Fair Value Measurements

12 Months Ended

Dec. 31, 2019



3. Fair Value Measurements

Assets and Liabilities Measured at Fair Value on a Recurring Basis

We estimate the fair value of our Level 1 financial instruments, which are in active markets, using unadjusted quoted market prices for identical instruments.

We obtain the fair values for our Level 2 financial instruments, which are not in active markets, from a primary professional pricing source that uses quoted market prices for identical or comparable instruments, rather than direct observations of quoted prices in active markets. Fair values obtained from this professional pricing source can also be based on pricing models whereby all significant observable inputs, including maturity dates, issue dates, settlement date, benchmark yields, reported trades, broker-dealer quotes, issue spreads, benchmark securities, bids, offers or other market related data, are observable or can be derived from, or corroborated by, observable market data for substantially the full term of the asset. We validate the quoted market prices provided by our primary pricing service by comparing the fair values of our Level 2 marketable securities portfolio balance provided by our primary pricing service against the fair values of our Level 2 marketable securities portfolio balance provided by our investment managers.

The following table summarizes financial assets that we measured at fair value on a recurring basis as of December 31, 2019, classified in accordance with the fair value hierarchy:



	Fair Value Measurements Using
(In millions)	Level 1		Level 2		Level 3		Total
Cash equivalents	$	110.1	$	144.9	$	—	$	255.0

Debt securities, available for sale:
U.S. government agencies	—		676.0		—		676.0
Commercial paper	—		248.2		—		248.2
Corporate debt	—		162.9		—		162.9
Total debt securities, available for sale	—		1,087.1		—		1,087.1

Other assets ⁽¹⁾	0.7		—		—		0.7

Total assets measured at fair value on a recurring basis	$	110.8	$	1,232.0	$	—	$	1,342.8

⁽¹⁾Includes assets which are held pursuant to a deferred compensation plan for our executives, which consist mainly of mutual funds.

The following table summarizes financial assets that we measured at fair value on a recurring basis as of December 31, 2018, classified in accordance with the fair value hierarchy:



	Fair Value Measurements Using
(In millions)	Level 1		Level 2		Level 3		Total
Cash equivalents	$	199.3	$	66.7	$	—	$	266.0

Equity investment in Tandem Diabetes Care, Inc.	38.0		—		—		38.0

Debt securities, available for sale:
U.S. government agencies	—		173.1		—		173.1
Commercial paper	—		36.2		—		36.2
Corporate debt	—		1.3		—		1.3
Total debt securities, available for sale	—		210.6		—		210.6

Total assets measured at fair value on a recurring basis	$	237.3	$	277.3	$	—	$	514.6

There were no transfers between Level 1 and Level 2 securities during the years ended December 31, 2019 and December 31, 2018. There were no transfers into or out of Level 3 securities during the years ended December 31, 2019 and 2018.

We hold certain other investments that we do not measure at fair value on a recurring basis. The carrying values of these investments are not significant and we include them in other assets in our consolidated balance sheets. It is impracticable for us to estimate the fair value of these investments on a recurring basis due to the fact that these entities are often privately held and limited information is available. We monitor the information that becomes available from time to time and adjust the carrying values of these investments if there are identified events or changes in circumstances that have a significant adverse effect on the fair values.

Fair Value of Senior Convertible Notes

The fair value, based on trading prices (Level 1), of our Senior Convertible Notes were as follows as of the dates indicated:



	Fair Value Measurements Using Level 1
(In millions)	December 31, 2019		December 31, 2018
0.75% Senior Convertible Notes due 2022	$	890.8	$	540.2
0.75% Senior Convertible Notes due 2023	1,260.0		859.6
Total fair value of outstanding senior convertible notes	$	2,150.8	$	1,399.8

For more information on the carrying values of our 2022 Notes and 2023 Notes, see Note 5, “Debt.”

Foreign Currency and Derivative Financial Instruments

From time to time we engage in limited hedging transactions to reduce foreign currency risks. The fair values of these derivatives are based on quoted market prices, which are Level 1 inputs, and the derivative instruments are recorded in current assets or current liabilities in our balance sheets consistent with the nature of the instrument at period end. Derivative gains and losses are included in interest and other income, net in our consolidated statement of operations.

As of December 31, 2019, a notional amount of $8.0 million was outstanding to hedge currency risk relating to certain intercompany balances. The resulting impact from the hedging activity on our consolidated financial statements was not significant for the year ended December 31, 2019.

As of December 31, 2018, a notional amount of $60.0 million was outstanding to hedge currency risk relating to certain intercompany balances. Derivative instrument gains on forward exchange contracts were $0.4 million for the twelve months ended December 31, 2018. The fair value of the forward contract exchange derivative instrument liability was $0.2 million as of December 31, 2018. We entered into no foreign currency forward contracts during 2017.

Our foreign currency exposures vary but are primarily concentrated in the British Pound, the Euro, and the Canadian Dollar. We monitor the costs and the impact of foreign currency risks upon our financial results as part of our risk management program. We do not use derivative financial instruments for speculation or trading purposes or for activities other than risk management. We do not require and are not required to pledge collateral for these financial instruments and we do not carry any master netting arrangements to mitigate the credit risk.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

In accordance with authoritative guidance, we measure certain non-financial assets and liabilities at fair value on a non-recurring basis. These measurements are usually performed using the discounted cash flow method and Level 3 inputs. These include items such as non-financial assets and liabilities initially measured at fair value in a business combination and non-financial long-lived assets measured at fair value for an impairment assessment. In general, non-financial assets, including goodwill, intangible assets, and property and equipment, are measured at fair value when there are indicators of impairment and are recorded at fair value only when any impairment is recognized. We recorded no significant impairment losses during the twelve months ended December 31, 2019, 2018 and 2017.