Assets and Liabilities Measured at Fair Value on a Recurring Basis

3 Months Ended

May 31, 2019

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair value is defined as the exchange price that would be received for the purchase of an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for such asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities.

The Company’s investments are comprised primarily of debt securities that are classified as available for sale and recorded at their fair values. Liquid investments with effective maturities of three months or less at the date of purchase are classified as cash equivalents. Investments with remaining effective maturities of twelve months or less from the balance sheet date are classified as short-term investments. Investments with remaining effective maturities of more than twelve months from the balance sheet date are classified as long-term investments. The Company’s Level 1 financial instruments are valued using quoted prices in active markets for identical instruments. The Company’s Level 2 financial instruments, including derivative instruments, are valued using quoted prices for identical instruments in less active markets or using other observable market inputs for comparable instruments.

Unrealized gains and temporary losses on investments classified as available for sale are included within accumulated other comprehensive income, net of any related tax effect. Realized gains and losses are recorded using the specific identification method and upon realization, such amounts are reclassified from accumulated other comprehensive income to Other expense, net. Realized gains and losses and other than temporary impairments, if any, are reflected in the Company’s Consolidated Statements of Operations as Other expense, net. The Company does not recognize changes in the fair value of its investments in income unless a decline in value is considered other than temporary. The vast majority of the Company’s investments are priced by pricing vendors. These pricing vendors use the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs. In the event observable inputs are not available, the Company assesses other factors to determine the security’s fair value, including broker quotes or model valuations. Independent price verifications of all holdings are performed by pricing vendors that are then reviewed by the Company. In the event a price fails a pre-established tolerance check, it is researched so that the Company can assess the cause of the variance to determine what the Company believes is the appropriate fair value.

The Company minimizes its credit risk associated with investments by investing primarily in investment-grade, liquid securities. The Company’s policy is designed to limit exposures to any one issuer depending on credit quality. Periodic evaluations of the relative credit standing of those issuers are considered in the Company’s investment strategy.

The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities at May 31, 2019 (in thousands):



	May 31, 2019			Level 1		Level 2			Level 3
Assets:
Money markets ⁽¹⁾	$	901,570		$	901,570	$	—		$	—
Available-for-sale securities ⁽¹⁾:
Commercial paper	255,780			—		255,780			—
U.S. agency securities	203,135			—		203,135			—
Corporate securities	162,662			—		162,662			—
Foreign currency derivatives ⁽²⁾	233			—		233			—
Liabilities:
Foreign currency derivatives ⁽³⁾	(173		)	—		(173		)	—
Total	$	1,523,207		$	901,570	$	621,637		$	—

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⁽¹⁾	Included in Cash, cash equivalents and restricted cash, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet at May 31, 2019, in addition to $1.14 billion of cash.


⁽²⁾	Included in Other current assets in the Company’s Consolidated Balance Sheet at May 31, 2019.


⁽³⁾	Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet at May 31, 2019.

The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities at February 28, 2019 (in thousands):



	February 28, 2019			Level 1		Level 2			Level 3
Assets:
Money markets ⁽¹⁾	$	398,056		$	398,056	$	—		$	—
Interest-bearing deposits ⁽¹⁾	56,883			—		56,883			—
Available-for-sale securities ⁽¹⁾:
Commercial paper	541,753			—		541,753			—
U.S. agency securities	222,298			—		222,298			—
Corporate securities	262,692			—		262,692			—
Foreign currency derivatives ⁽²⁾	24			—		24			—
Liabilities:
Foreign currency derivatives ⁽³⁾	(245		)	—		(245		)	—
Total	$	1,481,461		$	398,056	$	1,083,405		$	—

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⁽¹⁾	Included in Cash, cash equivalents and restricted cash, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet at February 28, 2019, in addition to $943.3 million of cash.


⁽²⁾	Included in Other current assets in the Company’s Consolidated Balance Sheet at February 28, 2019.


⁽³⁾	Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet at February 28, 2019.

The following table represents the Company’s investments measured at fair value as of May 31, 2019 (in thousands):



										Balance Sheet Classification
	Amortized Cost		Gross Unrealized					Aggregate Fair Value		Cash Equivalent Marketable Securities		Investments in debt securities, short-term		Investments in debt securities, long-term
	Amortized Cost		Gains		Losses ⁽¹⁾			Aggregate Fair Value		Cash Equivalent Marketable Securities		Investments in debt securities, short-term		Investments in debt securities, long-term
Money markets	$	901,570	$	—	$	—		$	901,570	$	901,570	$	—	$	—
Commercial paper	255,780		—		—			255,780		255,780		—		—
U.S. agency securities	203,746		13		(624		)	203,135		—		68,682		134,453
Corporate securities	162,629		284		(251		)	162,662		—		108,943		53,719
Total	$	1,523,725	$	297	$	(875	)	$	1,523,147	$	1,157,350	$	177,625	$	188,172

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⁽¹⁾	As of May 31, 2019, there were $0.9 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. The aggregate related fair value of investments with unrealized losses was $268.0 million.

The following table summarizes the stated maturities of the Company’s investment in available-for-sale securities (in thousands):



	As of May 31, 2019		Less than 1 Year		1-5 Years		More than 5 Years
Maturity of available-for-sale debt securities	$	365,797	$	177,625	$	188,172	$	—

The following table represents the Company’s investments measured at fair value as of February 28, 2019 (in thousands):



										Balance Sheet Classification
	Amortized Cost		Gross Unrealized					Aggregate Fair Value		Cash Equivalent Marketable Securities		Investments in debt securities, short-term		Investments in debt securities, long-term
	Amortized Cost		Gains		Losses ⁽¹⁾			Aggregate Fair Value		Cash Equivalent Marketable Securities		Investments in debt securities, short-term		Investments in debt securities, long-term
Money markets	$	398,056	$	—	$	—		$	398,056	$	398,056	$	—	$	—
Interest-bearing deposits	56,883		—		—			56,883		—		56,883		—
Commercial paper	541,753		—		—			541,753		541,753		—		—
U.S. agency securities	224,293		—		(1,995		)	222,298		—		75,037		147,261
Corporate securities	263,059		299		(666		)	262,692		—		161,441		101,251
Total	$	1,484,044	$	299	$	(2,661	)	$	1,481,682	$	939,809	$	293,361	$	248,512

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⁽¹⁾

As of February 28, 2019, there were $2.6 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer. The aggregate related fair value of investments with unrealized losses was $387.8 million.

- 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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