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Financial Instruments and Fair Value Measurements | 9 Months Ended
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Sep. 30, 2019
Financial Instruments and Fair Value Measurements [Abstract] |
Financial Instruments and Fair Value Measurements | (5) Financial Instruments and Fair Value Measurements Financial Instruments A financial instrument is cash or a contract that imposes an obligation to deliver or conveys a right to receive cash or another financial instrument. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are considered to be representative of fair value because of the short maturity of these instruments. The fair value of debt approximates the carrying value of debt. Derivative Instruments and Hedging Activities On September 30, 2019, the Company had open foreign currency forward contracts which are used solely for hedging and not for speculative purposes. Management believes that its use of these instruments to reduce risk is in the Company’s best interest. The counterparties to these financial instruments are financial institutions with investment grade credit ratings. Foreign Currency Exchange Rate Risk The Company conducts business internationally and therefore is exposed to foreign currency exchange rate risk. The Company uses derivative financial instruments as cash flow and fair value hedges to manage its exposure to fluctuations in foreign currency exchange rates by reducing the effect of such fluctuations on foreign currency denominated intercompany transactions, inventory purchases and other foreign currency exposures. The Company hedged the Mexican peso currency during the first nine months of 2019 and, during 2018, the Company hedged the euro and Mexican peso currencies. In addition, the Company hedged the U.S. dollar against the Swedish krona and euro on behalf of its European subsidiaries in 2018. These forward contracts were executed to hedge forecasted transactions and have been accounted for as cash flow hedges with the exception of the euro-denominated foreign currency forward contract. As such, the effective portion of the unrealized gain or loss was deferred and reported in the Company’s condensed consolidated balance sheets as a component of accumulated other comprehensive loss. The cash flow hedges were highly effective. The effectiveness of the transactions has been and will be measured on an ongoing basis using regression analysis and forecasted future purchases of the currency. In certain instances, the foreign currency forward contracts do not qualify for hedge accounting or are not designated as hedges, and therefore are marked-to-market with gains and losses recognized in the Company’s condensed consolidated statement of operations as a component of other income (loss), net. The Company’s foreign currency forward contracts offset a portion of the gains and losses on the underlying foreign currency denominated transactions as follows: Euro-denominated Foreign Currency Forward Contract At September 30, 2019 and December 31, 2018, there were no foreign currency forward contracts entered into as the prior year contract was settled in December 2018. The euro-denominated foreign currency forward contract was not designated as a hedging instrument. The Company recognized a gain of $10 and $52, respectively, for the three and nine months ended September 30, 2018 in the condensed consolidated statements of operations as a component of other income, net related to the euro-denominated contract. U.S. dollar-denominated Foreign Currency Forward Contracts – Cash Flow Hedges The Company entered into on behalf of one of its European Electronics subsidiaries, whose functional currency is the Swedish krona, U.S. dollar-denominated currency contracts which expired ratably on a monthly basis from February 2018 through December 2018. There were no such contracts at September 30, 2019 or December 31, 2018. The Company entered into on behalf of one of its European Electronics subsidiaries, whose functional currency is the euro, U.S. dollar-denominated currency contracts which expired ratably on a monthly basis from February 2018 through December 2018. There were no such contracts at September 30, 2019 or December 31, 2018. Mexican peso-denominated Foreign Currency Forward Contracts – Cash Flow Hedge The Company holds Mexican peso-denominated foreign currency forward contracts with a notional amount at September 30, 2019 of $1,489 which expire ratably on a monthly basis from October 2019 through December 2019, compared to a notional amount of $9,017 at December 31, 2018. The Company evaluated the effectiveness of the Mexican peso-denominated foreign currency forward contracts held as of September 30, 2019 and December 31, 2018 and concluded that the hedges were highly effective. The notional amounts and fair values of derivative instruments in the condensed consolidated balance sheets were as follows:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Prepaid expenses | ​ | Accrued expenses and
​ | ​ | Notional amounts (A) | ​ | and other current assets | ​ | other current liabilities
​ | ​ | September 30, | ​ | December 31, | ​ | September 30, | ​ | December 31, | ​ | September 30, | ​ | December 31,
​ |  | 2019 |  | 2018 |  | 2019 |  | 2018 |  | 2019 |  | 2018
Derivatives designated as hedging instruments: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash flow hedges: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Forward currency contracts | ​ | $ | 1,489 | ​ | $ | 9,017 | ​ | $ | 121 | ​ | $ | 370 | ​ | $ | - | ​ | $ | -
(A) | Notional amounts represent the gross contract of the derivatives outstanding in U.S. dollars.
Gross amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net income for the three months ended September 30 are as follows:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Gain reclassified from
​ | ​ | Gain (loss) recorded in other | ​ | other comprehensive income
​ | ​ | comprehensive income (loss) | ​ | (loss) into net income (A)
​ |  | 2019 |  | 2018 |  | 2019 |  | 2018
Derivatives designated as cash flow hedges: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Forward currency contracts | ​ | $ | (29) | ​ | $ | 637 | ​ | $ | 131 | ​ | $ | 558
​ Gross amounts recorded for the cash flow hedges in other comprehensive income (loss) and in net income for the nine months ended September 30 are as follows:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Gains reclassified from
​ | ​ | Gain recorded in other | ​ | other comprehensive income
​ | ​ | comprehensive income | ​ | into net income (A)
​ |  | 2019 |  | 2018 |  | 2019 |  | 2018
Derivatives designated as cash flow hedges: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Forward currency contracts | ​ | $ | 397 | ​ | $ | 1,819 | ​ | $ | 646 | ​ | $ | 933
(A) Gains reclassified from other comprehensive income (loss) into net income recognized in cost of goods sold (“COGS”) in the Company’s condensed consolidated statements of operations were $131 and $521 for the three and nine months ended September 31, 2019, respectively. Gains reclassified from other comprehensive income (loss) into net income recognized in design and development (“D&D”) in the Company’s condensed consolidated statements of operations were $0 and $125 for the three and nine months ended September 30, 2019. Gains reclassified from other comprehensive income (loss) into net income recognized in COGS in the Company’s condensed consolidated statements of operations were $495 and $834 for the three and nine months ended September 30, 2018, respectively. Gains reclassified from other comprehensive income (loss) into net income recognized in D&D in the Company’s condensed consolidated statements of operations were $63 and $99 for the three and nine months ended September 30, 2018, respectively. ​ The net deferred gain of $121 on the cash flow hedge derivatives will be reclassified from other comprehensive income (loss) to the condensed consolidated statements of operations through December 2019. Fair Value Measurements The Company’s assets and liabilities are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of the inputs used. Fair values estimated using Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Fair values estimated using Level 2 inputs, other than quoted prices, are observable for the asset or liability, either directly or indirectly and include among other things, quoted prices for similar assets or liabilities in markets that are active or inactive as well as inputs other than quoted prices that are observable. For forward currency contracts, inputs include foreign currency exchange rates. Fair values estimated using Level 3 inputs consist of significant unobservable inputs. The following table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the three levels of the fair value hierarchy based on the reliability of inputs used.
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | September 30, | ​ | ​ | December 31,
​ | ​ | ​ | ​ | ​ | 2019 | ​ | 2018
​ | ​ | ​ | ​ | ​ | Fair values estimated using | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | Level 1 | ​ | Level 2 | ​ | Level 3 | ​ | ​ | ​
​ |  | Fair value |  | inputs |  | inputs |  | inputs |  | Fair value
Financial assets carried at fair value: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Forward currency contracts | ​ | $ | 121 | ​ | $ | - | ​ | $ | 121 | ​ | $ | - | ​ | $ | 370
Total financial assets carried at fair value | ​ | $ | 121 | ​ | $ | - | ​ | $ | 121 | ​ | $ | - | ​ | $ | 370
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Financial liabilities carried at fair value: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Earn-out consideration | ​ | $ | 11,178 | ​ | $ | - | ​ | $ | - | ​ | $ | 11,178 | ​ | $ | 18,672
Total financial liabilities carried at fair value | ​ | $ | 11,178 | ​ | $ | - | ​ | $ | - | ​ | $ | 11,178 | ​ | $ | 18,672
​ The following table sets forth a summary of the change in fair value of the Company’s Level 3 financial liabilities related to earn-out consideration that are measured at fair value on a recurring basis.
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Orlaco |  | PST |  | Total
Balance at December 31, 2018 | ​ | $ | 8,602 | ​ | $ | 10,070 | ​ | $ | 18,672
Change in fair value | ​ | ​ | - | ​ | ​ | 1,862 | ​ | ​ | 1,862
Foreign currency adjustments | ​ | ​ | (128) | ​ | ​ | (754) | ​ | ​ | (882)
Earn-out consideration cash payment | ​ | ​ | (8,474) | ​ | ​ | - | ​ | ​ | (8,474)
Balance at September 30, 2019 | ​ | $ | - | ​ | $ | 11,178 | ​ | $ | 11,178
​ ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Orlaco |  | PST |  | Total
Balance at December 31, 2017 | ​ | $ | 8,637 | ​ | $ | 12,109 | ​ | $ | 20,746
Change in fair value | ​ | ​ | 369 | ​ | ​ | 1,549 | ​ | ​ | 1,918
Foreign currency adjustments | ​ | ​ | (300) | ​ | ​ | (2,362) | ​ | ​ | (2,662)
Balance at September 30, 2018 | ​ | $ | 8,706 | ​ | $ | 11,296 | ​ | $ | 20,002
​ The Company will be required to pay the PST earn-out consideration, which is not capped, based on PST’s financial performance in either 2020 or 2021. The fair value of the PST earn-out consideration is based on discounted cash flows utilizing forecasted earnings before interest, depreciation and amortization (“EBITDA”) in 2020 and 2021 using the key inputs of forecasted sales and expected operating income reduced by the market required rate of return. The earn-out consideration obligation related to PST is recorded within other long-term liabilities in the condensed consolidated balance sheets as of September 30, 2019 and December 31, 2018. The fair value of the Orlaco earn-out consideration was based on a Monte Carlo simulation utilizing forecasted EBITDA for the 2017 and 2018 earn-out period as well as a growth rate reduced by the market required rate of return. The earn-out consideration obligation related to Orlaco was recorded within other current liabilities in the condensed consolidated balance sheet as of December 31, 2018. The change in fair value of the earn-out considerations are recorded within selling, general and administrative (“SG&A”) expense in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 and 2018. The earn-out consideration obligation related to Orlaco of $8,474 was paid in March 2019 and recorded in the condensed consolidated statement of cash flows within operating and financing activities in the amounts of $5,080 and $3,394, respectively, for the nine months ended September 30, 2019. The Orlaco earn-out consideration reached the capped amount of €7,500 as of the quarter ended March 31, 2018 due to actual performance exceeding forecasted performance and remained at the capped amount until it was paid out in March 2019. The change in fair value of the earn-out consideration for PST was due to the reduced time from the current period end to the payment date, offset by adverse foreign currency translation. The foreign currency impact for the PST earn-out considerations is included in other (income) expense, net in the condensed consolidated statements of operations. There were no transfers in or out of Level 3 from other levels in the fair value hierarchy for the nine months ended September 30, 2019.

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- 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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