Fair Value Measurement

6 Months Ended

Jun. 30, 2020

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels, and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 - Unadjusted quoted prices in active markets for identical assets and liabilities.

Level 2 - Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3 - Significant unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

Our financial instruments consisted of cash, accounts receivable, accounts payable, accrued liabilities, pension assets and liabilities and our revolving credit facility. The carrying value of these instruments approximates fair value as a result of the short duration of such instruments or due to the variability of the interest cost associated with such instruments.

Foreign Currency Forward Exchange Contracts. Our derivative assets and liabilities represent foreign exchange contracts that are measured at fair value using observable market inputs such as forward rates, interest rates, our own credit risk and counterparty credit risk. Based on the utilization of these inputs, the derivative assets and liabilities are classified as Level 2. To manage our risk for transactions denominated in Mexican Pesos, we have entered into forward exchange contracts that are designated as cash flow hedge instruments, which are recorded in the Condensed Consolidated Balance Sheets at fair value. The gains and losses as a result of the changes in fair value of the hedge contract are deferred in accumulated other comprehensive loss and recognized in cost of revenues in the period the related hedge transactions are recognized. Refer to Note 17 for additional disclosures.

Interest Rate Swap Agreement. To manage our exposure to variable interest rates, we have entered into an agreement (the “Interest Rate Swap Agreement”) with Bank of America, N.A. whereby the Company has agreed to exchange, at a specified interval, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. The Interest Rate Swap Agreement is intended to mitigate the impact of rising interest rates on the Company and covers $80 million of outstanding debt under the senior secured term loan facility. The Company expects this agreement to remain effective during the remaining term of the Interest Rate Swap Agreement and records the impact of the agreement in interest and other expense in the Condensed Consolidated Statements of Operations. Refer to Note 17 for additional disclosures.

The fair values of our derivative assets and liabilities and contingent consideration measured on a recurring basis are categorized as follows:


			June 30, 2020																												December 31, 2019
			Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Derivative assets	Foreign exchange contract ¹		$	—			$	—			$	—			$	—			$	464			$	—			$	464			$	—
		Interest rate swap agreement ²			$	1,308			$	—			$	1,308			$	—			$	150			$	—			$	150			$	—
Derivative liabilities	Foreign exchange contract ³		$	1,582			$	—			$	1,582			$	—			$	—			$	—			$	—			$	—
		Interest rate swap agreement ³			$	2,882			$	—			$	2,882			$	—			$	995			$	—			$	995			$	—
Earnout liability	Contingent consideration⁴		$	8,300			$	—			$	—			$	8,300			$	4,700			$	—			$	—			$	4,700
Derivative equity	Foreign exchange contract ⁵		$	1,210			$	—			$	1,210			$	—			$	464			$	—			$	464			$	—

¹Presented in the Condensed Consolidated Balance Sheets in other current assets and based on observable market transactions of spot and forward rates.

²Presented in the Condensed Consolidated Balance Sheets in other assets and based on observable market transactions of forward rates.

³Presented in the Condensed Consolidated Balance Sheets in accrued liabilities and other and based on observable market transactions of forward rates.

⁴Presented in the Condensed Consolidated Balance Sheets in accrued liabilities and other long term liabilities and based on a Monte Carlo valuation model.

⁵Presented in the Condensed Consolidated Balance Sheets in accumulated other comprehensive income and based on observable market transactions of spot and forward rates.

The fair value of long-term debt obligations is based on a fair value model utilizing observable inputs. Based on these inputs, our long-term debt is classified as Level 2. The carrying amounts and fair values of our long-term debt obligations are as follows:


	June 30, 2020						December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Term loan and security agreement¹	$	154,173	$	148,589	$	156,384	$	157,983

¹Presented in the Condensed Consolidated Balance Sheets as the current portion of long-term debt of $2.4 million and long-term debt of $151.7 million as of June 30, 2020, and current portion of long-term debt of $3.3 million and long-term debt of $153.1 million as of December 31, 2019.

Long Lived Assets Impairment. For the quarter ended June 30, 2020, an impairment charge of $0.2 million was recognized for the corporate aircraft and was based on the estimated selling price, less selling costs, of $0.3 million, which is classified as Held for Sale and presented in the Condensed Consolidated Balance Sheet in other current assets. The impairment charge is presented in impairment expense in the Condensed Consolidated Statements of Operations. Given the limited market comparable values of the asset, it is classified as Level 2. The Company determined it had an impairment indicator in the quarter ended June 30, 2020 for one asset group within the Electrical Systems Segment. As a result, we performed a Step 1 undiscounted cash flow analysis in accordance with ASC 360, Property, Plant and Equipment, which resulted in estimated undiscounted cash flows exceeding the carrying value of the asset group.

No other non-recurring fair value measurements were assessed during the quarter ended June 30, 2020.

- 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.

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