Fair Value Measurements

12 Months Ended

Dec. 31, 2015

Note 11 – Fair Value Measurements

In accordance with the authoritative guidance for financial assets and liabilities measured at fair value on a recurring basis, the Company prioritizes the inputs used to measure fair value from market-based assumptions to entity specific assumptions:

Level 1 – Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

As of December 31, 2015 and 2014, the Company had no Level 1 or Level 2 assets or liabilities measured at fair value. As of December 31, 2015 and 2014, the Company’s contingent consideration from the acquisition of NLEX in 2014 of $3.5 million and $4.2 million respectively, was the only liability measured at fair value on a recurring basis, and was classified as Level 3 within the fair value hierarchy. The fair value of the Company’s contingent consideration was determined using a discounted cash flow analysis, which is based on significant inputs that are not observable in the market.

The following tables present the Company’s hierarchy for its assets measured at fair value on a recurring basis as of December 31, 2015 and 2014 (in thousands):

	Fair Value as of December 31, 2015
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	—	$	—	$	3,457	$	3,457


	Fair Value as of December 31, 2014
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	-	$	-	$	4,198	$	4,198

When valuing its Level 3 liabilities, the Company gives consideration to operating results, financial condition, economic and/or market events, and other pertinent information that would impact its estimate of the expected contingent consideration payment. The valuation of the liability is primarily based on management’s estimate of the Net Profits of NLEX (as defined in the NLEX stock purchase agreement). Given the short term nature of the contingent consideration periods, changes in the discount rate are not expected to have a material impact on the fair value of the liability.

The following table summarizes the changes in the fair value of the liability during 2014 and 2015 (in thousands):


Balance at December 31, 2013	$	—
Acquisition contingent consideration		4,198
Balance at December 31, 2014		4,198
Payment of contingent consideration		(513	)
Mark-to-market of contingent consideration		(228	)
Balance at December 31, 2015	$	3,457

The Company’s assets measured at fair value on a non-recurring basis as of December 31, 2015 consisted of its goodwill and intangible assets subject to the impairment charges recorded during the fourth quarter of 2015. No such assets were measured at fair value on a non-recurring basis as of December 31, 2014. Refer to Note 8 for further detail on the fair value techniques used by the Company in assessing the fair value of the goodwill and intangible assets.

- 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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