Fair Value Measurements

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company records certain financial assets and liabilities at fair value in accordance with the provisions of ASC Topic 820 on fair value measurements. As defined in the guidance, fair value, defined as an exit price, represents the amount that would be received to sell an asset or pay to transfer a liability in an orderly transaction between market participants. As a result, fair value is a market-based approach that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering these assumptions, the guidance defines a three-tier value hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value.

• Level 1—Unadjusted quoted prices in active, accessible markets for identical assets or liabilities.

• Level 2—Other inputs that are directly or indirectly observable in the marketplace.

• Level 3—Unobservable inputs that are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The following tables summarize the fair value of financial assets and liabilities that are measured at fair value and the classification by level of input within the fair value hierarchy:

	FAIR VALUE MEASUREMENTS AS OF
	DECEMEBER 31, 2015
(in thousands)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Cash and cash equivalents:
Cash and money market accounts	$	91,060	$	—	$	—	$	91,060
Total cash and cash equivalents:	$	91,060	$	—	$	—	$	91,060
Investments:
Certificates of deposit	$	—	$	18,355	$	—	$	18,355
Commercial paper	—		5,966		—		5,966
Corporate bonds	—		32,995		—		32,995
Government agencies	—		1,994		—		1,994
Total investments	$	—	$	59,310	$	—	$	59,310
Total cash, cash equivalents, and investments:	$	91,060	$	59,310	$	—	$	150,370

	FAIR VALUE MEASUREMENTS AS OF
	DECEMEBER 31, 2014
(in thousands)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Cash and cash equivalents:
Cash and money market accounts	$	84,613	$	—	$	—	$	84,613
Certificates of deposit	—		472		—		472
Corporate bonds	—		501		—		501
Total cash and cash equivalents:	$	84,613	$	973	$	—	$	85,586
Investments:
Certificates of deposit	$	—	$	30,241	$	—	$	30,241
Commercial paper	—		5,986		—		5,986
Corporate bonds	—		30,311		—		30,311
Government agencies	—		6,076		—		6,076
Total investments	$	—	$	72,614	$	—	$	72,614
Total cash, cash equivalents, and investments:	$	84,613	$	73,587	$	—	$	158,200

As of December 31, 2015 and 2014, the estimated fair value of the 2014 Convertible Notes was $140.1 million and $163.8 million, respectively. The estimated fair value of the 2014 Convertible Notes was determined using a scenario analysis and Monte Carlo simulation model to capture the various features of the 2014 Convertible Notes. The scenario analysis and Monte Carlo simulation require the use of Level 3 unobservable inputs and subjective assumptions, including but not limited to the probability of conversion, stock price volatility, the risk free interest rate and credit spread. The decrease in the estimated fair value of the 2014 Convertible Notes was primarily attributable to the change in the closing price of Aerie’s common stock on December 31, 2015 as compared to December 31, 2014. The estimates presented are not necessarily indicative of amounts that could be realized in a current market exchange. The use of alternative market assumptions and estimation methodologies could have a material effect on these estimates of fair value.