Financial Instruments

Debt Instruments

The carrying values of the Company’s debt instruments vary from their fair values. The fair values were determined by reference to the quoted market prices of these securities (Level 2 input based on the GAAP fair value hierarchy). The estimated fair value, as well as the carrying value, of the Company's debt instruments are shown below (in millions):



December 31	2017		2016
Estimated aggregate fair value⁽¹⁾	$	2,033.5	$	2,004.8
Aggregate carrying value ^{(1) (2)}	1,973.4		1,943.7


(1)	Credit agreement and senior notes (excludes "other" debt)


(2)	Carrying value excludes the impact of unamortized original issue discount and debt issuance costs

Accounts Receivable Factoring

One of the Company's European subsidiaries has an uncommitted factoring agreement, which provides for aggregate purchases of specified customer accounts of up to €200 million. As of December 31, 2017 and 2016, there were no factored receivables outstanding. The Company cannot provide any assurances that this factoring facility will be available or utilized in the future.

Marketable Equity Securities

As of December 31, 2017 and 2016, marketable equity securities of $43.8 million and $30.2 million, respectively, for which the Company accounts for under the fair value option, are included in the accompany consolidated balance sheets. Accordingly, unrealized gains and losses arising from changes in the fair value of the marketable equity securities are recognized in the consolidated statement of income as a component of other expense, net. The fair value of the marketable equity securities is determined by reference to quoted market prices in active markets (Level 1 input based on the GAAP fair value hierarchy).

Derivative Instruments and Hedging Activities

Foreign Exchange

The Company uses forwards, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates on known foreign currency exposures. Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce exposure to fluctuations in foreign exchange rates. The principal currencies hedged by the Company include the Mexican peso, various European currencies, the Thai baht, the Japanese yen, the Chinese renminbi and the Philippine peso.

The notional amount, estimated fair value and related classification in the accompanying consolidated balance sheets of the Company's foreign currency derivative contracts are shown below (in millions, except for maturities):



December 31,	2017			2016
Fair value of foreign currency contracts designated as cash flow hedges:
Other current assets	$	16.9		$	11.2
Other long-term assets	1.3			0.5
Other current liabilities	(28.4		)	(58.3		)
Other long-term liabilities	(8.0		)	(9.9		)
	(18.2		)	(56.5		)

Notional amount	$	1,538.5		$	1,275.0
Outstanding maturities in months, not to exceed	24			24
Fair value of foreign currency contracts not designated as hedging instruments:
Other current assets	1.8			5.9
Other current liabilities	(6.4		)	(3.8		)
	(4.6		)	2.1

Notional amount	$	681.1		$	681.2
Outstanding maturities in months, not to exceed	12			12

Total fair value	$	(22.8	)	$	(54.4	)
Total notional amount	$	2,219.6		$	1,956.2

Foreign currency derivative contracts not designated as hedging instruments consist principally of hedges of cash transactions, intercompany loans and certain other balance sheet exposures.

Accumulated Other Comprehensive Loss - Derivative Instruments and Hedging Activities

Pretax amounts related to foreign currency derivative contracts designated as cash flow hedges that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):



For the year ended December 31,	2017		2016			2015
Gains (losses) recognized in accumulated other comprehensive loss:	$	28.8	$	(96.8	)	$	(47.3	)

(Gains) losses reclassified from accumulated other comprehensive loss to:
Net sales	2.1		4.8			(3.7		)
Cost of sales	7.4		81.9			42.3
	9.5		86.7			38.6
Comprehensive income (loss)	$	38.3	$	(10.1	)	$	(8.7	)

As of December 31, 2017 and 2016, pretax net losses of $18.2 million and $56.5 million, respectively, related to the Company’s derivative instruments and hedging activities were recorded in accumulated other comprehensive loss. During the next twelve month period, the Company expects to reclassify into earnings net losses of $11.5 million recorded in accumulated other comprehensive loss as of December 31, 2017. Such losses will be reclassified at the time that the underlying hedged transactions are realized.

For the years ended December 31, 2017, 2016 and 2015, amounts recognized in the accompanying consolidated statements of income related to changes in the fair value of cash flow and fair value hedges excluded from the Company’s effectiveness assessments and the ineffective portion of changes in the fair value of cash flow and fair value hedges were not material. In addition, the Company recognized tax benefits (expense) of ($15.9) million, $3.9 million and $3.5 million in other comprehensive income (loss) related to its derivative instruments and hedging activities for the years ended December 31, 2017, 2016 and 2015, respectively.

Fair Value Measurements

GAAP provides that fair value is an exit price, defined as a market-based measurement that represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are based on one or more of the following three valuation techniques:



Market:		This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Income:		This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations.

Cost:		This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).

Further, GAAP prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows:



Level 1:		Observable inputs, such as quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2:		Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability.

Level 3:		Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date.

The Company discloses fair value measurements and the related valuation techniques and fair value hierarchy level for its assets and liabilities that are measured or disclosed at fair value.

Items Measured at Fair Value on a Recurring Basis

Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016, are shown below (in millions):



	December 31, 2017
	Frequency	Asset (Liability)			Valuation Technique	Level 1		Level 2			Level 3
Foreign currency derivative contracts, net	Recurring	$	(22.8	)	Market / Income	$	—	$	(22.8	)	$	—
Marketable equity securities	Recurring	43.8			Market	43.8		—			—



	December 31, 2016
	Frequency	Asset (Liability)			Valuation Technique	Level 1		Level 2			Level 3
Foreign currency derivative contracts, net	Recurring	$	(54.4	)	Market / Income	$	—	$	(54.4	)	$	—
Marketable equity securities	Recurring	30.2			Market	30.2		—			—

The Company determines the fair value of its derivative contracts using quoted market prices to calculate the forward values and then discounts such forward values to the present value. The discount rates used are based on quoted bank deposit or swap interest rates. If a derivative contract is in a net liability position, the Company adjusts these discount rates, if required, by an estimate of the credit spread that would be applied by market participants purchasing these contracts from the Company’s counterparties. If an estimate of the credit spread is required, the Company uses significant assumptions and factors other than quoted market rates, which would result in the classification of its derivative liabilities within Level 3 of the fair value hierarchy. As of December 31, 2017 and 2016, there were no derivative contracts that were classified within Level 3 of the fair value hierarchy. In addition, there were no transfers in or out of Level 3 of the fair value hierarchy during 2017 and 2016.

For further information on fair value measurements and the Company’s defined benefit pension plan assets, see Note 8, "Pension and Other Postretirement Benefit Plans."

Items Measured at Fair Value on a Non-Recurring Basis

The Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy.

In 2017, as a result of the acquisition of Antolin Seating and the Lear STEC transaction, Level 3 fair value estimates related to property, plant and equipment of $95.4 million, intangible assets of $187.4 million and noncontrolling interests of $125.0 million are recorded in the accompanying consolidated balance sheet as of December 31, 2017. In addition, the Lear STEC transaction required a Level 3 fair value estimate related to the Company's previously held equity interest of $94.0 million. These Level 3 fair value estimates were determined as of the applicable transaction date.

In 2016, as a result of the acquisition of AccuMED and the Beijing BAI transaction, Level 3 fair value estimates related to property, plant and equipment of $31.2 million, intangible assets of $87.0 million and noncontrolling interests of $41.0 million are recorded in the accompanying consolidated balance sheet as of December 31, 2016. In addition, the Beijing BAI transaction required a Level 3 fair value estimate related to the Company's previously held equity interest of $63.0 million. These Level 3 fair value estimates were determined as of the applicable transaction date.

Fair value estimates of property, plant and equipment were based on independent appraisals, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were based on a combination of market and cost approaches, as appropriate. Fair value estimates of customer-based intangible assets were based on the present value of future earnings attributable to the asset group after recognition of required returns to other contributory assets. Fair value estimates of noncontrolling and equity interests were based on the present value of future cash flows and a value to earnings multiple approach and reflect discounts for the lack of control and the lack of marketability associated with noncontrolling and equity interests. Further, the fair value estimate of redeemable noncontrolling interest includes an estimate of the fair value associated with the noncontrolling interest holder's embedded redemption option. The fair value of this redemption option was determined using the Monte Carlo valuation model and includes various assumptions, including the expected volatility, risk free rate and dividend yield.

For further information on assets and liabilities measured at fair value on a non-recurring basis, see Note 2, "Summary of Significant Accounting Policies," Note 3, "Acquisitions," Note 4, "Restructuring," and Note 5, "Investments in Affiliates and Other Related Party Transactions."