Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2016

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 tier or 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 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, 2016
	(unaudited)
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	March 31,		Markets		Inputs		Inputs
	2016		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	19,830	$	19,830	$	—	$	—
Marketable securities	25,427		654		24,773		—
Long term marketable securities	68,790		—		68,790		—
Marketable securities - restricted (SERP)	255		—		255		—
Total assets at fair value	$	114,302	$	20,484	$	93,818	$	—
Liabilities:
Derivative liabilities	$	535	$	—	$	—	$	535

	Fair Value Measurements at
	December 31, 2015
	(restated)
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	December 31,		Markets		Inputs		Inputs
	2015		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	33,498	$	33,498	$	—	$	—
Marketable securities	28,692		654		28,038		—
Long term marketable securities	55,009		—		55,009		—
Marketable securities - restricted (SERP)	263		—		263		—
Total assets at fair value	$	117,462	$	34,152	$	83,310	$	—
Liabilities:
Derivative liabilities	$	854	$	—	$	—	$	854

	Fair Value Measurements at
	March 31, 2015
	(unaudited) (restated)
					Significant
	Total Carrying		Quoted Prices		Other		Significant
	Value at		in Active		Observable		Unobservable
	March 31,		Markets		Inputs		Inputs
	2015		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	25,158	$	25,158	$	—	$	—
Marketable securities	39,678		652		39,026		—
Long term marketable securities	27,315		—		27,315		—
Marketable securities - restricted (SERP)	267		—		267		—
Total assets at fair value	$	92,418	$	25,810	$	66,608	$	—
Liabilities:
Derivative liabilities	$	2,691	$	—	$	—	$	2,691

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 cash held with banks, a CD and money market funds.

Level 2 assets include the SERP assets, 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 estimated fair value of the interest make-whole liability associated with the Company’s 7.50% Convertible Senior Secured Notes due 2019 (the Notes), which are recorded as derivative liabilities.

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 March 31, 2016, unaudited:

Volatility	45%
Stock Price as of March 31, 2016	$15.21 per share
Credit Spread	900 bps
Term	1.1 years
Dividend Yield	0.0%

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

Changes in the fair value of 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, 2015 and March 31, 2016 that are included in the Non-Current Liabilities section of the Consolidated Balance Sheets, in thousands:

	Three Months ended
	March 31, 2016
	(unaudited)
Balance at December 31, 2015	$	854
Changes in fair value of derivative liabilities included in earnings	(101		)
Reduction due to conversion of debt to equity	(218		)
Balance at March 31, 2016	$	535

The carrying value, face value and estimated fair value of the Notes was approximately $5.6 million, $6.6 million and $20.0 million, respectively, as of March 31, 2016. 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 hierarchy. This fair value amount gives recognition to the value of the interest make-whole liability and the value of the conversion option. Upon issuance these were accounted for as derivative liabilities and additional paid-in-capital, respectively.

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 March 31, 2016 (unaudited):

Available for Sale	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
Corporate debt securities	$	94,049	300	(132	)	$	94,217

At December 31, 2015  (restated):

Available for Sale	Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Fair Value
Corporate debt securities	$	84,189	5	(493	)	$	83,701

At March 31, 2015 (unaudited)  (restated):

Available for Sale	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Corporate debt securities	$	67,058	$	15	$	(80	)	$	66,993

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

	March 31, 2016
	(unaudited)
Less Than 1 Year	$	25,427
1-5 years	68,790
Greater Than 5 Years	—
Total	$	94,217

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.