(5) Fair Value Measurements

The Company measures certain financial instruments, including cash and cash equivalents, such as money market funds, at fair value. 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 value of receivables, payables and other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, is estimated to approximate fair value. Of the Company’s long-term debt, the fair values of the fixed rate senior unsecured notes as of June 30, 2014 and December 31, 2013 were $313.6 million and $321.0 million, respectively, compared to the carrying value of $298.6 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 June 30, 2014 and December 31, 2013. The carrying values of the remaining balance of the Company’s long-term debt of $530.6 million and $435.4 million at June 30, 2014 and December 31, 2013, respectively, were estimated to approximate their fair values.

The following is a summary of financial statement items carried at estimated fair values 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 June 30, 2014	Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Cash and cash equivalents (1)	$	139,858	$	139,858	$	—	$	—
Restricted cash (1)	42,627		42,627		—		—
Short-term investments (2)	2,617		––		2,617		—
Investments in lieu of retainage (3)	26,824		17,797		9,027		—
Total	$	211,926	$	200,282	$	11,644	$	—

Liabilities:
Interest rate swap contract (5)	$	835	$	—	$	835	$	—
Contingent consideration (6)	50,328		—		—		50,328
	$	51,163	$	—	$	835	$	50,328

			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 consist primarily 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 primarily of municipal bonds, the majority of which 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 account receivables, including retainage and are comprised of 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) On April 30, 2014, the Company sold its auction rate securities (“ARS”) for $44.5 million. At both March 31, 2014 and December 31, 2013 the Company had $46.3 million invested in these ARS which the Company considered as available-for-sale long-term investments. The long-term investments in ARS held by the Company at both March 31, 2014 and December 31, 2013 were in securities collateralized by student loan portfolios. At both March 31, 2014 and December 31, 2013, most of the Company’s ARS were rated AA+.

(5) As discussed in Note 10 — Financial Commitments, the Company entered into a swap agreement with Bank of America, N.A. to establish a long-term interest rate for its former $200 million five-year term loan. The swap agreement became effective for the term loan principal balance outstanding at January 31, 2012. This term loan was paid off and the then current amount refinanced on June 5, 2014, providing for a $250 million term loan maturing on June 5, 2019. The interest rate swap continues on its original basis for the initial term and amount and finalizes on June 30, 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 June 30, 2014 and December 31, 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 three and six months ended June 30, 2014 and 2013.

The following is a summary of changes in Level 3 assets measured at fair value on a recurring basis during the three and six months ended June 30, 2014 and 2013:

	Auction Rate
	Securities
	(in thousands)
Balance at December 31, 2013	$	46,283
Purchases	—
Settlements	—
Balance at March 31, 2014	$	46,283
Purchases	—
Settlements	(44,497		)
Realized loss included in other income (expense), net	(1,786		)
Reversal of pretax impairment charges included in accumulated other comprehensive income (loss)	—
Balance at June 30, 2014	$	—

	Auction Rate
	Securities
	(in thousands)
Balance at December 31, 2012	$	46,283
Purchases	—
Settlements	—
Balance at March 31, 2013	$	46,283
Purchases	—
Settlements	—
Balance at June 30, 2013	$	46,283

At both March 31, 2014 and December 31, 2013, the Company had $46.3 million invested in auction rate securities (“ARS”) classified as available-for-sale. All of the ARS were securities collateralized by student loan portfolios guaranteed by the United States government. At both March 31, 2014 and December 31, 2013, most of the Company’s ARS were rated AA+. On April 30, 2014, the Company sold all of its Auction Rate Securities for approximately $44.5 million, limiting our loss on investment to $1.8 million which properly reflected our 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 the three and six months ended June 30, 2014 and 2013:

	Contingent
	Consideration
	(in thousands)
Balance at December 31, 2013	$	46,022
Fair value adjustments included in other income (expense), net		3,404
Contingent consideration settled	(1,031		)
Balance at March 31, 2014	$	48,395
Fair value adjustments included in other income (expense), net		2,162
Contingent consideration settled		(229	)
Balance at June 30, 2014	$	50,328

	Contingent
	Consideration
	(in thousands)
Balance at December 31, 2012	$	42,624
Fair value adjustments included in other income (expense), net	1,380
Balance at March 31, 2013	$	44,004
Fair value adjustments included in other income (expense), net	3,914
Balance at June 30, 2013	$	47,918

The liabilities listed above represent the contingent consideration for the acquisitions in 2011 for which the measurement periods for purchase price analyses have concluded.

The fair values of the contingent consideration were estimated using an income approach 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%).