Financial Instruments and Fair Value Measurement

Financial Instruments

Concentrations of Credit Risk: Financial instruments which potentially subject the Company to significant concentrations of credit risk consist of trade receivables, cash equivalents and investments. The Company grants credit terms in the normal course of business to its customers. Due to the diversity of its product lines, the Company has an extensive customer base including electrical distributors and wholesalers, electric utilities, equipment manufacturers, electrical contractors, telecommunication companies and retail and hardware outlets. No single customer accounted for more than 10% of total sales in any year during the three years ended December 31, 2017. However, the Company’s top ten customers account for approximately 40% of its net sales. As part of its ongoing procedures, the Company monitors the credit worthiness of its customers. Bad debt write-offs have historically been minimal. The Company places its cash and cash equivalents with financial institutions and limits the amount of exposure in any one institution.

Fair Value: The carrying amounts reported in the Consolidated Balance Sheet for cash and cash equivalents, short-term investments, receivables, bank borrowings, accounts payable and accruals approximate their fair values given the immediate or short-term nature of these items. See also Note 6 — Investments.

Fair value measurements

At December 31, 2017 and 2016 the Company had $72.2 million and $67.6 million respectively, of investments carried on the balance sheet at fair value. 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. Refer to Note 6 — Investments for more information about these investments.

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, 2017 and 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
Money market funds^(a)	$	126.9		$	—		$	—	$	126.9
Available for sale investments	—			54.3			4.1		58.4
Trading securities	13.8			—			—		13.8
Deferred compensation plan liabilities	(13.8		)	—			—		(13.8		)
Derivatives:
Forward exchange contracts-Assets^(b)	—			0.2			—		0.2
Forward exchange contracts-(Liabilities)^(c)	—			(0.7		)	—		(0.7		)
BALANCE AT DECEMBER 31, 2017	$	126.9		$	53.8		$	4.1	$	184.8



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)	$	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		)
BALANCE AT DECEMBER 31, 2016	$	263.5		$	54.3		$	3.8	$	321.6


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


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


(c)	Forward exchange contracts-(Liabilities) are reflected in Other accrued liabilities 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 assumptions regarding expected cash flows and discount rates.

During 2017 and 2016, 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, 2017 and 2016, the Company had one financial asset that was classified in Level 3 of the fair value hierarchy.

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 2017 and 2016, the Company purchased $2.1 million and $1.4 million, respectively, of trading securities related to these deferred compensation plans. As a result of participant distributions, the Company sold $0.3 million and $1.6 million of these trading securities in 2017 and 2016 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.

Forward exchange contracts

In 2017 and 2016, 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 dollars. As of December 31, 2017, the Company had 46 individual forward exchange contracts for notional amounts which range from $0.4 million to $1.5 million each, which have various expiration dates through December 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 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), net of tax
Derivative Instrument	2017			2016			(Effective Portion)	2017			2016
Forward exchange contract	$	(1.7	)	$	(1.4	)	Net sales	$	(0.3	)	$	(0.3	)
							Cost of goods sold	$	(0.6	)	$	0.3

There was no material hedge ineffectiveness with respect to the forward exchange cash flow hedges during 2017, 2016 and 2015.

Long-term Debt

The total carrying value of long-term debt as of December 31, 2017 and 2016 was $987.1 million and $990.5 million, respectively, net of unamortized discount and debt issuance costs. As of December 31, 2017 and 2016, the estimated fair value of the long-term debt was $1,013.2 million and $1,017.8 million, respectively, based on quoted market prices. The Company’s long-term debt falls within level 2 of the fair value hierarchy.