Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements

Fair Value Measurements

5. Fair Value Measurements

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company’s market assumptions. The Company classifies these inputs into the following hierarchy:

Level 1 Inputs—Quoted prices for identical instruments in active markets.

Level 2 Inputs—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs—Unobservable inputs and little, if any, market activity for the assets.

The estimated fair values of the Company’s financial assets and liabilities were as follows:

	Estimated Fair Value Measurements at Reporting Date Using:
Types of Instruments	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Level 1		Level 2		Level 3		Total
Assets at September 30, 2012:
U.S. government securities	$	30,242	$	—	$	—	$	30,242
U.S. government agency securities	58,893		48,248		—		107,141
U.S. corporate notes	81,160		17,477		—		98,637
U.S. commercial paper	—		37,337		—		37,337
Money market funds	85,634		—		—		85,634
Total assets measured at fair value	$	255,929	$	103,062	$	—	$	358,991
Liabilities at September 30, 2012:
Convertible subordinated notes	$	206,388	$	—	$	—	$	206,388

	Estimated Fair Value Measurements at Reporting Date Using:
Types of Instruments	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
(in thousands)	Level 1		Level 2		Level 3		Total
Assets at December 31, 2011:
U.S. government securities	$	66,174	$	—	$	—	$	66,174
U.S. government agency securities	55,901		37,274		—		93,175
U.S. corporate notes	2,705		—		—		2,705
U.S. commercial paper	—		34,976		—		34,976
Money market funds	38,721		—		—		38,721
Total assets measured at fair value	$	163,501	$	72,250	$	—	$	235,751
Liabilities at December 31, 2011:
Convertible subordinated notes	$	—	$	189,588	$	—	$	189,588

At September 30, 2012, securities with a total fair value of $11.1 million were measured using Level 1 inputs in comparison to December 31, 2011, at which time the securities had a fair value of $11.4 million and were measured using Level 2 inputs. The transfer to Level 1 from Level 2 was primarily the result of increased trading volume of the securities at and around September 30, 2012, compared to December 31, 2011.

At September 30, 2012, securities with a total fair value of $5.0 million were measured using Level 2 inputs in comparison to December 31, 2011, at which time the securities had a fair value of $5.0 million and were measured using Level 1 inputs. The transfer to Level 2 from Level 1 was primarily the result of decreased trading volume of the securities at and around September 30, 2012, compared to December 31, 2011.

At September 30, 2012, convertible subordinated notes with a total fair value of $206.4 million were measured using Level 1 inputs in comparison to December 31, 2011, at which time the securities had a fair value of $189.6 million and were measured using Level 2 inputs. The transfer to Level 1 from Level 2 was primarily the result of increased trading volume of the convertible subordinated notes at and around September 30, 2012, compared to December 31, 2011.