Investments and Fair Value Measurements

6 Months Ended

Jun. 30, 2014

INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company's recurring financial assets and liabilities subject to fair value measurements are as follows:



	Fair Value Measurements as of June 30, 2014
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	335,332	$	335,332	$	—	$	—
Certificates of deposit	3,252		—		3,252		—
Bonds	5,093		5,093		—		—
Investment securities available for sale							—
Equity securities	123,034		122,262		772		—
Mutual funds invested in fixed income securities	60,522		60,522		—		—
Fixed income securities
U.S. Government securities	11,197		—		11,197		—
Corporate securities	30,648		6,744		23,904		—
U.S. mortgage backed securities	214		—		214		—
Commercial mortgage-backed securities	6,645		—		6,645		—
U.S. asset backed securities	5,061		—		5,061		—
U.S. Government agencies	191		—		191		—
Index-linked U.S. bonds	255		—		255		—
Total fixed income securities	54,211		6,744		47,467		—

Warrants (1)	1,647		—		—		1,647
Total	$	583,091	$	529,953	$	51,491	$	1,647

Liabilities:
Fair value of derivatives embedded within convertible debt	$	191,554	$	—	$	—	$	191,554


(1)	Warrants include 1,000,000 of LTS Warrants received on November 4, 2011 which were carried at $1,647 as of June 30, 2014 and are included in "Other assets". The Company recognized a loss of $111 for the six months ended June 30, 2014 related to the change in fair value of the Warrants.



	Fair Value Measurements as of December 31, 2013
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds	$	130,733	$	130,733	$	—	$	—
Certificates of deposit	2,961		—		2,961		—
Bonds	5,337		5,337		—		—
Investment securities available for sale							—
Equity securities	118,474		117,737		737		—
Fixed income securities							—
U.S. Government securities	13,990		—		13,990		—
Corporate securities	29,923		6,497		23,426		—
U.S. mortgage backed securities	495		—		495		—
Commercial mortgage-backed securities	6,822		—		6,822		—
U.S. asset backed securities	2,081		—		2,081		—
Index-linked U.S. bonds	749		—		749		—
Total fixed income securities	54,060		6,497		47,563		—

Warrants (1)	1,935		—		—		1,935
Total	$	313,500	$	260,304	$	51,261	$	1,935

Liabilities:

Fair value of derivatives embedded within convertible debt	$	112,062	$	—	$	—	$	112,062


(1)	Warrants include 1,000,000 of LTS Warrants received on November 4, 2011 which were carried at $1,758 as of December 31, 2013 and are included in "Other assets". The Company recognized income of $65 for the six months ended June 30, 2013 related to the change in fair value of the Warrants.

The fair value of the Level 2 certificates of deposit are based on prices posted by the financial institutions. The fair value of investment securities available for sale included in Level 1 are based on quoted market prices from various stock exchanges. The Level 2 investment securities available for sale are equity securities based on quoted market prices of securities that are thinly traded and debt securities based on evaluated prices using observable, market-based inputs.

The fair value of derivatives embedded within convertible debt was derived using a valuation model and have been classified as Level 3. The valuation model assumes future dividend payments by the Company and utilizes interest rates and credit spreads based upon the implied debt rate of the 5.50% Convertible Notes to determine the fair value of the derivatives embedded within the convertible debt. The changes in fair value of derivatives embedded within convertible debt are presented on the Condensed Consolidated Statements of Operations.

The value of the embedded derivatives is based on changes in implied interest rates of the convertible debt, the Company's stock price, stock volatility as well as projections of future cash and stock dividends over the term of the debt. The interest rate component of the value of the embedded derivative is computed by calculating an equivalent non-convertible, unsecured and subordinated borrowing cost. This rate is determined by calculating the implied rate on the Company's 2019 Convertible Notes when removing the embedded option value within the convertible security. This rate is based upon market observable inputs and influenced by the Company's stock price, convertible bond trading price, risk free interest rates and stock volatility.

The Company recognized income of $320 and $5,499 for the six months ended June 30, 2014 and 2013, respectively.

The fair value of the warrants was derived using the Black-Scholes model and has been classified as Level 3. The assumptions used under the Black-Scholes model in computing the fair value of the warrants are based on contractual term of the warrants, volatility of the underlying stock based on the historical quoted prices of the underlying stock, assumed future dividend payments and a risk-free rate of return.

The unobservable inputs related to the valuations of the Level 3 assets and liabilities are as follows at June 30, 2014:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at
	June 30, 2014		Valuation Technique	Unobservable Input	Range (Actual)

Warrants	$	1,647	Option model	Stock price	$	3.15
				Exercise price	$	1.68
				Term (in years)	2.4
				Volatility	45.83		%
				Dividend rate	—
				Risk-free return	0.70		%

Fair value of derivatives embedded within convertible debt	$	191,554	Discounted cash flow	Assumed annual stock dividend	5		%
				Assumed annual cash dividend	$	1.60
				Stock price	$	20.68
				Convertible trading price	107.19		%
				Volatility	16		%
				Implied credit spread	5.5% - 6.5% (6.0%)

The unobservable inputs related to the valuations of the Level 3 assets and liabilities are as follows at December 31, 2013:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at
	December 31, 2013		Valuation Technique	Unobservable Input	Range (Actual)

Warrants	$	1,935	Option model	Stock price	$	3.13
				Exercise price	$	1.68
				Term (in years)	2.8
				Volatility	53.82		%
				Dividend rate	—
				Risk-free return	0.72		%

Fair value of derivatives embedded within convertible debt	$	112,062	Discounted cash flow	Assumed annual stock dividend	5		%
				Assumed annual cash dividend	$	1.60
				Stock price	$	16.37
				Convertible trading price	118.70		%
				Volatility	18		%
				Implied credit spread	7.5% - 8.5% (8.0%)

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record assets and liabilities at fair value on a nonrecurring basis. Generally, assets and liabilities are recorded at fair value on a nonrecurring basis as a result of impairment charges or acquisitions. The Company had no nonrecurring nonfinancial assets subject to fair value measurements as of June 30, 2014 and December 31, 2013.

- 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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