Fair Value Measurements
|3 Months Ended|
Mar. 31, 2012
|Fair Value Measurements [Abstract]|
|Fair Value Measurements||
Note 3 – Fair Value Measurements
Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
Provisions of ASC 820 establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1 – Observable inputs such as quoted prices in active markets;
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 – Unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.
Financial Assets Valued on a Recurring Basis
As of March 31, 2012 and December 31, 2011, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included the Company's financial instruments, including cash, cash equivalents and investments. The Company measures the following financial assets at fair value on a recurring basis. The fair value of these financial assets was determined using the following inputs (in thousands):
Before utilizing Level 3 inputs in the fair value measurement of our ARPS, the Company considered significant Level 2 observable inputs of similar assets in active and inactive markets. The Company's broker dealer received estimated market values from an independent pricing service as of June 30, 2008 and the anticipated future market for such investments. These investments consist solely of collateralized debt obligations supported by municipal and state agencies; do not include mortgage-backed securities or student loans; have redemption features that call for redemption at 100% of par value (originally totaling $7.8 million in 2008); and have a current credit rating of A or AAA. For the period from June 30, 2008 through March 31, 2012, the Company received redemptions at par value totaling $5.7 million, which included $25,000 during the quarter ended March 31, 2012. Additionally, in April 2012, the Company received another redemption at par value in the amount of $1.8 million, leaving $300,000 (par value) of ARPS in a single security. Based on information received from our investment advisor, the Company expects to redeem the remaining $300,000 (par value) in the near term. As of March 31, 2012, the Company has classified $1.8 million (fair value) within short-term investments and kept the remaining $297,000 (fair value) in long-term investments. As of December 31, 2011, we continued to classify our ARPS as long-term. The fact that there was not an active market to liquidate these investments was a determining factor in classifying them as Level 3. Due to the uncertainty with regard to the short-term liquidity of these securities, the Company determined that it could not rely on par value to represent fair value. Therefore, the Company has continued to estimate the fair values of these securities utilizing a discounted cash flow valuation model as of March 31, 2012. On a quarterly basis we evaluate the reasonableness of the significant unobservable inputs used in our ARPS fair value measurements. The valuation model used for our ARPS investments requires an evaluation of the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation the security will have a successful auction or market liquidity. These securities are also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company. Based on these factors, we assess the risk of realizing expected cash flows and we apply an estimated term and observable discount rate that reflects this risk. Based on the current information available, as discussed above, we have applied short-term factors in the fair value measurements of our ARPS as of March 31, 2012, including a one year term and 1.3% discount rate. Additionally, we believe the resulting aggregate fair value of our ARPS at March 31, 2012 would not be significantly impacted by any reasonable change to the unobservable inputs. There was no change in our valuation process during the thirteen weeks ended March 31, 2012.
As a result of the temporary declines in fair value for the Company's ARPS, which the Company has generally attributed to liquidity issues rather than credit issues, the Company recorded an unrealized holding loss of $4,000 and $21,000 to accumulated other comprehensive income as of March 31, 2012 and December 31, 2011, respectively. As of March 31, 2012, to date, the Company continues to earn interest on all of its ARPS instruments. Any future fluctuation in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write-downs, will continue to be recorded to accumulated other comprehensive income. If the Company determined that any decrease in the value of the instruments was other-than-temporary, it will record a charge to earnings as appropriate. The Company believes it has the ability to hold, and intends to continue to hold the remaining ARPS investments until fully redeemed.
During the thirteen weeks ended March 31, 2012 and April 2, 2011, there were no transfers into or out of Level 1, Level 2 or Level 3 assets. The following tables present the Company's ARPS activity measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the thirteen weeks ended March 31, 2012 and April 2, 2011 (in thousands):
Non-Financial Assets Valued on a Non-Recurring Basis
The Company's long-lived or indefinite-lived assets are measured at fair value on a non-recurring basis. These assets are measured at cost but are written-down to fair value, if necessary, as a result of impairment.
As of March 31, 2012, the Company's long-lived and indefinite-lived assets did not indicate a potential impairment under the provisions of ASC 350 and ASC 360 and, as such, they were not measured at fair value. The Company did not recognize any impairment losses on long-lived or indefinite-lived assets during the thirteen weeks ended March 31, 2012 and April 2, 2011. If such non-financial assets had been measured at fair value, they would be categorized in Level 3 of the fair value hierarchy, as the Company would be required to develop its own assumptions and analysis to determine if such non-financial assets were impaired.
The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef