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Financial Instruments
 6 Months Ended
Jun. 30, 2013
Financial Instruments

7. Financial Instruments

Fair Value of Financial Instruments

We consider the recorded value of certain financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at June 30, 2013 and December 31, 2012, based on the short-term nature of the assets and liabilities. The fair value of our long-term debt at June 30, 2013 was $743.0 million compared to a carrying value of $723.0 million. At December 31, 2012, the fair value of our long-term debt was $762.0 million compared to a carrying value of $723.0 million. We determine the fair value of our long-term debt primarily based on quoted market prices for our 6 3/4% Senior Notes Due 2020 (“2020 Notes”) and 6.0% Senior Notes Due 2022 (“2022 Notes”). The fair value of our long-term debt is classified within Level 2 of the fair value hierarchy, because it is traded in less active markets.

For business combinations consummated on or after January 1, 2009, we estimate the fair value of acquisition-related contingent consideration based on management’s probability-weighted present value of the consideration expected to be transferred during the remainder of the earnout period, based on the acquired operations’ forecasted earnings. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Fair value measurements characterized within Level 3 of the fair value hierarchy are measured based on unobservable inputs that are supported by little or no market activity and reflect our own assumptions in measuring fair value.

The significant unobservable inputs used in the fair value measurements of our acquisition-related contingent consideration include our measures of the future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is accompanied by a directionally opposite change in the fair value measurement and a change in the assumptions used for the future cash flows is accompanied by a directionally similar change in the fair value measurement. The fair value of the contingent consideration is reassessed on a quarterly basis by the Company based on a collaborative effort of the Company’s operations, finance and accounting groups using additional information as it becomes available. Any change in the fair value of an acquisition’s contingent consideration liability results in a remeasurement gain or loss that is recorded in the earnings of that period.

Remeasurement gains or losses are recorded as income or expense, respectively and are included within “Acquisition-related contingent consideration” in the Condensed Consolidated Statements of Comprehensive Income (Loss). During the three months ended June 30, 2013, management determined that the fair value of the contingent consideration liability for one of its acquisitions had declined and recorded a remeasurement gain of $8.2 million compared to a gain of $4.1 million for the three and six months ended June 30, 2012.

Accretion expense for acquisition-related contingent consideration totaled $0.8 million and $1.5 million for the three and six months ended June 30, 2013 respectively, and $0.6 million and $1.1 million for the three and six months ended June 30, 2012, respectively.

The following table represents the changes in the acquisition-related contingent consideration liability during the three and six months ended June 30, 2013 and 2012:

 

     Three Months Ended
June 30,		     Six Months Ended
June 30,		  
      2013     2012     2013     2012  

Beginning balance

    $ 16,296      $ 15,276      $ 16,426      $ 14,990   

Acquisition(1)

      5,377        —          4,528        —     

Adjustments to fair value recorded in earnings(2)

      (7,452 )      (3,541 )      (6,721 )      (2,984 ) 

Payments

      (235 )      (917 )      (235 )      (1,287 ) 

Elimination of contingency(3)

      —          (2,534 )      —          (2,534 ) 

Unrealized gains (losses) related to currency translation in other comprehensive income

      (701 )      (47 )      (713 )      52   
  

 

 

    

 

 

    

 

 

    

 

 

  

Ending balance

    $ 13,285      $ 8,237      $ 13,285      $ 8,237   
  

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) 

Includes adjustments during the purchase price allocation period.

 

(2)

Includes adjustments to fair value related to accretion and remeasurement of contingent consideration which are recorded in “Acquisition-related contingent consideration” on the Condensed Consolidated Statements of Comprehensive Income (Loss).

 

(3)

During the three months ended June 30, 2012, we fixed an acquisition-related contingent consideration liability in the amount of $2.5 million. The non-contingent consideration liability is no longer required to be remeasured to fair value and, accordingly, is not classified as a Level 3 measurement.

The following table presents financial liabilities measured at fair value:

 

     Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		      Significant
Other
Observable
Inputs
(Level 2)		      Significant
Unobservable
Inputs
(Level 3)		      Total  

As of June 30, 2013

            

Liabilities:

            

Acquisition-related contingent consideration, including current portion

    $ —         $ —         $ 13,285       $ 13,285   

As of December 31, 2012

            

Liabilities:

            

Acquisition-related contingent consideration, including current portion

    $ —         $ —         $ 16,426       $ 16,426