INVESTMENTS AND FAIR VALUE MEASUREMENTS |
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 December 31, 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 | | $ | 205,180 |
| | $ | 205,180 |
| | $ | — |
| | $ | — |
| Certificates of deposit | | 3,462 |
| | — |
| | 3,462 |
| | — |
| Bonds | | 4,868 |
| | 4,868 |
| | — |
| | — |
| Investment securities available for sale | | | | | | | | | Equity securities | | 154,192 |
| | 153,666 |
| | 526 |
| | — |
| Mutual funds invested in fixed income securities | | 59,826 |
| | 59,826 |
| | — |
| | — |
| Fixed income securities | |
| | | | | | | U.S. Government securities | | 35,446 |
| | — |
| | 35,446 |
| | — |
| Corporate securities | | 56,248 |
| | 7,397 |
| | 48,851 |
| | — |
| U.S. government and federal agency | | 4,770 |
| | — |
| | 4,770 |
| | — |
| Commercial mortgage-backed securities | | 16,508 |
| | — |
| | 16,508 |
| | — |
| U.S. asset backed securities | | 16,955 |
| | — |
| | 16,955 |
| | — |
| Index-linked U.S. bonds | | 2,098 |
| | — |
| | 2,098 |
| | — |
| Total fixed income securities | | 132,025 |
| | 7,397 |
| | 124,628 |
| | — |
| | | | | | | | | | Warrants (1) | | 2,342 |
| | — |
| | — |
| | 2,342 |
| Total | | $ | 561,895 |
| | $ | 430,937 |
| | $ | 128,616 |
| | $ | 2,342 |
| | | | | | | | | | Liabilities: | | | | | | | | | Fair value of derivatives embedded within convertible debt | | $ | 169,386 |
| | $ | — |
| | $ | — |
| | $ | 169,386 |
| | | | | | | | | |
| | (1) | Warrants include 1,000,000 of LTS Warrants received on November 4, 2011 which were carried at $2,342 as of December 31, 2014 and are included in “Other assets.” The Company recognized income of $584 for the year ended December 31, 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. government and agency | | 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 $1,041 for the year ended December 31, 2013 related to the change in fair value from receipt. (See Note 16.) |
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 based on quoted market prices of securities that are thinly traded. The fair value of derivatives embedded within convertible debt was $169,386 and $112,062 as of December 31, 2014 and 2013, respectively. 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 7.5% Convertible Notes due 2019 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 contingent 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 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 December 31, 2014:
| | | | | | | | | | | | | | | | Quantitative Information about Level 3 Fair Value Measurements | | | Fair Value at | | | | | | | | | December 31, 2014 | | Valuation Technique | | Unobservable Input | | Range (Actual) | | | | | | | | | | Warrants | | $ | 2,342 |
| | Option model | | Stock price | | $ | 3.95 |
| | | | | | | Exercise price | | $ | 1.68 |
| | | | | | | Term (in years) | | 1.84 |
| | | | | | | Volatility | | 44.42 | % | | | | | | | Dividend rate | | — |
| | | | | | | Risk-free return | | 0.70 | % | | | | | | | | | | Fair value of derivatives embedded within convertible debt | | $ | 169,386 |
| | Discounted cash flow | | Assumed annual stock dividend | | 5 | % | | | | | | | Assumed annual cash dividend | | $ | 1.60 |
| | | | | | | Stock price | | $ | 21.31 |
| | | | | | | Convertible trading price | | 106.8 | % | | | | | | | Volatility | | 16.00 | % | | | | | | | Implied credit spread | | 6.25% - 7.25% (6.75%) |
|
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 | | 118.7 | % | | | | | | | Volatility | | 18.00 | % | | | | | | | 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. The Company had no nonrecurring nonfinancial assets subject to fair value measurements as of December 31, 2014 and 2013, respectively. |