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Fair Value of Financial Assets and Liabilities
 6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value of Financial Assets and Liabilities

NOTE J – FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The Company measures and records certain assets and liabilities at fair value. A fair value hierarchy is used for those assets and liabilities measured at fair value that distinguishes between assumptions based on market data, (observable inputs), and the Company’s assumptions (unobservable inputs). The hierarchy consists of the following three levels:

Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2

Inputs other than Level 1 inputs that are either directly or indirectly observable, which may include:

 

o

Quoted prices for similar assets in active markets;

 

o

Quoted prices for identical or similar assets or liabilities in inactive markets;

 

o

Inputs other than quoted prices that are observable for the asset or liability; and

 

o

Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3

Inputs to the valuation methodology are unobservable and developed using estimates and assumptions developed by the Company which reflect those that a market participant would use.  

The following table summarizes the Company’s assets and liabilities, recorded and measured at fair value, in the consolidated balance sheets as of June 30, 2020 and December 31, 2019:

 

Description

 

Balance as of

June 30, 2020

 

 

Quoted Prices in

Active Markets for

Identical Assets or

Liabilities

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward contracts, net

 

$

382

 

 

$

0

 

 

$

382

 

 

$

0

 

Total Assets

 

$

382

 

 

$

0

 

 

$

382

 

 

$

0

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental profit sharing plan

 

$

5,848

 

 

$

0

 

 

$

5,848

 

 

$

0

 

Earn-out

 

 

196

 

 

 

0

 

 

 

0

 

 

 

196

 

Total Liabilities

 

$

6,044

 

 

$

0

 

 

$

5,848

 

 

$

196

 

 

Description

 

Balance as of

December 31, 2019

 

 

Quoted Prices in Active Markets for Identical Assets or Liabilities

(Level 1)

 

 

Significant Other

Observable Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental profit sharing plan

 

$

6,059

 

 

$

0

 

 

$

6,059

 

 

$

0

 

Earn-out

 

 

581

 

 

 

0

 

 

 

0

 

 

 

581

 

Total Liabilities

 

$

6,640

 

 

$

0

 

 

$

6,059

 

 

$

581

 

 

The Company operates internationally and enters into intercompany transactions denominated in foreign currencies. Consequently, the Company is subject to market risk arising from exchange rate movements between the dates foreign currency transactions occur and the dates they are settled. The Company currently uses foreign currency forward contracts to reduce the risk related to some of these transactions.  These contracts usually have maturities of 90 days or less and generally require an exchange of foreign currencies for U.S. dollars at maturity at rates stated in the contracts. These contracts are not designated as hedging instruments under U.S. GAAP. Accordingly, the changes in the fair value of the foreign currency forward contracts are recognized in each accounting period in “Other operating expense - net” on the Consolidated Statements of Income together with the transaction gain or loss from the related balance sheet position. For the three months and six months ended June 30, 2020, the Company recognized a net loss of $.3 million and a net gain of $.9 million, respectively, on foreign currency forward contracts. There were no foreign currency contracts in place at June 30, 2019.    

The Company has a non-qualified Supplemental Profit Sharing Plan for its executives. The liability for this unfunded Supplemental Profit Sharing Plan was $5.8 million at June 30, 2020 and $6.1 million at December 31, 2019.  These amounts are recorded within Other noncurrent liabilities on the Company’s consolidated balance sheets. The Supplemental Profit Sharing Plan allows participants the ability to hypothetically invest their proportionate award into various investment options, which primarily include mutual funds.  The Company credits earnings, gains and losses to the participants’ deferred compensation account balances based on the investments selected by the participants. The Company measures the fair value of the Supplemental Profit Sharing Plan liability using the market values of the participants’ underlying investment accounts.

The earn-out represents the estimated fair value of additional cash consideration payable in connection with a recent acquisition that is contingent upon the achievement of certain performance milestones using expected future cash flows over the earn-out period while applying a discount rate that appropriately captures the risk associated with the obligation.  These are considered to be Level 3 inputs.  The contingent liabilities at June 30, 2020 and December 31, 2019 of $.2 million and $.6 million, respectively, are recorded in Other noncurrent liabilities on the Company’s consolidated balance sheet.