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 is re-measured on a recurring basis (for further information, see the Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 23, 2017). The Company has determined that this contingent consideration resides within Level 3 of the fair value hierarchy. The Company adjusted the fair value of the earn-out liability to $14 million in the first quarter of 2017 based on actual revenue levels as well as changes in the estimated probability of different revenue scenarios for the remaining contractual earn-out period. Income of $13 million was recognized within Other income (expense), net in the Consolidated Statements of Net Income in the first quarter of 2017 due to the decrease in the contingent consideration liability. The reduced earn-out liability was largely offset by the impairment charge for a customer contract related to the M/A-COM acquisition as discussed below. The fair value of the earn-out liability remains unchanged at $14 million as of September 30, 2017.

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 September 30, 2017 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 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.

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 (for further information, see Annual Report on Form 10-K for the year ended December 31, 2016).

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, 2017 and December 31, 2016. 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, 2017 and in the Consolidated Balance Sheet at December 31, 2016, 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.

	September 30, 2017
				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)	$	62.0		$	0.3		$	2.5		Other current assets/ Other current liabilities
Total derivatives designated as hedging instruments	$	62.0		$	0.3		$	2.5
Derivatives not designated as hedging instruments
Foreign exchange swaps, less than 6 months	$	440.3	²⁾	$	1.1	³⁾	$	0.4	⁴⁾	Other current assets/ Other current liabilities
Total derivatives not designated as hedging instruments	$	440.3		$	1.1		$	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 $395.4 million.

³⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $1.0 million.

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

	December 31, 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)	$	74.0		$	7.6		$	0.3		Other current assets/ Other current liabilities
Foreign exchange forward contracts, less than 2 years (cash flow hedge)		10.8			0.0			0.2		Other non-current assets/ Other non-current liabilities
Total derivatives designated as hedging instruments	$	84.8		$	7.6		$	0.5
Derivatives not designated as hedging instruments
Foreign exchange swaps, less than 6 months	$	251.8	²⁾	$	1.1	³⁾	$	0.1	⁴⁾	Other current assets/ Other current liabilities
Total derivatives not designated as hedging instruments	$	251.8		$	1.1		$	0.1

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

²⁾	Net nominal amount after deducting for offsetting swaps under ISDA agreements is $226.5 million.

³⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $1.1 million.

⁴⁾	Net amount after deducting for offsetting swaps under ISDA agreements is $0.0 million.

Derivatives designated as hedging instruments

The derivatives designated as hedging instruments outstanding at September 30, 2017 and at December 31, 2016 were foreign exchange forward contracts, classified as cash flow hedges.

For the three and nine months ended September 30, 2017, the cumulative gains and losses recognized in OCI on the cash flow hedges were a loss of $2.5 million (net of taxes) and a loss of $5.5 million (net of taxes), respectively. For the three and nine months ended September 30, 2016, the cumulative gains and losses recognized in OCI on the cash flow hedges were a gain of $1.3 million (net of taxes) and a gain of $4.0 million (net of taxes), respectively.

For the three and nine months ended September 30, 2017, the gains and losses reclassified from OCI and recognized in the Consolidated Statements of Net Income were a gain of $1.4 million (net of taxes) and a gain of $4.6 million (net of taxes), respectively. For the three and nine months ended September 30, 2016, the gains and losses reclassified from OCI and recognized in the Consolidated Statements of Net Income were a gain of $0.1 million (net of taxes) and a gain of $0.3 million (net of taxes), respectively. Any ineffectiveness in the first nine months of 2017 and 2016 were not material.

The estimated net amount of the existing gains or losses at September 30, 2017 that is expected to be reclassified from OCI and recognized in the Consolidated Statements of Net Income within the next twelve months is a loss of $2.0 million (net of taxes).

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 September 30, 2017 and December 31, 2016 were foreign exchange swaps.

For the three and nine months ended September 30, 2017, the gains and losses recognized in other non-operating items, net were a loss of $0.9 million and a loss of $0.5 million, respectively, for derivative instruments not designated as hedging instruments. For the three and nine months ended September 30, 2016, the gains and losses recognized in other non-operating items, net were a loss of $1.3 million and a loss of $0.2 million, respectively, for derivative instruments not designated as hedging instruments.

For the three and nine months ended September 30, 2017 and September 30, 2016, 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 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.

	September 30,		September 30,		December 31,		December 31,
	2017		2017		2016		2016
	Carrying		Fair		Carrying		Fair
Long-term debt	value¹⁾		value		value¹⁾		value
U.S. Private placement	$	1,311.0	$	1,404.8	$	1,312.4	$	1,360.0
Other long-term debt		11.6		11.6		11.2		11.2
Total	$	1,322.6	$	1,416.4	$	1,323.6	$	1,371.2
Short-term debt
Overdrafts and other short-term debt	$	30.6	$	30.6	$	39.7	$	39.7
Short-term portion of long-term debt		151.8		155.0		180.1		185.6
Total	$	182.4	$	185.6	$	219.8	$	225.3

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, typically as it relates to impairment.

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.

At the end of the first quarter of 2017 the Company received information related to a contract with an OEM customer of M/A-COM products that resulted in an impairment trigger of the customer intangible asset as well as a renewed assessment of the earn-out liability. In the first quarter of 2017, the Company recognized an impairment charge to amortization of intangibles in the Consolidated Statements of Net Income for a customer contract of $12 million related to the M/A-COM acquisition (for further information, see the Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on February 23, 2017). As of September 30, 2017, the remaining fair value of $1 million related to this customer contract will be amortized straight-line over the remaining 3 months in 2017. The impairment charge was largely offset by the reduced earn-out liability discussed above and the net impact was a gain of $1 million in the first quarter of 2017.