Note 9 - Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 

9

–

Fair Value Measurements

The accounting standard for fair value measurements provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. Fair value is defined as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. This accounting standard establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available. The following summarizes the

three

levels of inputs that

may

be used to measure fair value:

Level

1

– The valuation is based on quoted prices in active markets for identical instruments.

Level

2

– The valuation is based on observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model–based valuation techniques for which all significant assumptions are observable in the market.

Level

3

– The valuation is based on unobservable inputs that are supported by minimal or no market activity and that are significant to the fair value of the instrument. Level

3

valuations are typically performed using pricing models, discounted cash flow methodologies, or similar techniques that incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument, or valuations that require significant management judgment or estimation.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Valuation of Marketable Securities

The Company determines fair value for marketable securities with Level

1

inputs through quoted market prices. The Company determines fair value for marketable securities with Level

2

inputs through broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Our Level

2

marketable securities have been initially valued at the transaction price and subsequently valued, at the end of each month, typically utilizing

third

party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income and market based approaches and observable market inputs to determine value. These observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, and other industry and economic events.

We validated the prices provided by our broker by reviewing their pricing methods, obtaining market values from other pricing sources, analyzing pricing data in certain instances and confirming that the relevant markets are active. After completing our validation procedures, we did not adjust or override any fair value measurements provided by our broker as of

March

31,

2017.

We did not have any transfers of assets between Level

1

and Level

2

of the fair value measurement hierarchy during the

three

months ended

March

31,

2017.

Other

The carrying amounts of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short–term nature. The estimated fair value of notes receivable approximates the carrying value based principally on their underlying interest rates and terms, maturities, collateral and credit status of the receivables. Our long–term debt approximates fair value due to variable interest rates, but fair value is also determined using Level

2

inputs through alternative pricing sources. At

March

31,

2017,

there were no material differences between the carrying amounts and fair values of NHC’s financial instruments.

The following table summarizes fair value measurements by level at

March

31,

2017

and

December

31,

2016

for assets and liabilities measured at fair value on a recurring basis

(in thousands)

:

	Fair Value Measurements Using
March 31, 2017	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	47,096	$	47,096	$	–	$	–
Restricted cash and cash equivalents		16,713		16,713		–		–
Marketable equity securities		136,341		136,341		–		–
Corporate debt securities		59,555		40,788		18,767		–
Mortgage–backed securities		45,582		–		45,582		–
U.S. Treasury securities		21,248		21,248		–		–
State and municipal securities		26,454		–		26,454		–
Total financial assets	$	352,989	$	262,186	$	90,803	$	–

	Fair Value Measurements Using
December 31, 2016	Fair Value		Quoted Prices in Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	$	26,335	$	26,335	$	–	$	–
Restricted cash and cash equivalents		5,254		5,254		–		–
Marketable equity securities		138,013		138,013		–		–
Corporate debt securities		71,100		42,323		28,777		–
Mortgage-backed securities		56,168		–		56,168		–
U.S. Treasury securities		25,181		25,181		–		–
State and municipal securities		31,255		–		31,255		–
Total financial assets	$	353,306	$	237,106	$	116,200	$	–