Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

 v2.3.0.11
Fair Value Measurements
6 Months Ended
Jul. 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 July 31, 2011 are as follows:

   
July 31,
   
Fair Value Measurements Using
 
   
2011
   
Level 1
   
Level 2
   
Level 3
 
         
(in thousands)
 
Financial assets:
                       
Money market accounts (a)
  $ 7,400     $ 7,400     $ -     $ -  
U.S. government agency issues (a)
    10,945       8,453       2,492       -  
Total assets
  $ 18,345     $ 15,853     $ 2,492     $ -  
                                 
Other liabilities:
                               
Acquisition-related consideration (b)
  $ 11,702     $ -     $ -     $ 11,702  

(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 July 31, 2011:
 
   
Level 1
   
Level 2
 
   
Marketable Securities
   
Marketable Securities
 
   
(in thousands)
 
Beginning balance January 31, 2011
  $ 7,963     $ 3,756  
Purchases
    4,912       2,492  
Sales/Maturities
    (5,443 )     (2,735 )
Transfers between Level 1 and Level 2
    1,021       (1,021 )
Ending balance July 31, 2011
  $ 8,453     $ 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 July 31, 2011:

   
Level 3
 
   
Accrued Contingent
 
   
Consideration
 
   
(in thousands)
 
Beginning balance April 30, 2011
  $ 12,154  
Change in fair value of contingent consideration
    52  
Contingency payment
    (257 )
Translation adjustment
    (247 )
Ending balance July 31, 2011
  $ 11,702  
 
The following is a summary of available for sale securities:
 
   
Cost
   
Gross
Unrealized
Gains
   
Gross
Unrealized
Losses
   
Estimated
Fair Value
 
   
(in thousands)
 
July 31, 2011:
                       
Cash
  $ 78,357     $ -     $ -     $ 78,357  
Cash equivalents
    7,400       -       -       7,400  
Cash and cash equivalents
    85,757       -       -       85,757  
US government agency issues
    8,255       100       -       8,355  
                                 
US government agency issues
                               
Marketable securities—long-term
    2,577       13       -       2,590  
Total cash equivalents and marketable securities
  $ 96,589     $ 113     $ -     $ 96,702  
                                 
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:

   
July 31,
   
January 31,
 
   
2011
   
2011
 
    (in thousands)  
Investment Maturities:
 
  
 
Less than 1 year
  $ 8,355     $ 7,340  
One to three years
    2,590       4,379  
    $ 10,945     $ 11,719