FAIR VALUE MEASUREMENTS
|3 Months Ended|
Mar. 31, 2012
|FAIR VALUE MEASUREMENTS [Abstract]|
|FAIR VALUE MEASUREMENTS||
NOTE 4-FAIR VALUE MEASUREMENTS
The Company currently has various financial instruments carried at fair value, such as marketable securities, derivatives and contingent consideration, but does not currently have nonfinancial assets and nonfinancial liabilities that are required to be measured at fair value on a recurring basis. The Company's financial assets and liabilities are measured using inputs from all levels of the fair value hierarchy as defined in the FASB guidance for fair values. For this categorization, only inputs that are significant to the fair value are considered. The three levels are defined as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2-Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data by correlation or other means (i.e., market corroborated inputs).
Level 3-Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company's own data.
In accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets and liabilities that are required to be measured at fair value on a recurring basis, as of March 31, 2012 and December 31, 2011, which are classified on the balance sheets as cash and cash equivalents, other current assets, other long-term assets, other current liabilities and other long-term liabilities:
Cash equivalents consist of money market funds. Fair values for cash equivalents are based on quoted prices in an active market. Fair values for forward currency contracts are based on observable market transactions of spot and forward rates. Fair values for the interest rate swaps and the interest rate cap are based on inputs corroborated by observable market data with similar tenors.
The Company has certain contingent consideration obligations for those acquisitions that occurred after December 31, 2008, which are measured at fair value using Level 3 inputs. The amounts due to the sellers are based on the achievement of agreed-upon financial performance metrics by the acquired companies where the contingent obligation is either earned or not earned. The Company records the liability at the time of the acquisition based on management's best estimates of the future results of the acquired companies compared to the agreed-upon metrics. The most significant estimate involved in the measurement process is the projection of future results of the acquired companies. The Company uses an implied probability method, which is based on one set of projections as its best estimate of future results of the acquired companies and, as a result, the Company does not develop a range of outcomes. By comparing these estimates to the agreed-upon metrics, the Company estimates the amount, if any, anticipated to be paid to the seller at a future date. For obligations payable at a date greater than twelve months from the acquisition date, the Company applies a discount rate to present value the estimated obligations. The discount rate is intended to reflect the risks of ownership, time-value of money and the associated risks of realizing the stream of projected cash flows. Subsequent to the date of acquisition, the Company updates the original valuation to reflect current projections of future results of the acquired companies and the passage of time. Accretion of, and changes in the valuations of contingent consideration are reported in acquisition transaction expenses. At each reporting period, as part of the valuation process for contingent consideration, the applicable division updates the valuation with current projections of future results of the acquired company, which is then reviewed and discussed with corporate management. The current projections of future results utilized by the division are derived from the Company's monthly forecasting process. See Note 5-Commitments and Contingent Liabilities for additional information related to the contingent payments.
The Company has stock options in a company that became publicly-traded in the third quarter of 2011 which are measured at fair value using Level 3 inputs. The stock options were received as consideration in connection with a licensing agreement entered into by a subsidiary of the Company and became fully-vested in the second quarter of 2011. The Company has recorded an asset for these options which is valued using the Black-Scholes option pricing model. The Company utilizes the quoted stock price and the information from the most recently available public filing of the company at the valuation date for assumptions with respect to volatility and dividend yield inputs and utilizes the remaining contractual period of the options as the expected term input and a risk-free rate consistent with that expected term. The Company recorded revenue based on the valuation of the options as of the measurement date, which was the vesting date. At each reporting period, the Company updates the inputs in the model which includes reassessing the volatility assumption used in the model for continuing reasonableness based on availability of more relevant data or changing circumstances or fact-patterns. The changes in the valuation after the measurement date are recorded in other income-net.
The following table summarizes quantitative information about the Company's Level 3 assets and liabilities as of March 31, 2012:
(1) Represents the probability of contract extension used in the valuation analysis that the Company has determined market participants would use when valuing certain contingent consideration liabilities which include lease renewals.
(2) Represents the volatility expected to be used by market participants in the absence of historical volatility.
The significant unobservable inputs used in the fair value measurement of the Company's contingent consideration obligations are the projections of future results, discount rates and the probability of a contract extension. Generally, significant increases (decreases) in the projection of future results or the discount rate in isolation would result in a significantly higher (lower) fair value measurement. Significant decreases in the probability of a contract extension would result in a significantly lower fair value measurement. The significant unobservable input used in the fair value measurement of the stock options held by the Company is volatility. Significant increases in the volatility would result in a significantly higher fair value measurement.
The following table summarizes the changes in fair value of the Company's Level 3 assets and liabilities for the three months ended March 31, 2012:
Due to their short maturity, the carrying amounts of accounts receivable, accounts payable and accrued expenses approximated their fair values at March 31, 2012 and December 31, 2011.
The Company's outstanding debt held by third-party financial institutions is carried at cost, adjusted for premiums or discounts. The Company's debt is not publicly-traded and the carrying amounts typically approximate their fair value for the Company's debt that accrues interest at a variable rate, which are considered to be Level 1 inputs. The estimated fair values of the 8.125% senior notes, the 10.75% senior notes and the 2.875% convertible senior notes were $266.6 million, $309.6 million and $207.4 million at March 31, 2012, respectively. The estimated fair values of the 8.125% senior notes, the 10.75% senior notes and the 2.875% convertible senior notes were $243.3 million, $306.4 million and $193.6 million at December 31, 2011, respectively. The estimated fair value of the Company's third-party fixed-rate debt is based on quoted market prices in active markets for same or similar debt, which are considered to be Level 2 inputs. The Company has fixed rate debt held by noncontrolling interest partners with a face value of $24.9 million and $26.0 million at March 31, 2012 and December 31, 2011, respectively. The Company is unable to determine the fair value of this debt.
There were no significant non-recurring fair value measurements recorded for the three months ended March 31, 2012 and 2011.
The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
Reference 1: http://www.xbrl.org/2003/role/presentationRef