6. Fair value measurements:
ASC 820, "Fair Value Measurements and Disclosures", 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 at the measurement date under current market conditions. The standard also requires the use of a fair value hierarchy that prioritizes inputs to fair value measurement techniques into three broad levels. The following is a brief description of those three levels:
| | Level 1: | Observable inputs such as quoted prices for identical assets or liabilities in active markets. |
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| | Level 2: | Observable inputs other than quoted prices that are directly or indirectly observable for the asset or liability, including quoted prices for similar assets or liabilities in active markets; quoted prices for similar or identical assets or liabilities in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
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| | Level 3: | Unobservable inputs that reflect the reporting entity's own assumptions. |
The Company's financial assets are measured at fair value and include its commercial paper investments, money market accounts, municipal bonds and notes, government agency bonds, corporate bonds, certificates of deposit, variable rate demand notes, floating rate notes and auction rate securities (ARS). These assets are subject to the measurement and disclosure requirements of ASC 820.
The following table presents the fair value hierarchy of the Company's financial assets at March 31, 2013 and 2012:
(In thousands) Description | | Fair value at March 31, 2013 | | | Quoted prices in active markets for identical assets (Level 1) | | | Significant other observable market inputs (Level 2) | | | Unobservable market inputs (Level 3) | |
Money market accounts | | $ | 818,474 | | | $ | 818,474 | | | | | | | |
Municipal bonds and notes | | | 46,877 | | | | | | | $ | 46,877 | | | | |
Commercial paper | | | 168,639 | | | | 31,815 | | | | 136,824 | | | | |
Variable rate demand notes | | | 1,500 | | | | | | | | 1,500 | | | | |
Auction rate securities | | | 3,198 | | | | | | | | | | | $ | 3,198 | |
Certificates of deposit | | | 90,268 | | | | 5,981 | | | | 84,287 | | | | | |
Corporate bonds | | | 1,509,870 | | | | | | | | 1,509,870 | | | | | |
Government agency bonds | | | 278,804 | | | | | | | | 278,804 | | | | | |
(In thousands) Description | | Fair value at March 31, 2012 | | | Quoted prices in active markets for identical assets (Level 1) | | | Significant other observable market inputs (Level 2) | | | Unobservable market inputs (Level 3) | |
Money market accounts | | $ | 1,059,868 | | | $ | 938,526 | | | $ | 121,342 | | | | |
Municipal bonds and notes | | | 69,613 | | | | | | | | 69,613 | | | | |
Commercial paper | | | 556,794 | | | | 284,981 | | | | 271,813 | | | | |
Variable rate demand notes | | | 4,000 | | | | | | | | 4,000 | | | | |
Floating rate notes | | | 467,259 | | | | 467,259 | | | | | | | | |
Auction rate securities | | | 25,089 | | | | | | | | | | | $ | 25,089 | |
Certificates of deposit | | | 215,801 | | | | 87,904 | | | | 127,897 | | | | | |
Corporate bonds | | | 568,775 | | | | | | | | 568,775 | | | | | |
Government agency bonds | | | 152,916 | | | | | | | | 152,916 | | | | | |
The Company determines fair value based on a market approach using quoted market values, significant other observable inputs for identical or comparable assets or liabilities, or discounted cash flow analyses. As of March 31, 2013 and 2012, the Company determined the value of the ARS portfolio based upon a discounted cash flow model. The assumptions used in the valuation model include estimates for interest rates, timing and the amount of cash flows, and expected holding periods for the ARS.
The following table presents a reconciliation of the Level 3 investments measured at fair value on a recurring basis using unobservable inputs:
(In thousands) | | Year ended March 31, 2013 | |
Balance at beginning of period | | $ | 25,089 | |
Sales | | | ( 21,139 | ) |
Unrealized loss | | | (752 | ) |
Balance at end of period | | $ | 3,198 | |
There were no purchases or material realized gains within the Level 3 ARS during the years ended March 31, 2013 and 2012. The Company recorded sales of $21.1 million of its Level 3 ARS for the period ended March 31, 2013.
At March 31, 2013, the Company held investments in ARS amounting to $3.2 million (with underlying maturities of 20 years) of which the entire balance is collateralized by student loans. Substantially all such collateral in the aggregate is guaranteed by the U.S. government under the Federal Family Education Loan Program. The Company classifies the ARS as non-current assets held for sale under the heading "Marketable securities and investments" in the Company's Consolidated Balance Sheets.
Certain money market accounts are classified as Level 1 assets. All floating rate notes, certain commercial paper investments and certificates of deposit are also classified as Level 1 assets because they consist of publicly traded securities which are priced and actively traded on a daily basis.
Certain of the Company's money market accounts, commercial paper and certificates of deposit and all of the Company's variable rate demand notes, municipal bonds and notes, corporate bonds and government agency bonds are based on Level 2 inputs in the ASC 820 fair value hierarchy.
In addition to the above, the Company also has Level 3 fair value measurements related to the Clinical Data, Inc. (Clinical Data) acquisition; see Note 17 for further information.
The majority of the Company's non-financial assets and liabilities are not required to be carried at fair value on a recurring basis. However, the Company is required on a non-recurring basis to use fair value measurements when analyzing asset impairment as it relates to goodwill, license agreements, product rights and other intangible assets and long-lived assets. The carrying amount of cash, accounts receivable, loans receivable and accounts payable and other short-term financial instruments approximate their fair value due to their short-term nature.
