Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.10.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis:
Interest rate swap agreements: The fair value of our interest rate derivatives are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of the derivatives. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. We incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements.
Although the credit valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy. We have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative positions and determined that the credit valuation adjustments are not significant to the overall valuation of our interest rate swaps. As a result, we determined that our interest rate swap valuation in its entirety is classified in Level 2 of the fair value hierarchy.
Contingent consideration obligations: The fair value of the contingent consideration obligations include inputs not observable in the market and thus represent a Level 3 measurement. Contingent consideration obligations consist of potential obligations related to our acquisition activity. The amount to be paid under these obligations is contingent upon the achievement of stipulated operational or financial targets by the business subsequent to acquisition. The fair value for certain of our contingent consideration obligations is estimated using a probability weighted discount model which considers the achievement of the conditions upon which the respective contingent obligation is dependent. The probability of achieving the specified conditions is generally assessed by applying a Monte Carlo weighted-average model. Inputs into the valuation model include a discount rate specific to the acquired entity, a measure of the estimated volatility, and the risk free rate of return, which for the period ended December 31, 2017 was 16.3%, 24.0% and 1.6%, respectively. We also estimate the fair value of our contingent obligations based on management’s assessment of the probability of achievement of operational or financial targets. The fair value estimates consider the projected future operating or financial results for the factor upon which the respective contingent obligation is dependent. The fair value estimates are generally sensitive to changes in these projections. We develop the projected future operating results based on an analysis of historical results, market conditions, and the expected impact of anticipated changes in our overall business and/or product strategies.
The following tables disclose the assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and 2017, by the fair value hierarchy levels as described above:
 
Fair Value at December 31, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Interest rate swap agreements
$
923

 
$

 
$
923

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swap agreements
413

 

 
413

 

Contingent consideration related to the acquisition of:
 
 
 
 
 
 
 
LeaseLabs
6,000

 

 

 
6,000

Total liabilities measured at fair value
$
6,413

 
$

 
$
413

 
$
6,000

 
Fair Value at December 31, 2017
 
Total
 
Level 1
 
Level 2
 
Level 3
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Interest rate swap agreements
$
1,329

 
$

 
$
1,329

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Contingent consideration related to the acquisition of:
 
 
 
 
 
 
 
AssetEye
247

 

 

 
247

Axiometrics
167

 

 

 
167

Total liabilities measured at fair value
$
414

 
$

 
$

 
$
414


There were no transfers between Level 1 and Level 2, or between Level 2 and Level 3 measurements during the years ended December 31, 2018 and 2017.
Changes in the fair value of Level 3 measurements for the reporting periods were as follows during the years ended December 31, 2018 and 2017, in thousands:
Balance at January 1, 2017
$
541

Initial contingent consideration
812

Net gain on change in fair value
(939
)
Balance at December 31, 2017
414

Initial contingent consideration
7,000

Settlements through cash payments
(247
)
Net gain on change in fair value
(1,167
)
Balance at December 31, 2018
$
6,000

Gains and losses resulting from changes in the fair value of the above liabilities are included in “General and administrative” expense in the accompanying Consolidated Statements of Operations.
Assets and liabilities measured at fair value on a non-recurring basis:
Refer to Note 7 for further information about assets measured at fair value on a non-recurring basis at December 31, 2018. There were no assets measured at fair value on non-recurring basis at December 31, 2017. There were no liabilities measured at fair value on a non-recurring basis at December 31, 2018 and 2017.