[2] Fair Value Measurements

The Company measures certain financial instruments, including cash and cash equivalents, such as money market funds, at their fair values. The fair values were determined based on a three-tier valuation hierarchy for disclosure of significant inputs. These hierarchical tiers are defined as follows:

Level 1 — inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — inputs are other than quoted prices in active markets that are either directly or indirectly observable through market corroboration.

Level 3 — inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions based on the best information available in the circumstances.

The carrying amount of cash and cash equivalents approximates fair value due to the short-term nature of these items. The carrying values of receivables, payables, other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, are estimated to approximate fair value. The fair value of receivables subject to pending litigation or dispute resolution proceedings is determined based upon the length of time that these matters take to be resolved and, as a result, the fair value can be greater than or less than the recorded book value depending on the facts and circumstances of each matter. Of the Company’s long-term debt, the fair values of the fixed rate senior unsecured notes as of December 31, 2014 and 2013 were $310.3 million and $321.0 million, respectively, compared to the carrying values of $298.8 million and $298.5 million, respectively. The fair value of the senior unsecured notes was estimated using Level 1 inputs based on market quotations including broker quotes or interest rates for the same or similar financial instruments at December 31, 2014 and 2013. For other fixed rate debt, fair value is determined using Level 3 inputs based on discounted cash flows for the debt at the Company’s current incremental borrowing rate for similar types of debt. The estimated fair values of other fixed rate debt at December 31, 2014 and 2013 were $164.3 million and $150.0 million, respectively, compared to the carrying amounts of $162.3 million and $151.4 million, respectively. The fair value of variable rate debt, which includes the Term Loan, approximated its carrying value of $404.3 million and $283.9 million at December 31, 2014 and 2013, respectively. See Note 4 — Financial Commitments for a discussion of the Term Loan.

The following is a summary of financial statement items carried at estimated fair value measured on a recurring basis as of the dates presented:



			Fair Value Measurements Using
						Significant
				Quoted prices		other		Significant
		Total		in active		observable		unobservable
		Carrying		markets		inputs		inputs
At December 31, 2014		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Cash and cash equivalents (1)	$	135,583	$	135,583	$	—	$	—
Restricted cash (1)		44,370		44,370		—		—
Short-term investments (2)		—		—		—		—
Investments in lieu of retainage (3)		33,224		25,761		7,463		—
Total	$	213,177	$	205,714	$	7,463	$	—

Liabilities:
Interest rate swap contract (5)	$	381	$	—	$	381	$	—
Contingent consideration (6)		24,814		—		—		24,814
	$	25,195	$	—	$	381	$	24,814



			Fair Value Measurements Using
						Significant
				Quoted prices		other		Significant
		Total		in active		observable		unobservable
		Carrying		markets		inputs		inputs
At December 31, 2013		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Cash and cash equivalents (1)	$	119,923	$	119,923	$	—	$	—
Restricted cash (1)		42,594		42,594		—		—
Short-term investments (2)		2,336		—		2,336		—
Investments in lieu of retainage (3)		21,913		12,184		9,729		—
Long-term investments - auction rate securities (4)		46,283		—		—		46,283
Total	$	233,049	$	174,701	$	12,065	$	46,283

Liabilities:
Interest rate swap contract (5)	$	974	$	—	$	974	$	—
Contingent consideration (6)		46,022		—		—		46,022
	$	46,996	$	—	$	974	$	46,022

______________

(1)

Cash, cash equivalents and restricted cash primarily consist of money market funds with original maturity dates of three months or less, for which fair value is determined through quoted market prices.

(2)

Short-term investments are classified as other current assets and are comprised of U.S. Treasury Notes and municipal bonds. The majority of the municipal bonds are rated Aa2 or better. The fair values of the municipal bonds are obtained from readily- available pricing sources for comparable instruments, and as such, the Company has classified these assets as Level 2.

(3)

Investments in lieu of retainage are classified as accounts receivable, including retainage and are comprised of money market funds, U.S. Treasury Notes and other municipal bonds, the majority of which are rated Aa3 or better. The fair values of the U.S. Treasury Notes and municipal bonds are obtained from readily-available pricing sources for comparable instruments, and as such, the Company has classified these assets as Level 2.

(4)

At 2013 the Company had $46.3 million invested in ARS which the Company considered as available-for-sale long-term investments. The long-term investments ARS held by the Company at 2013 were in securities collateralized by student loan portfolios. At 2013, most of the Company’s ARS were rated AA+ and AA+, respectively. The Company estimated the fair value of its ARS utilizing an income approach valuation model which considered, among other items, the following inputs: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions (discount rates range from 3% to 7%); (iii) consideration of the probabilities of default or repurchase at par for each period (term periods range from 6 to 8 years); (iv) prices from recent comparable transactions; and (v) other third party pricing information without adjustment.

(5)

As discussed in Note 4 — Financial Commitments, the Company entered into a swap agreement with Bank of America, N.A. to establish a long-term interest rate for its $200 million five-year term loan which extends to its replacement $250 million five-year term loan. The swap agreement became effective for the term loan principal balance outstanding at January 31, 2012 and will remain effective through June, 2016. The Company values the interest rate swap liability utilizing a discounted cash flow model that takes into consideration forward interest rates observable in the market and the counterparty’s credit risk. This liability is classified as a component of other long-term liabilities.

(6)

The liabilities listed as of December 31, 2014 and 2013 above represent the contingent consideration for the Company’s acquisitions in 2011 for which the measurement periods for purchase price analyses for the acquisitions have concluded.

The Company did not have any transfers between Levels 1 and 2 of financial assets or liabilities that are fair valued on a recurring basis during the years ended December 31, 2014 and 2013.

The following is a summary of changes in Level 3 assets measured at fair value on a recurring basis during 2014 and 2013:



	Auction Rate
	Securities
	(in thousands)
Balance at December 31, 2013	$	46,283
Purchases		—
Settlements		(44,497)
Realized loss included in other income (expense), net		(1,786)
Balance at December 31, 2014	$	—



	Auction Rate
	Securities
	(in thousands)
Balance at December 31, 2012	$	46,283
Purchases		—
Settlements		—
Balance at December 31, 2013	$	46,283

At December 31, 2013, the Company had $46.3 million invested in ARS classified as available-for-sale. All of the ARS were securities collateralized by student loan portfolios guaranteed by the United States government. At December 31, 2013, most of the Company’s ARS were rated AA+. On April 30, 2014, the Company sold all of its ARS for approximately $44.5 million, limiting our loss on investment to $1.8 million which properly reflected the Company’s investment policy of maintaining adequate liquidity and maximizing returns.

The Company had classified its ARS investment as long-term investments due to the uncertainty in the timing of future ARS calls and the absence of an active market for government-backed student loans. At the date of the balance sheet prior to the sale, the Company expected that it would take in excess of twelve months before the ARS could be refinanced or sold.

The following is a summary of changes in Level 3 liabilities measured at fair value on a recurring basis during 2014 and 2013:



	Contingent
	Consideration
	(in thousands)
Balance at December 31, 2013	$	46,022
Fair value adjustments included in other income (expense), net		5,592
Contingent consideration settled		(26,800)
Balance at December 31, 2014	$	24,814



	Contingent
	Consideration
	(in thousands)
Balance at December 31, 2012	$	42,624
Fair value adjustments included in other income (expense), net		26,374
Contingent consideration settled		(22,976)
Balance at December 31, 2013	$	46,022

The liabilities listed above represent the contingent consideration for former acquisitions for which the measurement periods for purchase price analyses for all the acquisitions have concluded.

The fair values of the contingent consideration were estimated based on an income approach which is based on the cash flows that the acquired entity is expected to generate in the future. This approach requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multi-year period, as well as determine the weighted-average cost of capital to be used as a discount rate (weighted-average cost of capital inputs have ranged from 14% - 18%).