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. 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 consisted of its investment in OctoPlus (see Note 2 for further information). The fair market value of this investment was based on the quoted price of OctoPlus shares as traded on the Euronext Amsterdam Stock Exchange. This investment was sold in fiscal 2013.

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. The Company performs limited tests of the quoted vendor prices based on available U.S. Treasury security pricing on government websites as a means of validating the third party pricing. To ensure the accuracy of quoted vendor prices and broker pricing, the Company performs regular reviews of investment returns to industry benchmarks and sample tests of individual securities to validate quoted vendor prices with other available market data.

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 September 30, 2013 or 2012 and there was no Level 3 activity during 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 September 30, 2013 (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, 2013
Assets:
Cash equivalents	$	—	$	4,402	$	—	$	4,402
Available-for-sale debt securities:
U.S. government and government agency obligations		—		22,890		—		22,890
Mortgage-backed securities		—		8,216		—		8,216
Municipal bonds		—		3,059		—		3,059
Asset-backed securities		—		3,537		—		3,537
Corporate bonds		—		4,907		—		4,907

Total assets measured at fair value	$	—	$	47,011	$	—	$	47,011

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 represented the Company’s investment in OctoPlus. This investment was 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 table provides a reconciliation of fiscal 2012 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 year values.


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) For the Year Ended September 30, 2012 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 income (loss)		—			—			—
Purchases, issuances, sales and settlements		—			—			—

Balance at September 30, 2012	$	—		$	—		$	—

As of September 30, 2011, marketable securities measured at fair value using Level 3 inputs comprised less than $50,000 and included one asset-backed security and one mortgage-backed security within the Company’s available-for-sale investment portfolio. These securities were measured using observable market data and Level 3 inputs as a result of the lack of market activity and liquidity. The fair value of these securities was based on the Company’s assessment of the underlying collateral and the creditworthiness of the issuer of the securities. During fiscal 2012 readily determinable market prices allowed for the securities to be measured with observable inputs and these securities were reclassified from Level 3 to Level 2.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company’s strategic investments in non-marketable securities of private companies are accounted for using the cost method as the Company does not exert significant influence over the investees’ operating or financial activities. These strategic investments are measured at fair value on a non-recurring basis when they are deemed to be other-than-temporarily impaired. In determining whether a decline in value of non-marketable equity investments in private companies has occurred and is other than temporary, an assessment is made by considering available evidence, including the general market conditions in the investee’s industry, the investee’s product development status and subsequent rounds of financing and the related valuation and/or the Company’s participation in such financings. The Company also assesses the investee’s ability to meet business milestones and the financial condition and near-term prospects of the individual investee, including the rate at which the investee is using its cash and the investee’s need for possible additional funding at a potentially lower valuation. The valuation methodology for determining the decline in value of non-marketable equity securities is based on inputs that require management judgment and are Level 3 inputs. See Note 2 for additional information related to these strategic investment impairments.

In the fourth quarter of fiscal 2011, the Company recognized asset impairment charges totaling $28.1 million, writing down long-lived assets (fixed assets of $23.3 million and intangibles of $4.8 million) which are presented as part of the discontinued operations associated with the Pharmaceuticals segment. The Company wrote down these long-lived assets to $30.0 million based on the current valuation of the assets relative to their carrying value. The valuation methodology for determining the decline in value of long-lived assets is based on inputs that require management judgment and are Level 3 inputs. See Note 3 for further information related to the discontinued operations impairments.