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Fair Value Measurements

12 Months Ended

Jun. 30, 2020

6. Fair Value Measurements

A three-tier fair value hierarchy is utilized to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels are defined as follows:

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Level 1 Inputs - unadjusted quoted prices in active markets for identical assets or liabilities;

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Level 2 Inputs - quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and

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Level 3 Inputs - unobservable inputs reflecting the Company’s own assumptions in measuring the asset or liability at fair value.

The following table presents the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis (in thousands):

June 30, 2020	Level 1		Level 2		Level 3		Total
Liabilities
Foreign currency derivatives	$	—	$	8	$	—	$	8
Interest rate swaps	$	—	$	1,769	$	—	$	1,769
Acquisition-related contingent consideration obligations	$	—	$	—	$	2,167	$	2,167
Total liabilities measured at fair value	$	—	$	1,777	$	2,167	$	3,944

June 30, 2019	Level 1		Level 2		Level 3		Total
Liabilities
Acquisition-related contingent consideration obligations	$	—	$	—	$	6,298	$	6,298
Total liabilities measured at fair value	$	—	$	—	$	6,298	$	6,298

Level 1 Assets and Liabilities:

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, and accrued liabilities. The Company states accounts receivable, accounts payable and accrued liabilities at their carrying value, which approximates fair value due to the short time to the expected receipt or payment.

Level 2 Assets and Liabilities:

The fair value of derivative instruments under our foreign currency contracts and interest rate swaps are estimated based on valuations provided by alternative pricing sources supported by observable inputs which is considered Level 2.

As of June 30, 2020, forward foreign currency contracts had a notional principal amount of $4.0 million and for the year ended June 30, 2020, there were gains of $0.1 million. These contracts have maturities of less than 30 days. Changes in the fair value of these foreign exchange forward contracts are included in other income or expense. There were no forward foreign currency contracts at June 30, 2019. See Note 14, Derivatives and Hedging for additional information.

The fair values of the interest rate swaps are based upon inputs corroborated by observable market data which is considered Level 2. As of June 30, 2020, the Company had entered into multiple interest rate swap contracts with the total notional amount of $200.0 million. Changes in fair value of these contracts are recorded as a component of accumulated other comprehensive income (loss). As of June 30, 2020, these contracts had an unrealized loss of $1.8 million. There were no interest rate swaps outstanding at June 30, 2019. See Note 14, Derivatives and Hedging for additional information.

The fair value of the borrowings under the Credit Agreement is estimated based on valuations provided by alternative pricing sources supported by observable inputs which is considered Level 2. Due to the limited duration until maturity of the Credit Agreement, the fair value approximates the face amount of the Company’s indebtedness of $420.8 million and $180.5 million as of June 30, 2020 and 2019, respectively. Such differences are immaterial for all periods presented.

Level 3 Assets and Liabilities:

Certain of the Company’s assets, including intangible assets and goodwill are measured at fair value on a non-recurring basis if impairment is indicated.

At June 30, 2020 and June 30, 2019, the Company reflected one liability measured at fair value of $2.2 million and $6.3 million, respectively, for contingent consideration related to a certain acquisition completed in fiscal 2018. The fair value measurement of the contingent consideration obligation is determined using Level 3 inputs. These fair value measurements represent Level 3

measurements as they are based on significant inputs not observable in the market. Changes in the value of the contingent consideration obligations is recorded in general and administrative expenses in the accompanying consolidated statements of operations.

The change in the acquisition-related contingent consideration obligations is as follows (in thousands):

	Year Ended
	June 30, 2020
Beginning balance		6,298
Payments		(4,251	)
Accretion on discount		120
Ending balance	$	2,167

There were no transfers of assets or liabilities between Level 1, Level 2 or Level 3 during the year ended June 30, 2020 or 2019. There were no impairments recorded for the year ended June 30, 2020 or 2019.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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