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Fair Value Measurements
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements

4. Fair Value Measurements

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, a three-tier fair value hierarchy has been established, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1:

Observable inputs such as quoted prices in active markets;

 

Level 2:

Inputs include quoted prices for similar instruments in active markets and/or quoted prices for identical or similar instruments in markets that are not active near the measurement date; and

 

Level 3:

Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

We classify our cash equivalents and available-for-sale investments as Level 1 or Level 2 within the fair value hierarchy. The fair value of our investment grade corporate debt securities is determined using proprietary valuation models and analytical tools, which utilize market pricing or prices for similar instruments that are both objective and publicly available, such as matrix pricing or reported trades, benchmark yields, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids and offers.

The fair value of our investments in restricted equity securities is determined using an option pricing valuation model and classified as Level 3 within the fair value hierarchy. The most significant assumptions within the option pricing valuation model are the term of the restrictions and the stock price volatility, which is based upon the historical volatility of similar companies. Significant changes in any of those inputs in isolation would result in a significantly higher or lower fair value measurement.

The $517.5 million of 2.25% convertible senior notes due May 15, 2024 (2024 Notes) were recorded at the estimated value of a similar non-convertible instrument on the date of issuance and accretes to the face value of the 2024 Notes over their 7-year term. The fair value of the 2024 Notes, estimated utilizing market quotations from an over-the-counter trading market (Level 2), was $708.7 million at September 30, 2019 and $616.1 million at December 31, 2018.

We did not reclassify any investments between levels in the fair value hierarchy during the nine months ended September 30, 2019 and 2018.

Investments, which were measured at fair value on a recurring basis using the inputs described above, consisted of the following:

 

 

 

blank

 

 

Fair Value Measurements Using

 

(in thousands)

 

Carrying

Value

 

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

September 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified as current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

166,637

 

 

$

166,637

 

 

$

 

 

$

 

Certificates of deposit

 

 

463

 

 

 

463

 

 

 

 

 

 

 

Commercial paper

 

 

135,197

 

 

 

 

 

 

135,197

 

 

 

 

Securities of government-sponsored entities

 

 

112,961

 

 

 

 

 

 

112,961

 

 

 

 

Corporate debt securities

 

 

255,367

 

 

 

 

 

 

255,367

 

 

 

 

Subtotal

 

 

670,625

 

 

 

167,100

 

 

 

503,525

 

 

 

 

Classified as long-term assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

 

1,500

 

 

 

1,500

 

 

 

 

 

 

 

Certificates of deposit

 

 

3,206

 

 

 

3,206

 

 

 

 

 

 

 

Securities of government-sponsored entities

 

 

45,209

 

 

 

 

 

 

45,209

 

 

 

 

Corporate debt securities

 

 

159,584

 

 

 

 

 

 

159,584

 

 

 

 

Restricted equity securities

 

 

48,915

 

 

 

 

 

 

 

 

 

48,915

 

Total

 

 

929,039

 

 

 

171,806

 

 

 

708,318

 

 

 

48,915

 

Less cash, cash equivalents and restricted cash

 

 

(171,806

)

 

 

(171,806

)

 

 

 

 

 

 

Total investments

 

$

757,233

 

 

$

 

 

$

708,318

 

 

$

48,915

 

blank

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Classified as current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

141,714

 

 

$

141,714

 

 

$

 

 

$

 

Commercial paper

 

 

94,572

 

 

 

 

 

 

94,572

 

 

 

 

Securities of government-sponsored entities

 

 

20,840

 

 

 

 

 

 

20,840

 

 

 

 

Corporate debt securities

 

 

393,787

 

 

 

 

 

 

393,787

 

 

 

 

Subtotal

 

 

650,913

 

 

 

141,714

 

 

 

509,199

 

 

 

 

Classified as long-term assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

 

1,500

 

 

 

1,500

 

 

 

 

 

 

 

Certificates of deposit

 

 

3,977

 

 

 

3,977

 

 

 

 

 

 

 

Securities of government-sponsored entities

 

 

64,837

 

 

 

 

 

 

64,837

 

 

 

 

Corporate debt securities

 

 

151,191

 

 

 

 

 

 

151,191

 

 

 

 

Total

 

 

872,418

 

 

 

147,191

 

 

 

725,227

 

 

 

 

Less cash, cash equivalents and restricted cash

 

 

(147,191

)

 

 

(147,191

)

 

 

 

 

 

 

Total investments

 

$

725,227

 

 

$

 

 

$

725,227

 

 

$

 

 

The following table presents a reconciliation of our investment in restricted equity securities, which is measured at fair value on a recurring basis using the significant unobservable inputs (Level 3) described above.

 

(in thousands)

 

 

 

Balance at December 31, 2018

 

$

 

Investment in restricted equity securities

 

 

54,720

 

Net unrealized gain recognized on restricted equity securities during the period

 

 

1,680

 

Balance at March 31, 2019

 

 

56,400

 

Net unrealized gain recognized on restricted equity securities during the period

 

 

20,965

 

Balance at June 30, 2019

 

 

77,365

 

Net unrealized loss recognized on restricted equity securities during the period

 

 

(28,450

)

Balance at September 30, 2019

 

$

48,915