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Fair Value Measurements and Fair Value Of Financial Instruments
 9 Months Ended
Sep. 26, 2015
Fair Value Measurements and Fair Value of Financial Instruments Disclosure  
Fair Value Measurements and Fair Value of Financial Instruments [Text Block]

Note 12. Fair Value Measurements and Fair Value of Financial Instruments

Fair Value Measurements

The company uses the market approach technique to value its financial instruments and there were no changes in valuation techniques during 2015. The company’s financial assets and liabilities carried at fair value are primarily comprised of investments in money market funds; derivative contracts, insurance contracts, mutual funds holding publicly traded securities and other investments in unit trusts held as assets to satisfy outstanding deferred compensation and retirement liabilities; and acquisition-related contingent consideration.

The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities that the company has the ability to access.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates and yield curves.

Level 3: Inputs are unobservable data points that are not corroborated by market data.

The following table presents information about the company’s financial assets and liabilities measured at fair
value on a recurring basis as of September 26, 2015:
September 26,Quoted Prices in Active MarketsSignificant Other Observable InputsSignificant Unobservable Inputs
(In millions)2015(Level 1)(Level 2)(Level 3)
Assets
Cash equivalents$65.8$65.8$—$—
Bank time deposits2.02.0——
Investments in mutual funds, unit trusts and other    similar instruments7.47.4——
Insurance contracts105.2—105.2—
Derivative contracts25.2—25.2—
Total Assets$205.6$75.2$130.4$—
Liabilities
Derivative contracts$27.4$—$27.4$—
Contingent consideration2.3——2.3
Total Liabilities$29.7$—$27.4$2.3

The following table presents information about the company’s financial assets and liabilities measured at fair
value on a recurring basis as of December 31, 2014:
December 31,Quoted Prices in Active MarketsSignificant Other Observable InputsSignificant Unobservable Inputs
(In millions)2014(Level 1)(Level 2)(Level 3)
Assets
Cash equivalents$617.3$617.3$—$—
Bank time deposits8.58.5——
Investments in mutual funds, unit trusts and other    similar instruments8.78.7——
Insurance contracts102.5—102.5—
Derivative contracts20.2—20.2—
Total Assets$757.2$634.5$122.7$—
Liabilities
Derivative contracts$10.4$—$10.4$—
Contingent consideration29.6——29.6
Total Liabilities$40.0$—$10.4$29.6

The company determines the fair value of its insurance contracts by obtaining the cash surrender value of the contracts from the issuer. The fair value of derivative contracts is the estimated amount that the company would receive/pay upon liquidation of the contracts, taking into account the change in interest rates and currency exchange rates. The company determines the fair value of acquisition-related contingent consideration based on assessment of the probability that the company would be required to make such future payment. Changes to the fair value of contingent consideration are recorded in selling, general and administrative expense. The following table provides a rollforward of the fair value, as determined by Level 3 inputs, of the contingent consideration.

Three Months EndedNine Months Ended
September 26,September 27,September 26,September 27,
(In millions)2015201420152014
Contingent Consideration
Beginning Balance$7.6$32.0$29.6$5.1
Acquisition—0.8—29.9
Payments(3.1)(4.2)(11.1)(10.3)
Change in fair value included in earnings(2.1)4.4(2.6)8.0
Sale of a product line——(13.4)—
Currency translation(0.1)(0.3)(0.2)—
Ending Balance$2.3$32.7$2.3$32.7

The notional amounts of derivative contracts outstanding, consisting of interest rate swaps and currency exchange contracts, totaled $6.87 billion and $3.74 billion at September 26, 2015 and December 31, 2014, respectively.

While certain derivatives are subject to netting arrangements with counterparties, the company does not offset derivative assets and liabilities within the consolidated balance sheet. The following tables present the fair value of derivative instruments in the consolidated balance sheet and statement of income.

Fair Value – AssetsFair Value – Liabilities
September 26,December 31,September 26,December 31,
(In millions)2015201420152014
Derivatives Designated as Hedging Instruments
Interest rate swaps (a)$18.9$—$9.3$3.7
Derivatives Not Designated as Hedging Instruments
Currency exchange contracts (b)6.320.218.16.7
(a)The fair value of the interest rate swaps is included in the consolidated balance sheet under the captions other assets or other accrued expenses in 2015 and in other long-term liabilities in 2014.
(b)The fair value of the currency exchange contracts is included in the consolidated balance sheet under the captions other current assets or other accrued expenses.

Gain (Loss) Recognized
Three Months EndedNine Months Ended
September 26,September 27,September 26,September 27,
(In millions)2015201420152014
Derivatives Designated as Fair Value Hedges
Interest rate swaps - effective portion$9.5$1.1$25.7$3.2
Interest rate swaps - ineffective portion (a)(0.2)(2.3)(7.4)(0.5)
Derivatives Not Designated as Fair Value Hedges
Currency exchange contracts
Included in cost of revenues$(6.0)$7.0$11.5$11.2
Included in other expense, net(6.4)75.9130.676.1
(a)The ineffective portion of the loss recognized on interest rate swaps during the nine months ended September 26, 2015 includes $7.5 million of costs associated with entering into the swap arrangements.

Gains and losses recognized on currency exchange contracts and the effective portion of interest rate swaps are included in the consolidated statement of income together with the corresponding, offsetting losses and gains on the underlying hedged transactions. Gains and losses recognized on the ineffective portion of interest rate swaps are included in other expense, net in the accompanying statement of income.

The company also uses foreign currency-denominated debt to partially hedge its net investments in foreign operations against adverse movements in exchange rates. The company’s euro-denominated senior notes have been designated as, and are effective as, economic hedges of part of the net investment in a foreign operation. Accordingly, foreign currency transaction gains or losses due to spot rate fluctuations on the euro-denominated debt instruments are included in currency translation adjustment within other comprehensive income and shareholders’ equity. In the first nine months of 2015, the currency translation adjustment component of other comprehensive income includes pre-tax net gains of $43.3 million from the euro-denominated notes.

Cash Flow Hedge Arrangements

In February 2015, the company entered into interest rate swap arrangements to mitigate the risk of interest rates rising prior to completion of a debt offering in 2016. Based on the company’s conclusion that a debt offering is probable as a result of debt maturing in 2016 and that such debt would carry semi-annual interest payments over a 10-year term, the swaps hedge the cash flow risk for each of the semi-annual fixed-rate interest payments on $1.00 billion of principal amount of the planned 10-year fixed-rate debt issue. The hedge will be terminated upon completion of a debt offering in 2016. The fair value of the hedge at that time will be recorded to accumulated other comprehensive items within shareholders’ equity and will be amortized to interest expense over the term of the debt. The change in the fair value of the hedge, $6 million, net of tax, as of September 26, 2015, was classified as a decrease to accumulated other comprehensive items.

Fair Value of Other Financial Instruments

The carrying value and fair value of the company’s notes receivable and debt obligations are as follows:
September 26, 2015December 31, 2014
CarryingFairCarryingFair
(In millions)ValueValueValueValue
Notes Receivable$11.3$11.3$8.3$8.3
Debt Obligations:
Senior notes$12,566.9$12,737.1$13,265.8$13,590.6
Term loan——1,275.01,275.0
Commercial paper727.6727.6——
Other17.417.423.223.2
$13,311.9$13,482.1$14,564.0$14,888.8
The fair value of debt obligations was determined based on quoted market prices and on borrowing rates
available to the company at the respective period ends which represent level 2 measurements.