Fair Value Measurements

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

ASC Topic 820, Fair Value Measurements and Disclosure (“Topic 820”), defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. The guidance within Topic 820 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. The fair value hierarchy prioritizes the inputs used in valuation techniques into three levels as follows:

• Level 1 – unadjusted quoted prices for identical assets or liabilities in active markets;

• Level 2 – quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted market prices that are observable or that can be corroborated by observable market data by correlation; and

• Level 3 – unobservable inputs based upon the reporting entity’s internally developed assumptions which market participants would use in pricing the asset or liability.

Our financial instruments measured at fair value include interest rate derivatives and contingent consideration in connection with business combinations. The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2017 and 2016, and the level they fall within the fair value hierarchy (in thousands):

			Fair Value
		Fair Value	December 31,
Description of Financial Instrument	Financial Statement Classification	Hierarchy	2017		2016
Contingent consideration	Accounts payable and accrued expenses	Level 3	$	2,724	$	3,590
Contingent consideration	Other noncurrent liabilities	Level 3	1,502		1,669
Interest rate swap agreement	Other assets	Level 2	88		—
Interest rate cap agreement	Other assets	Level 2	285		—

Contingent consideration related to acquisitions is recognized at fair value on the acquisition date and is re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities using an appropriate valuation methodology, typically either an income-based approach or a simulation model, such as the Monte Carlo model, depending on the structure of the contingent consideration arrangement. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. Refer to Note 2 for further details including the change in fair value of contingent consideration during the year ended December 31, 2017.

The Company entered into interest rate swap and interest rate cap agreements to manage its interest rate risk. The valuation of these 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. To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.  Changes in the fair value of the interest rate swap agreements are recorded as a component of accumulated other comprehensive income or loss.