Cash and Cash Equivalents and Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2016

Cash and Cash Equivalents and Fair Value of Financial Instruments

Cash and cash equivalents as of June 30, 2016 and December 31, 2015 include cash and money market funds, which have original maturities of three months or less. Due to the short duration to maturity, the carrying value of such financial instruments approximates the estimated fair value.

The cash and cash equivalents at June 30, 2016 and December 31, 2015 were as follows:



	June 30, 2016		December 31, 2015
	(In thousands)
Cash	$	30,903	$	72,103
Money market fund	10,126		10,114
Total cash and cash equivalents	$	41,029	$	82,217

Fair value hierarchy

The Company measures its financial instruments at fair value. The Company’s cash equivalents are classified within Level 1 of the fair value hierarchy as they are valued primarily using quoted market prices utilizing market observable inputs. The Company's foreign currency contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. The Company's contingent consideration liability is classified as Level 3 as valuation inputs are unobservable in the market and significant to the instrument’s valuation.

The following table represents the fair value hierarchy of the Company’s financial assets and financial liabilities measured at fair value as of June 30, 2016:



	Level 1		Level 2		Level 3		Total
	(In thousands)
Money market fund	$	10,126	$	—	$	—	$	10,126
Forward contracts	—		6		—		6
Total financial assets	$	10,126	$	6	$	—	$	10,132
Contingent consideration liability⁽¹⁾	—		—		2,913		2,913
Total financial liabilities	$	—	$	—	$	2,913	$	2,913

⁽¹⁾The significant unobservable inputs used in the fair value measurement of the contingent consideration related to the Avantec acquisition classified as Level 3 above are the achievement of booking targets and the discount rate.

The following table represents the fair value hierarchy of the Company’s financial assets and financial liabilities measured at fair value as of December 31, 2015:



	Level 1		Level 2		Level 3		Total
	(In thousands)
Money market fund	$	10,114	$	—	$	—	$	10,114
Forward contracts	—		32		—		32
Total financial assets	$	10,114	$	32	$	—	$	10,146
Contingent consideration liability⁽¹⁾	$	—	$	—	$	5,823	$	5,823
Total financial liabilities	$	—	$	—	$	5,823	$	5,823

⁽¹⁾The significant unobservable inputs used in the fair value measurement of the contingent consideration classified as Level 3 above are the achievement of booking targets and the discount rate.

Net investment in sales-type leases. The carrying amount of the Company's sales-type lease receivables is a reasonable estimate of fair value as the unearned interest income is immaterial.

Foreign Currency Risk Management

The Company operates in foreign countries, which exposes it to market risk associated with foreign currency exchange rate fluctuations between the U.S. dollar and various foreign currencies, the most significant of which is the British Pound and Euro. In order to manage foreign currency risk, the Company enters into foreign exchange forward contracts to mitigate risks associated with changes in spot exchange rates of mainly non-functional currency denominated assets or liabilities of its foreign subsidiaries. In general, the market risk related to these contracts is offset by corresponding gains and losses on the hedged transactions. By working only with major banks and closely monitoring current market conditions, the Company seeks to limit the risk that counterparties to these contracts may be unable to perform. The foreign exchange forward contracts are measured at fair value and reported as other current assets or accrued liabilities on the Condensed Consolidated Balance Sheets. The derivative instruments the Company uses to hedge this exposure are not designated as hedges. Any gains or losses on the foreign exchange forward contracts are recognized in earnings as Other Income/Expense in the period incurred in the Condensed Consolidated Statements of Operations. The Company does not enter into derivative contracts for trading purposes.

The aggregate notional amounts of the Company's outstanding foreign exchange contracts as of June 30, 2016 and December 31, 2015 were $0.1 million and $0.4 million, respectively. The aggregate fair values of these outstanding foreign exchange contracts as of June 30, 2016 and December 31, 2015 were less than $0.1 million.

Interest Rate Swaps

The Company uses interest rate swap agreement to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows relating to interest payments on a portion of its outstanding debt. The Company's interest rate swaps, which are designated as cash flow hedges, involve the receipt of variable amounts from counterparties in exchange for the Company making fixed-rate payments over the life of the agreements. The Company does not hold or issue any derivative financial instruments for speculative trading purposes.

During the second quarter of 2016, the Company entered into interest rate swap agreement with a combined notional amount of $100.0 million with one counter party that are effective beginning on June 30, 2016 and maturing on April 30, 2019. The swap agreement requires the Company to pay a fixed rate of 0.8% and provides that the Company will receive a variable rate based on the one month LIBOR rate subject to LIBOR floor of 0.0%. Amounts payable by or due to the Company will be net settled with the respective counterparties on the last business day of each month, commencing July 31, 2016.

The fair value of the interest rate swap agreements at June 30, 2016 were zero and there were no amounts reclassified into current earnings due to ineffectiveness during the periods presented.

- 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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