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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2018
Fair Value Measurements |
Fair Value Measurements | Note 3—Fair Value Measurements ASC 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. ASC 820 addresses fair value GAAP for financial assets and financial liabilities that are remeasured and reported at fair value at each reporting period and for non-financial assets and liabilities that are remeasured and reported at fair value on a non-recurring basis. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are “unobservable data points” for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The following table presents, for each of the fair value hierarchy levels identified under ASC 820, our financial assets and certain liabilities that are required to be measured at fair value at December 31, 2018 and 2017 (in thousands):
|  | Fair Value Measurements at Reporting Date |
|  |  |  |  | Significant |  |  |  |
|  | Quoted Prices |  | Other |  | Significant |
|  | in Active Markets |  | Observable |  | Unobservable |
|  | for Identical Assets |  | Inputs |  | Inputs |
|  | (Level 1) |  | (Level 2) |  | (Level 3) |
Assets as of December 31, 2018: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 151,063 |  | $ | — |  | $ | — |
Liabilities as of December 31, 2018: |  |  |  |  |  |  |  |  |  |
Interest rate swap |  | $ | — |  | $ | 2,829 |  | $ | — |
Assets as of December 31, 2017: |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 170,385 |  | $ | — |  | $ | — |
Liabilities as of December 31, 2017: |  |  |  |  |  |  |  |  |  |
Contingent consideration |  | $ | — |  | $ | — |  | $ | 716 |
Other financial instruments not listed in the table consist of accounts receivable, accounts payable and certain accrued liabilities. These financial instruments generally approximate fair value based on their short-term nature. The carrying value of our long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities. The interest rate swap is measured at fair value using the income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and yield curves observable at commonly quoted intervals. See Note 10 – “Derivative Instruments” for additional information. The following table provides changes to our contingent consideration liability Level 3 fair value measurements during the years ended December 31, 2018 and 2017 (in thousands):
|  | Significant Unobservable Inputs |
|  | (Level 3) |
Contingent Consideration Liability |  | 2018 |  | 2017 |
Beginning balance, January 1, |  | $ | 716 |  | $ | — |
FGC acquisition |  |  | — |  |  | 1,200 |
Change in fair value of contingent consideration liability during year |  |  | 753 |  |  | (484) |
Payment of earn-out liability to FGC sellers |  |  | (1,469) |  |  | — |
Ending balance, December 31, |  | $ | — |  | $ | 716 |
On a quarterly basis, we assess the estimated fair value of the contractual obligation to pay the contingent consideration and any changes in estimated fair value are recorded as a non-operating charge in our Statement of Income. Fluctuations in the fair value of contingent consideration are impacted by two unobservable inputs, management’s estimate of the probability (which has ranged from 33% to 100%) of the acquired company meeting the contractual operating performance target and the estimated discount rate (a rate that approximates our cost of capital). Significant changes in either of those inputs in isolation would result in a different fair value measurement. Generally, a change in the assumption of the probability of meeting the performance target is accompanied by a directionally similar change in the fair value of contingent consideration liability, whereas a change in assumption of the estimated discount rate is accompanied by a directionally opposite change in the fair value of contingent consideration liability. Upon meeting the target, we reflect the full liability on the balance sheet and record a charge to “Other income (expense), net” for the change in the fair value of the liability from the prior period. The May 2017 acquisition of Florida Gas Contractors included an earnout of $1.5 million payable in May 2018, contingent upon meeting certain performance targets. The estimated fair value of the contingent consideration on the acquisition date was $1.2 million. Under ASC 805, “Business Combinations”, we are required to estimate the fair value of contingent consideration based on facts and circumstances that existed as of the acquisition date and remeasure to fair value at each reporting date until the contingency is resolved. As a result of that remeasurement, we reduced the fair value of the contingent consideration in the fourth quarter of 2017 related to the FGC performance target contemplated in their purchase agreement, and decreased the liability by $0.5 million with a corresponding increase in Other income (expense), net. During the second quarter of 2018, we increased the fair value of the contingent consideration related to the FGC, and increased the liability by $0.8 million with a corresponding decrease in Other income (expense), net. We paid the full $1.5 million liability in the third quarter of 2018.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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