Fair Value Measurements

3 Months Ended

Sep. 30, 2012

Fair Value Measurements

5. Fair Value Measurements

The Company accounts for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

• Level 1—Inputs are quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities.

• Level 2—Inputs are directly or indirectly observable in the marketplace, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities with insufficient volume or infrequent transaction (less active markets).

• Level 3—Inputs are unobservable estimates that are supported by little or no market activity and require the Company to develop its own assumptions about how market participants would price the assets or liabilities.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and marketable securities. At September 30, 2012 and June 30, 2012, substantially all of the Company’s interest-bearing cash equivalent balances were concentrated in one institutional money market fund that has investments consisting primarily of certificates of deposit, commercial paper, time deposits, U.S. government agencies, treasury bills and treasury repurchase agreements. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.

The Company’s cash equivalents and marketable securities are classified within Level 1 or Level 2 on the basis of valuations using quoted market prices or alternative pricing sources and models utilizing market observable inputs, respectively. Certain of the Company’s corporate debt securities were valued based on quoted prices for the specific securities in an active market and were therefore classified as Level 1. The remaining marketable securities have been valued on the basis of valuations provided by third-party pricing services, as derived from such services’ pricing models. Inputs to the models may include, but are not limited to, reported trades, executable bid and ask prices, broker/dealer quotations, prices or yields of securities with similar characteristics, benchmark curves or information pertaining to the issuer, as well as industry and economic events. The pricing services may use a matrix approach, which considers information regarding securities with similar characteristics to determine the valuation for a security, and have been classified as Level 2.

The following table summarizes the Company’s assets and liabilities carried at fair value measured on a recurring basis at September 30, 2012 and June 30, 2012 by valuation hierarchy:

	September 30, 2012
	Total carrying value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents	$	7,187	$	7,036	$	151	$	—
Marketable securities
Corporate bonds		6,060		4,276		1,784		—
Commercial paper		2,698		—		2,698		—
Certificates of deposit		500		—		500		—
	$	16,445	$	11,312	$	5,133	$	—

	June 30, 2012
	Total carrying value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(In thousands)
Assets:
Cash equivalents	$	4,292	$	4,042	$	250	$	—
Marketable securities
Corporate bonds		5,950		3,684		2,266		—
Commercial paper		3,046		—		3,046		—
Certificates of deposit		950		—		950		—
	$	14,238	$	7,726	$	6,512	$	—

The Company’s derivative liabilities, related to investor warrants that were denominated in Australian dollars, were historically classified as Level 3 and were valued using the Black-Scholes model. The last of these warrants expired in July 2012 and the derivative liability balance was zero at September 30, 2012 and June 30, 2012.

The reconciliation of the Company’s liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

	Three Months Ended September 30,
	2012		2011
	(In thousands)
Balance at beginning of period	$	—	$	170
Change in fair value of derivative - other income		—		42
Balance at end of period	$	—	$	128