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4. Fair Value
The Company records cash equivalents and short-term investments at fair value.
Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. Fair value measurements are required to be disclosed by level within the following fair value hierarchy:
Level 1 — Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 — Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3 — Inputs lack observable market data to corroborate management’s estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. As of January 31 and July 31, 2012 the Company did not hold any Level 3 assets.
When determining fair value, whenever possible the Company uses observable market data, and relies on unobservable inputs only when observable market data is not available.
The fair value of these financial assets and liabilities was determined using the following inputs at January 31 and July 31, 2012:
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Fair Value Measurement Using
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Quoted Prices in
Active Markets
for Identical
Instruments
(Level 1)
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Significant
Other
Observable
Inputs
(Level 2)
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Total
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(in thousands)
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Fair values as of January 31, 2012
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Assets:
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|
|
|
|
|
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Money market funds
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$
|
31,614
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|
$
|
—
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|
$
|
31,614
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|
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Commercial paper
|
|
—
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30,480
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30,480
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Corporate debt securities
|
|
—
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20,983
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|
20,983
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|
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U.S. agency notes
|
|
—
|
|
900
|
|
900
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|
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Total assets measured at fair value
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$
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31,614
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$
|
52,363
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$
|
83,977
|
|
|
Fair values as of July 31, 2012
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Assets:
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|
|
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Money market funds
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$
|
31,932
|
|
$
|
—
|
|
$
|
31,932
|
|
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Commercial paper
|
|
—
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22,944
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22,944
|
|
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Corporate debt securities
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|
—
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11,814
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11,814
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|
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U.S. agency notes
|
|
—
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|
2,500
|
|
2,500
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Total assets measured at fair value
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$
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31,932
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$
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37,258
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$
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69,190
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The Company’s money market funds are classified as Level 1 within the fair value hierarchy because they are valued primarily using quoted market prices. The Company’s other cash equivalents and short-term investments are classified as Level 2 within the fair value hierarchy because they are valued using professional pricing sources for identical or comparable instruments, rather than direct observations of quoted prices in active markets.
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