Fair Value Measurements

12 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

We apply the provisions of ASC 820, “Fair Value Measurements and Disclosures.” ASC 820 defines fair value and provides guidance for measuring fair value and expands disclosures about fair value measurements. ASC 820 enables the reader of financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC 820 requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

• Level 1 – Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.

• Level 2 – Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

◦ quoted prices for similar assets and liabilities in active markets

◦ quoted prices for identical or similar assets or liabilities in markets that are not active

◦ observable inputs other than quoted prices that are used in the valuation of the asset or liabilities (e.g., interest rate and yield curve quotes at commonly quoted intervals)

◦ inputs that are derived principally from or corroborated by observable market data by correlation or other means

• Level 3 – Unobservable inputs for the assets or liability (i.e., supported by little or no market activity). Level 3 inputs include management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).

The following table sets forth by level, within the fair value hierarchy, our assets (liabilities) carried at fair value as of June 30, 2014:

(in thousands)	Level 1		Level 2		Level 3			Total
Contingent Consideration	$	—	$	—	$	(5,152	)	$	(5,152	)
Interest Rate Derivative Instruments	—		580		—			580
Foreign Currency Exchange Contracts	—		6,463		—			6,463
Total	$	—	$	7,043	$	(5,152	)	$	1,891

The following table sets forth by level, within the fair value hierarchy, our assets (liabilities) carried at fair value as of June 30, 2013:

(in thousands)	Level 1		Level 2			Level 3			Total
Contingent Consideration	$	—	$	—		$	(5,934	)	$	(5,934	)
Interest Rate Derivative Instruments	—		(849		)	—			(849		)
Foreign Currency Exchange Contracts	—		(3,425		)	—			(3,425		)
Total	$	—	$	(4,274	)	$	(5,934	)	$	(10,208	)

Cash equivalents are measured at quoted prices in active markets. These investments are considered cash equivalents due to the short original maturity (less than 90 days) of the investments.

Marketable securities are held in foreign government treasury certificates that are actively traded and have original maturities over 90 days but less than one year. As of June 30, 2014, we had marketable securities of $95.6 million. Our marketable securities were invested in foreign government treasury certificates securities and they are classified as held-to-maturity based on our intent and ability to hold the securities to maturity and are recorded at amortized cost, which is not materially different than fair value. Interest and dividends related to these securities are reported as a component of interest income in our consolidated statements of income.

Interest rate derivative instruments are measured at fair value using a market approach valuation technique. The valuation is based on an estimate of net present value of the expected cash flows using relevant mid-market observable data inputs and based on the assumption of no unusual market conditions or forced liquidation.

Foreign currency exchange contracts are measured at fair value using a market approach valuation technique. The inputs to this technique utilize current foreign currency exchange forward market rates published by leading third-party financial news and data providers. This is observable data that represent the rates that the financial institution uses for contracts entered into at that date; however, they are not based on actual transactions so they are classified as Level 2.

Contingent consideration related to the HERON acquisition is measured at fair value using an income approach valuation technique, specifically, with probability weighted and discounted cash flow methods. Increases or decreases in the fair value of our contingent consideration liability can result from changes in discount periods and rates, as well as the likelihood of achieving financial targets. The recurring Level 3 fair value measurements of our contingent consideration liability include the following significant unobservable inputs:

Unobservable Input	Range
Discount rate	18%
Probability of achieving financial targets	10% to 55%
Projected period of payment	August 2015

The following table provides a roll-forward of the fair value of the contingent consideration, which was determined by Level 3 inputs:

(in thousands)	Fair Value
Balance at June 30, 2012	$	—
Contingent consideration from the HERON acquisition	5,934
Balance at June 30, 2013	$	5,934
Change in fair value related to contingent consideration from HERON acquisition	(782		)
Balance at June 30, 2014	$	5,152

Contingent consideration liabilities are re-measured to fair value each reporting period using projected financial targets, discount rates, probabilities of payment and projected payment dates. Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model. Projected financial targets are based on our most recent internal operational budgets and take into consideration of alternate scenarios that could result in more or less profitability for our commercialization service line. Increases or decreases in projected financial targets and probabilities of payment may result in significant changes in the fair value measurements. Increases in discount rates and the time to payment may result in lower fair value measurements. Increases or decreases in any of those inputs in isolation may result in a significantly lower or higher fair value measurement. Given the subjectivity of the inputs, the variation of estimated contingent payments related to the HERON acquisition range from zero to $14.2 million. The final obligation will be measured on June 30, 2015 based upon the operating results for the fiscal year ending June 30, 2015. For Fiscal Year 2014, the change in fair value of contingent consideration of $0.8 million was recorded in selling, general and administrative expense.

For the fiscal years ended June 30, 2014 and June 30, 2013, there were no transfers among Level 1, Level 2, or Level 3 categories. Additionally, there were no changes in the valuation techniques used to determine the fair values of our Level 2 assets or liabilities over the same periods.

The fair value of the debt under Note Purchase Agreement was estimated to be $95.4 million as of June 30, 2014, and was determined using U.S. government treasury rates and Level 3 inputs, including a credit risk adjustment.

The carrying value of our short-term and long-term debt under the 2013 Credit Agreement approximates fair value because all of the debt bears variable rate interest.