Fair Value Measurements

3 Months Ended

Dec. 31, 2012

Fair Value Measurements

4. Fair Value Measurements

The accounting guidance on fair value measurements defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. The guidance is applicable for all financial assets and financial liabilities and for all nonfinancial assets and nonfinancial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance.

Fair Value Hierarchy

Accounting guidance on fair value measurements requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1 — Quoted (unadjusted) prices in active markets for identical assets or liabilities.

The Company’s Level 1 asset consists of its investment in OctoPlus N.V. (“OctoPlus”) (see Note 7 for further information). The fair market value of this investment is based on the quoted price of OctoPlus shares as traded on the Euronext Amsterdam Stock Exchange.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

The Company’s Level 2 assets consist of money market funds, U.S. Treasury securities, corporate bonds, municipal bonds, U.S. government agency securities, government agency and municipal securities and certain asset-backed and mortgage-backed securities. Fair market values for these assets are based on quoted vendor prices and broker pricing where all significant inputs are observable.

Level 3 — Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

There were no Level 3 assets at December 31, 2012, September 30, 2012 or December 31, 2011 and there was no Level 3 activity during the first quarter of fiscal 2013.

In valuing assets and liabilities, the Company is required to maximize the use of quoted market prices and minimize the use of unobservable inputs. The Company did not significantly change its valuation techniques from prior periods.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 (in thousands):

	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value as of December  31, 2012
Assets:
Cash equivalents	$	—	$	6,002	$	—	$	6,002
Available-for-sale debt securities:
U.S. government and government agency obligations		—		33,150		—		33,150
Mortgage-backed securities		—		2,743		—		2,743
Municipal bonds		—		3,701		—		3,701
Asset-backed securities		—		549		—		549
Corporate bonds		—		2,439		—		2,439
Other assets		999		—		—		999
Total assets measured at fair value	$	999	$	48,584	$	—	$	49,583

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 (in thousands):

	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value as of September 30, 2012
Assets:
Cash equivalents	$	—	$	5,101	$	—	$	5,101
Available-for-sale debt securities:
U.S. government and government agency obligations		—		28,854		—		28,854
Mortgage-backed securities		—		2,999		—		2,999
Municipal bonds		—		3,213		—		3,213
Asset-backed securities		—		598		—		598
Corporate bonds		—		6,886		—		6,886
Other assets		718		—		—		718
Total assets measured at fair value	$	718	$	47,651	$	—	$	48,369

Valuation Techniques

The valuation techniques used to measure the fair value of assets are as follows:

Cash equivalents — These assets are classified as Level 2 and are carried at historical cost which is a reasonable estimate of fair value because of the relatively short time between origination of the instrument and its expected realization.

Available-for-sale debt securities — These securities are classified as Level 2 and include various types of debt securities. These securities are valued based on quoted vendor prices in active markets underlying the securities.

Other assets — This asset is classified as Level 1 and represents the Company’s investment in OctoPlus. This investment is valued based on the quoted market price of OctoPlus shares.

Changes in Level 3 Instruments Measured at Fair Value on a Recurring Basis

The following tables provide a reconciliation of financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands). Transfers of instruments into and out of Level 3 are based on beginning of period values.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Three Months Ended December 31, 2011 Available-for-Sale Debt Securities
	Mortgage- Backed  Securities			Asset- Backed  Securities			Total
Balance at September 30, 2011	$	15		$	9		$	24
Transfers into Level 3		—			—			—
Transfers out of Level 3		(15	)		(9	)		(24	)
Total realized and unrealized gains (losses):
Included in other comprehensive (loss) income		—			—			—
Purchases, issuances, sales and settlements, net		—			—			—
Balance at December 31, 2011	$	—		$	—		$	—