Fair Value Measurements

9 Months Ended

Sep. 30, 2019

3.	Fair Value Measurements

The fair values of the Company’s financial assets that are measured on a recurring basis are as follows (in thousands):

	September 30, 2019
	Level 1		Level 2		Level 3		Total
US treasury notes and bills	$	226,590	$	175,450	$	—	$	402,040
Bond and mutual funds		10,748		—		—		10,748
Equity investments		251		—		—		251
Money market funds		105,822		—		—		105,822
Certificate of deposit		—		30,000		—		30,000
Total	$	343,411	$	205,450	$	—	$	548,861

	December 31, 2018
	Level 1		Level 2		Level 3		Total
US treasury notes and bills	$	292,317	$	224,953	$	—	$	517,270
Bond and mutual funds		10,484		—		—		10,484
Equity investments		234		—		—		234
Money market funds		541		—		—		541
Term deposit		—		80,000		—		80,000
Certificate of deposit		—		29,910		—		29,910
Total	$	303,576	$	334,863	$	—	$	638,439

Our Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data and other observable inputs.

The fair values of the Company’s financial liabilities that are carried at historical cost are as follows (in thousands):

	September 30, 2019
	Level 1		Level 2		Level 3		Total
Lease obligations	$	—	$	—	$	1,645	$	1,645

	December 31, 2018
	Level 1		Level 2		Level 3		Total
Lease obligations	$	—	$	—	$	98,105	$	98,105

The fair values of the Company’s financial liabilities were derived by using an income approach, which required Level 3 inputs such as discounted estimated future cash flows.

As of December 31, 2018, the Company had $96.2 million in lease obligations related to its building leases under build-to-suit arrangements. Upon the adoption of ASC 842 as of January 1, 2019, using the modified retrospective transition method, the Company derecognized these liabilities previously recognized under ASC 840 build-to-suit designation. Refer to Note 1 for details.

The remaining balance of $1.6 million as of September 30, 2019 under lease obligations is related to an expansion option in the Company’s long-term property lease with Shorenstein Properties LLC (“Alexandria” or “landlord”). This expansion option allowed the Company to occupy part of an adjacent building within 31 months of the lease commencement date in 2008. In 2012, the Company gave notice to its landlord that it would not exercise this expansion option, which resulted in a $5.0 million payment liability to the landlord that is financed over the remaining lease term to 2023.

There were no transfers of assets or liabilities between levels for any of the periods presented.

- 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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