Fair Value Measurement

6 Months Ended

Jun. 30, 2014

The accounting guidance under Accounting Standards Codification “Fair Value Measurements and Disclosures” (“ASC 820-10”) requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:


•	Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.


•	Level 3: Significant unobservable inputs.

The Company’s financial assets and liabilities subject to fair value measurements as of June 30, 2014 and December 31, 2013 are as follows:



			June 30, 2014
			Fair Value Measurements
	Fair value		Level 1		Level 2		Level 3 (c)
Assets:
Cash equivalents	$	102,824	$	102,824	$	—	$	—
Current marketable securities – available for sale (a)	33,494		33,494		—		—
Note receivable – related party	3,581		—		—		3,581
Note receivable from seller of SM Canada	2,552		—		—		2,552
Long-term marketable securities – available for sale (b)	93,336		93,336		—		—
Forward contracts	220		$	—	220		$	—
Total assets	$	236,007	$	229,654	$	220	$	6,133
Liabilities:
Contingent consideration	$	30,380	—		—		$	30,380
Total liabilities	$	30,380	$	—	$	—	$	30,380
(a) Current marketable securities includes unrealized gains of $941 and unrealized losses of $151.
(b) Long-term marketable securities includes unrealized gains of $1,679 and unrealized losses of $1,491.
(c) The decrease in the balance of the note receivable from seller of SM Canada at June 30, 2014 compared to December 31, 2013 is due to principal payments of $640, offset by $21 in foreign currency translation. The decrease in the contingent consideration at June 30, 2014 compared to December 31, 2013 is due to an earn-out payment of $3,315 to the seller of SM Canada as well as a reduction of $1,100 of the current portion of contingent consideration in excess of current year actual and expected payments.

Note F – Fair Value Measurement (continued)



			December 31, 2013
			Fair Value Measurements
	Fair value		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	102,247	$	102,247	$	—	$	—
Current marketable securities – available for sale (a)	20,591		20,591		—		—
Note receivable – related party	3,581		—		—		3,581
Note receivable from seller of SM Canada	3,171		—		—		3,171
Long-term marketable securities – available for sale (b)	91,267		91,267		—		—
Total assets	$	220,857	$	214,105	$	—	$	6,752
Liabilities:
Forward contracts	$	460	$	—	$	460	$	—
Contingent consideration	34,795		—		—		34,795
Total liabilities	$	35,255	$	—	$	460	$	34,795
(a) Current marketable securities includes unrealized gains of $59.
(b) Long-term marketable securities includes unrealized gains of $1,387 and unrealized losses of $4,530.

Forward contracts (see Note O) are entered into to manage the risk associated with the volatility of future cash flows denominated in Mexican pesos. Fair value of these instruments is based on observable market transactions of spot and forward rates.

For the note receivable due from related party (see Note I) and from the seller of SM Canada (see Note D), the carrying value was determined to be the fair value, based upon their imputed or actual interest rates, which approximate current market interest rates.

The Company has recorded a liability for potential contingent consideration in connection with the February 21, 2012 acquisition of SM Canada. Pursuant to the terms of an earn-out agreement between the Company and the seller of SM Canada, earn-out payments will be due annually to the seller of SM Canada based on the financial performance of SM Canada for each of the twelve-month periods ending on March 31, 2013 through 2017, inclusive. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of SM Canada during the earn-out period. The current portion of the earn-out due based on the twelve-month period ending March 31, 2015 approximates the recorded value. An earn-out payment of $3,315 for the period ended March 31, 2014 was paid to the seller of SM Canada in the second quarter of this year.

The Company has recorded a liability for potential contingent consideration in connection with the May 25, 2011 acquisition of Cejon Inc., Cejon Accessories, Inc. and New East Designs, LLC (collectively "Cejon"). Pursuant to the terms of an earn-out agreement between the Company and the sellers of Cejon, earn-out payments will be made annually to the sellers of Cejon, based on the financial performance of Cejon for each of the twelve-month periods ending on June 30, 2012 through 2016, inclusive. The fair value of the remaining contingent payments was estimated using the present value of management's projections of the financial results of Cejon during the earn-out period.

The carrying value of certain financial instruments such as accounts receivable, due from factor and accounts payable approximates their fair values due to the short-term nature of their underlying terms. The fair values of investment in marketable securities available for sale are determined by reference to market data.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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