Fair Value Measurements

9 Months Ended

Sep. 30, 2015

(3) Fair Value Measurements

Fair value is an exit price, defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

The following three levels of inputs are used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include items where the determination of fair value requires significant management judgment or estimation.

Cash equivalents and short-term investments are measured at fair value on a recurring basis. The following table indicates the fair value hierarchy of the valuation for the Company’s cash equivalents and short-term investments, except money market funds which are valued using NAV and are not required to be assigned with a fair value hierarchy level according to ASU 2015-07 (in thousands):


	September 30,		Fair Value Measured Using
	2015		Level 1		Level 2		Level 3
	(unaudited)
Cash equivalents:
Money market funds (1)	$	36,292
Total	$	36,292	$	—	$	—	$	—

Short-term investments:
U.S. agency notes	$	25,283		—		25,283		—
Corporate bonds		27,018		—		27,018		—
Commercial paper		20,314		—		20,314		—
Certificates of deposit		15,000		—		15,000		—
Total	$	87,615	$	—	$	87,615	$	—


	December 31,		Fair Value Measured Using
	2014		Level 1		Level 2		Level 3
Cash equivalents:
Money market funds (1)	$	37,544
U.S. agency notes		101	$	—	$	101	$	—
Corporate bonds		200		—		200		—
Commercial paper		3,000		—		3,000		—
Total	$	40,845	$	—	$	3,301	$	—

Short-term investments:
U.S. agency notes	$	33,476		—		33,476		—
Corporate bonds		43,984		—		43,984		—
Commercial paper		31,317		—		31,317		—
Certificates of deposit		3,000		—		3,000		—
Total	$	111,777	$	—	$	111,777	$	—

(1)

A fair value hierarchy level was not assigned because money market funds were measured at fair value using NAV.

The Company obtains the fair value of all the financial instruments in the table above, except the certificates of deposit, from the Company’s investment banks. The investment banks may use quoted market prices for identical or comparable instruments, or inputs other than quoted prices that are directly or indirectly observable. The investment banks gather quoted market prices and observable inputs for the Company’s financial instruments from a variety of industry data providers. The Company performs independent testing to validate the reasonableness of fair values provided by the investment banks. The fair value of certificates of deposit is discussed with other financial instruments in the paragraphs below.

The fair values of Level 2 financial instruments were derived from nonbinding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments or pricing models. There were no material changes in the valuation techniques utilized during any of the periods presented. There were no transfers between Level 1 and Level 2 assets during any of the periods presented.

For certain financial instruments on the consolidated balance sheets, book values approximate fair values due to their short-term, highly liquid nature. Such instruments generally include cash, restricted cash, disbursement prefunding, certificates of deposit, customer funds receivables, prepaid and other current assets, lines of credit, customer liabilities, and accounts payable and accrued liabilities as disclosed in Note (6) below. The fair value of all of these instruments would be categorized as Level 2 of the fair value hierarchy, with the exception of cash which would be categorized as Level 1.

Certain non-financial assets are measured at fair value on a nonrecurring basis when an impairment charge is recognized. These assets include property, plant and equipment, intangible assets and goodwill. These assets are subject to fair value adjustments in certain circumstances, such as when there is evidence of impairment. If measured at fair value in the consolidated balance sheets, these would generally be classified as Level 3 of the fair value hierarchy.

- 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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