Fair value measurement

9 Months Ended

Sep. 30, 2012

Fair value measurement

Note 9 — Fair value measurement

For a description of the fair value hierarchy, see Note 10 to the Company’s 2011 consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2011.

The following tables provide information regarding the financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2012 and September 25, 2011:

	Total carrying value at September 30, 2012		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	$	4,781	$	4,781	$	—	$	—
Derivative assets		447		—		447		—
Derivative liabilities		957		—		957		—
Contingent consideration liabilities		58,885		—		—		58,885

	Total carrying value at September 25, 2011		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
	(Dollars in thousands)
Cash and cash equivalents	$	45,004	$	45,004	$	—	$	—
Investments in marketable securities		3,762		3,762		—		—
Bonds — foreign government		4,976		—		4,976		—
Derivative assets		66		—		66		—
Derivative liabilities		15,566		—		15,566		—
Contingent consideration liabilities		9,566		—		—		9,566

The following table provides information regarding changes in Level 3 financial liabilities during the periods ended September 30, 2012 and September 25, 2011:

	Contingent consideration
	2012			2011
	(Dollars in thousands)
Beginning balance	$	9,676		$	—
Initial estimate upon acquisition		55,773			15,400
Payment		(7,000	)		(6,000	)
Revaluations		461			166
Translation adjustment		(25	)		—
Ending balance	$	58,885		$	9,566

The carrying amount of long-term debt reported in the condensed consolidated balance sheet as of September 30, 2012 is $962.6 million. The Company uses a discounted cash flow technique that incorporates a market interest yield curve with adjustments for duration, optionality, and risk profile to determine the fair value of its debt. The Company’s implied credit rating is a factor in determining the market interest yield curve. The following table provides the fair value of the Company’s debt by fair value hierarchy level as of September 30, 2012:

	Fair value of debt
	(Dollars in thousands)
Level 1	$	773,404
Level 2		381,678
Total	$	1,155,082

In the first quarter of 2012, the Company recorded a goodwill impairment charge of $332 million based on Level 3 inputs. See Note 5 for a discussion of the goodwill impairment.

Valuation Techniques

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 pay benefits under certain deferred compensation plans and other compensatory arrangements. The investment assets of the trust are valued using quoted market prices.

The Company’s financial assets valued based upon Level 2 inputs are comprised of foreign currency forward contracts. The Company’s financial liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts and, at September 25, 2011, an interest rate swap contract. The Company uses forward rate contracts to manage currency transaction exposure and used interest rate swap to manage exposure to interest rate changes. The fair value of the foreign currency forward exchange contracts represents the amount required to enter into offsetting contracts with similar remaining maturities based on quoted market prices. The fair value of the interest rate swap contract was developed from market-based inputs under the income approach using cash flows discounted at relevant market interest rates. The Company has taken into account the creditworthiness of the counterparties in measuring fair value. The decrease in the Company’s derivative liabilities in 2012 is due to the termination of its interest rate swap agreement. See Note 8, “Financial instruments” for additional information.

The Company’s financial liabilities valued based upon Level 3 inputs are comprised of contingent consideration arrangements pertaining to the Company’s acquisitions. The Company accounts for contingent consideration in accordance with applicable guidance provided within the business combination rules. The Company is contractually obligated to pay certain contingent consideration upon the achievement of specified objectives, including regulatory approvals, sales targets and, in some instances, the passage of time, referred to as milestone payments, and therefore recorded contingent consideration liabilities at the time of the acquisitions. As a result, the Company is required to update its assumptions each reporting period based on new developments and record such amounts at fair value until such consideration is satisfied through payment upon the achievement of the specified objectives or failure to achieve the specified objectives.

It is estimated that the payments of the various milestones may occur as early as 2012 and extend as far as 2018 or later. As of September 30, 2012, the range of undiscounted amounts the Company could be required to pay for contingent consideration arrangements is between $7.0 million and $107.0 million. The Company has determined 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 and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingent consideration liability associated with future milestone payments was 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 the acquired technologies;

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

• the risk adjusted discount rate for fair value measurement.

As of September 30, 2012, of the $58.9 million of total contingent consideration, the Company has recorded approximately $21.6 million in current contingent consideration and the remaining $37.3 million in other liabilities.