Fair Value Of Financial Instruments

9 Months Ended

Sep. 30, 2015

Fair Value of Financial Instruments

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:



			Fair Value Measurement Using
	Total Fair Value		(Level 1)		(Level 2)		(Level 3)
	(In thousands)
As of September 30, 2015:
Assets:
Investments in money market funds	$	113,223	$	113,223	$	—	$	—
Debt securities issued by the U.S. Treasury	1,712,986		1,712,986		—		—
Equity securities of public companies	101		101		—		—
Foreign currency forward contracts (1)	284		—		284		—
Total	$	1,826,594	$	1,826,310	$	284	$	—
Liabilities:
Contingent interest derivative on the Subordinated Convertible Debentures	$	25,054	$	—	$	—	$	25,054
Foreign currency forward contracts (2)	133		—		133		—
Total	$	25,187	$	—	$	133	$	25,054
As of December 31, 2014:
Assets:
Investments in money market funds	$	85,453	$	85,453	$	—	$	—
Debt securities issued by the U.S. Treasury	1,233,076		1,233,076		—		—
Foreign currency forward contracts (1)	330		—		330		—
Total	$	1,318,859	$	1,318,529	$	330	$	—
Liabilities:
Contingent interest derivative on the Subordinated Convertible Debentures	$	26,755	$	—	$	—	$	26,755
Foreign currency forward contracts (2)	169		—		169		—
Total	$	26,924	$	—	$	169	$	26,755


(1)	Included in Other current assets


(2)	Included in Accounts payable and accrued liabilities

The fair value of the Company’s investments in money market funds approximates their face value. Such instruments are classified as Level 1 and are included in Cash and cash equivalents.

The fair value of the debt securities consisting of U.S. Treasury bills is based on their quoted market prices and are classified as Level 1. Debt securities purchased with original maturities in excess of three months are included in Marketable securities.

The fair value of the equity securities of public companies is based on quoted market prices and are classified as Level 1. Investments in equity securities of public companies are included in Marketable securities.

The fair value of the Company’s foreign currency forward contracts is based on foreign currency rates quoted by banks or foreign currency dealers and other public data sources.

The Company utilizes a valuation model to estimate the fair value of the contingent interest derivative on the subordinated convertible debentures due 2037 (“the Subordinated Convertible Debentures”). The inputs to the model include stock price, bond price, risk free interest rates, volatility, and credit spread observations. As several significant inputs are not observable, the overall fair value measurement of the derivative is classified as Level 3. The volatility and credit spread assumptions used in the calculation are the most significant unobservable inputs. As of September 30, 2015, the valuation of the contingent interest derivative assumed a volatility rate of approximately 25% and a credit spread of approximately 5%. The fair value of the contingent interest derivative would not have significantly changed using a volatility rate of either 20% or 30%, or a credit spread of either 4% or 6%.

The following table summarizes the change in the fair value of the Company’s contingent interest derivative on the Subordinated Convertible Debentures during the three and nine months ended September 30, 2015 and 2014:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2015			2014		2015			2014
	(In thousands)
Beginning balance	$	25,841		$	18,489	$	26,755		$	29,004
Payment of contingent interest	(5,534		)	—		(10,759		)	—
Unrealized loss (gain)	4,747			6,562		9,058			(3,953		)
Ending balance	$	25,054		$	25,051	$	25,054		$	25,051

In August 2015, the upside trigger on the Subordinated Convertible Debentures was met for the six month interest period from August 15, 2015 through February 15, 2016. The $6.4 million contingent interest payable in February 2016 is included in the balance of the contingent interest derivative on the Subordinated Convertible Debentures as of September 30, 2015.

Other

The Company’s other financial instruments include cash, accounts receivable, restricted cash, and accounts payable. As of September 30, 2015, the carrying value of these financial instruments approximated their fair value. The fair value of the Company’s Subordinated Convertible Debentures was $2.6 billion as of September 30, 2015. The fair values of the senior notes due 2023 (the “2023 Senior Notes”) and the senior notes due 2025 (the “2025 Senior Notes”) were $734.1 million and $504.7 million, respectively, as of September 30, 2015. The fair values of these debt instruments are based on available market information from public data sources and are classified as Level 2.

- 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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