Fair Value of Financial Instruments

12 Months Ended

Jun. 30, 2012

Fair Value of Financial Instruments

F. Fair Value of Financial Instruments

The Company measures at fair value certain financial assets and liabilities, including cash equivalents, restricted cash, ARS and contingent consideration. FASB ASC 820, Fair Value Measurement and Disclosures, specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1—Quoted prices for identical instruments in active markets;

Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3—Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis at June 30, 2012:

	Fair Value Measurements
	June 30, 2012		Level 1		Level 2		Level 3
Assets:
U.S. Treasury bills and money market funds	$	97,049	$	97,049	$	—	$	—
Restricted cash		3,281		3,281		—		—
Total	$	100,330	$	100,330	$	—	$	—

The carrying values of cash and cash equivalents, including U.S. Treasury bills and money market funds, accounts receivable and payable, and accrued liabilities approximate fair value due to the short-term maturities of these assets and liabilities.

The Company determines the fair value of the contingent consideration related to the LNX acquisition based on the probability of LNX attaining specific financial targets using an appropriate discount rate to present value the liability. As of June 30, 2012, the Company determined that it is probable that the earn-out related to the LNX acquisition would not be achieved (see Note C). As a result, the Company adjusted the fair value of the LNX earn-out contingent consideration and recorded $4,938 as a change in fair value in June 2012. The adjustment is separately classified on the statement of operations and is reflected as an offset to operating expenses. The following table provides a rollforward of the fair value of the contingent consideration, whose fair values were determined by Level 3 inputs:

	Fair Value
Balance at June 30, 2010	$	—
Contingent consideration from the LNX acquisition		4,828
Recognition of accretion expense in operating expenses		26
Balance at June 30, 2011	$	4,854
Recognition of accretion expense in operating expenses		84
Change in the fair value of the liability related to the LNX earn-out		(4,938	)
Balance at June 30, 2012	$	—

The following table summarizes the Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2011:

	Fair Value Measurements
	June 30, 2011		Level 1		Level 2		Level 3
Assets:
U.S. Treasury bills and money market funds	$	153,038	$	153,038	$	—	$	—
Restricted cash		3,000		3,000		—		—
Total	$	156,038	$	156,038	$	—	$	—
Liabilities:
Contingent consideration	$	4,854	$	—	$	—	$	4,854