Quarterly report pursuant to Section 13 or 15(d)

Financial Instruments (Notes)

v3.3.0.814
Financial Instruments (Notes)
 9 Months Ended
Sep. 30, 2015
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]
Financial Instruments
The composition of financial instruments is as follows:
 
September 30, 2015
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
Gains
 
Losses
 
Assets
 
 
 
 
 
 
 
Money market funds
$
13,088

 
$
—

 
$
—

 
$
13,088

Government debt securities
11,810

 
11

 
—

 
11,821

Corporate debt securities
34,812

 
17

 
(6
)
 
34,823

 
59,710

 
28

 
(6
)
 
59,732

Less amounts included in cash and cash equivalents
(13,088
)
 
—

 
—

 
(13,088
)
 
$
46,622

 
$
28

 
$
(6
)
 
$
46,644

 
Fair Value at September 30, 2015
Liabilities
 
Contingent Consideration
$
142

Total
$
142

 
December 31, 2014
Amortized
Cost
 
Gross Unrealized
 
Fair
Value
Gains
 
Losses
 
Assets
 
 
 
 
 
 
 
Money market funds
$
1,858

 
$
—

 
$
—

 
$
1,858

Government debt securities
27,154

 
5

 
(8
)
 
27,151

Corporate debt securities
31,543

 
3

 
(42
)
 
31,504

 
60,555

 
8

 
(50
)
 
60,513

Less amounts included in cash and cash equivalents
(1,858
)
 
—

 
—

 
(1,858
)
 
$
58,697

 
$
8

 
$
(50
)
 
$
58,655


 
Fair Value at December 31, 2014
Liabilities
 
Contingent Consideration
$
265

Total
$
265


As of September 30, 2015, the Company held 7 government and corporate debt securities with an aggregate fair value of $11.1 million that were in an unrealized loss position for less than 12 months. The gross unrealized losses of $0.006 million at September 30, 2015 represent temporary impairments on government and corporate debt securities related to multiple issuers, and were primarily caused by fluctuations in U.S. interest rates. The Company evaluates securities for other-than-temporary impairment on a quarterly basis. Impairment is evaluated considering numerous factors, and their relative significance varies depending on the situation. Factors considered include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the issuer; including changes in the financial condition of the security’s underlying collateral; any downgrades of the security by a rating agency; nonpayment of scheduled interest, or the reduction or elimination of dividends; as well as our intent and ability to hold the security in order to allow for an anticipated recovery in fair value.
All of the Company’s long-term available-for-sale securities were due between 1 and 2 years as of September 30, 2015.
The fair values of the Company’s financial instruments are the amounts that would be received in an asset sale or paid to transfer a liability in an orderly transaction between unaffiliated market participants and are recorded using a hierarchal disclosure framework based upon the level of subjectivity of the inputs used in measuring assets and liabilities. The levels are described below:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available.
The Company classifies its financial instruments within Level 1 or Level 2 of the fair value hierarchy on the basis of valuations using quoted market prices or alternate pricing sources and models utilizing market observable inputs, respectively. The Company’s money market funds were valued based on quoted prices for the specific securities in an active market and were therefore classified as Level 1. The government and corporate debt securities have been valued on the basis of valuations provided by third-party pricing services, as derived from such services’ pricing models. The pricing services may use a consensus price which is a weighted average price based on multiple sources or mathematical calculations to determine the valuation for a security, and have been classified as Level 2. The Company reviews Level 2 inputs and fair value for reasonableness and the values may be further validated by comparison to independent pricing sources. In addition, the Company reviews third-party pricing provider models, key inputs and assumptions and understands the pricing processes at its third-party providers in determining the overall reasonableness of the fair value of its Level 2 financial instruments. As of September 30, 2015 and December 31, 2014, the Company has not made any adjustments to the prices obtained from its third party pricing providers. The contingent liability is classified as Level 3 as of September 30, 2015 and December 31, 2014 and is valued using an internal rate of return model. The assumptions used in preparing the internal rate of return model include estimates for future revenues related to Physpeed products and services and a discount factor of 0.77% to 0.38% and 0.54% to 0.33% at September 30, 2015 and December 31, 2014, respectively. The assumptions used in preparing the internal rate of return model include estimates for outcome if milestone goals are achieved, the probability of achieving each outcome and discount rates. Significant changes in any of the unobservable inputs used in the fair value measurement of contingent consideration in isolation could result in a significantly lower or higher fair value. A change in estimated future revenues would be accompanied by a directionally similar change in fair value.
The following table presents a summary of the Company’s financial instruments that are measured on a recurring basis:
 
 
 
Fair Value Measurements at September 30, 2015
 
Balance at
September 30,
2015
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Money market funds
$
13,088

 
$
13,088

 
$
—

 
$
—

Government debt securities
11,821

 
—

 
11,821

 
—

Corporate debt securities
34,823

 
—

 
34,823

 
—

 
$
59,732

 
$
13,088

 
$
46,644

 
$
—

Liabilities
 
 
 
 
 
 
 
Contingent consideration
$
142

 
$
—

 
$
—

 
$
142

 
$
142

 
$
—

 
$
—

 
$
142

 
 
 
Fair Value Measurements at December 31, 2014
 
Balance at
December 31,
2014
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets
 
 
 
 
 
 
 
Money market funds
$
1,858

 
$
1,858

 
$
—

 
$
—

Government debt securities
27,151

 
—

 
27,151

 
—

Corporate debt securities
31,504

 
—

 
31,504

 
—

 
$
60,513

 
$
1,858

 
$
58,655

 
$
—

Liabilities
 
 
 
 
 
 
 
Contingent consideration
$
265

 
$
—

 
$
—

 
$
265

 
$
265

 
$
—

 
$
—

 
$
265


The following summarizes the activity in Level 3 financial instruments:
 
Nine Months Ended September 30, 2015
Contingent Consideration (1)
 
Beginning balance
$
265

(Gain) loss recognized in earnings (2)
(123
)
Ending balance
$
142

Net gain (loss) for the period included in earnings attributable to contingent consideration held at the end of the period:
$
(123
)
(1)
In connection with the acquisition of Physpeed, the Company recorded contingent consideration based upon the expected achievement of certain 2015 and 2016 revenue milestones. Changes to the fair value of contingent consideration due to changes in assumptions used in preparing the valuation model are recorded in selling, general and administrative expense in the statement of operations.
(2)
Changes to the estimated fair value of contingent consideration were primarily due to revisions to the Company's expectations of earn-out achievement.
There were no transfers between Level 1, Level 2 or Level 3 securities in the three and nine months ended September 30, 2015