FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2015

FAIR VALUE MEASUREMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS

As required by the guidance for fair value measurements, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Thus, assets and liabilities categorized as Level 3 may be measured at fair value using inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Significant unobservable inputs used in the fair value measurement of contingent consideration related to business acquisitions are forecasts of expected future operating results of those businesses as developed by the Company’s management and the probability of achievement of those operating forecasts. Management’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of assets and liabilities and their placement within the fair value hierarchy levels.

We classify our foreign currency derivative contracts primarily within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. Contingent considerations are within Level 3.

The following tables show the fair values of the Company’s financial assets and liabilities, including derivative contracts, measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:



	September 30, 2015						December 31, 2014
	Balance		Level 2		Level 3		Balance		Level 2		Level 3
Foreign currency derivative assets	$	110	$	110	$	—	$	—	$	—	$	—
Total assets measured at fair value on a recurring basis	110		110		—		—		—		—
Contingent consideration	—		—		—		37,400		—		37,400
Performance-based equity awards	2,979		—		2,979		3,223		—		3,223
Foreign currency derivative liabilities	224		224		—		—		—		—
Total liabilities measured at fair value on a recurring basis	$	3,203	$	224	$	2,979	$	40,623	$	—	$	40,623

As of December 31, 2014, contingent consideration and performance-based equity awards included amounts payable in cash and stock in connection with the acquisitions of businesses completed during the year ended December 31, 2014 (Note 2). As of September 30, 2015, the only financial liabilities related to acquisitions of businesses included performance-based equity awards.

During the third quarter ending September 30, 2015, the Company began managing exposure to fluctuations in certain foreign currencies by using short-term foreign currency forward and option contracts. For accounting purposes, these derivative contracts are not designated as hedges. The changes in their fair value were not material in aggregate or individually and are reported within the foreign exchange gain/(loss) line of the unaudited condensed consolidated statements of income and comprehensive income for the quarter ended September 30, 2015. All of the derivative financial instruments entered into as of September 30, 2015 have expiration dates prior to December 31, 2015. The combined aggregate notional amount of the Hungarian forint and Russian ruble foreign currency derivative contracts outstanding as of September 30, 2015 was $25,200. There were no foreign currency derivative contracts outstanding as of December 31, 2014.

Sensitivity to Changes in Significant Unobservable Inputs

The fair value of the contingent consideration, which is based on the present value of the expected future payments to be made to the sellers of the acquired businesses, was derived by analyzing the future performance of the acquired businesses using the earnout formula and performance targets specified in each purchase agreement and adjusting those amounts to reflect the ability of the acquired entities to achieve the stated targets. As of June 30, 2015 the measurement periods related to the contingent consideration for each acquisition was complete, therefore, the amount of total consideration to be paid is no longer subject to change during the quarter ended September 30, 2015.

A reconciliation of the beginning and ending balances of acquisition-related contractual contingent liabilities using significant unobservable inputs (Level 3) for the nine months ended September 30, 2015, was as follows:



	Amount
Contractual contingent liabilities at January 1, 2015	$	40,623
Liability-classified stock-based awards	3,861
Changes in fair value of contractual contingent liabilities included in earnings	3,257
Effect of net foreign currency exchange rate changes	246
Settlements of contractual contingent liabilities - cash and stock	(45,008		)
Contractual contingent liabilities at September 30, 2015	$	2,979

There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the nine months ended September 30, 2015 and 2014. Changes in the values of these financial liabilities, if any, are typically recorded within selling, general and administrative expenses line on the Company's unaudited condensed consolidated statements of income and comprehensive income.

- 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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