Fair Value Measurements

6 Months Ended

Jun. 30, 2015



Note 5	Fair Value Measurements

Items Measured at Fair Value on a Recurring Basis

The following table presents information about our financial assets that have been measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014, and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands).



	Fair Value Measurements as of								Amortized Cost as of
	June 30, 2015								June 30, 2015
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	21,147	$	—	$	—	$	21,147	$	21,147
Money market funds	11,856		—		—		11,856		11,856
Corporate notes and bonds	—		59,660		—		59,660		59,660
Total cash and cash equivalents	33,003		59,660		—		92,663		92,663
Short-term investments:
Corporate notes and bonds	—		18,337		—		18,337		18,332
U.S. government agency securities	—		—		—		—		—
Total short-term investments	—		18,337		—		18,337		18,332
Restricted cash equivalents and investments	—		3,000		—		3,000		3,000
Equity investment in publicly traded securities	2,394		—		—		2,394		362
Warrant issued by Rhapsody (included in Other assets)	—		—		1,128		1,128		—
Total	$	35,397	$	80,997	$	1,128	$	117,522	$	114,357



	Fair Value Measurements as of								Amortized Cost as of
	December 31, 2014								December 31, 2014
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents:
Cash	$	30,105	$	—	$	—	$	30,105	$	30,105
Money market funds	11,629		—		—		11,629		11,630
Corporate notes and bonds	—		61,519		—		61,519		61,520
Total cash and cash equivalents	41,734		61,519		—		103,253		103,255
Short-term investments:
Corporate notes and bonds	—		51,453		—		51,453		51,438
U.S. government agency securities	7,000		—		—		7,000		7,000
Total short-term investments	7,000		51,453		—		58,453		58,438
Restricted cash equivalents and investments	—		3,000		—		3,000		3,000
Equity investment in publicly traded securities	2,676		—		—		2,676		428
Total	$	51,410	$	115,972	$	—	$	167,382	$	165,121

Restricted cash equivalents and investments amounts as of June 30, 2015, and December 31, 2014 relate to cash pledged as collateral against a letter of credit in connection with a lease agreement.

Realized gains or losses on sales of short-term investment securities for the quarters and six months ended June 30, 2015 and 2014 were not significant. Gross unrealized gains and gross unrealized losses on short-term investment securities as of June 30, 2015 and December 31, 2014 were also not significant.

Investments with remaining contractual maturities of five years or less are classified as short-term because the investments are marketable and highly liquid, and we have the ability to utilize them for current operations. Contractual maturities of short-term investments as of June 30, 2015 (in thousands):



	Estimated Fair Value
Within one year	$	16,915
Between one year and five years	1,422
Total short-term investments	$	18,337

Our equity investment in a publicly traded company as of June 30, 2015 and December 31, 2014 consisted of J-Stream Inc., a Japanese media services company. This equity investment is accounted for as available for sale.

During the quarter and six months ended June 30, 2015, we sold a portion of J-Stream shares we held, resulting in cash proceeds of $0.1 million and $0.5 million, respectively and pre-tax gains of $0.1 million and $0.4 million, respectively. In March 2014, we sold a portion of the J-Stream shares we held, resulting in cash proceeds of $2.8 million and a pre-tax gain of $2.4 million. The gains on the sale of these securities are reported in Other income (expense), net, in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

In February 2015, Rhapsody issued warrants to purchase Rhapsody common shares to each of RealNetworks and Rhapsody's one other 43% stockholder. The warrants were issued as compensation for past services provided by RealNetworks and the other 43% stockholder, and both warrants covered the same number of underlying shares. The exercise price of the warrants was equal to the fair value of the underlying shares on the issuance date, and we used the Black-Scholes option-pricing model to calculate the fair value of the warrant, using an expected term of 5 years and expected volatility of 55%. On the date of issuance, we recognized and recorded the $1.2 million fair value of the warrant issued to RealNetworks within Other assets in the unaudited condensed consolidated balance sheets, and as an expense reduction within General and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive income (loss). The warrants are free-standing derivatives and as such their fair value is determined each quarter using updated inputs in the Black-Scholes option-pricing model. During the quarter ended June 30, 2015, the change in the fair value of the warrants from that originally recorded was insignificant.

Items Measured at Fair Value on a Non-recurring Basis

Certain of our assets and liabilities are measured at estimated fair value on a non-recurring basis, using Level 3 inputs. These instruments are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). During the six months ended June 30, 2015 and 2014, we did not record any impairments on those assets required to be measured at fair value on a non-recurring basis.

- 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.

+ References + Details