Fair Value Measurements

3 Months Ended

Sep. 30, 2016

(13)

FAIR VALUE MEASUREMENTS

The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive in connection with the sale of an asset or pay in connection with the transfer of a liability in an orderly transaction between market participants at the measurement date (exit price). The fair value of contingent consideration related to the Sivdon and Assurex acquisitions were categorized as a level 3 liability, as the measurement of the earn-out amount was based primarily on significant inputs not observable in the market. For more information about the Sividon and Assurex acquisitions, see Note 2 “Acquisitions “. The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:


Level 1	—	quoted prices in active markets for identical assets and liabilities.

Level 2	—	observable inputs other than quoted prices in active markets for identical assets and 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. Some of the Company’s marketable securities primarily utilize broker quotes in a non-active market for valuation of these securities.

Level 3	—	unobservable inputs.

All of the Company’s financial instruments are valued using quoted prices in active markets or based on other observable inputs. For Level 2 securities, the Company uses a third party pricing service which provides documentation on an ongoing basis that includes, among other things, pricing information with respect to reference data, methodology, inputs summarized by asset class, pricing application and corroborative information. For Level 3, we reassess the fair value of expected contingent consideration and the corresponding liability periodically using the Monte Carlo Method, which is consistent with the initial measurement of expected earn out liability. This fair value measurement is considered a Level 3 measurement because we estimate projections during the earn out period utilizing various potential pay-out scenarios. Probabilities were applied to each potential scenario and the resulting values were discounted using a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn out itself, the related projections, and the overall business. The contingent earn out liability is classified as a component of other long-term liabilities in our consolidated balance sheets. Changes to the estimated liabilities are reflected in selling, general and administrative expenses in our consolidated income statements. The Company reviews, tests and validates this information. The following table sets forth the fair value of the financial assets that the Company re-measures on a regular basis:


	Level 1		Level 2		Level 3			Total
September 30, 2016

Money market funds (a)	$	25.8	$	—	$	—		$	25.8
Corporate bonds and notes		—		45.5		—			45.5
Municipal bonds		—		52.3		—			52.3
Federal agency issues		—		12.6		—			12.6
US government securities		—		3.3		—			3.3
Contingent consideration		—		—		(141.5	)		(141.5	)

Total	$	25.8	$	113.7	$	(141.5	)	$	(2.0	)

(a)	Money market funds are primarily comprised of exchange traded funds and accrued interest


	Level 1		Level 2		Level 3			Total
June 30, 2016

Money market funds (a)	$	2.4	$	—	$	—		$	2.4
Corporate bonds and notes		—		51.0		—			51.0
Municipal bonds		—		85.6		—			85.6
Federal agency issues		—		25.5		—			25.5
US government securities		—		8.3		—			8.3
Contingent consideration		—		—		(10.4	)		(10.4	)

Total	$	2.4	$	170.4	$	(10.4	)	$	162.4

(a)	Money market funds are primarily comprised of exchange traded funds and accrued interest

The following table reconciles the change in the fair value of the contingent consideration during the periods presented:


	Carrying
	amount
Balance June 30, 2016	$	10.4
Purchases (see note 2)		130.0
Current period adjustments to purchase accounting		0.5
Expense recognized in the income statement		0.5
Translation adjustments recognized in other comprehensive income		0.1

Ending balance September 30, 2016	$	141.5

- 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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