FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

9 Months Ended

Sep. 30, 2011

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES [Abstract]

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

NOTE 9. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Effective January 1, 2008, DXP adopted authoritative guidance for financial assets and liabilities measured on a recurring basis. This authoritative guidance applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance affects the fair value measurement of an interest rate swap to which the Company was a party until January 11, 2010, which must be classified in one of the following categories:

Level 1 Inputs

These inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 Inputs

These inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Inputs

These are unobservable inputs for the asset or liability which require the Company's own assumptions.

Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The following presents the changes in Level 3 liabilities for the three months and nine months ended September 30, 2011 and 2010 (in thousands):

	Interest Rate Swap
	2011	2010
Three Months Ended September 30
Fair value at July 1	$            -	$            -
Realized and unrealized gains (losses)   included in other comprehensive income	-	-
Fair value at September 30	$            -	$            -
Nine Months Ended September 30
Fair value at January 1	$            -	$       (42)
Realized and unrealized gains (losses)   included in other comprehensive income	-	42
Fair value at September 30	$            -	$            -

To hedge a portion of our floating rate debt, as of January 10, 2008, DXP entered into an interest rate swap agreement with the lead bank of our credit facility.  Through January 11, 2010, this interest rate swap effectively fixed the interest rate on $40 million of floating rate LIBOR borrowings under the Facility at one-month LIBOR of 3.68% plus the margin in effect under our credit facility.  This swap was designated as a cash flow hedging instrument.  Changes in the fair value of the swap were included in other comprehensive income.  At December 31, 2010 and September 30, 2011, the accumulated derivative loss, net of income taxes, was zero.