Financial Instruments

12 Months Ended

Dec. 31, 2014

2. Financial Instruments

On a recurring basis, the Company measures certain of its financial assets, namely its cash equivalents, and short-term investments, and its liability related to contingent consideration due to Lumewave, Inc. ("Lumewave") shareholders at fair value. The fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis was determined using the following inputs at December 31, 2014 (in thousands):



	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds ⁽¹⁾	$	9,023	$	9,023	$	—	$	—
U.S. government securities⁽²⁾	30,230		—		30,230		—
Total	$	39,253	$	9,023	$	30,230	$	—

Liabilities:
Contingent consideration	$	968	$	—	$	—	$	968
Total	$	968	$	—	$	—	$	968

The fair value of the Company’s financial assets measured at fair value on a recurring basis was determined using the following inputs at December 31, 2013 (in thousands):



	Fair Value Measurements at Reporting Date Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Money market funds ⁽¹⁾	$	5,254	$	5,254	$	—	$	—
U.S. government securities⁽²⁾	42,987		—		42,987		—
Total	$	48,241	$	5,254	$	42,987	$	—

⁽¹⁾ Included in cash and cash equivalents in the Company’s consolidated balance sheets


⁽²⁾	Represents the portfolio of available for sale securities and is included in restricted investments and short-term investments in the Company’s consolidated balance sheets

The Company’s available-for-sale securities consist of U.S. government securities with a minimum and weighted average credit rating of A-1+. The Company values these securities based on pricing from pricing vendors, who may use quoted prices in active markets for identical assets (Level 1 inputs) or inputs other than quoted prices that are observable either directly or indirectly (Level 2 inputs) in determining fair value. However, the Company classifies all of its fixed income available-for-sale securities as having Level 2 inputs. The valuation techniques used to measure the fair value of the Company’s financial instruments having Level 2 inputs were derived from non-binding market consensus prices that are corroborated by observable market data, quoted market prices for similar instruments, or pricing models, such as discounted cash flow techniques. The Company's procedures include controls to ensure that appropriate fair values are recorded such as comparing prices obtained from multiple independent sources. There were no transfers between Level 1 and 2 hierarchies for the years ended December 31, 2014 and 2013.

The contingent consideration payable to Lumewave's shareholders, which the Company recognized upon it's purchase of Lumewave in August 2014 and is included in other long-term liabilities in the Company's consolidated balance sheets as of December 31, 2014, is classified within Level 3 because significant assumptions for this obligation are not observable in the market. The table below includes a rollforward of the balance sheet amounts for financial instruments classified by the Company within Level 3 of the valuation hierarchy for the year ended December 31, 2014 (in thousands):



	Contingent Consideration
BALANCE AT DECEMBER 31, 2013	$	—
Recorded in conjunction with acquisition of Lumewave, Inc.	925
Amortization of interest on contingent consideration	43
BALANCE AT DECEMBER 31, 2014	$	968

As of December 31, 2014, the Company’s available-for-sale securities had contractual maturities from eight to twelve months and an average remaining term to maturity of seven months. As of December 31, 2014, the amortized cost basis, aggregate fair value, and gross unrealized holding gains and losses of the Company’s short-term investments by major security type were as follows (in thousands):



	Amortized Cost		Aggregate Fair Value		Unrealized Holding Gains		Unrealized Holding Losses
U.S. government and agency securities	$	30,237	$	30,230	$	—	$	7

Among the Company's available-for-sale securities, there have been no unrealized holding losses for a period of greater than 12 months as of December 31, 2014. The amortized cost basis, aggregate fair value and gross unrealized holding gains and losses for the Company’s available-for-sale short-term investments, by major security type, were as follows as of December 31, 2013 (in thousands):



	Amortized Cost		Aggregate Fair Value		Unrealized Holding Gains		Unrealized Holding Losses
U.S. government securities	$	42,979	$	42,987	$	8	$	—

Market values were determined for each individual security in the investment portfolio. Any decline in value of these investments is primarily related to changes in interest rates and is considered to be temporary in nature. The Company reviews its investments on a regular basis to evaluate whether or not any have experienced an other-than-temporary decline in fair value. The cost of securities sold is based on the specific identification method and realized gains and losses are included in Interest and other income (expense), net.

- 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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