FAIR VALUE MEASUREMENTS

The Company carries certain assets and liabilities at fair value on a recurring basis on its consolidated balance sheets. The following table shows the fair values of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2018:



	As of December 31, 2018
	Balance		Level 1		Level 2		Level 3
Foreign exchange derivative assets	$	181	$	—	$	181	$	—
Total assets measured at fair value on a recurring basis	$	181	$	—	$	181	$	—

Foreign exchange derivative liabilities	$	3,475	$	—	$	3,475	$	—
Contingent consideration	7,468		—		—		7,468
Total liabilities measured at fair value on a recurring basis	$	10,943	$	—	$	3,475	$	7,468

The Company had no material financial assets or liabilities measured at fair value on a recurring basis as of December 31, 2017.

Our Level 2 foreign exchange derivatives are valued using pricing models and discounted cash flow methodologies based on observable foreign exchange data at the measurement date. See Note 10 “Derivative Financial Instruments” for further information regarding the Company’s derivative financial instruments.

As of December 31, 2018, contingent consideration included amounts payable in cash in connection with the acquisitions of Continuum and Think (Note 2 “Acquisitions”). The fair value of the contingent consideration is based on the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the Company considered a variety of factors, including future performance of the acquired businesses using financial projections developed by the Company and market risk assumptions that were derived for revenue growth and earnings before interest and taxes. The Company estimated future payments using the earnout formulas and performance targets specified in the purchase agreements and adjusted those estimates to reflect the probability of their achievement. Those estimated future payments were then discounted to present value using a rate based on the weighted-average cost of capital of guideline companies. Although there is significant judgment involved, the Company believes its estimates and assumptions are reasonable. Changes in financial projections, market risk assumptions, discount rates or probability assumptions related to achieving the various earnout criteria would result in a change in the fair value of the recorded contingent liabilities. Such changes, if any, are recorded within Interest and other income, net in the Company’s consolidated statement of income and comprehensive income.

A reconciliation of the beginning and ending balances of acquisition-related contractual contingent liabilities using significant unobservable inputs (Level 3) for the year ended December 31, 2016 is as follows:



	Amount
Contractual contingent liabilities as of January 1, 2016	$	5,364
Acquisition date fair value of contractual contingent liabilities — other acquisitions	800
Liability-classified stock-based awards	5,148
Changes in fair value of contractual contingent liabilities included in Selling, general and administrative expenses	1,232
Changes in fair value of contractual contingent liabilities recorded against goodwill	200
Settlements of contractual contingent liabilities	(8,955		)
Reclassification of contractual contingent liabilities out of Level 3	(3,789		)
Contractual contingent liabilities as of December 31, 2016	$	—

The Company had no activity related to contractual contingent liabilities during the year ended December 31, 2017.



	Amount
Contractual contingent liabilities as of December 31, 2017	$	—
Acquisition date fair value of contingent consideration — Continuum acquisition (Note 2)	2,400
Acquisition date fair value of contingent consideration — Think acquisition (Note 2)	5,990
Changes in fair value of contingent consideration included in Interest and other income, net (Note 2)	(900		)
Effect of net foreign currency exchange rate changes	(22		)
Contractual contingent liabilities as of December 31, 2018	$	7,468

Estimates of fair value of financial instruments not carried at fair value on a recurring basis on the Company’s consolidated balance sheets are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information. The Company uses the following methods to estimate the fair values of its financial instruments:


•	for financial instruments that have quoted market prices, those quoted prices are used to estimate fair value;


•	for financial instruments for which no quoted market prices are available, fair value is estimated using information obtained from independent third parties, or by discounting the expected cash flows using an estimated current market interest rate for the financial instrument;


•	for financial instruments for which no quoted market prices are available and that have no defined maturity, have a remaining maturity of 360 days or less, or reprice frequently to a market rate, the Company assumes that the fair value of these instruments approximates their reported value, after taking into consideration any applicable credit risk.

The generally short duration of certain of the Company’s assets and liabilities results in a significant number of assets and liabilities for which fair value equals or closely approximates the amount recorded on the Company’s consolidated balance sheets. The Company’s financial assets and liabilities that are not carried at fair value on a recurring basis on the Company’s consolidated balance sheets are as follows:


•	cash and cash equivalents;


•	restricted cash and time deposits;


•	employee loans;


•	long-term debt (Note 8 “Long-Term Debt”)

Since 2012, the Company has offered a loan program, which provides employees with loans to purchase housing in Belarus through independent third parties. This program is designed as a retention mechanism for the Company’s employees in Belarus and is available to full-time qualified employees. The aggregate maximum lending limit of the program is $10,000, with no individual outstanding loans exceeding $50 and the Company intends to hold all employee loans until their maturity. In addition to the housing loans, the Company issues relocation loans in connection with intra-company transfers, as well as certain other individual loans. There were no loans issued to principal officers, directors, and their affiliates. Loans under these programs were not material as of December 31, 2018 and 2017 and were included in Prepaid and other current assets and Other noncurrent assets in the Company’s consolidated balance sheets.

The housing loans are measured using the Level 3 inputs within the fair value hierarchy under FASB ASC Topic 820, Fair Value Measurement because they are valued using significant unobservable inputs. The fair value of employee housing loans is estimated using information on the rates of return that market participants in Belarus would require when investing in unsecured U.S. dollar-denominated government bonds with similar maturities (a “risk-free rate”), after taking into consideration any applicable credit and liquidity risk. They are subsequently carried at amortized cost less allowance for loan losses, which have been minimal since the commencement of the program as participants go through a rigorous approval and screening process. Any difference between the carrying value and the fair value of a loan upon initial recognition is charged to expense.

The following tables present the reported amounts and estimated fair values of the financial assets and liabilities for which disclosure of fair value is required, as they would be categorized within the fair value hierarchy, as of the dates indicated:



					Fair Value Hierarchy
	Balance		Estimated Fair Value		Level 1		Level 2		Level 3
December 31, 2018
Financial Assets:
Cash and cash equivalents	$	770,560	$	770,560	$	770,560	$	—	$	—
Restricted cash	$	1,151	$	1,151	$	1,151	$	—	$	—
Employee loans	$	3,525	$	3,525	$	—	$	—	$	3,525
Financial Liabilities:
Borrowings under 2017 Credit Facility	$	25,020	$	25,020	$	—	$	25,020	$	—



					Fair Value Hierarchy
	Balance		Estimated Fair Value		Level 1		Level 2		Level 3
December 31, 2017
Financial Assets:
Cash and cash equivalents	$	582,585	$	582,585	$	582,585	$	—	$	—
Time deposits and restricted cash	$	673	$	673	$	—	$	673	$	—
Employee loans	$	4,210	$	4,210	$	—	$	—	$	4,210
Financial Liabilities:
Borrowings under 2017 Credit Facility	$	25,009	$	25,009	$	—	$	25,009	$	—