Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2013

Fair Value of Financial Instruments

Fair Value of Financial Instruments

4. 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
			March 31, 2013
			(unaudited)
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	March 31,		Markets		Inputs		Inputs
	2013		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	18,909	$	15,903	$	3,006	$	—
Marketable securities	50,983		—		50,983		—
Marketable securities - restricted (Other Assets)	308		—		308		—
Total assets at fair value	$	70,200	$	15,903	$	54,297	$	—
Liabilities:
Warrant liability	$	172	$	—	$	—	$	172

			Fair Value Measurements at
			December 31, 2012
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	December 31,		Markets		Inputs		Inputs
	2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	40,302	$	31,561	$	8,741	$	—
Marketable securities	48,206		—		48,206		—
Marketable securities - restricted (Other Assets)	279		—		279		—
Total assets at fair value	$	88,787	$	31,561	$	57,226	$	—
Liabilities:
Warrant liability	$	251	$	—	$	—	$	251

The Company’s Level 1 assets include money market funds and U.S. Treasuries and government agency debt securities with quoted prices in active markets.  At March 31, 2013 and December 31, 2012, Level 2 assets include mutual funds in which the SERP assets are invested, commercial paper and 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 outstanding warrants to purchase Common Stock recorded as a derivative liability. 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 March 31, 2013:

Exercise Price	$4 - $5 per share
Volatility	70%
Stock Price as of March 31, 2013	$5.62 per share
Term	7.6 - 8.7 years
Dividend Yield	0.0%
Risk-Free Rate	1.4% - 1.6%

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

Changes in the fair value of the warrants are recognized as Other Income (Expense) in the Consolidated Statements of Operations. The following table presents information about the Company’s common stock warrant liability as of March 31, 2013 and December 31, 2012 that is included in the Other Non-Current Liabilities line of the Consolidated Balance sheets, in thousands:

	Three Months Ended
	March 31, 2013
	(unaudited)
Balance at December 31, 2012	$	251
Changes in fair value of warrants included in earnings	(79		)
Balance at March 31, 2013	$	172

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

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

At March 31, 2013:

Available for Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate debt securities	$	51,072	$	0	$	(89	)	$	50,983

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 Company has not experienced any other-than-temporary losses on its marketable securities and restricted marketable securities.