Fair Value Measurements

9 Months Ended

Aug. 31, 2014

Recurring Fair Value Measurements

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at August 31, 2014 (in thousands):



				Fair Value Measurements Using
	Total Fair Value			Level 1		Level 2			Level 3
Assets
Money market funds	$	69,143		$	69,143	$	—		$	—
State and municipal bond obligations	18,912			—		18,912			—
Foreign exchange derivatives	(231		)	—		(231		)	—
Liabilities
Contingent consideration	$	(1,651	)	$	—	$	—		$	(1,651	)

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2013 (in thousands):



				Fair Value Measurements Using
	Total Fair Value			Level 1		Level 2		Level 3
Assets
Money market funds	$	54,513		$	54,513	$	—	$	—
State and municipal bond obligations	31,102			—		31,102		—
Auction rate securities – municipal bonds	23,453			—		1,520		21,933
Auction rate securities – student loans	2,828			—		—		2,828
Foreign exchange derivatives	171			—		171		—
Liabilities
Contingent consideration	(388		)	—		—		(388		)

When developing fair value estimates, we maximize the use of observable inputs and minimize the use of unobservable inputs. When available, we use quoted market prices to measure fair value. The valuation technique used to measure fair value for our Level 1 and Level 2 assets is a market approach, using prices and other relevant information generated by market transactions involving identical or comparable assets. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including yield curves, volatilities, credit ratings and currency rates. In certain cases where market rate assumptions are not available, we are required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument.

The valuation technique used to measure fair value for our Level 3 assets as of November 30, 2013, which consisted of ARS, was primarily an income approach, where the expected weighted average future cash flows were discounted back to present value for each asset. The significant unobservable inputs used in the fair value measurement of ARS were the probability of earning the maximum rate until maturity, the probability of principal return prior to maturity, the probability of default, the liquidity risk premium and the recovery rate in default. Generally, interrelationships were such that a change in the assumptions used for the probability of principal return prior to maturity was accompanied by a directionally opposite change in one or more the following assumptions: the probability of earning the maximum rate until maturity, the probability of default and the liquidity risk premium. The recovery rate in default was somewhat independent and based upon the ARS' specific underlying assets and published recovery rate studies.

The following table reflects the activity for our financial assets measured at fair value using Level 3 inputs for each period presented (in thousands):



	Three Months Ended					Nine Months Ended
	August 31, 2014			August 31, 2013		August 31, 2014			August 31, 2013
Balance, beginning of period	$	25,056		$	26,500	$	24,761		$	26,321
Redemptions and sales	(26,196		)	—		(26,196		)	(25		)
Realized losses included in earnings	(2,554		)	—		(2,554		)	—
Unrealized gains included in accumulated other comprehensive loss	3,694			73		3,989			277
Balance, end of period	$	—		$	26,573	$	—		$	26,573

We have also classified contingent consideration related to the Rollbase, Inc. (Rollbase) and Modulus LLC (Modulus) acquisitions, which occurred in the second quarter of fiscal years 2013 and 2014, respectively, within Level 3 of the fair value hierarchy because the fair values are derived using significant unobservable inputs, which include discount rates and probability-weighted cash flows. We determined the fair value of our contingent consideration obligations based on a probability-weighted income approach derived from probability assessments of the attainment of certain milestones. We establish discount rates to be utilized in our valuation models based on the cost to borrow that would be required by a market participant for similar instruments. In determining the probability of attaining certain milestones, we utilize data regarding similar milestone events from our own experience. On a quarterly basis, we reassess the probability factors associated with the milestones for our contingent consideration obligations. Significant judgment is employed in determining the appropriateness of these key assumptions as of the acquisition date and for each subsequent period.

The key assumptions as of August 31, 2014 related to the contingent consideration for the acquisition of Rollbase used in the model are probabilities in excess of 95% that the milestones associated with the contingent consideration will be achieved and a discount rate of 4.8%. The key assumptions as of August 31, 2014 related to the contingent consideration for the acquisition of Modulus used in the model are probabilities in excess of 75% that the milestones associated with the contingent consideration will be achieved and a discount rate of 33.0%. A decrease in the probabilities of achievement could result in a decrease to the estimated fair value of the contingent consideration liabilities. There were no changes to these assumptions during the third quarter of fiscal year 2014.

The following table reflects the activity for our liabilities measured at fair value using Level 3 inputs for each period presented (in thousands):



	Three Months Ended				Nine Months Ended
	August 31, 2014		August 31, 2013		August 31, 2014			August 31, 2013
Balance, beginning of period	$	1,649	$	379	$	388		$	—
Incurrence of contingent purchase price liability	—		—		1,450			379
Payments of contingent consideration	—		—		(210		)	—
Changes in fair value included in operating expenses	2		4		23			4
Balance, end of period	$	1,651	$	383	$	1,651		$	383

We did not have any nonrecurring fair value measurements as of August 31, 2014 and November 30, 2013.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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