FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2014

7. FAIR VALUE MEASUREMENTS

The company’s financial instruments include cash and cash equivalents, investments held in rabbi trusts, accounts receivable, accounts payable, contingent consideration obligations, commercial paper, notes payable, foreign currency forward contracts, interest rate swap contracts and long-term debt.

Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. A hierarchy has been established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels:

Level 1 - Inputs are quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2 - Inputs include observable inputs other than quoted prices in active markets.

Level 3 - Inputs are unobservable inputs for which there is little or no market data available.

The carrying amount and the estimated fair value for assets and liabilities measured on a recurring basis were:

DECEMBER 31 (MILLIONS)	2014

	CARRYING		FAIR VALUE MEASUREMENTS
	AMOUNT		LEVEL 1		LEVEL 2		LEVEL 3

Assets:
Investments held in rabbi trusts	$	3.4	$	3.4	$	—	$	—
Foreign currency forward contracts	75.5		—		75.5		—
Contingent consideration	0.3		—		—		0.3

Liabilities:
Foreign currency forward contracts	27.9		—		27.9		—
Interest rate swap contracts	24.2		—		24.2		—
Contingent consideration	1.6		—		—		1.6

DECEMBER 31 (MILLIONS)	2013

	CARRYING		FAIR VALUE MEASUREMENTS
	AMOUNT		LEVEL 1		LEVEL 2		LEVEL 3
Assets:
Investments held in rabbi trusts	$	4.3	$	4.3	$	—	$	—
Foreign currency forward contracts	20.2		—		20.2		—

Liabilities:
Foreign currency forward contracts	14.2		—		14.2		—
Contingent consideration	16.4		—		—		16.4
Future consideration payable to Champion sellers	86.4		—		—		86.4

Investments held in rabbi trusts are classified within level 1 because they are valued using quoted prices in active markets. The carrying value of foreign currency forward contracts is at fair value, which is determined based on foreign currency exchange rates as of the balance sheet date, and is classified within level 2. The carrying value of interest rate swap contracts is at fair value, which is determined based on current interest rates and forward interest rates as of the balance sheet date and is classified within level 2. The future consideration payable to Champion sellers was valued using level 3 inputs, and as discussed in Note 4 was paid in January 2014.

Contingent consideration obligations are recognized and measured at fair value at the acquisition date. Contingent consideration is classified within level 3 as the underlying fair value is measured based on the probability-weighted present value of the consideration expected to be transferred. The consideration expected to be transferred is based on the company’s expectations of various financial measures. The ultimate payment of contingent consideration could deviate from current estimates based on the actual results of these financial measures. Changes in the fair value of contingent consideration obligations during 2014 and 2013 were as follows:

MILLIONS	2014			2013
Contingent consideration at beginning of year	$	16.4		$	27.3
Amount recognized at transaction date		(0.4	)		—
Losses (gains) recognized in earnings		(0.4	)		0.4
Settlements		(14.3	)		(11.3	)
Foreign currency translation		—			—
Contingent consideration at end of year	$	1.3		$	16.4

The carrying values of accounts receivable, accounts payable, cash and cash equivalents, commercial paper and notes payable approximate fair value because of their short maturities, and as such are classified within level 1.

The fair value of long-term debt is based on quoted market prices for the same or similar debt instruments. The carrying amount and the estimated fair value of long-term debt, including current maturities, held by the company were:

DECEMBER 31 (MILLIONS)	2014				2013
	CARRYING		FAIR		CARRYING		FAIR
	AMOUNT		VALUE		AMOUNT		VALUE
Long-term debt (including current maturities)	$	5,619.5	$	5,980.9	$	6,548.8	$	6,766.0

- 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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