TEAM INCTISI
TEAM INC Fair Value Disclosure
FAIR VALUE MEASUREMENTS
We apply the provisions of ASC 820, which among other things, requires enhanced disclosures about assets and liabilities carried at fair value.
As defined in ASC 820, fair value 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. We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. We primarily apply the market approach for recurring fair value measurements and endeavor to utilize the best information available. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The use of unobservable inputs is intended to allow for fair value determinations in situations in which there is little, if any, market activity for the asset or liability at the measurement date. We are able to classify fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy such that “Level 1” measurements include unadjusted quoted market prices for identical assets or liabilities in an active market, “Level 2” measurements include quoted market prices for identical assets or liabilities in an active market which have been adjusted for items such as effects of restrictions for transferability and those that are not quoted but are observable through corroboration with observable market data, including quoted market prices for similar assets, and “Level 3” measurements include those that are unobservable and of a highly subjective measure.
The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis as of December 31, 2019 and 2018. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):
December 31, 2019 | |||||||||||||||
Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Liabilities: | |||||||||||||||
Contingent consideration1 | $ | — | $ | — | $ | — | $ | — | |||||||
Net investment hedge | $ | — | $ | (4,186 | ) | $ | — | $ | (4,186 | ) | |||||
December 31, 2018 | |||||||||||||||
Quoted Prices in Active Markets for Identical Items (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Liabilities: | |||||||||||||||
Contingent consideration1 | $ | — | $ | — | $ | 429 | $ | 429 | |||||||
Net investment hedge | $ | — | $ | (3,904 | ) | $ | — | $ | (3,904 | ) | |||||
Embedded derivative in convertible debt2 | $ | — | $ | — | $ | — | $ | — | |||||||
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1 | The contingent consideration liability balance was fully paid in 2019, thus no balance exists as of December 31, 2019. |
2 | The embedded derivative liability was reclassified to stockholders’ equity as of May 17, 2018 and is no longer marked to fair value each period, as discussed in Note 9. |
There were no transfers in and out of Level 3 during the years ended December 31, 2019 and 2018.
The fair value of the convertible debt embedded derivative liability was estimated using a lattice model with inputs including our stock price, our stock price volatility and interest rates. As the assumptions used in the valuation are primarily derived from observable market data, the fair value measurement is classified as Level 2 in the fair value hierarchy. See Note 9 for more information on the embedded derivative liability.
The fair value of contingent consideration liabilities classified in the table above were estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement as defined in ASC 820. The significant inputs in the Level 3 measurement not supported by market activity include a combination of actual cash flows and probability-weighted assessments of expected future cash flows related to the acquired businesses, appropriately discounted considering the uncertainties associated with the obligation, and as calculated in accordance with the terms of the acquisition agreements.
The following table represents the changes in the fair value of Level 3 contingent consideration (in thousands):
Twelve Months Ended December 31, | |||||||
2019 | 2018 | ||||||
Beginning balance | $ | 429 | $ | 1,712 | |||
Accretion of liability | — | 39 | |||||
Foreign currency effects | (1 | ) | (14 | ) | |||
Payment | (428 | ) | (1,106 | ) | |||
Revaluation | — | (202 | ) | ||||
Ending balance | $ | — | $ | 429 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2019 | Mar 16, 2020 | Showing above |
| 2018 | Mar 19, 2019 | |
| 2017 | Mar 15, 2018 | |
| 2016 | Mar 16, 2017 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.