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(5) FAIR VALUE MEASUREMENTS
The FASB has issued authoritative guidance which requires that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. This guidance was adopted in 2009 for non-financial assets and liabilities. Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy. The fair value hierarchy established and prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The three levels of the fair value hierarchy established are as follows:
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Level 1 |
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Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
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Level 2 |
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Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
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Level 3 |
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Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available. |
The Company’s financial instruments consist primarily of cash and cash equivalents, accounts payable, marketable securities, mutual funds, and debt. Marketable securities primarily consist of fixed income securities and mutual funds primarily consist of both fixed income and equity securities. The carrying values of cash and cash equivalents, accounts payable, and debt approximate their fair values due to either the short-term nature of these instruments, or for the debt because the interest rate approximates the current costs of borrowing for a similar amount on similar terms.
The following table presents the Company’s fair value measurements as of June 30, 2011 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.
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Fair Value Measurement at June 30, 2011 Using: |
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Quoted Prices in Active |
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Significant Other |
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Significant Unobservable |
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Fair Value at |
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Markets for Identical Assets |
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Observable Inputs |
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Inputs |
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Description |
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June 30, 2011 |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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Available-for-Sale |
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Cash equivalents |
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$ |
38,264 |
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33,463 |
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4,801 |
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— |
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Marketable securities |
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|
|
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|
|
|
|
|
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Fixed-income |
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45,204 |
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— |
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45,204 |
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— |
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Total |
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$ |
83,468 |
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$ |
33,463 |
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$ |
50,005 |
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$ |
— |
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The following table presents the Company’s fair value measurements as of December 31, 2010 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.
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Fair Value Measurement at December 31, 2010 Using: |
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Quoted Prices in Active |
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Significant Other |
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Significant Unobservable |
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Fair Value at |
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Markets for Identical Assets |
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Observable Inputs |
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Inputs |
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Description |
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December 31, 2010 |
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(Level 1) |
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(Level 2) |
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(Level 3) |
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Available-for-Sale |
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Cash equivalents |
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$ |
78,752 |
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$ |
78,752 |
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$ |
— |
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$ |
— |
|
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Marketable securities |
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|
|
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|
|
|
|
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Fixed-income |
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6,663 |
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— |
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6,663 |
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— |
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Mutual Funds |
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10,000 |
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10,000 |
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— |
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— |
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Total |
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$ |
95,415 |
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$ |
88,752 |
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$ |
6,663 |
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$ |
— | |