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FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES | 9 Months Ended
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Sep. 30, 2015
FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES |
FAIR VALUE OF CERTAIN FINANCIAL ASSETS AND LIABILITIES | 5.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:
September 30, 2015 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
Cash |  | $ | 194,242 |  | $ | - |  | $ | - |  | $ | 194,242 |
Money market funds |  | 624,007 |  | - |  | - |  | 624,007 |
Commercial paper |  | - |  | 361,833 |  | - |  | 361,833 |
U.S. Treasuries |  | - |  | 111,993 |  | - |  | 111,993 |
Certificates of deposit |  | - |  | 115,509 |  | - |  | 115,509 |
Municipal securities |  | - |  | 670,186 |  | - |  | 670,186 |
U.S. government agency securities |  | - |  | 740,525 |  | - |  | 740,525 |
Variable rate demand notes |  | - |  | - |  | - |  | - |
Auction rate securities |  | - |  | - |  | 1,487 |  | 1,487 |
Put option related to auction rate securities |  | - |  | - |  | 48 |  | 48 |
Foreign currency derivatives |  | - |  | (570 | ) | - |  | (570 | )
Total |  | $ | 818,249 |  | $ | 1,999,476 |  | $ | 1,535 |  | $ | 2,819,260 |
Amounts included in: |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 818,249 |  | $ | 422,468 |  | $ | - |  | $ | 1,240,717 |
Short-term investments |  | - |  | 1,543,223 |  | 1,487 |  | 1,544,710 |
Accounts receivable, net |  | - |  | 48 |  | - |  | 48 |
Investments |  | - |  | 34,355 |  | - |  | 34,355 |
Prepaid expenses and other current assets |  | - |  | - |  | 48 |  | 48 |
Accrued liabilities |  | - |  | (618 | ) | - |  | (618 | )
Total |  | $ | 818,249 |  | $ | 1,999,476 |  | $ | 1,535 |  | $ | 2,819,260 |
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 nine-months ended September 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 nine-months ended September 30, 2015. At September 30, 2015, the Company held auction rate securities with a face value of $1.54 million (amortized cost basis of $1.49 million). A Level 3 valuation was performed on the Company’s auction rate securities as of September 30, 2015 resulting in a fair value of $1.49 million for the Company’s trading auction rate securities (after a $0.05 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 had 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 continued to accrue interest until redeemed through the 2011 Put Option, or as determined by the auction process, or should the auction process have failed, the terms outlined in the prospectus of the respective 2011 ARS Securities. Under the 2011 ARS Agreement, the Company had the obligation, should it have received written notification from the put issuer, to sell the 2011 ARS Securities at par plus all accrued but unpaid interest. During the nine-months ended September 30, 2015, $2.6 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 September 30, 2015, the Company’s remaining $1.5 million balance of 2011 ARS Securities were redeemed at par through the exercise of the remaining portion of the 2011 Put Option, which exhausted the Company’s rights under the 2011 ARS Agreement. The 2011 Put Option did 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 September 30, 2015, the Company recorded $0.05 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 September 30, 2015 |  | Three-Months Ended September 30, 2014 |
|  | Auction Rate Securities |  | Put Options |  | Auction Rate Securities |  | Put Options |
Opening Balance |  | $ | 3,246 |  | $ | 189 |  | $ | 12,819 |  | $ | 994 |
Transfers into Level 3 |  | - |  | - |  | - |  | - |
Transfers out of Level 3 |  | - |  | - |  | - |  | - |
Total gains (losses) for the period: |  |  |  |  |  |  |  |  |
Included in earnings |  | 141 |  | (141) |  | 648 |  | (674) |
Included in other comprehensive income |  | - |  | - |  | - |  | - |
Settlements |  | (1,900) |  | - |  | (8,625) |  | - |
Closing Balance |  | $ | 1,487 |  | $ | 48 |  | $ | 4,842 |  | $ | 320 |
|  | Nine-Months Ended September 30, 2015 |  | Nine-Months Ended September 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 |  | 202 |  | (202) |  | 732 |  | (772) |
Included in other comprehensive income |  | - |  | - |  | - |  | - |
Settlements |  | (2,625) |  | - |  | (12,074) |  | - |
Closing Balance |  | $ | 1,487 |  | $ | 48 |  | $ | 4,842 |  | $ | 320 |

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 + Details
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