Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2016

FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and liabilities measured at fair value on a recurring basis included the following as of December 31, 2016 and 2015 (in thousands):



	December 31, 2016								December 31, 2015
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash equivalents	$	48,136	$	48,136	$	—	$	—	$	61,986	$	61,986	$	—	$	—
Corporate bonds	60,676		—		60,676		—		56,109		—		56,109		—
Agency bonds	28,930		—		28,930		—		85,461		—		85,461		—
U.S. treasury securities	157,686		—		157,686		—		57,908		—		57,908		—
Commercial paper	10,473		—		10,473		—		—		—		—		—
Strategic investments	—		—		—		—		150		—		—		150
	$	305,901	$	48,136	$	257,765	$	—	$	261,614	$	61,986	$	199,478	$	150

The Company’s cash equivalents at December 31, 2016 and 2015 consisted of money market funds backed by U.S. Treasury securities. Cash equivalents are classified as Level 1.

As of December 31, 2016, corporate bonds, agency bonds, U.S. treasury securities and commercial paper were classified within Level 2 of the fair value hierarchy. The bonds were valued using information obtained from pricing services, which obtained quoted market prices from a variety of industry data providers, security master files from large financial institutions, and other third-party sources. The Company performed supplemental analysis to validate information obtained from its pricing services. As of December 31, 2016, no adjustments were made to such pricing information.

Strategic Investments

The Company’s investments in privately-held companies are shown in the accompanying Consolidated Balance Sheets in Long-term investments and accompanying Consolidated Statements of Cash Flows in Purchases of investments. The strategic investments classified as debt securities are considered Level 3 in the fair value hierarchy as they have been valued using significant unobservable inputs or data from various valuation approaches and is measured each reporting period at fair value.

The following table presents a reconciliation of the investment in debt securities measured at fair value using significant unobservable inputs (Level 3) as of December 31, 2016 (in thousands):



Balance as of December 31, 2015	$	150
Fair value adjustment	(150		)
Balance as of December 31, 2016	$	—

Senior Convertible Notes

The Company’s senior convertible notes are shown in the accompanying Consolidated Balance Sheets at their original issuance value, net of unamortized discount and debt issuance costs, and are not re-measured to fair value each period. The approximate fair value of the Company’s convertible notes as of December 31, 2016 was $264.3 million. The fair value of the convertible notes was estimated on the basis of quoted market prices, which, due to limited trading activity, are considered Level 2 in the fair value hierarchy.

- 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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