NOTE 6—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 market values. Liquid investments purchased with a maturity period of 90 days 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. Upon realization, such amounts are reclassified from accumulated other comprehensive income to other income (expense), net. Realized gains and losses and other than temporary impairments, if any, are reflected in the consolidated statements of operations as other income (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 with the assistance of 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 market value, including broker quotes or model valuations. Independent price verifications of all holdings are performed by pricing vendors which 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 market 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, 2014 (in thousands):


	As of May 31, 2014			Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:
Money markets (1)	$	147,383		$	147,383	$	—		$	—
Interest-bearing deposits (1)		59,284			—		59,284			—
Available-for-sale securities (1):
Commercial paper		25,000			—		25,000			—
U.S. agency securities		268,312			—		268,312			—
Corporate securities		421,375			—		421,375			—
Foreign government securities		86,963			—		86,963			—
Foreign currency derivatives (2)		39			—		39			—
Liabilities:
Foreign currency derivatives (3)		(83	)		—		(83	)		—

Total	$	1,008,273		$	147,383	$	860,890		$	—

(1)	Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet at May 31, 2014, in addition to $391.8 million of cash.

(2)	Included in Other current assets in the Company’s Consolidated Balance Sheet at May 31, 2014.

(3)	Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet at May 31, 2014.

The following table summarizes the composition and fair value hierarchy of the Company’s financial assets and liabilities at February 28, 2014 (in thousands):


	As of February 28, 2014			Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets:
Money markets (1)	$	178,280		$	178,280	$	—		$	—
Interest-bearing deposits (1)		86,937			—		86,937			—
Available-for-sale securities (1):
Commercial paper		37,643			—		37,643			—
U.S. agency securities		279,049			—		279,049			—
Corporate securities		382,516			—		382,516			—
Foreign government securities		79,841			—		79,841			—
Foreign currency derivatives (2)		134			—		134			—
Liabilities:
Foreign currency derivatives (3)		(15	)		—		(15	)		—

Total	$	1,044,385		$	178,280	$	866,105		$	—

(1)	Included in Cash and cash equivalents, Investments in debt securities, short-term or Investments in debt securities, long-term in the Company’s Consolidated Balance Sheet at February 28, 2014, in addition to $443.2 million of cash.

(2)	Included in Other current assets in the Company’s Consolidated Balance Sheet at February 28, 2014.

(3)	Included in Accounts payable and accrued expenses in the Company’s Consolidated Balance Sheet at February 28, 2014.

The following table represents the Company’s investments measured at fair value as of May 31, 2014 (in thousands):


										Balance Sheet Classification
	Amortized Cost		Gross Unrealized					Aggregate Fair Value		Cash and cash equivalents		Investments in debt securities, short-term		Investments in debt securities, long-term
			Gains		Losses (1)
Money markets	$	147,383	$	—	$	—		$	147,383	$	147,383	$	—	$	—
Interest-bearing deposits		59,284		—		—			59,284		—		59,284		—
Commercial paper		25,000		—		—			25,000		25,000		—		—
U.S. agency securities		268,740		33		(461	)		268,312		—		31,620		236,692
Corporate securities		420,553		1,148		(326	)		421,375		—		103,890		317,485
Foreign government securities		86,935		46		(18	)		86,963		—		44,245		42,718

Total	$	1,007,895	$	1,227	$	(805	)	$	1,008,317	$	172,383	$	239,039	$	596,895

(1)	As of May 31, 2014, there were $0.4 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer.

The following table represents the Company’s investments measured at fair value as of February 28, 2014 (in thousands):


										Balance Sheet Classification
	Amortized Cost		Gross Unrealized					Aggregate Fair Value		Cash and cash equivalents		Investments in debt securities, short-term		Investments in debt securities, long-term
			Gains		Losses (1)
Money markets	$	178,280	$	—	$	—		$	178,280	$	178,280	$	—	$	—
Interest-bearing deposits		86,937		—		—			86,937		—		86,937		—
Commercial paper		37,643		—		—			37,643		25,299		12,344		—
U.S. agency securities		279,657		12		(620	)		279,049		—		56,314		222,735
Corporate securities		381,446		1,279		(209	)		382,516		—		131,612		250,904
Foreign government securities		79,818		34		(11	)		79,841		—		48,180		31,661

Total	$	1,043,781	$	1,325	$	(840	)	$	1,044,266	$	203,579	$	335,387	$	505,300

(1)	As of February 28, 2014, there were $0.2 million of accumulated unrealized losses related to investments that have been in a continuous unrealized loss position for 12 months or longer.