4. Financial Instruments and Derivative Instruments

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including deferred compensation plan assets and related liability, and contingent consideration. There were no designated cash flow hedges as of March 30, 2014 and December 31, 2013. The fair values of these certain financial assets and liabilities were determined using the following inputs at March 30, 2014 and December 31, 2013:

Fair Value Measurements at March 30, 2014 Using:

Quoted Prices in
Active
Markets for Identical
Assets

Significant Other
Observable
Inputs

Significant
Unobservable
Inputs

Total

(Level 1)

(Level 2)

(Level 3)

(in millions)

Assets

Plan asset for deferred compensation(1)

4.4

—

Total assets

4.4

—

Liabilities

Plan liability for deferred compensation(2)

4.4

—

Contingent consideration(3)

2.1

—

2.1

Total liabilities

6.5

4.4

—

2.1

	Fair Value Measurements at December 31, 2013 Using:
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
	(in millions)
Assets
Plan asset for deferred compensation(1)	$	4.6	$	4.6	$	—	$	—
Total assets	$	4.6	$	4.6	$	—	$	—
Liabilities
Plan liability for deferred compensation(2)	$	4.6	$	4.6	$	—	$	—
Contingent consideration(3)	4.4		—		—		4.4
Total liabilities	$	9.0	$	4.6	$	—	$	4.4

(1) Included on the Company’s consolidated balance sheet in other assets (other, net).

(2) Included on the Company’s consolidated balance sheet in accrued compensation and benefits.

(3) Included on the Company’s consolidated balance sheet in accrued expenses and other liabilities as of March 30, 2014 and in other noncurrent liabilities and accrued expenses and other liabilities as of December 31, 2013.

The table below provides a summary of the changes in fair value of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period December 31, 2013 to March 30, 2014.

	Balance		Purchases,			Total realized and unrealized (gains) losses included in:					Balance
	December 31, 2013		sales, settlements, net			Net earnings adjustments		Comprehensive income			March 30, 2014
	(in millions)
Contingent consideration	$	4.4	$	(2.2	)	$	—	$	(0.1	)	$	2.1

On January 31, 2012, the Company completed the acquisition of tekmar Control Systems (tekmar) in a share purchase transaction. The initial purchase price paid was CAD $18.0 million, with post-closing adjustments related to working capital and an earnout based on the attainment of certain future earnings levels. A contingent liability of $5.1 million was recognized as the estimate of the acquisition date fair value of the contingent consideration. This liability was classified as Level 3 under the fair value hierarchy as it was based on the probability of achievement of a future performance metric as of the date of the acquisition, which was not observable in the market. Failure to meet the performance metrics would reduce this liability to zero; while complete achievement would increase this liability to the full remaining purchase price of $8.2 million. The contingent liability was increased by $1.0 million during 2013 based on a revised estimate of the fair value of the contingent consideration. A portion of the contingent consideration was paid out during the first quarter of 2014 and the second quarter of 2013, in the amount of $2.2 million and $1.2 million, respectively, based on performance metrics achieved. The earnout will be completed in fiscal year 2014.

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of certificates of deposit and money market funds, for which the carrying amount is a reasonable estimate of fair value.

The Company uses financial instruments from time to time to enhance its ability to manage risk, including foreign currency and commodity pricing exposures, which exist as part of its ongoing business operations. The use of derivatives exposes the Company to counterparty credit risk for nonperformance and to market risk related to changes in currency exchange rates and commodity prices. The Company manages its exposure to counterparty credit risk through diversification of counterparties. The Company’s counterparties in derivative transactions are substantial commercial banks with significant experience using such derivative instruments. The impact of market risk on the fair value and cash flows of the Company’s derivative instruments is monitored and the Company restricts the use of derivative financial instruments to hedging activities. The Company does not enter into contracts for trading purposes nor does the Company enter into any contracts for speculative purposes. The use of derivative instruments is approved by senior management under written guidelines.

The Company has exposure to a number of foreign currency rates, including the Canadian dollar, the euro, the Chinese yuan and the British pound sterling. To manage this risk, the Company has in the past used a layering methodology and entered into forward exchange contracts which hedged approximately 50% of the projected intercompany purchase transactions for the next twelve months. The Company presently does not have any open forward exchange contracts.

Fair Value

The carrying amounts of cash and cash equivalents, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments.

The fair values of the Company’s 5.85% senior notes due 2016, and 5.05% senior notes due 2020, are based on a discounted cash flow model using comparable industrial companies, the Company’s credit metrics, the Company’s size, as well as current market interest rates quoted in active markets and are classified within Level 2 of the valuation hierarchy. The fair value of the Company’s variable rate debt approximates its carrying value. The carrying amount and the estimated fair market value of the Company’s long-term debt, including the current portion, are as follows:

	March 30,		December 31,
	2014		2013
	(in millions)
Carrying amount	$	307.3	$	307.7
Estimated fair value	$	332.3	$	333.4