Note 11—Fair Value Measurements

Pursuant to the accounting guidance for fair value measurements, fair value is defined as the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. When determining the fair value measurements for assets and liabilities, we consider the principal or most advantageous market in which the asset or liability would transact in and we consider assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

Under fair value accounting guidance, there is a three-tier fair value hierarchy to prioritize the inputs used in measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.

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:


Level 1:	Observable inputs, such as unadjusted quoted market prices in active markets for the identical asset or liability.

Level 2:	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.

Level 3:	Unobservable inputs that reflect the entity’s own assumptions in measuring the asset or liability at fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For assets and liabilities measured at fair value on a recurring basis, fair value is the price we would receive to sell an asset or pay to transfer a liability in an orderly transaction with a market participant at the measurement date. In the absence of active markets for the identical assets and liabilities, such measurements involve developing assumptions based on market observable data, and in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date.

The following table provides the fair value hierarchy for assets and liabilities measured on a recurring basis.

	Fair Value at June 30, 2016							Fair Value at June 30, 2015
Description	Level 1		Level 2		Level 3			Level 1		Level 2		Level 3
Assets/(Liabilities)
Available-for-sale securities	$	54,447	$	-	$	-		$	54,947	$	-	$	-
Foreign exchange contracts	-			139,259	-				-		195,342		-
Pension assets		3,090	-		-				3,572		-		-
Contingent consideration	-		-			(50,727	)		-		-		(56,296	)
Net asset/(liability)	$	57,537	$	139,259	$	(50,727	)	$	58,519	$	195,342	$	(56,296	)

Total Gains (Losses) for the

Year Ended

June 30,

Description

2016

2015

2014

Contingent consideration

6,717

(1,577

)

(73

)

The following describes the valuation methodologies we use to measure assets and liabilities accounted for at fair value on a recurring basis:

Available-for-Sale Securities: Available-for-sale securities are classified as Level 1 as the fair value was determined from market quotes obtained from financial institutions in active markets.

Foreign Exchange Contracts: We use foreign exchange contracts to hedge market risks relating to possible adverse changes in foreign currency exchange rates. Our foreign exchange contracts were measured at fair value using Level 2 inputs. Such inputs include foreign currency exchange spot and forward rates for similar transactions in actively quoted markets.

Pension Assets: Our pension assets have been valued using Level 1 inputs as quoted prices in an active market exist for these assets. Refer to Note 17—Retirement Benefits for more information.

Contingent Consideration: At June 30, 2016, a portion of our contingent consideration is associated with an earn-out related to the acquisition of TowerSec. We use a Monte Carlo simulation model (a form of the income approach) in determining the fair value of the contingent consideration. The principal inputs to the approach include our expectations of the achievement of certain targets for awarded business through March 10, 2019, risk-free rates, volatility, credit spreads, and the weighted average cost of capital. During the fiscal year ended June 30, 2016, our preliminary estimate of the fair value of this contingent consideration liability is $27.7 million.

A portion of our contingent consideration is associated with a $30.0 million earn-out related to the acquisition of Redbend. We use a discounted cash flow approach (a form of the income approach) in determining the fair value of the contingent consideration. The principal inputs to the approach include our expectations of the achievement of Redbend’s cumulative bookings target for awarded business from January 1, 2015 through December 31, 2016 and a discount rate that begins with our weighted average cost of capital and adjusts for the risks associated with the underlying cumulative bookings target for awarded business outcome, the functional form of the payout and our credit risk associated with making the payment. During the fiscal year ended June 30, 2016, we reassessed our expectations of Redbend’s cumulative bookings target and revised our estimate of the contingent consideration liability to increase it to $18.4 million as of June 30, 2016 from the previously recorded balance of $16.7 million as of June 30, 2015. We recorded an increase of $2.8 million to our estimated contingent consideration liability as an adjustment to goodwill within the opening balance sheet. Subsequent to the end of the measurement period, we revised our estimated contingent consideration liability and recorded a decrease of $1.1 million within SG&A in our Consolidated Statement of Income for the fiscal year ended June 30, 2016.

At June 30, 2016, a portion of our contingent consideration is associated with a $10.0 million earn-out related to the acquisition of SVSI. We use a discounted cash flow approach (a form of the income approach) in determining the fair value of the contingent consideration. The principal input to the approach is our expectation of the achievement of SVSI’s contribution margin targets related to the sale of certain products through June 30, 2018. During the fiscal year ended June 30, 2016, we reassessed our expectations of the SVSI contribution margin outcome and revised our estimate of the contingent consideration liability to increase it to $3.0 million from the previously recorded balance of $0.0 as of June 30, 2015. The increase was adjusted to goodwill in the opening balance sheet.

A portion of our contingent consideration is associated with an earn-out related to our acquisition of Duran. We use a probability-weighted discounted cash flow approach (a form of the income approach) in determining the fair value of the contingent consideration. The principal inputs to the approach include our expectations of Duran’s gross profit related to the sale of certain specified products through June 30, 2020 and a discount rate that begins with our weighted average cost of capital and adjusts for the risks associated with the underlying Duran gross profit outcome, the functional form of the payout and our credit risk associated with making the payment. During the fiscal year ended June 30, 2016, we reassessed our expectations of Duran’s gross profit outcome and revised our estimate of the contingent consideration liability to decrease it to $1.6 million as of June 30, 2016 from the previously recorded balance of $2.2 million as of June 30, 2015. During the fiscal years ended June 30, 2016 and 2015, we made a payment of approximately $0.3 million and $0.3 million for the fiscal year 2015 and 2014 results, respectively. The $0.3 million decrease was adjusted within SG&A in our Consolidated Statement of Income for the fiscal year ended June 30, 2016.

A portion of our contingent consideration is associated with an earn-out related to the acquisition of IPSG/VFX. We determined the fair value of the contingent consideration based on our expectations of IPSG/VFX’s gross profit related to the sale of certain specified products through June 30, 2017. During the fiscal year ended June 30, 2016, we reassessed our expectations of IPSG/VFX’s gross profit outcome and revised our estimate of the contingent consideration liability to decrease it to $0 as of June 30, 2016 from the previously recorded balance of $5.8 million as of June 30, 2015. This reduction was adjusted to goodwill in the opening balance sheet.

At June 30, 2015, a portion of our contingent consideration is associated with an earn-out related to the acquisition of STC. We used a discounted cash flow approach (a form of the income approach) in determining the fair value of the contingent consideration. The principal inputs to the approach included our expectations of STC’s calendar year 2015 revenue and a discount rate that began with our weighted average cost of capital and adjusted for the risks associated with the underlying STC calendar year 2015 revenue, the functional form of the payout and our credit risk associated with making the payment. During the fiscal year ended June 30, 2016, we recorded approximately $1.1 million of interest accretion to increase this liability. We finalized our calculation during the fiscal year ended June 30, 2016, and paid the $23.3 million contingent consideration liability. We recorded a decrease of $3.1 million to our estimated contingent consideration liability within SG&A in our Consolidated Statement of Income during the fiscal year ended June 30, 2016.

At June 30, 2015, a portion of our contingent consideration is associated with an earn-out related to our acquisition of certain assets and liabilities of yurbuds. We used a discounted cash flow approach (a form of the income approach) in determining the fair value of the contingent consideration. The principal inputs to the approach included our expectations of yurbuds’ gross profit through June 30, 2017 and a discount rate that began with our weighted average cost of capital and adjusted for the risks associated with the underlying yurbuds gross profit outcome, the functional form of the payout and our credit risk associated with making the payment. During the fiscal year ended June 30, 2016, we reached an agreement to settle our obligation for this contingent consideration liability and paid $3.5 million. From the previously recorded balance of $6.8 million as of June 30, 2015, we recorded a $3.3 million decrease to this contingent consideration liability which was recorded within SG&A in our Consolidated Statement of Income for fiscal year ended June 30, 2016.

Given the use of significant inputs that are not observable in the market, our contingent consideration is classified within Level 3 of the fair value hierarchy. Refer to Note 2—Acquisitions for more information.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

Certain assets are measured at fair value on a non-recurring basis. These assets are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances. These assets can include long-lived assets that have been reduced to fair value when they are held for sale or impaired, goodwill that has been reduced to fair value when it is impaired, cost and equity method investments and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary if we sell a controlling interest and retain a non-controlling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs.

The following table provides the carrying value for assets and liabilities measured on a non-recurring basis, all of which are measured under Level 3 of the fair value hierarchy, and the losses recorded during the periods presented.

					Total Losses for the Year Ended, June 30,
Description of Assets	June 30, 2016		June 30, 2015		2016			2015			2014
Equity method investments	$	1,175	$	2,871	$	-		$	-		$	-
Goodwill		1,510,279		1,287,180	-				-			-
Long-lived assets		1,069,574		1,222,088		(2,003	)		(2,323	)		(687	)
Total	$	2,581,028	$	2,512,139	$	(2,003	)	$	(2,323	)	$	(687	)

The following describes the valuation methodologies we use to measure financial and non-financial instruments accounted for at fair value on a non-recurring basis.

Equity Method Investments: Equity method investments are generally valued using a discounted cash flow model, comparative market multiples or a combination of both approaches as appropriate. These investments are generally included in Level 3.

Goodwill: Goodwill is evaluated for impairment annually or more frequently if an event or circumstance indicates that an impairment loss may have been incurred. This asset is included in Level 3. Refer to Note 8—Goodwill and Intangible Assets, Net for more information.

Long-lived Assets: Long-lived assets include Property, plant and equipment, net and intangible assets, and are valued using the best information available, including quoted market prices or market prices for similar assets when available or internal cash flow estimates discounted at an appropriate interest rate or independent appraisals, as appropriate. For real estate, cash flow estimates are based on current market estimates that reflect current and projected lease profiles and available industry information about expected trends in rental, occupancy and capitalization rates. These assets are generally included in Level 3.