Fair Value Measurement

Investments

At December 31, 2015 and December 31, 2014, the Company had $52.0 million and $43.0 million, respectively, of available-for-sale securities. At December 31, 2014 our available-for-sale securities consisted of municipal bonds classified in Level 2 of the fair value hierarchy. At December 31, 2015 our available-for-sale securities consisted of $47.4 million of municipal bonds classified as Level 2 of the fair value hierarchy, as well as, $4.6 million of redeemable preferred stock classified in Level 3 of the fair value hierarchy. The redeemable preferred stock was acquired for $5.0 million in the third quarter of 2015 and is an investment in a privately-held electrical utility substation security provider. The Company also had $9.7 million and $8.9 million of trading securities at December 31, 2015 and December 31, 2014, respectively. These investments are carried on the balance sheet at fair value. Unrealized gains and losses associated with available-for-sale securities are reflected in Accumulated other comprehensive loss, net of tax, while unrealized gains and losses associated with trading securities are reflected in the results of operations.

Fair value measurements

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:


Level 1 -	Quoted prices (unadjusted) in active markets for identical assets or liabilities


Level 2 -	Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly


Level 3 -	Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions

The following tables show, by level within the fair value hierarchy, the Company’s financial assets and liabilities that are accounted for at fair value on a recurring basis at December 31, 2015 and 2014 (in millions):



Asset (Liability)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Quoted Prices in Active Markets for Similar Assets (Level 2)			Unobservable inputs for which little or no market data exists (Level 3)		Total
Money market funds^(a)	$	210.9		$	—		$	—	$	210.9
Available for sale investments	—			47.4			4.6		52.0
Trading securities	9.7			—			—		9.7
Deferred compensation plan liabilities	(9.7		)	—			—		(9.7		)
Derivatives:
Forward exchange contracts-Assets	—			2.5			—		2.5
Forward exchange contracts-(Liabilities)	—			(0.1		)	—		(0.1		)
BALANCE AT DECEMBER 31, 2015	$	210.9		$	49.8		$	4.6	$	265.3



Asset (Liability)	Quoted Prices in Active Markets for Identical Assets (Level 1)			Quoted Prices in Active Markets for Similar Assets (Level 2)		Unobservable inputs for which little or no market data exists (Level 3)		Total
Money market funds ^(a)	$	365.9		$	—	$	—	$	365.9
Available-for-sale investments	—			43.0		—		43.0
Trading securities	8.9			—		—		8.9
Deferred compensation plan liabilities	(8.9		)	—		—		(8.9		)
Derivatives:
Forward exchange contracts-Assets	—			0.7		—		0.7
Forward exchange contracts-(Liabilities)	—			—		—		—
BALANCE AT DECEMBER 31, 2014	$	365.9		$	43.7	$	—	$	409.6


(a)	Money market funds are included in Cash and cash equivalents in the Consolidated Balance Sheet.

The methods and assumptions used to estimate the Level 2 fair values were as follows:

Forward exchange contracts – The fair value of forward exchange contracts were based on quoted forward foreign exchange prices at the reporting date.

Municipal bonds – The fair value of available-for-sale investments in municipal bonds is based on observable market-based inputs, other than quoted prices in active markets for identical assets.

Available-for-sale redeemable preferred stock classified in Level 3 – The fair value of the available-for-sale investment in redeemable preferred stock is valued based on a discounted cash flow model, using significant unobservable inputs, including expected cash flows and the discount rate.

During 2015 and 2014, there were no transfers of financial assets or liabilities in or out of Level 1 or Level 2 of the fair value hierarchy. As of December 31, 2015, the Company had one financial asset that was classified as Level 3 within the hierarchy and was acquired in 2015.

Deferred compensation plan

The Company offers certain employees the opportunity to participate in non-qualified deferred compensation plans. A participant’s deferrals are invested in a variety of participant-directed debt and equity mutual funds that are classified as trading securities. During 2015 and 2014, the Company purchased $1.0 million and $1.2 million, respectively, of trading securities related to these deferred compensation plans. As a result of participant distributions, the Company sold $0.3 million and $0.2 million of these trading securities in 2015 and 2014 respectively. The unrealized gains and losses associated with these trading securities are directly offset by the changes in the fair value of the underlying deferred compensation plan obligation.

Derivatives

In order to limit financial risk in the management of its assets, liabilities and debt, the Company may use derivative financial instruments such as foreign currency hedges, commodity hedges, interest rate hedges and interest rate swaps. All derivative financial instruments are matched with an existing Company asset, liability or proposed transaction. Market value gains or losses on the derivative financial instrument are recognized in income when the effects of the related price changes of the underlying asset or liability are recognized in income.

The fair values of derivative instruments in the Consolidated Balance Sheet are as follows (in millions):



		Assets				Liabilities
		Fair Value at December 31,				Fair Value at December 31,
Derivatives designated as hedges	Balance Sheet Location	2015		2014		2015		2014
Forward exchange contracts designated as cash flow hedges	Deferred taxes and other	$	2.5	$	0.7	$	—	$	—

Forward exchange contracts

In 2015 and 2014, the Company entered into a series of forward exchange contracts to purchase U.S. dollars in order to hedge its exposure to fluctuating rates of exchange on anticipated inventory purchases and forecasted sales by its subsidiaries who transact business in Canadian. As of December 31, 2015, the Company had 42 individual forward exchange contracts for notional amounts which range from $0.5 million to $2.5 million each, which have various expiration dates through December 2016. These contracts have been designated as cash flow hedges in accordance with the accounting guidance for derivatives.

Interest rate locks

Prior to the issuance of long-term notes in 2010 and 2008, the Company entered into forward interest rate locks to hedge its exposure to fluctuations in treasury rates. The 2010 interest rate lock resulted in a $1.6 million loss while the 2008 interest rate lock resulted in a $1.2 million gain. These amounts were recorded in Accumulated other comprehensive loss, net of tax, and are being amortized over the life of the respective notes. The amortization associated with these interest rate locks is reclassified from Accumulated other comprehensive loss to Interest expense in the Consolidated Statement of Income. The amortization reclassification for the years ended December 31, 2015 and 2014 was not material. As of both December 31, 2015 and December 31, 2014 there was $0.4 million of net unamortized losses reflected in Accumulated other comprehensive loss.

The following table summarizes the results of cash flow hedging relationships for years ended December 31, (in millions):



	Derivative Gain/(Loss) Recognized in Accumulated Other Comprehensive Loss, net of tax				Location of Gain/(Loss) when reclassified	Gain/(Loss) Reclassified into Earnings (Effective Portion)
Derivative Instrument	2015		2014		(Effective Portion)	2015		2014
Forward exchange contract	$	1.7	$	0.9	Cost of goods sold	$	0.3	$	1.0

There was no material hedge ineffectiveness with respect to the forward exchange cash flow hedges during 2015, 2014 and 2013.

Long-term Debt

The total carrying value of long-term debt as of December 31, 2015 and 2014 was 595.9 million and 594.9 million, respectively, net of unamortized discount and debt issuance costs. As of December 31, 2015 and 2014, the estimated fair value of the long-term debt was $630.5 million and $645.1 million, respectively, based on quoted market prices. The Company’s long-term debt falls within level 2 of the fair value hierarchy.