Fair Value Measurements

6 Months Ended

Jun. 30, 2019

The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:



Level 1:	Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2:	Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3:	Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument. The Company maintains strategic investments separately from the investment policy that governs its other cash, cash equivalents and marketable securities as described in “Note F, “Marketable Securities and Equity Investments.” As of June 30, 2019, the Company’s investments were in money market funds, U.S. Treasury securities, government-sponsored enterprise securities, corporate debt securities, commercial paper and corporate equity securities. Additionally, the Company utilizes foreign currency forward contracts intended to mitigate the effect of changes in foreign exchange rates on its condensed consolidated statement of operations.

As of June 30, 2019, all of the Company’s financial assets and liabilities that were subject to fair value measurements were valued using observable inputs. The Company’s financial assets valued based on Level 1 inputs consisted of money market funds, U.S. Treasury securities, government-sponsored enterprise securities and corporate equity securities. The Company’s financial assets and liabilities valued based on Level 2 inputs consisted of certain corporate equity securities as described below, corporate debt securities, commercial paper, which consisted of investments in highly-rated investment-grade corporations, and foreign currency forward contracts with reputable and creditworthy counterparties. The Company has an investment in the common stock of Moderna Therapeutics, Inc. (“Moderna”), which became a publicly traded company in 2018. The Company has valued its investment in Moderna based on Level 2 inputs due to transfer restrictions subsequent to Moderna’s initial public offering lasting until December 2019. The reduction in fair value recorded on the Company’s condensed consolidated balance sheet related to this transfer restriction is not material to its financial statements. During the three and six months ended June 30, 2019 and 2018, the Company did not record any other-than-temporary impairment charges related to its financial assets.

The following table sets forth the Company’s financial assets and liabilities subject to fair value measurements (and does not include $1.7 billion and $1.4 billion of cash as of June 30, 2019 and December 31, 2018, respectively):



	Fair Value Measurements as of June 30, 2019
				Fair Value Hierarchy
	Total			Level 1		Level 2			Level 3
	(in thousands)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds	$	1,561,770		$	1,561,770	$	—		$	—
Government-sponsored enterprise securities	24,519			24,519		—			—
Commercial paper	22,234			—		22,234			—
Marketable securities:
Corporate equity securities	267,401			253,442		13,959			—
U.S. Treasury securities	5,892			5,892		—			—
Government-sponsored enterprise securities	8,247			8,247		—			—
Corporate debt securities	249,426			—		249,426			—
Commercial paper	125,572			—		125,572			—
Prepaid expenses and other current assets:
Foreign currency forward contracts	13,215			—		13,215			—
Other assets:
Foreign currency forward contracts	314			—		314			—
Total financial assets	$	2,278,590		$	1,853,870	$	424,720		$	—
Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts	$	(761	)	$	—	$	(761	)	$	—
Other long-term liabilities:
Foreign currency forward contracts	(207		)	—		(207		)	—
Total financial liabilities	$	(968	)	$	—	$	(968	)	$	—



	Fair Value Measurements as of December 31, 2018
				Fair Value Hierarchy
	Total			Level 1		Level 2			Level 3
	(in thousands)
Financial instruments carried at fair value (asset positions):
Cash equivalents:
Money market funds	$	1,226,603		$	1,226,603	$	—		$	—
U.S. Treasury securities	5,966			5,966		—			—
Government-sponsored enterprise securities	7,123			7,123		—			—
Commercial paper	58,268			—		58,268			—
Marketable securities:
Corporate equity securities	167,323			153,733		13,590			—
U.S. Treasury securities	6,026			6,026		—			—
Government-sponsored enterprise securities	10,704			10,704		—			—
Corporate debt securities	233,665			—		233,665			—
Commercial paper	100,390			—		100,390			—
Prepaid expenses and other current assets:
Foreign currency forward contracts	19,023			—		19,023			—
Other assets:
Foreign currency forward contracts	1,514			—		1,514			—
Total financial assets	$	1,836,605		$	1,410,155	$	426,450		$	—
Financial instruments carried at fair value (liability positions):
Other current liabilities:
Foreign currency forward contracts	$	(340	)	$	—	$	(340	)	$	—
Other long-term liabilities:
Foreign currency forward contracts	(108		)	—		(108		)	—
Total financial liabilities	$	(448	)	$	—	$	(448	)	$	—

Please refer to Note F, “Marketable Securities and Equity Investments,” for the carrying amount and related unrealized gains (losses) by type of investment.

- 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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