Financial Instruments | Financial Instruments Fair Value Measurements We define fair value as the exchange price that would be received from sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We measure our financial assets and liabilities at fair value at each reporting period using a fair value hierarchy which requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value: • Level 1 - Observable inputs are unadjusted quoted prices in active markets for identical assets or liabilities; • Level 2 - Observable inputs are quoted prices for similar assets and liabilities in active markets or inputs other than quoted prices that are observable for the assets or liabilities, either directly or indirectly through market corroboration, for substantially the full term of the financial instruments; and • 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. These inputs are based on our own assumptions used to measure assets and liabilities at fair value and require significant management judgment or estimation. Cash Equivalents, Marketable Securities and Restricted Cash We measure our cash equivalents, marketable securities, and restricted cash at fair value on a recurring basis. We classify our cash equivalents, marketable securities and restricted cash within Level 1 or Level 2 because they are valued using either quoted market prices or inputs other than quoted prices which are directly or indirectly observable in the market, including readily-available pricing sources for the identical underlying security which may not be actively traded. Our fixed income available-for-sale securities consist of high quality, investment grade securities from diverse issuers. The valuation techniques used to measure the fair value of our marketable securities were derived from non-binding market consensus prices that are corroborated by observable market data or quoted market prices for similar instruments. The following tables summarize our cash equivalents, marketable securities and restricted cash by significant investment categories and their classification within the valuation hierarchy at the end of fiscal 2021 and the first quarter of fiscal 2022 (in thousands): At the End of Fiscal 2021 Amortized Gross Unrealized Gross Unrealized Fair Cash Equivalents Marketable Securities Restricted Cash Level 1 Money market accounts $ — $ — $ — $ 49,984 $ 39,440 $ — $ 10,544 Level 2 U.S. government treasury notes 339,253 3,241 (1) 342,493 15,340 327,153 — U.S. government agencies 56,729 516 — 57,245 — 57,245 — Corporate debt securities 425,115 4,176 (33) 429,258 — 429,258 — Foreign government bonds 21,486 307 — 21,793 — 21,793 — Asset-backed securities 79,924 1,015 — 80,939 — 80,939 — Total $ 922,507 $ 9,255 $ (34) $ 981,712 $ 54,780 $ 916,388 $ 10,544 At the End of the First Quarter of Fiscal 2022 Amortized Gross Unrealized Gross Unrealized Fair Cash Equivalents Marketable Restricted Cash Level 1 Money market accounts $ — $ — $ — $ 49,323 $ 38,779 $ — $ 10,544 Level 2 U.S. government treasury notes 320,320 2,387 (14) 322,693 — 322,693 — U.S. government agencies 54,735 395 — 55,130 — 55,130 — Corporate debt securities 459,297 3,054 (164) 462,187 — 462,187 — Foreign government bonds 19,502 230 (2) 19,730 — 19,730 — Asset-backed securities 70,502 705 (3) 71,204 — 71,204 — Municipal bonds 2,440 — (8) 2,432 — 2,432 — Total $ 926,796 $ 6,771 $ (191) $ 982,699 $ 38,779 $ 933,376 $ 10,544 The amortized cost and estimated fair value of our marketable securities are shown below by contractual maturity (in thousands): At the End of the First Quarter of Fiscal 2022 Amortized Cost Fair Value Due within one year $ 360,362 $ 362,340 Due in one to five years 566,434 571,036 Total $ 926,796 $ 933,376 Unrealized losses on our debt securities have not been recorded into income because we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis. The decline in fair value of our debt securities is largely due to changes in credit spreads as a result of market conditions. The credit ratings associated with our debt securities are mostly unchanged, are highly rated and the issuers continue to make timely principal and interest payments. As a result, there were no credit losses in the first quarter of fiscal 2021 and 2022. The following table presents gross unrealized losses and fair values for those investments that were in a continuous unrealized loss position at the end of fiscal 2021 and the first quarter of fiscal 2022, aggregated by investment category (in thousands): At the End of Fiscal 2021 Less than 12 months Greater than 12 months Total Fair Unrealized Fair Unrealized Fair Unrealized U.S. government treasury notes $ 8,301 $ (1) $ — $ — $ 8,301 $ (1) Corporate debt securities 32,996 (33) — — 32,996 (33) Total $ 41,297 $ (34) $ — $ — $ 41,297 $ (34) At the End of the First Quarter of Fiscal 2022 Less than 12 months Greater than 12 months Total Fair Unrealized Fair Unrealized Fair Unrealized U.S. government treasury notes $ 20,412 $ (14) $ — $ — $ 20,412 $ (14) Corporate debt securities 74,897 (164) — — 74,897 (164) Foreign government bonds 1,238 (2) — — 1,238 (2) Asset-backed securities 2,727 (3) — — 2,727 (3) Municipal bonds 2,432 (8) — — 2,432 (8) Total $ 101,706 $ (191) $ — $ — $ 101,706 $ (191) Realized gains or losses on sale of marketable securities were not significant for all periods presented. Fair Value Measurements of Other Financial Instruments We measure the fair value of our convertible senior notes (the Notes) on a quarterly basis for disclosure purposes. We consider the fair value of the Notes at the end of the first quarter of fiscal 2022 to be a Level 2 measurement due to its limited trading activity. Refer to Note 6 for the carrying amount and estimated fair value of our Notes at the end of the first quarter of fiscal 2022. |