8. Fair value

Fair value is defined 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 market for the asset transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. We use a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis at July 31, 2016 and 2015:


	Fair Value Measurements at July 31, 2016
(in millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents	$	118.7	$	118.7	$	—	$	—
Plan assets for deferred compensation		5.9		5.9		—		—

Total assets at fair value	$	124.6	$	124.6	$	—	$	—

Liabilities
Contingent consideration	$	12.2	$	—	$	—	$	12.2
Foreign currency forward contracts		0.3		—		0.3		—

Total liabilities at fair value	$	12.5	$	—	$	0.3	$	12.2


	Fair Value Measurements at July 31, 2015
(in millions)	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash and cash equivalents	$	123.8	$	123.8	$	—	$	—
Plan assets for deferred compensation		4.3		4.3		—		—

Total assets at fair value	$	128.1	$	128.1	$	—	$	—

Liabilities
Contingent consideration	$	2.0	$	—	$	—	$	2.0
Foreign currency forward contracts	$	0.5	$	—	$	0.5	$	—

Total liabilities at fair value	$	2.5	$	—	$	0.5	$	2.0

Assets held in the deferred compensation plans will be used to pay benefits under our non-qualified deferred compensation plans. The investments primarily consist of mutual funds which are publicly traded on stock exchanges. Accordingly, the fair value of these assets is categorized as Level 1 within the fair value hierarchy.

The fair value of the liabilities arising from our foreign currency forward contracts is determined by valuation models based on market observable inputs, including forward and spot prices for currencies. Accordingly, the fair value of these liabilities is categorized as Level 2 within the fair value hierarchy.

The fair value of our contingent consideration obligation is based on significant unobservable inputs, including management estimates and assumptions, and is measured based on the probability-weighted present value of the payments expected to be made. Accordingly, the fair value of this liability is categorized as Level 3 within the fair value hierarchy.

The fair value of the contingent payments associated with the acquisition of PocketSonics was calculated utilizing 100% probability for the earn out associated with the Section 510(k) clearance obtained from the Food and Drug Administration, or FDA, on April 9, 2014 and the first commercial shipment as defined in the purchase agreement, in the fiscal year ending July 31, 2016, or fiscal year 2016. Each quarter we revalue the contingent consideration obligations associated with the acquisition of PocketSonics to its then current fair value and record changes in the fair value to the Consolidated Statements of Operations. Changes in contingent consideration result from changes in the assumptions regarding probabilities of the estimated timing of launch, volume sales target, payments and the discount rate used to estimate the fair value of the liability. The assumptions used in estimating fair value require significant judgment. The use of different assumptions and judgments could result in a materially different estimate of fair value. There were adjustments of $0.0 million and ($0.1) million in the fair value of our contingent consideration obligation during the years ended July 31, 2016 and 2015, respectively. As of July 31, 2016 and 2015 the fair value of the contingent consideration obligation was reported in Other long-term liabilities and Other current liabilities as $2.0 million and $2.0 million, respectively, in the Consolidated Balance Sheets.

The fair value of the contingent payment obligation associated with the acquisition of Oncura was valued using a Monte Carlo simulation. The fair value of the contingent payment obligation of Oncura will be revalued each quarter to its then fair value and we will record changes in the fair value as contingent consideration expense within the our Consolidated Statement of Operations within general and administrative operating expenses. Changes in contingent consideration expense result from changes in the assumptions regarding probabilities of the estimated future volume sales and gross margin targets and the discount rate used to estimate the fair value of the liability. The assumptions used in estimating the fair value require significant judgment. The use of different assumptions and judgments could result in a different estimate of fair value. There was a $0.1 million increase in the fair value of our contingent consideration obligation during the year ended July 31, 2016. As of July 31, 2016, the fair value of the contingent consideration obligation associated with the Oncura acquisition was $2.5 million within short-term contingent consideration and $7.7 million within long-term contingent consideration, in the Consolidated Balance Sheets. Please refer to Note 3. Business Combinations for more information on the acquisition of Oncura.

The following are reconciliations of the changes in the fair value of contingent consideration in fiscal years 2016 and 2015:


	For the Year ended July 31,
(in millions)	2016		2015
Beginning Balance	$	2.0	$	2.1
Acquisition-Oncura		10.1		—
Change in fair value		0.1		(0.1	)
Payments		—		—

Ending Balance	$	12.2	$	2.0