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FAIR VALUE MEASUREMENTS
6 Months Ended
Jun. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS
Under the accounting for fair value measurements and disclosures, fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or the liability in an orderly transaction between market participants on the measurement date. Additionally, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs. The level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Our assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:
Level 1—quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2—observable inputs other than quoted prices in active markets for identical assets and liabilities; and
Level 3—unobservable inputs in which there is little or no market data available, which require the reporting entity to use significant unobservable inputs or valuation techniques.
The fair value of our assets and liabilities measured at fair value on a recurring basis was as follows:
 
Balance at
 
 
 
 
 
 
(In thousands)
June 30,
2018
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash equivalents
$
38,236

 
$
15

 
$
38,221

 
$

Municipal bonds
90,652

 

 
90,652

 

Corporate debt securities
213,960

 

 
213,960

 

Commercial paper
11,474

 

 
11,474

 

Asset-backed securities
76,277

 

 
76,277

 

U.S. government and agency securities
4,472

 

 
4,472

 

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Business acquisition liabilities
10,322

 

 

 
10,322


 
Balance at
 
 
 
 
 
 
(In thousands)
December 31,
2017
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
Cash equivalents
$
31,549

 
$
5,927

 
$
25,622

 
$

Municipal bonds
139,914

 

 
139,914

 

Corporate debt securities
81,655

 

 
81,655

 

Commercial paper
55,741

 

 
55,741

 

Asset-backed securities
23,777

 

 
23,777

 

U.S. government and agency securities
9,936

 

 
9,936

 

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Business acquisition liabilities
15,919

 

 

 
15,919

Our marketable securities are classified as Level 2 within the fair value hierarchy, as we measure their fair value using market prices for similar instruments and inputs such as actual trade data, benchmark yields, broker/dealer quotes and other similar data obtained from quoted market prices or independent pricing vendors.
Assets and Liabilities That Are Measured at Fair Value on a Nonrecurring Basis
The purchase price of business acquisitions is primarily allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values on the acquisition dates, with the excess recorded as goodwill. We utilize Level 3 inputs in the determination of the initial fair value. Non-financial assets such as goodwill, intangible assets, and property, plant, and equipment are subsequently measured at fair value when there is an indicator of impairment and recorded at fair value only when an impairment is recognized. We assess the impairment of intangible assets annually or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The fair value of our goodwill and intangible assets is not estimated if there is no change in events or circumstances that indicate the carrying amount of an intangible asset may not be recoverable.
Business acquisition liabilities represents our contingent milestone, performance and revenue-sharing payment obligations related to our acquisitions and is measured at fair value, based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of business acquisition liabilities uses assumptions we believe would be made by a market participant. We assess these estimates on an ongoing basis as additional data impacting the assumptions is obtained. The balances of the fair value of contingent consideration are recognized within business acquisition liabilities on our condensed consolidated balance sheets, and the changes in the fair value of business acquisition liabilities are recognized within acquisition related costs in the condensed consolidated statements of income.
The recurring Level 3 fair value measurements of our business acquisition liabilities include the following significant unobservable inputs, which have not materially changed since December 31, 2017:
 
 
Fair Value at
 
 
 
 
 
 
 
 
(In thousands)
 
June 30,
2018
 
Valuation technique
 
Unobservable input
 
Range
 
 
 
 
 
 
Discount rate
 
8.5%
Revenue-based payments
 
$
5,610

 
Discounted cash flow
 
Probability of payment
 
87.0%
-
100.0%
 
 
 
 
 
 
Projected year of payment
 
2018
-
2029
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
 
4.4%
Milestone-based payments
 
$
4,712

 
Discounted cash flow
 
Probability of payment
 
100.0%
 
 
 
 
 
 
Projected year of payment
 
2018

The following table provides a reconciliation of the beginning and ending balances of business acquisition liabilities:
 
Three Months Ended
 
Six Months Ended
(In thousands)
June 30,
2018
 
June 30,
2017
 
June 30,
2018
 
June 30,
2017
Beginning balance
$
10,854

 
$
15,326

 
$
15,919

 
$
19,849

Purchase price contingent consideration

 
4,871

 

 
4,871

Changes resulting from foreign currency fluctuations
(204
)
 
42

 
(63
)
 
42

Contingent payments
(510
)
 
(233
)
 
(5,950
)
 
(5,234
)
Changes in fair value of business acquisition liabilities
182

 
333

 
416

 
811

Ending balance
$
10,322

 
$
20,339

 
$
10,322

 
$
20,339