Fair Value Measurements

12 Months Ended

Dec. 31, 2017

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
	DECEMBER 31, 2017
(in thousands)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Cash and cash equivalents:
Cash and money market funds	$	197,569	$	—	$	—	$	197,569
Total cash and cash equivalents:	$	197,569	$	—	$	—	$	197,569
Investments:
Commercial paper	$	—	$	30,883	$	—	$	30,883
Corporate bonds	—		21,203		—		21,203
Total investments	$	—	$	52,086	$	—	$	52,086
Total cash, cash equivalents and investments:	$	197,569	$	52,086	$	—	$	249,655



	FAIR VALUE MEASUREMENTS AS OF
	DECEMBER 31, 2016
(in thousands)	LEVEL 1		LEVEL 2		LEVEL 3		TOTAL
Cash and cash equivalents:
Cash and money market funds	$	196,445	$	—	$	—	$	196,445
Commercial paper	—		1,500		—		1,500
Total cash and cash equivalents:	$	196,445	$	1,500	$	—	$	197,945
Investments:
Certificates of deposit	$	—	$	6,923	$	—	$	6,923
Corporate bonds	—		27,544		—		27,544
Government agencies	—		1,250		—		1,250
Total investments	$	—	$	35,717	$	—	$	35,717
Total cash, cash equivalents and investments:	$	196,445	$	37,217	$	—	$	233,662

Convertible Notes

As of December 31, 2017 and 2016, the estimated fair value of the $125.0 million aggregate principal amount of senior secured convertible notes (the “2014 Convertible Notes”) was $327.6 million and $209.6 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 increase in the estimated fair value of the 2014 Convertible Notes was primarily attributable to the increase in the closing price of Aerie’s common stock on December 31, 2017 compared to December 31, 2016. 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.

- 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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