Financial Instruments and Fair Value Measurements

The Company invests its excess cash in certificates of deposit, corporate notes, commercial paper, U.S. government treasury securities and securities of government-sponsored entities. The Company classifies all such 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 and a new cost basis for the security is established. The Company reviews its investments if there is an indicator 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. As of June 30, 2014, the Company had no investments that were in a significant unrealized loss position and no impairment charges were recorded during the 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 invests with institutions that have high credit quality. The Company does not currently hold derivative financial investments or speculative investments. 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.

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
June 30, 2014:
Classified as current assets
Certificates of deposit	Less than 1	$	869	$	—	$	—		$	869
Corporate notes	Less than 1	79,198		20		(35		)	79,183
Commercial paper	Less than 1	10,000		—		—			10,000
U.S. government treasury securities	Less than 1	1,500		2		—			1,502
Securities of government-sponsored entities	Less than 1	49,266		31		(2		)	49,295
Total short-term marketable securities		140,833		53		(37		)	140,849
Classified as non-current assets
Certificates of deposit	1 to 2	—		—		—			—
Corporate notes	1 to 2	57,940		11		(59		)	57,892
Securities of government-sponsored entities	1 to 2	45,056		8		(36		)	45,028
Total long-term marketable securities		102,996		19		(95		)	102,920
Classified as restricted investments
U.S. government treasury securities	Less than 2	47,823		43		(2		)	47,864
Securities of government-sponsored entities	Less than 2	30,500		4		(21		)	30,483
Total restricted investments		78,323		47		(23		)	78,347
Total marketable securities at June 30, 2014		$	322,152	$	119	$	(155	)	$	322,116

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
Total 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
Total 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
Total restricted investments		72,399		20		(22		)	72,397
Total marketable securities at December 31, 2013		$	295,638	$	102	$	(65	)	$	295,675

Fair value measurements

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 six months ended June 30, 2014 or June 30, 2013.

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 June 30, 2014 and December 31, 2013 approximate their related fair values due to the short-term maturities of these instruments. The carrying values of the Company’s capital lease obligations approximate their related fair values as of June 30, 2014 and December 31, 2013.

The fair value, based on a quoted market price (Level 1), of the Company's outstanding Senior Convertible Notes due 2017 at June 30, 2014 and December 31, 2013 was approximately $458.9 million and $439.3 million, respectively. The carrying value of the Company’s Senior Convertible Notes is discussed in Note 6, Senior Convertible Notes.

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)
June 30, 2014:
Cash Equivalents, Marketable Securities and Restricted Investments:
Money market funds	$	55,092		$	55,092	$	—	$	—
Certificates of deposit	869			869		—		—
Corporate notes	137,075			—		137,075		—
Commercial paper	10,000			—		10,000		—
U.S. government treasury securities	49,366			49,366		—		—
Securities of government-sponsored entities	124,806			—		124,806		—
Total cash equivalents, marketable securities and restricted investments	$	377,208		$	105,327	$	271,881	$	—

Contingent Consideration:
Acquisition-related liabilities, current	$	(648	)	$	—	$	—	$	(648	)
Total contingent consideration	$	(648	)	$	—	$	—	$	(648	)

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

As a result of contingent consideration arrangements associated with certain immaterial asset and/or business acquisitions, the Company may have (or at times following such transactions, have had) future payment obligations which are based on certain technological or operational milestones. The Company records these obligations at fair value at the time of acquisition with subsequent fair value adjustments to the contingent consideration reflected in the line items of the condensed consolidated statement of operations commensurate with the nature of the contingent consideration. 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. Reasonable changes in the unobservable inputs would not be expected to have a significant impact on the Company’s condensed consolidated financial statements.

In connection with an immaterial acquisition completed in 2012, the Company agreed to pay the seller an amount not to exceed €2.0 million in aggregate in the event two specified revenue-based milestones are achieved. The first milestone was achieved and paid during the six months ended June 30, 2014. The second milestone will be measured in February 2015. The Company has a remaining contingent consideration accrual at June 30, 2014 of $0.6 million with respect to the second milestone. 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):



	Six Months Ended June 30,
	2014			2013
Fair value measurement at beginning of period	$	1,212		$	1,074
Change in fair value measurement included in operating expenses	44			15
Contingent consideration paid or settled	(608		)	—
Fair value measurement at end of period	$	648		$	1,089

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Non-financial assets and liabilities are recognized at fair value subsequent to initial recognition when they are deemed to be other-than-temporarily impaired. The Company periodically re-evaluates the original assumptions and rationale utilized in the establishment of the carrying value and estimated lives of its non-financial assets and liabilities. The criteria used for these evaluations include Management’s estimate of the asset’s continuing ability to generate positive cash flow in future periods as well as the strategic significance of any asset to the Company’s business objectives. If assets are considered to be impaired, the respective charge recognized is equal to the amount by which the carrying value of the assets exceeds the fair value of the assets, which is determined by applicable market prices when available or other methods by utilizing unobservable inputs (Level 3) including a discounted cash flow model.

Based on Management's assessment, during the six months ended June 30, 2014, the Company recognized impairment charges of $10.7 million related to the developed technology for the PCM® device acquired from Cervitech in 2009 and $2.2 million in leasehold improvement write-offs associated with exiting a majority of the leased square footage at its New Jersey location. Refer to Note 5, Goodwill and Intangible Assets and Note 10, Restructuring Charges, respectively, for further discussion on each transaction.