Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 9 Months Ended
Sep. 30, 2012
Fair Value Measurements [Abstract]  
FAIR VALUE MEASUREMENTS
4. FAIR VALUE MEASUREMENTS

With the adoption of ASC 820 “Fair Value Measurements and Disclosures,” beginning January 1, 2008, assets and liabilities recorded at fair value in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. For certain of the Company’s financial instruments including amounts receivable and accounts payable the carrying values approximate fair value due to their short-term nature.

ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. In accordance with ASC 820, these inputs are summarized in the three broad level listed below:

 

  •  

Level 1 – Quoted prices in active markets for identical securities.

 

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Level 2 – Other significant inputs that are observable through corroboration with market data (including quoted prices in active markets for similar securities).

 

  •  

Level 3 – Significant unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability.

As quoted prices in active markets are not readily available for certain financial instruments, the Company obtains estimates for the fair value of financial instruments through independent pricing service providers.

In determining the appropriate levels, the Company performed a detailed analysis of the assets and liabilities that are subject to ASC 820.

The Company invests its excess cash in accordance with investment guidelines that limit the credit exposure to any one financial institution other than securities issued by the U.S. Government. These securities are not collateralized and mature within one year.

A description of the valuation techniques applied to the Company’s financial instruments measured at fair value on a recurring basis follows.

Financial Instruments

Cash

Significant amounts of cash are held on deposit with large well established U.S. and Canadian financial institutions.

U.S. Government and Agency Securities

U.S. Government Securities U.S. government securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. government securities are categorized in Level 1 of the fair value hierarchy.

U.S. Agency Securities U.S. agency securities are comprised of two main categories consisting of callable and non-callable agency issued debt securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. Actively traded non-callable agency issued debt securities are categorized in Level 1 of the fair value hierarchy. Callable agency issued debt securities are categorized in Level 2 of the fair value hierarchy.

Corporate and Other Debt

Corporate Bonds and Commercial Paper The fair value of corporate bonds and commercial paper is estimated using recently executed transactions, market price quotations (where observable), bond spreads or credit default swap spreads adjusted for any basis difference between cash and derivative instruments. The spread data used are for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default swap spreads and recovery rates based on collateral values as significant inputs. Corporate bonds and commercial paper are generally categorized in Level 2 of the fair value hierarchy; in instances where prices, spreads or any of the other aforementioned key inputs are unobservable, they are categorized in Level 3 of the hierarchy.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

 

                                 
(in thousands)   Level 1     Level 2     Level 3     September 30,
2012		  

Assets

                                

Cash

   $ 2,335     $ —       $ —       $ 2,335  

Money market securities

   $ 9,341     $ —       $ —       $ 9,341  

Government securities

   $ —       $ —       $ —       $ —    

Corporate bonds and commercial paper

   $ —       $ 73,711     $ —       $ 73,711  
   

 

 

    

 

 

    

 

 

    

 

 

  
    $ 11,676     $ 73,711     $ —       $ 85,387  

Liabilities

                                

Warrants

   $ —       $ —       $ 5,359     $ 5,359  

 

Marketable securities consist of the following:

 

                                 
(in thousands)   Amortized
Cost		     Gross
Unrealized
Gain		     Gross
Unrealized
Loss		     Estimated
Fair Value		  

2012

                                

Cash

   $ 2,335     $ —       $ —       $ 2,335  

Money market securities

   $ 9,027     $ —       $ —       $ 9,027  
   

 

 

    

 

 

    

 

 

    

 

 

  

Cash and cash equivalents

   $ 11,362     $ —       $ —       $ 11,362  
         

Money market securities

   $ 314     $ —       $ —       $ 314  
   

 

 

    

 

 

    

 

 

    

 

 

  

Restricted cash

   $ 314     $ —       $ —       $ 314  
         

Corporate bonds and commercial paper

   $ 73,697     $ 15     $ (1 )    $ 73,711  
   

 

 

    

 

 

    

 

 

    

 

 

  

Short-term investments

   $ 73,697     $ 15     $ (1 )    $ 73,711  

The Company’s gross realized gains and losses on sales of available-for-sale securities were not material for the three and nine months ended September 30, 2012 and 2011.

All securities included in cash and cash equivalents had maturities of 90 days or less at the time of purchase. All securities included in short-term investments have maturities of within one year of the balance sheet date. The cost of securities sold is based on the specific identification method.

The Company only invests in A (or equivalent) rated securities. The Company does not believe that there are any other than temporary impairments related to its investment in marketable securities at September 30, 2012, given the quality of the investment portfolio and subsequent proceeds collected on sale of securities that reached maturity.

As of September 30, 2012, the Company recorded a $5.4 million warrant liability. The Company reassesses the fair value of the common stock warrants at each reporting date utilizing a Black-Scholes pricing model. Inputs used in the pricing model include estimates of stock price volatility, expected warrant life and risk-free interest rate. The computation of expected volatility was based on the historical volatility of shares of the Company’s common stock for a period that coincides with the expected life of the warrants. A small change in the estimates used may have a relatively large change in the estimated valuation.

The following table presents the changes in fair value of the Company’s total Level 3 financial liabilities for the nine months ended September 30, 2012:

 

                         
(In thousands)   Liability at
December 31,
2011		     Gain (loss) on
warrants		     Remaining
Liability at
September 30,
2012		  

Warrant liability

   $ 7,881     $ 2,522     $ 5,359