Fair Value of Financial Instruments
 6 Months Ended
Jun. 30, 2012
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

Note 5. Fair Value of Financial Instruments

 

The Company's financial assets and liabilities are measured at fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company classifies the inputs used to measure fair value into the following hierarchy:

Level 1              Quoted prices in active markets for identical assets or liabilities.

Level 2       Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable or can be corroborated by observable market data for the asset or liability.

Level 3       Unobservable inputs for the asset or liability that are supported by little or no market activity. These fair values are determined using pricing models for which the assumptions utilize management's estimates or market participant assumptions.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis. The fair value hierarchy requires the use of observable market data when available. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

 

The fair value of interest rate swaps are determined by the counterparty based on interest rate changes. Interest rate swaps are valued based on observable interest rate yield curves for similar instruments. The fair value of the earnout liability recorded in connection with the NDeX Florida operations acquired from the Albertelli sellers, the earnout liability recorded in connection with the DataStream acquisition and the earnout liability recorded in connection with the ACT acquisition are determined by management based on projected financial performance and an estimated discount rate. The fair value of the redeemable noncontrolling interest in DiscoverReady is determined by management using a market approach.

The following table summarizes the balances of liabilities measured at fair value on a recurring basis as of June 30, 2012 (in thousands):
             
  Level 1 Level 2 Level 3 Total
Interest rate swaps$— $1,878 $— $1,878
Earnout liability recorded in connection with the NDeX            
 Florida operations acquired from the Albertelli sellers— — 2,727 2,727
Earnout liability recorded in connection with the            
 DataStream acquisition —  —  141  141
Earnout liabilities recorded in connection with the           
 ACT acquisition —  —  1,400  1,400
Redeemable noncontrolling interest in DiscoverReady— — 5,423 5,423
Total$— $1,878 $9,691 $11,569
             
             
The following table summarizes the balances of liabilities measured at fair value on a recurring basis as of December 31, 2011 (in thousands):
  Level 1 Level 2 Level 3 Total
Interest rate swaps$— $2,093 $— $2,093
Earnout liability recorded in connection with the NDeX            
 Florida operations acquired from the Albertelli sellers— — 2,727 2,727
Earnout liability recorded in connection with the            
 DataStream acquisition —  —  250  250
Earnout liabilities recorded in connection with the           
 ACT acquisition —  —  26,655  26,655
Redeemable noncontrolling interest in DiscoverReady— — 12,685 12,685
Total$— $2,093 $42,317 $44,410

The following table summarizes the changes in fair value for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2012 (in thousands): 
  Earnout Liabilities in connection with acquisitions       
  NDeX Florida DataStream ACT Redeemable NCI in DiscoverReady Total 
Balance at March 31, 2012$ 2,727 $ 100 $ 24,644 $ 9,625 $37,096 
Fair Value Adjustment Included in Net                
 Income Attributable to The Dolan                
 Company —  (260)  (9,623)  —  (9,883) 
Net Earnout Payment —  —  (13,654)  —  (13,654) 
Minority Partners’ Share of Earnings —  —  —  865  865 
Distributions to Minority Partners /                
 Redemptions —  —  —  (145)  (145) 
Fair Value Adjustment Included in                
 Additional Paid-in Capital and                
 Deferred Taxes —  —  —  (4,922)  (4,922) 
Other —   301   33  —  334 
Balance at June 30, 2012$ 2,727 $ 141 $ 1,400 $ 5,423 $ 9,691 
                 
The following table summarizes the changes in fair value for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2012 (in thousands): 
                 
  Earnout Liabilities in connection with acquisitions       
  NDeX Florida DataStream ACT Redeemable NCI in DiscoverReady Total 
Balance at December 31, 2011$ 2,727 $ 250 $ 24,563 $ 12,685 $40,225 
Fair Value Adjustment Included in Net                
 Income Attributable to The Dolan                
 Company —  (410)  (9,542)  —  (9,952) 
Net Earnout Payment —  —  (13,654)  —  (13,654) 
Minority Partners’ Share of Earnings —  —  —   661  661 
Distributions to Minority Partners /                
 Redemptions —  —  —  (145)  (145) 
Fair Value Adjustment Included in                
 Additional Paid-in Capital and                
 Deferred Taxes —  —  —  (7,778)  (7,778) 
Other —   301   33  —  334 
Balance at June 30, 2012$ 2,727 $ 141 $ 1,400 $ 5,423 $ 9,691 

Non-Financial Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). No such fair value adjustments were required during the current quarter.

 

Fair Value of Financial Instruments:   The carrying value of cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments. The carrying value of the Company's debt is the remaining amount due to its debtors under borrowing arrangements. To estimate the fair value of its variable-rate debt issues that are not quoted on an exchange, the Company estimates an interest rate it would be required to pay if it had to refinance its debt. At June 30, 2012, the carrying value of variable-rate debt under the Company's senior credit facility of $169.0 million approximates its estimated fair value.