Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Fair Value Measurements

Note 4 - Fair Value Measurements

6 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Fair Value, Measurement Inputs, Disclosure [Text Block]

Note

Fair Value Measurements:

The

Company’s financial instruments include cash and cash equivalents, available for sale investments, accounts receivable, accounts payable, contingent consideration obligations, and long-term debt.

Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. This standard also establishes a hierarchy for inputs used in measuring fair value. This standard maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability based upon the best information available in the circumstances.

The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The hierarchy is broken down into

three

levels. Level

inputs are quoted prices in active markets for identical assets or liabilities. Level

inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are

not

active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level

inputs are unobservable for the asset or liability and their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least

one

significant model assumption or input is unobservable. Level

may

also include certain investment securities for which there is limited market activity or a decrease in the observability of market pricing for the investments, such that the determination of fair value requires significant judgment or estimation.

The following tables provide information by level for financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

	Total carrying value as of		Fair Value Measurements Using Inputs Considered as
	December 31 , 2017		Level 1		Level 2		Level 3
Assets
Equity securities (1)	$	37,867	$	37,867	$	-	$	-

Liabilities
Contingent Consideration	$	53,300	$	-	$	-	$	53,300

	Total carrying value a s of		Fair Value Measurements Using Inputs Considered as
	June 30, 2017		Level 1		Level 2		Level 3
Assets
Equity securities (1)	$	59,616	$	59,616	$	-	$	-
Corporate bond securities (1)		2,057		-		2,057		-
Total Assets	$	61,673	$	59,616	$	2,057	$	-

Liabilities
Contingent Consideration	$	68,400	$	-	$	-	$	68,400

(

)

Included in available-

for-sale investments on the balance sheet

Our available for sale securities are measured at fair value using quoted market prices in active markets for identical assets and are therefore classified as Level

assets. We value our Level

assets using inputs that are based on market indices of similar assets within an active market.

All of our Level

assets have maturity dates of less than

one

year.

The use of different assumptions, applying different judgment to matters that inherently are subjective and changes in future market conditions could result in different estimates of fair value of our securities or contingent consideration, currently and in the future. If market conditions deteriorate, we

may

incur impairment charges for securities in our investment portfolio. We

may

also incur changes to our contingent consideration liability as discussed below.

In connection with the Advanced Cell Diagnostics

(ACD) acquisition (fiscal

2017

), as well as the Zephyrus and CyVek acquisitions (fiscal

2016

), we are required to make contingent payments, subject to the entities achieving certain sales and revenue thresholds. The contingent consideration payments were up to

$75

million,

million and

$35

million related to the ACD, Zephyrus and CyVek acquisitions, respectively.

The fair value of the liabilities for the contingent payments recognized upon each acquisition as part of the purchase accounting opening balance sheet totaled

$78.5

million (

$37.0

million for ACD,

$6.5

million for Zephyrus and

$35.0

million for CyVek) and was estimated by discounting to present value the probability-weighted contingent payments expected to be made. Assumptions used in these calculation units sold, expected revenue, discount rate and various probability factors. The ultimate settlement of contingent consideration could deviate from current estimates based on the actual results of these financial measures. This liability is considered to be a Level

financial liability that is re-measured each reporting period. The change in fair value of contingent consideration for these acquisitions is included in general and administrative expense.

As of

June 30, 2017

the remaining conti

ngent consideration payments were up to

$50

million,

$3.5

million and

$35

million related to the ACD, Zephyrus and CyVek acquisitions, respectively

. During the

first

quarter of fiscal

2018,

a cash payment of

$35.0

million was made towards to the contingent consideration liability relating to the CyVek acquisition. During the

second

quarter of fiscal

2018,

the Company determined that certain sales and revenue thresholds were met for ACD. The Company expects to make a

$50.0

million cash payment towards this liability in the

third

quarter of fiscal

2018.

The following table presents a reconciliation of the liability measured at fair value on a recurring basis using significant unobser

vable inputs (Level

) for the

six

months ended

December 31, 2017 (

in thousands):

	Quarter Ended		Six Months Ended
	December 31, 2017		December 31, 2017
Fair value at the beginning of period	$	40,900	$	68,400
Payments		-		(35,000	)
Change in fair value of contingent consideration		12,400		19,900
Fair value at the end of period	$	53,300	$	53,300

Fair value measurements of other financial instruments

– The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate fair value.

Cash and cash equivalents,

certificates of deposit, accounts receivable, and accounts payable – The carrying amounts reported in the consolidated balance sheets approximate fair value because of the short-term nature of these items.

Long-term debt

– The carrying amounts reported in the consolidated balance sheets for the amount drawn on our line-of-credit facility approximates fair value because our interest rate is variable and reflects current market rates.