9. Fair Value Measurements

Fair value is defined as 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 in the principal or most advantageous market for that asset or liability. Guidance on fair value measurements and disclosures establishes a valuation hierarchy for disclosure of inputs used in measuring fair value defined as follows:

Level 1—Inputs are unadjusted quoted prices that are available in active markets for identical assets or liabilities.

Level 2—Inputs include quoted prices for similar assets and liabilities in active markets and quoted prices in non-active markets, inputs other than quoted prices that are observable, and inputs that are not directly observable, but are corroborated by observable market data.

Level 3—Inputs that are unobservable and are supported by little or no market activity and reflect the use of significant management judgment.

A financial asset’s or liability’s classification within the hierarchy is determined based on the least reliable level of input that is significant to the fair value measurement. In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We also consider the counterparty and our own non-performance risk in our assessment of fair value.

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

Foreign Currency Forward Contracts—The fair value of the foreign currency forward contracts were estimated based upon pricing models that utilize Level 2 inputs derived from or corroborated by observable market data such as currency spot and forward rates.

Interest Rate Swaps—The fair value of our interest rate swaps were estimated using a combined income and market-based valuation methodology based upon Level 2 inputs including credit ratings and forward interest rate yield curves obtained from independent pricing services reflecting broker market quotes.

Contingent Consideration—On August 1, 2012, we acquired all of the outstanding stock and ownership interest of PRISM. Included in the purchase price is contingent consideration, based on management’s best estimate of fair value and future performance results on the acquisition date and is to be paid in 24 months following the acquisition date. Fair value of this payment was estimated considering the timing of the payments and discounted at 4.75%, representing our short-term borrowing rate based on our revolving credit facility at the time of the acquisition, a Level 3 input. For the three months ended March 31, 2014 and March 31, 2013, the expense recognized related to the change in fair value was not material. A 1% increase or decrease in our discount rate would not result in a material change in fair value.

Embedded Derivative—As part of the 2019 Notes, we acquired a contingent call option to redeem a portion of the 2019 Notes in the event of an equity offering (see Note 7, Debt). We determined the fair value of this call option by evaluating the difference in fair value of the hybrid instrument with and without the call option requiring separate accounting. We calculated the fair value using Level 3 unobservable inputs such as management’s estimate of the probability of an equity offering, credit spreads and the expected future volatility of interest rates based on historical trends. When other inputs are held constant, the higher our expectation of future interest rate volatility, the lower the fair value of the call option. Changes to the unobservable inputs could result in a significantly higher or lower fair value measurement.

The following tables present the fair value of our assets (liabilities) that are required to be measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013 (in thousands):


				Fair Value at Reporting Date Using
	March 31, 2014			Level 1		Level 2			Level 3

Contingent consideration	$	(26,601	)	$	—	$	—		$	(26,601	)
Derivatives
Foreign currency forward contracts (see Note 8)		3,609			—		3,609			—
Interest rate swap contracts (see Note 8)		(7,658	)		—		(7,658	)		—
Contingent call option, 2019 Notes (see Note 7)		1,657			—		—			1,657

Total derivatives		(2,392	)		—		(4,049	)		1,657

Total	$	(28,993	)	$	—	$	(4,049	)	$	(24,944	)


				Fair Value at Reporting Date Using
	December 31, 2013			Level 1		Level 2			Level 3

Contingent consideration	$	(26,303	)	$	—	$	—		$	(26,303	)
Derivatives
Foreign currency forward contracts (see Note 8)		5,374			—		5,374			—
Interest rate swap contracts (see Note 8)		(11,533	)		—		(11,533	)		—
Contingent call option, 2019 Notes (see Note 7)		1,657			—		—			1,657

Total derivatives		(4,502	)		—		(6,159	)		1,657

Total	$	(30,805	)	$	—	$	(6,159	)	$	(24,646	)

Other Financial Instruments

Notes Payable—The fair value of our 2016 Notes, 2019 Notes and term loans under our Amended and Restated Credit Agreement are determined based on quoted market prices for the identical liability when traded as an asset in an active market, a Level 1 input. The outstanding principal balance of our mortgage facility approximated its fair value as of March 31, 2014 and December 31, 2013. The fair values of the mortgage facility were determined based on estimates of current interest rates for similar debt, a Level 2 input.

The following table presents the fair value and carrying value of our 2016 Notes, 2019 Notes and term loans under our Amended and Restated Credit Agreement as of March 31, 2014 and December 31, 2013:


Financial Instrument	Fair Value at March 31, 2014		Carrying Value at March 31, 2014
$400 million 2016 notes	$	447 million	$	390 million
$800 million 2019 notes	$	888 million	$	800 million
$1,775 million Term Loan B	$	1,754 million	$	1,744 million
$350 million Incremental Term Facility	$	349 million	$	348 million
$425 million Term Loan C	$	347 million	$	345 million

Financial Instrument	Fair Value at December 31, 2013		Carrying Value at December 31, 2013
$400 million 2016 notes	$	448 million	$	389 million
$800 million 2019 notes	$	886 million	$	800 million
$1,775 million Term Loan B	$	1,777 million	$	1,747 million
$350 million Incremental Term Facility	$	349 million	$	349 million
$425 million Term Loan C	$	363 million	$	360 million