Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements
9 Months Ended
Sep. 30, 2013
Fair Value Measurements  
Fair Value Measurements

8.                       Fair Value Measurements


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


Level 1:


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




Level 2:


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 3:


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 Company periodically invests excess cash in money-market funds not insured by the Federal Deposit Insurance Corporation. The Company believes that the investments in money market funds are on deposit with creditworthy financial institutions and that the funds are highly liquid. The fair values of the Company’s investments in money market funds are based on the daily quoted market prices of the net asset value of the various money market funds. These money market funds are considered Level 1 assets, totaled approximately $25,639 and $20,682 as of September 30, 2013 and December 31, 2012, respectively, and are included in cash and cash equivalents in the condensed consolidated balance sheets.


The fair value of the contingent consideration liability described in Note 3 was estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in the FASB’s Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures.  The significant inputs in the Level 3 measurement not supported by market activity included our assessments of expected future cash flows related to our acquisition of WMS 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, and its ability to meet the target performance objectives as the main driver of the valuation, to arrive at the fair value of the contingent consideration. The Company will continue to reassess the fair value of the contingent consideration at each reporting date until settlement.  Changes to the estimated fair value of the contingent consideration will be recognized in earnings of the Company.


The table below sets forth a summary of changes in the fair value of the Company’s Level 3 liability for the nine months ended September 30, 2013:




Fair Value of


















Balance at December 31, 2012








Fair value on WMS acquisition date of July 1, 2013




Imputed interest for the period July 1, 2013 - September 30, 2013








Balance at September 30, 2013