Fair Value Measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements

Fair Value Measurements

Note 4—Fair Value Measurements

ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value in GAAP, establishes a framework for measuring fair value and requires certain disclosures about fair value measurements.  ASC Topic 820 requires that certain financial assets and financial liabilities be re-measured and reported at fair value each reporting period and that other non-financial assets and liabilities be re-measured and reported at fair value on a non-recurring basis.  ASC Topic 820 also establishes three reporting levels for fair value measurements.

In general, fair values determined by Level 1 use quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are “unobservable data points” for an asset or liability and include situations where there is little, if any, market activity for the asset or liability.

The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, the Company’s financial assets that are required to be measured at fair value at June 30, 2013 and December 31, 2012:

			Fair Value Measurements at Reporting Date
	Amount Recorded on Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets as of June 30, 2013:
Cash and cash equivalents	$	113,777	$	113,777	—	—
Short-term investments	$	3,428	$	3,428	—	—
Liabilities as of June 30, 2013:
Contingent consideration	$	13,972	—		—	$	13,972
Assets as of December 31, 2012:
Cash and cash equivalents	$	157,551	$	157,551	—	—
Short-term investments	$	3,441	$	3,441	—	—
Liabilities as of December 31, 2012:
Contingent consideration	$	23,431	—		—	$	23,431

Short-term investments consist primarily of Certificates of Deposit (“CDs”) purchased through the CDARS (Certificate of Deposit Account Registry Service) process and U.S. Treasury bills with various financial institutions that are backed by the federal government FDIC program.

Other financial instruments of the Company consist of accounts receivable, accounts payable and certain accrued liabilities.  These financial instruments generally approximate fair value based on their short-term nature.  The carrying value of the Company’s long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities.

The following table provides a rollforward of the Company’s contingent consideration liability Level 3 fair value measurements during the six months ended June 30, 2013:

Contingent Consideration
Balance at December 31, 2012	$	23,431
Additions:
FSSI acquisition on March 11, 2013	702
Change in fair value of contingent consideration	739
Reductions:
Payment to Rockford sellers	(6,900		)
Payment to Sprint sellers	(4,000		)
Balance at June 30, 2013	$	13,972

On a quarterly basis, the Company assesses the estimated fair value of the contractual obligation to pay the contingent consideration and any changes in estimated fair value are recorded as other non-operating expense or income in the Company’s statement of operations.  Fluctuations in the fair value of contingent consideration are impacted by two unobservable inputs, management’s estimate of the probability (which range from 33% to 95%) of the acquired company meeting the contractual operating performance target and the estimated discount rate (a rate that approximates the Company’s cost of capital). Significant changes in either of those inputs in isolation would result in a significantly different fair value measurement.  Generally, a change in the assumption of the probability of meeting the performance target is accompanied by a directionally similar change in the fair value of contingent consideration liability, whereas a change in assumption of the estimated discount rate is accompanied by a directionally opposite change in the fair value of contingent consideration liability.