Fair Value Accounting
Assets and liabilities measured at fair value on a recurring basis are summarized below: | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurement as of December 31, 2025 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
| (in millions) |
| Assets: | | | | | | | |
| Cash equivalents | $ | 77.0 | | | $ | — | | | $ | — | | | $ | 77.0 | |
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Contingent consideration(1) | — | | | — | | | 2.2 | | | 2.2 | |
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| Total assets | $ | 77.0 | | | $ | — | | | $ | 2.2 | | | $ | 79.2 | |
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| | Fair Value Measurement as of December 31, 2024 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | |
| (in millions) |
| Assets: | | | | | | | |
| Cash equivalents | $ | 133.0 | | | $ | — | | | $ | — | | | $ | 133.0 | |
| | | | | | | |
Contingent consideration(1) | — | | | — | | | 15.4 | | | 15.4 | |
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| Total assets | $ | 133.0 | | | $ | — | | | $ | 15.4 | | | $ | 148.4 | |
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| Liabilities: | | | | | | | |
| | | | | | | |
Contingent consideration(2) | $ | — | | | $ | — | | | $ | 1.4 | | | $ | 1.4 | |
| Total liabilities | $ | — | | | $ | — | | | $ | 1.4 | | | $ | 1.4 | |
(1) Included in other assets on the Consolidated Balance Sheets.
(2) Included in accrued liabilities on the Consolidated Balance Sheets.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for that asset or liability in an orderly transaction between market participants on the measurement date. An entity is required to establish a fair value hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair values are listed below:
Level 1 – This level is defined as quoted prices in active markets for identical assets or liabilities. The Company’s cash equivalents are instruments of the U.S. Treasury or highly-rated money market mutual funds.
Level 2 – This level is defined as observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – This level is defined as unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Contingent consideration relates to estimated future payments expected from businesses previously acquired or sold. We estimate the fair value of the contingent consideration using a model appropriate for the structure of the contingent consideration, which may include discounted cash flow models, Monte Carlo simulations, or option pricing models. The fair values are sensitive to changes in the forecast of the performance metrics and in other metrics such as discount rates and volatility. The fair value is reassessed quarterly based on assumptions used in our latest projections. See further discussion in Note 2. "Acquisitions and Divestitures".
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.