4. Fair Value Measurements and Marketable Securities

Fair Value Measurements

Fair value is defined as the price that would be received on sale of an asset or paid to transfer a liability (“exit price”) in an orderly transaction between market participants at the measurement date. The FASB has established a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The three levels of the fair value hierarchy under the guidance for fair value measurement are described below:

Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities. Pricing inputs are based upon quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. The valuations are based on quoted prices of the underlying security that are readily and regularly available in an active market, and accordingly, a significant degree of judgment is not required. As of June 30, 2014 and 2013, the Company used Level 1 assumptions for its money market funds.

Level 2 — Pricing inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. As of June 30, 2014 and 2013, the Company used Level 2 assumptions for its U.S. municipal securities, certificates of deposit, acquisition-related promissory notes, term loan, and interest rate swap.

Level 3 — Pricing inputs are generally unobservable for the assets or liabilities and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require management’s judgment or estimation of assumptions that market participants would use in pricing the assets or liabilities. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. As of June 30, 2014 and 2013, the Company did not have any Level 3 financial assets or liabilities.

The Company’s financial assets and liabilities as of June 30, 2014 and 2013 were categorized as follows in the fair value hierarchy (in thousands):


	Fair Value Measurements as of June 30, 2014 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Assets:
U.S. municipal securities	$	—	$	12,816	$	12,816
Certificates of deposit		—		26,293		26,293
Money market funds		38,641		—		38,641

	$	38,641	$	39,109	$	77,750

Liabilities:
Acquisition-related promissory notes ⁽¹⁾	$	—	$	603	$	603
Term loan ⁽¹⁾		—		76,660		76,660
Interest rate swap		—		630		630

	$	—	$	77,893	$	77,893


	Fair Value Measurements as of June 30, 2013 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Assets:
U.S. municipal securities	$	—	$	25,544	$	25,544
Certificates of deposit		—		16,923		16,923
Money market funds		38,465		—		38,465

	$	38,465	$	42,467	$	80,932

Liabilities:
Acquisition-related promissory notes ⁽¹⁾	$	—	$	3,875	$	3,875
Term loan ⁽¹⁾		—		88,802		88,802
Interest rate swap		—		655		655

	$	—	$	93,332	$	93,332

(1)	These liabilities are carried at historical cost on the Company’s consolidated balance sheet.

Marketable Securities

All liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Investments with maturities greater than three months at the date of purchase are classified as marketable securities. The Company’s marketable securities have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the available-for-sale designation as of each balance sheet date. Available-for-sale securities are carried at fair value, with unrealized gains and losses, net of tax, reported in accumulated comprehensive loss as a component of stockholders’ equity. These available-for-sale securities are presented as current assets as they are available for current operations.

The following table summarizes unrealized gains and losses related to available-for-sale securities held by the Company as of June 30, 2014 and 2013 (in thousands):


	As of June 30 2014
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. municipal securities	$	12,812	$	4	$	—	$	12,816
Certificates of deposit		26,330		—		37		26,293
Money market funds		38,641		—		—		38,641

	$	77,783	$	4	$	37	$	77,750


	As of June 30, 2013
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. municipal securities	$	25,538	$	6	$	—	$	25,544
Certificates of deposit		16,945		—		22		16,923
Money market funds		38,465		—		—		38,465

	$	80,948	$	6	$	22	$	80,932