Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements. Our financial assets carried at fair value measured on a recurring basis as of June 30, 2014 and December 31, 2013, consisted of the following (in thousands):

			Fair Value Measurements Using
	Total Fair		Quoted prices in		Significant other		Significant
	Value at		active markets		observable inputs		unobservable inputs
Description	June 30, 2014		(Level 1)		(Level 2)		(Level 3)
Interest rate swap (1)	$	343	$	—	$	343	$	—
			Fair Value Measurements Using
	Total Fair		Quoted prices in		Significant other		Significant
	Value at		active markets		observable inputs		unobservable inputs
Description	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Interest rate swap (1)	$	1,203	$	—	$	1,203	$	—

(1)    The fair value of the interest rate swap is determined based on forward yield curves.

Certain of our business combinations involve the potential for the payment of future contingent consideration, generally based on a percentage of future product sales or upon attaining specified future revenue milestones. See Note 5 for further information regarding these acquisitions. The contingent consideration liability is re-measured at the estimated fair value at each reporting period with the change in fair value recognized within selling, general, and administrative expenses in the accompanying consolidated statements of income. We measure the initial liability and re-measure the liability on a recurring basis using Level 3 inputs as defined under authoritative guidance for fair value measurements. Changes in the fair value of our contingent consideration liability during the three and six-month periods ended June 30, 2014 and 2013, were as follows (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
Beginning balance	$	2,513		$	6,694		$	2,526		$	6,697
Fair value adjustments recorded to expense during the period	8			17			19			33
Contingent payments made	(14		)	(19		)	(38		)	(38		)
Ending balance	$	2,507		$	6,692		$	2,507		$	6,692

The recurring Level 3 measurement of our contingent consideration liability includes the following significant unobservable inputs at June 30, 2014 (in thousands):

Contingent consideration liability	Fair value at June 30, 2014		Valuation technique	Unobservable inputs	Range
Revenue-based payments	$	2,255	Discounted cash flow	Discount rate	11% - 15%
				Probability of milestone payment	90%
				Projected year of payments	2014-2028
Other payments	$	252	Discounted cash flow	Discount rate	5.4%
				Probability of milestone payment	100%
				Projected year of payments	2014-2016

The contingent consideration liability is re-measured to fair value each reporting period using projected revenues, discount rates, probabilities of payment, and projected payment dates. Projected contingent payment amounts are discounted back to the current period using a discounted cash flow model. Projected revenues are based on our most recent internal operational budgets and long-range strategic plans. A decrease in the probability of any milestone payment may result in lower fair value measurements. An increase (decrease) in either the discount rate or the time to payment, in isolation, may result in a significantly lower (higher) fair value measurement.

Our determination of the fair value of the contingent consideration liability could change in future periods based upon our ongoing evaluation of these significant unobservable inputs. We intend to record any such change in fair value to selling, general, and administrative expenses in our consolidated statements of income. As of June 30, 2014, approximately $1.9 million was included in other long-term obligations and $620,000 was included in accrued expenses in our consolidated balance sheet. As of December 31, 2013, approximately $2.3 million was included in other long-term obligations and $274,000 was included in accrued expenses in our consolidated balance sheet. The cash paid to settle the contingent consideration liability recognized at fair value as of the acquisition date (including measurement-period adjustments) has been reflected as a cash outflow from financing activities in the accompanying consolidated statements of cash flows.

During the three and six-month periods ended June 30, 2014, we had losses of approximately $85,000 and $119,000, respectively, compared to $2,000 and $53,000 for the corresponding three and six-month periods ended June 30, 2013, respectively, related to the measurement of non-financial assets at fair value on a nonrecurring basis subsequent to their initial recognition. 

The carrying amount of cash and cash equivalents, receivables, and trade payables approximates fair value because of the immediate, short-term maturity of these financial instruments. The carrying amount of long-term debt approximates fair value, as determined by borrowing rates estimated to be available to us for debt with similar terms and conditions. The fair value of assets and liabilities whose carrying value approximates fair value is determined using Level 2 inputs, with the exception of cash and cash equivalents (Level 1).