FAIR VALUE MEASUREMENTS

The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant non-observable inputs. The following tables present the Company’s financial assets and liabilities measured on a recurring basis using the fair value hierarchy as of March 31, 2014 and 2013 (in thousands). The Company has revised the level designation for certain prior year investments to correct an immaterial misstatement.



	Fair Value Measurements at
	March 31, 2014
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	82,079	$	19,997		$	—		$	102,076
U.S. government and municipal obligations	21,992		69,765			—			91,757
Commercial paper	—		14,581			—			14,581
Corporate bonds	10,380		—			—			10,380
Certificate of deposits	—		—			—			—
Derivative financial instruments	—		368			—			368
	$	114,451	$	104,711		$	—		$	219,162
LIABILITIES:
Contingent consideration	$	—	$	—		$	(4,291	)	$	(4,291	)
Contingent contractual non-compliance liability	—		—			(49		)	(49		)
Derivative financial instruments	—		(139		)	—			(139		)
	$	—	$	(139	)	$	(4,340	)	$	(4,479	)



	Fair Value Measurements at
	March 31, 2013
	Level 1		Level 2			Level 3			Total
ASSETS:
Cash and cash equivalents	$	99,930	$	—		$	—		$	99,930
U.S. government and municipal obligations	19,288		12,357			—			31,645
Commercial paper	—		12,390			—			12,390
Corporate bonds	5,166		—			—			5,166
Certificate of deposits	—		4,960			—			4,960
Derivative financial instruments	—		71			—			71
	$	124,384	$	29,778		$	—		$	154,162
LIABILITIES:
Contingent consideration	$	—	$	—		$	(5,087	)	$	(5,087	)
Contingent contractual non-compliance liability	—		—			(246		)	(246		)
Derivative financial instruments	—		(249		)	—			(249		)
	$	—	$	(249	)	$	(5,333	)	$	(5,582	)

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. On a recurring basis, the Company measures certain financial assets and liabilities at fair value, including marketable securities and derivative financial instruments.

The Company’s Level 1 investments are classified as such because they are valued using quoted market prices or alternative pricing sources with reasonable levels of price transparency.

The Company’s Level 2 investments are classified as such because fair value is being calculated using data from similar but not identical sources, or a discounted cash flow model using the contractual interest rate as compared to the underlying interest yield curve. The Company's derivative financial instruments consist of forward foreign exchange contracts and are classified as Level 2 because the fair values of these derivatives are determined using models based on market observable inputs, including spot prices for foreign currencies and credit derivatives, as well as an interest rate factor. Commercial paper and certificate of deposits are classified as Level 2 because the Company uses market information from similar but not identical instruments and discounted cash flow models based on interest rate yield curves to determine fair value. For further information on the Company's derivative instruments refer to Note 9.

The Company’s contingent purchase consideration and contingent contractual non-compliance liability at March 31, 2014 and 2013 were classified as Level 3 in the fair value hierarchy. They are valued by probability weighting expected payment scenarios and then applying a discount based on the present value of the future cash flow streams. The Company has elected to account for the contractual non-compliance liability at fair value. This election has been made as both contingent liabilities are related. The fair value election created parity between the two items during the settlement period. These liabilities are classified as Level 3 because the probability weighting of future payment scenarios is based on assumptions developed by management.

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial liabilities for the year ended March 31, 2014 (in thousands):



	Contingent Purchase Consideration			Contingent Contractual Non-compliance Liability
Balance at March 31, 2013	$	(5,087	)	$	(246	)
(Increase) / decrease in fair value and accretion expense (included within research and development expense)	(45		)	197
Payments	841			—
Balance at March 31, 2014	$	(4,291	)	$	(49	)

The Company has updated the probabilities used in the fair value calculation of the contingent liabilities at March 31, 2014 which reduced the liability by $303 thousand and is included as part of earnings for the fiscal year ended March 31, 2014. The fair value of the contingent purchase consideration was estimated by applying a probability based model, which utilizes significant inputs that are unobservable in the market. Key assumptions include a 3.3% discount rate, and a percent weighted-probability of the settlement of the contingent contractual non-compliance liability. Deal related compensation expense, accretion charges and changes related to settlements of contractual non-compliance liabilities for the fiscal year ended March 31, 2014 was $151 thousand and was included as part of earnings.

During the fiscal year ended March 31, 2014, $841 thousand related to the contingent purchase consideration as part of the acquisition of Simena was paid to the former owner.

The following table sets forth a reconciliation of changes in the fair value of the Company’s Level 3 financial assets for the year ended March 31, 2013 (in thousands):



	Auction Rate Securities			Contingent Purchase Consideration			Contingent Contractual Non-compliance Liability
Balance at March 31, 2012	$	1,461		$	(8,213	)	$	(700	)
(Increase) / decrease in fair value and accretion expense (included within research and development expense)	—			(912		)	184
ARSs redeemed by issuers at par	(1,650		)	—			—
Unrealized gains included in accumulated other comprehensive income	190			—			—
Unrealized gain (loss) included in earnings	(1		)	—			—
Payments	—			4,038			270
Balance at March 31, 2013	$	—		$	(5,087	)	$	(246	)

The Company had updated the probabilities used in the fair value calculation of the contingent liabilities at March 31, 2013 which resulted in an additional liability of $466 thousand included as part of earnings for the fiscal year ended March 31, 2013. The fair value of the contingent consideration was estimated by applying a probability based model, which utilizes significant inputs that are unobservable in the market. Key assumptions include a 3.3% discount rate, a stay period of two or three years and a percent weighted-probability of the settlement of the contingent contractual non-compliance liability. Deal related compensation expense, accretion charges and changes related to settlements of contractual non-compliance liabilities for the fiscal year ended March 31, 2013 was $263 thousand and was included as part of earnings.

During the fiscal year ended March 31, 2013, $4.0 million related to the contingent purchase consideration as part of the acquisition of Simena was paid to the former owner.

During the fiscal year ended March 31, 2013, the Level 3 liability related to the contractual non-compliance liability was paid and resulted in a $270 thousand decrease. All amounts were accurately reflected in purchase accounting and there was no impact to earnings in the post-acquisition period.