NOTE C – FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial Instruments

The following table presents the components of cash and cash equivalents and short‑term investments:


	December 31		December 31
	2018		2017
	(in thousands)
Cash and cash equivalents
Cash deposits(1)	$	124,938	$	86,510
Variable rate demand notes(1)(2)		19,786		19,744
Money market funds(3)		42,470		14,518
U.S. Treasury securities(4)		2,992		—
Total cash and cash equivalents	$	190,186	$	120,772

Short-term investments
Certificates of deposit(1)	$	82,949	$	56,401
U.S. Treasury securities(4)		23,857		—
Total short-term investments	$	106,806	$	56,401

⁽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).

⁽⁴⁾

Recorded at amortized cost plus accrued interest, which approximates fair value at December 31, 2018. U.S. Treasury securities with a maturity date within 90 days of the purchase date are classified as cash equivalents. U.S. Treasury securities included in short-term investments are held-to-maturity investments with maturity dates of less than one year.

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 December 31, 2018 and 2017, cash, cash equivalents, and short-term investments totaling $94.7 million and $61.1 million, respectively, were not either FDIC insured or direct obligations of the U.S. government.

Fair Value Disclosure of Financial Instruments

Fair value and carrying value disclosures of financial instruments as of December 31 are presented in the following table:


	2018				2017
	(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)		40,000		40,000		45,000		45,000
Notes payable(3)		181,409		181,560		153,441		152,131
	$	291,409	$	291,560	$	268,441	$	267,131

⁽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, that is 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 a Recurring Basis

The following table presents the assets and liabilities that are measured at fair value on a recurring basis:


	December 31, 2018
			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)	$	42,470	$	42,470	$	—	$	—
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2)		2,342		2,342		—		—
Interest rate swaps(3)		801		—		801		—
	$	45,613	$	44,812	$	801	$	—
Liabilities:
Contingent consideration(4)	$	4,472	$	—	$	—	$	4,472


	December 31, 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)	$	14,518	$	14,518	$	—	$	—
Equity, bond, and money market mutual funds held in trust related to the Voluntary Savings Plan(2)		2,359		2,359		—		—
Interest rate swaps(3)		481		—		481		—
	$	17,358	$	16,877	$	481	$	—
Liabilities:
Contingent consideration(4)	$	6,970	$	—	$	—	$	6,970

⁽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. 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 December 31, 2018 and 2017 and considers the interest rate swap valuations in Level 2 of the fair value hierarchy.

⁽⁴⁾

Included in accrued expenses. At December 31, 2018, the fair value of the contingent consideration for an earn-out agreement related to the September 2016 acquisition of LDS represents the final accrued payment and was based on calculations performed for the earn-out period which ended August 31, 2018. Prior to the end of the earn-out period, the estimated fair value of contingent consideration was determined by assessing Level 3 inputs with a discounted cash flow approach using various probability-weighted scenarios. As of December 31, 2017, the Level 3 assessments utilized 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 of 12.5%.

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
Contingent consideration liability recorded at fair value for business acquisition		—
Change in fair value included in operating expenses		195

Balances at December 31, 2017	$	6,970
Payments(1)		(3,528)
Change in fair value included in operating expenses		1,030
Balances at December 31, 2018	$	4,472

⁽¹⁾

Payments released from escrow account that is reported in other current assets in the consolidated balance sheets.