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| 13. | Fair Value Measurements |
Assets and liabilities measured at fair value on a recurring basis are summarized as follows:
| | | | | | | | | | | |
| | Fair Value Measurements as of |
| | December 31, 2025 | | December 31, 2024 |
| | (in millions) |
| Assets | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Foreign currency derivatives | $ | — | | | $ | 7.9 | |
| Deferred compensation assets | 16.8 | | | 14.0 | |
| $ | 16.8 | | | $ | 21.9 | |
| Liabilities | | | |
| Deferred compensation liabilities | $ | 17.8 | | | $ | 14.8 | |
| Foreign currency derivatives | 4.4 | | | — | |
| $ | 22.2 | | | $ | 14.8 | |
Our deferred compensation assets and liabilities are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices. Our foreign currency derivatives are classified as Level 2 because their value is calculated based upon observable inputs including market USD/Euro exchange rates and market interest rates.
The carrying values of our significant financial instruments reflected in the Consolidated Balance Sheets, including the Senior Notes that have a determinable fair value based on quoted market prices for identical liabilities and are classified as Level 2 since the market is not active. At December 31, 2025, the fair value of these instruments was approximately 3% higher than the carrying value of the Senior Notes. At December 31, 2024, the carrying value of the then outstanding Senior Notes due 2026 approximated the respective fair value.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.