NOTE 16. FAIR VALUE MEASUREMENTS

U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

We have certain financial assets and liabilities that are measured at fair value on a recurring basis, certain nonfinancial assets and liabilities that may be measured at fair value on a non-recurring basis and certain financial assets and liabilities that are not measured at fair value in our consolidated balance sheets but for which we disclose the fair value. The fair value disclosures of these assets and liabilities are based on a three-level hierarchy, which is defined as follows:

Level 1	Quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2	Observable inputs other than Level 1 prices, 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 that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

Our marketable debt securities are initially valued at the transaction price and are subsequently remeasured to fair value as of the balance sheet date utilizing third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value. Observable market inputs include reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers and other industry and economic events. We validate the prices provided by our third-party pricing services by obtaining independent market values from other pricing sources and analyzing pricing data in certain instances.

Our foreign currency exchange contracts are measured at fair value on a recurring basis in our accompanying consolidated balance sheets. We measure the fair value of our foreign currency exchange contracts classified as derivative instruments using an income approach, based on prevailing market forward rates less the contract rate multiplied by the notional amount. The product of this calculation is then adjusted for counterparty risk.

Our interest rate swap agreement in prior years were measured at fair value on a recurring basis in our accompanying consolidated balance sheets. These interest rate swaps were classified as derivative instruments using an income approach, utilizing a discounted cash flow analysis based on the terms of the contract and the interest rate curve adjusted for counterparty risk.

The amount outstanding under our unsecured revolving credit facility and long-term debt are measured at carrying value in our accompanying consolidated balance sheets though we disclose the fair value of these financial instruments. We determine the fair value of the amount outstanding under our credit facility and long-term debt using an income approach, utilizing a discounted cash flow analysis based on current market interest rates for debt issues with similar remaining years to maturity, adjusted for applicable credit risk. Our credit facility and long-term debt are valued using Level 2 inputs. The estimated fair value of our credit facility approximates its carrying value. At December 31, 2017, the estimated fair value and carrying value of our long-term debt were $632.0 million and $606.6 million, respectively. At December 31, 2016, the estimated fair value and carrying value of our long-term debt were $609.5 million and $593.7 million, respectively.

The following table sets forth our assets and liabilities that were measured at fair value on a recurring basis at December 31, 2017, and at December 31, 2016, by level within the fair value hierarchy (in thousands):


	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance at
As of December 31, 2017	(Level 1)		(Level 2)		(Level 3)		December 31, 2017

Assets
Money market funds(1)	$	32,962	$	-	$	-	$	32,962
Certificates of deposit(1)	$	-	$	1,250	$	-	$	1,250

Marketable securities
Corporate bonds	$	-	$	140,886	$	-	$	140,886
Certificates of deposit		-		58,510		-		58,510
Commercial paper		-		29,171		-		29,171
Asset backed securities		-		22,167		-		22,167
U.S. government bonds		-		15,611		-		15,611
Agency bonds		-		10,947		-		10,947
Treasury bills		-		6,963		-		6,963
Total marketable securities	$	-	$	284,255	$	-	$	284,255

Equity mutual funds(2)	$	2,162	$	-	$	-	$	2,162
Foreign currency exchange contracts(3)	$	-	$	477	$	-	$	477
Liabilities
Foreign currency exchange contracts(3)	$	-	$	6,468	$	-	$	6,468
Deferred compensation(4)	$	2,162	$	-	$	-	$	2,162


	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Balance at
As of December 31, 2016	(Level 1)		(Level 2)		(Level 3)		December 31, 2016

Assets
Money market funds(1)	$	34,208	$	-	$	-	$	34,208
Certificates of deposit(1)	$	-	$	1,500	$	-	$	1,500
Commercial paper(1)	$	-	$	898	$	-	$	898

Marketable securities
Corporate bonds	$	-	$	130,771	$	-	$	130,771
Certificates of deposit		-		40,400		-		40,400
Asset backed securities		-		27,315		-		27,315
Commercial paper		-		20,228		-		20,228
U.S. government bonds		-		12,231		-		12,231
Agency bonds		-		4,604		-		4,604
Municipal bonds		-		1,400		-		1,400
Total marketable securities	$	-	$	236,949	$	-	$	236,949

Equity mutual funds(2)	$	2,182	$	-	$	-	$	2,182
Foreign currency exchange contracts(3)	$	-	$	8,926	$	-	$	8,926
Liabilities
Foreign currency exchange contracts(3)	$	-	$	1,081	$	-	$	1,081
Deferred compensation(4)	$	2,182	$	-	$	-	$	2,182

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(1)

Money market funds, certificates of deposit and commercial paper with an original maturity of less than ninety days are included within cash and cash equivalents. The remaining balance of cash and cash equivalents as of December 31, 2017, and December 31, 2016, consisted of demand deposits. Commercial paper and certificates of deposit with an original maturity of over ninety days are included within marketable securities.

(2)

Equity mutual funds relate to a deferred compensation plan that was assumed as part of a previous business combination. This amount is included within other long-term assets. See number (4) below for a discussion of the related deferred compensation liability.

(3)

Foreign currency exchange contracts are included within other current assets; other long-term assets; accrued liabilities; or other long-term liabilities depending on the gain (loss) position and anticipated settlement date.

(4)

A deferred compensation plan assumed as part of a previous business combination is included within accrued liabilities and other long-term liabilities. The fair value of our deferred compensation plan is indexed to the performance of the underlying equity mutual funds discussed in number (2) above.

We did not have any transfers between Level 1 and Level 2 or transfers in or out of Level 3 of the fair value hierarchy during the years ended December 31, 2017 and 2016.

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable and accounts payable, approximate carrying value due to their short maturity.