Fair Value Measurements

The following is a summary of available-for-sale marketable securities held as of September 30, 2014 and December 31, 2013 (in thousands):



			Gross Unrealized							Classification on Balance Sheet
	Amortized Cost		Gains		Losses			Aggregate Fair Value		Short-Term Marketable Securities		Long-Term Marketable Securities
As of September 30, 2014
Certificates of deposit	$	52	$	—	$	—		$	52	$	—	$	52
Commercial paper	22,487		1		(2		)	22,486		22,486		—
Corporate bonds	1,032,801		870		(1,646		)	1,032,025		399,682		632,343
U.S. government agency obligations	293,146		37		(326		)	292,857		74,405		218,452
	$	1,348,486	$	908	$	(1,974	)	$	1,347,420	$	496,573	$	850,847

As of December 31, 2013
Certificates of deposit	$	222	$	—	$	—		$	222	$	173	$	49
Corporate bonds	736,945		1,197		(281		)	737,861		278,318		459,543
U.S. government agency obligations	174,982		51		(85		)	174,948		61,514		113,434
	$	912,149	$	1,248	$	(366	)	$	913,031	$	340,005	$	573,026

Unrealized gains and unrealized temporary losses on investments classified as available-for-sale are included within accumulated other comprehensive loss in the consolidated balance sheets. Upon realization, those amounts are reclassified from accumulated other comprehensive loss to interest income in the statements of operations. The Company does not believe any unrealized losses represent other than temporary impairments based on the evaluation of available evidence. As of September 30, 2014 and December 31, 2013, there were no securities in a continuous unrealized loss position for more than 12 months.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets and liabilities at September 30, 2014 and December 31, 2013 (in thousands):



	Total Fair Value			Fair Value Measurements at Reporting Date Using
	Total Fair Value			Level 1		Level 2		Level 3
As of September 30, 2014
Cash Equivalents and Marketable Securities:
Money market funds	$	2,936		$	2,936	$	—	$	—
Certificates of deposit	52			52		—		—
Commercial paper	22,486			—		22,486		—
Corporate bonds	1,032,025			—		1,032,025		—
U.S. government agency obligations	292,857			—		292,857		—
	$	1,350,356		$	2,988	$	1,347,368	$	—
Other Liabilities:
Contingent consideration obligation related to Velocius acquisition	$	(900	)	$	—	$	—	$	(900	)

As of December 31, 2013
Cash Equivalents and Marketable Securities:
Money market funds	$	40,482		$	40,482	$	—	$	—
Certificates of deposit	3,418			3,418		—		—
Commercial paper	29,999			—		29,999		—
Corporate bonds	737,861			—		737,861		—
U.S. government agency obligations	174,948			—		174,948		—
	$	986,708		$	43,900	$	942,808	$	—
Other Assets:
Note receivable	$	22,879		$	—	$	—	22,879

Other Liabilities:
Contingent consideration obligation related to Velocius acquisition	$	(2,600	)	$	—	$	—	$	(2,600	)

As of September 30, 2014 and December 31, 2013, the Company grouped money market funds and certificates of deposit using a Level 1 valuation because market prices for such investments are readily available in active markets. As of September 30, 2014 and December 31, 2013, the Company grouped commercial paper, U.S. government agency obligations and corporate bonds using a Level 2 valuation because quoted prices for identical or similar assets are available in markets that are inactive.

When developing fair value estimates, the Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. When available, the Company uses quoted market prices to measure fair value. The valuation technique used to measure fair value for the Company's Level 1 and Level 2 assets is a market approach, using prices and other relevant information generated by market transactions involving identical or comparable assets. If market prices are not available, the fair value measurement is based on models that use primarily market-based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases where market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

The valuation technique used to measure fair value of the Company's Level 3 liability, which consists of a contingent consideration related to the acquisition of Velocius Networks, Inc. ("Velocius") (Note 5), is primarily an income approach. The significant unobservable input used in the fair value measurement of the Velocius contingent consideration is the likelihood of achieving development milestones to integrate the acquired technology into the Company's technology. During the third quarter of 2014, the first of two milestones was achieved and a portion of the contingent consideration was paid. The remaining milestone is payable in the third quarter of 2015, if achieved.

Increases or decreases in the underlying assumptions used to value the Company's Level 3 liability held at September 30, 2014 and December 31, 2013, could increase or decrease the fair value estimates recorded in the consolidated balance sheets.

The valuation technique used to measure fair value for the Company's Level 3 asset, which consisted of a $25.0 million face value convertible note receivable, was primarily an income approach, where the expected weighted average future cash flows were discounted back to present value. The significant unobservable inputs used in the fair value measurement of the convertible note receivable were the probability of conversion to equity and the fair value of equity into which the note was convertible. In the second quarter of 2014, the note was amended. Under the terms of the amendment, the note became convertible into shares of preferred stock of the issuer valued at $12.5 million at the time of conversion; the remaining $12.5 million was paid in the second and third quarters of 2014.

Contractual maturities of the Company’s available-for-sale marketable securities held at September 30, 2014 and December 31, 2013 were as follows (in thousands):



	September 30, 2014		December 31, 2013
Due in 1 year or less	$	496,573	$	340,005
Due after 1 year through 5 years	850,847		573,026
	$	1,347,420	$	913,031

The following table reflects the activity for the Company’s major classes of assets and liabilities measured at fair value using Level 3 inputs for the nine months ended September 30, 2014 (in thousands):



	Other Assets: Note Receivable			Other Liabilities: Contingent Consideration Obligation
Balance as of January 1, 2014	$	22,879		$	(2,600	)
Unrealized gain on convertible note receivable included in other comprehensive (loss) income	2,121			—
Amendment of the convertible note receivable for preferred stock of the issuer and cash	(25,000		)	—
Fair value adjustment to contingent consideration included in general and administrative expense	—			(300		)
Achievement of first milestone related to Velocius contingent consideration	—			2,000
Balance as of September 30, 2014	$	—		$	(900	)