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 certain cash equivalents, accounts receivable, 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 and liabilities 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 and liabilities 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, such as quotations on forward foreign exchange points and foreign interest rates.

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



	March 31, 2014
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	29,594	$	—	$	—		$	29,594
Money market funds	1,566		—		—			1,566
Commercial paper	15,599		—		—			15,599
Corporate bonds	1,537		—		—			1,537
Total	48,296		—		—			48,296
Short-term investments:
Commercial paper	22,974		7		—			22,981
Corporate bonds	29,904		24		(7		)	29,921
U.S. government agencies	4,406		4		—			4,410
Total	57,284		35		(7		)	57,312
Long-term investments:
Asset-backed securities	17,909		14		(2		)	17,921
Corporate bonds	14,305		12		(7		)	14,310
U.S. government agencies	7,151		5		—			7,156
Total	39,365		31		(9		)	39,387
Total	$	144,945	$	66	$	(16	)	$	144,995



	December 31, 2013
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	27,488	$	—	$	—		$	27,488
Money market funds	183		—		—			183
Commercial paper	14,697		1		—			14,698
Total	42,368		1		—			42,369
Short-term investments:
Commercial paper	32,784		6		—			32,790
Corporate bonds	16,894		11		—			16,905
Municipal bonds	1,128		—		—			1,128
U.S. government agencies	4,004		—		—			4,004
Total	54,810		17		—			54,827
Long-term investments:
Asset-backed securities	5,497		4		—			5,501
Corporate bonds	15,256		22		(4		)	15,274
U.S. government agencies	14,835		1		(3		)	14,833
Total	35,588		27		(7		)	35,608
Total	$	132,766	$	45	$	(7	)	$	132,804

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:



	March 31, 2014
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	38,580	$	—	$	38,580
Asset-backed securities	—		17,921		—		17,921
Corporate bonds	—		45,768		—		45,768
U.S. government agencies	—		11,566		—		11,566
Total	$	—	$	113,835	$	—	$	113,835



	December 31, 2013
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	47,488	$	—	$	47,488
Asset-backed securities	—		5,501		—		5,501
Corporate bonds	—		32,179		—		32,179
Municipal bonds	—		1,128		—		1,128
U.S. government agencies	—		18,837		—		18,837
Total	$	—	$	105,133	$	—	$	105,133

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



	March 31, 2014
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	38,580	$	—	$	—	$	38,580
Corporate bonds	31,458		14,310		—		45,768
U.S. government agencies	4,410		7,156		—		11,566
Asset backed securities	—		1,101		16,820		17,921
Total	$	74,448	$	22,567	$	16,820	$	113,835



	December 31, 2013
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	47,488	$	—	$	—	$	47,488
Municipal bonds	1,128		—		—		1,128
Corporate bonds	16,905		15,274		—		32,179
U.S. government agencies	4,004		14,833		—		18,837
Asset backed securities	—		—		5,501		5,501
Total	$	69,525	$	30,107	$	5,501	$	105,133

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 or accrued liablities 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 March 31, 2014, the Company had two outstanding forward contracts with notional amounts of 4.7 million Euros and 1.8 million British Pounds, both of which expired on April 30, 2014. At December 31, 2013, the Company had two outstanding forward contract with a notional amount of 6.3 million Euros and 2.0 million British Pounds, which expired on January 31, 2014. These forward contracts were entered into at the end of each month, and thus the fair value of these contracts was $0 at March 31, 2014 and December 31, 2013. In the three months ended March 31, 2014, the Company recorded a loss of $0.2 million from these contracts, which was partially offset by foreign currency transaction gains of $0.1 million for the quarter. In the three months ended March 31, 2013, the Company recorded a loss of $0.1 million from these contracts, in addition to other foreign currency transaction losses of $0.2 million. 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.