Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

NOTE 16 — FAIR VALUE MEASUREMENTS

We perform fair value measurements in accordance with FASB's guidance on Fair Value Measurements and Disclosures. This standard defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements, but rather applies under other accounting pronouncements that require or permit fair value measurements. The standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:

• Level 1: Observable inputs such as quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

• Level 3: Unobservable inputs that reflect the reporting entity's own assumptions when there is little or no market data.

We measure our financial assets and liabilities at fair value on a recurring basis using the following valuation techniques:

(a) Market Approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

(b) Income Approach – uses valuation techniques to convert future estimated cash flows to a single present amount based on current market expectations about those future amounts, using present value techniques.

The following table represents our fair value hierarchy and the valuation techniques used for financial assets and financial liabilities measured at fair value on a recurring basis (in thousands):

	March 31, 2012
	Total		Level 1		Level 2		Level 3		Valuation Techniques
Assets:
Money market funds	$	104,249	$	104,249	$	—	$	—		(a	)
U.S. treasury securities		9,496		9,496		—		—		(a	)
U.S. agency securities		3,532		3,532		—		—		(a	)
Corporate notes/bonds		47,612		—		47,612		—		(a	)
Certificates/term deposits		3,042		—		3,042		—		(a	)
Derivative assets (1)		1,392		—		1,392		—		(a	)
Total	$	169,323	$	117,277	$	52,046	$	—
Liabilities:
Derivative liabilities (1)	$	236	$	—	$	236	$	—		(a	)
Contingent consideration		2,755		—		—		2,755		(b	)
Total	$	2,991	$	—	$	236	$	2,755

	December 31, 2011
	Total		Level 1		Level 2		Level 3		Valuation Techniques
Assets:
Money market funds	$	65,811	$	65,811	$	—	$	—		(a	)
U.S. treasury securities		6,921		3,499		3,422		—		(a	)
U.S. agency securities		5,551		3,545		2,006		—		(a	)
Corporate notes/bonds		47,528		—		47,528		—		(a	)
Certificates/term deposits		2,922		—		2,922		—		(a	)
Derivative assets (1)		2,863		—		2,863		—		(a	)
Total	$	131,596	$	72,855	$	58,741	$	—
Liabilities:
Derivative liabilities (1)	$	300	$	—	$	300	$	—		(a	)
Contingent consideration		3,782		—		—		3,782		(b	)
Total	$	4,082	$	—	$	300	$	3,782

(1) See Note 15 – Derivative Instruments for details.

We classify our investments in U.S. Treasury and U.S. Agency securities using a market approach based on the quoted market prices of identical or similar instruments. A determination of the fair value classification of U.S. Treasury and U.S. Agency securities will be made on a case by case basis based on recent buy or sell activity. As of March 31, 2012, the fair values of our U.S. Treasury and U.S. Agency securities are based on unadjusted market prices in active markets and are classified as Level 1 of the fair value hierarchy.

We determine the amount of transfers between Levels 1 and 2 or transfers into or out of Level 3 by using the end-of-period fair value. We had no transfers among the fair value hierarchy during the three months ended March 31, 2012.

The following table presents our liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2012 and 2011 (in thousands)

	Three Months Ended March 31
	2012			2011
Total, beginning of the period	$	3,782		$	8,515
Contingent consideration		—			3,300
Change in fair value of contingent consideration		(27	)		—
Payment of contingent consideration		(1,000	)		(2,088	)
Total, end of the period	$	2,755		$	9,727

 

We enter into earn-out agreements with the shareholders of certain companies we acquire. The earn-out contingent payments are typically determined based on achieving certain sales or revenue targets over a specified period after the acquisition date. This also includes contingent consideration relating to our purchase of intellectual property whereby the former owner has the opportunity to earn an additional amount contingent upon achievement of certain technology milestones. The fair value of the contingent consideration was determined using the income approach based on our expectations of achieving the sales and revenue targets and technology milestones which are significant inputs that are not observable in the market and thus represents Level 3 inputs under the fair value hierarchy. A key assumption used in determining the contingent payment obligation for those earn out contingencies tied to sales or revenue targets is a discount rate consistent with our estimated pre-tax cost of debt. We do not expect that a change in the discount rate will result in a significantly higher or lower fair value measurement.

Other Financial Assets and Liabilities

The carrying amounts of our other financial assets and liabilities including accounts receivable, accounts payable and accrued liabilities approximate their respective fair values because of the relatively short period of time between their origination and their expected realization.

The book value and fair value of our current and long-term portion of loans payable as of March 31, 2012 are as follows (in thousands):

	Book Value		Fair Value (1)
Current portion of loans payable	$	71,614	$	71,614
Long-term portion of loans payable		32,528		32,528
	$	104,142	$	104,142

(1) Estimated fair value of long-term debt is measured using the income approach. This fair value measurement is based on similar grade US Treasury security re-priced at March 31, 2012 plus contractual spread and thus represents Level 2 inputs under the fair value hierarchy.