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FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Authoritative guidance for financial assets and liabilities measured on a recurring basis applies to all financial assets and financial liabilities that are being measured and reported on a fair value basis. Fair value, as defined in the authoritative guidance, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance affects the fair value measurement of an investment with quoted market prices in an active market for identical instruments, which must be classified in one of the following categories: Level 1 Inputs Level 1 inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 Inputs Level 2 inputs are other than quoted prices that are observable for an asset or liability. These inputs include: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from, or corroborated by, observable market data by correlation or other means. Level 3 Inputs Level 3 inputs are unobservable inputs for the asset or liability which require the Company's own assumptions. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. Our acquisitions may include contingent consideration as part of the purchase price. The fair value of the contingent consideration is estimated as of the acquisition date based on the present value of the contingent payments to be made using a weighted probability of possible payments. The unobservable inputs used in the determination of the fair value of the contingent consideration include managements assumptions about the likelihood of payment based on the established benchmarks and discount rates based on an internal rate of return analysis. The fair value measurement includes inputs that are Level 3 classified as discussed above, as they are not observable in the market. Should actual results increase or decrease as compared to the assumption used in our analysis, the fair value of the contingent consideration obligations will increase or decrease, up to the contracted limit, as applicable. Changes in the fair value of the contingent earn-out consideration are measured each reporting period and reflected in our results of operations. As of September 30, 2020, we recorded a $0.8 million liability for contingent consideration associated with the acquisition of Application Specialties Inc. ("ASI") in other current liabilities. For the Company's assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), the following table provides a reconciliation of the beginning and ending balances for each category therein, and gains or losses recognized during the nine months ended September 30, 2020:
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
| Contingent Liability for Accrued Consideration
| (in thousands)
Beginning balance at December 31, 2019 | $ | 2,705 |
Acquisitions and settlements |
Acquisitions | — |
Settlements | (2,000) |
Total remeasurement adjustments: |
Changes in fair value recorded in other (income) expense, net | 98 |
*Ending Balance at September 30, 2020 | $ | 803 |
The amount of total (gains) or losses for the quarter included in earnings or changes to net assets, attributable to changes in unrealized losses relating to liabilities still held at September 30, 2020. | $ | 98 |
* Included in other current liabilities |
Quantitative Information about Level 3 Fair Value Measurements The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration liabilities designated as Level 3 are as follows:
(in thousands, unaudited) | Fair value at September 30, 2020 | Valuation Technique | Significant Unobservable Inputs
Contingent consideration: (ASI acquisition) | $ | 803 |  | Discounted cash flow | Annualized EBITDA and probability of achievement
Sensitivity to Changes in Significant Unobservable Inputs As presented in the table above, the significant unobservable inputs used in the fair value measurement of contingent consideration related to the acquisition of Application Specialties, Inc ("ASI") are annualized earnings before interest, tax, depreciation and amortization ("EBITDA") forecasts developed by the Company's management and the probability of achievement of those EBITDA results. The discount rate used in the calculation was 7.9 percent. With less than one year remaining on the earn-out payment schedule, changes to the discount rate would not result in a significant impact on the recorded liability. Other financial instruments not measured at fair value on the Company's unaudited condensed consolidated balance sheet at September 30, 2020 and December 31, 2019, but which require disclosure of their fair values include: cash and cash equivalents, trade accounts receivable, trade accounts payable and accrued expenses, accrued payroll and related benefits, and the revolving line of credit. The Company believes that the estimated fair value of such instruments at September 30, 2020 and December 31, 2019 approximates their carrying value as reported on the unaudited condensed consolidated balance sheets. See Note 10 - Long Term Debt for the fair value of our term loan debt under our syndicated credit agreement facility. Nonrecurring Fair Value Measurements - In the third quarter of 2020, we incurred noncash impairment charges for goodwill and certain long-lived and other assets. The valuation of these assets required the use of significant unobservable inputs. To estimate the fair value, we used two generally accepted valuation techniques, an income approach and a market approach. Under the income approach, our discounted cash flow analysis included the following inputs that are not readily available - a discount rate, or weighted cost of capital derived from our industry peers, our estimate of future sales, operating costs and capital expenditures. Under the market approach, our inputs included EBITDA multiples, which were derived from recent peer acquisition transactions, and forward EBITDA, which incorporates the same inputs used under the income approach. The estimated fair value of assets and our reporting units are classified as Level 3. See Note 4 - Impairments and Other Charges for additional information about these impairment charges and our assumptions.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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