Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2016

FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and liabilities recorded at fair value in the consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels that are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:


•	Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.


•	Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.


•	Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques and significant management judgment or estimation.

The following tables present the Company’s financial instruments that were measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015 by level within the fair value hierarchy (in thousands):



	September 30, 2016
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash equivalents	$	—	$	4,689	$	—	$	4,689
Marketable securities:
Corporate bonds	—		16,407		—		16,407
Asset-backed securities	—		4,855		—		4,855
Government and agency securities	2,477		1,045		—		3,522
Mortgage-backed securities	—		2,196		—		2,196
Municipal bonds	—		791		—		791
	2,477		25,294		—		27,771
Total	$	2,477	$	29,983	$	—	$	32,460
Financial Liabilities
Fair value of early conversion feature of convertible debt	$	—	$	—	$	—	$	—



	December 31, 2015
	Level 1		Level 2		Level 3		Total
Financial Assets
Cash equivalents	$	3	$	18,900	$	—	$	18,903
Marketable securities:
Corporate bonds	—		25,657		—		25,657
Asset-backed securities	—		12,393		—		12,393
Mortgage-backed securities	—		4,779		—		4,779
Government and agency securities	3,722		1,990		—		5,712
Municipal bonds	—		2,468		—		2,468
	3,722		47,287		—		51,009
Total	$	3,725	$	66,187	$	—	$	69,912
Financial Liabilities
Fair value of early conversion feature of convertible debt	$	—	$	—	$	82	$	82

Cash Equivalents and Marketable Securities – Cash equivalents and marketable securities classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations or alternative pricing sources. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers and internal assumptions of the independent pricing services. The Company corroborates the reasonableness of non-binding quotes received from the independent pricing services by comparing them to quotes of identical or similar instruments from other pricing sources. During the three and nine months ended September 30, 2016 and 2015, the Company did not record impairment charges related to its cash equivalents and marketable securities, and the Company did not have any transfers between Level 1, Level 2 and Level 3 of the fair value hierarchy.

As of September 30, 2016 and December 31, 2015, the carrying values of the Company’s accounts receivables and secured and unsecured debt obligations, excluding the Notes, approximated their fair values. The Company has estimated the fair value of the Notes to be $104.1 million at September 30, 2016, compared to a carrying value of $191.7 million. These estimates are based upon Level 2 inputs using the market price of the Notes derived from actual trades quoted from Bloomberg using a midmarket pricing convention (the midpoint price between bid and ask prices).

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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