Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v2.4.0.8
Fair Value Measurements
12 Months Ended
Dec. 31, 2013
Fair Value Measurements  
Fair Value Measurements

(11) Fair Value Measurements

 

According to the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value are classified and disclosed in the following three categories:

 

·                  Level 1 - Quoted prices for identical instruments in active markets.

·                  Level 2 - Quoted prices for similar instruments in active or inactive markets and valuations derived from models where all significant inputs are observable in active markets.

·                  Level 3 - Valuations derived from valuation techniques in which one or more significant inputs are unobservable in any market.

 

The following summarizes the fair value level of assets and liabilities that are measured on a recurring basis at December 31 (amounts in thousands):

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

2013

 

 

 

 

 

 

 

 

 

Derivative financial instruments - assets

 

$

 

2,495

 

 

2,495

 

Derivative financial instruments - liabilities

 

 

(2,013

)

 

(2,013

)

Total

 

$

 

482

 

 

482

 

 

 

 

 

 

 

 

 

 

 

2012

 

 

 

 

 

 

 

 

 

Derivative financial instruments - assets

 

$

 

116

 

 

116

 

Derivative financial instruments - liabilities

 

 

(12,359

)

 

(12,359)

 

Total

 

$

 

(12,243

)

 

(12,243

)

 

The Company has determined that the majority of the inputs used to value the Swaps fall within Level 2 of the fair value hierarchy.  The credit valuation adjustments associated with the derivative utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by its counterparties.  As the counterparties have publicly available credit information, the credit spreads over LIBOR used in the calculations represent implied credit default swap spreads obtained from a third-party credit data provider.  However, as of December 31, 2013, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of the Swaps.  As a result, the Company has determined that the December 31, 2013 derivative valuation is classified in Level 2 of the fair value hierarchy.

 

The following table presents the activity in the Level 3 balances (amounts in thousands):

 

 

 

Year Ended December 31,

 

Derivative financial instruments — liabilities

 

2013

 

2012

 

Beginning balance

 

$

 

$

(16,959

)

Unrealized gain

 

 

16,959

 

Ending balance

 

$

 

$

 

 

Carrying values and fair values of financial instruments that are not carried at fair value are as follows (amounts in thousands):

 

Long term debt, including current portion:

 

December 31, 2013

 

December 31, 2012

 

 

 

 

 

 

 

Carrying value

 

$

1,606,793

 

$

1,108,383

 

Fair value (a)

 

1,656,797

 

1,130,978

 

 

(a)          The fair value is based on valuations from third party financial institutions and is classified as Level 2 in the hierarchy.

 

The Company’s financial instruments, including cash and cash equivalents, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of their short-term maturity.