ROCKWELL MEDICAL, INC. Fair Value Disclosure
3. FAIR MARKET VALUE MEASUREMENTS
Accounting standards require certain assets and liabilities be reported at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:
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Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. |
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Level 2: |
Observable prices that are based on inputs not quoted in active markets, but corroborated by market data. |
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Level 3: |
Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. |
In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as considering counterparty credit risk in its assessment of fair value. The following methods, assumptions, and valuation techniques were used to measure different financial assets and liabilities at fair value and in estimating its fair value disclosures for financial instruments.
Cash and Cash Equivalents: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents are deemed to approximate fair value
Investment Securities: Fair values for investment securities are determined by quoted market prices if available.
Accounts Receivable, Accounts Payable and Accrued Liabilities: The fair value of trade receivables and payables approximate their carrying amounts due to the short duration before collection or payment.
Based on the foregoing methods and assumptions, the carrying value and fair value of the Company’s financial instruments other than trade receivables and payables are as follows (in thousands):
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Carrying |
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value |
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Fair value |
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Level 1 |
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Level 2 |
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Level 3 |
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As of December 31, 2017 |
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Financial assets |
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Cash and cash equivalents |
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$ |
8,407 |
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$ |
8,407 |
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$ |
8,407 |
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$ |
— |
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$ |
— |
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Investment securities available for sale |
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24,648 |
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24,648 |
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24,648 |
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— |
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— |
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As of December 31, 2016 |
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Financial assets |
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Cash and cash equivalents |
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$ |
17,181 |
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$ |
17,181 |
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$ |
17,181 |
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$ |
— |
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$ |
— |
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Investment securities available for sale |
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40,760 |
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40,760 |
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40,760 |
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— |
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— |
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The Company also has certain non‑financial assets that under certain conditions are subject to measurement at fair value on a non‑recurring basis. No such measurements were required in 2017 or 2016.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.