3. Fair Value Measurements

 

Assets Measured and Recorded at Fair Value on a Recurring Basis

 

The Company’s financial assets that are measured at fair value on a recurring basis consist of money market funds and available-for-sale investments. The following three levels of inputs are used to measure the fair value of financial instruments:

 

Level 1: Quoted prices in active markets for identical assets or liabilities.

 

Level 2: Observable inputs 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: Unobservable inputs are used when little or no market data is available.

 

The Company determines realized gains or losses on the sale of marketable securities on a specific identification method. During the three months ended March 31, 2014, the Company did not record significant realized gains or losses on the sales of available-for-sale investments.  The following tables show the Company’s cash and available-for-sale investments’ adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short- or long-term investments as of December 31, 2013 and March 31, 2014 (in thousands):

 

		December 31, 2013
		Adjusted Cost			Unrealized Gains			Unrealized Losses			Fair Value			Cash and Cash Equivalents			Short-term Investments			Long-term Investments
Cash		$	5,533		$	—		$	—		$	—		$	5,533		$	—		$	—
Level 1:
Money market funds		79,013			—			—			—			79,013			—			—
Subtotal		79,013			—			—			—			79,013			—			—
Total		$	84,546		$	—		$	—		$	—		$	84,546		$	—		$	—

 

		March 31, 2014
		Adjusted Cost			Unrealized Gains			Unrealized Losses			Fair Value			Cash and Cash Equivalents			Short-term Investments			Long-term Investments
Cash		$	8,576		$	—		$	—		$	8,576		$	8,576		$	—		$	—
Level 1:
Money market funds		15,510			—			—			15,510			15,510			—			—
Subtotal		15,510			—			—			15,510			15,510			—			—
Level 2:
Asset-backed securities		4,466			—			(1		)	4,465			—			—			4,465
Corporate bonds		37,085			3			(34		)	37,054			—			19,412			17,642
Commercial paper		19,980			1			(2		)	19,979			2,799			17,180			—
Subtotal		61,531			4			(37		)	61,498			2,799			36,592			22,107
Total		$	85,617		$	4		$	(37	)	$	85,584		$	26,885		$	36,592		$	22,107

 

As of March 31, 2014, the Company considers the declines in market value of its investment portfolio to be temporary in nature and does not consider any of its investments other-than-temporarily impaired. The Company typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade, with the primary objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. The maturities of the Company’s long-term investments generally range from one to two years.  When evaluating an investment for other-than-temporary impairment the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, changes in market interest rates, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell the investment before recovery of the investment’s cost basis. During the three months ended March 31, 2014, the Company did not recognize any significant impairment charges.

 

Fair Value of Other Financial Instruments

 

The carrying amounts reported in the accompanying consolidated financial statements for cash and cash equivalents, accounts payable and accrued liabilities approximate their fair value because of the short term nature of the accounts. The fair value of the notes payable approximates its carrying value based on the variable nature of interest rates and current market rates available to the Company (see Note 4).  As a result, the balance of the notes payable are categorized within the Level 2 fair value hierarchy.