Fair value measurements

12 Months Ended

Dec. 31, 2015

10.	Fair value measurements

The Company’s collective trust funds, treasury securities, certificates of deposit, derivative securities, debt securities, and deferred compensation plan liabilities are the only financial instruments recorded at fair value on a recurring basis as follows:

(U.S. Dollars in thousands)	Balance December 31, 2015			Level 1		Level 2			Level 3
Assets
Collective trust funds	$	1,622		$	—	$	1,622		$	—
Treasury securities		495			495		—			—
Certificates of deposit		337			337		—			—
Derivative securities		2,485			—		2,485			—
Debt securities		12,658			—		—			12,658
Total	$	17,597		$	832	$	4,107		$	12,658
Liabilities
Deferred compensation plan	$	(1,503	)	$	—	$	(1,503	)	$	—
Total	$	(1,503	)	$	—	$	(1,503	)	$	—

(U.S. Dollars in thousands)	Balance December 31, 2014			Level 1		Level 2			Level 3
Assets
Collective trust funds	$	1,696		$	—	$	1,696		$	—
Treasury securities		586			586		—			—
Certificates of deposit		1,510			1,510		—			—
Derivative securities		2,504			—		2,504			—
Total	$	6,296		$	2,096	$	4,200		$	—
Liabilities
Deferred compensation plan	$	(1,886	)	$	—	$	(1,886	)	$	—
Total	$	(1,886	)	$	—	$	(1,886	)	$	—

The fair value of treasury securities and certificates of deposit are determined based on quoted prices in active markets for identical assets, therefore, the Company has categorized these instruments as Level 1 financial instruments. The certificates of deposit are held in foreign currencies and carry a contractual maturity of two years from the date of purchase.

The cross-currency derivative instrument consists of an over-the-counter contract, which is not traded on a public exchange. The fair value of this derivative swap contract, the common stock warrants, the Company’s collective trust funds, and the Company’s deferred compensation plan liabilities are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets; therefore, the Company has categorized these instruments as Level 2 financial instruments.

The fair value of the Company’s debt securities is based upon significant unobservable inputs, requiring the Company to develop its own assumptions; therefore, the Company has categorized this asset as a Level 3 financial asset.

On March 4, 2015, the Company entered into an Option Agreement (the “Option Agreement”) with eNeura, Inc. (“eNeura”), a privately held medical technology company that is developing devices for the treatment of migraines. The Option Agreement provides the Company with an exclusive option to acquire eNeura (the “Option”) during the 18-month period following the grant of the Option. In consideration for the Option, (i) the Company paid a non-refundable $0.3 million fee to eNeura, and (ii) eNeura issued a Convertible Promissory Note (the “eNeura Note”) to the Company. The principal amount of the eNeura Note is $15.0 million and interest accrues at 8.0%. The eNeura Note will mature on the earlier of (i) March 4, 2019, or (ii) exercise of the Option. The interest is not due until the note matures and will be forgiven if the Company exercises the option. The investment is recorded in other long-term assets as an available for sale debt security and interest is recorded in interest income.

The fair value of the debt security is based upon significant unobservable inputs, including the use of a discounted cash flows model, requiring the Company to develop its own assumptions; therefore, the Company has categorized this asset as a Level 3 financial asset. One of the more significant unobservable inputs used in the fair value measurement of the debt security is the discount rate. Holding other inputs constant, changes in the discount rate could result in a significant change in the fair value of the debt security. As of December 31, 2015, the Company believes the fair value of the debt security is $12.7 million, resulting in an impairment of $3.3 million, which the Company has recorded in other comprehensive income as an unrealized loss on debt securities. The Company has classified the impairment as temporary in nature as the Company does not intend to sell the debt security nor does it believe that recoverability of the investment will not occur.

The following table provides a reconciliation of the beginning and ending balances for debt securities measured at fair value using significant unobservable inputs (Level 3):

(U.S. Dollars, in thousands)	2015
Balance at January 1, 2015	$	—
Additions to debt securities		15,000
Accrued interest income		1,006
Unrealized loss on debt securities		(3,348	)
Balance at December 31, 2015	$	12,658

- 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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