6.FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES

ASC 820 provides a framework for measuring fair value and requires disclosures regarding fair value measurements. ASC 820 defines fair value as the price that would be received on the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three levels of inputs required by the standard that the Company uses to measure fair value are summarized below.

Level 1: 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 related 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.

ASC 820 requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.

The following tables present the Company’s held-to-maturity investments at amortized cost, available-for-sale investments at fair value and the fair value of the Company’s financial assets and liabilities that are recorded at fair value on a recurring basis, segregated among the appropriate levels within the fair value hierarchy at:


June 30, 2015	Level 1		Level 2		Level 3		Total
Cash	$	174,404	$	-	$	-	$	174,404
Money market funds	688,934		-		-		688,934
Commercial paper	-		365,364		-		365,364
U.S. Treasuries	-		74,981		-		74,981
Certificates of deposit	-		84,002		-		84,002
Municipal securities	-		662,874		-		662,874
U.S. government agency securities	-		925,811		-		925,811
Variable rate demand notes	-		3,901		-		3,901
Auction rate securities	-		-		3,246		3,246
Put option related to auction rate securities	-		-		189		189
Foreign currency derivatives	-		-		(139)		(139)

Total	$	863,338	$	2,116,933	$	3,296	$	2,983,567


Amounts included in:
Cash and cash equivalents	$	863,338	$	832,957	$	-	$	1,696,295
Short-term investments	-		1,231,612		3,246		1,234,858
Accounts receivable, net	-		-		139		139
Investments	-		52,364		-		52,364
Prepaid expenses and other current assets	-		-		189		189
Accrued liabilities	-		-		(278)		(278)

Total	$	863,338	$	2,116,933	$	3,296	$	2,983,567


December 31, 2014	Level 1		Level 2		Level 3		Total

Cash	$	196,090	$	-	$	-	$	196,090
Money market funds	106,928		-		-		106,928
Commercial paper	-		19,482		-		19,482
Municipal securities	-		854,787		-		854,787
U.S. government agency securities	-		9,199		-		9,199
Variable rate demand notes	-		4,001		-		4,001
Auction rate securities	-		-		3,910		3,910
Put option related to auction rate securities	-		-		250		250
Foreign currency derivatives	-		(252)		-		(252)

Total	$	303,018	$	887,217	$	4,160	$	1,194,395


Amounts included in:
Cash and cash equivalents	$	303,018	$	67,305	$	-	$	370,323
Short-term investments	-		777,224		3,910		781,134
Accounts receivable, net	-		83		-		83
Investments	-		42,940		-		42,940
Prepaid expenses and other current assets	-		-		250		250
Accrued liabilities	-		(335)		-		(335)

Total	$	303,018	$	887,217	$	4,160	$	1,194,395

The majority of the Company’s short-term investments are classified within Level 1 or Level 2 of the fair value hierarchy. The Company’s valuation of its Level 1 investments, which include money market funds, is based on quoted market prices in active markets for identical securities. The Company’s valuation of its Level 2 investments, which include commercial paper, U.S. Treasuries, certificates of deposit, municipal securities, U.S. government agency securities and VRDNs, is based on other observable inputs, specifically a market approach which utilizes valuation models, pricing systems, mathematical tools and other relevant information for the same or similar securities. The Company’s valuation of its Level 2 foreign exchange contracts is based on quoted market prices of the same or similar instruments, adjusted for counterparty risk. There were no transfers between Level 1 and Level 2 measurements during the six-months ended June 30, 2015 or the year ended December 31, 2014, and there were no changes in the Company’s valuation techniques.

The Company’s Level 3 assets are comprised of auction rate securities and put options. The Company’s Level 3 valuation utilized a mark-to-model approach which included estimates for interest rates, timing and amount of cash flows, credit and liquidity premiums, as well as expected holding periods for the auction rate securities. These assumptions are typically volatile and subject to change as the underlying data sources and market conditions evolve. A significant change in any single input could have a significant valuation impact; however, no single input has a more significant impact on valuation than another. There were no changes in the Company’s valuation techniques of its Level 3 assets during the six-months ended June 30, 2015.

At June 30, 2015, the Company held auction rate securities with a face value of $3.4 million (amortized cost basis of $3.2 million). A Level 3 valuation was performed on the Company’s auction rate securities as of June 30, 2015 resulting in a fair value of $3.2 million for the Company’s trading auction rate securities (after a $0.2 million impairment), which are included in short-term investments.

In June 2011, the Company entered into an agreement (the “2011 ARS Agreement”), related to $24.5 million of par value auction rate securities (the “2011 ARS Securities”). Under the 2011 ARS Agreement, the Company has the right to sell the 2011 ARS Securities including all accrued but unpaid interest thereon (the “2011 Put Option”) as follows: (i) on or after July 1, 2013, up to $1.0 million aggregate par value; (ii) on or after October 1, 2013, up to an additional $1.0 million aggregate par value; and (iii) in quarterly installments thereafter based on a formula of the then outstanding 2011 ARS Securities, as adjusted for normal market redemptions, with full sale rights available on or after April 1, 2016. The 2011 ARS Securities will continue to accrue interest until redeemed through the 2011 Put Option, or as determined by the auction process, or should the auction process fail, the terms outlined in the prospectus of the respective 2011 ARS Securities. Under the 2011 ARS Agreement, the Company has the obligation, should it receive written notification from the put issuer, to sell the 2011 ARS Securities at par plus all accrued but unpaid interest. During the six-months ended June 30, 2015, $0.7 million of ARS Securities were redeemed ($13.1 million, $2.3 million, $1.3 million and $3.7 million of par value 2011 ARS Securities were redeemed at par during the years ended December 31, 2014, 2013, 2012 and 2011, respectively). Subsequent to June 30, 2015, $1.7 million of 2011 ARS Securities were redeemed at par through the exercise of a portion of the 2011 Put Option. The 2011 Put Option does not meet the definition of derivative instruments under ASC 815. Therefore, the Company elected the fair value option under ASC 825-10 in accounting for the 2011 Put Option. As of June 30, 2015, the Company recorded $0.2 million as the fair market value of the 2011 Put Option, included in prepaid expenses and other current assets.

The following table provides a summary reconciliation of the Company’s financial assets that are recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):

	Three-Months Ended June 30, 2015						Three-Months Ended June 30, 2014
	Auction Rate Securities			Put Options			Auction Rate Securities			Put Options
Opening Balance	$		3,910	$	250		$		14,526	$	1,024
Transfers into Level 3	-			-			-			-
Transfers out of Level 3	-			-			-			-
Total gains (losses) for the period:
Included in earnings	61			(61)			17			(30)
Included in other comprehensive income	-			-			-			-
Settlements	(725)			-			(1,724)			-

Closing Balance	$		3,246	$	189		$		12,819	$	994


	Six-Months Ended June 30, 2015						Six-Months Ended June 30, 2014

	Auction Rate Securities			Put Options			Auction Rate Securities			Put Options

Opening Balance	$	3,910		$		250	$	16,184		$	1,092
Transfers into Level 3	-			-			-			-
Transfers out of Level 3	-			-			-			-
Total gains (losses) for the period:
Included in earnings	61			(61)			84			(98)
Included in other comprehensive income	-			-			-			-
Settlements	(725)			-			(3,449)			-

Closing Balance	$	3,246		$		189	$	12,819		$	994