Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

5. Fair Value of Financial Instruments

Instruments Measured at Fair Value on a Recurring Basis

The following table summarizes the valuation of the Company’s financial instruments that are reported at fair value on a recurring basis:

	Fair Value as of March 31, 2017								Fair Value as of December 31, 2016
(in thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Financial assets:
Interest rate contracts - asset position	$	68	$	—	$	68	$	—	$	55	$	—	$	55	$	—
Total financial assets	$	68	$	—	$	68	$	—	$	55	$	—	$	55	$	—
Financial liabilities:
Contingent consideration related to    acquisitions	$	535	$	—	$	—	$	535	$	555	$	—	$	—	$	555
Mandatorily redeemable noncontrolling    interest		2,386		—		—		2,386		2,386		—		—		2,386
Interest rate contracts - liability position		26		—		26		—		53		—		53		—
Total financial liabilities	$	2,947	$	—	$	26	$	2,921	$	2,994	$	—	$	53	$	2,941

The Company’s derivative instruments are primarily pay-fixed, receive-variable interest rate swaps based on the London interbank offered rate (“LIBOR”) swap rate. The Company has elected to use the income approach to value these derivatives, using observable Level 2 market expectations at measurement date and standard valuation techniques to convert future amounts to a single present amount assuming that participants are motivated, but not compelled to transact. Level 2 inputs for interest rate swap valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts on LIBOR for the first two years) and inputs other than quoted prices that are observable for the asset or liability (specifically LIBOR cash and swap rates at commonly quoted intervals and implied volatilities for options). According to ASC 820, “Fair Value Measurement,” the fair value measurement of an asset or liability must reflect the nonperformance risk of the entity and the counterparty. Therefore, the impact of the counterparty’s creditworthiness and the Company’s creditworthiness have also been factored into the fair value measurement of the derivative instruments. For additional information see Note 9.

The fair value of the liability for contingent consideration related to acquisitions was estimated using probability-adjusted performance estimates (Level 3 inputs) over the performance periods following the transaction dates. These estimates represent inputs for which market data are not available and are developed using the best information available about the assumptions that market participants would use when pricing the liability. Significant increases or decreases to either of these inputs in isolation would result in a significantly higher or lower liability. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings.

Changes in the fair value of the Company’s Level 3 liabilities for the three months ended March 31, 2017 were as follows:

(in thousands)	Contingent consideration related to acquisitions			Mandatorily redeemable noncontrolling interest
Balance at December 31, 2016	$	555		$	2,386
Settlement		(20	)		—
Balance at March 31, 2017	$	535		$	2,386

Financial instruments measured and recorded at fair value on a recurring basis were presented on the Company’s consolidated balance sheets as follows:

	Fair Value as of March 31, 2017								Fair Value as of December 31, 2016
(in thousands)	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Financial assets:
Other assets	$	68	$	—	$	68	$	—	$	55	$	—	$	55	$	—
Total financial assets	$	68	$	—	$	68	$	—	$	55	$	—	$	55	$	—
Financial liabilities:
Other accrued liabilities	$	2,947	$	—	$	26	$	2,921	$	2,994	$	—	$	53	$	2,941
Total financial liabilities	$	2,947	$	—	$	26	$	2,921	$	2,994	$	—	$	53	$	2,941

During the three months ended March 31, 2017, none of the Company’s financial instruments were transferred from one level to another.

Instruments Not Recorded at Fair Value on a Recurring Basis

The following table summarizes the fair values and book values of the Company’s long-term debt:

	March 31, 2017				December 31, 2016
(in thousands)	Fair Value		Book Value		Fair Value		Book Value
Variable-rate debt	$	526,447	$	528,879	$	526,475	$	533,939
Fixed-rate debt		38,617		36,640		41,572		39,308
	$	565,064	$	565,519	$	568,047	$	573,247

The fair value of long-term debt is estimated using Level 2 inputs based on quoted market prices or pricing models using current market rates.

Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis

The Company also measures the fair value of certain assets on a non-recurring basis (utilizing Level 3 inputs), generally on an annual basis, in connection with acquisitions, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include goodwill, intangible assets, long-lived assets and investments in unconsolidated investees. See Note 6 for a discussion of the Company’s annual impairment test for goodwill and indefinite-lived intangible assets.