NOTE 6—FINANCIAL INSTRUMENTS

Fair value measurements

Authoritative accounting guidance for fair value measurements provides a framework for measuring fair value and related disclosures. The guidance applies to all financial assets and financial liabilities that are measured on a recurring basis. The guidance requires fair value measurement to be classified and disclosed in one of the following three categories:

Level 1: Valuations based on quoted prices in active markets for identical assets and liabilities. The fair value of available-for-sale securities included in the Level 1 category is based on quoted prices that are readily and regularly available in an active market. As of June 30, 2017, the Level 1 category included money market funds of $3.7 million, which were included in cash and cash equivalents on the Condensed Consolidated Balance Sheets.

Level 2: Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly. The fair value of available-for-sale securities included in the Level 2 category is based on the market values obtained from an independent pricing service that were evaluated using pricing models that vary by asset class and may incorporate available trade, bid and other market information and price quotes from well-established independent pricing vendors and broker-dealers. As of June 30, 2017, the Level 2 category included short-term investments $17.2 million and long-term investments of $14.1 million, which were comprised of certificates of deposit, corporate debt securities and government and agency securities.

Level 3: Valuations based on inputs that are unobservable and involve management judgment and the reporting entity’s own assumptions about market participants and pricing. As of June 30, 2017, the Company’s Level 3 financial instruments measured at fair value on the Condensed Consolidated Balance Sheets consisted of the contingent consideration liability related to the acquisition of MikaMonu.

The fair value of financial assets measured on a recurring basis is as follows (in thousands):


			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical Assets		Observable		Unobservable
			and Liabilities		Inputs		Inputs
	June 30, 2017		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	3,667	$	3,667	$	—	$	—
Marketable securities		31,316		—		31,316		—
Total	$	34,983	$	3,667	$	31,316	$	—


			Fair Value Measurements at Reporting Date Using
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical Assets		Observable		Unobservable
			and Liabilities		Inputs		Inputs
	March 31, 2017		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds	$	6,293	$	6,293	$	—	$	—
Marketable securities		29,097		—		29,097		—
Total	$	35,390	$	6,293	$	29,097	$	—

Short-term and long-term investments

All of the Company’s short-term and long-term investments are classified as available-for-sale. Available-for-sale debt securities with maturities greater than twelve months are classified as long-term investments when they are not intended for use in current operations. Investments in available-for-sale securities are reported at fair value with unrecognized gains (losses), net of tax, as a component of accumulated other comprehensive income (loss) in the Condensed Consolidated Balance Sheets. The Company had money market funds of $3.7 million and $6.3 million at June 30, 2017 and March 31, 2017, respectively, included in cash and cash equivalents on the Condensed Consolidated Balance Sheets. The Company monitors its investments for impairment periodically and records appropriate reductions in carrying values when declines are determined to be other-than-temporary.

The following table summarizes the Company’s available-for-sale investments:


	June 30, 2017
			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Short-term investments:
Corporate notes	$	556	$	—	$	(1)	$	555
Certificates of deposit		10,000		2		(6)		9,996
Foreign government obligations		2,054		—		(4)		2,050
State and municipal obligations		1,617		—		—		1,617
Agency bonds		3,009		—		(7)		3,002
Total short-term investments	$	17,236	$	2	$	(18)	$	17,220
Long-term investments:
Certificates of deposit	$	9,750	$	2	$	(36)	$	9,716
Foreign government obligations		4,384		—		(4)		4,380
Total long-term investments	$	14,134	$	2	$	(40)	$	14,096


	March 31, 2017
			Gross		Gross
			Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(In thousands)
Short-term investments:
State and municipal obligations	$	1,632	$	1	$	—	$	1,633
Corporate notes		557		—		(2)		555
Agency bonds		3,012		—		(7)		3,005
Foreign government obligations		1,001		—		(1)		1,000
Certificates of deposit		10,000		9		(3)		10,006
Total short-term investments	$	16,202	$	10	$	(13)	$	16,199
Long-term investments:
Certificates of deposit	$	7,500	$	3	$	(39)	$	7,464
Foreign government obligations		5,442		—		(8)		5,434
Total long-term investments	$	12,942	$	3	$	(47)	$	12,898

The Company’s investment portfolio consists of both corporate and governmental securities that have a maximum maturity of three years. All unrealized gains and losses are due to changes in interest rates and bond yields. Subject to normal credit risks, the Company has the ability to realize the full value of all these investments upon maturity.

The deferred tax asset related to unrecognized gains and losses on short-term and long-term investments was $19,000 and $17,000 at June 30, 2017 and March 31, 2017, respectively.

As of June 30, 2017, contractual maturities of the Company’s available-for-sale investments were as follows:


			Fair
	Cost		Value
	(In thousands)
Maturing within one year	$	17,236	$	17,220
Maturing in one to three years		14,134		14,096
	$	31,370	$	31,316

The Company classifies its short-term investments as “available-for-sale” as they are intended to be available for use in current operations.