Fair Value Measurements

9 Months Ended

Sep. 30, 2015

Fair Value Measurements

Fair Value Measurements

4.Fair Value Measurements

Financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 are summarized in the following table by type of inputs applicable to the fair value measurements:

	Fair Value at September 30, 2015								Fair Value at December 31, 2014
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Contingent Consideration	$	—	$	—	$	622	$	622	$	—	$	—	$	143	$	143

A description of the inputs used in the valuation of assets and liabilities is summarized as follows:

Level 1 — Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that are considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 — Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities or related observable inputs that can be corroborated at the measurement date. Measurements of non-exchange traded derivative contract assets and liabilities are primarily based on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.

During 2012, we recorded a contingent consideration liability, in the form of an earn-out payment, related to our acquisitions. During 2015, we recorded a holdback liability related to our acquisition. The contingent consideration and holdback payments are based on achieving certain revenue results. The fair value of the liability was estimated using a discounted cash flow approach with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement.  The significant inputs in the Level 3 measurement not supported by market activity included our assessments of expected future cash flows during the earn-out period, related to the assets acquired, appropriately discounted considering the uncertainties associated with the obligation, and calculated based on estimated revenues in accordance with the terms of the agreements. During the three months ended September 30, 2015 and 2014, we paid $0 and $0.02 million, respectively, in earn-outs.  During the nine months ended September 30, 2015 and 2014, we paid $0.02 and $0.06 million, respectively, in earn-outs. 

The assumptions used in preparing the discounted cash flow analysis included estimates of interest rates and the timing and amount of incremental cash flows.

A reconciliation of the beginning and ending balance for the Level 3 measurement are as follows:

(in thousands)
Balance at December 31, 2014	$	143
Addition		500
Payments		(21)
Balance at September 30, 2015	$	622

We recorded $0.6 and $0 million during the three months ended September 30, 2015 and 2014, respectively and $2.3 and $2.0 million during the nine months ended September 30, 2015 and 2014, respectively, of impairment charges on certain long-lived assets for which the carrying value of those assets may not be recoverable based upon our estimated cash flows. The fair value of the assets was estimated using a discounted cash flow approach with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement.  The significant inputs in the Level 3 measurement not supported by market activity included our assessment of assets’ utilization level and estimated proceeds from sale of the assets.

Fair Value of Other Financial Instruments

The Company considers that the carrying amount of financial instruments, including accounts receivable, accounts payable, accrued liabilities and senior secured credit facility, approximates fair value due to their short maturities. The fair value of our outstanding Original Notes and Add-on Notes (each as defined in Note 9, Long-Term Debt) as of September 30, 2015 and December 31, 2014, based on the quoted market price for the same or similar issues of debt, which represents a Level 2 fair value measurement, is approximately:

	September 30, 2015				December 31, 2014
	Carrying		Fair		Carrying		Fair
(in thousands)	Value		Value		Value		Value
Original notes - 7.625%	$	425,000	$	395,250	$	425,000	$	359,125
Add-on notes - 7.625% (1)		229,853		204,600		231,113		185,900

(1) The carrying value of the Add-on notes - 7.625% includes unamortized bond premium of $9.9 and $11.1 million as of September 30, 2015 and December 31, 2014, respectively.