Fair value measurement

6 Months Ended

Jun. 30, 2014

6. Fair value measurement

ASC 820 establishes a three-tiered hierarchy that draws a distinction between market participant assumptions based on (i) quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1); (ii) inputs other than quoted prices in active markets that are observable either directly or indirectly (Level 2); and (iii) unobservable inputs that require us to use present value and other valuation techniques in the determination of fair value (Level 3). The following table sets forth our financial assets and liabilities that are measured at fair value on a recurring basis:

At June 30, 2014	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	4,295	$	—	$	—	$	4,295
Marketable securities	—		29,909		—		29,909
Restricted cash	545		—		—		545
Total assets	$	4,840	$	29,909	$	—	$	34,749
Liabilities:
Contingent consideration	$	—	$	—	$	1,584	$	1,584
Total liabilities	$	—	$	—	$	1,584	$	1,584

At December 31, 2013	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	23,683	$	—	$	—	$	23,683
Marketable securities	—		32,962		—		32,962
Restricted cash	545		—		—		545
Total assets	$	24,228	$	32,962	$	—	$	57,190
Liabilities:
Contingent consideration	$	—	$	—	$	1,942	$	1,942
Total liabilities	$	—	$	—	$	1,942	$	1,942

Our marketable securities utilize Level 2 inputs and consist primarily of corporate securities which include commercial paper and corporate debt instruments including notes issued by foreign or domestic corporations which pay in U.S. dollars and carry a rating of A or better. We have evaluated the various types of securities in our investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Due to variations in trading volumes and the lack of quoted market prices in active markets, our fixed maturities are classified as Level 2 securities. The fair value of our fixed maturity marketable securities is derived through the use of a third party pricing source using recent reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable data.

The Company used the income approach to value the contingent consideration as of June 30, 2014. The contingent consideration used a discounted cash flow method with probability weighted cash flows for Endeka. The contingent consideration for AWG was paid out subsequent to June 30, 2014. The following table presents a reconciliation of the beginning and ending amounts related to the fair value of contingent consideration for the Endeka and AWG acquisitions, categorized as Level 3:

Beginning balance, January 1, 2014	$	1,942
Change in fair value	(358		)
Balance, June 30, 2014	$	1,584

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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