Cash and Cash Equivalents and Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2017

Cash and Cash Equivalents and Fair Value of Financial Instruments

Cash and cash equivalents of $32.4 million and $54.5 million as of December 31, 2017 and December 31, 2016, respectively, consisted of demand deposits only.

Fair value hierarchy

The Company measures its financial instruments at fair value. The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy as they are valued primarily using quoted market prices utilizing market observable inputs. The Company's interest rate swap contracts and foreign currency contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. The Company's contingent consideration liability related to the Avantec acquisition and was classified as Level 3 as valuation inputs were unobservable in the market and significant to the instrument’s valuation. The Company determined the final payout amount for the remaining contingent consideration and reduced the liability from $3.0 million to $2.4 million. The reduction of the contingent liability resulted in a gain of $0.6 million which is recorded in the "Interest and other income (expense), net" line in the Consolidated Statement of Operations for the year ended December 31, 2016. During the year ended December 31, 2017, the Company concluded that the final payout had been earned and paid out $2.4 million during the third quarter of 2017.

The following table represents the fair value hierarchy of the Company’s financial assets measured at fair value as of December 31, 2017:



	Level 1		Level 2		Level 3		Total
	(In thousands)
Interest rate swap contracts	$	—	$	1,378	$	—	$	1,378
Total financial assets	$	—	$	1,378	$	—	$	1,378

The following table represents the fair value hierarchy of the Company’s financial assets measured at fair value as of December 31, 2016:



	Level 1		Level 2		Level 3		Total
	(In thousands)
Interest rate swap contracts	$	—	$	1,245	$	—	$	1,245
Total financial assets	$	—	$	1,245	$	—	$	1,245
Contingent consideration liability	—		—		2,400		2,400
Total financial liabilities	$	—	$	—	$	2,400	$	2,400

There have been no transfers between fair value measurement levels during the years ended December 31, 2017 and December 31, 2016.

Foreign Currency Risk Management

The Company operates in foreign countries, which expose it to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies, the most significant of which is the British Pound and the Euro. In order to manage foreign currency risk, at times the Company enters into foreign exchange forward contracts to mitigate risks associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities of the Company's foreign subsidiaries. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. By working only with major banks and closely monitoring current market conditions, the Company seeks to limit the risk that counterparties to these contracts may be unable to perform. The foreign exchange forward contracts are measured at fair value and reported as other current assets or accrued liabilities on the Consolidated Balance Sheets. The derivative instruments the Company uses to hedge this exposure are not designated as hedges. Any gains or losses on the foreign exchange forward contracts are recognized in earnings as Other Income/Expense in the period incurred in the Consolidated Statements of Operations. The Company does not enter into derivative contracts for trading purposes.

At December 31, 2017 and December 31, 2016, the Company had no outstanding foreign exchange forward contracts.

Interest Rate Swap Contracts

The Company uses interest rate swap agreements to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a portion of its outstanding debt. The Company's interest rate swaps, which are designated as cash flow hedges, involve the receipt of variable amounts from counterparties in exchange for the Company making fixed-rate payments over the life of the agreements. The Company does not hold or issue any derivative financial instruments for speculative trading purposes.

During 2016, the Company entered into an interest rate swap agreement with a combined notional amount of $100.0 million with one counter-party that is effective beginning on June 30, 2016 and maturing on April 30, 2019. The swap agreement requires the Company to pay a fixed rate of 0.8% and provides that the Company will receive a variable rate based on the one month LIBOR rate subject to LIBOR floor of 0.0%. Amounts payable by or due to the Company will be net settled with the respective counter-party on the last business day of each month, commencing July 31, 2016.

The fair value of the interest rate swap agreements at December 31, 2017 and December 31, 2016 was $1.4 million and $1.2 million, respectively. There were no amounts reclassified into current earnings due to ineffectiveness during the periods presented.

- 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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