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x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
For the quarterly period ended March 31, 2013
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|
OR
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o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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|
For the transition period from ___________ to __________
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Commission File Number: 1-11398
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New York
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11-2520310
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(State or other jurisdiction
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(IRS Employer Identification Number)
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of incorporation or organization)
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91 Heartland Blvd., Edgewood, NY
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11717
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(Address of principal executive offices)
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(zip code)
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
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Smaller reporting company o
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(Do not check if a smaller reporting company)
|
Item 1 – Financial Statements
|
|
Condensed Balance Sheets as of March 31, 2013 (Unaudited) and
|
3
|
December 31, 2012
|
|
Condensed Statements of Income and Comprehensive Income for the Three Months ended
March 31, 2013 (Unaudited) and 2012 (Unaudited)
|
4
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Condensed Statement of Shareholders’ Equity for the Three Months
|
5
|
ended March 31, 2013 (Unaudited) and 2012 (Unaudited)
|
|
Condensed Statements of Cash Flows for the Three Months ended March 31, 2013
|
6
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(Unaudited) and 2012 (Unaudited)
|
|
Notes to Condensed Financial Statements (Unaudited)
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7
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Item 2 – Management’s Discussion and Analysis of Financial Condition
|
14
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and Results of Operations
|
|
Item 3 – Quantitative and Qualitative Disclosures About Market Risk
|
21
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Item 4 – Controls and Procedures
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21
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Part II - Other Information
|
|
Item 1 – Legal Proceedings
|
22
|
Item 1A – Risk Factors
|
22
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
|
22
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Item 3 – Defaults Upon Senior Securities
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22
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Item 4 – Mine Safety Disclosures
|
22
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Item 5 – Other Information
|
22
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Item 6 – Exhibits
|
22
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Signatures
|
22
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Exhibits
|
22
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March 31,
|
December 31,
|
|
2013
|
2012
|
|
(Unaudited)
|
(Note 1)
|
ASSETS
|
|||
Current Assets:
|
|||
Cash
|
$1,260,876
|
$2,709,803
|
|
Accounts receivable, net
|
10,908,527
|
6,774,346
|
|
Costs and estimated earnings in excess of billings on uncompleted
|
|||
contracts
|
110,011,430
|
108,909,844
|
|
Deferred income taxes
|
526,000
|
534,000
|
|
Prepaid expenses and other current assets
|
605,767
|
426,063
|
|
Total current assets
|
123,312,600
|
119,354,056
|
|
Plant and equipment, net
|
3,038,601
|
2,907,476
|
|
Deferred income taxes
|
1,008,000
|
1,001,000
|
|
Other assets
|
108,080
|
1,620,984
|
|
Total Assets
|
$127,467,281
|
$124,883,516
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|||
Current Liabilities:
|
|||
Accounts payable
|
$8,426,740
|
$13,286,558
|
|
Accrued expenses | 167,642 | 943,356 | |
Billings in excess of costs and estimated earnings on uncompleted
contracts
|
310,027
|
656,853
|
|
Current portion of long-term debt
|
1,083,425
|
1,100,564
|
|
Line of credit
|
29,950,000
|
23,450,000
|
|
Income tax payable
|
301,530
|
106,000
|
|
Deferred income taxes
|
100,000
|
102,000
|
|
Total current liabilities
|
40,339,364
|
39,645,331
|
|
Long-term debt, net of current portion
|
2,945,238
|
3,209,873
|
|
Deferred income taxes
|
852,000
|
867,000
|
|
Other liabilities
|
574,455
|
567,113
|
|
Total Liabilities
|
44,711,057
|
44,289,317
|
|
Shareholders’ Equity:
|
|||
Common stock - $.001 par value; authorized 50,000,000 shares,
|
|||
issued 8,391,954 and 8,371,439 shares, respectively, and
|
|||
outstanding 8,391,954 and 8,371,439 shares, respectively
|
8,392
|
8,371
|
|
Additional paid-in capital
|
50,267,690
|
49,780,673
|
|
Retained earnings
|
32,517,258
|
30,845,982
|
|
Accumulated other comprehensive loss
|
(37,116)
|
(40,827)
|
|
Total Shareholders’ Equity
|
82,756,224
|
80,594,199
|
|
Total Liabilities and Shareholders’ Equity
|
$127,467,281
|
$124,883,516
|
For the Three Months Ended
|
||||
March 31,
|
||||
2013
|
2012
|
|||
(Unaudited)
|
Revenue
|
$19,927,433
|
$19,721,095
|
||
Cost of sales
|
15,486,863
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14,756,709
|
||
Gross profit
|
4,440,570
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4,964,386
|
||
Selling, general and administrative expenses
|
1,877,922
|
2,104,881
|
||
Income from operations
|
2,562,648
|
2,859,505
|
||
Interest expense
|
141,372
|
149,185
|
||
Income before provision for
|
||||
income taxes
|
2,421,276
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2,710,320
|
||
Provision for income taxes
|
750,000
|
791,000
|
||
Net income
|
1,671,276
|
1,919,320
|
||
Other comprehensive income (loss),
|
||||
net of tax -
|
||||
Change in unrealized gain (loss)-
|
||||
interest rate swap
|
3,711
|
(25,278)
|
||
Comprehensive income
|
$1,674,987
|
$1,894,042
|
||
Income per common share – basic
|
$0.20
|
$0.28
|
||
Income per common share – diluted
|
$0.20
|
$0.27
|
Shares used in computing income per common share:
|
||||
Basic
|
8,377,654
|
6,952,910
|
||
Diluted
|
8,447,974
|
7,228,061
|
||
|
Common
Stock
Shares
|
Amount
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Treasury
Stock
|
Accumulated
Other
Comprehensive
Loss
|
Total
Shareholders’
Equity
|
|
Balance at January 1, 2012
|
7,079,638
|
$7,080
|
$35,346,273
|
$19,834,852
|
$(1,140,226)
|
$(21,772)
|
$54,026,207
|
Net Income
|
----
|
----
|
----
|
1,919,320
|
----
|
----
|
1,919,320
|
Change in unrealized loss from interest rate swap
|
----
|
----
|
----
|
----
|
----
|
(25,278)
|
(25,278)
|
Common stock issued upon exercise
|
46,078
|
46
|
240,969
|
----
|
----
|
----
|
241,015
|
of options
|
|||||||
Common stock issued as bonus
|
15,260
|
15
|
228,275
|
----
|
----
|
----
|
228,290
|
Stock compensation expense
|
----
|
----
|
382,657
|
----
|
----
|
----
|
382,657
|
Treasury stock retired
|
(133,257)
|
(133)
|
(1,140,093)
|
----
|
1,140,226
|
----
|
----
|
Balance at March 31, 2012
|
7,007,719
|
$7,008
|
$35,058,081
|
$21,754,172
|
$----
|
$(47,050)
|
$56,772,211
|
Balance at January 1, 2013
|
8,371,439
|
$8,371
|
$49,780,673
|
$30,845,982
|
$----
|
$(40,827)
|
$80,594,199
|
Net Income
|
----
|
----
|
----
|
1,671,276
|
----
|
----
|
1,671,276
|
Change in unrealized loss from interest rate swap
|
----
|
----
|
----
|
----
|
----
|
3,711
|
3,711
|
Common stock issued upon exercise of options
|
2,645
|
3
|
(3)
|
----
|
----
|
----
|
---
|
|
|||||||
Tax benefit of stock option exercise
|
---
|
---
|
(26,000)
|
---
|
---
|
---
|
(26,000)
|
Common stock issued as bonus
|
17,870
|
18
|
152,056
|
----
|
----
|
----
|
152,074
|
Stock compensation expense
|
----
|
----
|
360,964
|
----
|
----
|
----
|
360,964
|
Balance at March 31, 2013
|
8,391,954
|
$8,392
|
$50,267,690
|
$32,517,258
|
$----
|
$(37,116)
|
$82,756,224
|
For the Three Months Ended March 31,
|
2013
|
2012
|
|||||
Cash flows from operating activities:
|
|||||||
Net income
|
$1,671,276
|
$1,919,320
|
|||||
Adjustments to reconcile net income to net
|
|||||||
cash used in operating activities:
|
|||||||
Depreciation and amortization
|
163,507
|
145,126
|
|||||
Deferred rent
|
13,655
|
22,680
|
|||||
Stock compensation
|
360,964
|
382,657
|
|||||
Deferred income taxes
|
(16,000)
|
(37,000)
|
|||||
Tax benefit from stock option plans
|
26,000
|
---
|
|||||
Changes in operating assets and liabilities:
|
|||||||
Increase in accounts receivable
|
(2,621,277)
|
(3,923,618)
|
|||||
Increase in costs and estimated earnings in excess of billings on
|
|||||||
uncompleted contracts
|
(1,101,586)
|
(3,480,219)
|
|||||
(Increase) decrease in prepaid expenses and other assets
|
(179,704)
|
215,874
|
|||||
Decrease in accounts payable and accrued expenses
|
(5,486,060)
|
(831,412)
|
|||||
Decrease in billings in excess of costs and estimated earnings | |||||||
on uncompleted contracts | (346,826) | (93,405) | |||||
Increase (decrease) in income taxes payable
|
169,530
|
(172,000)
|
|||||
Net cash used in operating activities
|
(7,346,521)
|
(5,851,997)
|
|||||
Cash used in investing activities - purchase of plant and equipment
|
(294,632)
|
(505,807)
|
|||||
Cash flows from financing activities:
|
|||||||
Payments on long-term debt
|
(281,774)
|
(230,833)
|
|||||
Proceeds from long-term debt
|
---
|
4,500,000
|
|||||
Proceeds from line of credit
|
6,500,000
|
1,500,000
|
|||||
Proceeds from exercise of stock options
|
---
|
241,015
|
|||||
Tax benefit from stock option plans
|
(26,000)
|
---
|
|||||
Net cash provided by financing activities
|
6,192,226
|
6,010,182
|
|||||
Net increase (decrease) in cash
|
(1,448,927)
|
(347,622)
|
|||||
Cash at beginning of period
|
2,709,803
|
878,200
|
|||||
Cash at end of period
|
$1,260,876
|
$530,578
|
|||||
Supplemental disclosures of cash flow information:
|
|||||||
Non cash investing and financing activities:
|
|||||||
Equipment acquired under capital lease
|
$---
|
$---
|
|||||
Common stock issued for bonuses
|
$152,074
|
$228,290
|
|||||
Cash paid during the period for:
|
|||||||
Interest
|
$238,443
|
$272,113
|
|||||
Income taxes
|
$500,000
|
$1,000,000
|
|
See Notes to Condensed Financial Statements.
|
|
CPI AEROSTRUCTURES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
|
2.
|
STOCK-BASED COMPENSATION
|
2013
|
2012
|
|
Risk-free interest rate
|
0.72%
|
0.9%
|
Expected volatility
|
106%
|
102%
|
Dividend yield
|
0%
|
0%
|
Expected option term
|
5 years
|
5 years
|
Weighted
average
Exercise
Price
|
Weighted
average
remaining
contractual
term (in years)
|
Aggregate
Intrinsic Value
|
||
Options
|
||||
Outstanding
|
||||
at beginning of period
|
495,517
|
$9.33
|
||
Granted
|
44,217
|
10.62
|
||
Exercised
|
(20,000)
|
8.20
|
||
Forfeited | (35,000) | 8.20 | ||
Outstanding and vested
|
|
|||
at end of period
|
484,734
|
$9.58
|
2.99
|
$406,648
|
March 31, 2013
|
||
Carrying Amount
|
Fair Value
|
|
|
||
Short-term borrowings and long-term debt
|
$33,978,663
|
$33,978,663
|
December 31, 2012
|
||
Carrying Amount
|
Fair Value
|
|
|
||
Short-term borrowings and long-term debt
|
$27,760,437
|
$27,760,437
|
Fair Value Measurements March 31, 2013
|
|||||
Description
|
Total
|
Quoted
Prices
in Active
Markets for
Identical assets (Level 1)
|
Significant
Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
|
Interest Rate Swap, net
|
$ 54,202
|
--
|
$ 54,202
|
--
|
|
Total
|
$ 54,202
|
--
|
$ 54,202
|
--
|
|
Fair Value Measurements December 31, 2012
|
|||||
Description
|
Total
|
Quoted
Prices
in Active
Markets for
Identical assets (Level 1)
|
Significant
Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
|
Interest Rate Swap, net
|
$60,516
|
--
|
$60,516
|
--
|
|
Total
|
$60,516
|
--
|
$60,516
|
--
|
March 31, 2013
|
|||
U.S
|
|||
Government
|
Commercial
|
Total
|
|
Costs incurred on uncompleted
|
|||
contracts
|
$246,341,518
|
$46,580,985
|
$292,922,503
|
Estimated earnings
|
65,879,081
|
25,421,477
|
91,300,558
|
Subtotal
|
312,220,599
|
72,002,462
|
384,223,061
|
Less billings to date
|
227,019,725
|
47,501,933
|
274,521,658
|
Costs and estimated earnings
|
|||
in excess of billings on
|
|||
uncompleted contracts
|
$85,200,874
|
$24,500,529
|
$109,701,403
|
December 31, 2012
|
||||
U.S.
|
||||
Government
|
Commercial
|
Total
|
||
Costs incurred on uncompleted
|
||||
contracts
|
$214,888,101
|
$42,636,753
|
$257,524,854
|
|
Estimated earnings
|
85,320,636
|
23,782,285
|
109,102,921
|
|
Subtotal
|
300,208,737
|
66,419,038
|
366,627,775
|
|
Less billings to date
|
215,743,090
|
42,631,694
|
258,374,784
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts
|
$84,465,647
|
$23,787,344
|
$108,252,991
|
March 31, 2013
|
December 31, 2012
|
|
Costs and estimated earnings in excess of billings on
|
||
uncompleted contracts
|
$ 110,011,430
|
$ 108,909,844
|
Billings in excess of costs and estimated earnings on
|
||
uncompleted contracts
|
(310,027)
|
(656,853)
|
Totals
|
$ 109,701,403
|
$ 108,252,991
|
5.
|
INCOME PER COMMON SHARE
|
6.
|
LINE OF CREDIT
|
Twelve months ending March 31,
|
|
2014
|
1,083,425
|
2015
|
985,190
|
2016
|
956,853
|
2017
|
928,195
|
2018
|
75,000
|
$4,028,663
|
|
Backlog
(Total)
|
March 31, 2013
|
December 31, 2012
|
Funded
|
$81,899,000
|
$52,318,000
|
Unfunded
|
338,414,000
|
339,563,000
|
Totals
|
$420,313,000
|
$391,881,000
|
Backlog
(Government)
|
March 31, 2013
|
December 31, 2012
|
Funded
|
$41,171,000
|
$43,215,000
|
Unfunded
|
178,474,000
|
190,109,000
|
Totals
|
$219,645,000
|
$233,324,000
|
Backlog
(Commercial)
|
March 31, 2013
|
December 31, 2012
|
Funded
|
$40,728,000
|
$9,103,000
|
Unfunded
|
159,940,000
|
149,454,000
|
Totals
|
$200,668,000
|
$158,557,000
|
Period
|
Total number
of shares
purchased (1)
|
Average
price paid
per share
|
Total number of shares
(or units) purchased as
part of publicly
announced plans or
programs
|
Maximum number (or
approximate dollar value) of
shares (or units) that may yet
be purchased under the plans
or programs
|
January 1, 2013 – January 31, 2013
|
7,787
|
$10.53
|
—
|
—
|
February 1, 2013 – February 29, 2013
|
—
|
—
|
—
|
—
|
March 1, 2013 – March 31, 2013
|
9,568
|
$8.57
|
—
|
—
|
Total
|
17,355
|
$9.45
|
—
|
—
|
(1)
|
Represents shares that were delivered to the Company pursuant to provisions of stock option agreements and the Performance Equity Plan 2009, which permit payment of the exercise price of options in shares of common stock delivered to the Company.
|
Exhibit 31.1
|
Section 302 Certification by Chief Executive Officer and President
|
Exhibit 31.2
|
Section 302 Certification by Chief Financial Officer (Principal Accounting Officer)
|
Exhibit 32
|
Section 906 Certification by Chief Executive Officer and Chief Financial Officer
|
Exhibit 101
|
The following financial information from CPI Aerostructures, Inc Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Income, (iii) the Condensed Statement of Shareholders' Equity, (iv) the Condensed Statements of Cash Flows, and (v) the Notes to the Condensed Financial Statements
|
CPI AEROSTRUCTURES, INC.
|
||
Dated: May 10, 2013
|
By.
|
/s/ Edward J. Fred
|
Edward J. Fred
|
||
Chief Executive Officer and President
|
||
Dated: May 10, 2013
|
By.
|
/s/ Vincent Palazzolo
|
Vincent Palazzolo
|
||
Chief Financial Officer (Principal Accounting Officer)
|
1.
|
I have reviewed this Quarterly Report on Form 10-Q of CPI Aerostructures, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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(b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 10, 2013
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By: |
/S/ Edward J. Fred
|
Name:Edward J. Fred
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|
Title: Chief Executive Officer and President
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1.
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I have reviewed this Quarterly Report on Form 10-Q of CPI Aerostructures, Inc.;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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(c)
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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(d)
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: May 10, 2013
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|
By: |
/S/ Vincent Palazzolo
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Name:Vincent Palazzolo
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|
Title: Chief Financial Officer
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Date: May 10, 2013
|
|
By: |
/S/ Edward J. Fred
|
Name:Edward J. Fred
|
|
Title: Chief Executive Officer and President
|
|
Date: May 10, 2013
|
|
By: |
/S/ Vincent Palazzolo
|
Name:Vincent Palazzolo
|
LONG-TERM DEBT (Details) (USD $)
|
3 Months Ended | 12 Months Ended | 12 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2013
|
Mar. 31, 2013
Interest Rate Swap [Member]
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Dec. 31, 2012
Sovereign Term Facility 2 [Member]
|
Mar. 09, 2012
Sovereign Term Facility 2 [Member]
|
Mar. 31, 2013
Sovereign Term Facility 2 [Member]
Interest Rate Swap [Member]
|
Dec. 31, 2008
Term loan [Member]
Sovereign Term Facility [Member]
|
Oct. 22, 2008
Term loan [Member]
Sovereign Term Facility [Member]
|
Dec. 31, 2012
Term loan [Member]
Sovereign Term Facility 2 [Member]
|
Mar. 09, 2012
Term loan [Member]
Sovereign Term Facility 2 [Member]
|
|
Debt Instrument [Line Items] | |||||||||
Principal amount of term loan | $ 3,000,000 | $ 4,500,000 | |||||||
Period of amortization | 5 years | 5 years | |||||||
Description of variable rate basis | Sovereign Term Facility 2 bears interest at the lower of LIBOR plus 3% or Sovereign Bank's prime rate. | ||||||||
Basis spread on variable rate (in hundredths) | 3.00% | ||||||||
Period of derivative contract | 5 years | ||||||||
Notional amount | 4,500,000 | ||||||||
Rate of interest on notional amount (in hundredths) | 4.11% | ||||||||
Basis spread on variable rate (in hundredths) | 3.00% | ||||||||
Effect of interest rate derivative (in hundredths) | 4.11% | ||||||||
Maturities of long-term debt [Abstract] | |||||||||
2014 | 1,083,425 | ||||||||
2015 | 985,190 | ||||||||
2016 | 956,853 | ||||||||
2017 | 928,195 | ||||||||
2018 | 75,000 | ||||||||
Long-term debt | 4,028,663 | ||||||||
Capital leases and notes payable | 353,663 | ||||||||
Current portion of capital leases and notes payable | $ 183,425 |
DERIVATIVE INSTRUMENTS AND FAIR VALUE
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3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2013
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DERIVATIVE INSTRUMENTS AND FAIR VALUE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVE INSTRUMENTS AND FAIR VALUE | 3. DERIVATIVE INSTRUMENTS AND FAIR VALUE Our use of derivative instruments has been to hedge interest rates. These derivative contracts are entered into with a financial institution. We do not use derivative instruments for trading purposes and we have procedures in place to monitor and control their use. We record these derivative financial instruments on the condensed balance sheets at fair value. For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Any ineffective portion of the gain or loss on the derivative instrument for a cash flow hedge is recorded in the results of operations immediately. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in the results of operations immediately. In March 2012, the Company entered into interest rate swaps with the objective of reducing our exposure to cash flow volatility arising from interest rate fluctuations associated with certain debt. The notional amount, maturity date, and currency of these contracts match those of the underlying debt. The Company has designated these interest rate swap contracts as cash flow hedges. The Company measures ineffectiveness by comparing the cumulative change in the forward contact with the cumulative change in the hedged item. No material ineffectiveness was recognized in the quarter ended March 31, 2013. As of March 31, 2013 and December 31, 2012, we had a net deferred loss associated with cash flow hedges of approximately $54,000 and $61,000, respectively, due to the interest rate swap which has been included in other liabilities. As a result of the use of derivative instruments, the Company is exposed to risk that the counterparties may fail to meet their contractual obligations. Recent adverse developments in the global financial and credit markets could negatively impact the creditworthiness of our counterparties and cause one or more of our counterparties to fail to perform as expected. To mitigate the counterparty credit risk, we only enter into contracts with carefully selected major financial institutions based upon their credit ratings and other factors, and continually assess the creditworthiness of counterparties. To date, all counterparties have performed in accordance with their contractual obligations. Fair Value At March 31, 2013 and December 31, 2012, the fair values of cash, accounts receivable, accounts payable and accrued expenses approximated their carrying values because of the short-term nature of these instruments.
We estimated the fair value of debt using market quotes and calculations based on market rates. The following table presents the fair values of those financial liabilities measured on a recurring basis as of March 31, 2013 and December 31, 2012:
The fair value of the Company's interest rate swaps was determined by comparing the fixed rate set at the inception of the transaction to the "replacement swap rate," which represents the market rate for an offsetting interest rate swap with the same notional amounts and final maturity date. The market value is then determined by calculating the present value of the interest differential between the contractual swap and the replacement swap. As of March 31, 2013 and December 31, 2012, $54,202 and $60,516, respectively, was included in Other Liabilities related to the fair value of the Company's interest rate swap and $37,116 and $40,827, respectively, net of tax of $17,086 and $19,689, respectively, was included in accumulated other comprehensive loss. |