Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2020

Fair Value of Assets and Liabilities

Fair Value of Assets and Liabilities

(6)          Fair Value of Assets and Liabilities

FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820), creates a single definition of fair value, establishes a framework for measuring fair value in U.S. GAAP and expands disclosures about fair value measurements. Assets and liabilities adjusted to fair value in the balance sheet are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by ASC 820, are as follows:

Level input	Input Definition
Level 1	Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2	Inputs, other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3	Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following table presents the valuation of the Company’s financial assets and liabilities as of March 31, 2020 and December 31, 2019 measured at fair value on a recurring basis. These estimates are not necessarily indicative of the amounts the Company could ultimately realize.

	Level 1		Level 2		Level 3		Fair Value
March 31, 2020
Assets
Money market accounts	$	4,117,161	$	—	$	—	$	4,117,161
Total assets measured at fair value	$	4,117,161	$	—	$	—	$	4,117,161
Liabilities
Acquisition-related contingent consideration-short term	$	—	$	—	$	7,675,000	$	7,675,000
Acquisition-related contingent consideration-long term		—		—		5,050,000		5,050,000
Interest rate swap agreements-short term		—		5,373,647		—		5,373,647
Interest rate swap agreements-long term		—		13,675,476		—		13,675,476
Total liabilities measured at fair value	$	—	$	19,049,123	$	12,725,000	$	31,774,123

	Level 1		Level 2		Level 3		Fair Value
December 31, 2019
Assets
Money market accounts	$	54,014,591	$	—	$	—	$	54,014,591
Total assets measured at fair value	$	54,014,591	$	—	$	—	$	54,014,591
Liabilities
Acquisition-related contingent consideration-short term	$	—	$	—	$	4,825,000	$	4,825,000
Acquisition-related contingent consideration-long term		—		—		9,900,000		9,900,000
Interest rate swap agreements-short term		—		2,157,324		—		2,157,324
Interest rate swap agreements-long term		—		6,181,964		—		6,181,964
Total liabilities measured at fair value	$	—	$	8,339,288	$	14,725,000	$	23,064,288

Interest Rate Swaps

The Company recognizes its interest rate swaps as either assets or liabilities in the accompanying consolidated balance sheets at fair value. The valuation of these derivative instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company’s interest rate swaps held as of March 31, 2020 and December 31, 2019 were classified as Level 2 of the fair value hierarchy. Refer to Note 7, Derivative Instruments and Hedging Activities, for additional information regarding the Company’s derivative instruments.

Contingent Consideration

The Company estimates the fair value of acquisition-related contingent consideration liabilities by applying the income approach using a probability-weighted discounted cash flow model. This fair value measurement is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Company’s own assumptions in measuring fair value. At March 31, 2020, contingent consideration liabilities of $7,675,000 and $5,050,000 were included in other current liabilities and other long-term liabilities, respectively, in the accompanying consolidated balance sheets. At December 31, 2019, contingent consideration liabilities of $4,825,000 and $9,900,000 were included in other current liabilities and other long-term liabilities, respectively, in the accompanying consolidated balance sheets.  

A reconciliation of the Company’s contingent consideration liabilities related to acquisitions for the three months ended March 31, 2020 and 2019 is as follows:

Three Months Ended March 31, 2020	Beginning Balance		Additions		Payments		Change in Fair Value		Ending Balance
Contingent consideration - Level 3 liabilities	$	14,725,000	$	—	$	—	$	(2,000,000)	$	12,725,000
Three Months Ended March 31, 2019	Beginning Balance		Additions		Payments		Change in Fair Value		Ending Balance
Contingent consideration - Level 3 liabilities	$	15,250,000	$	1,500,000	$	(12,000,000)	$	—	$	4,750,000