FAIR VALUES OF ASSETS AND LIABILITIES

6 Months Ended

Jun. 30, 2012

FAIR VALUES OF ASSETS AND LIABILITIES

FAIR VALUES OF ASSETS AND LIABILITIES

NOTE 7:    FAIR VALUES OF ASSETS AND LIABILITIES

Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires us to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are listed below.

Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than those included in Level 1, such as quoted market prices for similar assets and liabilities in active markets or quoted prices for identical assets in inactive markets.

Level 3 — Unobservable inputs reflecting our own assumptions and best estimate of what inputs market participants would use in pricing an asset or liability.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying value and estimated fair value of our cash equivalents, which consist of short-term money market funds, are classified as Level 1. There have been no transfers between Level 1 and Level 2 during the six months ended June 30, 2012.  Our Level 3 liability is valued using unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the contingent consideration.

For fair value measurements categorized within Level 3 of the fair value hierarchy, our accounting and finance management, who report to the chief financial officer, determine our valuation policies and procedures.  The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of our accounting and finance management and are approved by the chief financial officer.  Fair value calculations are generally prepared by third-party valuation experts who rely on discussions with management in addition to the use of management’s assumptions and estimates as they related to the assets or liabilities in Level 3.  Such assumptions and estimates include such inputs as estimates of future cash flows, projected profit and loss information, discount rates, and assumptions as they relate to future pertinent events.  Through regular interaction with the third-party valuation experts, finance and accounting management determine that the valuation techniques used and inputs and outputs of the models reflect the requirements of accounting standards as they relate to fair value measurements.  Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

As of June 30, 2012 and December 31, 2011, our assets and liabilities that are measured and recorded at fair value on a recurring basis were as follows:

			Estimated Fair Value Measurements
Items Measured at Fair Value on a	Carrying		Quoted Prices in Active Markets		Significant Other Observable Inputs		Significant Unobservable Inputs
Recurring Basis	Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2012:
Assets:
Money market funds	$	34	$	34	$	—	$	—
Liabilities:
Contingent consideration (1)	$	11,522	$	—	$	—	$	11,522
December 31, 2011:
Assets:
Money market funds	$	34	$	34	$	—	$	—
Liabilities:
Contingent consideration (1)	$	16,226	$	—	$	—	$	16,226

(1)The contingent consideration represents the estimated fair value of the additional potential earn-out opportunity payable in connection with our acquisition of De Novo that is contingent upon future operating revenue growth. We estimated the fair value using management’s estimate of projected revenue over the earn-out period as well as the probability of earn-out achievement and applied a discount rate to the projected earn-out payments that approximated the weighted average cost of capital.

A hypothetical 1% decrease in the discount rate used in calculating the fair value of the De Novo contingent consideration would have resulted in approximately a $0.2 million increase in the fair value of the contingent consideration and a hypothetical 1% increase related to our revenue assumptions as they relate to the De Novo contingent consideration would have resulted in approximately a $0.2 million increase in the fair value of the contingent consideration.

As of June 30, 2012 and December 31, 2011, the carrying value of our trade accounts receivable, accounts payable, certain other liabilities, deferred acquisition price payments and capital leases approximated fair value. The amount outstanding under our credit facility at June 30, 2012 and December 31, 2011 was $212.0 million and $217.0 million, respectively, which approximated fair value due to the borrowing rates currently available to us for debt with similar terms and is classified as Level 2.

	Fair Value Measurements UsingSignificant Unobservable Inputs(Level 3)(in thousands)
	Contingent Consideration
Beginning balance December 31, 2011	$	16,226
Increase in fair value related to accretion	767
Decrease in fair value of contingent consideration obligation	(5,471		)
Ending balance June 30, 2012	$	11,522

The decrease in fair value of $5.5 million during the six months ended June 30, 2012, is attributable to the change in fair value of the contingent consideration for the De Novo acquisition which is reflected in “Fair value adjustment to contingent consideration” on the Condensed Consolidated Statements of Income.  See Note 11 of our Notes to Condensed Consolidated Financial Statements for further detail related to the De Novo contingent consideration amounts.