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Fair value of financial instruments | 6 Months Ended
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Jun. 30, 2014
Fair Value Disclosures [Abstract] |
Fair value of financial instruments | 8. Fair value of financial instruments As of June 30, 2014, and December 31, 2013, the Company measured its financial assets and liabilities under the amended ASC Topic 820, Fair Value Measurements and Disclosures of the Accounting Standards Codification, which defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. It also establishes a three-level valuation hierarchy for disclosures of fair value measurement as follows: Level 1 — quoted prices in active markets for identical assets or liabilities; Level 2 — other significant observable inputs for the assets or liabilities through corroborations with market data at the measurement date; and Level 3 — significant unobservable inputs that reflect management’s best estimate of what market participants would use to price the assets or liabilities at the measurement date. Private placement warrants liability As of June 30, 2014, and December 31, 2013, the Company’s Private Placement Warrants were measured at fair value under ASC Topic 820. The Company’s liability for the Private Placement Warrants is measured at fair value based on unobservable inputs, and thus is considered a Level 3 financial instrument. The Company analyzes financial instruments with features of both liabilities and equity under ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. As of June 30, 2014, and December 31, 2013, the Company estimated the fair value of its Private Placement Warrants with a publicly traded stock pricing approach using the Black-Scholes option pricing model. The inputs of the Black-Scholes option pricing model included the following:
|  | June 30, 2014 |  |  | December 31, 2013 |
Market value of the Company’s common stock |  | $ | 71.97 |  |  | $ | 75.10 |
Exercise price |  | $ | 13.00 |  |  | $ | 13.00 |
Risk-free interest rate |  |  | 0.41 | % |  |  | 0.51 | %
Estimated price volatility |  |  | 42.50 | % |  |  | 42.50 | %
Contractual term |  |  | 1.83 years |  |  |  | 2.33 years |
Dividend yield |  |  | — |  |  |  | — |
The market value of the Company’s common stock was based on its closing price on June 30, 2014, and December 31, 2013, the date of each valuation. The volatility factors noted above represented the upper end of the range of implied volatility of publicly traded call options of benchmark companies. If all other assumptions were held constant, the recorded liability of the Private Placement Warrants would increase or decrease by approximately $1.7 million due to a 10% change in the value of these warrants based on the Black-Scholes option pricing model. The following table summarizes the change in the estimated fair value of the Company’s Level 3 Private Placement Warrants liability in the six months ended June 30, 2014:
Balance at December 31, 2013 |  | $ | 24,525 |
Fair value of private placement warrants exercised |  |  | (7,320 | )
Change in the value of private placement warrants |  |  | (332 | )
Balance at June 30, 2014 |  | $ | 16,873 |
For the three and six months ended June 30, 2014, the Company recognized income of $99,000 and $332,000, respectively, due to a decrease in the estimated fair value of the Company’s Private Placement Warrants. For the three and six months ended June 30, 2013, the Company recognized expense of $4,207,000 and $9,053,000, respectively, due to an increase in the estimated fair value of the Company’s Private Placement Warrants. This (income) expense was recorded as “Private placement warrant (income) expense” in the Company’s unaudited condensed consolidated statements of operations for the respective periods. Contingent consideration liability As described in Note 2, “Acquisition of Professional Power Products, Inc.” a portion of the purchase price for the acquisition of PPPI is in the form of contingent consideration payable in shares of the Company’s common stock. As of June 30, 2014, the Company’s potential contingent consideration payment relating to its acquisition of PPPI was measured at fair value under ASC Topic 820. The Company analyzes financial instruments with features of both liabilities and equity under ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. The Company’s liability for the contingent consideration is measured at fair value based on unobservable inputs, and thus is considered a Level 3 financial instrument. The fair value of the liability determined by this analysis is primarily driven by the Company’s expectations of achieving the performance measures required by the Stock Purchase Agreement, the resulting shares expected to be issued, and the share price of the Company’s common stock. The expected performance metrics and resulting shares expected to be issued are estimated based on a Monte Carlo simulation model considering actual and forecasted results over the measurement period. As of June 30, 2014, the primary inputs of the Monte Carlo simulation model included the following:
|  | June 30, 2014 |
Market value of the Company’s common stock |  | $ | 71.97 |
Estimated EBITDA volatility |  |  | 42.50 | %
The market value of the Company’s common stock was based on its closing price on June 30, 2014, the date of the valuation. The volatility factor was primarily derived from the implied volatility of publicly traded call options of benchmark companies, with consideration of the implied enterprise value volatility, the relationship to EBITDA, and other pertinent factors. If all other assumptions were held constant, a five percentage point decrease in the volatility factor would result in an increase in the fair value of the contingent consideration by approximately $50,000. The following table summarizes the change in the estimated fair value of the Company’s Level 3 contingent consideration liability in the six months ended June 30, 2014:
Balance at April 1, 2014 |  | $ | 8,900 |
Change in the value of contingent consideration |  |  | (900 | )
Balance at June 30, 2014 |  | $ | 8,000 |
For the three months ended June 30, 2014, the Company recognized income of $900,000, due to a decrease in the estimated fair value of the Company’s Contingent consideration liability. This income was recorded as “Contingent consideration” in the Company’s unaudited condensed consolidated statements of operations for the respective period. Financial liabilities measured at fair value The following table summarizes fair value measurements by level as of June 30, 2014, for the Company’s level 3 financial liabilities measured at fair value on a recurring basis:
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Private placement warrants liability |  |  | — |  |  |  | — |  |  | $ | 16,873 |
Contingent consideration |  |  | — |  |  |  | — |  |  | $ | 8,000 |
The following table summarizes fair value measurement by level as of December 31, 2013, for the Company’s level 3 financial liability measured at fair value on a recurring basis:
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Private placement warrants liability |  |  | — |  |  |  | — |  |  | $ | 24,525 |
Financial assets and liabilities not measured at fair value As of June 30, 2014, and December 31, 2013, the Company’s revolving line of credit and term debt, including accrued interest, recorded on the unaudited condensed consolidated balance sheets were carried at cost. The carrying value of the revolving line of credit and term debt approximate fair value because the interest rates fluctuate with market interest rates or the fixed rates approximate current rates offered to the Company for debt with similar terms and maturities, and the Company’s credit profile has not changed significantly since the origination of these financial liabilities. Under ASC Topic 825, Financial Instruments, these financial liabilities are defined as Level 2 in the three-level valuation hierarchy, as the inputs to their valuation are market observable.

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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 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=28364263&loc=d3e13537-108611 Reference 2: 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=28364263&loc=d3e13433-108611 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 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=25499696&loc=d3e19207-110258 Reference 5: 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 6: 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=28364263&loc=d3e13504-108611 + Details
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