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. ASC 820 requires entities to, among other things, maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

ASC 820 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.

ASC 820 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 ASC 820, 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 June 30, 2014 and December 31, 2013. 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.

				Fair Value Measurements at Reporting Date Using
	Balance Sheet Location	June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(In thousands)
Retirement plan asset	Other long-term assets	$	2,010	$	2,010	$	-	$	-

				Fair Value Measurements at Reporting Date Using
	Balance Sheet Location	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(In thousands)
Retirement plan asset	Other long-term assets	$	1,908	$	1,908		—		—

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, which we seek to minimize 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.

	June 30, 2014				December 31, 2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)				(In thousands)
6.75% unsecured notes (quoted prices in active market for identical assets - level 1)	$	350,908	$	369,688	$	350,989	$	369,250
Capital lease obligation (significant other observable inputs - level 2)	$	2,538	$	2,538	$	—	$	—

Financial Instruments

Interest Rate Swap Agreements. 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 to hedge against interest rate fluctuations on a portion of our variable rate debt, which was designated as a cash flow hedge. This agreement was effective on July 15, 2011 and was set to expire on June 15, 2014. However, on March 27, 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 March 31, 2013. We did not have any interest rate swap agreements in effect during the three and six months ended June 30, 2014.

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 associated 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 non-deliverable forward contracts outstanding as of June 30, 2013 had notional amounts of CAD $2.5 million and CAD $1.6 million with settlement dates of September 9, 2013 and October 8, 2013, respectively. These hedges were effective in offsetting our exposure to the CAD and therefore the $0.1 million loss on these hedges was offset by the $0.1 million gain on the exposure associated with the funding of our semi-works facility for the three and six months ended June 30, 2013. We did not have any fair value hedges in place during the three and six months ended June 30, 2014.

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 €50.0 million to €100.0 million with all contracts expiring after thirty days. In June 2013, we entered into a TWD 450.0 million 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 an aggregate $0.2 million loss in accumulated other comprehensive loss related to the settlement of the effective portion of these contracts during the six months ended June 30, 2013. We did not have any net investment hedges in place during the three and six months ended June 30, 2014.

Foreign Currency Hedges. Periodically, we enter into foreign currency agreements to hedge or otherwise protect against fluctuations in foreign currency exchange rates. The contracts are 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 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. For the three months ended June 30, 2014 and 2013, we settled these hedges and recorded a loss of $0.2 million and a loss of $0.06 million, respectively, and for the six months ended June 30, 2014 and 2013, we recorded a loss of $0.4 million and a loss of $1.8 million, respectively, which are recorded in cost of goods sold.

Credit Risk

We analyze our 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.