FAIR VALUE MEASUREMENTS

We apply the provisions of FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines fair value and provides guidance for measuring fair value and expands disclosures about fair value measurements. ASC 820 seeks to enable the reader of financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:


•	Level 1 – Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.


•	Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:


◦	quoted prices for similar assets and liabilities in active markets


◦	quoted prices for identical or similar assets or liabilities in markets that are not active


◦	observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals)


◦	inputs that are derived principally from or corroborated by observable market data by correlation or other means


•	Level 3 – Unobservable inputs for the assets or liability (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

The following table sets forth by level, within the fair value hierarchy, our assets (liabilities) carried at fair value as of March 31, 2015:



(in thousands)	Level 1		Level 2			Level 3			Total
Contingent consideration	$	—	$	—		$	(9,218	)	$	(9,218	)
Interest rate derivative instruments	—		530			—			530
Foreign currency exchange contracts	—		(20,039		)	—			(20,039		)
Total	$	—	$	(19,509	)	$	(9,218	)	$	(28,727	)

The following table sets forth by level, within the fair value hierarchy, our assets (liabilities) carried at fair value as of June 30, 2014:



(in thousands)	Level 1		Level 2		Level 3			Total
Contingent consideration	$	—	$	—	$	(5,152	)	$	(5,152	)
Interest rate derivative instruments	—		580		—			580
Foreign currency exchange contracts	—		6,463		—			6,463
Total	$	—	$	7,043	$	(5,152	)	$	1,891

Level 1 Estimates

Cash equivalents are measured at quoted prices in active markets. These investments are considered cash equivalents due to the short maturity (less than 90 days) of the investments.

Marketable securities are held in foreign government treasury certificates that are actively traded and have original maturities over 90 days but less than one year. As of March 31, 2015, we did not hold any marketable securities. As of June 30, 2014, we held marketable securities with a carrying value of $95.6 million. Our marketable securities are classified as held-to-maturity based on our intent and ability to hold the securities to maturity and are recorded at amortized cost, which is not materially different than fair value. Interest and dividends related to these securities are reported as a component of interest income in our consolidated statements of income.

Level 2 Estimates

Interest rate derivative instruments are measured at fair value using a market approach valuation technique. The valuation is based on an estimate of net present value of the expected cash flows using relevant mid-market observable data inputs and based on the assumption of no unusual market conditions or forced liquidation.

Foreign currency exchange contracts are measured at fair value using a market approach valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by leading third-party financial news and data providers. This is observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2.

Level 3 Estimates

Contingent consideration liabilities are re-measured to fair value each reporting period using projected financial targets, discount rates, probabilities of payment and projected payment dates. Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model. Projected financial targets are based on our most recent internal operational budgets and may take into consideration of alternate scenarios that could result in more or less profitability for the respective service line. Increases or decreases in projected financial targets and probabilities of payment may result in significant changes in the fair value measurements. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs in isolation may result in a significantly lower or higher fair value measurement.

We acquired HERON Group LTD (“HERON”) in April 2013. The $22.8 million purchase price included the potential for us to pay up to an additional $14.2 million over the twenty-six month period following the acquisition date if HERON achieves specific financial targets. We determined the fair value of the contingent consideration at the date of the acquisition to be $5.9 million. Contingent consideration related to the HERON acquisition is measured at fair value using an income approach valuation technique. For the three months ended March 31, 2015, we determined that it is remote that HERON would achieve the specific financial targets associated with the contingent consideration.

As described in Note 2 above, the purchase price for the ClinIntel acquisition was approximately $8.8 million, plus the potential to pay up to an additional $16.2 million over a twenty-one month period following the acquisition date if ClinIntel achieves specific financial targets. The contingent consideration related to the ClinIntel acquisition is measured at fair value using an income approach valuation technique, specifically with probability weighted and discounted cash flows. Increases or decreases in the fair value of our contingent consideration liability is primarily impacted by the likelihood of achieving financial targets, but also from changes in discount periods and rates.

The recurring Level 3 fair value measurements of our contingent consideration liability include the following significant unobservable inputs:



		ClinIntel
Unobservable Input		Range
Discount rate		4%
Probability of achieving financial targets		12.5% to 75%
Projected period of payment		August 2016

The following table provides a summary of the change in our valuation of the fair value of the contingent consideration, which was determined by Level 3 inputs:



(in thousands)	Fair Value
Balance at June 30, 2014	$	5,152
Additions of contingent consideration due to acquisitions	9,882
Change in fair value of contingent consideration	(4,964		)
Effect of changes in exchange rates used for translation	(852		)
Balance at March 31, 2015	$	9,218

For the three and nine months ended March 31, 2015, the change in fair value of contingent consideration of $2.0 million and $5.0 million was recorded in selling, general and administrative expense, respectively.

For the nine months ended March 31, 2015, there were no transfers among Level 1, Level 2, or Level 3 categories. Additionally, there were no changes in the valuation techniques used to determine the fair values of our Level 2 or Level 3 assets or liabilities.

The fair value of the debt under the Notes was estimated to be $98.0 million as of March 31, 2015, and was determined using U.S. government treasury rates and Level 3 inputs, including a credit risk adjustment.

The carrying value of our current and long-term debt under the 2014 Credit Agreement approximates fair value because all of the debt bears variable rate interest.