Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For certain of the Company’s financial instruments, including cash and certain cash equivalents, accounts receivable, restricted cash, accounts payable, and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

The Company measures and reports certain cash equivalents, investments and derivative forward currency contracts at fair value in accordance with the provisions of the authoritative accounting guidance that addresses fair value measurements. This guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations based on other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

The Company's financial instruments consist of assets measured using Level 1 and 2 inputs. Level 1 assets include a highly liquid money market fund, which is valued using unadjusted quoted prices that are available in an active market for an identical asset. Level 2 assets include fixed-income U.S. government agency securities, commercial paper, corporate bonds, municipal bonds and asset backed securities and derivative financial instruments consisting of forward currency contracts. The securities, bonds and commercial paper are valued using prices from independent pricing services based on quoted prices in active markets for similar instruments or on industry models using data inputs such as interest rates and prices that can be directly observed or corroborated in active markets. The foreign currency forward contracts are valued using observable inputs.

The Company's cash and cash equivalents, short-term investments, long-term investments and restricted cash consist of the following:



	September 30, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	25,434	$	—	$	—		$	25,434
Money market funds	5,086		—		—			5,086
Commercial paper	11,597		1		—			11,598
Total	42,117		1		—			42,118
Short-term investments:
Commercial paper	43,960		14		(1		)	43,973
Corporate bonds	9,640		7		—			9,647
Municipal bonds	1,127		—		(1		)	1,126
U.S. government agencies	4,001		1		—			4,002
Total	58,728		22		(2		)	58,748
Long-term investments:
Asset-backed securities	3,996		3		(1		)	3,998
U.S. government agencies	4,711		2		—			4,713
Corporate bonds	16,083		13		(2		)	16,094
Total	24,790		18		(3		)	24,805
Total	$	125,635	$	41	$	(5	)	$	125,671



	December 31, 2012
	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	23,419	$	—	$	—	$	23,419
Money market funds	170		—		—		170
Commercial paper	11,294		2		—		11,296
Total	34,883		2		—		34,885
Short-term investments:
Commercial paper	21,078		2		—		21,080
U.S. government agencies	62,463		4		—		62,467
Total	83,541		6		—		83,547
Restricted cash - cash	114		—		—		114
Total	$	118,538	$	8	$	—	$	118,546

The following table sets forth by level within the fair value hierarchy the fair value of the Company's available-for-sale securities measured on a recurring basis:



	September 30, 2013
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	55,571	$	—	$	55,571
U.S. government agencies	—		8,715		—		8,715
Municipal bonds	—		1,126		—		1,126
Corporate bonds	—		25,741		—		25,741
Asset-backed securities	—		3,998		—		3,998
Total	$	—	$	95,151	$	—	$	95,151



	December 31, 2012
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	32,376	$	—	$	32,376
U.S. government agencies	—		62,467		—		62,467
Total	$	—	$	94,843	$	—	$	94,843

The following summarizes the fair value of securities classified as available-for-sale by contractual maturity:



	September 30, 2013
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	55,571	$	—	$	—	$	55,571
U.S. government agencies	4,002		4,713		—		8,715
Municipal bonds	1,126		—		—		1,126
Corporate bonds	9,647		16,094		—		25,741
Asset-backed securities	—		—		3,998		3,998
Total	$	70,346	$	20,807	$	3,998	$	95,151



	December 31, 2012
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	32,376	$	—	$	—	$	32,376
U.S. government agencies	62,467		—		—		62,467
Total	$	94,843	$	—	$	—	$	94,843

Derivative Financial Instruments

Derivative financial instruments are utilized by the Company to reduce foreign currency exchange risks. The Company uses foreign currency forward contracts to mitigate the impact of foreign currency fluctuations of certain non-U.S. dollar denominated asset positions, primarily cash and accounts receivable. These contracts are recorded within prepaid expenses and other current assets in the condensed consolidated balance sheets. Gains and losses resulting from currency exchange rate movements on these forward contracts are recognized in other income (expense) in the accompanying condensed consolidated statements of operations in the period in which the exchange rates change and offset the foreign currency gains and losses on the underlying exposure. The Company does not enter into derivative financial instruments for trading or speculative purposes.

At September 30, 2013, the Company had two outstanding forward contracts with notional amounts of 4.2 million Euros and 1.9 million British pounds, both of which expired on October 31, 2013. At December 31, 2012, the Company had one outstanding forward contract with a notional amount of 10.7 million Euros, which expired on January 31, 2013. These forward contracts were entered into at the end of each month, and thus the fair value of these contracts was $0 at September 30, 2013 and December 31, 2012. The Company recorded losses of $0.4 million and $0.6 million from these contracts for the three and nine months ended September 30, 2013, respectively. These were partially offset by foreign currency transaction gains of $0.3 million and $0.1 million for the three and nine months ended September 30, 2013, respectively. The Company recorded losses of $0.4 million and $0.1 million from these contracts for the three and nine months ended September 30, 2012, respectively. These were offset by foreign currency transaction gains of $0.4 million and $49,000 for the three and nine months ended September 30, 2012, respectively. These derivatives did not meet the criteria to be designated as hedges. These instruments were valued using Level 2 inputs.

There were no significant transfers between Level 1, Level 2 or Level 3 of the fair value hierarchy, as determined at the end of each reporting period.