Fair Value Measurement

Investments

At September 30, 2017 and December 31, 2016, the Company had $56.9 million and $57.4 million, respectively, of available-for-sale securities, consisting of municipal bonds classified in Level 2 of the fair value hierarchy and an investment in the redeemable preferred stock of a privately-held electrical utility substation security provider classified in Level 3 of the fair value hierarchy. The Company also had $13.2 million of trading securities at September 30, 2017 and $10.2 million at December 31, 2016 that 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 table shows, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at September 30, 2017 and December 31, 2016 (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
September 30, 2017
Money market funds ^(a)	$	198.1		$	—		$	—	$	198.1
Time deposits ^(a)	—			29.9			—		29.9
Available for sale investments	—			52.6			4.3		56.9
Trading securities	13.2			—			—		13.2
Deferred compensation plan liabilities	(13.2		)	—			—		(13.2		)
Derivatives:
Forward exchange contracts-Assets ^(b)	—			—			—		—
Forward exchange contracts-(Liabilities) ^(c)	—			(2.2		)	—		(2.2		)
TOTAL	$	198.1		$	80.3		$	4.3	$	282.7

	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
December 31, 2016
Money market funds ^(a)	$	263.5		$	—		$	—	$	263.5
Available for sale investments	—			53.6			3.8		57.4
Trading securities	10.2			—			—		10.2
Deferred compensation plan liabilities	(10.2		)	—			—		(10.2		)
Derivatives:
Forward exchange contracts-Assets ^(b)	—			0.8			—		0.8
Forward exchange contracts-(Liabilities) ^(c)	—			(0.1		)	—		(0.1		)
TOTAL	$	263.5		$	54.3		$	3.8	$	321.6

^(a) Money market funds and time deposits are reflected in Cash and cash equivalents in the Condensed Consolidated Balance Sheet.

^(b) Forward exchange contracts-Assets are reflected in Other current assets in the Condensed Consolidated Balance Sheet.

^(c) Forward exchange contracts-(Liabilities) are reflected in Other accrued liabilities in the Condensed Consolidated Balance Sheet.

The methods and assumptions used to estimate the Level 2 and Level 3 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.

Available-for-sale municipal bonds classified in Level 2 – 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 the three and nine months ended September 30, 2017 there were no transfers of financial assets or liabilities in or out of Level 1, Level 2, or Level 3 of the fair value hierarchy.

Deferred compensation plans

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 the nine months ended September 30, 2017 and 2016, the Company purchased $1.8 million and $1.3 million, respectively, of trading securities related to these deferred compensation plans. As a result of participant distributions, the Company sold $0.3 million of these trading securities during the nine months ended September 30, 2017 and $1.2 million during the nine months ended September 30, 2016. 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 forecasted 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, liability or forecasted transaction are recognized in income. Derivative assets and derivative liabilities are not offset in the Condensed Consolidated Balance Sheet.

In 2017 and 2016, the Company entered into a series of forward exchange contracts to purchase U.S. dollars in order to hedge exposure to fluctuating rates of exchange for both anticipated inventory purchases and forecasted sales by its subsidiaries that transact business in Canada. As of September 30, 2017, the Company had 52 individual forward exchange contracts for an aggregate notional amount of $38.0 million, having various expiration dates through September 2018. These contracts have been designated as cash flow hedges in accordance with the accounting guidance for derivatives.

The following table summarizes the results of cash flow hedging relationships for the three months ended September 30, 2017 and 2016 (in millions):



	Derivative Gain/(Loss) Recognized in Accumulated Other Comprehensive Income (net of tax)						Location of Gain/(Loss) Reclassified into Income	Gain/(Loss) Reclassified into Earnings Effective Portion (net of tax)
Derivative Instrument	2017			2016			(Effective Portion)	2017			2016
Forward exchange contract	$	(1.4	)	$	(0.3	)	Net sales	$	(0.1	)	$	—
							Cost of goods sold	$	(0.3	)	$	(0.3	)

The following table summarizes the results of cash flow hedging relationships for the nine months ended September 30, 2017 and 2016 (in millions):



	Derivative Gain/(Loss) Recognized in Accumulated Other Comprehensive Loss (net of tax)						Location of Gain/(Loss) Reclassified into Income	Gain/(Loss) Reclassified into Earnings Effective Portion (net of tax)
Derivative Instrument	2017			2016			(Effective Portion)	2017			2016
Forward exchange contract	$	(2.3	)	$	(1.8	)	Net sales	$	(0.1	)	$	(0.2	)
							Cost of goods sold	$	(0.3	)	$	0.3

Hedge ineffectiveness was immaterial with respect to the forward exchange cash flow hedges during the three and nine months ended September 30, 2017 and 2016.

Long Term Debt

As of September 30, 2017 and December 31, 2016, the estimated fair value of our long-term debt was $1,018.8 million and $1,017.8 million, respectively, using quoted market prices in active markets for similar liabilities (Level 2).