XML 64 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value of Financial Instruments
 12 Months Ended
Dec. 31, 2012
Fair Value of Financial Instruments

9. Fair Value of Financial Instruments

The carrying amounts of financial instruments, which include cash equivalents and accounts payable, approximate their fair values due to their relatively short maturities. The fair value of the note payable to related party cannot be reasonably estimated as the Company would not be able to obtain a similar credit arrangement in the current economic environment.

Cash equivalents consist of highly liquid investments with original or remaining maturities of 90 days or less at the time of purchase that are readily convertible into cash. As of December 31, 2011 and 2012, the Company held $2.7 million and $61.8 million, respectively of cash and cash equivalents, consisting of money market funds of $0.6 million and $60.8 million, respectively, and the remaining funds in non-interest bearing checking accounts. The fair value of these money market funds was determined by using quoted prices for identical investments in an active market (Level 1 in the fair value hierarchy).

The following is a summary of the carrying values and estimated fair values of the Company’s senior convertible notes due in 2013 and 2015 (in millions).

 

     December 31, 2011      December 31, 2012  
     Carrying
value		      Estimated
fair value		      Carrying
value		      Estimated
fair value		  

2013 notes

    $ 113.9       $ 61.0       $ 114.4       $ 81.9   

2015 notes

    $ 96.8       $ 60.8       $ 97.6       $ 63.2   

The estimated fair value of the senior convertible notes due 2013 was calculated based on quoted prices in an active market (Level 1 in the fair value hierarchy). The estimated fair value of the senior convertible notes due 2015 was calculated based on model derived valuations whose inputs were observable, such as the Company’s stock price, and non-observable, such as the Company’s long-term historical volatility (Level 3 in the fair value hierarchy). As there is no current observable market for the senior convertible notes due 2015, the Company determined the estimated fair value using a convertible bond valuation model within a lattice framework. The convertible bond valuation model combined expected cash outflows with market-based assumptions regarding risk-adjusted yields, stock price volatility and recent price quotes and trading information regarding Company issued debt instruments and shares of common stock into which the notes are convertible.

Derivative financial instruments are recognized as other assets or other current liabilities in the financial statements and measured at fair value. The fair value of foreign exchange hedging contracts equals the carrying value at each balance sheet date. The fair value of these contracts are determined using methodologies based on market observable inputs (Level 2 in the fair value hierarchy), including foreign currency spot rates. The Company used derivative financial instruments to manage its exposure to foreign currency exchange risks related to quarterly purchases on insulin. The Company does not use derivative financial instruments for trading or speculative purposes, nor does it use leveraged financial instruments. Credit risk related to derivative financial instruments was considered minimal and was managed by requiring high credit standards for counterparties and through periodic settlements of positions.

The Company’s derivative financial instruments are not designated as hedging instruments, and gains or losses resulting from changes in the fair value are reported in other income (expense), in the consolidated statements of operations. The Company entered into foreign exchange hedging contracts with notional amounts totaling $25.5 million and zero at December 31, 2010 and 2011, respectively. The Company recorded an unrealized loss on the foreign exchange hedging contracts of $0.2 million at December 31, 2010. The Company recorded a realized loss of $1.6 million and a realized gain of $1.3 million for the years ended December 31, 2010 and 2011, respectively, on the execution of quarterly foreign exchange hedging contracts. The Company terminated these contracts during the quarter ended March 31, 2011.

The estimated fair values in connection with the February 2012 The Mann Group Common Stock Purchase Agreement (“The February 2012 Forward Purchase Contract”) and the October 2012 The Mann Group Common Stock and Warrant Purchase Agreement (“The October 2012 Forward Purchase Contract”) was based on forward purchase contract valuations (Level 3 in the fair value hierarchy). See Note 10 — Common and preferred stock for further discussion.

The following roll-forward provides a summary of the changes in fair value of the Company’s Level 3 forward purchase contracts during the year ended December 31, 2012 (in thousands) :

 

     The February 2012
Forward Purchase
Contract		     The October 2012
Forward Purchase
Contract		     Total  

Beginning Balance

    $ —     $ —     $ —  

Issuance

      1,080        28,237        29,317   

Adjustments to fair value included in other income (expense)

      12,011        (13,248 )      (1,237 ) 

Transfers to additional paid-in-capital

      (13,091 )      (14,989 )      (28,080 ) 
  

 

 

    

 

 

    

 

 

  

Ending Balance

    $ —     $ —     $ —