Note 6. Fair Value Measurements

Fair value is an exit price representing the amount that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1—Observable inputs that reflect quoted prices for identical assets or liabilities in active markets.

Level 2—Other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company’s Level 1 assets include institutional money-market funds that are classified as cash equivalents and marketable investments in U.S. government and agency debt, which are valued primarily using quoted market prices. The Company’s Level 2 assets include its marketable investments in time deposits, corporate debt securities, foreign government and agency debt, municipal debt securities and asset backed securities as the market inputs used to value these instruments consist of market yields, reported trades and broker/dealer quotes, which are corroborated with observable market data. In addition, forward contracts, and the severance pay fund are classified as Level 2 assets as the valuation inputs are based on quoted prices and market observable data of similar instruments. The Company’s investments in auction rate securities are classified as Level 3 assets because there are currently no active markets for the auction rate securities and consequently the Company is unable to obtain independent valuations from market sources. The auction rate securities are valued using a discounted cash flow model. Some of the inputs to the discounted cash flow model are unobservable in the market. The total amount of assets measured using Level 3 valuation methodologies represented 0.2% of total assets as of July 30, 2016.

The tables below set forth, by level, the Company’s assets and liabilities that are measured at fair value. The tables do not include assets and liabilities that are measured at historical cost or any basis other than fair value (in thousands):


	Fair Value Measurements at July 30, 2016
	Level 1		Level 2		Level 3		Total
Items measured at fair value on a recurring basis:
Assets
Cash equivalents:
Money market funds	$	17,946	$	—	$	—	$	17,946
Time deposits		—		50,561		—		50,561
Municipal debt securities		—		9,740		—		9,740
Corporate debt securities		—		12,595		—		12,595
Short-term investments:
U.S. government and agency debt		206,276		—		—		206,276
Corporate debt securities		—		478,848		—		478,848
Asset backed securities		—		51,608		—		51,608
Foreign government and agency debt		—		14,615		—		14,615
Municipal debt securities		—		28,910		—		28,910
Time deposits		—		125,000		—		125,000
Prepaid expenses and other current assets:
Foreign currency forward contracts		—		210		—		210
Long-term investments:
Auction rate securities		—		—		8,974		8,974
Other non-current assets:
Severance pay fund		—		699		—		699

Total assets	$	224,222	$	772,786	$	8,974	$	1,005,982


	Fair Value Measurements at January 30, 2016
	Level 1		Level 2		Level 3		Total
Items measured at fair value on a recurring basis:
Assets
Cash equivalents:
Money market funds	$	160,400	$	—	$	—	$	160,400
Time deposits		—		209,405		—		209,405
U.S. government and agency debt		184,374		—		—		184,374
Corporate debt securities		—		54,689		—		54,689
Short-term investments:
U.S. government and agency debt		317,405		—		—		317,405
Corporate debt securities		—		557,821		—		557,821
Asset backed securities		—		76,736		—		76,736
Foreign government and agency debt		—		21,358		—		21,358
Municipal debt securities		—		31,249		—		31,249
Prepaid expenses and other current assets:
Foreign currency forward contracts		—		30		—		30
Long-term investments:
Auction rate securities		—		—		11,296		11,296
Other non-current assets:
Severance pay fund		—		678		—		678

Total assets	$	662,179	$	951,966	$	11,296	$	1,625,441

Liabilities
Accrued liabilities:
Foreign currency forward contracts	$	—	$	195	$	—	$	195

The following table summarizes the change in fair value for Level 3 assets (in thousands):


	Six Months Ended
	July 30,			August 1,
	2016			2015
Beginning balance	$	11,296		$	10,226
Sales and redemptions		(2,322	)		—
Unrealized losses included in accumulated other comprehensive income		—			(103	)

Ending balance	$	8,974		$	10,123