Derivative Financial Instruments and Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments and Fair Value Measurements

We are exposed to various risks relating to our ongoing business operations. Among these risks are foreign currency exchange rate risk and interest rate risk, which can be managed through the use of derivative instruments. In certain circumstances, we enter into foreign currency forward exchange contracts (“forward contracts”) to reduce the effects of fluctuating foreign currency exchange rates on our cash flows denominated in foreign currencies. Our exposure to market risk for changes in interest rates relates primarily to our long-term debt obligations. We have historically managed interest rate risk through the use of a combination of fixed and variable rate borrowings. In accordance with the accounting guidance on derivative instruments and hedging activities, we record all of our derivative instruments as either an asset or liability measured at their fair value.

A portion of the €400.0 ($470.0) notes due September 2022 and the €350.0 ($413.2) notes due June 2018 was designated as a hedge of our net investment in our foreign subsidiaries with a Euro-functional currency as of September 30, 2017. For this portion of the Euro-denominated notes, the gain or loss associated with foreign currency translation is recorded as a component of accumulated other comprehensive loss, net of taxes. As of September 30, 2017 and December 31, 2016, we had an unrealized loss of $26.2 and an unrealized gain of $29.0, respectively, included in accumulated other comprehensive loss, net of taxes, as the net investment hedge was deemed effective.

As our €350.0 ($413.2) notes are due within the next twelve months, these notes are included in short-term borrowings and current maturities of long-term debt as of September 30, 2017, but were included in long-term debt as of December 31, 2016.

On occasion, forward contracts are designated as a hedge of our net investment in our foreign subsidiaries. We had a translation loss of $4.2 as of both September 30, 2017 and December 31, 2016, included in accumulated other comprehensive loss, net of taxes, as the net investment hedge was deemed effective.

For our forward contracts that are not designated as hedges, any gain or loss resulting from the change in fair value is recognized in the current period earnings. These gains or losses are offset by the exposure related to receivables and payables with our foreign subsidiaries and to interest due on our Euro-denominated notes, which is paid annually in June and September. There was no impact and a loss of $0.1 recorded for the three months ended September 30, 2017 and 2016, respectively, and no impact and a loss of $1.4 recorded for the nine months ended September 30, 2017 and 2016, respectively, in interest and other expenses associated with those forward contracts, which offset the loss and gain recorded for the items noted above.

The fair value measurements of those items recorded in our Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 were as follows:

			Fair Value Measurements Using
	September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Deferred compensation plan assets	$	95.4	$	95.4	$	—	$	—
	$	95.4	$	95.4	$	—	$	—
Liabilities
Foreign currency forward contracts	$	0.1	$	—	$	0.1	$	—
	$	0.1	$	—	$	0.1	$	—

			Fair Value Measurements Using
	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Deferred compensation plan assets	$	86.8	$	86.8	$	—	$	—
	$	86.8	$	86.8	$	—	$	—
Liabilities
Foreign currency forward contracts	$	0.2	$	—	$	0.2	$	—
	$	0.2	$	—	$	0.2	$	—

We determine the fair value of our deferred compensation plan assets, comprised of publicly traded securities, by using market quotes as of the last day of the period. The fair value of the foreign currency forward contracts is measured at the value from either directly or indirectly observable inputs from third parties.

The carrying value of long-term debt approximates fair value, except for the Euro-denominated notes. The fair value of the Euro-denominated notes, as observable at commonly quoted intervals (level 2 inputs), was $929.9 and $831.6 as of September 30, 2017 and December 31, 2016, respectively, compared to a carrying value of $883.2 and $785.2, respectively.