Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2016

Valuation techniques for determining fair value measurements are based on observable and unobservable inputs. As a basis for determining fair value for our financial instruments, we follow a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level I: observable inputs such as quoted prices in active markets;

Level II: inputs other than quoted prices in active markets that are observable either directly or indirectly; and

Level III: unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions.

Our Level I financial instruments include money market funds because they are valued using quoted market prices. Our Level II financial instruments include U.S. government and agency securities because their value is based on valuations using significant inputs derived from or corroborated by observable market data. Depending on the security, the income and market approaches are used in the model driven valuations. Inputs of these models include recently executed transaction prices in securities of the issuer or comparable issuers and yield curves.

The following tables summarize our cash and available-for-sale securities by significant category within the fair value hierarchy (in thousands):



	September 30, 2016
	Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss		Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
Assets:
Cash	$	10,813	$	—	$	—	$	10,813	$	10,813	$	—	$	—
Available-for-sale:
Level I:
Money market funds	21,493		—		—		21,493		21,493		—		—
Level II:
U.S. government and agency securities	38,921		20		—		38,941		—		38,941		—
Total	$	71,227	$	20	$	—	$	71,247	$	32,306	$	38,941	$	—



	December 31, 2015
	Carrying Amount		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value		Cash and Cash Equivalents		Short-Term Marketable Securities		Long-Term Marketable Securities
Assets:
Cash	$	17,889	$	—	$	—		$	17,889	$	17,889	$	—	$	—
Available-for-sale:
Level I:
Money market funds	11,228		—		—			11,228		11,228		—		—
Level II:
U.S. government and agency securities	72,420		—		(72		)	72,348		—		65,855		6,493
Total	$	101,537	$	—	$	(72	)	$	101,465	$	29,117	$	65,855	$	6,493

There were no transfers in and out of Level I and Level II fair value measurement categories during the nine months ended September 30, 2016 and 2015, and there were no changes in the valuation techniques used.

The contractual maturity dates of $38.9 million of our marketable debt securities are within one year from September 30, 2016.

None of our available-for-sale securities have been in a continuous loss positions for more than 12 months. We concluded that the declines in market value of our available-for-sale securities investment portfolio were temporary in nature and did not consider any of our investments to be other-than-temporarily impaired.

The estimated fair value of the Convertible Notes is based on a market approach (See Note 3). The estimated fair value was approximately $123.6 million (par value $201.3 million) as of September 30, 2016 and represents a Level II valuation. When determining the estimated fair value of our long-term debt, we used a commonly accepted valuation methodology and market-based risk measurements that are indirectly observable, such as credit risk.

- 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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