12. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

ASC 820, “Fair Value Measurements and Disclosure”, establishes a hierarchy that prioritizes the inputs to those valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:

Basis of Fair Value Measurement


Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted instruments.


Level 2	Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.


Level 3	Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

We evaluate the position of each financial instrument measured at fair value in the hierarchy individually based on the valuation methodology we apply. The carrying amount of financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable and accrued liabilities, approximate their fair value due to the short-term nature of these items. The fair value of our long-term debt is included in Note 5, "Long-term Debt and Other Financing Arrangements".

Hedging Activities

Cash Flow Hedges of Interest Rate Risk

We are party to interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of the Euro Loans. These interest rate swaps provide us with variable-rate cash receipts in exchange for fixed-rate payments over the lives of the agreements, with no exchange of the underlying notional amount. These instruments are carried at fair value on our condensed consolidated balance sheets as other current and other non-current liabilities based on their maturity.

We value the interest rate swap agreements using a valuation model which calculates the fair value on the basis of the net present value of the estimated future cash flows. The most significant input used in the valuation model is the expected EURIBOR-based yield curve. These instruments were allocated to Level 2 of the fair value hierarchy because the critical inputs to this model, including current interest rates, relevant yield curves and the known contractual terms of the instruments, were readily observable.

The effective portion of the changes in the fair value of the designated instruments is recorded in accumulated other comprehensive income / loss and subsequently reclassified to interest expense when the hedged item affects earnings. The ineffective portion of changes in the fair value is recognized immediately in other non-operating expense / income, net in our condensed consolidated statements of operations and comprehensive income / loss. For the three and six months ended June 30, 2018 and 2017, we did not recognize any charges related to hedge ineffectiveness. All changes in fair value are recorded in other non-operating income, net in our condensed consolidated statements of operations and comprehensive income / loss.

Information relating to interest rates swaps is as follows:



Trade Date	Number of Contracts	Aggregate Notional Amount		Designated Portion		Maturity Date	Objective	Fair Value as at June 30, 2018
April 26, 2018	4	EUR	468,800	EUR	468,800	April 26, 2023	Interest rate hedge underlying 2023 Euro Loan, forward starting on February 19, 2021	$	(2,821	)
April 5, 2016	5	EUR	468,800	EUR	468,800	February 19, 2021	Interest rate hedge underlying 2023 Euro Loan	$	(2,609	)
April 26, 2018	3	EUR	235,335	EUR	78,367	November 1, 2021	Interest rate hedge underlying 2021 Euro Loan, forward starting on November 1, 2019	$	(932	)
November 10, 2015	3	EUR	235,335	EUR	78,367	November 1, 2019	Interest rate hedge underlying 2021 Euro Loan	$	(1,137	)
April 5, 2016	4	EUR	40,800	EUR	—	November 1, 2018	Interest rate hedge underlying 2019 Euro Loan	$	(24	)

As a part of the Financing Transactions (see Note 5, "Long-term Debt and Other Financing Arrangements") we entered into forward starting interest rate swap agreements to mitigate our exposure to interest rate fluctuations on the outstanding principal amount of the 2021 Euro Loan and 2023 Euro Loan for the period from maturity of the current instruments until the prolonged maturity date of the related Euro Loan.

In May 2018, we settled in part the interest rate swaps underlying the 2019 Euro Loan to align with the EUR 110.0 million reduction of the principal balance of that loan following the repayment on May 3, 2018 (see Note 5, "Long-term Debt and Other Financing Arrangements"). Changes in the fair value of the settled portion of this interest rate swap are recognized within other non-operating income, net in our condensed consolidated statements of operations and comprehensive income / loss.

The expected proceeds from the Divestment Transaction will be used to satisfy amounts owing in respect of the 2019 Euro Loan and a portion of the 2021 Euro Loan (see Note 5, "Long-term Debt and Other Financing Arrangements"). The anticipated reduction of principal amounts owing in respect of the 2021 Euro Loan will reduce future interest payments that the interest rate swap maturing on November 1, 2019 is designed to hedge. To maintain the effectiveness of the interest rate swap, we have de-designated a portion to align the notional amount of the instrument with the 2021 Euro Loan principal that will remain after the application of Divestment Transaction proceeds. For the portion de-designated, all related fair value adjustments, including those previously recognized in accumulated other comprehensive income / loss, are recognized in other non-operating income, net in our condensed consolidated statements of operations and comprehensive income / loss (see Note 14, "Equity").

Foreign Currency Risk

From time to time, we have entered into forward foreign exchange contracts to reduce our exposure to movements in foreign exchange rates related to contractual payments under certain dollar-denominated agreements. As at June 30, 2018, we had no such forward foreign exchange contracts outstanding.

Fair Value of Derivatives

The change in fair value of derivatives not recognized within accumulated other comprehensive income / loss comprised the following for the three and six months ended June 30, 2018 and 2017:



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2018			2017			2018			2017
Loss on currency swaps	$	—		$	(1,100	)	$	—		$	(732	)
Loss on interest rate swaps	(1,101		)	—			(1,329		)	—
Change in fair value of derivatives	$	(1,101	)	$	(1,100	)	$	(1,329	)	$	(732	)