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Note 4 - Fair Value Measurements
 6 Months Ended
Jun. 30, 2015
Notes to Financial Statements  
Fair Value Disclosures [Text Block]
4.
     
Fair Value Measurements
 
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 authoritative guidance establishes a fair value hierarchy that 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.
 
 
7
 
 
 
The following table summarizes information regarding the Company’s financial assets and financial liabilities that are measured at fair value (in thousands):
 
 
 
Balance at
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2015
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets                                
Deferred compensation plan
   $ 6,832     $ 5,558     $ 1,274     $ -  
Derivatives
     94       -       94       -  
Total assets
   $ 6,926     $ 5,558     $ 1,368     $ -  
Financial liabilities
                                
Contingent consideration
   $ (2,741 )   $ -     $ -     $ (2,741 )
Derivatives
     (47 )     -       (47 )     -  
Total liabilities
   $ (2,788 )   $ -     $ (47 )   $ (2,741 )
 
 
 
Balance at
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2014
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
Description
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 )
 
The deferred compensation plan assets consist 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 Net Asset Value (“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 is associated with the acquisition of Permalok Corporation in December 2013 and represents the probability weighted average contingent payment as a percentage of high, mid, and low revenue projections. 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 obligation will be reflected in cost of sales during the period the change occurs.
 
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 the three months ended June 30, 2015, this analysis resulted in the impairment of Water Transmission goodwill of $5.3 million.
 
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.