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FINANCIAL INSTRUMENTS
12 Months Ended
Dec. 31, 2015
Fair Value Disclosures [Abstract]  
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in the principal or most advantageous market in an orderly transaction. To increase consistency and comparability in fair value measurements, the FASB established a three-level hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of fair value measurements are:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
Level 3: Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The carrying value of financial instruments including cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these items. The fair value of the Company’s Notes at December 31, 2015 are calculated utilizing market quotations from an over-the-counter trading market for these notes (Level 2). The carrying amount and fair value of the Notes are as follows (in thousands):
 
 
Carrying
Value
 
Fair Value Measurements Using
Financial Liabilities Carried at Historical Cost
 
 
Level 1
 
Level 2
 
Level 3
December 31, 2015
 
 
 
 
 
 
 
 
Convertible senior notes *
 
$
105,928

 
$

 
$
369,971

 
$


* The fair value of the Notes was based on the Company’s closing stock price of $76.79 per share at December 31, 2015 compared to a conversion price of $24.82 per share which, if converted, would result in an approximate conversion premium of 3.2 million shares or $248 million of cash. The maximum conversion premium that can be due on the Notes is 4.8 million shares, which assumes no increases in the conversion rate for certain corporate events.
Short-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper and corporate bonds with maturities greater than three months, but less than one year. Long-term investments consist of corporate bonds with maturities greater than one year. The net unrealized gains from the Company’s short-term and long-term investments are reported in other comprehensive income (loss). At December 31, 2015, all of the Company’s short-term and long-term investments are classified as available for sale investments and are determined to be Level 2 instruments, which are measured at fair value using standard industry models with observable inputs. The fair value of the commercial paper is measured based on a standard industry model that uses the three-month Treasury bill rate as an observable input. The fair value of the asset-backed securities and corporate bonds is principally measured or corroborated by trade data for identical issues in which related trading activity is not sufficiently frequent to be considered a Level 1 input or that of comparable securities. At December 31, 2015, all short-term and long-term investments were rated A or better by Standard & Poor’s. All long-term investments mature within 18 months of December 31, 2015.
The following summarizes the Company’s investments at December 31, 2015 and 2014 (in thousands):
December 31, 2015
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
(Level 2)
Debt securities:
 
 
 
 
 
 
 
 
   Short-term:
 
 
 
 
 
 
 
 
      Asset-backed securities
 
$
27,484

 
$

 
$
(15
)
 
$
27,469

      Commercial paper
 
35,191

 
31

 

 
35,222

      Corporate bonds
 
39,319

 
2

 
(31
)
 
39,290

         Subtotal
 
101,994

 
33

 
(46
)
 
101,981

   Long-term:
 
 
 
 
 
 
 
 
    Corporate bonds
 
13,501

 

 
(39
)
 
13,462

         Total
 
$
115,495

 
$
33

 
$
(85
)
 
$
115,443

December 31, 2014
 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
(Level 2)
Debt securities:
 
 
 
 
 
 
 
 
   Short-term:
 
 
 
 
 
 
 
 
      Asset-backed securities
 
$
15,009

 
$

 
$
(9
)
 
$
15,000

      Commercial paper
 
1,747

 
3

 

 
1,750

      Corporate bonds
 
102,430

 

 
(42
)
 
102,388

         Subtotal
 
119,186

 
3

 
(51
)
 
119,138

   Long-term:
 
 
 
 
 
 
 
 
    Corporate bonds
 
24,463

 
10

 
(42
)
 
24,431

         Total
 
$
143,649

 
$
13

 
$
(93
)
 
$
143,569

Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets and liabilities acquired in a business combination and long-lived assets, which would be recognized at fair value if deemed to be impaired or if reclassified as assets held for sale. The fair value in these instances would be determined using Level 3 inputs. At December 31, 2015, the Company had no financial instruments that were measured using Level 3 inputs.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments, long-term investments and accounts receivable. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. At times, such amounts may exceed federally-insured limits. The Company performs ongoing credit evaluations of its customers as warranted and generally does not require collateral.
As of December 31, 2015, three customers accounted for over 10% of the Company’s accounts receivable; 34%, 28% and 27%, respectively. At December 31, 2014, three customers accounted for over 10% of the Company’s accounts receivable; 33%, 29% and 27%, respectively. Revenues are primarily derived from major wholesalers and pharmaceutical companies which generally have significant cash resources. Allowances for doubtful accounts receivable are maintained based on historical payment patterns, aging of accounts receivable and actual write-off history. As of December 31, 2015 and 2014, no allowances for doubtful accounts were deemed necessary by the Company on its accounts receivable.