Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

The current FASB guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical instruments (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

● Level 1 inputs use quoted prices in active markets for identical instruments.

● Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar instruments in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

● Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related instrument.

In instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The company's assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

Fair value of financial instruments by the valuation hierarchy at September 30, 2014 is as follows (in thousands):

	Level 1		Level 2		Level 3
Long-term shareholder debt		—		—	$	21,582

Long-term shareholder debt

For debt instruments that are not publicly traded, fair values are based on interest rates that would be currently available to the company for issuance of similar types of debt instruments with similar terms and remaining maturities. The fair value for the Costa Brava Term Note was calculated based on the present value of the future cash flows in accordance with debt extinguishment. A 13% effective market interest rate was used to calculate the future cash flows based on level 3 input.  The Company did not reclassify between levels in the fair value hierarchy during the nine months ended September 30, 2014.

All other financial instruments

The Company’s other financial instruments include cash, accounts receivable and payable, short-term borrowings, accrued liabilities, other short-term liabilities, capital leases, and notes payable.  The carrying amount of these instruments approximates fair value because of their short-term nature.