Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.10.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined under ASC 820 as the exit price associated with the sale of an asset or transfer of a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes the following three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value:
Level 1 - Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.
The derivative financial instruments described in Note 13 are measured at fair value on a recurring basis and are presented on the consolidated balance sheets at fair value. The table below presents the fair value of the derivative financial instruments as well as the classification on the consolidated balance sheet (in thousands):
 
December 31, 2017
 
Additions
 
Payments
 
Adjustments
 
September 30, 2018
Liabilities:
 
 
 
 
 
 
 
 
 
Interest Rate Swap
$

 
$
(130
)
 
$

 
$

 
$
(130
)
Total
$

 
$
(130
)
 
$

 
$

 
$
(130
)

The Company estimates the fair value of the interest rate swaps by calculating the present value of the expected future cash flows of each swap. The calculation incorporated the contractual terms of the derivatives, observable market interest rates which are considered to be Level 2 inputs, and credit risk adjustments, if any, to reflect the counterpart's as well as the Company's nonperformance risk. As of September 30, 2018, there have been no events of default under the interest rate swap agreement.
The following financial instruments are not measured at fair value on the Company’s consolidated balance sheet as of September 30, 2018 and December 31, 2017, but require disclosure of their fair values: cash and cash equivalents, accounts receivable, and accounts payable. The carrying value of these financial instruments approximates fair values because of their relatively short maturity.
In the third quarter of 2014, the Company listed its facility in Mundelein, Illinois for sale. This asset was thereafter measured at fair value less cost to sell and was classified as a Level 2 asset. On August 6, 2018, the Company sold the Mundelein facility for the carrying value of $1.2 million.
In the second quarter of 2018, the Company listed a portion of vacant land located in Canada for sale. The Company plans to sell 1.5 acres of the vacant land. This asset is measured at fair value less cost to sell based on market price information and is classified as a Level 2 asset. The book value of this asset on September 30, 2018 was $0.9 million, which is the amount in other current assets on the accompanying condensed consolidated balance sheet.
The Company also has contingent consideration associated with earn-outs from acquisitions. Contingent consideration liabilities are classified as Level 3 liabilities, as the Company uses unobservable inputs to value them, which is a probability-based income approach. Contingent consideration is classified as accrued liabilities on the condensed consolidated balance sheet. Subsequent changes in the fair value of contingent consideration liabilities are recorded within the Company's income statement as an operating expense.
Contingent considerations are as follows (in thousands):
 
December 31, 2017
 
Additions
 
Payments
 
Adjustments
 
September 30, 2018
Liabilities:
 
 
 
 
 
 
 
 
 
Contingent consideration
$
147

 
$

 
$
(147
)
 
$

 
$

Total
$
147

 
$

 
$
(147
)
 
$

 
$


The significant unobservable inputs used in the fair value measurement of contingent consideration related to the acquisitions are annualized revenue forecasts developed by the Company’s management and the probability of achievement of those revenue forecasts. Significant changes in these unobservable inputs may result in a significant impact to the fair value measurement.