Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2011

Fair Value of Financial Instruments

9.     Fair Value of Financial Instruments

The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Fair value measurements may be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3—Unobservable inputs that reflect the Company's estimates of the assumptions that market participants would use in pricing the asset or liability.  The Company develops these inputs based on the best information available, including its own data.

The following table presents information about the Company’s assets and liabilities as of December 31, 2011 and 2010 that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

	December 31, 2011
In thousands	Total		Level 1		Level 2		Level 3
Warrant liability	$	58,639	$	---	$	58,639	$	---

	December 31, 2010
In thousands	Total		Level 1		Level 2		Level 3
Warrant liability	$	28,815	$	---	$	---	$	28,815

The Company’s warrant liability is carried at fair value and, at December 31, 2010, was classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs.  At December 31, 2011, the unobservable inputs did not have a significant impact on the valuation of the warrant liability and, therefore, the Company classified the warrant liability as Level 2 within the fair value hierarchy.  This reclassification from Level 3 reflects that the warrants’ exercise price is significantly lower than the market price of the underlying common stock on the reporting date.  The fair value of the warrants is determined using the Black-Scholes option valuation model, applying the following inputs as of December 31, 2011, 2010 and 2009:

	2011			2010			2009
Market price per share of the Company’s common stock	$	12.25		$	5.10		$	2.28
Risk-free interest rate		0.015	%		0.34	%		1.23	%
Expected term (years)		0.2			1.2			2.2
Dividend yield		---			---			---
Volatility		59.9	%		54.0	%		79.0	%

The increase in the fair value of the warrants was recognized in other income (expense) in the consolidated statement of operations.  The changes in the fair value of the warrant liability for the years ended December 31, 2011, 2010 and 2009 were as follows:

In thousands	2011			2010			2009
Balance, beginning of year	$	28,815		$	11,363		$	---
Issuance of warrants		---			---			3,559
Revaluation of warrants		46,715			19,532			7,804
Exercise of warrants		(16,891	)		(2,080	)		---
Balance, end of year	$	58,639		$	28,815		$	11,363

The carrying amounts of cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature.  The carrying amount of the Company’s bank term loan approximates fair value due to its variable interest rate and other terms.  The Company’s obligation under its executive compensation plan is based in part on the current fair market value of specified mutual funds, which is therefore stated at its estimated fair value.