Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

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Fair Value Measurements
 3 Months Ended
Apr. 30, 2012
Fair Value Measurements

3. Fair Value Measurements

 

We determine the appropriate classification of debt investment securities at the time of purchase and re-evaluate such designation as of each balance sheet date. Our investment portfolio consists of money market funds, corporate debt investments, asset-backed securities, government-sponsored enterprises, and state and municipal obligations. All highly liquid investments with an original maturity of three months or less when purchased are considered to be cash equivalents. All cash equivalents are carried at cost, which approximates fair value. Our marketable securities are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of tax, reported in stockholders’ equity as a component of accumulated other comprehensive income or loss. The amortization of premiums and accretion of discounts to maturity are computed under the effective interest method and are included in interest income. Interest on securities is recorded as earned and is also included in interest income. Any realized gains or losses would be shown in the accompanying consolidated statements of operations in other income or expense. We provide fair value measurement disclosures of its available for sale securities in accordance with one of three levels of fair value measurement.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement. A fair value hierarchy enables the reader of the financial statements to assess the inputs used to develop fair value measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. Assets and liabilities carried at fair value will 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.

 

Our financial assets and liabilities that are measured at fair value on a recurring basis as of April 30, 2012 are as follows:

  

    April 30,     Fair Value Measurements Using  
    2012     Level 1     Level 2     Level 3  
          (in thousands)  
Financial assets:                                
Money market accounts (a)   $ 5,058     $ 5,058     $ -     $ -  
U.S. government agency issues (a)     10,804       10,804       -       -  
Total assets   $ 15,862     $ 15,862     $ -     $ -  
                                 
Other liabilities:                                
Acquisition-related consideration (b)   $ 10,871     $ -     $ -     $ 10,871  

 

(a) Money market funds and US government agency securities, included in cash and cash equivalents in the accompanying balance sheet, are valued at quoted market prices for identical instruments in active markets.
(b) The fair value of our contingent consideration arrangement is determined based on our evaluation as to the probability and amount of any earn-out that will be achieved based on expected future performance by the acquired entity, as well as the fair value of fixed purchase price.

 

 

The following table sets forth the activity of our Level 1 investments. Investments are classified as Level 1 when there is a current active market:

 

    Level 1  
    Marketable Securities  
    (in thousands)  
Ending balance January 31, 2012   $ 11,995  
Purchases     6,952  
Sales/Maturities     (8,143 )
Ending balance April 30, 2012   $ 10,804  

 

Based on additional information, we have made a revision to reclassify $5.6 million of investments from Level 2 to Level 1 as of January 31, 2012. Management believes the revision is immaterial to the financial statements.

 

The following table sets forth a reconciliation of assets measured at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the three months ended April 30, 2012:

 

    Level 3  
    Accrued Contingent  
    Consideration  
    (in thousands)  
Ending balance January 31, 2012   $ 12,255  
Change in fair value of contingent consideration     60  
Contingency payment     (1,491 )
Translation adjustment     47  
Ending balance April 30, 2012   $ 10,871  

 

 

The following is a summary of available for sale securities:

  

    Cost     Gross
Unrealized
Gains		     Gross
Unrealized
Losses		     Estimated
Fair Value		  
    (in thousands)  
April 30, 2012:                                
Cash   $ 77,603     $ -     $ -     $ 77,603  
Cash equivalents     5,058       -       -       5,058  
Cash and cash equivalents     82,661       -       -       82,661  
US government agency issues     3,030       36       -       3,066  
Corporate debt securities     500       1               501  
Marketable securities—short-term     3,530       37       -       3,567  
                                 
US government agency issues     7,220       17       -       7,237  
Marketable securities—long-term     7,220       17       -       7,237  
Total cash equivalents and marketable securities   $ 93,411     $ 54     $ -     $ 93,465  
                                 
January 31, 2012:                                
Cash   $ 74,226     $ -     $ -     $ 74,226  
Cash equivalents     6,359       -       -       6,359  
Cash and cash equivalents     80,585       -       -       80,585  
US government agency issues     6,781       68       -       6,849  
Corporate debt securities     1,000       6               1,006  
Marketable securities—short-term     7,781       74       -       7,855  
                                 
US government agency issues     4,126       14       -       4,140  
Marketable securities—long-term     4,126       14       -       4,140  
Total cash equivalents and marketable securities   $ 92,492     $ 88     $ -     $ 92,580  

  

The following is a schedule of the contractual maturities of available-for- sale investments:

 

    April 30,     January 31,  
    2012     2012  
  (in thousands)  
Investment Maturities:      
Less than 1 year   $ 3,567     $ 7,855  
One to three years     7,237       4,140  
    $ 10,804     $ 11,995