Investments and Fair Value Measurements

9 Months Ended

Sep. 30, 2018

INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company’s recurring financial assets and liabilities subject to fair value measurements were as follows:



	Fair Value Measurements as of September 30, 2018
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Assets:
Money market funds ⁽¹⁾	$	218,868	$	218,868	$	—	$	—

Commercial paper ⁽¹⁾	45,606		—		45,606		—

Certificates of deposit ⁽²⁾	2,243		—		2,243		—

Money market funds securing legal bonds ⁽²⁾	535		535		—		—

Investment securities at fair value
Equity securities at fair value
Marketable equity securities	29,807		29,807		—		—
Mutual funds invested in fixed-income securities	21,187		21,187		—		—
Total equity securities at fair value	50,994		50,994		—		—
Debt securities available for sale
U.S. government securities	28,311		—		28,311		—
Corporate securities	42,858		—		42,858		—
U.S. government and federal agency	3,194		—		3,194		—
Commercial mortgage-backed securities	407		—		407		—
Commercial paper	5,992		—		5,992		—
Index-linked U.S. bonds	2,345		—		2,345		—
Foreign fixed-income securities	1,145		—		1,145		—
Total debt securities available for sale	84,252		—		84,252		—

Total investment securities at fair value	135,246		50,994		84,252		—

Long-term investments
Equity securities at fair value that qualify for the NAV practical expedient	58,787		—		58,787		—

Total	$	461,285	$	270,397	$	190,888	$	—

Liabilities:
Fair value of derivatives embedded within convertible debt	$	45,124	$	—	$	—	$	45,124


(1)	Amounts included in cash and cash equivalents on the condensed consolidated balance sheet, except for $2,570 that is included in current restricted assets and $3,910 that is included in restricted assets.


(2)	Amounts included in current restricted assets and restricted assets on the condensed consolidated balance sheet.



	Fair Value Measurements as of December 31, 2017
Description	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Assets:
Money market funds ⁽¹⁾	$	166,915	$	166,915	$	—	$	—

Commercial paper ⁽¹⁾	43,781		—		43,781		—

Certificates of deposit ⁽²⁾	2,497		—		2,497		—

Money market funds securing legal bonds ⁽²⁾	2,990		2,990		—		—

Investment securities at fair value
Equity securities	44,634		44,634		—		—
Mutual funds invested in fixed-income securities	21,041		21,041		—		—
Fixed-income securities
U.S. government securities	28,502		—		28,502		—
Corporate securities	41,329		—		41,329		—
U.S. government and federal agency	4,564		—		4,564		—
Commercial mortgage-backed securities	426		—		426		—
Commercial paper	7,027		—		7,027		—
Index-linked U.S. bonds	2,316		—		2,316		—
Foreign fixed income securities	650		—		650		—
Total fixed-income securities	84,814		—		84,814		—

Total investment securities at fair value	150,489		65,675		84,814		—

Total	$	366,672	$	235,580	$	131,092	$	—

Liabilities:
Fair value of derivatives embedded within convertible debt	$	76,413	$	—	$	—	$	76,413


Nonrecurring fair value measurements
Long-term investments ⁽³⁾	$	4,475					$	4,475	$	(525	)
	$	4,475					$	4,475	$	(525	)


(1)	Amounts included in cash and cash equivalents on the condensed consolidated balance sheet.


(2)	Amounts included in current restricted assets and restricted assets on the condensed consolidated balance sheet.


(3)	Long-term investments with a carrying amount of $5,000 were written down to their fair value of $4,475, resulting in an impairment charge of $525, which was included in earnings.

The fair value of the Level 2 certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is the rate offered by the financial institution. The fair value of investment securities at fair value included in Level 1 is based on quoted market prices from various stock exchanges. The Level 2 investment securities at fair value are based on quoted market prices of securities that are thinly traded, quoted prices for identical or similar assets in markets that are not active or inputs other than quoted prices such as interest rates and yield curves. The Level 2 long-term investments are based on NAV per share provided by the partnerships based on the indicated market value of the underlying assets or investment portfolio.

The fair value of derivatives embedded within convertible debt was derived using a valuation model. These derivatives have been classified as Level 3. The valuation model assumes future dividend payments by the Company and utilizes interest rates and credit spreads based upon the implied credit spread of the 5.5% Convertible Notes due 2020 to determine the fair value of the derivatives embedded within the convertible debt. The changes in fair value of derivatives embedded within convertible debt are presented on the condensed consolidated statements of operations.

The value of the embedded derivatives is contingent on changes in implied interest rates of the convertible debt, the Company’s stock price, stock volatility as well as projections of future cash and stock dividends over the term of the debt. The interest rate component of the value of the embedded derivative is computed by calculating an equivalent non-convertible, unsecured and subordinated borrowing cost. This rate is determined by calculating the implied rate on the Company’s 2020 Convertible Notes when removing the embedded option value within the convertible security. This rate is based upon market observable inputs and influenced by the Company’s stock price, convertible bond trading price, risk-free interest rates and stock volatility.

The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at September 30, 2018:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at
	September 30, 2018		Valuation Technique	Unobservable Input	Range (Actual)

Fair value of derivatives embedded within convertible debt	$	45,124	Discounted cash flow	Assumed annual stock dividend	5		%
				Assumed annual cash dividend	$	1.60
				Stock price	$	13.78
				Convertible trading price (as a percentage of par value)	104.10		%
				Volatility	18.06		%
				Risk-free rate	Term structure of US Treasury Securities
				Implied credit spread	5.0% - 6.0% (5.5%)

The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at December 31, 2017:



	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value at
	December 31, 2017		Valuation Technique	Unobservable Input	Range (Actual)

Fair value of derivatives embedded within convertible debt	$	76,413	Discounted cash flow	Assumed annual stock dividend	5		%
				Assumed annual cash dividend	$	1.60
				Stock price	$	22.38
				Convertible trading price (as a percentage of par value)	115.19		%
				Volatility	17.98		%
				Risk-free rate	Term structure of US Treasury Securities
				Implied credit spread	3.0% - 4.0% (3.5%)

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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