Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) 92 Restri t cted t Cash As of December 31, 2023, and 2022, the Company had $6.3 million of long-term restricted cash deposited with financial institut t ions. The entire amount is held in separate bank accounts to suppor u t letter of credit agreements related to the Company’s U.S. corporate offi f ces. Derivatives and Hedging i Derivative instruments that do not qualify f for hedge accounting are recognized on the consolidated balance sheet at fair value, with changes in the fair value recognized on the consolidated statement of operations and comprehensive loss as a component of other income (expense), net. The cash flows associated with these derivatives are reflected as cash flows from investing activities in the consolidated statement of cash flows. Fair Value of Fina i ncial Instru t mentst Accounting Standards Codification (“ASC”) 820, Fair Value Measurement, establ a ishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observabl a e inputs) and the Company's own assumptions (unobservabl a e inputs). Observable inputs are inputs that market participants would use in pricing the asset or liabi a lity based on market data obtained from sources independent of the Company. Unobservabl a e inputs are inputs that reflect the Company's assumptions about the inputs that market participants would use in pricing the asset or liabi a lity and are developed based on the best information availabl a e in the circumstances. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer f a liabi a lity in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establ a ishes a three-tier fair value hierarchy that distinguishes between the following: Level 1—Observabl a e inputs, such as quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2—Observabl a e inputs other than Level 1 prices such as quoted prices for similar assets or liabi a lities, quoted prices in markets that are not active, or other inputs that are observabl a e or can be corroborated by observabl a e market data for subs u tantially the full term of the assets or liabilities. Level 3—Unobservabl a e inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liabi a lity at the measurement date. Consideration is given to the risk inherent in the valuation technique and inputs to the model. To the extent that the valuation is based on models or inputs that are less observabl a e or unobservabl a e in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying amounts of the Company’s financial instruments consisting of cash and cash equivalents, prepaid expenses and other current assets, accounts payabl a e and accrue r d liabi a lities and other current liabilities, approximate fair value due to their relatively short maturities. Leases The Company determines if an arrangement is, or contains, a lease at inception and then classifies the lease as operating or financing based on the underlying terms and conditions of the contract. Leases with terms greater than one year are initially recognized on the consolidated balance sheet as right-of-use assets and lease liabi a lities based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the incremental borrowing rate, which is the rate incurred to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term and in a similar economic environment of the applicable country or region. Variable lease payments are excluded from the right of use assets and operating lease liabilities and are recognized in the period in which the obligation for those payments is incurred.