ARBX » Topics » Fair Value Measurements

This excerpt taken from the ARBX 10-K filed Mar 16, 2009.

Fair Value Measurements

The Company adopted Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”) as of January 1, 2008. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements; rather, it applies to other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS 157, as issued, were effective January 1, 2008. However, the FASB issued FASB Staff Position No. SFAS 157-2, “Effective Date of FASB Statement No. 157”, which allows entities to defer the effective date of SFAS 157 for one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (i.e., at least annually). The Company elected the deferral related to the measurement of fair value used when evaluating goodwill, other intangible assets and other long-lived assets for impairment. The effect of adopting this standard was not significant.

Fair value is defined under SFAS 157 as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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TABLE OF CONTENTS

ARBINET-THEXCHANGE, INC. AND SUBSIDIARIES
  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands except per share amounts)

1. Business and Summary of Significant Accounting Policies  – (continued)

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:

Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market
Level 2 — inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability
Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability

The following table presents assets measured at fair value on a recurring basis as of December 31, 2008, by SFAS 157 valuation hierarchy:

       
  Level 1   Level 2   Level 3   Carrying
Value
Cash equivalents(1)   $ 5,369                 $ 5,369  
Marketable securities(2)   $ 7,926                 $ 7,926  

(1) Cash equivalents consist of money market funds.
(2) Marketable securities primarily consist of commercial paper, corporate bonds, and U.S. government securities.

The fair value of the marketable securities is based upon the market values quoted by the financial institutions as of December 31, 2008.

The Company’s other financial instruments at December 31, 2008 consist of accounts receivable, accounts payable and debt. For the year ended December 31, 2008, the Company did not have any derivative financial instruments. The Company believes the reported carrying amounts of its accounts receivable and accounts payable approximate fair value, based upon the short-term nature of these accounts. The carrying value of the Company’s loan agreements approximate fair value as each of the loans bears interest at a floating rate. The carrying value of the Company’s notes payable approximates fair value due to its short-term maturity.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of SFAS No. 115” (SFAS 159), permits but does not require the Company to measure financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The Company did not elect to fair value any financial instruments under the provisions of SFAS 159 and therefore, the adoption of this statement effective January 1, 2008 did not have an impact on the consolidated financial statements.

This excerpt taken from the ARBX 10-Q filed May 12, 2008.

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements; rather, it applies to other accounting pronouncements that require or permit fair value measurements. The provisions of SFAS No. 157, as issued, were effective January 1, 2008. However, the FASB issued FASB Staff Position No. SFAS 157-2, Effective Date of FASB Statement No. 157, which allows entities to defer the effective date of SFAS No. 157, for one year, for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (i.e., at least annually). The Company adopted SFAS No. 157 as of January 1, 2008 and elected the deferral for non-financial assets and liabilities. The effect of adopting this standard was not significant.

Fair value is defined under SFAS No. 157 as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a three-level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:

 

   

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market

 

   

Level 2 – inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model-derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability

 

   

Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability

 

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Table of Contents

The following table presents assets measured at fair value on a recurring basis as of March 31, 2008 by SFAS No. 157 valuation hierarchy:

 

      Level 1    Level 2    Level 3    Carrying
Value

Marketable securities*

   $ 12,574          $ 12,574

 

* Marketable securities primarily consist of commercial paper, corporate bonds, and US government securities.

EXCERPTS ON THIS PAGE:

10-K
Mar 16, 2009
10-Q
May 12, 2008
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