Note 4—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 December 31, 2018 and June 30, 2018, our assets and liabilities measured at fair value on a recurring basis were as follows:


	December 31, 2018								June 30, 2018
	Fair Value Measurements Using Input Types								Fair Value Measurements Using Input Types
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)
Assets
Money market funds (cash and cash equivalents)	$	1,756	$	—	$	—	$	1,756	$	154	$	—	$	—	$	154

Available for sale securities - Debt
U.S. Corporate	$	—	$	991	$	—	$	991	$	—	$	3,467	$	—	$	3,467
Government - U.S.		—		7,424		—		7,424		—		6,480		—		6,480

Total available for sale securities	$	—	$	8,415	$	—	$	8,415	$	—	$	9,947	$	—	$	9,947

Short-term derivative interest rate swap	$	—	$	562	$	—	$	562	$	—	$	407	$	—	$	407

Long-term derivative interest rate swap	$	—	$	917	$	—	$	917	$	—	$	2,183	$	—	$	2,183

Fair Value of Financial Instruments

We have certain financial instruments which consist of cash and cash equivalents, cash held for customers, marketable securities, accounts receivable, accounts payable, customer account liabilities, a derivative interest rate swap and debt drawn on our Credit Facility (as defined in Note 11). Fair value information for each of these instruments is as follows:

•

Cash and cash equivalents, cash held for customers, accounts receivable, accounts payable and customer account liabilities fair values approximates their carrying values, due to the short-term nature of these instruments.

•

Marketable securities classified as held to maturity, all of which mature within one year, are recorded at amortized cost, which at December 31, 2018 and June 30, 2018, approximated fair value.

•

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

•

The fair value of our derivative interest rate swap is based on the present value of projected cash flows that will occur over the life of the instrument, after considering certain contractual terms of the arrangement and counterparty credit risk.

•

The carrying value of assets related to deposits we have made to fund future requirements associated with Israeli severance arrangements was $1.3 million and $1.4 million at December 31, 2018 and June 30, 2018, respectively, which approximated fair value.

•

We have certain other investments for which there is no readily determinable fair value. The carrying value of these investments was $4.4 million at both December 31, 2018 and June 30, 2018, and they are reported as a component of our other assets. These investments are recorded at cost, less impairment (if any), plus or minus adjustments for observable price changes.

•

We have borrowings of $110 million against our Credit Facility. The fair value of these borrowings, which are classified as Level 2, approximates their carrying value at December 31, 2018, as the instrument carries a variable rate of interest which reflects current market rates.

Marketable Securities

The table below presents information regarding our marketable securities by major security type as of December 31, 2018 and June 30, 2018.


	December 31, 2018						June 30, 2018
	Held to Maturity		Available for Sale		Total		Held to Maturity		Available for Sale		Total
	(in thousands)
Marketable securities:
Corporate and other debt securities	$	62	$	8,415	$	8,477	$	65	$	9,947	$	10,012

Total marketable securities	$	62	$	8,415	$	8,477	$	65	$	9,947	$	10,012

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:


	December 31, 2018
	(in thousands)
Due within 1 year	$	8,415
Due in 1 year through 5 years		—

Total	$	8,415

All of our available for sale marketable securities are classified as current assets.

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 December 31, 2018 and June 30, 2018, respectively, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:


	At December 31, 2018					At June 30, 2018
	Less than 12 Months
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
	(in thousands)
Government—U.S.	$	3,476	$	(3	)	$	6,480	$	(6	)

Total	$	3,476	$	(3	)	$	6,480	$	(6	)