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 values due to the relatively short maturity of these balances.

The Company measures and reports certain cash equivalents, investments and derivative foreign currency forward 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 include fixed-income U.S. government agency securities, commercial paper, corporate bonds, asset-backed securities and derivative financial instruments consisting of foreign currency forward 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, and long-term investments consist of the following:



	June 30, 2016
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	69,227	$	—	$	—		$	69,227
Money market funds	15,228		—		—			15,228
Commercial paper	33,737		2		—			33,739
Total	118,192		2		—			118,194
Short-term investments:
Commercial paper	16,417		2		(1		)	16,418
Corporate bonds	10,728		3		—			10,731
Asset-backed securities	697		—		—			697
U.S. government agencies	68,300		42		(2		)	68,340
Total	96,142		47		(3		)	96,186
Long-term investments:
Asset-backed securities	6,222		7		—			6,229
U.S. government agencies	31,395		83		—			31,478
Corporate bonds	8,817		12		(2		)	8,827
Total	46,434		102		(2		)	46,534
Total	$	260,768	$	151	$	(5	)	$	260,914



	December 31, 2015
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
	(in thousands)
Cash and cash equivalents:
Cash	$	61,372	$	—	$	—		$	61,372
Money market funds	3,980		—		—			3,980
U.S. government agencies	8,999		1		—			9,000
Commercial paper	17,345		1		—			17,346
Total	91,696		2		—			91,698
Short-term investments:
Commercial paper	10,447		1		—			10,448
Corporate bonds	12,448		—		(13		)	12,435
U.S. government agencies	64,422		3		(40		)	64,385
Total	87,317		4		(53		)	87,268
Long-term investments:
Asset-backed securities	7,007		—		(18		)	6,989
U.S. government agencies	32,683		—		(142		)	32,541
Corporate bonds	3,751		—		(4		)	3,747
Total	43,441		—		(164		)	43,277
Total	$	222,454	$	6	$	(217	)	$	222,243

The following table shows the changes to accumulated other comprehensive income for the six months ended June 30, 2016:



	Unrealized Gain (Loss) on Investments
Balance at December 31, 2015	$	(211	)
Change in net realized gain (loss) on investments	307
Amounts reclassified for net realized gain (loss) included in net income	50
Tax effect	(34		)
Other comprehensive income	323
Balance at June 30, 2016	$	112

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, excluding cash and money market funds:



	June 30, 2016
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	50,157	$	—	$	50,157
U.S. government agencies	—		99,818		—		99,818
Corporate bonds	—		19,558		—		19,558
Asset-backed securities	—		6,926		—		6,926
Total	$	—	$	176,459	$	—	$	176,459



	December 31, 2015
	Level 1		Level 2		Level 3		Fair Value
	(in thousands)
Commercial paper	$	—	$	27,794	$	—	$	27,794
U.S. government agencies	—		105,926		—		105,926
Corporate bonds	—		16,182		—		16,182
Asset-backed securities	—		6,989		—		6,989
Total	$	—	$	156,891	$	—	$	156,891

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

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



	June 30, 2016
	Mature within One Year		After One Year through Two Years		Over Two Years		Fair Value
	(in thousands)
Commercial paper	$	50,157	$	—	$	—	$	50,157
U.S. government agencies	68,340		31,478		—		99,818
Corporate bonds	12,385		7,173		—		19,558
Asset-backed securities	5,582		1,344		—		6,926
Total	$	136,464	$	39,995	$	—	$	176,459

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 liabilities 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 being hedged. The Company does not enter into derivative financial instruments for trading or speculative purposes.

At June 30, 2016, the Company had two outstanding forward contracts with notional amounts of 7.8 million Euros and 4.0 million British Pounds, which expired on July 29, 2016. At December 31, 2015, the Company had two outstanding forward contracts with notional amounts of 6.1 million Euros and 2.6 million British Pounds, which expired on January 31, 2016. These forward contracts were entered into at the end of each month, and thus the fair value of these contracts was $0 at June 30, 2016 and December 31, 2015. For the three months ended June 30, 2016, the Company recorded a gain of $0.6 million from these forward contracts, which partially offset other foreign currency transaction losses of $0.7 million. For the three months ended June 30, 2015, the Company recorded a loss of $0.4 million from these forward contracts, which offset other foreign currency transaction gains of $0.4 million. For the six months ended June 30, 2016, the Company recorded a gain of $0.1 million from these forward contracts, which partially offset other foreign currency transaction losses of $0.3 million. For the six months ended June 30, 2015, the Company recorded a gain of $0.4 million from these forward contracts, which partially offset other foreign currency transaction losses of $0.5 million. These derivatives did not meet the criteria to be designated as hedges. These instruments were valued using Level 2 inputs.