Fair Value Measurements

6 Months Ended

Jun. 30, 2020



2. 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 June 30, 2020, classified in accordance with the fair value hierarchy:



	Fair Value Measurements Using
(In millions)	Level 1		Level 2		Level 3		Total
Cash equivalents	$	402.6	$	—	$	—	$	402.6

Debt securities, available for sale:
U.S. government agencies	—		1,600.2		—		1,600.2
Commercial paper	—		295.3		—		295.3
Corporate debt	—		83.3		—		83.3
Total debt securities, available for sale	—		1,978.8		—		1,978.8

Other assets ⁽¹⁾	2.4		—		—		2.4

Total assets measured at fair value on a recurring basis	$	405.0	$	1,978.8	$	—	$	2,383.8

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

There were no transfers between Level 1 and Level 2 securities during the three and six months ended June 30, 2020 and 2019. There were no transfers into or out of Level 3 securities during the three and six months ended June 30, 2020 and 2019.

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)	June 30, 2020		December 31, 2019
Senior Convertible Notes due 2022	$	151.9	$	890.8
Senior Convertible Notes due 2023	2,108.2		1,260.0
Senior Convertible Notes due 2025	1,239.2		*
Total fair value of outstanding senior convertible notes	$	3,499.3	$	2,150.8

* Not Applicable

For more information on the carrying values of our senior convertible notes, see Note 4, “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 consolidated 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 statements of operations.

As of June 30, 2020 and December 31, 2019, notional amounts of $25.0 million and $8.0 million, respectively, were outstanding to hedge certain foreign currency risk. The resulting impact from the hedging activity on our consolidated financial statements was not significant for the periods presented.

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

Certain non-financial assets and liabilities are measured at fair value, usually with Level 3 inputs including the discounted cash flow method or cost method, on a nonrecurring basis in accordance with authoritative guidance. 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 is an indication of impairment and are recorded at fair value only when any impairment is recognized. We recorded no significant impairment losses during the three and six months ended June 30, 2020 and 2019.