Fair value measurement

12 Months Ended

Dec. 31, 2014

Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The FASB's fair value guidance establishes a three-level hierarchy of the inputs (i.e., assumptions that market participants would use in pricing an asset or liability) used to measure fair value, which is designed to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. The levels within the hierarchy are as follows:

Level 1 inputs — quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2 inputs — inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include:


1.	Quoted prices for similar assets or liabilities in active markets.


2.	Quoted prices for identical or similar assets or liabilities in markets that are not active.


3.	Inputs other than quoted prices that are observable for the asset or liability.


4.	Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 inputs — unobservable inputs for the asset or liability. Unobservable inputs may be used to measure fair value only when observable inputs are not available. Unobservable inputs reflect the Company’s views about the assumptions market participants would use in pricing the asset or liability in achieving the fair value measurement objective of an exit price perspective. An exit price is the price that would be received to sell an asset or paid to transfer a liability.

The following tables provide information regarding the financial assets and liabilities reported at fair value and measured on a recurring basis as of December 31, 2014 and 2013:



	Total carrying value at December 31, 2014		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(Dollars in thousands)
Investments in marketable securities	$	6,863	$	6,863	$	—	$	—
Contingent consideration liabilities	33,433		—		—		33,433



	Total carrying value at December 31, 2013		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(Dollars in thousands)
Investments in marketable securities	$	6,150	$	6,150	$	—	$	—
Contingent consideration liabilities	20,313		—		—		20,313

There were no transfers of financial assets or liabilities carried at fair value among Level 1, Level 2 or Level 3 inputs within the valuation hierarchy during the twelve months ended December 31, 2014 or 2013.

The following table provides information regarding changes in financial liabilities, the fair value of which is based on Level 3 inputs, related to contingent consideration in connection with various Company acquisitions, including those described in Note 3 to the consolidated financial statements, during the twelve months ended December 31, 2014 and 2013:



	Contingent consideration
	2014			2013
	(Dollars in thousands)
Beginning balance – January 1	$	20,313		$	51,196
Initial estimate upon acquisition	20,538			—
Payment	—			(18,880		)
Revaluations	(7,418		)	(11,982		)
Translation adjustment	—			(21		)
Ending balance – December 31	$	33,433		$	20,313

The Company reduced contingent consideration liabilities and selling, general and administrative expense by $8.2 million and $12.3 million for the years ended December 31, 2014 and 2013, respectively. These reductions were the result of changes in the estimated probability that specified objectives on which the contingent consideration is conditioned will be achieved.

See Note 8 to the consolidated financial statements for a discussion of the fair value of the Company’s long-term debt.

Valuation Techniques Used to Determine Fair Value

The Company’s financial assets valued based upon Level 1 inputs are comprised of investments in marketable securities held in trust, which are available to satisfy benefit obligations under Company benefit plans and other arrangements. The investment assets of the trust are valued using quoted market prices.

The Company’s financial assets and liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts. The Company uses foreign currency forward contracts to manage currency transaction exposure. The fair value of the foreign currency forward contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. The Company has taken into account the creditworthiness of the counterparties in measuring fair value. As of December 31, 2014 and 2013, there are no open forward contracts. See Note 9 to the consolidated financial statements for additional information.

The Company’s financial liabilities valued based upon Level 3 inputs are contingent consideration arrangements pertaining to the Company’s acquisitions. The Company estimates that contingent consideration payments will occur in 2015 and extend until 2029. As of December 31, 2014, the range of undiscounted amounts the Company could be required to pay under contingent consideration arrangements is between $15.0 million and $83.0 million. The Company determines the fair value of the liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based on significant inputs not observable in the market, which therefore constitute Level 3 inputs within the valuation hierarchy. The fair value of the contingent consideration liability associated with possible future payments of contingent consideration is based on several factors including:


•	estimated cash flows projected from the success of market launches;


•	the estimated time and resources needed to complete the development of acquired technologies;


•	the uncertainty of obtaining regulatory approvals within the required time periods; and


•	the risk adjusted discount rate for fair value measurement.

The following table provides information regarding the valuation techniques and inputs used in determining the fair value of the contingent consideration liabilities measured by Level 3 inputs:



	Valuation Technique	Unobservable Input	Range (Weighted Average)
Contingent consideration	Discounted cash flow	Discount rate	2.3% - 10% (7.0%)
		Probability of payment	0% - 100% (52.6%)

As of December 31, 2014, the Company recorded $33.4 million of total liabilities for contingent consideration, of which $11.3 million and $22.1 million were recorded as the current portion of contingent consideration and Other liabilities, respectively, in the consolidated balance sheet.

- Definition

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.

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