Fair Value Measurement

9 Months Ended

Sep. 30, 2015

4. Fair Value Measurement

Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1 — Quoted market prices in active markets for identical assets or liabilities.

Level 2 — Observable market-based inputs or unobservable inputs that are corroborated by market data.

Level 3 — Unobservable inputs reflecting the reporting entity’s own assumptions or external inputs from inactive markets.

A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

Certain of the Company’s acquisitions contain contingent purchase obligations in the form of earn-outs as described in Note 2. The contingent purchase obligation related to acquisitions is measured at fair value on a recurring basis, according to the valuation techniques the Company used to determine fair value. Changes to the fair value are recognized as income or expense within other operating expenses in the condensed consolidated statements of operations. In measuring the fair value of the contingent purchase obligation, the Company used an income approach that considers the expected future earnings of the acquired businesses, for the varying performance periods, based on historical performance and the resulting contingent payments, discounted at a risk-adjusted rate. The range of undiscounted outcomes for the estimated contingent payments is zero to $10.4 million.

The following table presents information, as of September 30, 2015 and December 31, 2014, about the Company’s financial liabilities (in thousands):



	September 30, 2015
	Level 1		Level 2		Level 3		Fair Value
Contingent purchase price related to acquisitions	$	—	$	—	$	7,652	$	7,652
Total liabilities at fair value	$	—	$	—	$	7,652	$	7,652



	December 31, 2014
	Level 1		Level 2		Level 3		Fair Value
Contingent purchase price related to acquisitions	$	—	$	—	$	7,665	$	7,665
Total liabilities at fair value	$	—	$	—	$	7,665	$	7,665

The table below sets forth a reconciliation of the Company’s beginning and ending Level 3 financial liability balance for the three and nine months ended September 30, 2015 and 2014 and the year ended December 31, 2014 (in thousands):



	Three Months Ended					Nine Months Ended						Year Ended
	September 30,					September 30,						December 31,
	2015		2014			2015			2014			2014
Balance, beginning of period	$	3,481	$	11,726		$	7,665		$	17,054		$	17,054
Earnouts related to acquisitions	4,114		—			4,114			—			—
Payments of contingent purchase obligations	—		—			(3,317		)	(4,804		)	(4,804		)
Adjustments to contingent purchase obligations ⁽¹⁾	57		(3,171		)	(810		)	(3,695		)	(4,585		)
Balance, end of period	$	7,652	$	8,555		$	7,652		$	8,555		$	7,665


(1)	Adjustments to contingent purchase obligations are reported in other operating expenses in the condensed consolidated statements of operations.

- 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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