Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Value of Financial Instruments

Fair Value of Financial Instruments

9. Fair Value of Financial Instruments

        Our financial instruments included cash and cash equivalents, restricted cash, accounts receivable, amounts due from related parties, accounts payable, and certain current liabilities. Due to the short-term nature of these instruments, we believe that their carrying amounts approximated fair value.

        As of December 31, 2012 and 2011, we held investments in marketable securities and derivative financial instruments that we reported on our balance sheet at fair value. We use a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation. The levels of the hierarchy, as defined below, give the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

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  Level 1 is defined as observable inputs such as quoted prices in active markets for identical assets. Level 1 assets include investments in trading securities, primarily asset-backed securities.

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  Level 2 is defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our Level 2 assets and liabilities include derivative financial instruments (coal) with fair values derived from quoted prices in over-the-counter markets or from prices received from direct broker quotes.

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  Level 3 is defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. We have no Level 3 investments as of December 31, 2012 or 2011.
  
  
  

          The tables below set forth, by level, our financial assets and liabilities that are recorded at fair value in the accompanying condensed consolidated balance sheets (in thousands):

	Fair Value at December 31, 2012
Description	Level 1		Level 2		Total
Assets
Money market funds(1)	$	145,422	$	—	$	145,422
Commercial paper and short term marketable securities(1)	$	—	$	—	$	—
Derivative financial instruments	$	—	$	13,785	$	13,785
Investments in marketable securities	$	—	$	80,341	$	80,341

	Fair Value at December 31, 2011
Description	Level 1		Level 2		Total
Assets
Money market funds(1)	$	238,812	$	—	$	238,812
Commercial paper and short term marketable securities(1)	$	—	$	45,897	$	45,897
Derivative financial instruments	$	—	$	2,275	$	2,275
Investments in marketable securities	$	—	$	75,228	$	75,228

(1)

Included in cash and cash equivalents in the consolidated balance sheets along with $51.9 million and $119 million of demand deposits at December 31, 2012 and 2011, respectively.

        We did not have any transfers between levels during the years ended December 31, 2012 and 2011. Our policy is to value all transfers between levels using the beginning of period valuation.