Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.8.0.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2018
Fair Value Measurements  
Fair Value Measurements

 

14.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 at fair value 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 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.

 

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis in the condensed consolidated balance sheets as of March 31, 2018 and December 31, 2017, based on the three-tier fair value hierarchy.

 

 

 

 

 

 

 

 

 

 

 

 

 

   

March 31, 2018

   

Fair Value

   

Level I

   

Level II

 

Level III

Assets

 

   

 

   

 

 

 

 

Money market funds(1)

$

14,553

   

$

14,553

   

$

 

$

Assets to fund deferred compensation liability(2)

 

5,207

 

 

 

 

 

 

5,207

Total assets

$

19,760

   

$

14,553

   

$

 

$

5,207

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

$

2,863

 

$

 

$

 

$

2,863

Deferred compensation liability(3)

 

5,484

 

 

5,484

 

 

 

 

Total liabilities

$

8,347

 

$

5,484

 

$

 

$

2,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2017

   

Fair Value

   

Level I

   

Level II

 

Level III

Assets

 

   

 

   

 

 

 

 

Money market funds(1)

$

39,400

   

$

39,400

   

$

 

$

Assets to fund deferred compensation liability(2)

 

5,185

 

 

 

 

 

 

5,185

Total assets

$

44,585

 

$

39,400

 

$

 

$

5,185

Liabilities

   

   

   

   

   

   

   

   

 

   

   

Contingent consideration

$

2,781

 

$

 

$

 

$

2,781

Deferred compensation liability(3)

 

4,364

   

 

4,364

   

 

 

 

Total liabilities

$

7,145

 

$

4,364

 

$

 

$

2,781

 

(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)

The fair value of assets to fund deferred compensation liability approximates the cash surrender value of the life insurance premiums and is included in other non-current assets in the condensed consolidated balance sheets.

(3)

The deferred compensation liability is included in other non-current liabilities in the condensed consolidated balance sheets and its fair market value is based on the daily quoted market prices for the net asset value of the various funds in which the participants have selected.

 

Level I assets and liabilities include money-market funds not insured by the FDIC and deferred compensation liability. 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 I and are included in cash and cash equivalents in the condensed consolidated balance sheets. The fair value of the deferred compensation liability is based upon the daily quoted market prices for net asset value on the various funds selected by participants.

   

Level III assets and liabilities consist of the estimated fair value of contingent consideration as well as the assets to fund deferred compensation liability. The fair market value of the assets to fund deferred compensation liability is based upon the cash surrender value of the life insurance premiums.

   

The fair value of the contingent consideration liability related to the Wheelhouse acquisition was estimated using a discounted cash flow method with significant inputs that are not observable in the market and thus represent 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 acquisition of Wheelhouse during the subsequent periods 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 Wheelhouse, and its ability to meet the target performance objectives as the main driver of the valuation, to arrive at the fair value of its respective contingent consideration. The Company will continue to reassess the fair value of the contingent consideration made subsequent to the measurement period 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 administration on the condensed consolidated statements of operations.

 

The table below presents a reconciliation of the assets to fund deferred compensation liability of which the Company measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2017 to March 31, 2018:

 

 

 

 

 

 

Fair Value of

 

    

Assets to Fund

 

 

Deferred

 

 

Compensation

 

 

Liability

Balance at December 31, 2017

 

$

5,185

Fair value adjustments

 

 

22

Balance at March 31, 2018

 

$

5,207

 

The asset value was increased due to immaterial gains on the underlying investment vehicles which resulted in an asset value as of March 31, 2018 of $5,207, which was included in other non-current assets on the condensed consolidated balance sheets.

 

The table below presents a reconciliation of contingent consideration liabilities of which the Company measured at fair value on a recurring basis using significant unobservable inputs (Level III) for the period from December 31, 2017 to March 31, 2018:

 

 

 

 

 

 

    

Fair Value of

 

 

Contingent

 

 

Consideration

 

 

Liabilities

Balance at December 31, 2017

 

$

2,781

Accretion on contingent consideration

 

 

82

Balance at March 31, 2018

 

$

2,863

 

The Company assesses the 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 three months ended March 31, 2018.

 

On December 15, 2014, the Company issued $172,500 of Convertible Notes. As of March 31, 2018 and December 31, 2017, the carrying value of the 2019 Convertible Notes equaled $160,638 and $158,990, respectively, and represents the aggregate principal amount outstanding less the unamortized discount and debt issuance costs. As of March 31, 2018 and December 31, 2017, the fair value of the Convertible Notes was $190,337 and $180,180, respectively. The Company considers the Convertible Notes to be Level II liabilities and uses a market approach to calculate the fair value of the Convertible Notes. The estimated fair value was determined based on the estimated or actual bids and offers of the Convertible Notes in an over-the-counter market on March 31, 2018 (see “Note 12 – Debt”).

 

As of March 31, 2018 and December 31, 2017, there was $261,168 and $81,168, respectively, outstanding on the revolving credit facility under the Second Amended and Restated Credit Agreement. As of March 31, 2018 and December 31, 2017, the outstanding balance on our revolving credit facility approximated fair value as the revolving credit facility bore interest at variable rates and we believe our credit risk quality is consistent with when the debt originated. The Company considers the revolving credit facility as of March 31, 2018 and as of December 31, 2017 to be Level I liability (See “Note 12 – Debt”).

 

We consider the recorded value of our other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at March 31, 2018 based upon the short-term nature of the assets and liabilities.