Fair Value Measures

9 Months Ended

Jun. 30, 2011

Fair Value Measures

8.   Fair Value Measures

Fair value is defined as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which we would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

ASC 820, Fair Value Measures and Disclosures, establishes a value hierarchy based on three levels of inputs, of which the first two are considered observable and the third is considered unobservable:

•  Level 1.  Quoted prices for identical assets or liabilities in active markets which we can access.

•  Level 2.  Observable inputs other than those described as Level 1.

•  Level 3.  Unobservable inputs.

Assets and liabilities measured at fair value on a recurring basis at June 30, 2011 and September 30, 2010 consisted of the following (dollars in thousands):

	June 30, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds(a)	$	231,198	$	—	$	—	$	231,198
Time Deposits(b)		—		98,607		—		98,607
US government agency securities(a)		1,000		—		—		1,000
Marketable securities, $36,562 at cost(b)		—		36,617		—		36,617
Foreign currency exchange contracts(b)		—		785		—		785
Security price guarantees(c)		—		395		—		395
Total assets at fair value	$	232,198	$	136,404	$	—	$	368,602
Liabilities:
Foreign currency exchange contracts(b)		—		463		—		463
Contingent earn-out(d)		—		—		2,115		2,115
Total liabilities at fair value	$	—	$	463	$	2,115	$	2,578

	September 30, 2010
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds(a)	$	470,845	$	—	$	—	$	470,845
US government agency securities(a)		1,000		—		—		1,000
Marketable securities, $33,337 at cost(b)		—		33,366		—		33,366
Foreign currency exchange contracts(b)		—		1,496		—		1,496
Total assets at fair value	$	471,845	$	34,862	$	—	$	506,707
Liabilities:
Security price guarantees(c)	$	—	$	982	$	—	$	982
Interest rate swaps(e)		—		503		—		503
Contingent earn-out(d)		—		—		724		724
Total liabilities at fair value	$	—	$	1,485	$	724	$	2,209

(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 in active markets.
(b)	The fair value of our time deposits, marketable securities and foreign currency exchange contracts is based on the most recent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable.
(c)	The fair values of the security price guarantees are determined using a modified Black-Scholes model, derived from observable inputs such as US treasury interest rates, our common stock price, and the volatility of our common stock. The valuation model values both the put and call components of the guarantees simultaneously, with the net value of those components representing the fair value of each instrument.
(d)	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 our common stock price since the contingent consideration arrangement is payable in shares of our common stock.
(e)	The fair values of the interest rate swaps are estimated using discounted cash flow analyses that factor in observable market inputs such as LIBOR — based yield curves, forward rates, and credit spreads.

The changes in the fair value of contingent earn-out liabilities during the three and nine months ended June 30, 2011 are as follows (dollars in thousands):

	Three Months Ended		Nine Months Ended
	June 30, 2011		June 30, 2011
Balance at beginning of period	$	1,679	$	724
Charges to acquisition-related costs, net		436		1,391
Balance as of June 30, 2011	$	2,115	$	2,115

Earn-out payments are generally payable based on achieving certain financial targets during defined post-acquisition time periods as specified in the purchase and sale agreement for each acquisition. Changes in the fair value during the three and nine months ended June 30, 2011 resulted from improved revenue performance together with an increase in our stock price during the earn-out period.