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Fair Value of Financial Instruments
 12 Months Ended
Dec. 31, 2013
Fair Value of Financial Instruments  
Fair Value of Financial Instruments

3. Fair Value of Financial Instruments

The fair value of an asset or liability should represent the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Such transactions to sell an asset or transfer a liability are assumed to occur in the principal or most advantageous market for the asset or liability. Accordingly, fair value is determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant rather than from a reporting entity's perspective.

The Company reports assets and liabilities that are measured at fair value using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

  • •
    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 are 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 (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 own assumptions, based on the best information available, including the Company's own data.

In accordance with the fair value hierarchy described above, the following tables show the fair value of the Company's financial assets and liabilities that are required to be measured at fair value, in thousands:

 
   Fair Value Measurements at December 31, 2013  
 
   Total Carrying
Value at
December 31,
2013		   Quoted Prices
in Active
Markets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		  

Assets:

                          

Cash and cash equivalents

   $ 32,980   $ 32,980   $ —   $ —  

Marketable securities

     49,211     —     49,211     —  

Long term investments

     8,756     —     8,756     —  

Marketable securities—restricted (SERP)

     305     —     305     —  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total assets at fair value

   $ 91,252   $ 32,980   $ 58,272   $ —  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Liabilities:

                          
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Derivative liabilities

   $ 12,644   $ —   $ —   $ 12,644  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   


 

 
   Fair Value Measurements at December 31, 2012  
 
   Total Carrying
Value at
December 31,
2012		   Quoted Prices
in Active
Markets
(Level 1)		   Significant
Other
Observable
Inputs
(Level 2)		   Significant
Unobservable
Inputs
(Level 3)		  

Assets:

                          

Cash and cash equivalents

   $ 40,302   $ 31,561   $ 8,741   $ —  

Marketable securities

     48,206     —     48,206     —  

Marketable securities—restricted (SERP)

     279     —     279     —  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total assets at fair value

   $ 88,787   $ 31,561   $ 57,226   $ —  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Liabilities:

                          
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Derivative liabilities

   $ 251   $ —   $ —   $ 251  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

The fair value of the restricted marketable securities is included within other non-current assets in the consolidated balance sheets.

The Company's Level 1 assets include money market funds and U.S. Treasury and government agency debt securities with quoted prices in active markets.

Level 2 assets include mutual funds in which the SERP assets are invested, commercial paper and investment grade corporate bonds and other fixed income securities. Level 2 securities are valued using third-party pricing sources that apply applicable inputs and other relevant data into their models to estimate fair value.

Level 3 liabilities include the fair market value of the interest make-whole liability associated with the 7.50% Convertible Senior Secured Notes due in 2019 and the outstanding warrants to purchase Common Stock, which are both recorded as derivative liabilities.

The fair value of the common stock warrant liability was calculated using a Monte-Carlo simulation on a Black-Scholes model with the following assumptions as of December 31, 2013:

Exercise Price

   $4.00 - $5.00 per share

Volatility

   70%

Stock Price as of December 31, 2013

   $7.54 per share

Term

   7.1 - 8.0 years

Dividend Yield

   0.0%

Risk-Free Rate

   2.55% - 2.75%

The fair value of the interest make-whole liability of the Notes was calculated using a binomial-lattice model with the following key assumptions as of December 31, 2013:

Volatility

   45%

Stock Price as of December 31, 2013

   $7.54 per share

Credit Spread

   1200 bps

Term

   3.3 years

Dividend Yield

   0.0%

Significant changes to these assumptions would result in increases/decreases to the fair value of the derivative liabilities.

Changes in the fair value of the warrants and the interest make-whole liability are recognized as a component of Other Income (Expense) in the Consolidated Statements of Operations. The following table presents information about the Company's Level 3 liabilities as of December 31, 2012 and December 31, 2013 that are included in the Non-Current Liabilities section of the Consolidated Balance Sheets, in thousands:

 
   Year Ended
December 31,
2012 and 2013		  

Balance at December 31, 2011

   $ 697  

Exercise of warrants

     (1,156 )

Changes in fair value of warrants included in earnings

     710  
       
​ ​ ​ ​ ​

Balance at December 31, 2012

     251  
       
​ ​ ​ ​ ​

Initial value of interest make-whole payment associated with the convertible notes

     9,270  

Changes in fair value of derivative liabilities included in earnings

     13,354  

Reduction due to conversion of debt to equity

     (10,231 )
       
​ ​ ​ ​ ​

Balance at December 31, 2013

   $ 12,644  
       
​ ​ ​ ​ ​
​ ​ ​ ​ ​
       

The carrying value and estimated fair value of the convertible notes was approximately $34.4 million and $79.8 million, respectively, as of December 31, 2013. The fair value was estimated based on actual trade information as well as quoted prices provided by bond traders, which would be characterized within Level 2 of the fair value measurement table.

The carrying amounts of other financial instruments, including accounts receivable, accounts payable and accrued expenses approximate fair value due to their short-term maturities.

Unrestricted marketable securities held by the Company were as follows, in thousands:

At December 31, 2013:

Available for Sale
  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value  

Corporate debt securities

   $ 57,967   $ 33   $ (33 ) $ 57,967  

At December 31, 2012:

Available for Sale
  Amortized
Cost		   Gross
Unrealized
Gains		   Gross
Unrealized
Losses		   Fair Value  

Corporate debt securities

   $ 48,259   $ 1   $ (54 ) $ 48,206  

The contractual maturities of the unrestricted marketable securities held by the Company were as follows, in thousands:

 
   December 31,
2013		  

Less Than 1 Year

   $ 49,211  

1 - 5 years

     8,756  

Greater Than 5 Years

     —  
       
​ ​ ​ ​ ​

Total

   $ 57,967  
       
​ ​ ​ ​ ​
​ ​ ​ ​ ​
       

The Company has not experienced any other-than-temporary losses on its marketable securities and restricted marketable securities. The cost of securities sold is calculated using the specific identification method.