Financial Instruments

12 Months Ended

Dec. 31, 2015

2. Financial Instruments

Financial Assets Measured at Fair Value on a Recurring Basis

On a recurring basis, the Company measures certain of its financial assets, namely its cash equivalents, and short-term investments, and its liability related to contingent consideration due to Lumewave, Inc. ("Lumewave") shareholders at fair value. The fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis was determined using the following inputs at December 31, 2015 (in thousands):



	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds ⁽¹⁾	$	2,305	$	2,305	$	—	$	—
U.S. government securities⁽²⁾	18,379		—		18,379		—
Total	$	20,684	$	2,305	$	18,379	$	—

Liabilities:
Contingent consideration	$	318	$	—	$	—	$	318
Total	$	318	$	—	$	—	$	318

The fair value of the Company’s financial assets measured at fair value on a recurring basis was determined using the following inputs at December 31, 2014 (in thousands):



	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds ⁽¹⁾	$	9,023	$	9,023	$	—	$	—
U.S. government securities⁽²⁾	30,230		—		30,230		—
Total	$	39,253	$	9,023	$	30,230	$	—

Liabilities:
Contingent Consideration	$	968	$	—	$	—	$	968
Total	$	968	$	—	$	—	$	968

⁽¹⁾ Included in cash and cash equivalents in the Company’s consolidated balance sheets


⁽²⁾	Represents the portfolio of available for sale securities and is included in restricted investments and short-term investments in the Company’s consolidated balance sheets

The Company’s available-for-sale securities consist of U.S. government securities with a minimum and weighted average credit rating of A-1+. The Company values these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. However, the Company classifies all of its fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of the Company’s financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques. The Company's procedures include controls to ensure that appropriate fair values are recorded such as comparing prices obtained from multiple independent sources. There were no transfers between Level 1 and 2 hierarchies for the years ended December 31, 2015 and 2014.

The contingent consideration payable to Lumewave's shareholders, which the Company recognized upon it's purchase of Lumewave in August 2014 and is included in other long-term liabilities in the Company's consolidated balance sheets as of December 31, 2015, is classified within Level 3 because significant assumptions for this obligation are not observable in the market. The table below includes a rollforward of the balance sheet amounts for financial instruments classified by the Company within Level 3 of the valuation hierarchy for the two years ended December 31, 2015 (in thousands):



	Contingent Consideration
BALANCE AT DECEMBER 31, 2013	$	—
Recorded in conjunction with acquisition of Lumewave, Inc.	925
Adjustment to contingent consideration	43
BALANCE AT DECEMBER 31, 2014	$	968
Adjustment to contingent consideration	$	(650	)
BALANCE AT DECEMBER 31, 2015	$	318

During the year ended December 31, 2015, the contingent consideration decreased by approximately $650,000. This decrease was comprised of a $759,000 reduction due to the Company's determination that it was no longer probable that the targets specified in the purchase agreement would be met at a level requiring full payout of the contingent consideration, and to a lesser extent, a reduction in the price of the Company's common stock. Partially offsetting this $759,000 was amortization of interest on the contingent consideration of $109,000. All of the $43,000 adjustment to the contingent consideration for the year ended December 31, 2014 related to amortization of interest.

As of December 31, 2015, the Company’s available-for-sale securities had contractual maturities from 5 to 12 months and an average remaining term to maturity of 4 months. Among the Company's available-for-sale securities, there have been no unrealized holding losses for a period of greater than 12 months as of December 31, 2015. As of December 31, 2015, the amortized cost basis, aggregate fair value, and gross unrealized holding gains and losses of the Company’s short-term investments by major security type were as follows (in thousands):



	Amortized Cost		Aggregate Fair Value		Unrealized Holding Gains		Unrealized Holding Losses
U.S. government and agency securities	$	16,989	$	16,978	$	—	$	11

The amortized cost basis, aggregate fair value and gross unrealized holding gains and losses for the Company’s available-for-sale short-term investments, by major security type, were as follows as of December 31, 2014 (in thousands):



	Amortized Cost		Aggregate Fair Value		Unrealized Holding Gains		Unrealized Holding Losses
U.S. government securities	$	30,237	$	30,230	$	—	$	7

Market values were determined for each individual security in the investment portfolio. Any decline in value of these investments is primarily related to changes in interest rates and is considered to be temporary in nature. The Company reviews its investments on a regular basis to evaluate whether or not any have experienced an other-than-temporary decline in fair value. The cost of securities sold is based on the specific identification method and realized gains and losses are included in Interest and other income (expense), net.

Non-Financial Assets Measured at Fair Value on a Nonrecurring Basis

The majority of the Company's non-financial assets and liabilities, which include goodwill, intangible assets, inventories, and property, plant and equipment, are not required to be measured at fair value on a recurring basis. However, if certain triggering events occur (or tested at least annually for goodwill) such that a non-financial instrument is required to be evaluated for impairment and an impairment is recorded to reduce the non-financial instrument's carrying value to the fair value as a result of such triggering events, the non-financial assets and liabilities are measured at fair value for the period such triggering events occur. During the years ended December 31, 2015 and 2014, the Company recognized impairments of its goodwill of $5.7 million and $3.4 million, respectively, based on Level 1, Level 2, and Level 3 inputs. See Note 10 - Goodwill and Intangible Assets for a further discussion of these impairments.

- 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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