Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.3.1.900
Fair Value Measurements
12 Months Ended
Dec. 31, 2015
Fair Value Measurements  
Fair Value Measurements

8.        Fair Value Measurements

 

The Company follows ASC 825-10, Financial Instruments, which provides companies the option to report selected financial assets and liabilities at fair value. ASC 825-10 also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect of the company’s choice to use fair value on its earnings. ASC 825-10 also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet. The Company has not elected the ASC 825-10 option to report selected financial assets and liabilities at fair value.

 

Financial assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon a fair value hierarchy established by U.S. GAAP, which prioritizes the inputs used to measure fair value into the following levels:

 

 

 

 

Level I:

    

Inputs based on quoted market prices in active markets for identical assets or liabilities at the measurement date.

 

 

 

Level II:

 

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or inputs that are observable and can be corroborated by observable market data.

 

 

 

Level III::

 

Inputs reflect management’s best estimates and assumptions of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the valuation of the instruments.

 

Fair Value on a Recurring Basis:

 

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2015 and 2014, based on the three-tier fair value hierarchy.  

 

 

 

 

 

 

 

 

 

 

 

 

 

   

As of December 31, 2015

   

Fair Value

    

Level I

    

Level II

    

Level III

Assets

 

   

 

   

 

 

 

 

Money market funds(1)

$

24,422

   

$

24,422

   

$

 

$

Liabilities

   

   

   

   

   

   

   

   

 

   

   

2019 Convertible Notes (principal amount outstanding of $172,500)(2)

$

152,878

 

$

152,878

 

$

 

$

Term Notes

 

150,000

 

 

150,000

 

 

 

 

Contingent consideration

 

 

 

 

 

 

 

4,043

Foreign currency forward contracts(3)

 

140

   

 

   

 

140

 

 

Total liabilities

$

303,018

 

$

302,878

 

$

140

 

$

4,043

 

 

 

 

 

 

 

 

 

 

 

 

   

As of December 31, 2014

   

Fair Value

   

Level I

   

Level II

 

Level III

Assets

 

   

 

   

 

 

 

 

Money market funds(1)

$

70,760

   

$

70,760

   

$

 

$

Liabilities

 

 

 

 

 

 

 

 

 

 

 

2019 Convertible Notes (principal amount outstanding of $172,500)(2)

$

180,392

 

$

180,392

 

$

 

$

13,867

Contingent consideration

 

 

 

 

 

 

 

Total liabilities

$

180,392

 

$

180,392

 

$

0

 

$

13,867

(1)

The fair values of the Company’s investments in money-market funds are based on the daily quoted market prices for the net asset value of the various money market funds.

(2)

As of December 31, 2015 and 2014, the carrying value of the 2019 convertible note equaled $150,133 and $145,203, respectively, and represents the aggregate principle amount outstanding less the unaccreted discount.

(3)

Included in prepaid and other current assets in the consolidated balance sheet.

 

Level I assets and liabilities include money-market funds not insured by the FDIC, and 2019 Convertible Notes.    The Company periodically invests excess cash in money-market funds not insured by the FDIC. The Company believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid. These money-market funds are considered Level 1 and are included in cash and cash equivalents in the consolidated balance sheets. The fair value of the 2019 Convertible Notes was calculated using observable market data

 

Level II assets and liabilities consist of unrealized gain or loss on forward currency contracts, which are measured using the difference between the market quotes of trading currencies adjusted for forward points and the executed contract rate.  For further details on the Company’s derivative financial instruments, refer to Note 21.

 

Level III assets and liabilities consist of the estimated fair value of contingent consideration.

 

The fair value of the contingent consideration liabilities related to the WMS, Klein and Castle Rock acquisitions were estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represents a Level III fair value measurement as defined in ASC 820, Fair Value Measurements and Disclosures. The significant inputs in the Level III measurement not supported by market activity included our assessments of expected future cash flows related to our acquisitions of WMS, Klein, and Castle Rock during the subsequent three years from the date of acquisition, appropriately discounted considering the uncertainties associated with the obligation, and calculated in accordance with the terms of the agreement.

 

The Company utilized a discounted cash flow method with expected future performance of WMS, Klein and Castle Rock, and their ability to meet the target performance objectives as the main driver of the valuation, to arrive at the fair values of their respective contingent consideration. The Company will continue to reassess the fair value of the contingent consideration for each acquisition at each reporting date until settlement.  Changes to the estimated fair values of the contingent consideration will be recognized in earnings of the Company and included in general and administrative expense on the condensed consolidated statement of operations.

 

The table below presents a reconciliation of all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2014 to December 31, 2015:

 

 

 

 

 

 

 

    

Fair Value of

 

 

 

Contingent

 

 

 

Consideration

 

 

 

Liabilities

 

Balance at December 31, 2014

 

$

13,867

 

Settlement of contingent consideration liabilities

 

 

(7,219)

 

Castle Rock acquisition

 

 

1,500

 

Fair market value adjustments

 

 

(4,153)

 

Fair value of other liabilities

 

 

(840)

 

Accretion on contingent consideration

 

 

888

 

Balance at December 31, 2015

 

$

4,043

 

 

The Company assesses categorization of assets and liabilities by level at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer, in accordance with the Company’s accounting policy regarding the recognition of transfers between levels of the fair value hierarchy. There were no transfers between Levels I, II and III during the year.