Fair Value Measurements

Fair Value Hierarchy

We apply the provisions of ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”), for our financial assets and liabilities that are re-measured and reported at fair value each reporting period and our nonfinancial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis. We define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three level fair value hierarchy to prioritize the inputs used in valuations, as defined below:

Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability.

Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

Our financial assets that are re-measured at fair value on a recurring basis include money market funds that are classified as cash and cash equivalents in the consolidated balance sheets. These money market funds are classified within Level 1 of the fair value hierarchy and are valued using quoted market prices for identical assets.

For the Aexis Medical acquisition, additional purchase price payments ranging from $0 to $1,850 are contingent upon the achievement of certain purchase order targets through March 21, 2020. We estimated the original fair value of the contingent consideration using the weighted probabilities of the possible contingent payments. As of the date of acquisition, we estimated the original fair value of the contingent consideration to be $1,292. We are required to reassess the fair value of contingent payments on a periodic basis. The significant inputs used in these estimates include numerous possible scenarios for the payments based on the contractual terms of the contingent consideration, for which probabilities are assigned to each scenario. Given the short term nature of the financial instrument, the contingent consideration will not be discounted to present value. Although we believe our assumptions are reasonable, different assumptions or changes in the future may result in different estimated amounts.

In connection with the Jet Prep Ltd. (“Jet Prep”) acquisition in fiscal 2014, we assumed a contingent obligation payable to the Israeli Government based on future sales. This fair value measurement was based on significant inputs not observed in the market and thus represent Level 3 measurements. In November 2017, the Israeli Government formally notified us that they would forgive any future amounts payable due to our decision to exit the Jet Prep business. During the first quarter of fiscal 2018, we reduced the fair value of this obligation to $0. See Note 11, “Commitments and Contingencies.”

The fair values of our financial instruments measured on a recurring basis were categorized as follows:



	July 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	104	$	—	$	—	$	104
Total assets	104		—		—		104
Liabilities:
Other long-term liabilities:
Contingent consideration	—		—		1,298		1,298
Total other long-term liabilities:	—		—		1,298		1,298
Total liabilities	$	—	$	—	$	1,298	$	1,298



	July 31, 2017
	Level 1		Level 2		Level 3		Total
Assets:
Cash and cash equivalents:
Money markets	$	102	$	—	$	—	$	102
Total assets	$	102	$	—	$	—	$	102
Liabilities:
Accrued expenses:
Assumed contingent obligation	—		—		12		12
Total accrued expenses	—		—		12		12
Other long-term liabilities:
Assumed contingent obligation	—		—		1,126		1,126
Total other long-term liabilities:	—		—		1,126		1,126
Total liabilities	$	—	$	—	$	1,138	$	1,138

A reconciliation of our liabilities that are measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3) for fiscal 2018, 2017 and 2016 is as follows:



	Aexis Medical Contingent Consideration		Jet Prep Contingent Consideration			Jet Prep Assumed Contingent Obligation			Cantel Medical (U.K.) Contingent Guaranteed Obligation			Total
Balance, August 1, 2015	$	—	$	751		$	1,138		$	888		$	2,777
(Income) loss included in general and administrative expense	—		(751		)	—			64			(687		)
Net purchases, issuances, sales and settlements	—		—			—			(511		)	(511		)
Balance, July 31, 2016	—		—			1,138			441			1,579
Income included in general and administrative expense	—		—			—			(265		)	(265		)
Net purchases, issuances, sales and settlements	—		—			—			(176		)	(176		)
Balance, July 31, 2017	—		—			1,138			—			1,138
Original fair value of contingent consideration	1,292		—			—			—			1,292
Loss included in general and administrative expense	6		—			—			—			6
Net purchases, issuances, sales and settlements	—		—			(1,138		)	—			(1,138		)
Balance, July 31, 2018	$	1,298	$	—		$	—		$	—		$	1,298

Disclosure of Fair Value of Financial Instruments

As of July 31, 2018 and 2017, the carrying amounts for cash and cash equivalents (excluding money markets), accounts receivable and accounts payable approximated fair value due to the short maturity of these instruments. As of July 31, 2018 and 2017, the carrying value of our outstanding borrowings under our credit facility approximated the fair value of these obligations as the borrowings rates reflect prevailing market interest rates.