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 M/A-COM acquisition in August 2015 is re-measured on a recurring basis (for further information, see the Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC on February 19, 2016). As of June 30, 2016, there was no material change in the fair value of this contingent consideration.

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 risk policy. The derivatives outstanding at June 30, 2016 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 foreign exchange 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 Statements 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 Statements 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. There were no material reclassifications from OCI to the Consolidated Statements of Net Income during the first six months of 2016. Any ineffectiveness in the first six months of 2016 was not material.

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 June 30, 2016 and December 31, 2015. 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 June 30, 2016 and in the Consolidated Balance Sheet at December 31, 2015, have been presented on a gross basis. The amounts subject to netting agreements that the Company chose not to offset are presented below. 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.


	June 30, 2016
				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)	$	64.2		$	2.1		$	0.0			Other current assets/ Other current liabilities

Foreign exchange forward contracts, less than 2 year (cash flow hedge)		30.0			1.6			0.0			Other non-current assets/ Other non-current liabilities

Total derivatives designated as hedging instruments	$	94.2		$	3.7		$	0.0

Derivatives not designated as hedging instruments

Foreign exchange swaps, less than 6 months	$	321.8	²⁾	$	1.3	³⁾	$	0.4	⁴⁾		Other current assets/ Other current liabilities

Total derivatives not designated as hedging instruments	$	321.8		$	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 $290.6 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 $0.3 million.


	December 31, 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)	$	58.0		$	0.2		$	0.2		Other current assets/ Other current liabilities

Foreign exchange forward contracts, less than 2 year (cash flow hedge)		11.3			0.0			0.1		Other non-current assets/ Other non-current liabilities

Total derivatives designated as hedging instruments	$	69.3		$	0.2		$	0.3

Derivatives not designated as hedging instruments

Foreign exchange swaps, less than 6 months	$	482.4	²⁾	$	2.5	³⁾	$	5.1	⁴⁾	Other current assets/ Other current liabilities

Total derivatives not designated as hedging instruments	$	482.4		$	2.5		$	5.1

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

²⁾	Net nominal amount after deducting for offsetting swaps under ISDA agreements is $435.8 million.

³⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $2.4 million.

⁴⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $4.9 million.

Derivatives designated as hedging instruments

The derivatives designated as hedging instruments outstanding at June 30, 2016 were foreign exchange forward contracts, classified as cash flow hedges. For the three and six months ended June 30, 2016, the cumulative gains and losses recognized in OCI on the cash flow hedges were a gain of $3.8 million and a gain of $2.8 million (net of taxes), respectively. The derivatives designated as hedging instruments outstanding at June 30, 2015 were foreign exchange forward contracts, classified as cash flow hedges. For the three and six months ended June 30, 2015, the cumulative gains and losses recognized in OCI on derivative effective portion, net were a loss of $0.4 million and a loss of $0.4 million, respectively.

For the three and six months ended June 30, 2016, the gains and losses reclassified from OCI and recognized in the Consolidated Statements of Net Income were a loss of $0.1 million and a gain of $0.2 million (net of taxes), respectively. Gains and losses recognized and remaining in OCI as of June 30, 2016 is a gain of $2.6 million (net of taxes). Any ineffectiveness in the first six months of 2016 was not material. For the three and six months ended June 30, 2015, the gains and losses reclassified from OCI and recognized in the Consolidated Statements of Net Income, net were a gain of $0.0 million and a gain of $0.0 million, respectively. Gains and losses recognized and remaining in OCI as of June 30, 2015 was a loss of $0.4 million (net of taxes). There was no material ineffectiveness recorded during the first six months of 2015.

Derivatives not designated as hedging instruments

Derivatives not designated as hedging instruments relate to economic hedges and are marked to market with all amounts recognized in the Consolidated Statements of Net Income. The derivatives not designated as hedging instruments outstanding at June 30, 2016 were foreign exchange swaps. During the first quarter of 2016, the Company entered into foreign exchange option contracts to hedge foreign exchange risk related to the ANBS acquisition. The foreign exchange option contracts were no longer outstanding as of March 31, 2016.

For the three and six months ended June 30, 2016, the gains and losses recognized in other non-operating items, net were a gain of $0.4 million and a gain of $1.2 million, respectively, for derivative instruments not designated as hedging instruments. The derivatives not designated as hedging instruments outstanding at June 30, 2015 were foreign exchange swaps. For the three and six months ended June 30, 2015, the gains and losses recognized in other financial items, net were a gain of $0.7 million and a loss of $1.6 million, respectively, for derivative instruments not designated as hedging instruments. For the three and six months ended June 30, 2016 and June 30, 2015, 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, from estimates using a discounted cash flow method based on the Company’s current borrowing rates for similar types of financing. 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.


Long-term debt	June 30, 2016 Carrying value¹⁾		June 30, 2016 Fair value		December 31, 2015 Carrying value¹⁾		December 31, 2015 Fair value
U.S. Private placement	$	1,418.5	$	1,531.7	$	1,421.5	$	1,472.6
Medium-term notes		41.3		42.8		77.8		79.6
Other long-term debt		0.2		0.2		0.1		0.1

Total	$	1,460.0	$	1,574.7	$	1,499.4	$	1,552.3


Short-term debt
Overdrafts and other short-term debt	$	59.9	$	59.9	$	39.4	$	39.4
Short-term portion of long-term debt		35.5		35.7		0.2		0.2

Total	$	95.4	$	95.6	$	39.6	$	39.6

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 six month periods ended June 30, 2016, the Company did not record any material impairment charges on its long-lived assets.