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Fair Value Measurements
 12 Months Ended
Dec. 31, 2014
Fair Value Disclosures [Abstract]  
Fair Value Measurements

8. FAIR VALUE MEASUREMENTS:

Assets/Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The Company records its financial assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. The guidance for fair value measurements also applies to nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities.

 

The authoritative guidance establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. These levels are: Level 1 (inputs are quoted prices in active markets for identical assets or liabilities); Level 2 (inputs are other than quoted prices that are observable, either directly or indirectly through corroboration with observable market data); and Level 3 (inputs are unobservable, with little or no market data that exists, such as internal financial forecasts). The Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The following table summarizes information regarding the Company’s financial assets and financial liabilities that are measured at fair value on a recurring basis (in thousands):

 

Description    Balance at
December 31,
2014		      Level 1      Level 2      Level 3  

Financial Assets

            

Deferred compensation plan

    $ 6,237       $ 4,953       $ 1,284       $ —     

Derivatives

      32         —           32         —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Assets

 $ 6,269    $ 4,953    $ 1,316    $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial Liabilities

Contingent consideration

 $ (2,679 )  $ —      $ —      $ (2,679 ) 

Derivatives

   (5 )    —        (5 )    —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Liabilities

 $ (2,684 )  $ —      $ (5 )  $ (2,679 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  
Description    Balance at
December 31,
2013		      Level 1      Level 2      Level 3  

Financial Assets

            

Deferred compensation plan

    $ 6,000       $ 4,944       $ 1,056       $ —     

Derivatives

      1         —           1         —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Assets

 $ 6,001    $ 4,944    $ 1,057    $ —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Financial Liabilities

Contingent consideration

 $ (4,425 )  $ —      $ —      $ (4,425 ) 

Derivatives

   (1 )    —        (1 )    —     
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Liabilities

 $ (4,426 )  $ —      $ (1 )  $ (4,425 ) 
  

 

 

     

 

 

     

 

 

     

 

 

  

The deferred compensation plan assets consists of cash and several publicly traded stock and bond mutual funds, valued using quoted market prices in active markets classified as Level 1 within the fair value hierarchy, as well as securities that are not actively traded on major exchanges, valued using the NAV of the underlying investments classified as Level 2 within the fair value hierarchy. The Company’s derivatives consist of foreign currency forward contracts, which are accounted for as cash flow hedges, and are valued using various pricing models or discounted cash flow analyses that incorporate observable market parameters, such as interest rate yield curves and currency rates, classified as Level 2 within the valuation hierarchy. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by the counterparty or the Company.

The contingent consideration liability represents the probability weighted contingent payment as a percentage of high, mid, and low revenue projections for the following three fiscal years following the acquisition of Permalok on December 30, 2013. Our fair value estimate of this liability was $2.7 million at December 31, 2014 and $4.4 million at December 31, 2013. The inputs used to measure contingent consideration are classified as Level 3 within the valuation hierarchy. The valuation is not supported by market criteria and reflects the Company’s internal revenue forecasts. Changes in the fair value of the contingent consideration payment will be reflected in cost of sales during the period which the change in the estimated fair value is calculated.

The net carrying amounts of cash and cash equivalents, trade and other receivables, accounts payable, accrued liabilities and borrowings on line of credit approximate fair value due to the short-term nature of these instruments.

Prior to final payoff in June 2014, the Company was obligated to repay the carrying value of the Company’s long-term debt. The fair value of the Company’s debt was calculated using a coupon rate on borrowings with similar maturities, current remaining average life to maturity, borrower credit quality, and current market conditions all of which are classified as Level 2 inputs within the valuation hierarchy. At December 31, 2013, the fair value of the Company’s long-term debt, including the current portion, was $6.3 million and the carrying value was $6.4 million.

Assets Measured and Recorded at Fair Value on a Non-Recurring Basis

The Company measures its financial assets, including loans receivable and non-marketable equity method investments, at fair value on a non-recurring basis when they are determined to be other-than-temporarily impaired. The fair value of these assets is determined using Level 3 unobservable inputs due to the absence of observable market inputs, and because the valuations require management judgment. There were no material impairment charges recorded on investments in 2014. During 2013 and 2012, there were $0.3 million and $0, respectively, of impairment charges recorded on investments. The impairment charges recorded on investments were included in other expense (income) in the consolidated statement of operations.

If required as part of its annual goodwill impairment assessment, the Company calculates the business enterprise value of applicable reporting units. This calculation uses a weighted average of income and market approaches, and is classified as Level 3 in the valuation hierarchy. The income approach is primarily driven by inputs from the Company’s internal financial forecasts. The market approach incorporates inputs from market participant data, as well as inputs derived from Company assumptions. For 2014, this analysis resulted in the impairment of Tubular Products goodwill of $16.1 million. There were no impairments in 2013 or 2012.

As part of its analysis of impairment of long lived asset groups as of December 31, 2013, the Company determined the fair value of two of its asset groups using third party appraisals. The inputs used in the third party appraisals are classified as Level 3 in the valuation hierarchy, due to limited observed market data and because the valuations require significant judgments. The analysis resulted in a long-lived asset group impairment of $27.5 million, which is included in loss from discontinued operations for 2013.