Fair Value Measurement of Financial Assets and Liabilities
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Sep. 30, 2014
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Fair Value Measurement of Financial Assets and Liabilities |
GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring the fair values of financial and non-financial assets and liabilities. These tiers consist of: Level 1: Quoted market prices in active markets for identical assets or liabilities. Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data. Level 3: Unobservable inputs that are not corroborated by market data. As of September 30, 2014 and December 31, 2013, we had no financial liabilities that were measured at fair value on a recurring basis.
The table below summarizes the fair value measurements (in thousands of dollars) of our financial assets and liabilities as of September 30, 2014 and December 31, 2013:
We use the income approach to value derivatives, using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single discounted present amount, assuming that participants are motivated but not compelled to transact. Level 2 inputs are limited to quoted prices that are observable for the asset and liabilities, which include interest rate and credit risk. We have used mid-market pricing as a practical expedient for fair value measurements. |