Fair Value Measurements

9 Months Ended

Jun. 30, 2015

(3)Fair Value Measurements

The Company estimates the fair value of assets and liabilities in accordance with the framework established by the authoritative guidance for fair value measurements. The framework is based on the inputs used in valuation, gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The level in the fair value hierarchy within which the fair value measurement is reported is based on the lowest level input that is significant to the measurement in its entirety. The three levels of the hierarchy are as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.

Level 2 – Inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

Level 3 – Unobservable inputs for the asset or liability used to measure fair value that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

Financial assets measured at fair value on a recurring basis are summarized below:



	Fair Value Measurements at June 30, 2015
(Dollars in Thousands)	Level 1		Level 2		Level 3
Asset Category
Cash equivalents	$	94	$	-	$	-
Mutual funds		3,672		-		-
Available-for-sale securities		-		1,899		-
Total financial assets at fair value	$	3,766	$	1,899	$	-

	Fair Value Measurements at September 30, 2014
(Dollars in Thousands)	Level 1		Level 2		Level 3
Asset Category
Cash equivalents	$	105	$	-	$	-
Mutual funds		3,629		-		-
Available-for-sale securities		-		2,382		-
Total financial assets at fair value	$	3,734	$	2,382	$	-

Following is a description of each category in the fair value hierarchy and the financial assets and liabilities of the Company that were included in each category at June 30, 2015 and September 30, 2014, measured on a recurring basis.

The Level 1 financial assets were comprised of investments in trading securities, which are reported in other long-term assets. The investments are held in a Rabbi trust for benefits under the Company’s deferred compensation plan. Under the plan, participants designate investment options to serve as the basis for measurement of the notional value of their accounts. The investments include a money market fund and mutual funds that are publicly traded. The fair values of the shares or underlying securities of these funds are based on quoted market prices.

The Level 2 financial assets are long-term investments consisting primarily of fixed income mutual funds, classified as available-for-sale securities. These are reported in other long-term assets. The investments in fixed income mutual funds are valued based on the net asset value of the underlying securities as provided by the investment account manager. The investments are not restricted or subject to a lockup and may be redeemed on demand. Notice within a certain period of time prior to redemption is not required.

The Company’s long-term debt is classified as Level 2. The carrying amount of the Company’s long-term debt approximated fair value as the stated interest rates were variable in relation to prevailing market rates.

The Company recorded a liability for contingent consideration during the second quarter of fiscal 2014 related to the acquisition of ilumark GmbH and the launch of its new medical products. The liability was recorded at fair value, which was determined using a discounted cash flow model based on assumptions and projections relevant to revenues. A discount rate of 11% was used and payments are projected to occur in fiscal 2016 and 2017. The fair value of the contingent consideration was $798 as of June 30, 2015 and is reported in other accrued expenses and other non-current liabilities at $137 and $661, respectively. The contingent consideration liability is classified as Level 3.

The Company had no material assets or liabilities that were measured at fair value on a non-recurring basis during the nine months ended June 30, 2015 or fiscal year ended September 30, 2014. There were no transfers between fair value hierarchy levels during these periods.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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