Financial Instruments Measured at Fair Value

12 Months Ended

Dec. 31, 2016

Financial Instruments Measured At Fair Value [Text Block]

Financial Instruments Measured at Fair Value

Fair value is defined 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. The company utilizes a fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy has three levels of inputs that may be used to measure fair value:


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


Level 2	Quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.


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

The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, 2016:



	Balance Sheet Location	Level 1		Level 2			Level 3			Total
Cash and cash equivalents	Other assets	$	2,660	$	—		$	—		$	2,660
Available-for-sale securities	Other assets	37,915		—			—			37,915
Interest rate swaps	Other assets	—		152			—			152
Foreign exchange contracts	Other current assets	—		4,685			—			4,685
Foreign exchange contracts	Accrued expenses	—		(3,444		)	—			(3,444		)
Contingent consideration	Accrued expenses	—		—			(4,027		)	(4,027		)
		$	40,575	$	1,393		$	(4,027	)	$	37,941

The following table presents assets (liabilities) measured at fair value on a recurring basis at December 31, 2015:



	Balance Sheet Location	Level 1		Level 2			Level 3			Total
Cash and cash equivalents	Other assets	$	1,559	$	—		$	—		$	1,559
Available-for-sale securities	Other assets	41,178		—			—			41,178
Interest rate swaps	Other assets	—		711			—			711
Foreign exchange contracts	Other current assets	—		2,625			—			2,625
Foreign exchange contracts	Accrued expenses	—		(3,363		)	—			(3,363		)
Contingent consideration	Accrued expenses	—		—			(3,889		)	(3,889		)
		$	42,737	$	(27	)	$	(3,889	)	$	38,821

Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to goodwill and identifiable intangible

assets (see Notes 2 and 3). The company tests these assets for impairment if indicators of potential impairment exist.

During 2016, 2015, and 2014 there were no transfers of assets (liabilities) measured at fair value between the three levels of the fair value hierarchy.

Available-For-Sale Securities

The company has an 8.4% equity ownership interest in Marubun Corporation ("Marubun") and a portfolio of mutual funds with quoted market prices, all of which are accounted for as available-for-sale securities.

During 2014, the company sold its 1.9% equity ownership interest in WPG Holdings Co., Ltd. ("WPG") for proceeds of $40,542 and accordingly recorded a gain on sale of investment of $29,743.

The fair value of the company's available-for-sale securities is as follows at December 31:



	2016				2015
	Marubun		Mutual Funds		Marubun		Mutual Funds
Cost basis	$	10,016	$	18,097	$	10,016	$	17,389
Unrealized holding gain	3,806		5,996		8,708		5,065
Fair value	$	13,822	$	24,093	$	18,724	$	22,454

The unrealized holding gains or losses are included in "Accumulated other comprehensive loss" in the shareholders' equity section in the company's consolidated balance sheets.

Derivative Instruments

The company uses various financial instruments, including derivative instruments, for purposes other than trading. Certain derivative instruments are designated at inception as hedges and measured for effectiveness both at inception and on an ongoing basis. Derivative instruments not designated as hedges are marked-to-market each reporting period with any unrealized gains or losses recognized in earnings.

Interest Rate Swaps

The company occasionally enters into interest rate swap transactions that convert certain fixed-rate debt to variable-rate debt or variable-rate debt to fixed-rate debt in order to manage its targeted mix of fixed- and floating-rate debt. The company uses the hypothetical derivative method to assess the effectiveness of its interest rate swaps designated as fair value hedges on a quarterly basis. The effective portion of the change in the fair value of designated interest rate swaps is recorded as a change to the carrying value of the related hedged debt. The ineffective portion of the interest rate swaps, if any, is recorded in "Interest and other financing expense, net" in the company's consolidated statements of operations.

The terms of our outstanding interest rate swap contracts at December 31, 2016 are as follows:



Maturity Date	Notional Amount	Interest rate due from counterparty	Interest rate due to counterparty
April 2020	50,000	6.000%	6 mo. USD LIBOR + 3.896
June 2018	50,000	6.875%	6 mo. USD LIBOR + 5.301

In January 2015, the company entered into four seven-year forward-starting interest rate swaps (the "2015 swaps") which locked in an average treasury rate of 1.98% on a total aggregate notional amount of $200,000. These 2015 swaps were designated as cash flow hedges and managed the risk associated with changes in treasury rates and the impact of future interest payments on the anticipated debt issuances to replace the company's 3.375% notes due to mature in November 2015. In February 2015, the company received $896 in connection with the termination of the 2015 swaps upon issuance of the seven-year notes due in 2022. The fair value of the 2015 swaps is recorded in the shareholders' equity section in the company's consolidated balance sheets in "Accumulated other comprehensive income (loss)" and is being reclassified into income over the seven-year term of the notes due in 2022.

In December 2010, the company entered into interest rate swaps, with an aggregate notional amount of $250,000. The swaps modified the company's interest rate exposure by effectively converting the fixed 3.375% notes due in November 2015 to a floating rate, based on the three-month U.S. dollar LIBOR plus a spread, through its maturity. In September 2011, these interest rate swap agreements were terminated for proceeds of $11,856, net of accrued interest. The proceeds of the swap terminations, less accrued interest, were reflected as a premium to the underlying debt and were being amortized as a reduction to interest expense over the remaining term of the underlying debt. In March 2015, the unamortized premium was included in the loss on prepayment of debt recorded as a result of the redemption of the 3.375% notes due November 2015.

Foreign Exchange Contracts

The company’s foreign currency exposure relates primarily to international transactions where the currency collected from customers can be different from the currency used to purchase the product. The company’s transactions in its foreign operations are denominated primarily in the following currencies: Euro, Chinese Renminbi, British pound, Taiwan Dollar, and Australian Dollar. The company enters into foreign exchange forward, option, or swap contracts (collectively, the "foreign exchange contracts") to mitigate the impact of changes in foreign currency exchange rates. These contracts are executed to facilitate the hedging of foreign currency exposures resulting from inventory purchases and sales and generally have terms of no more than six months. Gains or losses on these contracts are deferred and recognized when the underlying future purchase or sale is recognized or when the corresponding asset or liability is revalued. The company does not enter into foreign exchange contracts for trading purposes. The risk of loss on a foreign exchange contract is the risk of nonperformance by the counterparties, which the company minimizes by limiting its counterparties to major financial institutions. The fair value of the foreign exchange contracts are estimated using market quotes. The notional amount of the foreign exchange contracts at December 31, 2016 and 2015 was $460,233 and $382,025, respectively.

Gains and losses related to non-designated foreign currency exchange contracts are recorded in "Cost of sales" in the company's consolidated statements of operations. Gains and losses related to designated foreign currency exchange contracts are recorded in "Selling, general, and administrative expenses" and "Interest and other financing expense, net" in the company's consolidated statements of operations and were not material for 2016, 2015, and 2014.

The effect of derivative instruments on the company's consolidated statements of operations and other comprehensive income are as follows for the years ended December 31 are as follows:



	2016			2015			2014
Gain (Loss) Recognized in Income
Foreign exchange contracts	$	1,535		$	4,755		$	(1,195	)
Interest rate swaps	$	(608	)	$	(523	)	$	(656	)
Total	$	927		$	4,232		$	(1,851	)
Gain (Loss) Recognized in Other Comprehensive Income before reclassifications
Foreign exchange contracts	$	(153	)	$	(1,001	)	$	412
Interest rate swaps	$	—		$	827		$	—

Other

The carrying amount of cash and cash equivalents, accounts receivable, net, and accounts payable approximate their fair value due to the short maturities of these financial instruments.