Note 5 - Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

5. FAIR VALUE MEASUREMENTS

As of December 31, 2020 and December 31, 2019, our available-for-sale securities primarily consisted of investments held in a rabbi trust which are intended to fund the Company’s Supplemental Executive Retirement Plan (“SERP”) obligations.  These securities are measured at fair value using quoted prices in active markets for identical assets (Level 1) inputs and amounted to $0.7 million at December 31, 2020 and $1.1 million at December 31, 2019.  During the second quarter of 2020, the Company entered into foreign exchange forward contracts, the fair value of which was less than $0.1 million at December 31, 2020.  The Company does not have any financial assets measured at fair value on a recurring basis categorized as Level 3, and there were no transfers in or out of Level 1, Level 2 or Level 3 during 2020 or 2019.  There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during 2020.

There were no financial assets accounted for at fair value on a nonrecurring basis as of December 31, 2020 or December 31, 2019.

The Company has other financial instruments, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued expenses, which are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature.  The fair value of the Company’s long-term debt is estimated using a discounted cash flow method based on interest rates that are currently available for debt issuances with similar terms and maturities.  At December 31, 2020 and 2019, the estimated fair value of total debt was $118.4 million and $146.4 million, respectively, compared to a carrying amount of $115.6 million and $143.7 million, respectively.  The Company did not have any other financial liabilities within the scope of the fair value disclosure requirements as of December 31, 2020.

Nonfinancial assets and liabilities, such as goodwill, indefinite-lived intangible assets and long-lived assets, are accounted for at fair value on a nonrecurring basis.  These items are tested for impairment upon the occurrence of a triggering event. We review goodwill for impairment on a reporting unit basis annually during the fourth quarter of each year and whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable.  As weakened market conditions from earlier in 2019 continued into the third quarter without a visible rebound in incoming orders, the Company’s actual revenue and margin levels in 2019 were significantly lower than the financial projections utilized in the annual goodwill impairment analysis (performed as of October 1, 2018), and were not projected to rebound to those levels in 2019.  The Company determined that current business conditions, and the resulting decrease in the Company’s projected undiscounted and discounted cash flows, together with the accompanying stock price decline, constituted a triggering event, which required the Company to perform interim impairment tests related to its long-lived assets, indefinite-lived intangible assets and goodwill during the third quarter of 2019.  The Company’s interim test on its long-lived assets and indefinite-lived intangible assets indicated that the carrying value of these assets were recoverable and that no impairment existed as of the July 31, 2019 testing date. 

The Company’s Level 3 fair value analysis related to the interim test for goodwill impairment was supported by a weighting of two generally accepted valuation approaches, the income approach and the market approach, as further described in Note 4, "Goodwill and Other Intangible Assets".  These approaches include numerous assumptions with respect to future circumstances, such as industry and/or local market conditions, which might directly impact each of the reporting units’ operations in the future, and are therefore uncertain.  These approaches are utilized to develop a range of fair values and a weighted average of these approaches is utilized to determine the best fair value estimate within that range.

The July 31, 2019 interim impairment test related to the Company's goodwill was performed by reporting unit (North America and Europe).  The valuation test, which heavily weights future discounted cash flow projections, indicated impairment of the goodwill associated with the Company’s then North America reporting unit.  As a result, the Company recorded a non-cash goodwill impairment charge of $8.9 million ($8.5 million after-tax) during the third quarter of 2019. The Company’s goodwill associated with its then North America reporting unit originated from several of Bel’s prior acquisitions, primarily Power Solutions and Connectivity Solutions.  The remaining goodwill as of September 30, 2019 had a carrying value of $10.8 million related solely to the Company's then Europe reporting unit.  Effective October 1, 2019, in connection with a change in how management views the business as a result of our ongoing transition in ERP systems and the recent acquisition of CUI, the Company reorganized its segment reporting structure.  The Company's new reportable operating segments are Cinch Connectivity Solutions, Power Solutions and Protection, and Magnetic Solutions.  At our October 1, 2019 annual goodwill impairment test date, an analysis was performed on both the former segments and the new segments to ensure no impairment existed under either structure as of the reorganization date. See Note 4, "Goodwill and Other Intangible Assets".