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FAIR VALUE MEASUREMENTS | 12 Months Ended
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Dec. 31, 2016
FAIR VALUE MEASUREMENTS |
FAIR VALUE MEASUREMENTS | 7. FAIR VALUE MEASUREMENTS The Company established a fair value hierarchy which prioritizes and ranks the level of market price observability used in measuring investments at fair value. Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories (from highest to lowest) based on inputs: Level 1—Quoted prices (unadjusted) are available in active markets for identical instruments that the Company has the ability to access as of the reporting date. The Company, to the extent that it holds such instruments, does not adjust the quoted price for these instruments, even in situations in which the Company holds a large position and a sale could reasonably affect the quoted price. Level 2—Pricing inputs are observable for the instruments, either directly or indirectly, as of the reporting date, but are not the same as those used in level 1. Fair value is determined through the use of models or other valuation methodologies. Level 3—Pricing inputs are unobservable for the instruments and include situations in which there is little, if any, market activity for the investments. The inputs into the determination of fair value require significant judgment or estimation by the Company’s management. The estimated fair values of government securities money markets and U.S. Treasury Bills as of December 31, 2016 and 2015 are based on quoted prices for recent trading activity in identical or similar instruments. The Company generally invests in U.S. Treasury Bills with maturities of less than twelve months. See Note 2 for further information on the Company’s fair value hierarchy. In 2015 the Company received convertible notes as compensation for its services and classified this investment as available-for-sale. The convertible notes did not have readily determinable market values and were categorized accordingly as level 3. The fair value of the convertible notes was recorded at the initial transaction price at which such notes were purchased by third party investors in the capital market transaction on which the Company provided services. In July 2016, the issuer of the convertible notes consummated its initial public offering and the notes converted into common stock of the issuer at a discounted conversion rate equal to the principal value of the notes plus accrued interest. The common stock is classified as available-for-sale and the subsequent measurement of its fair value is recorded based upon the quoted price in its active market. Unrealized changes in fair value are reflected in other comprehensive income in the consolidated and combined financial statements. The following tables summarize the levels of the fair value hierarchy into which the Company’s financial assets and liabilities fall as of December 31, 2016:
|  | Total |  | Level 1 |  | Level 2 |  | Level 3 |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Included in cash and cash equivalents |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury bills |  | $ | 44,999 |  | $ | — |  | $ | 44,999 |  | $ | — |
Government securities money market |  |  | 201,934 |  |  | — |  |  | 201,934 |  |  | — |
Investments |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury bills |  |  | 32,995 |  |  | — |  |  | 32,995 |  |  | — |
Common stock |  |  | 388 |  |  | 388 |  |  | — |  |  | — |
Total financial assets |  | $ | 280,316 |  | $ | 388 |  | $ | 279,928 |  | $ | — |
The following table summarizes the levels of the fair value hierarchy into which the Company’s financial assets fall as of December 31, 2015:
|  | Total |  | Level 1 |  | Level 2 |  | Level 3 |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Included in cash and cash equivalents |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury bills |  | $ | 100,996 |  | $ | 71,998 |  | $ | 28,998 |  | $ | — |
Government securities money market |  |  | 77,876 |  |  | — |  |  | 77,876 |  |  | — |
Investments |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury bills |  |  | 37,989 |  |  | 19,990 |  |  | 17,999 |  |  | — |
Convertible notes |  |  | 635 |  |  | — |  |  | — |  |  | 635 |
Total financial assets |  | $ | 217,496 |  | $ | 91,988 |  | $ | 124,873 |  | $ | 635 |
The Company’s methodology for reclassifications impacting the fair value hierarchy is that transfers in/out of the respective category are reported at fair value as of the beginning of the period in which the reclassification occurred. The changes to the Company’s investments classified as level 3 are as follows for the years ended December 31, 2016 and 2015.
|  | Convertible notes
January 1, 2016 |  | $ | 635
Unrealized gains (losses) included in accumulated other comprehensive income |  |  | 43
Transfer out of level 3 due to conversion of convertible notes to common stock |  |  | (678)
December 31, 2016 |  | $ | —
Unrealized gains (losses) related to investment still held as of December 31, 2016 |  | $ | —
|  | Convertible notes |
January 1, 2015 |  | $ | — |
Non-cash settlement of customer receivable |  |  | 635 |
December 31, 2015 |  | $ | 635 |
Unrealized gains (losses) related to investment still held as of December 31, 2015 |  | $ | — |
During the twelve months ended December 31, 2016, convertible notes held by the Company which were classified as level 3 were converted into common stock due to the occurrence of an initial public offering described above. As a result, the convertible notes classified as level 3 were converted to common stock classified as level 1. At the end of the reporting period, the Company reviews U.S. treasury bills held to determine whether the securities are of the most recent issuance of that security with the same maturity (referred to as “on-the-run”, which is the most liquid version of the maturity band). If a U.S. treasury bill held at the end of the reporting period was from the most recent issuance it is classified as level 1, otherwise it is referred to as “off-the-run” and is classified as level 2. During the twelve months ended December 31, 2016, there were no transfers from level 1 to level 2 related to U.S. treasury bills that were initially acquired as on-the-run and classified as level 1, but subsequently transferred to level 2 as a result of becoming off-the-run. There were also no transfers between level 1, level 2 or level 3 during the year ended December 31, 2015.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13433-108611 + Details
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