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Fair Value of Financial Instruments
 9 Months Ended
Mar. 31, 2019
Business Combinations [Abstract]  
Fair Value of Financial Instruments

Note 15.

Fair Value of Financial Instruments

The FASB defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous markets for the asset and liability in an orderly transaction between market participants at the measurement date. The Company estimates fair value of its financial instruments utilizing an established three-level hierarchy in accordance with U.S. GAAP. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:

 

 

•

Level 1 –Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.

 

•

Level 2 –Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

•

Level 3 –Valuation is based upon other unobservable inputs that are significant to the fair value measurements.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.

At March 31, 2019, the Company had foreign currency forward contracts recorded at fair value. The fair values of these instruments were measured using valuations based upon quoted prices for similar assets and liabilities in active markets (Level 2) and are valued by reference to similar financial instruments, adjusted for credit risk, restrictions and other terms specific to the contracts.

The Company has entered into earnout arrangements in conjunction specified acquisitions, as discussed in Note 4, that provide additional cash earnout opportunities based upon achievement of certain agreed upon financial and operational targets. The fair values of the contingent earnout arrangements and the net put option were measured using valuations based upon other unobservable inputs that are significant to the fair value measurement (Level 3).

The Company estimated the fair value of the 0.25% convertible notes based on quoted market prices as of the last trading day prior to March 31, 2019; however, the convertible notes have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the convertible notes could be retired or transferred. The Company concluded that this fair value measurement should be categorized within Level 2. The carrying value of the convertible notes is net of unamortized discount and issuance costs. See Note 10. Debt for details on the Company’s debt facilities. The fair value and carrying value of the convertible notes were as follows at March 31, 2019 ($000):

 

 

 

Fair Value

 

 

Carrying Value

 

Convertible notes

 

$

359,832

 

 

$

297,958

 

 

The following table provides a summary by level of the fair value of financial instruments that are measured on a recurring basis or for which fair value is disclosed for the periods presented ($000):

 

 

 

Fair Value Measurements at March 31, 2019 Using:

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

for Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

 

March 31, 2019

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

43

 

 

$

-

 

 

$

43

 

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent earnout arrangements

 

$

5,322

 

 

$

-

 

 

$

-

 

 

$

5,322

 

Net put option

 

$

2,024

 

 

$

-

 

 

$

-

 

 

$

2,024

 

 

 

 

Fair Value Measurements at June 30, 2018 Using:

 

 

 

 

 

 

 

Quoted Prices in

 

 

Significant

 

 

 

 

 

 

 

 

 

 

 

Active Markets

 

 

Other

 

 

Significant

 

 

 

 

 

 

 

for Identical

 

 

Observable

 

 

Unobservable

 

 

 

 

 

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

 

June 30, 2018

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts

 

$

121

 

 

$

-

 

 

$

121

 

 

$

-

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent earnout arrangements

 

$

5,405

 

 

$

-

 

 

$

-

 

 

$

5,405

 

Net put option

 

$

2,024

 

 

$

-

 

 

$

-

 

 

$

2,024

 

 

The Company’s policy is to report transfers into and out of Levels 1 and 2 of the fair value hierarchy at fair values as of the beginning of the period in which the transfers occur. There were no transfers in and out of Levels 1 and 2 of the fair value hierarchy during the three months ended March 31, 2019.

The following table presents a reconciliation of the beginning and ending fair value measurements of the Company’s Level 3 contingent earnout arrangements related to the Company’s acquisitions and the net put option relating to the equity investment acquired in November 2017 ($000):

 

 

 

Significant

 

 

 

Unobservable Inputs

 

 

 

(Level 3)

 

Balance at July 1, 2018

 

$

7,429

 

Contingent earnout arrangements:

 

 

 

 

Payments

 

 

(3,540

)

Changes in fair value recorded in other expense (income)

 

 

(940

)

Other earnout arrangements

 

 

4,397

 

Balance at March 31, 2019

 

$

7,346

 

 

The fair values of cash and cash equivalents are considered Level 1 among the fair value hierarchy and approximate fair value because of the short-term maturity of those instruments. The Company’s borrowings including its capital lease obligation, excluding the 0.25% Convertible Notes, are considered Level 2 among the fair value hierarchy and their principal amounts approximate fair value.