FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2015

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 9: FAIR VALUE MEASUREMENTS

        Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The 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 listed below:

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than those included in Level 1, such as quoted market prices for similar assets and liabilities in active markets or quoted prices for identical assets in inactive markets.

Level 3—Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing an asset or liability.

Recurring Fair Value Measurements

        As of December 31, 2015 and 2014, our assets and liabilities that are measured and recorded at fair value on a recurring basis were as follows (in thousands):

			Fair Value Measurements
			Quoted Prices in Active Markets		Significant Other Observable Inputs
							Significant Unobservable Inputs
	Carrying Value
			(Level 1)		(Level 2)		(Level 3)
December 31, 2015:
Liabilities:
Interest rate swap	$	3,856	$	—	$	3,856	$	—
December 31, 2014:
Assets:
Interest rate cap	$	1	$	—	$	1	$	—
Liabilities:
Interest rate swap	$	2,451	$	—	$	2,451	$	—
Acquisition-related contingent consideration		1,116		—		—		1,116
Total Liabilities	$	3,567	$	—	$	2,451	$	1,116

Interest Rate Swap

        The fair value of our interest rate swap (as described in Note 5 to the Consolidated Financial Statements) was determined via the income and market approaches utilizing certain observable inputs including the forward and spot curves for the underlying 1 month LIBOR over the remaining term of the agreement. Based on these characteristics the interest rate swap is classified as Level 2. The fair value of the interest rate swap is subject to material changes based upon changes in the forward curve for 1 month LIBOR and the volatility thereof.

Acquisition-related contingent consideration

Minus 10

        In connection with our April 2014 acquisition of Minus 10, we established a contingent consideration liability considered to be a Level 3 liability. The fair value of the Minus 10 contingent consideration was based on management's estimate of projected revenues and profit contributions over the measurement period (from April 2014 to December 2020) and an applied discount rate of 25% which was reflective of the inherent risk attributable to this new product line given its status as an early-stage venture. Such unobservable inputs included financial forecasts prepared by management which included estimates of future cash flows, projected revenues and profit contributions, and discount rates. As of the date of acquisition we estimated the original fair value of the contingent consideration to be approximately $0.9 million. During the second quarter of 2015, we remeasured the fair value of the contingent consideration using actual operating results and our revised forecasted operating results for Minus 10 for the remainder of the measurement period. As a result of this remeasurement, the fair value of the contingent consideration was reduced to zero, resulting in a non-cash gain of $1.2 million that is included in "Fair value adjustment to contingent consideration" in the Consolidated Statements of Operations. In August 2015, we sold our 100% equity interest in Minus 10 for an amount immaterial to the Consolidated Financial Statements. There are no further payments remaining under this contingent consideration obligation.

De Novo Legal LLC

        In December 2011, Epiq acquired De Novo Legal LLC and its affiliated companies ("De Novo Legal"). In connection with the acquisition, certain contingent consideration was payable to the De Novo sellers relative to the January 1, 2013 to December 31, 2013 measurement period. In the first quarter of 2014, the sellers disputed our calculation of the earn-out amount and alleged that the performance measure was higher, thereby triggering the next tier of contingent consideration. Epiq and the sellers participated in a dispute resolution process as specified under the acquisition agreement and in April 2014 agreed to settle this matter for a cash payment to the sellers of $1.5 million which was paid to the sellers in April 2014. As a result, we recorded a total adjustment of $1.5 million to the contingent consideration obligation during the three months ended March 31, 2014, of which $1.1 million is included in "Fair value adjustment to contingent consideration" and $0.4 million is included in "Selling, general and administrative expense" in the Consolidated Statements of Operations. There are no further payments remaining under the contingent consideration obligation with respect to De Novo Legal.

        The following table represents the change in the acquisition-related contingent consideration obligation during the years ended December 31, 2015 and 2014 (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	2015			2014
Beginning balance January 1	$	1,116		$	2,580
Present value accretion		103			189
Payments		(37	)		(3,728	)
Fair value related adjustments		(1,182	)		2,075
Ending balance December 31	$	—		$	1,116

Other Fair Value Disclosures

        The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate their fair values because of the relatively short-term maturities of these financial instruments. As of December 31, 2015 and 2014, the amounts outstanding under both our credit facility and notes payable approximated fair value due to the borrowing rates currently available to us for debt with similar terms and are classified as Level 2.