FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

12 Months Ended

Dec. 31, 2011

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES [Abstract]

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

12.  FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

Effective January 1, 2008, we 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 marketable securities and an interest rate swap to which the Company was a party, 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 2009, 2010, and 2011 (in thousands):

	2009	2010	2011
Fair value at January 1,	$ ( 1,202)	$ (    42)	-
Realized and unrealized gains included in other comprehensive income	1,160	42	-
Fair value at December 31,	$ (      42)	$           -	-

During 2011, the Company paid $1,572,000 for an investment with quoted market prices in an active market for identical instruments.  The $106,000 increase in the market value of this investment was included in other comprehensive income in 2011.

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 the 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 the Facility.  Amounts paid or received in connection with the swap were included in interest expense.  This swap was designated as a cash flow hedging instrument.  Changes in the fair value of the swap were included in other comprehensive income.  See Note 13 “Other Comprehensive Income” for gain, net of income taxes, on the interest rate swap.

The Company measures certain non-financial assets and liabilities, including long-lived assets, at fair value on a non-recurring basis.  In 2009, the Company recorded a charge of $53.0 million related to the impairment of goodwill and other tangibles at the Service Centers, SCS and PFI reporting units.  The fair market value of these reporting units was determined using the income approach and Level 3 inputs, which required management to make estimates about future cash flows.  Management estimated the amount and timing of future cash flows based on its experience and knowledge of the business environment in which the reporting units operate.