Quarterly report pursuant to sections 13 or 15(d)

Warrants And Derivative Financial Instruments

v2.3.0.11
Warrants And Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2011
Warrants And Derivative Financial Instruments [Abstract]  
Warrants And Derivative Financial Instruments
6. Warrants and Derivative Financial Instruments

The Company has determined that the warrants discussed in Note 2, issued in connection with the IPO including the Overallotment Units, should be classified as liabilities in accordance with ASC 815. Therefore, the fair value of each instrument must be recorded as a liability on the Company's balance sheet. Changes in the fair values of these instruments are reflected as adjustments to the amount of the recorded liabilities and the corresponding gain or loss is recorded in the Company's statement of operations within "Gain (loss) on derivatives". At the date of the conversion of each warrant or portion thereof, or exercise of the warrants or portion thereof, as the case may be, the corresponding liability is reclassified as equity. The warrants expired in April 2011 and the Company recorded a realized gain of $83 thousand as a result of the expiration.

On July 20, 2010, the Company entered into an interest rate swap with a July 30, 2010 effective date. The interest rate swap agreement, which expires in June 2014, had a notional value of $16.3 million on September 30, 2011, which represented approximately 65% of the outstanding underlying debt, and a fixed rate of 1.40%. The fair value of the interest rate swap outstanding at September 30, 2011 was a liability of $302 thousand. The Company has designated the swap as a cash flow hedge. In accordance with ASC 815, the fair value of the swap is shown on the Company's consolidated balance sheet within derivative liabilities, unrealized changes in the value are included in other comprehensive income within the stockholders' equity section on the Company's consolidated balance sheet and any realized changes are included in the Company's consolidated statement of operations within interest expense.

The following table presents the fair values of the Company's derivative instruments (in thousands):

 

Description

    Balance Sheet Location    September 30,
2011		      December 31,
2010		  

Derivative Designated as a Cash Flow Hedge:

         

Interest rate swap

    Derivative liabilities    $ 302       $ 100   

Derivatives Not Designated as Hedging Instruments:

         

Warrants

    Derivative liabilities      —           83   
     

 

 

     

 

 

  

Total

       $ 302       $ 183   
     

 

 

     

 

 

  

The following table presents the pretax impact that changes in the fair values of derivatives designated as hedging instruments had on AOCI and earnings during the three months ended September 30, 2011 (in thousands):

 

Description

    Loss
Recognized
in OCI		      Location of
Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)		   Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)		      Location of Gain (Loss)
Recognized in Income
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)		   Gain (Loss)
Recognized in Income
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)		  

Interest rate swap

    $ 107       Gain (loss)
on derivatives		   $ —         Gain (loss)
on derivatives		   $ —     
  

 

 

       

 

 

       

 

 

  

Total

    $ 107         $ —           $ —     
  

 

 

       

 

 

       

 

 

  

 

The following table presents the pretax impact that changes in the fair values of derivatives designated as hedging instruments had on AOCI and earnings during the nine months ended September 30, 2011 (in thousands):

 

Description

    Loss
Recognized
in OCI		      Location of
Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)		   Gain (Loss)
Reclassified from
AOCI into Income
(Effective Portion)		      Location of Gain (Loss)
Recognized in Income
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)		   Gain (Loss)
Recognized in Income
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)		  

Interest rate swap

    $ 203       Gain (loss)
on derivatives		   $ —         Gain (loss)
on derivatives		   $ —     
  

 

 

       

 

 

       

 

 

  

Total

    $ 203         $ —           $ —     
  

 

 

       

 

 

       

 

 

  

The following table presents the pretax gains (losses) that changes in the fair values of derivatives not designated as hedging instruments had on earnings during the three and nine months ended September 30, 2011 and 2010 (in thousands):

 

Description

   

Location of
Gain (Loss)
Recognized in
Income

    Three Months Ended
September 30, 		     Nine Months Ended
September 30, 		 
      2011      2010      2011      2010  

Warrants

    Gain (loss) on derivatives    $ —         $ 250       $ 83       $ (491 ) 

Interest rate swap

    Gain (loss) on derivatives      —           —           —           281   
     

 

 

     

 

 

     

 

 

     

 

 

  

Total

       $ —         $ 250       $ 83       $ (210 ) 
     

 

 

     

 

 

     

 

 

     

 

 

  

The following tables present the methods used to establish fair value measurements for each of the derivatives (in thousands):

 

            Fair Value Measurements at Reporting Date Using  

Description

    September 30,
2011		      Quoted Prices in
Active Markets for
Identical Liabilities
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		  

Warrant liability

    $ —         $ —         $ —         $ —     

Interest rate swap liability

      302         —           302         —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 302       $ —         $ 302       $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

 

            Fair Value Measurements at Reporting Date Using  

Description

    December 31,
2010		      Quoted Prices in
Active Markets for
Identical Liabilities
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		  

Warrant liability

    $ 83       $ 83       $ —         $ —     

Interest rate swap liability

      100         —           100         —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 183       $ 83       $ 100       $ —