statements of comprehensive earnings.

A roll forward of the notional value of our interest rate swaps is as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2012		2011			2012			2011
Balance, beginning of the period	$	—	$	9,333		$	7,667		$	11,000
New contracts		—		—			—			—
Matured contracts		—		(833	)		(7,667	)		(2,500	)
Balance, end of the period	$	—	$	8,500		$	—		$	8,500

The location and fair value of our derivative financial instruments not designated as hedging instruments in our condensed consolidated balance sheets were as follows (in thousands):

Type	Maturity	Balance Sheet Location	September 30, 2012		December 31, 2011
Interest rate swaps	June 2012	Other current liabilities	$	—	$	57

The following table includes information about gains and losses recognized on our derivative financial instruments not designated as hedging instruments in our condensed consolidated statements of comprehensive earnings (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,						Location of Loss (Gain) Recognized in Income
	2012		2011			2012			2011
Periodic settlements	$	—	$	38		$	60		$	111		Interest expense
Change in fair value	$	—	$	(38	)	$	(57	)	$	(98	)	Interest expense

Financial Instruments Measured at Fair Value on a Recurring Basis

We measure fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In accordance with guidance issued by the FASB, we use a three-level fair value hierarchy to prioritize the inputs used to measure fair value. The hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

● Level 1 – Quoted prices in active markets for identical assets or liabilities.

● Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

We had the following assets (liabilities) measured at fair value on a recurring basis subject to disclosure requirements (in thousands):

	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
September 30, 2012
Money market funds	$	137	$	—		$	—	$	137
Marketable securities		11,648		—			—		11,648
Total assets	$	11,785	$	—		$	—	$	11,785
December 31, 2011
Money market funds	$	8,483	$	—		$	—	$	8,483
Marketable securities		11,625		—			—		11,625
Total assets	$	20,108	$	—		$	—	$	20,108
Interest rate swaps liability	$	—	$	(57	)	$	—	$	(57	)

Our interest rate swaps were contracts with our financial institution and were not contracts that could be traded in a ready market. We estimated the fair value of our interest rate swaps based on, among other things, discounted cash flows based upon current market expectations about future amounts, yield curves, and mid-market pricing.  Accordingly, we classified our interest rate swap agreements as Level 2.

Financial Instruments Not Measured at Fair Value

Our financial instruments not measured at fair value consist of cash and cash equivalents, accounts receivable, and accounts payable, the carrying value of each approximating fair value due to the nature of these accounts. Our financial instruments not measured at fair value also include borrowings under our credit agreement.  We estimate the fair value of outstanding borrowings under our credit agreement based on the current market rates applicable to borrowers with credit profiles similar to us (level 2).  We estimate that the carrying value of our borrowings approximates fair value at September 30, 2012.

There were no nonfinancial assets or nonfinancial liabilities measured at fair value at September 30, 2012 or December 31, 2011.