Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

Fair Value Measurements
12 Months Ended
Dec. 31, 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 U.S. 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 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. 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. These money-market funds are considered Level 1 assets and totaled approximately $32,358 and $20,682 as of December 31, 2013 and 2012, respectively, and are included in cash and cash equivalents in the 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 ASC 820, Fair Value Measurements. The significant inputs in the Level 3 measurement not supported by market activity included the Company’s assessments of expected future cash flows related to our acquisition of WMS, primarily estimated revenues and expenses during the three years subsequent to the date of acquisition, and the discount rate considering the uncertainties associated with the obligation.


The Company utilized a discounted cash flow method considering 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 presents a reconciliation of all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period from December 31, 2012 to December 31, 2013:




Fair Value of






Balance at December 31, 2012








Fair value on WMS acquisition date of July 1, 2013




Fair value of other liabilities




Fair value estimate adjustment for the period July 1, 2013 - December 31, 2013




Imputed interest for the period July 1, 2013 - December 31, 2013




Balance at December 31, 2013






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 1, 2 and 3 during the year.