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Investments and Fair Value Measurements
12 Months Ended
Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]  
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.