• Filing Date: 2014-03-12
  • Form Type: 10-K
  • Description: Annual report
v2.4.0.8
Fair Value Measurements
12 Months Ended
Dec. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 5 — Fair Value Measurements

The Company records and discloses certain financial assets at their estimated fair value but does not elect the fair value option for its long-term debt. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets.

Level 2 – Other inputs that are observable for the asset, either directly or indirectly.

Level 3 – Inputs that are unobservable.

Cash and cash equivalents:

Cash and cash equivalents primarily consist of money-market funds. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.

Available-for-sale securities:

Estimated fair values of the Company’s available-for-sale securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.

Long-term debt:

Long-term debt includes the Company’s 8% senior notes due 2020 and 3.875% convertible senior notes due 2019. The 8% senior notes were initially sold to the public in January 2013 and trade on the New York Stock Exchange. The estimated fair value of the 8% senior notes is based on the closing market price on December 31, 2013. The 3.875% convertible senior notes were sold in a private offering completed December 30, 2013. The fair value of the 3.875% convertible senior notes is estimated using a discounted cash flow method that relies on Level 3 inputs.

 

Assets Measured at Estimated Fair Value on a Recurring Basis:

The following table presents information about the Company’s financial assets measured at estimated fair value on a recurring basis and the estimated fair value of its long-term debt that is reflected in the financial statements at carrying value. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of December 31, 2013 and 2012:

 

     Fair Value Measurements Using  
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2013

           

Financial Assets:

           

Cash and cash equivalents

   $ 293,398       $ —         $ —         $ 293,398   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

           

U.S. Treasury and U.S. government agencies

     3,520         1,044         —           4,564   

Corporate bonds

     24,476         928         —           25,404   

Commercial mortgage-backed securities

     —           11,332         —           11,332   

State, municipalities, and political subdivisions

     —           70,451         —           70,451   

Redeemable preferred stock

     400         —           —           400   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

     28,396         83,755         —           112,151   

Equity securities

     17,649         —           —           17,649   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     46,045         83,755         —           129,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 339,443       $ 83,755       $ —         $ 423,198   
  

 

 

    

 

 

    

 

 

    

 

 

 

Financial Liabilities:

           

Long-term debt:

           

8% Senior notes

   $ —         $ 43,390       $ —         $ 43,390   

3.875% Convertible senior notes

     —           —           86,630         86,630   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ —         $ 43,390       $ 86,630       $ 130,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements Using  
     (Level 1)      (Level 2)      (Level
3)
     Total  

As of December 31, 2012

           

Financial Assets:

           

Cash and cash equivalents

   $ 230,214       $ —         $ —         $ 230,214   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

           

U.S. Treasury and U.S. government agencies

     583         864         —           1,447   

Corporate bonds

     10,860         —           —           10,860   

Commercial mortgage-backed securities

     —           11,644         —           11,644   

State, municipalities, and political subdivisions

     11,066         —           —           11,066   

Redeemable preferred stock

     936         —           —           936   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

     23,445         12,508         —           35,953   

Equity securities

     8,876         —           —           8,876   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     32,321         12,508         —           44,829   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 262,535       $ 12,508       $ —         $ 275,043   
  

 

 

    

 

 

    

 

 

    

 

 

 

During the second quarter of 2013, the Company analyzed its investment portfolio and determined the municipal bonds, which were previously classified as Level 1, should be classified as Level 2 based on the inputs used to measure fair value and the level of market activity in those instruments. As such, transfers into Level 2 from Level 1 were $10,684 during the year ended December 31, 2013. In addition, $11,066 related to municipal bonds included in the table related to December 31, 2012 was transferred from Level 1 to Level 2. There were no transfers between Level 1, 2 or 3 during the year ended December 31, 2012.

 

Assets Measured at Estimated Fair Value on a Nonrecurring Basis:

The Company used a discounted cash flow method, which relies on Level 3 inputs in valuing goodwill at November 30, 2012. The Company did not identify the existence of goodwill and, as a result, goodwill was eliminated resulting in an impairment loss of $161 for the year ended December 31, 2012.

With respect to the Company’s business acquisition completed in 2012 (see Note 6 — “Business Acquisitions”), all assets acquired, aside from cash which was valued based on Level 1 measurements, and liabilities assumed were valued based on Level 3 measurements. Property, plant and equipment acquired in April 2012 was valued based on an external appraisal using the sales comparison approach and other unobservable inputs. The carrying amounts of all other acquired assets and assumed liabilities approximated their fair values at the acquisition date.