FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2016

The consolidated condensed financial statements include financial instruments for which the fair market value of such instruments may differ from amounts reflected on a historical cost basis. Financial instruments of the Company consist of cash deposits, accounts and other receivables, investments, accounts payable, certain accrued liabilities, and borrowings under a revolving credit agreement. The carrying value of these financial instruments generally approximates fair value due to their short-term nature. Financial instruments also include long-term notes payable. As of June 30, 2016, the fair value of the notes payable, based on Level 2 inputs, was $617.4 million, versus a carrying value of $602.5 million.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The Company prioritizes the inputs used to determine fair values in one of the following three categories:

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

Level 2—Inputs, other than quoted prices in active markets, that are observable, either directly or indirectly.

Level 3—Unobservable inputs that are not corroborated by market data.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company's financial instruments which are measured at fair value on a recurring basis (in millions):



June 30, 2016	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	24.9	$	10.0	$	—	$	34.9
Available-for-sale investments:
Corporate debt securities	—		265.4		—		265.4
Asset-backed securities	—		61.5		—		61.5
U.S. government and agency securities	47.2		30.8		—		78.0
Commercial paper	—		36.4		—		36.4
Municipal securities	—		4.7		—		4.7
Equity investments in unconsolidated affiliates	0.2		—		—		0.2
Investments held for deferred compensation plans	40.7		—		—		40.7
Derivatives	—		14.6		—		14.6
	$	113.0	$	423.4	$	—	$	536.4
Liabilities
Derivatives	$	—	$	24.1	$	—	$	24.1
Deferred compensation plans	40.7		—		—		40.7
Contingent consideration obligation	—		—		31.5		31.5
	$	40.7	$	24.1	$	31.5	$	96.3
December 31, 2015
Assets
Cash equivalents	$	3.5	$	8.5	$	—	$	12.0
Available-for-sale investments:
Corporate debt securities	—		228.7		—		228.7
Asset-backed securities	—		62.6		—		62.6
U.S. government and agency securities	9.6		28.9		—		38.5
Commercial paper	—		28.1		—		28.1
Municipal securities	—		4.7		—		4.7
Equity investments in unconsolidated affiliates	0.1		—		—		0.1
Investments held for deferred compensation plans	35.3		—		—		35.3
Derivatives	—		23.3		—		23.3
	$	48.5	$	384.8	$	—	$	433.3
Liabilities
Derivatives	$	—	$	4.2	$	—	$	4.2
Deferred compensation plans	35.5		—		—		35.5
Contingent consideration obligation	—		—		30.5		30.5
	$	35.5	$	4.2	$	30.5	$	70.2

The following table summarizes the changes in fair value of the contingent consideration obligation for the six months ended June 30, 2016 (in millions):



Balance at December 31, 2015	$	30.5
Changes in fair value (recorded in "Research and Development Expenses")	1.0
Balance at June 30, 2016	$	31.5

Cash Equivalents and Available-for-sale Investments

The Company estimates the fair values of its money market funds based on quoted prices in active markets for identical assets. The Company estimates the fair values of its commercial paper, U.S. government and agency securities, asset-backed securities, and corporate debt securities by taking into consideration valuations obtained from third-party pricing services. The pricing services use industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades and broker-dealer quotes on the same or similar securities, benchmark yields, credit spreads, prepayment and default projections based on historical data, and other observable inputs. The Company independently reviews and validates the pricing received from the third-party pricing service by comparing the prices to prices reported by a secondary pricing source. The Company’s validation procedures have not resulted in an adjustment to the pricing received from the pricing service.

Investments in unconsolidated affiliates are long-term equity investments in companies that are in various stages of development. Certain of the Company’s investments in unconsolidated affiliates are designated as available-for-sale. These investments are carried at fair market value based on quoted market prices.

Deferred Compensation Plans

The Company holds investments in trading securities related to its deferred compensation plans. The investments are in a variety of stock and bond mutual funds. The fair values of these investments and the corresponding liabilities are based on quoted market prices.

Derivative Instruments

The Company uses derivative financial instruments in the form of foreign currency forward exchange contracts and foreign currency option contracts to manage foreign currency exposures, and interest rate swap agreements to manage its interest rate exposures. All derivatives contracts are recognized on the balance sheet at their fair value. The fair value of foreign currency derivative financial instruments was estimated based on quoted market foreign exchange rates and market discount rates. The fair value of the interest rate swap agreements was determined based on a discounted cash flow analysis reflecting the contractual terms of the agreements and the 6-month LIBOR forward interest rate curve. Judgment was employed in interpreting market data to develop estimates of fair value; accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions or valuation methodologies could have a material effect on the estimated fair value amounts.

Contingent Consideration Obligation

The Company recorded a contingent consideration obligation related to its acquisition of CardiAQ. The $50.0 million contingent consideration obligation has been recorded at its estimated fair value, which was determined using a probability weighted discounted cash flow analysis that considered significant unobservable inputs. These inputs included a 1.6% discount rate used to present value the projected cash flows, a 65.0% probability of milestone achievement, and a projected payment date in 2018. The use of different assumptions could have a material effect on the estimated fair value amount.

- 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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