FAIR VALUE MEASUREMENTS

3 Months Ended

Jun. 30, 2020

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 at June 30, 2020 and March 31, 2020 (in thousands):


	Fair Value Measurements at
	June 30, 2020
	Level 1		Level 2		Level 3		Total
ASSETS:
Cash and cash equivalents	$	403,306	$	—	$	—	$	403,306
U.S. government and municipal obligations	10,640		—		—		10,640
Commercial paper	—		10,626		—		10,626
Corporate bonds	1,936		—		—		1,936

Derivative financial instruments	—		21		—		21


	$	415,882	$	10,647	$	—	$	426,529
LIABILITIES:
Contingent purchase consideration	$	—	$	—	$	(748)	$	(748)

Derivative financial instruments	—		(20)		—		(20)
	$	—	$	(20)	$	(748)	$	(768)


	Fair Value Measurements at
	March 31, 2020
	Level 1		Level 2		Level 3		Total
ASSETS:
Cash and cash equivalents	$	338,489	$	—	$	—	$	338,489
U.S. government and municipal obligations	31,341		—		—		31,341
Commercial paper	—		14,644		—		14,644
Corporate bonds	4,597		—		—		4,597



	$	374,427	$	14,644	$	—	$	389,071
LIABILITIES:
Contingent purchase consideration	$	—	$	—	$	(1,748)	$	(1,748)

Derivative financial instruments	$	—	$	(49)	$	—	$	(49)
	$	—	$	(49)	$	(1,748)	$	(1,797)

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 calculated using market observable data for similar but not identical instruments, or a discounted cash flow model using the contractual interest rate as compared to the underlying interest yield curve. The Company classifies municipal obligations as Level 2 because the fair values are determined using quoted prices from markets the Company considers to be inactive. Commercial paper is 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. 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.

The Company's Level 3 liabilities consists of contingent purchase considerations.

The Company had a contingent liability at June 30, 2020 and March 31, 2020 for $0.7 million related to the acquisition of Gigavation Incorporated (Gigavation) in February 2020. The contingent purchase consideration represents amounts deposited into an escrow account which was established to cover damages NetScout may suffer related to any liabilities that NetScout did not agree to assume or as a result of the breach of representations and warranties of the seller as described in the acquisition agreement. The $0.7 million of contingent purchase consideration was included in accrued other in the Company’s consolidated balance sheet at June 30, 2020 and March 31, 2020. Except to the extent that valid indemnification claims are made prior to such time, the $0.7 million will be paid to the seller in February 2021.

The Company had a contingent liability at March 31, 2020 related to the acquisition of Eastwind Networks, Inc. (Eastwind) in April 2019. The contingent purchase consideration represented amounts deposited into an escrow account which was established to cover damages NetScout may have suffered related to any liabilities that NetScout did not agree to assume or as a result of the breach of representations and warranties of the seller as described in the acquisition agreement. The contingent purchase consideration of $1.0 million was included as accrued other in the Company's consolidated balance sheet at March 31, 2020. The contingent purchase consideration of $1.0 million was paid to the seller in April 2020.

The following table sets forth a reconciliation of changes in the fair value of the Company's Level 3 financial liabilities for the three months ended June 30, 2020 (in thousands):


	Contingent Purchase Consideration
Balance at March 31, 2020	$	(1,748)




Payments made	1,000



Balance at June 30, 2020	$	(748)

- 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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