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Fair Value Measurements
 12 Months Ended
Dec. 31, 2013
Fair Value Measurements  
Fair Value Measurements

5. Fair Value Measurements

        Assets and liabilities subject to fair value measurements are required to be disclosed within a fair value hierarchy. The fair value hierarchy ranks the quality and reliability of inputs used to determine fair value. Accordingly, assets and liabilities carried at, or permitted to be carried at, fair value are classified within the fair value hierarchy in one of the following categories based on the lowest level input that is significant in measuring fair value:

  • Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.

    Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in thinly-traded markets. Related inputs can also include those used in valuation or other pricing models such as interest rates and yield curves that can be corroborated by observable market data.

    Level 3—Fair value is determined by using inputs that are unobservable and not corroborated by market data. Use of these inputs involves the use of judgment.

        Assets and liabilities subject to fair value measurements are as follows (in thousands):

 
   As of December 31, 2013  
 
   Level 1   Level 2   Level 3   Balance  

Assets

                          

Money market funds(1)

   $ 145,194   $ —   $ —   $ 145,194  

Federally-sponsored and corporate debt securities(2)

     —     857,711     —     857,711  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total assets

   $ 145,194   $ 857,711   $ —   $ 1,002,905  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Liabilities

                          

Convertible notes due 2016(3)

   $ 593,750   $ —   $ —   $ 593,750  

Contingent consideration(4)

     —     —     6,616     6,616  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total liabilities

   $ 593,750   $ —   $ 6,616   $ 600,366  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   


 

 
   As of December 31, 2012  
 
   Level 1   Level 2   Level 3   Balance  

Assets

                          

Money market funds(1)

   $ 77,436   $ —   $ —   $ 77,436  

Federally-sponsored and corporate debt securities(2)

     —     630,698     —     630,698  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total assets

   $ 77,436   $ 630,698   $ —   $ 708,134  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   

Liabilities

                          

Convertible notes due 2016(3)

   $ —   $ 316,250   $ —   $ 316,250  

Contingent consideration(4)

     —     —     6,730     6,730  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Total liabilities

   $ —   $ 316,250   $ 6,730   $ 322,980  
                   
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
                   
(1)
Included in "cash and cash equivalents", "marketable investments" and "marketable investments and cash—restricted" on the accompanying consolidated balance sheets.

(2)
Included in current and non-current marketable investments on the accompanying consolidated balance sheets. The fair value of these securities is principally measured or corroborated by trade data for identical securities in which related trading activity is not sufficiently frequent to be considered a Level 1 input or comparable securities that are more actively traded. See also Note 4—Marketable Investments—Held-to-Maturity Investments to these consolidated financial statements.

(3)
Included in convertible notes on the accompanying balance sheets. As of December 31, 2012, the fair value of our 1.0 percent Convertible Senior Notes due September 15, 2016 (2016 Convertible Notes) was estimated using other than Level 1 observable inputs (Level 2 inputs). However, during the year ended December 31, 2013, our 2016 Convertible Notes began trading with sufficient frequency such that we believe related pricing can be used as the principal basis for measuring their fair value. As a result, our 2016 Convertible Notes have been transferred from Level 2 to Level 1.

(4)
Included in other liabilities on the accompanying consolidated balance sheets. The fair value of contingent consideration has been estimated using probability weighted discounted cash flow models (DCFs). The DCFs incorporate Level 3 inputs including estimated discount rates that we believe market participants would consider relevant in pricing and the projected timing and amount of cash flows, which are estimated and developed, in part, based on the requirements specific to each acquisition agreement. We analyze and evaluate these fair value measurements quarterly to determine whether valuation inputs continue to be relevant and appropriate or whether current period developments warrant adjustments to valuation inputs and related measurements. Any increases or decreases in discount rates would have an inverse impact on the corresponding fair value, while increases or decreases in expected cash flows would result in corresponding increases or decreases in fair value. As of December 31, 2013 and December 31, 2012, the cost of debt and weighted average cost of capital used to discount projected cash flows relating to our contingent consideration ranged from 8.7 percent to 16.5 percent and from 6.6 percent to 17.2 percent, respectively.

        The tables below provide a reconciliation of the beginning and ending balances of Level 3 assets and liabilities for the years ended December 31, 2013 and 2012 (in thousands):

 
   Contingent Consideration  

Balance January 1, 2013—Asset (Liability)

   $ (6,730 )

Transfers into Level 3

     —  

Transfers out of Level 3

     —  

Total gains/(losses) realized/unrealized:

        

Included in earnings

     210  

Included in other comprehensive income

     (96 )

Purchases

     —  

Sales

     —  

Issuances

     —  

Settlements

     —  
       
​ ​ ​ ​ ​

Balance December 31, 2013—Asset (Liability)

   $ (6,616 )
       
​ ​ ​ ​ ​
​ ​ ​ ​ ​
       

Amount of total gains/(losses) for the year ended December 31, 2013 included in earnings that are attributable to the change in unrealized gains or losses related to outstanding obligations

   $ 210  
       
​ ​ ​ ​ ​
​ ​ ​ ​ ​
       


 

 
   Contingent Consideration  

Balance January 1, 2012—Asset (Liability)

   $ (7,973 )

Transfers into Level 3

     —  

Transfers out of Level 3

     —  

Total gains/(losses) realized/unrealized:

        

Included in earnings

     663  

Included in other comprehensive income

     (34 )

Purchases

     —  

Sales

     —  

Issuances

     —  

Settlements

     614  
       
​ ​ ​ ​ ​

Balance December 31, 2012—Asset (Liability)

   $ (6,730 )
       
​ ​ ​ ​ ​
​ ​ ​ ​ ​
       

Amount of total gains/(losses) for the year ended December 31, 2012 included in earnings that are attributable to the change in unrealized gains related to outstanding obligations

   $ 663  
       
​ ​ ​ ​ ​
​ ​ ​ ​ ​
       

  • Fair Value of Financial Instruments

        The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate fair value because of their short maturities. The fair values of our marketable investments and our 2016 Convertible Notes are reported above within the fair value hierarchy. The recorded value of our 2010 Wells Fargo Bank mortgage financing approximates its fair value as it bears a variable rate of interest that we believe approximates the market rate of interest for debt with similar credit risk profiles, terms and maturities. Refer to Note 8—Debt—Mortgage Financing—Wells Fargo for details.