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Note 4 - Fair Value Measurements | 9 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Fair Value Disclosures [Text Block] |
4. | FAIR VALUE MEASUREMENTS
Fair value is defined as an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. Entities are required to use a fair value hierarchy which maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value: Level 1 – Observable inputs such as quoted market prices in active markets; Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 – Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions. As of September 30, 2019 and December 31, 2018 , our available-for-sale securities primarily consisted of investments held in a rabbi trust which are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations. These securities are measured at fair value using quoted prices in active markets for identical assets (Level 1 ) inputs and amounted to $1.2 million at September 30, 2019 and $1.4 million at December 31, 2018 . The Company does not have any financial assets measured at fair value on a recurring basis categorized as Level 3, and there were no transfers in or out of Level 1, Level 2 or Level 3 during the nine months ended September 30, 2019 or September 30, 2018 . There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the nine months ended September 30, 2019 or September 30, 2018 . There were no financial assets accounted for at fair value on a nonrecurring basis as of September 30, 2019 or December 31, 2018 . The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued expenses, which are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. The fair value of the Company’s long-term debt is estimated using a discounted cash flow method based on interest rates that are currently available for debt issuances with similar terms and maturities. At September 30, 2019 and December 31, 2018 , the estimated fair value of total debt was $116.8 million and $117.9 million, respectively, compared to a carrying amount of $112.3 million and $114.2 million, respectively. The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of September 30, 2019 . Nonfinancial assets and liabilities, such as goodwill, indefinite-lived intangible assets and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment upon the occurrence of a triggering event. We review goodwill for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. As weakened market conditions from earlier in 2019 continued into the third quarter without a visible rebound in incoming orders, the Company’s actual revenue and margin levels in 2019 were significantly lower than the financial projections utilized in the annual goodwill impairment analysis (performed as of October 1, 2018), and were not projected to rebound to those levels in 2019. The Company determined that current business conditions, and the resulting decrease in the Company’s projected undiscounted and discounted cash flows, together with the accompanying stock price decline, constituted a triggering event, which required the Company to perform interim impairment tests related to its long-lived assets and goodwill during the third quarter of 2019. The Company’s interim test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the July 31, 2019 testing date. The Company’s Level 3 fair value analysis related to the interim test for goodwill impairment was supported by a weighting of two generally accepted valuation approaches, the income approach and the market approach, as further described in the Company’s Annual Report on Form 10 -K for the year ended December 31, 2018. These approaches include numerous assumptions with respect to future circumstances, such as industry and/or local market conditions, which might directly impact each of the reporting units’ operations in the future, and are therefore uncertain. These approaches are utilized to develop a range of fair values and a weighted average of these approaches is utilized to determine the best fair value estimate within that range. The July 31, 2019 interim impairment test related to the Company's goodwill was performed by reporting unit (North America and Europe). The valuation test, which heavily weights future discounted cash flow projections, indicated impairment of the goodwill associated with the Company’s North America reporting unit. As a result, the Company recorded a non-cash goodwill impairment charge of $8.9 million ( $8.5 million after-tax) during the third quarter of 2019. The Company’s goodwill associated with its North America reporting unit originated from several of Bel’s prior acquisitions, primarily Power Solutions and Connectivity Solutions. The carrying value of the Company's goodwill was $19.8 million at December 31, 2018. The remaining goodwill as of September 30, 2019 has a carrying value of $10.8 million related solely to the Company's Europe reporting unit. See Note 5, Goodwill. Detailed below is a table of key underlying assumptions utilized in the fair value estimate calculation for the interim test performed as of July 31, 2019 as compared to those assumptions utilized during the annual valuation performed as of October 1, 2018. The table below shows the assumptions utilized for the North America reporting unit.
|  | Goodwill Impairment Analysis |
|  | Key Assumptions |
|  | 2019 - Interim |  |  | 2018 - Annual |
Income Approach - Discounted Cash Flows: |  |  |  |  |  |  |  |
Revenue 5-year compound annual growth rate (CAGR) |  |  | 1.5 | % |  |  | 2.6 | %
2019 EBITDA margins |  |  | 3.9 | % |  |  | 7.6 | %
Cost of equity capital |  |  | 15.4 | % |  |  | 14.2 | %
Cost of debt capital |  |  | 4.0 | % |  |  | 3.7 | %
Weighted average cost of capital |  |  | 14.0 | % |  |  | 13.0 | %
Market Approach - Multiples of Guideline Companies: |  |  |  |  |  |  |  |
Net operating revenue multiples used |  |  | 0.3 |  |  |  | 0.4 |
Operating EBITDA multiples used |  |  | 7.0 - 8.0 |  |  |  | 5.1 - 5.7 |
Invested capital control premium |  |  | 25 | % |  |  | 25 | %
Weighting of Valuation Methods: |  |  |  |  |  |  |  |
Income Approach - Discounted Cash Flows |  |  | 75 | % |  |  | 75 | %
Market Approach - Multiples of Guideline Companies |  |  | 25 | % |  |  | 25 | %
The Company had also performed an interim impairment analysis of its indefinite-lived intangible assets as of July 31, 2019. The Company tests indefinite-lived intangible assets for impairment using a fair value approach, the relief-from-royalty method (a form of the income approach). At December 31, 2018, the Company’s indefinite-lived intangible assets related to the trademarks acquired in the Power Solutions, Connectivity Solutions, Cinch and Fibreco acquisitions. The Company's interim test on its indefinite-lived intangible assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the July 31, 2019 testing date.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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