Financial Instruments and Fair Value Measurements

The Company invests a portion of its cash in certificates of deposit, corporate notes, commercial paper, U.S. government treasury securities and securities of government-sponsored entities. The Company classifies all securities as available-for-sale, as the sale of such securities may be required prior to maturity to implement management strategies. These securities are carried at fair value, with the unrealized gains and losses reported as a component of other comprehensive income in equity until realized. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income or expense on the condensed consolidated statements of operations. As of March 31, 2014, the Company had no investments that were in a significant unrealized loss position and no impairment charges were recorded during the periods presented. If an investment is deemed other than temporarily impaired, the impairment is charged to earnings and a new cost basis for the security is established. The Company reviews its investments to identify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using the straight-line method and are included in interest income on the condensed consolidated statements of operations. Interest and dividends on securities classified as available-for-sale are also included in interest income on the condensed consolidated statements of operations. Realized gains and losses and interest income and expense related to marketable securities were immaterial during all periods presented.

According to the Company's investment policy, the Company maintains a diversified investment portfolio in terms of types, maturities, and credit exposure, and it requires the Company to invest with institutions that have high credit quality. The Company does not currently hold derivative financial investments or speculative investments. The carrying amounts of other financial instruments such as cash equivalents, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, and other current liabilities as of March 31, 2014 and December 31, 2013 approximate their related fair values due to the short-term maturities of these instruments. The estimated fair value of the Company’s capital lease obligations approximated their carrying values. The fair value and carrying value of the Company’s Senior Convertible Notes is discussed in Note 6.

The fair value, based on a quoted market price, (Level 1), of the outstanding 2017 Notes at March 31, 2014 and December 31, 2013 was approximately $476.0 million and $439.3 million, respectively.

The composition of marketable securities is as follows (in thousands, except years):



	Contractual Maturity (in Years)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2014:
Classified as current assets
Certificates of deposit	Less than 1	$	832	$	—	$	—		$	832
Corporate notes	Less than 1	95,983		32		(23		)	95,992
Commercial paper	Less than 1	19,985		—		—			19,985
U.S. government treasury securities	Less than 1	1,500		2		—			1,502
Securities of government-sponsored entities	Less than 1	58,278		34		(15		)	58,297
Short-term marketable securities		176,578		68		(38		)	176,608
Classified as non-current assets
Certificates of deposit	1 to 2	283		—		—			283
Corporate notes	1 to 2	32,842		11		(45		)	32,808
Securities of government-sponsored entities	1 to 2	19,104		18		(4		)	19,118
Long-term marketable securities		52,229		29		(49		)	52,209
Classified as restricted investments
U.S. government treasury securities	Less than 2	40,456		30		(2		)	40,484
Securities of government-sponsored entities	Less than 2	28,108		5		(18		)	28,095
Restricted investments		68,564		35		(20		)	68,579
Total marketable securities at March 31, 2014		$	297,371	$	132	$	(107	)	$	297,396

December 31, 2013:
Classified as current assets
Certificates of deposit	Less than 1	$	833	$	—	$	—		$	833
Corporate notes	Less than 1	71,611		23		(6		)	71,628
Commercial paper	Less than 1	19,973		—		—			19,973
U.S. government treasury securities	Less than 1	7,603		2		—			7,605
Securities of government-sponsored entities	Less than 1	43,405		14		(9		)	43,410
Short-term marketable securities		143,425		39		(15		)	143,449
Classified as non-current assets
Certificates of deposit	1 to 2	283		—		—			283
Corporate notes	1 to 2	32,309		23		(14		)	32,318
U.S. government treasury securities	1 to 2	1,500		1		—			1,501
Securities of government-sponsored entities	1 to 2	45,722		19		(14		)	45,727
Long-term marketable securities		79,814		43		(28		)	79,829
Classified as restricted investments
U.S. government treasury securities	Less than 2	43,274		16		(6		)	43,284
Securities of government-sponsored entities	Less than 2	29,125		4		(16		)	29,113
Restricted investments		72,399		20		(22		)	72,397
Total marketable securities at December 31, 2013		$	295,638	$	102	$	(65	)	$	295,675

The Company measures certain assets and liabilities in accordance with authoritative guidance which requires fair value measurements be classified and disclosed in one of the following three categories:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assets or liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair value measurement hierarchy during the three months ended March 31, 2014 and 2013.

The fair values of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, were determined using the following inputs (in thousands):



	Total			Quoted Price in Active Market (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2014:
Cash Equivalents, Marketable Securities and Restricted Investments:
Money market funds	$	59,433		$	59,433	$	—	$	—
Certificates of deposit	1,115			1,115		—		—
Corporate notes	128,800			—		128,800		—
Commercial paper	19,985			—		19,985		—
U.S. government treasury securities	41,986			41,986		—		—
Securities of government-sponsored entities	105,510			—		105,510		—
Total cash equivalents, marketable securities and restricted investments	$	356,829		$	102,534	$	254,295	$	—

Contingent Consideration:
Acquisition-related liabilities, current	$	(604	)	$	—	$	—	$	(604	)
Total contingent consideration	$	(604	)	$	—	$	—	$	(604	)

December 31, 2013:
Cash Equivalents, Marketable Securities and Restricted Investments:
Money market funds	$	72,514		$	72,514	$	—	$	—
Certificates of deposit	1,116			1,116		—		—
Corporate notes	103,946			—		103,946		—
Commercial paper	19,973			—		19,973		—
U.S. government treasury securities	52,390			52,390		—		—
Securities of government-sponsored entities	118,250			—		118,250		—
Total cash equivalents, marketable securities and restricted investments	$	368,189		$	126,020	$	242,169	$	—

Contingent Consideration:
Acquisition-related liabilities, current	$	(616	)	$	—	$	—	$	(616	)
Acquisition-related liabilities, non-current	$	(596	)	$	—	$	—	$	(596	)
Total contingent consideration	$	(1,212	)	$	—	$	—	$	(1,212	)

Contingent Consideration Liability

In connection with an immaterial acquisition in 2012, the Company is required to pay an amount not to exceed €2.0 million in the event two specified revenue-based milestones are met. The fair value of the contingent consideration was determined using a discounted cash flow model, the significant inputs of which are not observable in the market. The key assumptions in applying this approach are the revenue projections, the interest rate and the probabilities assigned to the milestones being achieved. Based on these assumptions, the estimated fair value of the contingent consideration totaled $0.6 million at March 31, 2014 and is included in accrued liabilities in the March 31, 2014 condensed consolidated balance sheet. Changes in fair value are recorded in the statements of operations as sales, marketing and administrative expenses.

The following table sets forth the changes in the estimated fair value of the Company’s liabilities measured on a recurring basis using significant unobservable inputs (Level 3) (in thousands):



	Three Months Ended March 31,
	2014			2013
Fair value measurement at beginning of period	$	1,212		$	1,074
Change in fair value measurement included in operating expenses	—			(17		)
Contingent consideration paid or settled	(608		)	—
Fair value measurement at end of period	$	604		$	1,057