Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2013

FAIR VALUE OF FINANCIAL INSTRUMENTS

Assets and liabilities measured at fair value on a recurring basis include the following as of December 31, 2013 and 2012 (in thousands):



	December 31, 2013								December 31, 2012
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Cash equivalents	$	65,700	$	65,700	$	—	$	—	$	51,521	$	51,521	$	—	$	—
Corporate bonds	78,609		—		78,609		—		—		—		—		—
Agency bonds	121,316		—		121,316		—		—		—		—		—
	$	265,625	$	65,700	$	199,925	$	—	$	51,521	$	51,521	$	—	$	—

The Company’s cash equivalents at December 31, 2013 and 2012 consisted of money market funds with original maturity dates of three months or less backed by U.S. Treasury Bills. Cash equivalents are classified as Level 1.

As of December 31, 2013, corporate and agency bonds were classified within Level 2 of the fair value hierarchy. The bonds were valued using information obtained from pricing services, which obtained quoted market prices from a variety of industry data providers, security master files from large financial institutions, and other third-party sources. The Company performed supplemental analysis to validate information obtained from its pricing services. As of December 31, 2013, no adjustments were made to such pricing information.

Warrants

The Company’s preferred stock warrants were recorded at fair value and were determined to be Level 3 fair value items. The changes in the fair value of preferred stock warrants are summarized below (in thousands):



	December 31,
	2011
Fair value at beginning of period	$	39,756
Changes in fair value of preferred stock warrant liabilities recorded in the statement of operations	42,559
Exercise of preferred stock warrants	(82,315		)
Fair value at end of period	$	—

The fair value of the warrants to purchase the Company’s preferred stock was determined using a Black-Scholes option-pricing model.

The following weighted-average assumptions were used to determine the fair value of the Series C, Series D, and Series E Preferred Stock warrants at the exercise date during March 2011:



	Series C			Series D			Series E
Risk-free interest rate	0.1		%	0.1		%	0.1		%
Expected term (in years)	0.0			0.0			0.0
Estimated dividend yield	—			—			—
Weighted-average estimated volatility	43.1		%	43.1		%	43.1		%
Fair value (in thousands)	$	3,905		$	56,445		$	21,965

Senior Convertible Notes

The convertible notes are shown in the accompanying consolidated balance sheets at their original issuance value, net of unamortized discount, and are not remeasured to fair value each period. The approximate fair value of our convertible notes as of December 31, 2013 was $305.4 million. The fair value of the convertible notes were estimated on the basis of quoted market prices, which, due to limited trading activity, are considered Level 2 in the fair value hierarchy.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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