Fair Value Of Financial Instruments

6 Months Ended

Jun. 30, 2011

Fair Value Of Financial Instruments

Fair Value Of Financial Instruments

5. Fair Value of Financial Instruments

The Company's financial instruments are measured and recorded at fair value on a recurring basis, except for the note receivable from CareCentrix and long-term debt. The fair values for the note receivable from CareCentrix, long-term debt and non-financial assets, such as fixed assets, intangible assets and goodwill, are measured periodically and adjustments recorded only if an impairment charge is required. The carrying amount of the Company's accounts receivable, accounts payable and certain other current liabilities approximates fair value due to their short maturities.

Fair value is defined under authoritative guidance as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. The three levels of inputs are as follows:

• Level 1—Quoted prices in active markets for identical assets or liabilities.

• Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Financial Instruments Recorded at Fair Value

The Company's fair value hierarchy for its financial assets measured at fair value on a recurring basis was as follows (in thousands):

	June 30, 2011								December 31, 2010
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	36,986	$	—	$	—	$	36,986	$	49,478	$	—	$	—	$	49,478
Rabbi Trust:
Mutual funds		22,855		—		—		22,855		25,422		—		—		25,422
Money market funds		5,990		—		—		5,990		610		—		—		610
Total assets	$	65,831	$	—	$	—	$	65,831	$	75,510	$	—	$	—	$	75,510
Liabilities:
Payables to plan participants	$	28,845	$	—	$	—	$	28,845	$	26,032	$	—	$	—	$	26,032

Assets held in the Rabbi Trust are held for the benefit of participants of the Company's non-qualified defined contribution retirement plan. The value of assets held in the Rabbi Trust is based on quoted market prices of securities and investments, including money market accounts and mutual funds, maintained within the Rabbi Trust. The corresponding amounts payable to plan participants are equivalent to the underlying value of assets held in the Rabbi Trust. Assets held in the Rabbi Trust and amounts payable to plan participants are classified in other assets and other liabilities, respectively, in the Company's consolidated balance sheets. Money market funds held in the Company's account represent cash equivalents and were classified in cash and cash equivalents in the Company's consolidated balance sheets at June 30, 2011 and December 31, 2010.

Other Financial Instruments

The carrying amount and estimated fair value of the Company's other financial instruments were as follows (in thousands):

	June 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Note receivable from CareCentrix	$	25,000	$	26,300	$	25,000	$	27,300
Liabilities:
Long-term debt, including current portion	$	1,028,125	$	1,039,943	$	1,051,563	$	1,093,588

The estimated fair value of the note receivable from CareCentrix was determined from Level 3 inputs based on an income approach using the discounted cash flow method. The fair value represents the net present value of (i) the after tax cash flows relating to the note's annual income stream plus (ii) the return of the invested principal using a maturity date of March 25, 2014 (see Note 7), after considering assumptions relating to risk factors and economic conditions.

In determining the estimated fair value of long-term debt, Level 2 inputs based on the use of bid and ask prices were considered. Due to the infrequent number of transactions that occur related to the long-term debt, the Company does not believe an active market exists for purposes of this disclosure.

Cash Flow Hedge

The Company utilizes derivative financial instruments to manage interest rate risk. Derivatives are held only for the purpose of hedging such risk, not for speculative purposes. The Company's derivative instruments consist of (i) a one year interest cap with a notional value of $220.0 million and, until March 9, 2011, (ii) two year forward starting interest rate swaps with notional value of $300.0 million, each agreement designated as a cash flow hedge of the variability of cash flows associated with a portion of the Company's variable rate term loans. During the first quarter of 2011, the Company terminated the two year forward starting interest rate swaps in connection with the refinancing of the Company's Term Loan A and Term Loan B facilities under its senior secured credit agreement. The Company paid approximately $0.3 million to terminate the interest rate swaps, which is reflected in interest expense and other in the Company's consolidated statement of income for the six months ended June 30, 2011 (see Note 11).

While the Company believes the derivatives will effectively help manage its risk, the derivatives are subject to the risk that the counterparties are unable to perform under the terms of the swap agreement. The Company executed the derivatives with various counterparties that are well known major financial institutions. The Company has monitored the creditworthiness of its counterparties and based on this analysis considers nonperformance by its counterparties to be unlikely.

In accordance with applicable guidance, the derivative instruments are recorded at fair value on the Company's consolidated balance sheet. Changes in the fair value of the derivatives are reported in Gentiva shareholders' equity in accumulated other comprehensive income until earnings are affected by the hedged item. The effectiveness of the Company's derivatives was assessed at inception and is assessed on an ongoing basis, with any ineffective portion of the designated hedge reported currently in earnings. As of December 31, 2010, the Company had unrealized gains on the derivatives of $0.5 million recorded in accumulated other comprehensive income.