13.

Fair Value Measurements

Authoritative accounting guidance establishes a three tier fair value hierarchy which prioritizes the inputs used in measuring fair values as follows:

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Level 1 — observable inputs such as quoted prices for identical assets in active markets;

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Level 2 — inputs other than quoted prices for identical assets in active markets that are observable either directly or indirectly; and

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Level 3 — unobservable inputs in which there is little or no market data which requires the use of valuation techniques and the development of assumptions.

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 are as follows (in millions):


	Fair Value
	September 30, 2013		December 31, 2012
Assets
Derivative financial instruments (Level 2)	$	7.4	$	6.0
Liabilities
Derivative financial instruments (Level 2)	$	4.6	$	3.0
Acquisition-related contingent consideration (Level 3)		5.6		17.8

The fair value of derivative financial instruments is based on standard valuation techniques that use, where possible, current market-based or independently sourced pricing units, such as interest rates, currency rates, or implied volatilities.

The estimated fair value of acquisition-related contingent consideration, which excludes earned amounts payable at December 31, 2012, is considered a Level 3 measurement because the probability-weighted discounted cash flow methodology used to estimate fair value includes the use of significant unobservable inputs, principally the contractual contingent consideration sales targets and our current estimate of achieving those targets over the remaining contractual earn out period. We recorded an adjustment (decrease) to the estimated fair value of the obligation of approximately $12 million during the three months ended September 30, 2013 which is reflected as a reduction to selling, general, and administrative expense in the accompanying consolidated statement of income. The decrease in fair value during the period was the result of actual sales results for the business in the three- and nine-month periods ended September 2013 and a change in estimated sales volumes and growth rates for the rest of the year and through the remaining contractual period. The fair value of the estimated obligation at September 30, 2013 is $5.6 million and the maximum remaining amount we could be required to pay under the terms of the contract is $20 million. An average increase or decrease of approximately 10% in the sales volume thresholds assumed in the probability-weighted discounted cash flow calculation would increase or decrease the estimated fair value of the contingent consideration by approximately $3 million. Other than the lower projected sales volumes noted above, there was not a significant change in the fair value inputs during the nine months ended September 30, 2013.

Cash and cash equivalents, which consist of bank deposits, are carried at cost. Due to the short-term nature of these cash balances, cost approximates fair value. The carrying value and estimated fair value of our cash and cash equivalents (considered a Level 2 fair value measurement) at September 30, 2013 and December 31, 2012 was $171.2 million and $365.7 million, respectively.

The fair value of our long-term debt (including current portion) was determined from quoted market prices, where available, or from estimates using discounted cash flow analyses based on current borrowing rates for similar types of borrowing arrangements. The fair value of our long-term debt (considered a Level 2 fair value measurement) at September 30, 2013 and December 31, 2012 was approximately $2,295.4 million and $2,706.5 million, respectively.