Fair Value Measurement

6 Months Ended

Jul. 31, 2016

The following table presents information about financial liabilities measured at fair value on a recurring basis:



	Fair Value		Level 1		Level 2		Level 3
Contingent consideration at July 31, 2016	$	2,366	$	—	$	—	$	2,366
Contingent consideration at January 31, 2016	$	3,749	$	—	$	—	$	3,749

The FASB's authoritative guidance for the hierarchy of valuation techniques is based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our market assumptions. The fair value hierarchy consists of the following three levels:


•	Level 1—Quoted prices for identical instruments in active markets;


•	Level 2—Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose significant inputs are observable; and


•	Level 3—One or more significant inputs to the valuation model are unobservable.

In connection with certain acquisitions, payment of a portion of the purchase price is contingent typically upon the acquired business’ achievement of certain revenue goals. The short-term portion of the total recorded contingent consideration is included in accrued and other liabilities and the long-term portion of the total recorded contingent consideration is included in other long-term liabilities on our condensed consolidated balance sheet. The following table summarizes the total recorded contingent consideration:



As of	July 31, 2016		January 31, 2016
Contingent consideration, short-term	$	1,043	$	1,460
Contingent consideration, long-term	1,323		2,289
Total contingent consideration	$	2,366	$	3,749

We have estimated the fair value of our contingent consideration as the present value of the expected payments over the term of the arrangements. The fair value measurement of our contingent consideration as of July 31, 2016 encompasses the following significant unobservable inputs (Level 3):



Unobservable Inputs	Range
Total estimated contingent consideration	$84	-	$2,935
Discount rate	9.5%	-	15.0%
Timing of cash flows (in years)	0	-	2

Changes in the fair value of our contingent consideration are primarily driven by changes in the estimated amount and timing of payments, resulting from changes in the forecasted revenues of the acquired businesses. Significant changes in any of the inputs in isolation could result in a fluctuation in the fair value measurement of contingent consideration. Changes in fair value are recognized in special charges in our condensed consolidated statement of operations in the period in which the change is identified.

The following table summarizes contingent consideration activity:



Balance as of January 31, 2016	$	3,749
Payments	(1,475		)
Changes in fair value	34
Interest accretion	58
Balance as of July 31, 2016	$	2,366

The following table summarizes the fair value and carrying value of our 4.00% Convertible Subordinated Debentures (4.00% Debentures):



As of	July 31, 2016		January 31, 2016
Fair value of notes payable	$	276,978	$	255,487
Carrying value of notes payable	$	238,841	$	234,888

We based the fair value of our 4.00% Debentures on the quoted market price at the balance sheet date. Our notes are not actively traded and the quoted market price is derived from observable inputs including our stock price, stock volatility, and interest rate (Level 2). We believe the carrying value of other notes payable of $5,188 at July 31, 2016 and January 31, 2016 approximated fair value. Of the total carrying value of notes payable, none was classified as current on our condensed consolidated balance sheet as of July 31, 2016 and January 31, 2016. See additional discussion of notes payable in Note 6. “Notes Payable.”

The carrying amounts of cash equivalents, trade accounts receivable, net, term receivables, short-term borrowings, accounts payable, and accrued liabilities approximate fair value because of the short-term nature of these instruments or because amounts have been appropriately discounted.

During the quarter ended July 31, 2016, we acquired a non-marketable equity security which was accounted for using the cost method of accounting. Our cost method investments are reported at cost net of impairment losses. The carrying amount of the non-marketable equity security was $3,000 at July 31, 2016. Investments accounted for under the cost method of accounting are measured and recorded at fair value when identified events or changes in circumstances have a significant adverse effect on the fair value of the investments. When these events or changes in circumstances occur, these investments are classified as Level 3 because they are valued using significant unobservable inputs. We periodically review our cost method investments for these types of events or changes in circumstances.

- 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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