Fair Value of Financial Instruments

9 Months Ended

Mar. 31, 2016

Business Combinations [Abstract]

Fair Value of Financial Instruments

Note  13. 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, 2016, 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 and restrictions and other terms specific to the contracts. Foreign currency gain related to these contracts was immaterial for the three and nine months ended March 31, 2016. At March 31, 2016, the Company had a contingent earnout arrangement related to the acquisition of EpiWorks recorded at fair value. The EpiWorks earnout arrangement provides up to a maximum of $6.0 million of additional cash payments to the former shareholders based upon EpiWorks achieving certain agreed upon financial and operational targets for capacity, wafer output and gross margin, which if earned would be payable $2.0 million for the achievement of each specific target over the next three years. As of March 31, 2016, the Company has made no earnout payments. Due to the timing of the acquisition, the Company is still in the process of completing its fair market valuation of the earnout arrangement. The Company has recorded the fair value of the earnout arrangement of $2.0 million in Other accrued liabilities and $4.0 million in Other liabilities in the Condensed Consolidated Balance Sheets. The fair value of the earnout arrangement was based on significant inputs not observable in the market and represents a Level 3 measurement as defined by U.S. GAAP.  

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

	Fair Value Measurements at March 31, 2016 Using:
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Foreign currency forward contracts	$	99	$	-	$	99	$	-
Contingent earnout arrangement	$	6,000	$	-	$	-	$	6,000

	Fair Value Measurements at June 30, 2015 Using:
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	June 30, 2015		(Level 1)		(Level 2)		(Level 3)
Assets:
Foreign currency forward contracts	$	130	$	-	$	130	$	-

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 and nine months ended March 31, 2016.

The following table presents a reconciliation of the beginning and ending fair value measurements of the Company’s level 3 contingent earnout arrangement related to the acquisition of EpiWorks ($000):

	Significant
	Unobservable Inputs
	(Level 3)
Balance at July 1, 2015	$	-
Contingent earnout arrangement		6,000
Payments		-
Changes in fair value		-
Balance at March 31, 2016	$	6,000

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 are considered Level 2 among the fair value hierarchy and are variable interest rates and accordingly their carrying amounts approximate fair value.