5.Fair Value of Financial Instruments

The Company applies the following hierarchy to determine the fair value of financial instruments, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. The levels in the hierarchy are defined as follows:

Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The valuation techniques that may be used by the Company to determine the fair value of Level 2 and Level 3 financial instruments are the market approach, the income approach and the cost approach. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value based on current market expectations about those future amounts, including present value techniques, option-pricing models and the excess earnings method. The cost approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).

The following tables set forth the Company’s financial instruments that are measured at fair value on a recurring basis and presents them within the fair value hierarchy using the lowest level of input that is significant to the fair value measurement at June 30, 2017 and December 31, 2016 (in millions):

June 30, 2017	Total		Quoted Prices in Active Markets Available (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Embedded derivatives in purchase and delivery contracts	$	0.8	$	—	$	0.8	$	—
Foreign exchange contracts	5.7		—		5.7		$	—
Fixed price commodity contracts	0.4		—		0.4		—

Total assets recorded at fair value	$	6.9	$	—	$	6.9	$	—


Liabilities:
Contingent consideration	$	12.5	$	—	$	—	$	12.5
Foreign exchange contracts	0.1		—		0.1		—
Embedded derivatives in purchase and delivery contracts	0.8		—		0.8		—

Total liabilities recorded at fair value	$	13.4	$	—	$	0.9	$	12.5

December 31, 2016	Total		Quoted Prices in Active Markets Available (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Embedded derivatives in purchase and delivery contracts	$	4.0	$	—	$	4.0	$	—
Fixed price commodity contracts	0.2		—		0.2		—

Total assets recorded at fair value	$	4.2	$	—	$	4.2	$	—


Liabilities:
Contingent consideration	$	16.6	$	—	$	—	$	16.6
Foreign exchange contracts	1.4		—		1.4		—
Embedded derivatives in purchase and delivery contracts	0.3		—		0.3		—

Total liabilities recorded at fair value	$	18.3	$	—	$	1.7	$	16.6

The Company’s financial instruments consist primarily of cash equivalents, short-term investments, restricted cash, derivative instruments consisting of forward foreign exchange contracts, commodity contracts, derivatives embedded in certain purchase and sale contracts, accounts receivable, borrowings under a revolving credit agreement, accounts payable, contingent consideration and long-term debt. The carrying amounts of the Company’s cash equivalents, short-term investments and restricted cash, accounts receivable, borrowings under a revolving credit agreement and accounts payable approximate fair value because of their short-term nature. Derivative assets and liabilities are measured at fair value on a recurring basis. The Company’s long-term debt consists principally of a private placement arrangement entered into in 2012 with various fixed interest rates based on the maturity date. The fair value of the long-term fixed interest rate debt, which has been classified as Level 2, was $233.5 million and $253.3 million at June 30, 2017 and December 31, 2016, respectively, based on the outstanding amount at June 30, 2017 and December 31, 2016, market and observable sources with similar maturity dates.

The Company measures certain assets and liabilities at fair value with changes in fair value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to remeasure any of its existing financial assets or liabilities and did not elect the fair value option for any financial assets or liabilities which originated during the three or six months ended June 30, 2017 or 2016.

Excluded from the table above are cash equivalents, restricted cash and short-term investments. The Company has a program to enter into time deposits with varying maturity dates ranging from one to twelve months, as well as call deposits for which the Company has the ability to redeem the invested amounts over a period of 95 days. The Company has classified these investments within cash and cash equivalents or short-term investments within the consolidated balance sheets based on call and maturity dates and these are not subject to fair value measurement. There are no cash equivalents, $3.7 million and $3.5 million of restricted cash and $222.6 million and $157.9 million of short-term investments outstanding as of June 30, 2017 and December 31, 2016, respectively.

As part of certain acquisitions in 2017, 2016, and 2015, the Company recorded contingent consideration liabilities that have been classified as Level 3 in the fair value hierarchy. The contingent consideration represents the estimated fair value of future payments to the former shareholders of applicable acquired companies based on achieving annual revenue and gross margin targets in certain years as specified in the purchase and sale agreements. The Company initially values the contingent considerations by using a Monte Carlo simulation or an income approach method. The Monte Carlo method models future revenue and costs of goods sold projections and discounts the average results to present value. The income approach method involves calculating the earnout payment based on the forecasted cash flows, adjusting the future earnout payment for the risk of reaching the projected financials, and then discounting the future payments to present value by the counterparty risk. The counterparty risk considers the risk of the buyer having the cash to make the earnout payments and is commensurate with a cost of debt over an appropriate term.

For the three and six months ended June 30, 2017, additional contingent consideration of $2.0 million was recognized in earnings related to a recent acquisition within the Bruker Nano Group based upon an increase in forecasted revenue levels for the acquired business for the remainder of 2017 and was recorded within other charges, net in the unaudited condensed consolidated statements of income and comprehensive income.

The following table sets forth the changes in contingent consideration liabilities for the six months ended June 30, 2017 (in millions):

Balance at December 31, 2016	$	16.6
Current period additions	4.7
Current period adjustments	2.0
Current period settlements	(11.2		)
Foreign currency effect	0.4

Balance at June 30, 2017	$	12.5