Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
9 Months Ended
Oct. 31, 2011
Fair Value Measurements
3. Fair Value Measurements
 
The Company determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. SeaChange’s 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. SeaChange’s 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. The Company provides 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.

The Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of October 31, 2011 are as follows:

   
October 31,
   
Fair Value Measurements Using
 
   
2011
   
Level 1
   
Level 2
   
Level 3
 
         
(in thousands)
 
Financial assets:
                       
Money market accounts (a)
  $ 1,324     $ 1,324     $ -     $ -  
U.S. government agency issues (a)
    17,019       14,527       2,492       -  
Total assets
  $ 18,343     $ 15,851     $ 2,492     $ -  
                                 
Other liabilities:
                               
Acquisition-related consideration (b)
  $ 10,913     $ -     $ -     $ 10,913  

(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 the Company’s 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 tables set forth a reconciliation of assets and liabilities transferred from Level 1 to Level 2. Investments are transferred from Level 1 to Level 2 when there is no active market price quoted within five business days of October 31, 2011:
 
   
Level 1
   
Level 2
 
   
Marketable Securities
   
Marketable Securities
 
   
(in thousands)
 
Beginning balance July 31, 2011
  $ 8,453     $ 2,492  
Purchases
    7,503       -  
Sales/Maturities
    (1,429 )     -  
Ending balance October 31, 2011
  $ 14,527     $ 2,492  
 
 
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 October 31, 2011:
 
   
Level 3
 
   
Accrued Contingent
 
`
 
Consideration
 
   
(in thousands)
 
Ending balance July 31, 2011
  $ 11,702  
Change in fair value of contingent consideration
    130  
Additonal contingent earnout
    1,282  
Contingency payment
    (1,735 )
Translation adjustment
    (466 )
Ending balance October 31, 2011
  $ 10,913  
 
The following is a summary of available for sale securities:

   
 
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair Value
 
   
  (in thousands)  
October 31, 2011:
                       
Cash
  $ 69,334     $ -     $ -     $ 69,334  
Cash equivalents
    1,324       -       -       1,324  
Cash and cash equivalents
    70,658       -       -       70,658  
US government agency issues
    11,780       82       -       11,862  
                                 
US government agency issues
                               
Marketable securities—long-term
    5,152       5       -       5,157  
Total cash equivalents and marketable securities
  $ 87,590     $ 87     $ -     $ 87,677  
                                 
January 31, 2011:
                               
Cash
  $ 66,539     $ -     $ -     $ 66,539  
Cash equivalents
    6,606       -       -       6,606  
Cash and cash equivalents
    73,145       -       -       73,145  
US government agency issues
    7,245       95       -       7,340  
                                 
US government agency issues
    4,308       71       -       4,379  
Total cash equivalents and marketable securities
  $ 84,698     $ 166     $ -     $ 84,864  
 
The following is a schedule of the contractual maturities of available-for- sale investments:

   
October 31,
   
January 31,
 
   
2011
   
2011
 
   
(in thousands)
 
Investment Maturities:
           
Less than 1 year
  $ 11,862     $ 7,340  
One to three years
    5,157       4,379  
    $ 17,019     $ 11,719