Multi-Fineline Electronix (MFLX)

12. Fair Value Measurements

On October 1, 2008, the Company adopted SFAS No. 157. This standard addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. In accordance with FASB Staff Position FAS 157-2, Effective Date of SFAS 157 (“Staff Position 157-2”), the Company deferred the adoption of SFAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.

SFAS 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: quoted market prices in active markets for identical assets and liabilities

Level 2: observable market based inputs or unobservable inputs that are corroborated by market data

Level 3: unobservable inputs that are not corroborated by market data

Auction rate securities

For recognition purposes, on a recurring basis, the Company measures available for sale auction rate securities (“ARS”) as long-term investments at fair value. The ARS had an aggregate fair value of $11.6 million at March 31, 2009, and $12.1 million at September 30, 2008. The fair value of these investments is determined using models that consider various assumptions including current market prices of the underlying securities, contractual terms of the underlying securities, economic and market conditions applicable to the underlying securities, time value and volatility factors.

Pursuant to SFAS 157, the fair value of the Company’s marketable securities is determined based on “Level 2” inputs, which consist of observable market-based inputs or unobservable inputs that are corroborated by market data. The Company believes that the recorded values of all of its other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

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MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

Assets and liabilities measured at carrying value and fair value on a recurring basis include the following as of March 31, 2009:

12. Fair Value Measurements

On October 1, 2008, the Company adopted SFAS No. 157. This new standard addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. In accordance with FASB Staff Position FAS 157-2, Effective Date of SFAS 157 (“Staff Position 157-2”), the Company deferred the adoption of SFAS 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.

SFAS 157 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: quoted market prices in active markets for identical assets and liabilities

Level 2: observable market based inputs or unobservable inputs that are corroborated by market data

Level 3: unobservable inputs that are not corroborated by market data

Auction rate securities

For recognition purposes, on a recurring basis, the Company measures available for sale auction rate securities (“ARS”) as long-term investments at fair value. The ARS had an aggregate fair value of $11.1 million at December 31, 2008, and $12.2 million at September 30, 2008. The fair value of these investments is determined using models that consider various assumptions including current market prices of the underlying securities, contractual terms of the underlying securities, economic and market conditions applicable to the underlying securities, time value and volatility factors. Please refer to Note 2 for factors used in the fair value measurement of the Company’s investments.

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Table of Contents

MULTI-FINELINE ELECTRONIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Share and Per Share Data)

(unaudited)

Long term debt

Under the guidance of SFAS 107, Disclosures about Fair Value of Financial Instruments, the Company is required to estimate the fair value of its financial instruments, including debt instruments. The Company, as a result of the acquisition of Pelikon, issued promissory notes as consideration for the purchase of 100% of the equity shares of Pelikon. The Agreement established three pools of notes used as consideration: (1) Sellers Promissory Notes, (2) Lender Promissory Notes and (3) the Contingent Consideration Note. The Seller Promissory Notes and Lender Promissory Notes are due December 10, 2010 and accrue interest at six percent annually. The Contingent Consideration Note is binding on MFLEX Singapore (the maker of the note), is payable to the Sellers (former shareholders of Pelikon) only if Pelikon achieves unit sales/shipping targets specified in the Agreement, and is non-interest bearing. The fair value of the notes is estimated using projected future cash out flows based on the specific terms of each note pool, its own unobservable inputs that are not corroborated by market data, and is classified within Level 3 of the fair value hierarchy.

Assets and liabilities measured at fair value on a recurring basis include the following as of December 31, 2008: