Fair Value Measurements, Financial Instruments and Credit Risk

9 Months Ended

Sep. 30, 2013

Fair Value Measurements, Financial Instruments and Credit Risk

8. Fair Value Measurements, Financial Instruments and Credit Risk

ASC 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a consistent framework for measuring fair value and expands disclosure requirements about fair value measurements. ASC820 requires entities to, among other things, maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

ASC820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

ASC820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions.

In accordance with ASC820, these two types of inputs have created the following fair value hierarchy:

• Level 1—Inputs that are quoted prices (unadjusted) for identical assets or liabilities in active markets;
• Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability, including:
• Quoted prices for similar assets or liabilities in active markets
• Quoted prices for identical or similar assets or liabilities in markets that are not active
• Inputs other than quoted prices that are observable for the asset or liability
• Inputs that are derived principally from or corroborated by observable market data by correlation or other means; and
• Level 3—Inputs that are unobservable and reflect our assumptions used in pricing the asset or liability based on the best information available under the circumstances (e.g., internally derived assumptions surrounding the timing and amount of expected cash flows).

Recurring Fair Value Measurements. The following tables set forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September30, 2013 and December31, 2012. These financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Our assessment of the significance of a particular input to the fair value measurement requires judgment, which judgment may affect the valuation of their fair value and their placement within the fair value hierarchy levels.

	BalanceSheet Location	September30, 2013			FairValueMeasurementsatReportingDateUsing
					QuotedPrices in Active Markets for IdenticalAssets (Level 1)		Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
					(In thousands)
Retirement plan asset—noncurrent	Otherlong-term assets		1,672			1,672		0				0
Derivativeliability—current	Otherpayablesandaccruals		(22	)		0		(22	)			0
Total		$	1,650		$	1,672	$	(22	)	$		0

	BalanceSheet Location	December31, 2012			FairValueMeasurementsatReportingDateUsing
					QuotedPrices in Active Markets for IdenticalAssets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
					(In thousands)
Derivativeasset—current	Othercurrent assets	$	34		$	0	$	34		$	0
Retirement planasset—noncurrent	Otherlong-term assets		860			860		0			0
Derivativeliability—current	Otherpayablesandaccruals		(578	)		0		(578	)		0
Derivativeliability—noncurrent	Otherlong-term liabilities		(258	)		0		(258	)		0
Total		$	58		$	860	$	(802	)	$	0

The use of derivatives creates exposure to credit risk relating to potential losses that could be recognized in the event that the counterparties to these instruments fail to perform their obligations under the contracts. We seek to minimize this risk by limiting our counterparties to major financial institutions with acceptable credit ratings and by monitoring the total value of positions with individual counterparties. In the event of a default by one of our counterparties, we may not receive payments provided for under the terms of our derivatives.

The following table presents the carrying values and approximate fair values of our long-term debt.

	September30, 2013						December31, 2012
	Carrying Value			Fair Value				Carrying Value			Fair Value
	(In thousands)
Term loans	$	0	$		0	$			96,875	$		96,875
6.75% unsecured notes	$	351,028	$		358,810	$			351,142	$		364,000

The term loans are variable interest rate instruments, and as such, the fair value approximates their carrying value.

Financial Instruments

Interest Rate Swap Agreements.Periodically, we enter into interest rate swap agreements to hedge or otherwise protect against interest rate fluctuations on a portion of our variable rate debt. These interest rate swap agreements are designated as cash flow hedges on our exposure to the variability of future cash flows.

In June 2011, we entered into a $75.0 million notional amount interest rate swap agreement with respect to a portion of our outstanding term loans. This agreement was effective on July15, 2011 and was set to expire on June15, 2014. However, on March27, 2013, in connection with the refinancing of our credit facility, we terminated and settled the interest rate swap agreement, and as a result, recognized $0.7 million of interest expense for the three months ended March31, 2013. We recorded an unrealized loss of $0.1 million in accumulated other comprehensive loss related to the effective portion of this interest rate swap agreement for the three months ended March31, 2012.

Fair Value Hedges.In April 2012, we entered into a series of non-deliverable forward contracts to reduce our exposure to fluctuations in the Canadian dollar (“CAD”) against the U.S. dollar in connection with the funding of certain capital expenditures. These non-deliverable forward contracts qualified for hedge accounting and were designated as fair value hedges in accordance with ASC 815-25 “Fair Value Hedges.” The only non-deliverable forward contract outstanding as of September30, 2013 had a notional amount of CAD $1.6 million with a settlement date of October8, 2013. This hedge was effective in offsetting our exposure to the CAD, and therefore the $0.1 million gain on the hedge was offset by the $0.1 million loss on the exposure associated with the funding of our semi-works facility for the three months ended September30, 2013. There was no net impact for the nine months ended September30, 2013. Similarly, for the three months ended September 30, 2012, the $0.1 million gain on the hedge was offset by the $0.1 million loss on the exposure to the CAD and for the nine months ended September30, 2012 the $0.1 million loss on the hedge was offset by the $0.1 million gain on the exposure to the CAD.

Net Investment Hedges. During 2012, we entered into a series of non-deliverable forward and foreign currency option contracts to protect our net investment in our European subsidiaries against adverse changes in exchange rates by fixing the U.S. dollar/Euro exchange rate. The notional amounts of these contracts ranged from €50.0million to €100.0million with all contracts expiring after thirty days. In June 2013, we entered into a €11.6million notional amount non-deliverable forward contract to protect our net investment in our subsidiary in Taiwan against adverse changes in exchange rates by fixing the New Taiwan Dollar/Euro exchange rate. These contracts qualify for hedge accounting and were designated as net investment hedges in accordance with ASC 815-35 “Net Investment Hedges.” We recorded in accumulated other comprehensive loss an aggregate $0.5 million loss related to the settlement of the effective portion of these contracts during the nine months ended September30, 2013.We recorded in accumulated other comprehensive loss an aggregate $0.6 million gain related to the settlement of the effective portion of these contracts during the nine months ended September30, 2012.

Foreign Currency Hedges.Periodically, we enter into foreign currency agreements to hedge or otherwise protect against fluctuations in foreign currency exchange rates. These agreements typically do not qualify for hedge accounting and gains/losses resulting from both the up-front premiums and/or settlement of the hedges at expiration of the agreements are recognized in the period in which they are incurred. During the nine months ended September30, 2013 and 2012, we entered into a series of foreign currency option and forward contracts to reduce our exposure to exchange rate volatility. The contracts were structured such that the underlying foreign currency exchange gains/losses would be offset by the mark-to-market impact of the hedging instruments and reduce the impact of foreign currency exchange movements throughout the period. These contracts did not qualify for hedge accounting. For the three months ended September30, 2013 and 2012, we settled these hedges and recorded an aggregate gain of $0.3 million and a gain of $0.1 million, respectively. For the nine months ended September30, 2013 and 2012, we recorded an aggregate loss of $1.5 million and a gain of $1.2 million, respectively. In all periods, the gains or losses on settlement of these hedges offset the underlying foreign currency exchange gains and losses recorded in cost of goods sold.

Credit Risk

We analyze the counterparties’ financial condition prior to extending credit and we establish credit limits and monitor the appropriateness of those limits on an ongoing basis. We also obtain cash, letters of credit or other acceptable forms of security from customers to provide credit support, where appropriate, based on our financial analysis of the customer and the contractual terms and conditions applicable to each transaction.