On January 26, 2010, the Emdeon acquired all of the voting interest of FutureVision Investment Group, L.L.C. and substantially all of the assets of two related companies, FVTech, Inc. and FVTech Arizona, Inc. (collectively, "FVTech"). FVTech is a provider of outsourced services specializing in electronic data conversion and information management solutions. The following table summarizes the preliminary fair values on March 31, 2010 and final fair values on December 31, 2010 of the assets acquired and liabilities after the measurement period adjustments.

The following four paragraphs track the same acquisition paragraph as reported in the Emdeon's first, second, and third quarterly 10Q and the 2010 10K concerning the acquisition of FVTech during 2010. The measurement period adjustment occurred during the second quarter.
Emdeon 3/31/2010 10-Q
Emdeon has preliminarily valued the total consideration transferred at $34,973, which consisted of $20,005 cash at closing, estimated contingent consideration of $14,910, and an estimated working capital settlement of $58. The contingent consideration arrangement requires Emdeon to pay additional consideration ranging from $0 to $40,000 based upon the financial performance of the acquired business for the two- and three-year periods following the acquisition. Emdeon has preliminarily valued the contingent consideration at the acquisition date, using a probability-weighted discounted cash flow model, at $14,910. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The key assumptions in applying the income approach are as follows: 11.6% discount rate and a probability adjusted FVTech performance measure during the earnout period of between approximately $1,500 and $27,000. As of March 31, 010, there were no significant changes in the range of outcomes for the contingent consideration recognized as a result of the acquisition of FVTech, although the recognized amount increased to $15,200 as a result of the passage of time and the resulting reduced impact of discounting.
Emdeon 6/30/2010 10-Q
Emdeon has valued the total consideration transferred at $34,158, which consisted of $20,005 cash at closing, estimated contingent consideration of $13,850, and a working capital settlement of $303. The contingent consideration arrangement requires Emdeon to pay additional consideration ranging from $0 to $40,000 based upon the financial performance of the acquired business for the two- and three-year periods following the acquisition. Emdeon has valued the contingent consideration at the acquisition date, using a probability-weighted discounted cash flow model, at $13,850. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The key assumptions in applying the income approach were as follows: 11.6% discount rate and a FVTech performance measure during the earnout period of between approximately $1,500 and $27,000. As of June 30, 2010, Emdeon lowered its range of the FVTech performance measure during the earnout period which, combined with the reduced impact of discounting, resulted in a net increase to pre-tax income of $930 for the three months ended June 30, 2010.
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Emdeon 9/30/2010 10-Q
Emdeon has valued the total consideration transferred at $34,158, which consisted of $20,005 cash at closing, estimated contingent consideration of $13,850, and a working capital settlement of $303. The contingent consideration arrangement requires Emdeon to pay additional consideration ranging from $0 to $40,000 based upon the financial performance of the acquired business for the two- and three-year periods following the acquisition. Emdeon has valued the contingent consideration at the acquisition date, using a probability-weighted discounted cash flow model, at $13,850. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The key assumptions in applying the income approach were as follows: 11.6% discount rate and a FVTech performance measure during the earnout period of between approximately $1,500 and $27,000. Through September 30, 2010, Emdeon has lowered its range of the FVTech performance measure during the earnout period which, combined with the reduced impact of discounting, resulted in a net increase to pre-tax income of $2,270 for the nine-month period ended September 30, 2010.
Emdeon 12/31/2010 10-K
Emdeon has valued the total consideration transferred at $34,158, which consisted of $20,005 cash at closing, estimated contingent consideration of $13,850, and a working capital settlement of $303. The contingent consideration arrangement requires Emdeon to pay additional consideration ranging from $0 to $40,000 based upon the financial performance of the acquired business for the two- and three-year periods following the acquisition. Emdeon valued the contingent consideration at the acquisition date, using a probability-weighted discounted cash flow model, at $13,850. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement. The key assumptions in applying the income approach were as follows: 11.6% discount rate and a FVTech performance measure during the earnout period of between approximately $1,500 and $27,000. Through December 31, 2010, Emdeon has lowered its range of the FVTech performance measure during the earnout period, which, combined with the reduced impact of discounting, resulted in a net increase to pretax income of $6,680 during 2010.
Required:
1. Why do you think firms include a working capital settlement in the merger agreement? A working capital settlement dictates that if the actual amount of working capital differs from a specified amount of working capital, either more or less consideration is offered for the acquisition.
2. Why may firms (acquiring and/or the acquired) include contingent consideration in an acquisition? What percentage of the total consideration offered is represented by the estimated liability for contingent consideration?
3. Prepare a schedule showing the quarterly and annual impact on income from contingent consideration (list the amount reported quarterly and for the year, and then indicate whether the amount is a gain or a loss).
4. Is it likely that Emdeon will have to pay any contingent consideration? If they do not pay any contingent consideration, what will be the impact on future income? List the amounts, if any, and specify whether the amount is a gain or loss. Does this imply anything about the likelihood of future goodwill impairment? If so, what?

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Measurement Preliminary Period Final 12/31/2010 331/2010 Cash Accounts receivable Other current assets Property and equipment Other assets Identifiable intangible assets: Customer contracts (16-year weighted average 372 1,370 36 18,423 29 372 1,736 35 18.423 29 6 560 560 useful life) Tradename (3-year weighted average useful life) Goodwill (Provisional) Accounts payable Accrued expenses Other long-term liabilities 160 14,878 (361) (548) (306) 160 14,038 (338) (550) (307) (840) 23 Total consideration transferred $34,973 (815) $34,158 Consideration Cash Working capital settlement Contingent consideration 20,005 58 14,910 20,005 303 13.850 245 (1,060) (815) Total consideration 34,973 4,158 Contingent Consideration FVTech apn NNNES AcquisitionAcquisition Total Balance at January 1, 2010 (13,850) 640 (8,230) 1,130 (1,565) (23,645) 1,770 Issuances Total changes incl uded in ot in other s) Balance at June 30, 2010 $(13,210) 7,100 (1,565) (21,875)