Fair value of financial instruments

3 Months Ended

Mar. 31, 2013

Fair value of financial instruments

Fair value of financial instruments

3.     Fair value of financial instruments

Financial Accounting Standards Board (“FASB”) accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (“the exit price”) in an orderly transaction between market participants at the measurement date. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

Our marketable securities consist of investments in U.S. Treasury notes and other U.S. government agency and non-agency mortgage-backed securities that are classified as available-for-sale.

At March 31, 2013 and December 31, 2012, our Level 2 mortgage-backed securities are valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of instruments.

The following fair value hierarchy table presents information about each major category of our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2013
Cash and cash equivalents	$	265,814	$	—	$	—	$	265,814
Mortgage-backed securities	—		4,365		—		4,365
Total assets	$	265,814	$	4,365	$	—	$	270,179

The following fair value hierarchy table presents information about each major category of our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2012
Cash and cash equivalents	$	224,057	$	—	$	—	$	224,057
Mortgage-backed securities	—		4,361		—		4,361
Total assets	$	224,057	$	4,361	$	—	$	228,418

The following is a summary of our marketable security portfolio as of March 31, 2013 and December 31, 2012, respectively.

	Amortized Cost		Net Unrealized Gains		Net Unrealized Losses		Estimated Fair Value
	(in thousands)
March 31, 2013
Mortgage backed securities	$	2,366	$	1,999	$	—	$	4,365
	$	2,366	$	1,999	$	—	$	4,365
December 31, 2012
Mortgage backed securities	$	2,483	$	1,878	$	—	$	4,361
	$	2,483	$	1,878	$	—	$	4,361

Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.