Fair Value Measurement

The accounting guidance under Accounting Standards Codification 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”) requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:


•	Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.


•	Level 3: Significant unobservable inputs.

The Company’s financial assets and liabilities subject to fair value measurements as of June 30, 2017 and December 31, 2016 are as follows:



			June 30, 2017
			Fair Value Measurements
	Fair value		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	13,324	$	13,324	$	—	$	—
Current marketable securities – available for sale	57,324		57,324		—		—
Long-term marketable securities – available for sale	41,871		41,871		—		—
Total assets	$	112,519	$	112,519	$	—	$	—
Liabilities:
Forward contracts	$	414	$	—	$	414	$	—
Contingent consideration	24,923		—		—		24,923
Total liabilities	$	25,337	$	—	$	414	$	24,923

Note E – Fair Value Measurement (continued)



			December 31, 2016
			Fair Value Measurements
	Fair value		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	3,309	$	3,309	$	—	$	—
Current marketable securities – available for sale	39,495		39,495		—		—
Long-term marketable securities – available for sale	70,559		70,559		—		—
Forward contracts	191		—		191		—
Total assets	$	113,554	$	113,363	$	191	$	—
Liabilities:
Contingent consideration	$	7,948	$	—	$	—	$	7,948
Total liabilities	$	7,948	$	—	$	—	$	7,948

Our level 3 balances consist of contingent consideration related to acquisitions. The changes in our level 3 assets and liabilities for the periods ended June 30, 2017 and December 31, 2016 are as follows:



	Balance at January 1,		Payments			Acquisitions		Change in estimate			Balance at June 30,
2017
Liabilities:
Contingent consideration	$	7,948	$	(5,321	)	$	23,050	$	(754	)	$	24,923

	Balance at January 1,		Payments			Acquisitions		Change in estimate			Balance at December 31,
2016
Liabilities:
Contingent consideration	$	24,775	$	(16,402	)	$	—	$	(425	)	$	7,948

Forward contracts are entered into to manage the risk associated with the volatility of future cash flows (see Note M). Fair value of these instruments is based on observable market transactions of spot and forward rates.

The Company has recorded a liability for potential contingent consideration in connection with the January 30, 2017 acquisition of all of the outstanding capital stock of each of Schwartz & Benjamin, Inc., B.D.S., Inc., Quinby Ridge Enterprises LLC and DANIELBARBARA Enterprises LLC (collectively, "Schwartz & Benjamin"). Pursuant to the terms of an earn-out agreement between the Company and the sellers of Schwartz & Benjamin, earn-out payments, if achieved, are due annually to the sellers of Schwartz & Benjamin based on the financial performance of Schwartz & Benjamin for each of the twelve-month periods ending on January 31, 2018 through 2023, inclusive. The fair value of the contingent payments was estimated using the present value of the payments based on management’s projections of the financial results of Schwartz & Benjamin during the earn-out period.

The Company has recorded a liability for potential contingent consideration in connection with the December 30, 2014 acquisition of all of the outstanding capital stock of Trendy Imports S.A. de C.V., Comercial Diecisiette S.A. de C.V. and Maximus Designer

Shoes S.A. de C.V. (together, "SM Mexico"). Pursuant to the terms of an earn-out agreement between the Company and the seller of SM Mexico, earn-out payments, if achieved, are due annually to the seller of SM Mexico based on the financial performance

Note E – Fair Value Measurement (continued)

of SM Mexico for each of the twelve-month periods ending on December 31, 2015 and 2016, inclusive. The fair value of the contingent payments was estimated using the present value of payments based on management’s projections of the financial results

of SM Mexico during the earn-out period. The first earn-out payment of $3,482 for the period ended December 31, 2015 was paid to the seller of SM Mexico in the first quarter of 2016. A partial earn-out payment of $2,580 for the period ended December 31, 2016 was paid to the seller of SM Mexico in the second quarter of this year. The remaining portion of the final earn-out payment will be paid to the seller of SM Mexico in the third quarter of 2017.

The Company has recorded a liability for potential contingent consideration in connection with the February 21, 2012 acquisition of SM Canada. Pursuant to the terms of an earn-out agreement between the Company and the seller of SM Canada, earn-out payments, if achieved, are due annually to the seller of SM Canada based on the financial performance of SM Canada for each of the 12-month periods ending on March 31, 2013 through 2017, inclusive. The fair value of the contingent payments was estimated using the present value of payments based on management’s projections of the financial results of SM Canada during the earn-out period. A final earn-out payment of $2,741 for the period ended March 31, 2017 was paid to the seller of SM Canada in the second quarter of this year.

The carrying value of certain financial instruments such as accounts receivable, factor accounts receivable and accounts payable approximates their fair values due to the short-term nature of their underlying terms. Fair value of the notes receivable held by the Company approximates their carrying value based upon their imputed or actual interest rate, which approximates applicable current market interest rates.