Fair Value Measurements

6 Months Ended

Jun. 30, 2015

(5) Fair Value Measurements

The Company measures certain financial instruments, including cash and cash equivalents, such as money market funds, at fair value. The fair values were determined based on a three-tier valuation hierarchy for disclosure of significant inputs. These hierarchical tiers are defined as follows:

Level 1 — inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — inputs are other than quoted prices in active markets that are either directly or indirectly observable through market corroboration.

Level 3 — inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions based on the best information available in the circumstances.

The carrying amount of cash and cash equivalents approximates fair value due to the short-term nature of these items. The carrying value of receivables, payables and other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, is estimated to approximate fair value. Of the Company’s long-term debt, the fair values of the fixed rate senior unsecured notes as of June 30, 2015 and December 31, 2014 were $310.1 million and $310.3 million, respectively, compared to the carrying value of $298.9 million and $298.8 million as of June 30, 2015 and December 31, 2014, respectively. The fair value of the senior unsecured notes was estimated using Level 1 inputs based on market quotations including broker quotes or interest rates for the same financial instruments at June 30, 2015 and December 31, 2014. The carrying values of the remaining balance of the Company’s long-term debt of $593.9 million and $566.6 million at June 30, 2015 and December 31, 2014, respectively, were estimated to approximate their fair values.

The following is a summary of financial statement items carried at estimated fair values measured on a recurring basis as of the dates presented:



			Fair Value Measurements Using
						Significant
				Quoted prices		other		Significant
		Total		in active		observable		unobservable
		Carrying		markets		inputs		inputs
As of June 30, 2015		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Cash and cash equivalents (a)	$	106,917	$	106,917	$	—	$	—
Restricted cash (a)		39,493		39,493		—		—
Investments in lieu of retainage (b)		36,482		26,579		9,903		—
Total	$	182,892	$	172,989	$	9,903	$	—

Liabilities:
Interest rate swap contract (c)	$	208	$	—	$	208	$	—
Contingent consideration (d)		26,334		—		—		26,334
	$	26,542	$	—	$	208	$	26,334



			Fair Value Measurements Using
						Significant
				Quoted prices		other		Significant
		Total		in active		observable		unobservable
		Carrying		markets		inputs		inputs
As of December 31, 2014		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
Assets:
Cash and cash equivalents (a)	$	135,583	$	135,583	$	—	$	—
Restricted cash (a)		44,370		44,370		—		—
Investments in lieu of retainage (b)		33,224		25,761		7,463		—
Total	$	213,177	$	205,714	$	7,463	$	—

Liabilities:
Interest rate swap contract (c)	$	381	$	—	$	381	$	—
Contingent consideration (d)		24,814		—		—		24,814
	$	25,195	$	—	$	381	$	24,814

(a)

Cash, cash equivalents and restricted cash consist primarily of money market funds with original maturity dates of three months or less, for which fair value is determined through quoted market prices.

(b)

Investments in lieu of retainage are classified as account receivables, including retainage and are comprised primarily of money market funds for which fair value is determined through quoted market prices. Investment in lieu of retainage also includes U.S. Treasury Notes and other municipal bonds for which fair value is determined through quoted market prices and other similar high quality investments whose values are determined from readily-available pricing sources for comparable instruments.

(c)

As discussed in Note 10 — Financial Commitments, the Company entered into a swap agreement with Bank of America, N.A. to establish a long-term interest rate for its former $200 million five-year term loan. The swap agreement became effective for the term loan principal balance outstanding at January 31, 2012. This term loan was paid off and the then current amount refinanced on June 5, 2014, providing for a $250 million term loan maturing on June 5, 2019. The interest rate swap continues on its original basis for the initial term and amount and finalizes on June 30, 2016. Bank of America calculates the fair market value of the interest rate swap liability by utilizing a mark-to-market valuation model that is based on current observable interest rates, expected future interest rates and the Company’s credit risk. The Company reviews the mark-to-market valuation when determining the fair value of the interest rate swap liability to be recognized. This liability is classified as a component of other long-term liabilities.

(d)

The liabilities listed as of June 30, 2015 and December 31, 2014 above represent the contingent consideration for the Company’s acquisitions in 2011 for which the measurement periods for purchase price analyses for the acquisitions have concluded.

The Company did not have any transfers between Levels 1 and 2 of financial assets or liabilities that are fair valued on a recurring basis during the three and six months ended June 30, 2015 and 2014.

The following is a summary of changes in Level 3 liabilities measured at fair value on a recurring basis during the three and six months ended June 30, 2015 and 2014:



	Contingent
	Consideration
	(in thousands)
Balance at December 31, 2014	$	24,814
Fair value adjustments included in other income (expense), net		746
Contingent consideration settled		—
Balance at March 31, 2015	$	25,560
Fair value adjustments included in other income (expense), net		774
Contingent consideration settled		—
Balance at June 30, 2015	$	26,334



	Contingent
	Consideration
	(in thousands)
Balance at December 31, 2013	$	46,022
Fair value adjustments included in other income (expense), net		3,404
Contingent consideration settled		(1,031)
Balance at March 31, 2014	$	48,395
Fair value adjustments included in other income (expense), net		2,162
Contingent consideration settled		(229)
Balance at June 30, 2014	$	50,328

The fair values of the contingent consideration were estimated using an income approach based on the cash flows that the acquired entity is expected to generate in the future. This approach requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multi-year period, as well as determine the weighted-average cost of capital to be used as a discount rate (weighted-average cost of capital inputs have ranged from 14%-18%).

- 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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