Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Fair Value of Financial Instruments

The Company measures at fair value certain financial assets and liabilities. GAAP specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company's market assumptions. These two types of inputs have created the following fair-value hierarchy:

Level 1— Quoted prices for identical instruments in active markets;

Level 2— Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3— Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Foreign currency forward contracts are measured at fair value using models based on observable market inputs such as foreign currency exchange rates; therefore, they are classified within Level 2 of the valuation hierarchy. The cash surrender value of life insurance contracts and deferred compensation liability are measured at fair value using quoted market prices for similar instruments; therefore, they are classified within Level 2 of the valuation hierarchy.

The Company has obligations ("contingent consideration"), to be paid in cash, related to the acquisition of Continuous Computing Corporation ("Continuous Computing") based on the amount of product royalty revenues to be generated by a specified set of contracts associated with certain of Continuous Computing's products over a period of 36 months after closing, which occurred on July 8, 2011. The contingent consideration liability was established at the time of acquisition and is evaluated at the end of each reporting period. As the significant inputs used in determining the fair value are unobservable, this liability is classified within Level 3 of the fair value hierarchy.

The fair value of this contingent consideration is determined by calculating the net present value of the expected payments using significant inputs that are not observable in the market, including revenue projections and discount rates consistent with the level of risk of achievement. The Company developed its own assumptions for the expected product royalty revenues generated under the arrangement. The fair value of the contingent consideration is affected most significantly by changes in the amount and timing of the revenue projections. If the revenue projections increase or decrease the fair value of the contingent consideration will increase or decrease accordingly in amounts that will vary based on the timing of the projected revenues and the timing of the expected payments.

The following table summarizes the fair value measurements as of December 31, 2013 for the Company's financial instruments (in thousands):

	Fair Value Measurements as of December 31, 2013
	Total			Level 1		Level 2			Level 3
Cash surrender value of life insurance contracts (A)	$	1,866		$	—	$	1,866		$	—
Deferred compensation liability (A)	(1,276		)			(1,276		)
Foreign currency forward contracts	(169		)	—		(169		)	—
Contingent consideration liability	(390		)	—		—			(390		)
Total	$	31		$	—	$	421		$	(390	)

(A) During the year ended December 31, 2013, the company terminated its Deferred Compensation Plan. The distribution of plan assets and participant balances and will occur through January 2015 based on participant elections.

The following table summarizes the fair value measurements as of December 31, 2012, for the Company’s financial instruments (in thousands):

	Fair Value Measurements as of December 31, 2012
	Total			Level 1		Level 2			Level 3
Cash surrender value of life insurance contracts	$	3,398		—		$	3,398		$	—
Deferred compensation liability	(1,395		)			(1,395		)
Foreign currency forward contracts	(297		)	—		(297		)	—
Contingent consideration liability	(2,541		)	—		—			(2,541		)
Total	$	(835	)	$	—	$	1,706		$	(2,541	)

The following table summarizes level 3 activity for the Company's contingent consideration liability (in thousands):

	Fair Value
	Contingent Consideration
Balance at December 31, 2011	$	7,594
Additions	—
Decrease in liability due to re-measurement	(5,910		)
Accretion	857
Balance at December 31, 2012	$	2,541
Additions	—
Decrease in liability due to re-measurement	(1,891		)
Payments	(447		)
Accretion	187
Balance at December 31, 2013	$	390

The Company records all changes in estimates and accretion on the contingent consideration liability to restructuring and other charges, net in the Consolidated Statements of Operations. At December 31, 2013, the entire contingent consideration liability of $0.4 million was recorded in other accrued liabilities on the Consolidated Balance Sheet.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company assessed long-lived assets for impairment during the third quarter of 2013, comparing the undiscounted future cash flow the assets are expected to generate to the carrying value of the assets. The probability-weighted analysis of expected undiscounted future cash flows exceeded the book value of the long lived assets by $63.3 million, or 84%. Key assumptions used in this analysis included revenue growth for the Company's technologies as well as general economic and business conditions.