Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 3 Months Ended
Mar. 31, 2013
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 our financial instruments including amounts receivable, interest 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 levels 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).

 

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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, we obtain estimates for the fair value of financial instruments through third-party pricing service providers.

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

We invest our 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 or less.

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

 

Financial Instruments

Cash

Significant amounts of cash and cash equivalents 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.

Warrants

As of March 31, 2013, we recorded a $2.0 million warrant liability. We reassess 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 our common stock for a period that coincides with the expected life of the warrants. Warrants are categorized in Level 3 of the fair value hierarchy.

The following table presents information about our assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value (in thousands):

 

                                 

March 31, 2013

   Level 1     Level 2     Level 3     Total  

Assets

                                

Cash

   $ 2,612     $ —       $ —       $ 2,612  

Money market securities

     16,330       —         —         16,330  

Government securities

     —         —         —         —    

Corporate bonds and commercial paper

     —         45,961       —         45,961  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total assets

   $ 18,942     $ 45,961     $ —       $ 64,903  

Liabilities

                                

Warrants

   $ —       $ —       $ 1,988     $ 1,988  

 

The following table presents the changes in fair value of our total Level 3 financial liabilities for the three months ended March 31, 2013. There have been no transfers of assets or liabilities to or from level 3 (in thousands):

 

                         
    Liability at
December 31,
2012		     Gain (loss) on
warrants		     Liability at
March  31,
2013 		 

Warrant liability

   $ 3,422     $ 1,434     $ 1,988  

Marketable securities consist of the following (in thousands):

 

                                 
    Amortized
Cost 		    Gross
Unrealized
Gains		     Gross
Unrealized
Losses		     Estimated
Fair Value		  

March 31, 2013

                                
         

Cash

   $ 2,612     $ —       $ —       $ 2,612  

Money market securities

     16,016       —         —         16,016  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total cash and cash equivalents

   $ 18,628     $ —       $ —       $ 18,628  
         

Money market securities

     314       —         —         314  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total restricted cash

   $ 314     $ —       $ —       $ 314  
         

Corporate bonds and commercial paper

     45,971       1       (11 )      45,961  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total short-term investments

   $ 45,971     $ 1     $ (11 )    $ 45,961  

Our gross realized gains and losses on sales of available-for-sale securities were not material for the three months ended March 31, 2013 and 2012.

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.

We only invest in A (or equivalent) rated securities. We do not believe that there are any other than temporary impairments related to our investment in marketable securities at March 31, 2013, given the quality of the investment portfolio and subsequent proceeds collected on sale of securities that reached maturity.