4 Fair Value Measurement

Assets and liabilities measured at fair value on a recurring basis

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 the contingent consideration relating to the MACOM acquisition is re-measured on a recurring basis (See Note 3, Business Combinations above).

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 September 30, 2015 were foreign exchange swaps and forward contracts. All swaps principally match the terms and maturity of the underlying debt and no swaps have a maturity beyond six months. The forward contracts are designated as cash flow hedges of certain external purchases. 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 Net 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 Net Income when the hedge transaction affects net earnings. The Company uses the forward rate with respect to the measurement of changes in fair value of cash flow hedges when revaluing foreign exchange forward contracts.

The Company’s derivatives are all classified as Level 2 of the fair value hierarchy and there have been no transfers between the levels during this or comparable periods.

The tables below present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014. The carrying value is the same as the fair value as these instruments are recognized in the consolidated financial statements at fair value. Although the Company is party to close-out netting agreements (ISDA agreements) with all derivative counterparties, the fair values in the tables below and in the Condensed Consolidated Balance Sheet at September 30, 2015 and in the Consolidated Balance Sheet at December 31, 2014, 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.


	September 30, 2015
				Fair Value Measurements
Description	Nominal volume			Derivative asset			Derivative liability			Balance sheet location

Derivatives designated as hedging instruments ¹⁾

Foreign exchange forward contracts, less than 1 year (cash flow hedge)	$	61.2		$	0.6		$	0.0		Other current assets/ Other current liabilities

Foreign exchange forward contracts, less than 2 year (cash flow hedge)		25.5			0.2			0.0		Other non-current assets/ Other non-current liabilities

Total derivatives designated as hedging instruments	$	86.7		$	0.8		$	0.0

Derivatives not designated as hedging instruments

Foreign exchange swaps, less than 6 months	$	427.4	²⁾	$	0.2	³⁾	$	0.4	⁴⁾	Other current assets/ Other current liabilities

Total derivatives not designated as hedging instruments	$	427.4		$	0.2		$	0.4

¹⁾ There is no netting since there are no offsetting contracts.

²⁾ Net nominal amount after deducting for offsetting swaps under ISDA agreements is $352.9 million.

³⁾ Net amount after deducting for offsetting swaps under ISDA agreements is $0.2 million.

⁴⁾ Net amount after deducting for offsetting swaps under ISDA agreements is $0.3 million.


	December 31, 2014
				Fair Value Measurements
Description	Nominal volume			Derivative asset			Derivative liability			Balance sheet location

Derivatives designated as hedging instruments ¹⁾

Foreign exchange forward contracts, less than 1 year (cash flow hedge)	$	—		$	—		$	—		Other current assets/ Other current liabilities

Foreign exchange forward contracts, less than 2 year (cash flow hedge)		—			—			—		Other non-current assets/ Other non-current liabilities

Total derivatives designated as hedging instruments	$	—		$	—		$	—

Derivatives not designated as hedging instruments

Foreign exchange swaps, less than 6 months	$	459.1	²⁾	$	1.3	³⁾	$	0.4	⁴⁾	Other current assets/ Other current liabilities

Total derivatives not designated as hedging instruments	$	459.1		$	1.3		$	0.4

¹⁾ There is no netting since there are no offsetting contracts.

²⁾ Net nominal amount after deducting for offsetting swaps under ISDA agreements is $390.9 million.

³⁾ Net amount after deducting for offsetting swaps under ISDA agreements is $1.3 million.

⁴⁾ Net amount after deducting for offsetting swaps under ISDA agreements is $0.4 million.

Derivatives designated as hedging instruments

The derivatives designated as hedging instruments outstanding at September 30, 2015 were Foreign exchange forward contracts, classified as cash flow hedges. For the three and nine months ended September 30, 2015, the gains and losses recognized in OCI on derivative effective portion, net were a gain of $0.9 million and a gain of $0.6 million, respectively, for derivative instruments designated as hedging instruments less than 1 year. For the three and nine months ended September 30, 2015, the gains and losses recognized in OCI on derivative effective portion, net were a gain of $0.3 million and a gain of $0.2 million, respectively, for derivative instruments designated as hedging instruments less than 2 years.

For the three and nine months ended September 30, 2015, the gains and losses reclassified from OCI and recognized in the Consolidated Statement of Net Income, net were a gain of $0.2 million and a gain of $0.2 million, respectively. There has been no ineffectiveness recorded during 2015.

For the three and nine months ended September 30, 2014, there were no derivative instruments designated as hedging instruments, therefore there were no gains or losses recognized in the Consolidated Statement of Net Income.

Derivatives not designated as hedging instruments

All amounts recognized in the Consolidated Statement of Net 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 Net Income effect of the related financial liabilities or financial assets. The derivatives not designated as hedging instruments outstanding at September 30, 2015 were foreign exchange swaps. For the three and nine months ended September 30, 2015, the gains and losses recognized in other non-operating items, net were a gain of $0.6 million and a loss of $1.0 million, respectively, for derivative instruments not designated as hedging instruments. For the three and nine months ended September 30, 2014, the gains and losses recognized in other non-operating items, net were a gain of $0.8 million and a gain of $1.9 million, respectively, for derivative instruments not designated as hedging instruments. For the three and nine months ended September 30, 2015 and September 30, 2014, the gains and losses recognized as interest expense were immaterial.

Fair Value of Debt

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.


Long-term debt	September 30, 2015 Carrying value¹⁾		September 30, 2015 Fair value		December 31, 2014 Carrying value¹⁾		December 31, 2014 Fair value
U.S. Private placement	$	1,422.2	$	1,503.6	$	1,424.2	$	1,510.2
Medium-term notes		77.2		79.4		83.2		86.3
Other long-term debt		0.1		0.1		13.8		13.8

Total	$	1,499.5	$	1,583.1	$	1,521.2	$	1,610.3


Short-term debt
Overdrafts and other short-term debt	$	53.3	$	53.3	$	57.8	$	57.8
Short-term portion of long-term debt		0.2		0.2		21.8		21.8

Total	$	53.5	$	53.5	$	79.6	$	79.6

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 equity method investments.

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 the three and nine month periods ended September 30, 2015, the Company did not record any material impairment charges on its long-lived assets.