FINANCIAL INSTRUMENTS AND CONCENTRATIONS

12 Months Ended

Dec. 31, 2012

FINANCIAL INSTRUMENTS AND CONCENTRATIONS

FINANCIAL INSTRUMENTS AND CONCENTRATIONS

NOTE 9: FINANCIAL INSTRUMENTS AND CONCENTRATIONS

Fair Values of Assets and Liabilities

        Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We are required to use valuation techniques that are consistent with the market approach, income approach, and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own estimate about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. 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.

        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 were no transfers between Level 1 and Level 2 during the year ended December 31, 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 inputs such 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 December 31, 2012, 2011 and 2010, our assets and liabilities that are measured and recorded at fair value on a recurring basis were as follows:

			Estimated Fair Value Measurements
			Quoted Prices in Active Markets
					Significant Other Observable Inputs		Significant Unobservable Inputs
	Carrying Value
Items Measured at Fair Value on a Recurring Basis			(Level 1)		(Level 2)		(Level 3)
	(in thousands)
December 31, 2012:
Assets:
Money market funds	$	34	$	34	$	—	$	—
December 31, 2011:
Assets:
Money market funds	$	34	$	34	$	—	$	—
Liabilities:
Contingent consideration(1)	$	16,226	$	—	$	—	$	16,226
December 31, 2010:
Assets:
Money market funds	$	54	$	54	$	—	$	—
Liabilities:
Contingent consideration(2)	$	7,166	$	—	$	—	$	7,166

⁽¹⁾

The contingent consideration represents the estimated fair value of the potential contingent consideration payable in connection with the De Novo acquisition that is contingent upon achieving performance hurdles based on operating revenue objectives. The carrying value at December 31, 2011, was based on management's estimate of projected revenue over the measurement period as well as the probability of contingent consideration achievement and an applied discount rate to the projected contingent consideration payments that approximated the weighted average cost of capital. As discussed in Note 5 the carrying value was adjusted to zero during the third quarter of 2012.

⁽²⁾

The contingent consideration represents the estimated fair value of the potential contingent consideration payable in connection with the Jupiter eSources acquisition that is contingent upon achieving pre-determined operating revenue objectives. The carrying value at December 31, 2010, was based on management's estimate of projected revenue over the measurement period as well as the probability of contingent consideration achievement and an applied discount rate to the projected contingent consideration payments that approximated the weighted average cost of capital. As discussed in Note 5 the carrying value was adjusted to zero during 2011.

        As of December 31, 2012 and 2011, the carrying value of our trade accounts receivable, accounts payable, certain other liabilities, deferred acquisition price payments and capital leases approximated fair value. At December 31, 2012 and 2011, the amount outstanding under our credit facility was $199.0 million and $217.0 million, which approximated fair value due to the borrowing rates currently available to the Company for debt with similar terms and is classified as Level 2.

        The following table presents changes in the fair value of contingent consideration related to the De Novo and Jupiter eSources acquisitions.

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (in thousands)
	Jupiter eSources			De Novo			Total
Beginning balance December 31, 2010	$	7,166		$	—		$	7,166
Decrease in fair value of contingent consideration obligation		(7,166	)		—			(7,166	)
Increase in fair value at acquisition date		—			16,226			16,226
Ending balance December 31, 2011		—			16,226			16,226
Increase in fair value related to accretion		—			962			962
Decrease in fair value of contingent consideration obligation		—			(17,188	)		(17,188	)
Ending balance December 31, 2012	$	—		$	—		$	—

        The decrease in fair value of $17.2 million during the year ended December 31, 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 Consolidated Statement of Income. The increase in fair value of $16.2 million during the year ended December 31, 2011, is related to the De Novo acquisition and was recorded in "Long-term obligations" on the Consolidated Balance Sheet at December 31, 2011. For the year ended December 31, 2011, the $7.2 million decrease was attributable to the change in fair value of the contingent consideration for the Jupiter eSources acquisition and is reflected in "Fair value adjustment to contingent consideration" on the Consolidated Statement of Income.

Significant Customer and Concentration of Credit Risk

        For the years ended December 31, 2012, 2011 and 2010, we had no customers which accounted for more than 10% of our consolidated revenue or consolidated accounts receivable.