Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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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):

 

     As of March 31, 2012  
(unaudited)    Total      Level 1      Level 2      Level 3  

Assets:

           

Cash and cash equivalents (1)

   $ 8,834       $ 8,834       $ —         $ —     

Investments – mutual funds (2)

     94         94         —           —     

Investments – ARPS (3)

     2,096         —           —           2,096   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 11,024       $ 8,928       $ —         $ 2,096   
  

 

 

     

 

 

     

 

 

     

 

 

  
     As of December 31, 2011  
     Total      Level 1      Level 2      Level 3  

Assets:

           

Cash and cash equivalents (1)

   $ 10,335       $ 10,335       $ —         $ —     

Investments – mutual funds (2)

     1,125         1,125         —           —     

Investments – ARPS (3)

     2,104         —           —           2,104   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 13,564       $ 11,460       $ —         $ 2,104   
  

 

 

     

 

 

     

 

 

     

 

 

  

(1)

Cash equivalents consist primarily of money market funds and short-term investments with original maturity dates of three months or less at the date of purchase, for which the Company determines fair value through quoted market prices.

(2)

Investments consist of mutual funds, classified as short-term investments available-for-sale and recorded at fair market value, based on quoted prices of identical assets that are trading in active markets as of the end of the period for which the values are determined.

(3)

As of March 31, 2012, the Company had invested $2.1 million (par value) in ARPS, which were classified as available-for-sale securities and reflected at $2.1 million (fair value), which included an unrealized loss of $4,000. At March 31, 2012, $1.8 million was classified as a short-term investment due to the full redemption at par value in April 2012 (discussed further below). As of December 31, 2011, the Company had invested $2.1 million (par value) in ARPS, which were classified as long-term available-for-sale securities and reflected at $2.1 million (fair value), which included an unrealized loss of $21,000. The Company has included its investments related to ARPS in the Level 3 category.

 

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):

 

(unaudited)    Level 3
Investments		  

Balance as of December 31, 2011

    $ 2,104   

Redemption at par value

      (25 ) 

Unrealized gains included in other comprehensive income

      17   
  

 

 

  

Balance as of March 31, 2012

    $ 2,096   
  

 

 

  
(unaudited)    Level 3
Investments		  

Balance as of January 1, 2011

    $ 4,141   

Redemption at par value

      —     

Unrealized gains included in other comprehensive income

      12   
  

 

 

  

Balance as of April 2, 2011

    $ 4,153   
  

 

 

  

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.