FINANCIAL INSTRUMENTS AND FAIR VALUE

6 Months Ended

Jun. 30, 2013

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 were 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. Since June 1, 2012, we have held no interest rate swaps or other derivative financial instruments. Our interest rate swaps were recorded as either assets or liabilities at fair value on our consolidated balance sheets. We entered into interest rate swaps that were designed to hedge our interest rate risk but are 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 statement of comprehensive earnings (loss).

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012
Balance, beginning of the period	$	—	$	6,833		$	—	$	7,667
New contracts		—		—			—		—
Matured contracts		—		(6,833	)		—		(7,667	)
Balance, end of the period	$	—	$	—		$	—	$	—

The following table includes information about gains and losses recognized on our interest rate swaps (in thousands):

	Three Months Ended June 30,					Six Months Ended June 30,					Location of Loss (Gain)
	2013		2012			2013		2012			Recognized in Income
Periodic settlements	$	—	$	29		$	—	$	60			Interest expense
Change in fair value	$	—	$	(29	)	$	—	$	(57	)		Interest expense

Fair Value of 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 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
June 30, 2013
Money market funds	$	472	$	—	$	—	$	472
Marketable securities		20,319		—		—		20,319
Total assets	$	20,791	$	—	$	—	$	20,791

December 31, 2012
Money market funds	$	477	$	—	$	—	$	477
Marketable securities		11,319		—		—		11,319
Total assets	$	11,796	$	—	$	—	$	11,796

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. We estimate that the carrying value of our borrowings approximates fair value at June 30, 2013.

Other Fair Value Measurements

There were no nonfinancial assets or nonfinancial liabilities measured at fair value at June 30, 2013 or December 31, 2012.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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