15. FAIR VALUE

(a)

Assets and liabilities measured at fair value on a recurring basis

• The Group measured its financial assets and liabilities, including cash equivalents, term deposits, restricted cash, short-term investment, accounts receivable, accounts payable, foreign currency forward contracts and contingent consideration on a recurring basis as of December 31, 2012 and 2013. Cash equivalents, term deposits, restricted cash and short-term investment are classified within Level 1 of the fair value hierarchy because they are valued based on the quoted market price in an active market. The carrying amounts of accounts receivable and accounts payable approximate their fair values due to their short-term maturity.

  Foreign currency forward contracts

  The Group purchased foreign currency forward contracts to protect against the adverse effect that exchange rate fluctuation may have on foreign currency denominated sales activities. Foreign currency forward contracts are marked to market based on the prevailing forward exchange rate quoted by the contracted bank (Level 2 inputs). Assets and liabilities resulted from foreign currency forward contracts are recorded at its fair value.

  As of December 31, 2012 and 2013, the fair value of foreign currency forward contracts, which amounted to $8 and $14, respectively, is recorded in prepaid expenses and other current assets. During the years of 2011, 2012 and 2013, gains and losses on the foreign currency forward contracts are recognized in the consolidated statements of operations.

  Details of the outstanding foreign currency forward contracts as of December 31, 2012 and 2013 were as follows:

• Contingent consideration

  The contingent consideration in connection with the acquisitions of Beans, NouvEON, HURO, Logoscript, Longhaul, Glory, Bearing Point, Newton, Pactera Jinxin, Beijing DPC, Pactera Australia, Lifewood, Beijing Viatt, TP, Sunwin and Pactera Financial Solutions determined at fair value based on, among other factors, forecast financial performance of the acquired business, and discount rate (Level 3 inputs).

  The Group estimates and records the acquisition date estimated fair value of contingent consideration as part of purchase price consideration for acquisitions. Additionally, at the end of each reporting period, the Group calculates the changes in the fair value of contingent consideration, and recognizes such changes in the consolidated statements of operations.

  An increase in the earn-out expected to be paid will result in a charge to operations in the period that the anticipated fair value of contingent consideration increases, while a decrease in the earn-out expected to be paid will result in a credit to operations in the period that the anticipated fair value of contingent consideration decreases. The estimate of the fair value of contingent consideration requires subjective assumptions to be made of future operating results, discount rates, and timing of earn-out payments. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and, therefore, materially affect the Group's future financial results.

  The fair value measurement of the contingent consideration encompasses the following significant unobservable inputs:

• The following table summarizes the movement of the Group's contingent consideration measured at fair value on recurring basis for the year ended December 31, 2013:

 

 

(b)

Assets and liabilities measured at fair value on a nonrecurring basis

• The Group's financial assets and liabilities measured at fair value on a non-recurring basis include acquired assets and liabilities in connection with business acquisitions based on Level 3 inputs.

  The Group measured the fair value of the purchased intangible assets using the "income approach—relief from royalty" and "income approach—excess earnings" valuation methods. These acquired intangible assets are considered Level 3 assets and liabilities because the Group used unobservable inputs, such as forecast financial performance of the acquired business and discount rates, to determine the fair value of these purchased assets and liabilities. In 2012, an impairment loss of $5,515 was recognized for certain trade names as the Company decided not to use these brands after the merger with VanceInfo.

  The fair value was determined using models with significant unobservable inputs, Level 3 inputs, primarily the discounted future cash flow. Goodwill, other intangible assets and equity method investment are measured at fair value on a non-recurring basis and they are recorded at fair value only when impairment is recognized.

  The fair value measurements of the intangible assets encompass the following significant unobservable inputs: