Fair Value of Financial Instruments

9 Months Ended

Jun. 30, 2012

Fair Value of Financial Instruments

Fair Value of Financial Instruments

Note 5 — Fair Value of Financial Instruments

We carry financial instruments, including cash equivalents, accounts receivable, accounts payable and accrued liabilities at cost, which we believe approximates fair value because of the short-term maturity of these instruments. Receivables consist primarily of amounts due from U.S. and foreign governments for defense products and local government agencies for transportation systems.  Due to the nature of our customers, we generally do not require collateral.  We have limited exposure to credit risk as we have historically collected substantially all of our receivables from government agencies.

The valuation techniques required for fair value accounting are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. The two types of inputs create the following fair value hierarchy:

·Level 1 - Quoted prices for identical instruments in active markets.

·Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

·Level 3 - Significant inputs to the valuation model are unobservable.

The following table presents assets and liabilities measured and recorded at fair value on our Condensed Consolidated Balance Sheets on a recurring basis (in thousands). The fair value of cash equivalents and short term investments approximates their cost. The fair value of tax exempt bonds are generally determined using standard observable inputs, including reported trades, quoted market prices, broker/dealer quotes, and issuer spreads. The maturities of tax exempt bonds are within the next year. Derivative financial instruments related to foreign currency forward contracts are measured at fair value, the material portions of which are based on active or inactive markets for identical or similar instruments or model-derived valuations whose inputs are observable. Where model-derived valuations are appropriate, the company uses the applicable credit spread as the discount rate. Credit risk related to derivative financial instruments is considered minimal and is managed by requiring high credit standards for counterparties and through periodic settlements of positions.

		June 30, 2012
		Level 1				Level 2				Total
Assets
Cash equivalents		$		173,451		$		—		$		173,451
Current derivative assets		—				648				648
Non-current derivative assets		—				4,471				4,471
Total assets measured at fair value		$		173,451		$		5,119		$		178,570
Liabilities
Current derivative liabilities		$		—		$		3,071		$		3,071
Non-current derivative liabilities		—				7,010				7,010
Total liabilities measured at fair value		$		—		$		10,081		$		10,081
	September 30, 2011
	Level 1				Level 2				Total
Assets
Cash equivalents	$		266,842		$		—		$		266,842
Short-term investments - U.S. government agency securities	—				25,829				25,829
Current derivative assets	—				7,466				7,466
Total assets measured at fair value	$		266,842		$		33,295		$		300,137
Liabilities
Current derivative liabilities	$		—		$		7,522		$		7,522
Non-current derivative liabilities	—				6,164				6,164
Total liabilities measured at fair value	$		—		$		13,686		$		13,686

Long-term debt is carried at amortized cost. The fair value of long-term debt is estimated by discounting the value of the note based on market interest rates for similar debt instruments, which is a Level 2 valuation technique. At June 30, 2012, the fair value of our long-term debt was estimated to be approximately $12.5 million compared to a carrying value of $11.5 million.  At September 30, 2011, the fair value of our long-term debt was estimated to be approximately $17.5 million compared to a carrying value of $15.9 million.