Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2012

Fair Value of Financial Instruments

Fair Value of Financial Instruments

10. Fair Value of Financial Instruments

        Fair value is defined as the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, various techniques and assumptions can be used to estimate fair value. We are using the following fair value hierarchy definition:

• • Level 1—Quoted prices in active markets for identical assets and liabilities.

    Level 2—Observable inputs other than quoted prices in active markets for similar assets and liabilities.

    Level 3—Inputs for which significant valuation assumptions are unobservable in a market and therefore value is based on the best available data, some of which is internally developed and considers risk premiums that a market participant would require.

        The following table presents our financial instruments measured or disclosed at fair value on a recurring basis:

	December 31, 2012
	Total			Level 1		Level 2			Level 3
	(in thousands)
Cash and cash equivalents	$	26,855		$	26,855	$	—		$	—
Restricted cash		2,634			2,634		—			—
Notes payable to bank		(11,500	)		—		(11,500	)		—
Variable interest rate debt		(8,489	)		—		(8,489	)		—
Contingent purchase price payment		(7,484	)		—		—			(7,484	)
Foreign currency forward contracts, net		(205	)		—		(205	)		—

	December 31, 2011
	Total			Level 1		Level 2			Level 3
	(in thousands)
Cash and cash equivalents	$	21,736		$	21,736	$	—		$	—
Restricted cash		4,575			4,575		—			—
Notes payable to bank		(12,969	)		—		(12,969	)		—
Variable interest rate debt		(8,568	)		—		(8,568	)		—
Contingent purchase price payment		(468	)		—		—			(468	)
Foreign currency forward contracts, net		(1,053	)		—		(1,053	)		—

        The fair value of cash and cash equivalents and restricted cash are based on the fair values of identical assets in active markets. The fair value of notes payable to bank and variable interest rate debt are based on the present value of expected future cash flows. Due to the short period to maturity or the nature of the underlying liability, the fair value of notes payable to bank and variable interest rate debt approximates their respective carrying amounts. The contingent purchase price payment represents the contingent liabilities associated with the earn-out provisions from the 2012 acquisition of Usach Technologies, Inc. and 2010 acquisition of Jones Shipman (refer to Footnote 17 for a detailed discussion of these acquisitions) . The fair value of the contingent purchase price payment is based on the present value of the estimated aggregated payment amount. The fair value of foreign currency forward contracts is measured using internal models based on observable market inputs such as spot and forward rates. Based on our continued ability to enter into forward contracts, we consider the markets for our fair value instruments to be active. As of December 31, 2012 and December 31, 2011, there were no significant transfers in and out of Level 1 and Level 2.

        As described in Footnote 17, the Company completed an acquisition in 2012. The fair value measurements for the acquired intangible assets were calculated using discounted cash flow analyses which rely upon significant unobservable Level 3 inputs which include the following:

Unobservable inputs	Range
Discount rate	20.5% - 22.0%
Royalty rate	2.5%
Long term growth rate	3.0%

        The following table presents the fair value on our Consolidated Balance Sheets of the foreign currency forward contracts:

	December 31,
	2012			2011
	(in thousands)
Foreign currency forwards designated as hedges:
Other current assets	$	191		$	334
Accrued expenses		(213	)		(1,351	)
Foreign currency forwards not designated as hedges:
Other current assets		284			315
Accrued expenses		(467	)		(351	)
Foreign currency forwards, net	$	(205	)	$	(1,053	)

        During 2011, we did not have any significant nonrecurring measurements of nonfinancial assets and nonfinancial liabilities.

Pension Plan Assets

        The fair values and classification of our defined benefit plan assets is as follows:

	December 31, 2012
	Total		Level 1		Level 2		Level 3
	(in thousands)
Growth funds(1)	$	44,879	$	43,616	$	1,263	$	—
Income funds(2)		28,473		27,428		1,045		—
Growth and income funds(3)		73,186		—		73,186		—
Hedge funds(4)		22,615		—		—		22,615
Real estate funds		3,300		714		2,586		—
Other assets		2,199		1,081		1,118		—
Cash and cash equivalents		2,041		2,041		—		—
Total	$	176,693	$	74,880	$	79,198	$	22,615

	December 31, 2011
	Total		Level 1		Level 2		Level 3
	(in thousands)
Growth funds(1)	$	38,523	$	37,434	$	1,089	$	—
Income funds(2)		23,172		22,266		906		—
Growth and income funds(3)		64,588		—		64,588		—
Hedge funds(4)		22,523		—		—		22,523
Real estate funds		3,119		950		2,169		—
Other assets		619		—		619		—
Cash and cash equivalents		3,296		3,296		—		—
Total	$	155,840	$	63,946	$	69,371	$	22,523

⁽¹⁾

Growth funds represent a type of fund containing a diversified portfolio of domestic and international equities with a goal of capital appreciation.

⁽²⁾

Income funds represent a type of fund with an emphasis on current income as opposed to capital appreciation. Such funds may contain a variety of domestic and international government and corporate debt obligations, preferred stock, money market instruments and dividend-paying stocks.

⁽³⁾

Growth and Income funds represent a type of fund containing a combination of growth and income securities.

⁽⁴⁾

Hedge funds represent a managed portfolio of investments that use advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns. These funds are subject to quarterly redemptions and advanced notification requirements, as well as the right to delay redemption until sufficient fund liquidity exists.

        A summary of the changes in the fair value of the defined benefit plans assets classified within Level 3 of the valuation hierarchy is as follows:

	Year Ended December 31,
	2012			2011
	(in thousands)
Balance at beginning of period	$	22,523		$	23,710
Unrealized gain (loss)		930			(559	)
Realized gain (loss)		448			(253	)
Purchases		3,000			7,000
Sales/settlements		(4,286	)		(7,375	)
Balance at end of period	$	22,615		$	22,523

        Most of our defined benefit pension plan's Level 1 assets are debt and equity investments that are traded in active markets, either domestically or internationally. They are measured at fair value using closing prices from active markets. The Level 2 assets are typically investments in pooled funds, which are measured based on the value of their underlying assets that are publicly traded with observable values. The fair value of our Level 3 plan assets are measured by compiling the portfolio holdings and independently valuing the securities in those portfolios.