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FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | 9 Months Ended
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Sep. 30, 2017
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | NOTE B – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Financial Instruments The following table presents the components of cash and cash equivalents, short-term investments, and restricted funds:
|  | September 30 |  | December 31 |
|  | 2017 |  | 2016 |
|  | (in thousands) |
Cash and cash equivalents |  |  |  |  |  |  |
Cash deposits(1) |  | $ | 67,140 |  | $ | 92,520 |
Variable rate demand notes(1)(2) |  |  | 19,677 |  |  | 16,057 |
Money market funds(3) |  |  | 22,217 |  |  | 5,703 |
Total cash and cash equivalents |  | $ | 109,034 |  | $ | 114,280 |
Short-term investments |  |  |  |  |  |  |
Certificates of deposit(1) |  | $ | 57,052 |  | $ | 56,838 |
Restricted cash |  |  |  |  |  |  |
Cash deposits(1) |  | $ | — |  | $ | 962 |
| (1) |  | Recorded at cost plus accrued interest, which approximates fair value.
| (2) |  | Amounts may be redeemed on a daily basis with the original issuer.
| (3) |  | Recorded at fair value as determined by quoted market prices (see amounts presented in the table of financial assets and liabilities measured at fair value within this Note).
The Company’s long-term investment financial instruments are presented in the table of financial assets and liabilities measured at fair value within this Note. Concentrations of Credit Risk of Financial Instruments The Company is potentially subject to concentrations of credit risk related to its cash, cash equivalents, and short-term investments. The Company reduces credit risk by maintaining its cash deposits primarily in FDIC-insured accounts and placing its short-term investments primarily in FDIC-insured certificates of deposit. However, certain cash deposits and certificates of deposit may exceed federally insured limits. At September 30, 2017 and December 31, 2016, cash and cash equivalents totaling $46.9 million and $39.9 million, respectively, were not FDIC insured. Fair Value Disclosure of Financial Instruments Fair value disclosures are made in accordance with the following hierarchy of valuation techniques based on whether the inputs of market data and market assumptions used to measure fair value are observable or unobservable:
| · |  | Level 1 — Quoted prices for identical assets and liabilities in active markets.
| · |  | Level 2 — Quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
| · |  | Level 3 — Unobservable inputs (Company’s market assumptions) that are significant to the valuation model.
Fair value and carrying value disclosures of financial instruments are presented in the following table:
|  | September 30 |  | December 31 |
|  | 2017 |  | 2016 |
|  | (in thousands) |
|  |  | Carrying |  |  | Fair |  |  | Carrying |  |  | Fair |
|  |  | Value |  |  | Value |  |  | Value |  |  | Value |
Credit Facility(1) |  | $ | 70,000 |  | $ | 70,000 |  | $ | 70,000 |  | $ | 70,000 |
Accounts receivable securitization borrowings(2) |  |  | 45,000 |  |  | 45,000 |  |  | 35,000 |  |  | 35,000 |
Notes payable(3) |  |  | 147,490 |  |  | 147,278 |  |  | 138,032 |  |  | 137,503 |
|  | $ | 262,490 |  | $ | 262,278 |  | $ | 243,032 |  | $ | 242,503 |
| (1) |  | The revolving credit facility (the “Credit Facility”) carries a variable interest rate based on LIBOR, plus a margin, that is considered to be priced at market for debt instruments having similar terms and collateral requirements (Level 2 of the fair value hierarchy).
| (2) |  | Borrowings under the Company’s accounts receivable securitization program carry a variable interest rate based on LIBOR, plus a margin. The borrowings are considered to be priced at market for debt instruments having similar terms and collateral requirements (Level 2 of the fair value hierarchy).
| (3) |  | Fair value of the notes payable was determined using a present value income approach based on quoted interest rates from lending institutions with which the Company would enter into similar transactions (Level 2 of the fair value hierarchy).
Assets and Liabilities Measured at Fair Value on Recurring Basis The following table presents the assets and liabilities that are measured at fair value on a recurring basis.
|  | September 30, 2017 |
|  |  |  |  | Fair Value Measurements Using |
|  |  |  |  | Quoted Prices |  | Significant |  | Significant |
|  |  |  |  | In Active |  | Observable |  | Unobservable |
|  |  |  |  | Markets |  | Inputs |  | Inputs |
|  | Total |  | (Level 1) |  | (Level 2) |  | (Level 3) |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds(1) |  | $ | 22,217 |  | $ | 22,217 |  | $ | — |  | $ | — |
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2) |  |  | 2,231 |  |  | 2,231 |  |  | — |  |  | — |
Interest rate swap(3) |  |  | 86 |  |  | — |  |  | 86 |  |  | — |
|  | $ | 24,534 |  | $ | 24,448 |  | $ | 86 |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration(4) |  | $ | 6,790 |  | $ | — |  | $ | — |  | $ | 6,790 |
Interest rate swap(3) |  |  | 231 |  |  | — |  |  | 231 |  |  | — |
|  | $ | 7,021 |  | $ | — |  | $ | 231 |  | $ | 6,790 |
|  | December 31, 2016 |
|  |  |  |  | Fair Value Measurements Using |
|  |  |  |  | Quoted Prices |  | Significant |  | Significant |
|  |  |  |  | In Active |  | Observable |  | Unobservable |
|  |  |  |  | Markets |  | Inputs |  | Inputs |
|  | Total |  | (Level 1) |  | (Level 2) |  | (Level 3) |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |
Money market funds(1) |  | $ | 5,703 |  | $ | 5,703 |  | $ | — |  | $ | — |
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2) |  |  | 2,220 |  |  | 2,220 |  |  | — |  |  | — |
|  | $ | 7,923 |  | $ | 7,923 |  | $ | — |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration(4) |  | $ | 6,775 |  | $ | — |  | $ | — |  | $ | 6,775 |
Interest rate swap(3) |  |  | 542 |  |  | — |  |  | 542 |  |  | — |
|  | $ | 7,317 |  | $ | — |  | $ | 542 |  | $ | 6,775 |
| (1) |  | Included in cash and cash equivalents.
| (2) |  | Nonqualified deferred compensation plan investments consist of U.S. and international equity mutual funds, government and corporate bond mutual funds, and money market funds which are held in a trust with a third-party brokerage firm. Included in other long-term assets, with a corresponding liability reported within other long-term liabilities.
| (3) |  | Included in other long-term assets or long-term liabilities. The fair values of the interest rate swaps were determined by discounting future cash flows and receipts based on expected interest rates observed in market interest rate curves adjusted for estimated credit valuation considerations reflecting nonperformance risk of the Company and the counterparty, which are considered to be in Level 3 of the fair value hierarchy. The Company assessed Level 3 inputs as insignificant to the valuation at September 30, 2017 and December 31, 2016 and considers the interest rate swap valuation in Level 2 of the fair value hierarchy.
| (4) |  | Included in accrued expenses and other long-term liabilities, based on when expected payouts become due. The estimated fair value of contingent consideration for an earn-out agreement related to the September 2016 acquisition of LDS was determined by assessing Level 3 inputs with a discounted cash flow approach using various probability-weighted scenarios. The Level 3 assessments utilize a Monte Carlo simulation with inputs including scenarios of estimated revenues and gross margins to be achieved for the applicable performance periods, probability weightings assigned to the performance scenarios, and the discount rate applied, which was 12.3% as of September 30, 2017 and December 31, 2016. Subsequent changes to the fair value as a result of recurring assessments will be recognized in operating income.
The following table provides the changes in fair value of the liabilities measured at fair value using inputs categorized in Level 3 of the fair value hierarchy:
|  | Contingent Consideration |
|  | (in thousands)
Balances at December 31, 2016 |  | $ | 6,775 |
Change in fair value included in operating expenses |  |  | 15 |
Balances at September 30, 2017 |  | $ | 6,790 |

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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 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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