Fair Value Measurements

9 Months Ended

Jun. 30, 2015

The fair value measurement guidance establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset and liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices 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 assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 2015 and September 30, 2014 are summarized as follows (in thousands):



			Fair Value Measurements at Reporting Date Using
Description	June 30, 2015		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents	$	8,893	$	8,145	$	748	$	—
Available-for-sale securities	134,959		—		134,959		—
Foreign exchange contracts	25		—		25		—
Convertible debt securities	5,385		—		—		5,385
Stock warrants	69		—		—		69
Total Assets	$	149,331	$	8,145	$	135,732	$	5,454
Liabilities
Foreign exchange contracts	$	72	$	—	$	72	$	—

The convertible debt securities and stock warrants are included in "Other assets" in the unaudited Consolidated Balance Sheets.



			Fair Value Measurements at Reporting Date Using
Description	September 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents	$	6,404	$	5,166	$	1,238	$	—
Available-for-sale securities	151,342		—		151,342		—
Total Assets	$	157,746	$	5,166	$	152,580	$	—
Liabilities
Foreign exchange contracts	$	58	$	—	$	58	$	—

Cash Equivalents

Cash equivalents of $8.1 million and $5.2 million at June 30, 2015 and September 30, 2014, respectively, consisting of Money Market Funds, are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices in active markets. Cash equivalents of $0.7 million and $1.2 million at June 30, 2015 and September 30, 2014, respectively, consisting primarily of Bank Certificate of Deposits, are classified within Level 2 of the hierarchy because they are not actively traded.

Available-For-Sale Securities

Available-for-sale securities of $135.0 million and $151.3 million at June 30, 2015 and September 30, 2014, respectively, consisting of Municipal Securities, Bank Certificate of Deposits, Commercial Paper, U.S. Treasury Securities, Obligations of U.S. Government Agency Securities, and Mortgage-Backed Securities are classified within Level 2 of the fair value hierarchy because they are not actively traded and are valued using matrix pricing and benchmarking. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices.

Foreign Exchange Contracts

Foreign exchange contract assets and liabilities are classified within Level 2 of the fair value hierarchy because there may not be an active market for each contract. However, the inputs used to calculate the value of the contract are obtained from an active market.

Convertible Debt Securities

The convertible debt valuation analysis was based on the probability-weighted expected return method (“PWERM”) utilizing various scenarios for the expected payout of the instrument covering the full range of the potential outcomes. The PWERM determines the value of an asset, based upon an analysis of future values for the subject asset, which takes into consideration the full range of the potential value of the subject asset. The asset value is based upon the present value of the probability of each future outcome becoming available to the asset, and the economic rights and preferences of each asset.

Stock Warrants

The warrant valuation analysis utilized the Black-Scholes model to determine the fair value of the warrant assets. When applied to a warrant, the Black-Scholes model incorporates the constant price variation of the underlying asset, the time value of money, the warrant’s strike price and the time to the warrant’s expiration date. The fair value of the warrants was determined utilizing a five year equity volatility percentage, based on an average equity volatility derived from comparable public companies.

The following table presents the reconciliation for all assets and liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) (in thousands):



	Convertible Debt Securities		Stock Warrants			Total
Balance at September 30, 2014	$	—	$	—		$	—
Additions (1)	4,934		75			5,009
Change in fair value	451		(6		)	445
Balance at June 30, 2015	$	5,385	$	69		$	5,454

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(1) Refer to Note 13, "Equity Method Investments".

Nonrecurring Fair Value Measurements

In addition to the assets and liabilities recorded at fair value on a recurring basis, the Company has a note receivable that is measured at fair value on a nonrecurring basis. During the third quarter of fiscal year 2014, the Company evaluated the recoverability of a loan provided to the Borrower and adjusted it to fair value. The loan is represented by a note receivable, which is classified as a Level 3 input within the fair value hierarchy since the inputs used in the analysis are unobservable and require significant management judgment. During the third quarter of fiscal 2014, the fair value of the loan was determined by considering the fair value of the collateral using valuation techniques, principally the discounted cash flow method, and the subordination of the Company’s note to debt provided by a new lender, as described in Note 14, "Note Receivable." The fair value of the loan could be different under different conditions or different assumptions, including the varying assumptions regarding future cash flows of the Borrower or discount rates.

- 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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