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Fair Value Measurements
 6 Months Ended
Jun. 30, 2018
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)
June 30,
2018
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Deferred compensation assets
$
8.8

 
$
8.8

 
$
—

 
$
—

Foreign currency contracts
3.4

 
—

 
3.4

 
—

 
$
12.2

 
$
8.8

 
$
3.4

 
$
—

Liabilities:
 

 
 

 
 

 
 

Contingent consideration
$
5.0

 
$
—

 
$
—

 
$
5.0

Deferred compensation liabilities
9.9

 
9.9

 
—

 
—

Foreign currency contracts
8.0

 
—

 
8.0

 
—

 
$
22.9

 
$
9.9

 
$
8.0

 
$
5.0


 
Balance at
 
Basis of Fair Value Measurements
($ in millions)
December 31,
2017
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Deferred compensation assets
$
8.9

 
$
8.9

 
$
—

 
$
—

Foreign currency contracts
0.5

 
—

 
0.5

 
—

 
$
9.4

 
$
8.9

 
$
0.5

 
$
—

Liabilities:
 

 
 

 
 

 
 

Contingent consideration
$
4.9

 
$
—

 
$
—

 
$
4.9

Deferred compensation liabilities
9.9

 
9.9

 
—

 
—

Foreign currency contracts
5.1

 
—

 
5.1

 
—

 
$
19.9

 
$
9.9

 
$
5.1

 
$
4.9



Deferred compensation assets are included within other noncurrent assets and are 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 fair value 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.

Level 3 Fair Value Measurements

The fair value of the contingent consideration liability related to the SmartDose technology platform (the “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 SmartDose 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 the SmartDose technology platform 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 SmartDose contingent consideration.

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

 
($ in millions)
Balance, December 31, 2016
$
8.0

Decrease in fair value recorded in earnings
(2.4
)
Payments
(0.7
)
Balance, December 31, 2017
4.9

Increase in fair value recorded in earnings
0.6

Payments
(0.5
)
Balance, June 30, 2018
$
5.0


Other Financial Instruments

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

The estimated fair value of long-term debt is based on quoted market prices for debt issuances with similar terms and maturities and is classified as Level 2 within the fair value hierarchy. At June 30, 2018, the estimated fair value of long-term debt was $194.6 million compared to a carrying amount of $196.4 million. At December 31, 2017, the estimated fair value of long-term debt was $201.5 million and the carrying amount was $197.0 million.