Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 6 Months Ended
Jul. 31, 2012
Fair Value Disclosures [Abstract]  
Fair Value Disclosures [Text Block]

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 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 July 31, 2012 are as follows:

    July 31,     Fair Value Measurements Using  
    2012     Level 1     Level 2     Level 3  
          (in thousands)  
Financial assets:                                
Money market accounts (a)   $ 2,535     $ 2,535     $ -     $ -  
U.S. government agency issues (a)     13,347       13,347       -       -  
Total assets   $ 15,882     $ 15,882     $ -     $ -  
                                 
Forward exchange contract   $ 1,477     $ 1,477     $ -     $ -  
                                 
Other liabilities:                                
Acquisition-related consideration (b)   $ 9,513     $ -     $ -     $ 9,513  

 

(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     10,526  
Sales/Maturities     (9,174 )
Ending balance July 31, 2012   $ 13,347  

 

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 July 31, 2012:

 

    Level 3  
    Accrued Contingent  
    Consideration  
    (in thousands)  
Ending balance April 30, 2012   $ 10,871  
Change in fair value of contingent consideration     46  
Contingency payment     (2,754 )
Additional contingent earnout     1,800  
Translation adjustment     (450 )
Ending balance July 31, 2012   $ 9,513  

 

The following is a summary of available for sale securities:

 

    Cost     Gross
Unrealized
Gains		     Gross
Unrealized
Losses		     Estimated
Fair Value		  
    (in thousands)  
July 31, 2012:                        
Cash   $ 90,035     $ -     $ -     $ 90,035  
Cash equivalents     2,535       -       -       2,535  
Cash and cash equivalents     92,570       -       -       92,570  
US government agency issues     3,011       70       -       3,081  
Corporate debt securities     -       -               -  
Marketable securities—short-term     3,011       70       -       3,081  
                                 
US government agency issues     10,232       34       -       10,266  
Marketable securities—long-term     10,232       34       -       10,266  
Total cash equivalents and marketable securities   $ 105,813     $ 104     $ -     $ 105,917  
                                 
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:

 

    July 31,     January 31,  
    2012     2012  
Investment Maturities:   (in thousands)  
Less than one year   $ 3,081     $ 7,855  
One to three years     10,266       4,140  
    $ 13,347     $ 11,995  

 

Foreign Currency Exchange

 

The Company entered into two foreign exchange forward contracts denominated in Euros to hedge against a portion of the foreign currency exchange risk associated with the acquisition of eventIS Group B.V. for the fixed deferred purchase price. The purpose of the Company’s foreign currency risk management program is to reduce volatility in earnings caused by exchange rate fluctuations. FASB ASC Topic 815, Derivatives and Hedging, requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets based upon quoted market prices for comparable instruments. The Company’s derivative instrument did not meet the criteria for hedge accounting within FASB ASC Topic 815. Therefore, the foreign currency forward contracts are recorded at fair value, with the gain or loss on these transactions recorded in the unaudited consolidated statements of operations within “other (expense) income, net” in the period in which they occur. The Company does not use derivative financial instruments for trading or speculative purposes. As of July 31, 2012, the Company had two outstanding foreign currency exchange forward contracts to buy Euros totaling €1.2 million that settled on September 1, 2012. During the three months ended July 31, 2012, the Company recorded approximately $36,000 of losses related to its foreign currency exchange forward contracts. The Company’s foreign currency exchange contracts are over-the-counter instruments. There is an active market for this instrument, and therefore, it is classified as Level 1 in the fair value hierarchy.