Note 6. Fair Value Measurements

The carrying amounts of accounts receivable and other current assets, accounts payable and accrued liabilities approximate their fair value due to their short-term nature.

Financial assets and liabilities recorded at fair value in the condensed consolidated financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, which are directly related to the amount of subjectivity associated with the inputs to the valuation of these assets or liabilities are as follows:

Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

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.

Financial 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 requires management to make judgments and considers factors specific to the asset or liability.

The following table presents the fair value hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of July 31, 2017 (in thousands):

	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	9,116	$	—	$	—	$	9,116
Commercial paper		—		3,747		—		3,747
Corporate notes and bonds		—		—		—		—
U.S. agency obligations		—		—		—		—
Short-term investments:
Asset-backed securities		—		24,088		—		24,088
Commercial paper		—		17,425		—		17,425
Corporate notes and bonds		—		107,614		—		107,614
U.S. agency obligations		—		83,840		—		83,840
U.S. treasury securities		—		82,458		—		82,458
Foreign currency derivative contracts		—		46		—		46
Total	$	9,116	$	319,218	$	—	$	328,334
Liabilities
Foreign currency derivative contracts		—		253		—		253
Total	$	—	$	253	$	—	$	253

The following table presents the fair value hierarchy for financial assets measured at fair value on a recurring basis as of January 31, 2017 (in thousands):

	Level 1		Level 2		Level 3		Total
Cash equivalents:
Money market funds	$	20,174	$	—	$	—	$	20,174
Corporate notes and bonds		—		—		—		—
U.S. agency obligations		—		5,450		—		5,450
Short-term investments:
Asset-backed securities		—		20,718		—		20,718
Commercial paper		—		20,570		—		20,570
Corporate notes and bonds		—		92,756		—		92,756
U.S. agency obligations		—		87,052		—		87,052
U.S. treasury securities		—		80,170		—		80,170
Total	$	20,174	$	306,716	$	—	$	326,890

We determine the fair value of our security holdings based on pricing from our service providers and market prices from industry-standard independent data providers. The valuation techniques used to measure the fair value of financial instruments having Level 2 inputs were derived from non-binding consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. Such market prices may be quoted prices in active markets for identical assets (Level 1 inputs) or pricing determined using inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs). We perform procedures to ensure that appropriate fair values are recorded such as comparing prices obtained from other sources.

Balance Sheet Hedges

During the three and six months ended July 31, 2017, we entered into foreign currency forward contracts (the “Forward Contracts”) in order to hedge our foreign currency exposure. A foreign currency forward contract is a commitment to deliver a certain amount of currency at a certain price on a specific date in the future. By entering into the Forward Contract and holding it to maturity, we are locked into a future currency exchange rate in an amount equal to and for the term of the Forward Contract. We account for derivative instruments at fair value with changes in the fair value recorded as a component of other income, net in our condensed consolidated statements of comprehensive income. During the three and six months ended July 31, 2017, we recognized realized foreign currency losses on hedging of $2.2 million and $2.8 million, respectively.

Details on outstanding balance sheet hedges are presented below as of the date shown below (in thousands):

	July 31,
	2017
Notional amount of foreign currency derivative contracts	$	41,400
Fair value of foreign currency derivative contracts		41,653

The fair value of the Company’s outstanding derivative instruments is summarized below (in thousands):

		July 31,
		2017
Derivative Assets	Balance Sheet Location
Derivatives not designated as hedging instruments:
Foreign currency derivative contracts	Prepaid expenses and other current assets	$	46

Derivative Liabilities	Balance Sheet Location
Derivatives not designated as hedging instruments:
Foreign currency derivative contracts	Accrued expenses	$	253