XML 33 R21.htm IDEA: XBRL DOCUMENT

Fair Value Measurements

3 Months Ended

Jun. 30, 2020

14. Fair Value Measurements

The following summarizes financial assets and liabilities measured at fair value, by level within the fair value hierarchy:

	June 30, 2020								March 31, 2020
			Fair Value Measurements Using Inputs Considered as								Fair Value Measurements Using Inputs Considered as
	Fair Value		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3
Assets
Short-term investments
Mutual funds	$	1,061,000	$	1,061,000	$	-	$	-	$	850,000	$	850,000	$	-	$	-

Liabilities
Accrued liabilities
Short-term contingent consideration		2,076,000		-		-		2,076,000		2,190,000		-		-		2,190,000
Other current liabilities
Deferred compensation		1,061,000		1,061,000		-		-		850,000		850,000		-		-
Forward foreign currency exchange contracts		3,452,000		-		3,452,000		-		6,284,000		-		6,284,000		-
Other liabilities
Long-term contingent consideration		530,000		-		-		530,000		463,000		-		-		463,000

Short-term Investments and Deferred Compensation

The Company’s short-term investments, which fund its deferred compensation liabilities, consist of investments in mutual funds. These investments are classified as Level 1 as the shares of these mutual funds trade with sufficient frequency and volume to enable the Company to obtain pricing information on an ongoing basis.

Forward Foreign Currency Exchange Contracts

The forward foreign currency exchange contracts are primarily measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers (See Note 13).

Contingent Consideration

In December 2018, the Company completed the acquisition of certain assets and assumption of certain liabilities from Mechanical Power Conversion, LLC (“E&M”). In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of E&M up to an aggregate of $5,200,000 over the next three years.

In January 2019, the Company completed the acquisition of all the equity interests of Dixie. In connection with this acquisition, the Company is contingently obligated to make additional payments to the former owners of Dixie up to $1,130,000 over the next two years.

The Company’s contingent consideration is recorded in accrued expenses and other liabilities in its condensed consolidated balance sheets at June 30, 2020 and March 31, 2020, and is a Level 3 liability measured at fair value.

E&M Research and Development (“R&D”) Event Milestone

The fair value of the two-year R&D event milestone based on technology development and transfer was $1,200,000 and $1,130,000 at June 30, 2020 and March 31, 2020, respectively, determined using a probability weighted discounted cash flow method with the following assumptions commensurate with the term of the contingent consideration. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

The assumptions used to determine the fair value is as follows:

	June 30, 2020
Risk free interest rate		0.18	%
Counter party rate		6.70	%
Probability		100.00	%

E&M Gross Profit Earn-out Consideration

The fair value of the three-year gross profit earn-out consideration was $1,350,000 and $1,230,000 at June 30, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

The assumptions used to determine the fair value is as follows:

	June 30, 2020
Risk free interest rate		0.16	%
Counter party rate		6.70	%
Expected volatility (1)		37.00	%
Weighted average cost of capital (1)		13.30	%

(1)	The range for expected volatility was 32.5% to 42.5% and the range for the weighted average cost of capital was 12.5% to 14.0%.

Dixie Revenue Earn-out Consideration

The fair value of the two-year revenue earn-out consideration was $56,000 and $293,000 at June 30, 2020 and March 31, 2020, respectively, determined using a Monte Carlo Simulation Model.

The assumptions used to determine the fair value is as follows:

	June 30, 2020
Risk free interest rate		0.16	%
Counter party rate		10.55	%
Revenue volatility (1)		6.50	%
Revenue discount rate (1)		2.00	%
Asset volatility (1)		41.00	%

(1)	The range for revenue volatility was 5.5% to 7.5%, 1.5% to 2.5% for the revenue discount rate, and 36% to 46% for asset volatility.

Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a general and administrative expense.

The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:

	Three Months Ended June 30,
	2020			2019
	Contingent Consideration			Contingent Consideration
Beginning balance	$	2,653,000		$	4,721,000
Changes in revaluations of contingent consideration included in earnings		(47,000	)		249,000
Ending balance	$	2,606,000		$	4,970,000

During the three months ended June 30, 2020, the Company had no other significant measurements of assets or liabilities at fair value on a nonrecurring basis subsequent to their initial recognition.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these instruments. The carrying amounts of the revolving loan, term loan and other long-term liabilities approximate their fair value based on the variable nature of interest rates and current rates for instruments with similar characteristics.

- 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 + Details