Fair Value Measurements

12 Months Ended

Dec. 31, 2013

Fair Value Measurements

3. Fair Value Measurements

The Company defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The accounting standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

· Level 1—Observable inputs, such as quoted prices in active markets for identical assets or liabilities;

· Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; 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, therefore requiring an entity to develop its own assumptions.

Recurring Fair Value Measurements

The following table represents the fair value hierarchy for our financial assets (cash equivalents and marketable securities) measured at fair value on a recurring basis as of December 31, 2013 and 2012 (in thousands):

	Level 1		Level 2		Level 3		Total
December 31, 2013
Money market funds	$	20,013	$	-	$	-	$	20,013
U.S. government agency securities		-		167,597		-		167,597
Total	$	20,013	$	167,597	$	-	$	187,610
	Level 1		Level 2		Level 3		Total
December 31, 2012
Money market funds	$	3,140	$	-	$	-	$	3,140
U.S. government agency securities		-		119,233		-		119,233
U.S. treasury securities		-		500		-		500
Municipal securities		-		715		-		715
Total	$	3,140	$	120,448	$	-	$	123,588

Money market funds are highly liquid investments and are actively traded. The pricing information on these investment instruments are readily available and can be independently validated as of the measurement date. This approach results in the classification of these securities as Level 1 of the fair value hierarchy.

U.S. Government agency securities, U.S. treasury securities and municipal securities are measured at fair value using Level 2 inputs. We review trading activity and pricing for these investments as of each measurement date. When sufficient quoted pricing for identical securities is not available, we use market pricing and other observable market inputs for similar securities obtained from various third party data providers. These inputs represent quoted prices for similar assets in active markets or these inputs have been derived from observable market data. This approach results in the classification of these securities as Level 2 of the fair value hierarchy.