Note 3—Fair Value

Fair Values of Assets and Liabilities

We measure fair value at the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the assumptions that market participants would use in pricing an asset or liability (the inputs) are based on a tiered fair value hierarchy consisting of three levels, as follows:

Level 1: Observable inputs such as quoted prices for identical assets or liabilities in active markets.

Level 2: Other inputs that are observable directly or indirectly, such as quoted prices for similar instruments in active markets or for similar markets that are not active.

Level 3: Unobservable inputs for which there is little or no market data and which require us to develop our own assumptions about how market participants would price the asset or liability.

Valuation techniques for assets and liabilities include methodologies such as the market approach, the income approach or the cost approach, and may use unobservable inputs such as projections, estimates and management’s interpretation of current market data. These unobservable inputs are only utilized to the extent that observable inputs are not available or cost-effective to obtain.

At September 30, 2014 and June 30, 2014, our assets and liabilities measured at fair value on a recurring basis were as follows:


	September 30, 2014								June 30, 2014
(in thousands)	Fair Value Measurements Using Input Types						Total		Fair Value Measurements Using Input Types						Total
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Money market funds (cash and cash equivalents)	$	73,962	$	—	$	—	$	73,962	$	71,252	$	—	$	—	$	71,252
Available for sale securities
Debt
US Corporate		13,088		—		—		13,088		13,119		—		—		13,119
Residential mortgage-backed		6,716		—		—		6,716		5,537		—		—		5,537
Government—US		5,122		—		—		5,122		5,069		—		—		5,069

Total available for sale securities	$	24,926	$	—	$	—	$	24,926	$	23,725	$	—	$	—	$	23,725

Fair Value of Financial Instruments

We have certain financial instruments which consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and the convertible senior notes (the Notes) more fully described in Note 10. Fair value information for each of these instruments is as follows:

•

Cash and cash equivalents, accounts receivable and accounts payable fair value approximates their carrying values, due to the short-term nature of these instruments.

•

Marketable securities classified as held to maturity are recorded at amortized cost, which at September 30, 2014 and June 30, 2014, approximated fair value.

•

Marketable securities classified as available for sale are recorded at fair value. Unrealized gains and losses are included as a component of other accumulated comprehensive income/(loss) in shareholders’ equity, net of tax. We use the specific identification method to determine any realized gains or losses from the sale of our marketable securities classified as available for sale.

•

The Notes were recorded at $133.3 million upon issuance, which reflected their principal value less the fair value of the embedded conversion option (Conversion Feature). The carrying value of the Notes, $151.5 million at September 30, 2014, will be accreted, over the remaining term to maturity, to their principal value of $189.8 million. The fair value of the Notes (inclusive of the Conversion Feature) was approximately $217.2 million as of September 30, 2014. We estimated the fair value of the Notes by reference to quoted market prices; however the Notes have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the Notes could be retired or transferred.

Marketable Securities

The table below presents information regarding our marketable securities by major security type as of September 30, 2014 and June 30, 2014.


	September 30, 2014						June 30, 2014
	Held to Maturity		Available for Sale		Total		Held to Maturity		Available for Sale		Total
	(in thousands)
Marketable securities:
Corporate and other debt securities		74		24,926		25,000		80		23,725		23,805

Total marketable securities	$	74	$	24,926	$	25,000	$	80	$	23,725	$	23,805

The following table summarizes the estimated fair value of our investments in available for sale marketable securities classified by the contractual maturity date of the securities:


	As of September 30, 2014 (in thousands)
Due within 1 year	$	13,488
Due in 1 year through 5 years	$	11,438

Total	$	24,926

All of our available for sale marketable securities are included in current assets as we do not have the positive intent to hold these investments until maturity.

The following table presents the aggregate fair values and gross unrealized losses for those available for sale investments that were in an unrealized loss position as of September 30, 2014, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:


	As of September 30, 2014
	Less than 12 Months
	Fair Value		Unrealized Loss
	(in thousands)
U.S. Corporate	$	8,330	$	14
Residential mortgage-backed	$	1,348	$	1
Government—US	$	1,563	$	1

Total	$	11,241	$	16