Fair value measurements

9 Months Ended

Sep. 30, 2017

5. Fair value measurements

The fair value of the Company’s financial assets and liabilities measured on a recurring basis were as follows:

	September 30, 2017										December 31, 2016
(U.S. Dollars, in thousands)	Level 1		Level 2			Level 3		Total			Total
Assets
Collective trust funds	$	—	$	1,565		$	—	$	1,565		$	1,584
Treasury securities		522		—			—		522			467
Certificates of deposit		—		—			—		—			468
Debt security		—		—			9,000		9,000			12,220
Total	$	522	$	1,565		$	9,000	$	11,087		$	14,739
Liabilities
Deferred compensation plan	$	—	$	(1,307	)	$	—	$	(1,307	)	$	(1,452	)
Total	$	—	$	(1,307	)	$	—	$	(1,307	)	$	(1,452	)

The Company holds a debt security of eNeura, Inc., a privately held medical technology company that is developing devices for the treatment of migraines. The debt security is further described in Note 6 to the financial statements contained within our Form 10-K for the year ended December 31, 2016. The fair value of the debt security, which is recorded within other long-term assets, is based upon significant unobservable inputs, including the use of a discounted cash flow model, requiring the Company to develop its own assumptions; therefore, the Company has categorized this asset as a Level 3 financial asset. As of September 30, 2017, the Company reassessed its estimate of fair value based on current financial information and other assumptions, resulting in a fair value of $9.0 million, which is consistent with the Company’s estimated fair value from the first and second quarters of 2017. This compares to an amortized cost basis in the debt security of $18.4 million.

The Company evaluated the decline in fair value of the debt security, which was recorded during the first quarter of 2017, to determine if the impairment was other-than-temporary. Based on this evaluation, the Company recorded an other-than-temporary impairment charge of $5.6 million before income taxes, which is recorded in other expense. In addition to the decrease in fair value, the other-than-temporary impairment included a reclassification of the amount that was previously considered temporary and included in accumulated other comprehensive loss.

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)	2017			2016
Balance at January 1	$	12,220		$	12,658
Accrued interest income		—			969
Gains or losses recorded for the period
Recognized in net income		(5,585	)		—
Recognized in other comprehensive income		2,365			843
Balance at September 30	$	9,000		$	14,470

- 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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