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Fair Value of Financial Instruments | 12 Months Ended
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Dec. 31, 2015
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments |
7. | FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients, client funds obligation and long-term debt. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, funds held for clients and client fund obligation approximates fair value because of the short-term nature of the instruments. We measure certain financial assets and liabilities at fair value at each reporting period. Fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value are as follow: Level 1—Unadjusted observable inputs that reflect quoted prices in active markets Level 2—Input other than quoted prices in active markets that are directly or indirectly observable Level 3—Unobservable inputs that are supported by little or no market activity We use observable data, when available. During the years ended December 31, 2014 and 2013, we did not have any transfers between level 1, 2 or 3 in the three-tier fair value hierarchy. The derivative liability related to long-term debt to related parties was classified as a Level 3 derivative due to valuation based upon significant unobservable inputs. The key inputs used to calculate the fair value of the embedded derivative are: probability of exit, remaining term, yield volatility, credit spread, and risk-free rate. In general, increases in the probability of exit, credit spread, and risk-free rate would increase the value of the embedded derivative. Conversely, increases in the remaining term and yield volatility would decrease the value of the embedded derivative. We did not have any financial instruments that are measured on a recurring basis for the years ended December 31, 2015 or 2014. Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments as of December 31, 2013 were as follows:
|  |  |  | December 31, 2013 |  |  |  |
|  | Valuation Technique |  | Key Inputs |  | Range |
Derivative Liability |  | Lattice Model |  | Probability of exit |  |  | 90% |
|  |  |  | Remaining term |  | 0.8 years - 8.3 years |
|  |  |  | Yield Volatility |  | 21.4% - 31.1% |
|  |  |  | Credit Spread |  |  | 8.90% |
|  |  |  | Risk-free rate |  | 0.13% - 2.45% |
The following table summarizes the change in fair value of our Level 3 financial instruments for the years ended December 31, 2015, 2014 and 2013 (dollars in thousands).
|  | 2015 |  |  | 2014 |  |  | 2013 |
Balance, beginning of year |  | $ | — |  |  | $ | 1,107 |  |  | $ | 1,767 |
Issuances |  |  | — |  |  |  | — |  |  |  | — |
Change in fair value of derivative liability |  |  | — |  |  |  | (635 | ) |  |  | (660 | )
Gain on the extinguishment of derivative liability |  |  | — |  |  |  | (472 | ) |  |  | — |
Balance, end of year |  | $ | — |  |  | $ | — |  |  | $ | 1,107 |
Total change of the derivative liability recognized as other income, net in the consolidated statements of income was $1.1 million and $0.7 million for the years ended December 31, 2014 and 2013, respectively.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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