Fair value measurement

9 Months Ended

Sep. 29, 2013

Note 10 — Fair value measurement

For a description of the fair value hierarchy, see Note 11 to the Company’s 2012 consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2012.

The following tables provide information regarding the financial assets and liabilities carried at fair value measured on a recurring basis as of September 29, 2013 and December 31, 2012:


	Total carrying value at September 29, 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	$	5,646	$	5,646	$	—	$	—
Derivative assets		184		—		184		—
Derivative liabilities		1,171		—		1,171		—
Contingent consideration liabilities		20,610		—		—		20,610


	Total carrying value at December 31, 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	$	4,785	$	4,785	$	—	$	—
Derivative assets		1,279		—		1,279		—
Derivative liabilities		598		—		598		—
Contingent consideration liabilities		51,196		—		—		51,196

There were no transfers of financial assets or liabilities carried at fair value among Level 1, Level 2 or Level 3 within the fair value hierarchy during the nine months ended September 29, 2013.

The following table provides information regarding changes in Level 3 financial liabilities related to contingent consideration in connection with various Company acquisitions, including those described in Note 3, during the period ended September 29, 2013:


	Contingent consideration
	2013
	(Dollars in thousands)
Balance — January 1, 2013	$	51,196
Payment		(18,177	)
Revaluations		(12,387	)
Translation adjustment		(22	)

Balance — September 29, 2013	$	20,610

The Company reduced contingent consideration liabilities and selling, general and administrative expense by approximately $4.4 million and $12.4 million for the three and nine month periods ended September 29, 2013, respectively, and $0.7 million for the nine month period ended September 30, 2012 after determining that certain conditions for the payment of certain contingent consideration would not be satisfied.

In the third quarter of 2013, the Company recorded a long-lived asset impairment charge of $3.4 million based on Level 3 inputs. See Note 4 for a discussion of the long-lived asset impairment.

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 and financial liabilities valued based upon Level 2 inputs are comprised of foreign currency forward contracts. The Company uses forward rate contracts to manage currency transaction exposure. 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 Company has taken into account the creditworthiness of the counterparties in measuring fair value.

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 related to business combinations. In connection with several of its acquisitions, the Company agreed to pay contingent consideration upon the achievement of specified objectives, including receipt of regulatory approvals, achievement of sales targets and, in some instances, the passage of time (collectively, “milestone payments”), and therefore recorded contingent consideration liabilities at the time of the acquisitions. The Company is required to reevaluate the fair value of contingent consideration each reporting period based on new developments and record changes in fair value until such consideration is satisfied through payment upon the achievement of the specified objectives or is no longer payable due to failure to achieve the specified objectives.

It is estimated that milestone payments will occur in 2013 and may extend until 2018 or later. As of September 29, 2013, the range of undiscounted amounts the Company could be required to pay for contingent consideration arrangements is between zero and $77.7 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 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 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 assets or liabilities categorized as Level 3 measurements:


	Valuation Technique	Unobservable Input	Range (Weighted Average)
Contingent consideration	Discounted cash flow	Discount rate		2%-10%(6%)
		Probability of payment		0%-100%(32%)

As of September 29, 2013, of the $20.6 million of total recorded liabilities for contingent consideration, the Company has recorded approximately $4.7 million in Current portion of contingent consideration and the remaining $15.9 million in Other liabilities.

- 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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