Fair Value Measurements

6 Months Ended

Jun. 30, 2016

The Company’s assets and liabilities that are measured at fair value on a recurring basis, by level, within the fair value hierarchy as of the periods presented, are summarized as follows (in thousands):



	Level 1		Level 2		Level 3		Total
June 30, 2016:
Assets:
Cash equivalents:
Money market funds	$	419,858	$	—	$	—	$	419,858
US treasury securities	130,313		—		—		130,313
US agency securities	—		37,349		—		37,349
Marketable securities:
Commercial paper	—		26,662		—		26,662
Certificates of deposit	—		10,005		—		10,005
US treasury securities	943,922		—		—		943,922
US agency securities	—		446,510		—		446,510
Corporate debt securities	—		1,156,598		—		1,156,598
Municipal securities	—		8,012		—		8,012
Other current assets:
Foreign currency derivative contracts	—		23,193		—		23,193
Total assets	$	1,494,093	$	1,708,329	$	—	$	3,202,422
Liabilities:
Accrued liabilities:
Foreign currency derivative contracts	$	—	$	1,372	$	—	$	1,372
Other long-term liabilities
Other derivative	—		—		16,100		16,100
Total liabilities	$	—	$	1,372	$	16,100	$	17,472



	Level 1		Level 2		Level 3		Total
December 31, 2015:
Assets:
Cash equivalents:
Money market funds	$	276,898	$	—	$	—	$	276,898
Commercial paper	—		12,049		—		12,049
US treasury securities	25,000		—		—		25,000
US agency securities	—		51,500		—		51,500
Marketable securities:
Commercial paper	—		55,374		—		55,374
US treasury securities	874,029		—		—		874,029
US agency securities	—		606,202		—		606,202
Corporate debt securities	—		1,026,898		—		1,026,898
Municipal securities	—		10,642		—		10,642
Other current assets:
Foreign currency derivative contracts	—		14,508		—		14,508
Total assets	$	1,175,927	$	1,777,173	$	—	$	2,953,100
Liabilities:
Accrued liabilities:
Foreign currency derivative contracts	$	—	$	1,847	$	—	$	1,847
Other long-term liabilities:
Other derivative	—		—		11,600		11,600
Total liabilities	$	—	$	1,847	$	11,600	$	13,447

The fair value of the Company's Level 1 financial instruments, which are traded in active markets, is based on quoted market prices for identical instruments. The fair value of the Company's Level 2 fixed income securities is obtained from an independent pricing service, which may use quoted market prices for identical or comparable instruments or model driven valuations using observable market data or inputs corroborated by observable market data. The Company's procedures include controls to ensure that appropriate fair values are recorded, including comparing the fair values obtained from the Company's pricing service against fair values obtained from another independent source. The fair value of the Company's Level 2 foreign currency derivative contracts is obtained from pricing models that use observable market inputs.

The Company's Level 3 other derivative is related to the embedded features in the preferred stock of the Company's joint venture, which is expected to be settled in cash. The fair value of this other derivative is categorized as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs in the Black-Scholes option pricing model ("OPM") used in the valuation. The key significant unobservable inputs in the OPM are the enterprise value of the Company's joint venture, volatility, and expected term of when the embedded features will be exercised. The enterprise value of the joint venture is estimated quarterly using a combination of market and income approach methodologies. The volatility is based on historic volatilities of companies who have recently had initial public offerings. The expected term of when the embedded conversion feature will be exercised was assumed to be 3.9 years, which is the earliest date that the embedded features could be exercised.

The actual and projected performance of the joint venture as well as the term of when the embedded features are exercised may drive unpredictable changes in the valuation that could materially impact the Company's financial results.

The following is a reconciliation of the Company's Level 3 other derivative for the periods presented (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
	($ in thousands)				($ in thousands)
Balance, beginning of period	$	13,900	$	2,800	$	11,600	$	2,800
Fair value adjustments ⁽¹⁾	2,200		—		4,500		—
Balance, end of period	$	16,100	$	2,800	$	16,100	$	2,800

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(1)	Changes in the fair value are recorded in Other expense, net in the condensed consolidated statements of operations.

See Note 9, Convertible Senior Notes, for the carrying amount and estimated fair value of the Company's convertible senior notes, which are not recorded at fair value as of June 30, 2016.

- 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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