3 Fair Value Measurement

Assets and liabilities measured at fair value on a recurring basis

The Company uses derivative financial instruments, “derivatives”, as part of its debt management to mitigate the market risk that occurs from its exposure to changes in interest and foreign exchange rates. The Company does not enter into derivatives for trading or other speculative purposes. The Company’s use of derivatives is in accordance with the strategies contained in the Company’s overall financial policy. The derivatives outstanding at March 31, 2013 are foreign exchange swaps. All swaps principally match the terms and maturity of the underlying debt and no swaps have a maturity beyond six months. All derivatives are recognized in the consolidated financial statements at fair value. Certain derivatives are from time to time designated either as fair value hedges or cash flow hedges in line with the hedge accounting criteria. For certain other derivatives hedge accounting is not applied either because non hedge accounting treatment creates the same accounting result or the hedge does not meet the hedge accounting requirements, although entered into applying the same rationale concerning mitigating market risk that occurs from changes in interest and foreign exchange rates.

When a hedge is classified as a fair value hedge, the change in the fair value of the hedge is recognized in the Consolidated Statement of Income along with the off-setting change in the fair value of the hedged item. When a hedge is classified as a cash flow hedge, any change in the fair value of the hedge is initially recorded in equity as a component of Other Comprehensive Income, (OCI), and reclassified into the Consolidated Statement of Income when the hedge transaction affects net earnings. There were no reclassifications from OCI to the Consolidated Statement of Income during the three months ended March 31, 2013 and March 31, 2012 and, likewise, no reclassifications are expected for the next twelve months. Any ineffectiveness has been immaterial. During the first quarter of 2013 the Company closed a $60 million interest rate swap and the amount received was included in the debt balance and will be amortized over the remaining life of the underlying debt. No fair value adjustments were made as a consequence of the close-out.

The Company records derivatives at fair value. Any gains and losses on derivatives recorded at fair value are reflected in the Consolidated Statement of Income with the exception of cash flow hedges where an immaterial portion of the fair value is reflected in other comprehensive income. The degree of judgment utilized in measuring the fair value of the instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of asset or liability, whether the asset or liability has an established market and the characteristics specific to the transaction. Derivatives with readily active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, assets rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment utilized in measuring fair value.

Under existing GAAP, there is a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by the hierarchy are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2 – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3 – Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables summarize the valuation of the Company’s derivatives by the above noted pricing observability levels:


			Fair Value Measurements at March 31, 2013
			Using
Description	Total carrying amount in Consolidated Balance Sheet March 31, 2013		Level 1		Level 2		Level 3

Assets
Derivatives ^a)	$	1.9		—	$	1.9		—
Total Assets	$	1.9		—	$	1.9		—

Liabilities
Derivatives	$	0.7		—	$	0.7		—
Total Liabilities	$	0.7		—	$	0.7		—

^a)	The decrease from previous period is explained by the closure of a $60 million interest rate swap in Q1 of 2013.


			Fair Value Measurements at December 31, 2012
			Using
Description	Total carrying amount in Consolidated Balance Sheet December 31, 2012		Level 1		Level 2		Level 3

Assets
Derivatives	$	16.5		—	$	16.5		—
Total Assets	$	16.5		—	$	16.5		—

Liabilities
Derivatives	$	0.7		—	$	0.7		—
Total Liabilities	$	0.7		—	$	0.7		—

The tables below present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012. Although the Company is party to close-out netting agreements with all derivative counterparties, the fair values in the tables below and in the Consolidated Balance Sheets at March 31, 2013 and December 31, 2012, have been presented on a gross basis. The net amounts subject to netting agreements that the Company choose not to offset are presented in footnotes. According to the close-out netting agreements, transaction amounts payable to a counterparty on the same date and in the same currency can be netted.


				Fair Value Measurements at March 31, 2013
Description	Nominal volume			Derivative asset			Derivative liability			Balance sheet location
Derivatives designated as hedging instruments
Interest rate swaps, less than 7 years (fair value hedge) ^a)	$	—		$	—		$	—		Other non-current asset
Total derivatives designated as hedging instruments	$	—		$	—		$	—

Derivatives not designated as hedging instruments

Foreign exchange swaps, less than 6 months	$	602.6	¹⁾	$	1.9	²⁾	$	0.7	³⁾	Other current assets/ liabilities

Total derivatives not designated as hedging instruments	$	602.6		$	1.9		$	0.7

Total derivatives	$	602.6		$	1.9		$	0.7

1)	Net amount after deducting for offsetting swaps $532.8 million.

2)	Net amount after deducting for offsetting swaps $1.8 million.

3)	Net amount after deducting for offsetting swaps $0.6 million.

a)	The decrease from previous period is explained by the closure of a $60 million interest rate swap in Q1 of 2013.


				Fair Value Measurements at December 31, 2012
Description	Nominal volume			Derivative asset			Derivative liability			Balance sheet location
Derivatives designated as hedging instruments
Interest rate swaps, less than 7 years (fair value hedge)	$	60.0		$	15.8		$	—		Other non-current asset
Total derivatives designated as hedging instruments	$	60.0		$	15.8		$	—

Derivatives not designated as hedging instruments

Foreign exchange swaps, less than 6 months	$	700.8	¹⁾	$	0.7	²⁾	$	0.7	³⁾	Other current assets/ liabilities

Total derivatives not designated as hedging instruments	$	700.8		$	0.7		$	0.7

Total derivatives	$	760.8		$	16.5		$	0.7

1)	Net amount after deducting for offsetting swaps $569.9 million.

2)	Net amount after deducting for offsetting swaps $0.6 million.

3)	Net amount after deducting for offsetting swaps $0.6 million.


			Amount of gain (loss) recognized in Consolidated Statement of Income Three months ended March 31, 2013
Description	Nominal Volume		Other Financial Items, net		Interest Expense			Interest Income		Amount of gain (loss) recognized in OCI on derivative effective portion		Amount of gain (loss) reclassified from accumulated OCI into interest expense
Derivatives designated as hedging instruments
Interest rate swap, less than 7 years (fair value hedge) ^a)	$	—	$	—	$	(1.3	)	$	—	$	—	$	—
Hedged item (fair value hedge)
Fixed rate private placement debt due 2019	$	—	$	—	$	1.3		$	—	$	—	$	—
Total gain(loss) in Consolidated Statement of Income					$	0.0

a)	The decrease from previous period is explained by the closure of a $60 million interest rate swap in Q1 of 2013.


			Amount of gain (loss) recognized in Consolidated Statement of Income Three months ended March 31, 2012
Description	Nominal volume		Other financial items, net		Interest expense			Interest income		Amount of gain (loss) recognized in OCI on derivative effective portion		Amount of gain (loss) reclassified from accumulated OCI into interest expense
Derivatives designated as hedging instruments
Interest rate swap, less than 8 years (fair value hedge)	$	60.0	$	—	$	(0.6	)	$	—	$	—	$	—
Total derivatives designated as hedging instruments	$	60.0
Hedged item (fair value hedge)
Fixed rate private placement debt due 2019	$	60.0	$	—	$	0.6		$	—	$	—	$	—
Total gain(loss) in Consolidated Statement of Income					$	0.0


				Amount of gain (loss) recognized in Consolidated Statement of Income Three months ended March 31, 2013
Description	Nominal Volume			Other Financial Items, net		Interest Expense		Interest Income
Derivatives not designated as hedging instruments
Foreign exchange swaps	$	602.6	¹⁾	$	1.2	$	0.0	$	—
Total derivatives not designated as hedging instruments	$	602.6

1)	Net amount after deducting for offsetting swaps $532.8 million.


				Amount of gain (loss) recognized in Consolidated Statement of Income Three months ended March 31, 2012
Description	Nominal Volume			Other Financial Items, net			Interest Expense		Interest Income
Derivatives not designated as hedging instruments
Foreign exchange swaps	$	1,311.4	¹⁾	$	(2.5	)	$	0.1	$	—
Total derivatives not designated as hedging instruments	$	1,311.4

1)	Net amount after deducting for offsetting swaps $1,103.2 million.

All amounts recognized in the Consolidated Statement of Income related to derivatives, not designated as hedging instruments, relate to economic hedges and thus have been materially off-set by an opposite Consolidated Statement of Income effect of the related financial liabilities or financial assets.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable, other current liabilities and short-term debt approximate their fair value because of the short term maturity of these instruments. The fair value of long-term debt is determined either from quoted market prices as provided by participants in the secondary market or for long-term debt without quoted market prices, estimated using a discounted cash flow method based on the Company’s current borrowing rates for similar types of financing. The fair value of derivatives is estimated using a discounted cash flow method based on quoted market prices. The fair value and carrying value of debt is summarized in the table below. The Company has determined that each of these fair value measurements of debt reside within Level 2 of the fair value hierarchy. The discount rates for all derivative contracts are based on bank deposit or swap interest rates. Credit risk has been considered when determining the discount rates used for the derivative contracts, which when aggregated by counterparty, are in a liability position.

Fair Value of Debt


Long-term debt	March 31, 2013 Carrying value¹⁾		March 31, 2013 Fair value		December 31, 2012 Carrying value¹⁾		December 31, 2012 Fair value
U.S. Private placement	$	304.5	$	332.8	$	305.8	$	329.5
Medium-term notes		99.7		98.5		99.8		99.4
Notes		107.4		109.6		107.6		108.9
Other long-term debt		49.4		49.4		49.7		49.7

Total	$	561.0	$	590.3	$	562.9	$	587.5


Short-term debt
Overdrafts and other short-term debt	$	66.3	$	66.3	$	60.3	$	60.3
Short-term portion of long-term debt		5.8		5.8		9.5		9.5

Total	$	72.1	$	72.1	$	69.8	$	69.8

1)	Debt as reported in balance sheet.

Assets and liabilities measured at fair value on a non-recurring basis

In addition to assets and liabilities that are measured at fair value on a recurring basis, the Company also has assets and liabilities in its balance sheet that are measured at fair value on a non-recurring basis. Assets and liabilities that are measured at fair value on a non-recurring basis include long-lived assets, including investments in affiliates, and restructuring liabilities (see Note 6).

The Company has determined that the fair value measurements included in each of these assets and liabilities rely primarily on Company-specific inputs and the Company’s assumptions about the use of the assets and settlements of liabilities, as observable inputs are not available. The Company has determined that each of these fair value measurements reside within Level 3 of the fair value hierarchy. To determine the fair value of long-lived assets, the Company utilizes the projected cash flows expected to be generated by the long-lived assets, then discounts the future cash flows over the expected life of the long-lived assets. For restructuring obligations, the amount recorded represents the fair value of the payments expected to be made, and such provisions are discounted if the payments are expected to extend beyond one year.

As of March 31, 2013 the Company had $70.6 million of restructuring reserves which were measured at fair value upon initial recognition of the associated liability (see Note 6). For the three months ended March 31, 2013, the Company did not record any impairment charges on its long-lived assets.