For the Years Ended December 31, 2011, 2010 and 2009
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
The following table provides carrying value and fair value of financial instruments that are not carried at fair value at December 31, 2011 and 2010:
| 2011 | 2010 | |||
| In Thousands | Carrying Value | Fair Value | Carrying Value | Fair Value |
| Long-term debt | $ 203,522 | $ 218,048 | $ 145,443 | $ 160,201 |
The above fair values were computed based on quoted market prices and discounted future cash flows, as applicable. Differences from carrying amounts are attributable to interest rate changes subsequent to when the transaction occurred. The fair values of Cash and cash equivalents, Accounts receivable, net, Notes payable, and Accounts payable - trade approximate their carrying amounts due to the short-term maturities of these instruments.
The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires us to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
The table below segregates all financial assets and liabilities that are measured at fair value on a recurring basis (at least annually) into the most appropriate level within the fair value hierarchy based on the inputs used to determine their fair value at the measurement date:
| In Thousands |
Total Carrying Value at December 31, 2011 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
| Derivative instruments | $ 3,518 | $ — | $ 3,518 | $ — |
| Total Assets | $ 3,518 | $ — | $ 3,518 | $ — |
| Contingent consideration | $ 3,355 | $ — | $ — | $ 3,355 |
| Total Liabilities | $ 3,355 | $ — | $ — | $ 3,355 |
| In Thousands |
Total Carrying Value at December 31, 2010 |
Quoted prices in active markets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
| Derivative instruments | $ 12,623 | $ — | $ 12,623 | $ — |
| Total Assets | $ 12,623 | $ — | $ 12,623 | $ — |
| Derivative instruments | $ 806 | $ — | $ 806 | $ — |
| Total Liabilities | $ 806 | $ — | $ 806 | $ — |
The Company's derivative instruments are foreign exchange contracts and interest rate swaps that are measured at fair value using observable market inputs such as forward rates and our counterparties' credit risks. Based on these inputs, the derivative instruments are classified within Level 2 of the valuation hierarchy and have been included in other current assets, other assets and other long-term liabilities on the Consolidated Balance Sheets at December 31, 2011 and 2010. Based on the continued ability to trade and enter into forward contracts and interest rate swaps, we consider the markets for our fair value instruments to be active.
The Company evaluated the credit risk associated with the counterparties to these derivative instruments and determined that as of December 31, 2011, such credit risks have not had an adverse impact on the fair value of these instruments.
The Company's contingent consideration liability of $3.4 million is associated with the acquisition of Target. This liability was measured at fair value based on the potential payments of the liability associated with the unobservable input of the estimated post-acquisition financial results of Target through 2014 and, therefore, is a Level 3 liability. See Note 3, Acquisitions, for further discussion of this acquisition. There was no change in the estimated fair value from the acquisition date through December 31, 2011.
Goodwill and indefinite-lived intangible assets are tested for possible impairment during the fourth quarter of each year. During 2010, management concluded that the carrying value of goodwill at its U.K. Composites reporting unit exceeded its fair value and, accordingly, recorded an impairment charge totaling $6.4 million to write down the goodwill to its implied fair value. After the $6.4 million charge there was $30.7 million of goodwill remaining at December 31, 2010 for this reporting unit. See Note 9, Goodwill and Other Intangible Assets, Net, for further discussion.
The nonrecurring fair value measurement for goodwill was developed using significant unobservable inputs (Level 3). For Step 1 of the impairment analysis, the primary valuation technique used was an income methodology based on management's estimates of forecasted cash flows for each business unit, with those cash flows discounted to present value using rates commensurate with the risks of those cash flows. In addition, management used a market-based valuation method involving analysis of market multiples of revenues and earnings before interest, taxes, depreciation and amortization ("EBITDA") for (i) a group of comparable public companies and (ii) recent transactions, if any, involving comparable companies. Valuation methods used to perform the Step 2 determination of the fair value of the reporting unit's assets and liabilities in order to perform a purchase price allocation included the income and market approach depending on the nature of the asset/liability. Assumptions used by management were similar to those that would be used by market participants performing a valuation of the reporting unit.