Marketable Securities and Fair Value Measurements

6 Months Ended

Sep. 30, 2014

Marketable Securities and Fair Value Measurements

Note 4. Marketable Securities and Fair Value Measurements

Marketable Securities

The Company’s marketable securities are classified as available-for-sale securities and, accordingly, are recorded at fair value. The difference between amortized cost and fair value is included in stockholders’ equity.

The Company’s marketable securities at September 30, 2014 and March 31, 2014 are invested in the following:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	(in $000’s)
At September 30, 2014:
US Treasury securities	$	19,487	$	—	$	—		$	19,487
Short-term government-backed securities		58,480		17		(3	)		58,494
Long-term government-backed securities		16,498		3		(28	)		16,473
	$	94,465	$	20	$	(31	)	$	94,454
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	(in $000’s)
At March 31, 2014:
US Treasury securities	$	31,487	$	—	$	—		$	31,487
Short-term government-backed securities		24,174		6		(4	)		24,176
Long-term government-backed securities		41,779		8		(26	)		41,761
	$	97,440	$	14	$	(30	)	$	97,424

Fair Value Hierarchy

Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

Level 1 primarily consists of financial instruments whose values are based on quoted market prices such as exchange-traded instruments and listed equities.

Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including time value, yield curve, volatility factors, prepayment speeds, default rates, loss severity, current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 is comprised of unobservable inputs that are supported by little or no market activity. Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flows, or similar techniques, and at least one significant model assumption or input is unobservable.

The following table presents the Company’s financial instruments recorded at fair value in the consolidated balance sheet, classified according to the three categories described above:

	Level 1		Level 2		Level 3		Fair Value
	(in $000’s)
At September 30, 2014:
Assets
U.S. Treasury securities	$	—	$	19,487	$	—	$	19,487
Short-term government-backed securities		—		58,494		—		58,494
Long-term government-backed securities		—		16,473		—		16,473
Liabilities
Contingent consideration		—		—		5,797		5,797
	Level 1		Level 2		Level 3		Fair Value
	(in $000’s)
At March 31, 2014:
U.S. Treasury securities	$	—	$	31,487	$	—	$	31,487
Short-term government-backed securities		—		24,176		—		24,176
Long-term government-backed securities		—		41,761		—		41,761

The Company has determined that the estimated fair value of its investments in U.S. Treasury securities, short-term government-backed securities and long-term government-backed securities are reported as Level 2 as they are not exchange-traded instruments.

The Company’s financial liabilities consisted of contingent consideration potentially payable to former ECP shareholders related to the acquisition of ECP in July 2014. This liability is reported as Level 3 as estimated fair value of the contingent consideration related to the acquisition of the ECP requires significant management judgment or estimation and is calculated using the income approach, using various revenue and cost assumptions and applying a probability to each outcome.

The following table summarizes the change in fair value, as determined by Level 3 inputs, of the contingent consideration for the six months ended September 30, 2014:

	September 30,
	2014
	(in $000’s)
Beginning balance	$	—
Additions		6,000
Payments		—
Change in fair value		219
Foreign currency translation impact		(422	)
Ending balance	$	5,797

The change in fair value of the contingent consideration of $0.2 million for the six months ended September 30, 2014 was primarily due to an increase in fair value due to the effect of the passage of time on the fair value measurement and the impact of foreign currency exchange rates. Adjustments associated with the change in fair value of contingent consideration are included in research and development expenses on the Company’s condensed consolidated statements of operations.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements classified in Level 3 as of September 30, 2014:

	Fair Value at September 30, 2014 ( in $000’s)			Significant Unobservable Input	Weighted Average (range, if applicable)
Contingent consideration	$	5,797	Probability weighted income approach	Milestone dates	2018 to 2021
				Discount rate Probability of occurrence	8% to 12% 0% to 100%

Other Investment

In May 2013, the Company invested $0.8 million in preferred stock of a private technology company. In addition, the Company committed to invest an additional $0.7 million if the private technology company achieves certain milestones or receives shareholder approval requesting the additional funding. In September 2014, the private technology company requested this additional funding and the Company paid the additional $0.7 million. There are no additional outstanding funding commitments associated with this investment.

This other investment is accounted for using the cost method and is measured at fair value on a nonrecurring basis only if there are identified events or change in circumstances that may have a significant adverse effect on the fair value of these investments. The aggregate carrying amount of this other investment was $1.5 million and $0.8 million at September 30, 2014 and March 31, 2014, respectively, and is classified within other assets in the unaudited condensed consolidated balance sheets.