Fair Value Measurements

6 Months Ended

May. 31, 2015

Recurring Fair Value Measurements

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at May 31, 2015 (in thousands):



				Fair Value Measurements Using
	Total Fair Value			Level 1		Level 2			Level 3
Assets
Money market funds	$	21,845		$	21,845	$	—		$	—
State and municipal bond obligations	33,101			—		33,101			—
Liabilities
Foreign exchange derivatives	(2,449		)	—		(2,449		)	—
Contingent consideration	$	(504	)	$	—	$	(209	)	$	(295	)

The following table details the fair value measurements within the fair value hierarchy of our financial assets and liabilities at November 30, 2014 (in thousands):



				Fair Value Measurements Using
	Total Fair Value			Level 1		Level 2			Level 3
Assets
Money market funds	$	67,893		$	67,893	$	—		$	—
State and municipal bond obligations	20,186			—		20,186			—
Foreign exchange derivatives	(102		)	—		(102		)	—
Liabilities
Contingent consideration	$	(1,717	)	$	—	$	—		$	(1,717	)

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.

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 May 31, 2015 related to the contingent consideration for the acquisition of Modulus used in the model are probabilities of 0% and approximately 40% that the year one and year two milestones associated with the contingent consideration will be achieved, respectively, and a discount rate of 33.0%. The year one milestone was not achieved as of May 31, 2015, which was the end of the first milestone period. A decrease in the probability of achievement of the year two milestone could result in a decrease to the estimated fair value of the contingent consideration liability.

In regard to the contingent consideration related to the acquisition of Rollbase, the contingency was relieved as of May 31, 2015 as the milestones associated with the contingent consideration were achieved as of this date. As such, the amount of the payment related to the contingent consideration was known as of May 31, 2015 and was based on actual results. We transferred the contingent earn out liability to a Level 2 fair value measurement as the value as of May 31, 2015 was based on observable inputs. The payment was made in June 2015 in the amount of $0.2 million.

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						Six Months Ended
	May 31, 2015			May 31, 2014			May 31, 2015			May 31, 2014
Balance, beginning of period	$	1,615		$	393		$	1,717		$	388
Incurrence of contingent purchase price liability	—			1,450			—			1,450
Payments of contingent consideration	—			(210		)	—			(210		)
Changes in fair value of contingent consideration obligation	(1,111		)	16			(1,213		)	21
Transfer to Level 2 fair value measurement	(209		)	—			(209		)	—
Balance, end of period	$	295		$	1,649		$	295		$	1,649

We recorded credits of approximately $1.1 million and $1.2 million during the three and six months ended May 31, 2015, respectively, due to the change in fair value of the contingent consideration obligation, which is included in acquisition-related expenses in our condensed consolidated statement of operations.

Nonrecurring Fair Value Measurements

Certain assets have been measured at fair value on a nonrecurring basis using significant unobservable inputs (Level 3). The following table presents nonrecurring fair value measurements as of May 31, 2015 (in thousands):



	Total Fair Value		Total Losses
Long-lived assets	$	60	$	3,947

During the second quarter of fiscal year 2015, we recorded a $3.9 million asset impairment charge related to our cloud-based mobile application development technology as a result of our decision to replace our existing cloud-based mobile application development technology with technology acquired in connection with the acquisition of Telerik (Note 11). The fair value measurement was determined using an income-based valuation methodology, which incorporates unobservable inputs, including discounted expected cash flows over the remaining estimated useful life of the technology, thereby classifying the fair value as a Level 3 measurement within the fair value hierarchy. The expected cash flows include subscription fees to be collected from existing customers using the platform, offset by hosting fees and compensation related costs to be incurred over the remaining estimated useful lives.

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

- 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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