Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following fair value hierarchy classifies the inputs to valuation techniques used to measure fair value into one of three levels:

• Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

• Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.

The following tables present the assets and liabilities recorded at fair value on a recurring basis:

	Balance at		Basis of Fair Value Measurements
($ in millions)	September 30, 2014		Level 1		Level 2		Level 3
Assets:
Deferred compensation assets	$	6.1	$	6.1	$	—	$	—
Foreign currency contracts	0.8		—		0.8		—
	$	6.9	$	6.1	$	0.8	$	—
Liabilities:
Contingent consideration	$	5.1	$	—	$	—	$	5.1
Deferred compensation liabilities	7.9		7.9		—		—
Interest rate swap contracts	4.0		—		4.0		—
Foreign currency contracts	0.1		—		0.1		—
	$	17.1	$	7.9	$	4.1	$	5.1

	Balance at		Basis of Fair Value Measurements
($ in millions)	December 31, 2013		Level 1		Level 2		Level 3
Assets:
Short-term investments	$	7.5	$	7.5	$	—	$	—
Deferred compensation assets	5.7		5.7		—		—
	$	13.2	$	13.2	$	—	$	—
Liabilities:
Contingent consideration	$	4.3	$	—	$	—	$	4.3
Deferred compensation liabilities	7.8		7.8		—		—
Interest rate swap contracts	5.6		—		5.6		—
	$	17.7	$	7.8	$	5.6	$	4.3

Short-term investments, which are comprised of certificates of deposit and mutual funds, are included within other current assets and are valued using a market approach based on quoted market prices in an active market. Deferred compensation assets are included within other noncurrent assets and are also valued using a market approach based on quoted market prices in an active market. The fair value of our foreign currency contracts, included within other current assets and other current liabilities, is valued using an income approach based on quoted forward foreign exchange rates and spot rates at the reporting date. The fair value of our contingent consideration, included within other current and other long-term liabilities, is discussed further in the section related to Level 3 measurements. The fair value of deferred compensation liabilities is based on quoted prices of the underlying employees’ investment selections and is included within other long-term liabilities. Interest rate swap contracts, included within other current and long-term liabilities, are valued based on the terms of the contract and observable market inputs (i.e., LIBOR, Eurodollar synthetic forwards and swap spreads). Refer to Note 6, Derivative Financial Instruments, for further discussion of our derivatives.

Level 3 Fair Value Measurements

The fair value of the contingent consideration liability related to our SmartDose^TM electronic patch injector system (“SmartDose contingent consideration”) was initially determined using a probability-weighted income approach, and is revalued at each reporting date or more frequently if circumstances dictate. Changes in the fair value of this obligation are recorded as income or expense within other expense in our condensed consolidated statements of income. The significant unobservable inputs used in the fair value measurement of the contingent consideration are the sales projections, the probability of success factors, and the discount rate. Significant increases or decreases in any of those inputs in isolation would result in a significantly lower or higher fair value measurement. As development and commercialization of SmartDose progresses, we may need to update the sales projections, the probability of success factors, and the discount rate used. This could result in a material increase or decrease to the contingent consideration liability.

The following table provides a summary of changes in our Level 3 fair value measurements:

	Nine Months Ended September 30,
	2014			2013
Beginning Balance	$	4.3		$	3.3
Increase in fair value recorded in earnings	1.0			0.5
Payments	(0.2		)	—
Ending Balance	$	5.1		$	3.8

Refer to Note 11, Other Expense (Income), for further discussion of our acquisition-related contingency.

Other Financial Instruments

We believe that the carrying amounts of our cash and cash equivalents, accounts receivable and short-term borrowings approximate their fair values due to their near-term maturities.

Quoted market prices are used to estimate the fair value of publicly traded long-term debt. The fair value of debt that is not quoted on an exchange is estimated using a discounted cash flow method based on interest rates that are currently available to us for debt issuances with similar terms and maturities. At September 30, 2014, the estimated fair value of long-term debt was $320.7 million compared to a carrying amount of $315.5 million. At December 31, 2013, the estimated fair value of long-term debt was $365.8 million and the carrying amount was $371.3 million.