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Investments and Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Investments and Fair Value Measurements [Abstract]  
Investments and Fair Value Measurements
9.             Investments and Fair Value Measurements
 
We categorize financial assets and liabilities measured and reported at fair value in the financial statements on a recurring basis based upon the level of judgments associated with the inputs used to measure their fair value.  Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs used to determine the fair value of financial assets and liabilities, are as follows:

 
·
Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
 
 
·
Level 2 – Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the assets or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.
 
 
·
Level 3 – Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.  Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
 
Each major category of financial assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.  The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Financial instruments in Level 1 generally include U.S. treasuries and mutual funds listed in active markets.  Financial instruments in Level 2 generally include municipal bonds listed in secondary markets.
 
The following table presents assets and liabilities measured at fair value as of December 31, 2011 and December 31, 2010.

   
Fair Value Measurements at Reporting Date Using
 
      
Quoted Prices in
  
Quoted Prices in
    
      
Active Markets for
  
Inactive Markets for
  
Significant
 
      
Identical Assets
  
Identical Assets
  
Unobservable Inputs
 
   
Total
  
(Level 1)
  
(Level 2)
  
(Level 3)
 
As of December 31, 2011:
            
Assets:
            
Cash and cash equivalents
 $14,848  $14,848  $-  $- 
Mutual funds
  56,163   56,163   -   - 
Government agency bonds
  5,261   -   5,261   - 
Certificate of deposit (a)
  2,085   2,085   -   - 
   $78,357  $73,096  $5,261  $- 
                  
As of December 31, 2010:
                
Assets:
                
Cash and cash equivalents
 $10,743  $10,743  $-  $- 
Corporate bonds
  10,228   10,228   -   - 
U.S. treasury securities
  505   505   -   - 
Mutual funds
  54,311   54,311   -   - 
Government agency bonds
  32,262   -   32,262   - 
Certificate of deposit (a)
  2,176   2,176   -   - 
   $110,225  $77,963  $32,262  $- 
 
 
    (a)Certificate of deposit matures in July 2013.

The Company's cash and cash equivalents and short-term investments, excluding government agency bonds, permit daily redemption and the fair values of these investments are based upon the quoted prices in active markets provided by the holding financial institutions. The Company's investment in government agency bonds permit daily redemption and the fair values of these investments are based upon the quoted prices in inactive markets by the holding financial institutions.  The cash equivalents consist of liquid investments with a maturity of three months or less and the short-term investments consist of instruments with maturities greater than three months. The certificate of deposit matures in fiscal 2013.
.
The Company's  in-process research and development asset  is fair valued using the income approach. This approach calculates fair value by estimating future cash flows attributable to the assets and then discounting these cash flows to a present value using a risk-adjusted discount rate. A market based valuation approach was not considered given a lack of revenues and profits for the Company. This approach requires significant management judgment with respect to future volume, revenue and expense growth rates, changes in working capital use, appropriate discount rates and other assumptions and estimates. The estimates and assumptions used are consistent with our business plans.

We recognize transfers between levels within the fair value hierarchy, if any, at the end of each quarter. During 2011, approximately $27 million was transferred from Level 2 assets into Level 1 to be utilized in the Company's operating activities. There were no significant transfers in or out of Level 1, Level 2 or Level 3 during 2010.

As of December 31, 2011, we held two securities that were in an unrealized loss position with a total estimated fair value of $12.6 million and gross unrealized loss of approximately $0.2 million.  This security has not been in a continuous unrealized loss position for greater than one year.  The net unrealized gain of $0.5 million is reported in accumulated other comprehensive income in the stockholder's equity section of our balance sheet.  Unrealized gains and losses for 2011 are as follows (in thousands):

   
December 31, 2011
 
   
Amortized
 Cost
  
Unrealized
 Gains
  
Unrealized
 Losses
  
Estimated Fair
 Value
 
Mutual funds
 $55,718  $652  $(207) $56,163 
Government agency bonds
  5,256   5   -   5,261 
   $60,974  $657  $(207) $61,424 
 
At December 31, 2010, we held nine securities that were in an unrealized loss position with a total estimated fair value of $14.7 million and gross unrealized losses of approximately $0.1 million.  We also recorded $1.1 million of gross unrealized gains.  The net unrealized gain of $1.0 is reported in accumulated other comprehensive income in the stockholder's equity section of our Balance Sheet.  Of the nine securities, none had been in a continuous unrealized loss position for greater than one year.  The following table summarizes unrealized gains and losses for 2010.
 
   
December 31, 2010
 
   
Amortized
 Cost
  
Gross
 Unrealized
 Gains
  
Gross
 Unrealized
 Losses
  
Estimated Fair
 Value
 
U.S. treasury securities
 $494  $11  $-  $505 
Corporate bonds
  10,105   123   -   10,228 
Mutual funds
  53,468   843   -   54,311 
Government agency bonds
  32,246   123   (107)  32,262 
   $96,313  $1,100  $(107) $97,306 
 
We review the status of each security quarterly to determine whether an other-than-temporary impairment has occurred.  In making our determination, we consider a number of factors, including: (1) the significance of the decline, (2) whether the securities were rated below investment grade, (3) how long the securities have been in an unrealized loss position, and (4) our ability and intent to retain the investment for a sufficient period of time for it to recover.