Fair Value Measurements

12 Months Ended

Dec. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company categorizes financial assets and liabilities into the three levels of the fair value hierarchy. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value and bases categorization within the hierarchy on the lowest level of input that is available and significant to the fair value measurement.

• Level 1 — Quoted prices in active markets for identical assets or liabilities;

• Level 2 — Observable inputs other than Level 1, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

• Level 3 — Significant unobservable inputs that are supported by little or no market activity or that are based on the reporting entity’s assumptions about the inputs.

Liabilities Measured at Fair Value on a Recurring Basis

Liabilities required to be measured at fair value on a recurring basis, including identification of the fair value hierarchy of the valuation techniques used by the Company to determine these fair values, are as follows (in thousands):

	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
At December 31, 2012:
None	$	—	$	—	$	—	$	—
At December 31, 2011:
Common stock warrants (1)	$	—	$	—	$	16,622	$	16,622

(1) The fair value of the common stock warrants was estimated using a Black-Scholes option pricing model. See Note 13 for additional information regarding warrants.

There were no significant transfers in or out of either Level 1 or Level 2 fair value measurements during the years ended December 31, 2012 and 2011. During the year ended December 31, 2012, $2.6 million of non-cash gains were recognized as fair value adjustments within Level 3 of the fair value measurement hierarchy. The change was driven by the change in the fair value of the exercisable and contingent warrants outstanding resulting primarily from a decrease in the Company's common share price to $9.53 at June 14, 2012 from $9.96 at December 31, 2011.

On June 14, 2012, provisions in the Company’s Exercisable and Contingent Warrant Certificates were amended to eliminate anti-dilution price adjustment provisions and remove cash settlement provisions of a change of control event. Upon amendment, the warrants met the requirements for classification as equity. All fluctuations in the fair value of the warrant liability prior to June 2012 were recognized as non-cash income or expense items within the statement of operations. The fair value accounting methodology for the warrant liability is no longer required following the contractual amendment.

During the years ended December 31, 2012 and 2011, there were no transfers in or out of the Level 3 hierarchy. Changes in Level 3 liabilities are as follows (in thousands):

	December 31,
	2012			2011
Balance, beginning of year	$	16,622		$	26,193
Fair value adjustments, net	(2,649		)	(9,571		)
Reclassification to additional paid-in capital	(13,973		)	—
Net transfers in/(out)	—			—
Balance, end of year	$	—		$	16,622

Assets Measured at Fair Value on a Nonrecurring Basis

The Company’s non-financial assets, including property and equipment, goodwill and other intangible assets are measured at fair value on a non-recurring basis and are subject to fair value adjustment in certain circumstances. See Notes 6, 7 and 8 for discussion of non-financial assets and assessment of impairment.

During the years ended December 31, 2012 and 2011, the Company recorded no impairments. During the year ended December 31, 2010, the Company recorded an impairment of $8.9 million relating to property and equipment held and used and $0.4 million relating to other intangible assets. Loss on impairment is reported in operating expenses. The fair value of impaired assets was measured using both Level 2 and Level 3 inputs.

Fair Value of Other Financial Instruments

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value due to the short-term nature of these accounts. The Company had no cash equivalents at December 31, 2012 or 2011.

The carrying value and estimated fair value of the Company’s convertible notes and long-term debt are as follows (in thousands):

	December 31,
	2012				2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
2008 Notes (1)	$	5,133	$	5,163	$	65,604	$	69,880
2010 Notes (1)	—		—		34,134		37,561
2012 Term Loan	25,000		25,000		—		—
Capital lease obligations	1,784		1,736		1,642		1,611

(1) The carrying value of the 2008 and 2010 Notes represents the discounted debt component only, while the fair value of the Notes is based on the market value of the respective notes, including convertible equity features.

The estimated fair value of the 2008 Notes is based upon quoted market prices. The estimated fair value of the 2010 Notes was based upon rates available for instruments with similar risks and maturities. The carrying value of the 2012 Term Loan approximates its fair value because the interest rate is variable. The fair value of capital lease obligations is based on recent lease rates adjusted for a risk premium. The estimated fair value of the 2010 Notes is measured using Level 2 inputs.