11. 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, 2013

	Total			Level 1		Level 2			Level 3
	(in thousands)
Cash and cash equivalents	$	34,722		$	34,722	$	—		$	—
Restricted cash		4,124			4,124		—			—
Notes payable to bank		—			—		—			—
Variable interest rate debt		(26,635	)		—		(26,635	)		—
Contingent purchase price payment		(7,500	)		—		—			(7,500	)
Foreign currency forward contracts, net		(587	)		—		(587	)		—

	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		(7,280	)		—		—			(7,280	)
Foreign currency forward contracts, net		(205	)		—		(205	)		—

The fair value of cash and cash equivalents and restricted cash are based on the fair values of identical assets in active markets. 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 in 2013 represents the contingent liabilities associated with the earn-out provisions from the 2012 acquisition of Usach. The contingent purchase price payment in 2012 represents the contingent liabilities associated with the earn-out provisions from the 2012 acquisition of Usach and 2010 acquisition of Jones & Shipman. 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, 2013 and December 31, 2012, there were no significant transfers in and out of Level 1 and Level 2.

As described in Footnote 2, the Company completed acquisitions in 2013 and 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		19.0% - 22.0%
Royalty rate		2.0% - 3.0%
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,

	2013			2012
	(in thousands)
Foreign currency forwards designated as hedges:
Other current assets	$	144		$	191
Accrued expenses		(249	)		(213	)
Foreign currency forwards not designated as hedges:
Other current assets		141			284
Accrued expenses		(623	)		(467	)


Foreign currency forwards, net	$	(587	)	$	(205	)

The Company applied fair value principles during the goodwill impairment tests performed during 2013. Step one of the goodwill impairment test consisted of determining a fair value for each of the Company's reporting units. The fair value for the Company's reporting units cannot be determined using readily available quoted Level 1 or Level 2 inputs that are observable or available from active markets. Therefore, the Company used valuation models to estimate the fair values of its reporting units, which use Level 3 inputs. To estimate the fair values of reporting units, the Company uses significant estimates and judgmental factors. The key estimates and factors used in the valuation models include revenue growth rates and profit margins based on internal forecasts, terminal value, WACC, and earnings multiples. As a result of the goodwill impairment test performed during 2013, the Company recognized goodwill impairment charges (See Footnote 5 for the results of the Company's goodwill impairment tests).

During 2013, the Company also recognized impairments to intangible assets associated with trade names. The impairment charges were calculated by determining the fair value of these assets. The fair value measurements were calculated using discounted cash flow analyses which rely upon unobservable inputs classified as Level 3 inputs. The key estimates and factors used in the valuation models, for which the Company used significant estimates and judgmental factors, include revenue growth rates based on internal forecasts, royalty rates and discounts rates (See Footnote 5 for more disclosure regarding the impairment of intangible assets).

Pension Plan Assets

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

	December 31, 2013

	Total		Level 1		Level 2		Level 3
	(in thousands)
Growth funds⁽¹⁾	$	49,408	$	49,408	$	—	$	—
Income funds⁽²⁾		23,925		23,925		—		—
Growth and income funds⁽³⁾		83,759		—		83,759		—
Hedge funds⁽⁴⁾		25,624		—		—		25,624
Real estate funds		3,279		731		2,548		—
Other assets		1,040		594		446		—
Cash and cash equivalents		6,394		6,394		—		—


Total	$	193,429	$	81,052	$	86,753	$	25,624

	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

⁽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,

	2013			2012
	(in thousands)
Balance at beginning of period	$	22,615		$	22,523
Unrealized gain (loss)		3,067			930
Realized gain (loss)		13			448
Purchases		—			3,000
Sales/settlements		(71	)		(4,286	)


Balance at end of period	$	25,624		$	22,615

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.