Fair value of financial instruments

6 Months Ended

Jun. 30, 2015

Fair value of financial instruments.

Fair value of financial instruments

3.Fair value of financial instruments

FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (“the exit price”) in an orderly transaction between market participants at the measurement date. The standard outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of us. The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

Level 3—Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

Our marketable securities consist of investments in U.S. government agencies, corporate debt securities and non-agency mortgage-backed securities that are classified as available-for-sale.

At June 30, 2015 and December 31, 2014, our Level 2 corporate debt securities and mortgage-backed securities are valued using readily available pricing sources which utilize market observable inputs, including the current interest rate and other characteristics for similar types of instruments.

The following fair value hierarchy table presents information about each major category of our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2015 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of June 30, 2015
Cash and cash equivalents	$	439,681	$	—	$	—	$	439,681
Corporate debt securities	—		184,521		—		184,521
Long term investment (Note 7)	67,003		—		—		67,003
Mortgage-backed securities	—		3,267		—		3,267
Total assets	$	506,684	$	187,788	$	—	$	694,472

The following fair value hierarchy table presents information about each major category of our financial assets measured at fair value on a recurring basis as of December 31, 2014 (in thousands):

	Fair Value Measurement at Reporting Date Using:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2014
Cash and cash equivalents	$	452,297	$	—	$	—	$	452,297
Corporate debt securities	—		144,402		—		144,402
Mortgage-backed securities	—		3,564		—		3,564
Total assets	$	452,297	$	147,966	$	—	$	600,263

The following is a summary of our marketable security portfolio as of June 30, 2015 and December 31, 2014, respectively.

	Amortized Cost		Net Unrealized Gains		Net Unrealized Losses			Estimated Fair Value
	(in thousands)
June 30, 2015
Corporate debt securities	$	184,670	$	—	$	(149	)	$	184,521
Mortgage backed securities	1,169		2,098		—			3,267
	$	185,839	$	2,098	$	(149	)	$	187,788
December 31, 2014
Corporate debt securities	$	144,684	$	—	$	(282	)	$	144,402
Mortgage backed securities	1,461		2,103		—			3,564
	$	146,145	$	2,103	$	(282	)	$	147,966

Our corporate debt securities generally have contractual maturity dates of between 12 to 18 months. Because of the potential for prepayment on mortgage-backed securities, they are not categorized by contractual maturity.