Fair Value Measurement

12 Months Ended

Dec. 31, 2012

Fair Value Measurement

Fair Value Measurement

Note G. Fair Value Measurement

        The Company applies the accounting standards for fair value measurements and disclosures for its financial assets and financial liabilities. The guidance requires disclosures about assets and liabilities measured at fair value. As of December 31, 2012, the Company's financial liabilities relate to Interest Rate Swaps of $794 and the Company's financial liabilities relate to contingent acquisition consideration payments of $3,324.

        The accounting guidance for fair value measurements and disclosures includes a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity's pricing based upon its own market assumptions. The fair value hierarchy consists of the following three levels:

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  Level 1:    Inputs are quoted prices in active markets for identical assets or liabilities.

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  Level 2:    Inputs are quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable and market-corroborated inputs, which are derived principally from or corroborated by observable market data.

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  Level 3:    Inputs that are derived from valuation techniques in which one or more significant inputs or value drivers are unobservable.

        The significant inputs used to derive the fair value of the contingent acquisition consideration include financial forecasts of future operating results, the probability of reaching the forecast and the associated discount rate. The weighted average probability of the contingent acquisition consideration ranges from 5% to 95%, with a weighted average discount rate of 12%. The following table sets forth the Company's financial assets and liabilities measured at fair value on a recurring basis and the basis of measurement at December 31, 2012 and 2011:

	Total Fair Value Measurement at December 31, 2012			Level 1		Level 2			Level 3
Liabilities:
Interest Rate Swaps	$	(794	)		—		(794	)		—
Contingent acquisition consideration	$	(3,324	)		—		—			(3,324	)

	Total Fair Value Measurement at December 31, 2011			Level 1		Level 2		Level 3
Assets:
Interest Rate Swaps	$	8			—		8		—
Liabilities:
Contingent acquisition consideration	$	(6,498	)		—		—		(6,498	)

        The following table provides a reconciliation of the beginning and ending balances for the liabilities measured at fair value using significant unobservable inputs (Level 3):

	Due to Seller
Balance at December 31, 2009	$	(5,090	)
Increase related to new acquisitions		(2,400	)
Payment of contingent consideration		529
Change in fair value		154
Balance at December 31, 2010		(6,807	)
Increase related to new acquisitions		—
Payment of contingent consideration		—
Change in fair value		309
Balance at December 31, 2011		(6,498	)
Increase related to new acquisitions		—
Payment of contingent consideration		2,202
Change in fair value		972
Balance at December 31, 2012	$	(3,324	)

        For the years ended December 31, 2012, 2011 and 2010, the Company recorded adjustments to original contingent consideration obligations recognized for acquisitions completed in previous years. The adjustments were the result of using revised forecasts and updated fair value measurements that adjusted the Company's potential earn-out payments related to the purchase of this business.

        For the year ended December 31, 2012 and 2011, the Company recognized a benefit of $972 and $309, respectively in general and administrative expenses in the statement of income due to the change in fair value measurements using a level three valuation technique.

        The carrying and estimated fair values of the Company's financial instruments at December 31, 2012 and 2011 were as follows:

	2012						2011
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
	(In thousands)
Cash and cash equivalents	$	28,450		$	28,450		$	13,220		$	13,220
Long-term debt—
Senior credit facility		(290,275	)		(290,275	)		(80,000	)		(80,000	)
Obligations on Seller notes and other		(1,995	)		(1,995	)		(1,041	)		(1,041	)

        The carrying values of cash and cash equivalents approximate their fair value due to the short-term nature of these financial instruments. Long-term debt has a carrying value that approximates fair value because these instruments bear interest at variable market rates. The fair value of the capital lease and obligations on Seller notes and other obligations were estimated to not be materially different from the carrying amount.

Nonrecurring Fair Value Measurements

        The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the excess recorded as goodwill. We utilize Level 3 inputs in the determination of the initial fair value. Non-financial assets such as goodwill, intangible assets, and leasehold improvements, equipment land and construction in progress are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of our goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable. We have not recorded impairment charges related to our business acquisitions.