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Fair Value Measurements
 9 Months Ended
Sep. 30, 2012
Fair Value Measurements [Abstract]  
Fair Value Measurements
12. Fair Value Measurements

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. GAAP describes three approaches to measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach. Each approach includes multiple valuation techniques. GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritizes the inputs used in applying the various techniques. Inputs broadly refer to the assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the hierarchy while Level 3 inputs are given the lowest priority. Assets and liabilities carried at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:

 

  •  

Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets 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.

 

  •  

Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.

 

  •  

Level 3 — Unobservable inputs that are not corroborated by market data. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Summary of significant valuation techniques for assets measured at fair value on a recurring basis

Level 1

Cash and cash equivalents and restricted cash and cash equivalents: Cash equivalents and restricted cash equivalents comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access. The carrying value of cash and cash equivalents and restricted cash and cash equivalents approximates fair value due to its liquid nature.

Common stock: Comprise actively traded, exchange-listed U.S. and international equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

Exchange-traded and mutual funds: Comprise actively traded funds. Valuation is based on daily quoted net asset values for identical assets in active markets that the Company can access.

Other investments: Currently comprise physical metal positions held by the Company. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

Level 2

Common Stock: Comprise exchange-listed U.S. and international equity securities that are either not actively traded or have been delisted. The Company uses prices and inputs closest to the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for these instruments.

U.S. government obligations and agencies: Comprise U.S. Treasury Bills or Notes or U.S. Treasury Inflation Protected Securities (TIPS). The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.

 

Derivatives: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active or highly active.

As required by GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect their placement within the fair value hierarchy levels.

 

The following tables set forth by level within the fair value hierarchy the Company’s assets that were accounted for at fair value on a recurring basis as of the periods presented (in thousands):

 

                                 
    Fair Value Measurements
As of September 30, 2012		  
    Level 1     Level 2     Level 3     Total  

Cash and cash equivalents

   $ 365,675     $ —       $ —       $ 365,675  

Restricted cash and cash equivalents

     95,135       —         —         95,135  

Trading portfolio:

                                

Debt securities:

                                

U.S. government obligations and agencies

     —         4,008       —         4,008  

Equity securities:

                                

Common stock:

                                

Metals and mining

     9,197       38       —         9,235  

Energy

     8,067       —         —         8,067  

Other

     9,989       —         —         9,989  

Exchange-traded and mutual funds:

                                

Metals and mining

     6,527       —         —         6,527  

Agriculture

     7,015       —         —         7,015  

Energy

     2,935       —         —         2,935  

Indices

     5,107       —         —         5,107  

Non-hedging derivative asset

     —         101       —         101  

Other investments

     317       —         —         317  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total trading portfolio investments

     49,154       4,147       —         53,301  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total investments

   $ 509,964     $ 4,147     $ —       $ 514,111  
   

 

 

    

 

 

    

 

 

    

 

 

  
   
    Fair Value Measurements
As of December 31, 2011		  
    Level 1     Level 2     Level 3     Total  

Cash and cash equivalents

   $ 229,685     $ —       $ —       $ 229,685  

Restricted cash and cash equivalents

     78,312       —         —         78,312  

Trading portfolio:

                                

Debt securities:

                                

U.S. government obligations and agencies

     174       3,627       —         3,801  

Equity securities:

                                

Common stock:

                                

Metals and mining

     38,816       —         —         38,816  

Energy

     4,999       —         —         4,999  

Other

     6,927       18       —         6,945  

Exchange-traded and mutual funds:

                                

Metals and mining

     25,997       —         —         25,997  

Agriculture

     16,878       —         —         16,878  

Indices

     1,710       —         —         1,710  

Non-hedging derivative asset

     —         123       —         123  

Other investments

     371       —         —         371  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total trading portfolio investments

     95,872       3,768       —         99,640  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total investments

   $ 403,869     $ 3,768     $ —       $ 407,637  
   

 

 

    

 

 

    

 

 

    

 

 

  

The Company utilizes third-party independent pricing services that provide a price quote for each debt security, equity security and derivative. Management reviews the methodology used by the pricing services. If management believes that the price used by the pricing service does not reflect an orderly transaction between participants, management will use an alternative valuation methodology. There were no adjustments made by the Company to the prices obtained from the independent pricing source for any debt securities, equity securities or derivatives included in the tables above.

 

The Company’s policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. Assets and liabilities are transferred out of Level 1 when exchange-listed U.S. and international equity securities are either not actively traded or have been delisted.

The Company transferred equity securities from Level 1 to Level 2 with a fair value of $38 thousand as of September 30, 2012. Transfers from Level 1 to Level 2 were made because of the absence of quoted prices in active markets as of the end of the reporting period.

The following table summarizes the carrying value and estimated fair values of the Company’s financial instruments that are not carried at fair value (in thousands):

 

                 
    As of September 30, 2012  
    Carrying
value		     (Level 3)
Estimated Fair
Value		  

Liabilities:

                

Long-term debt

   $ 20,588     $ 18,423  
   
    As of December 31, 2011  
    Carrying
value		     (Level 3)
Estimated Fair
Value		  

Liabilities:

                

Long-term debt

   $ 21,691     $ 18,775  

 

Level 3

Long-term debt: The fair value of long-term debt was determined by management from the expected cash flows discounted using the interest rate quoted by the issuer of the note, the State Board of Administration of Florida (“SBA”) which is below prevailing rates quoted by private lending institutions. However, as the Company’s use of funds from the surplus note is limited by the terms of the agreement, the Company has determined the interest rate quoted by the SBA to be appropriate for purposes of establishing the fair value of the note.