Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements. Our financial assets and (liabilities) carried at fair value measured on a recurring basis as of June 30, 2015 and December 31, 2014, 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, 2015			(Level 1)		(Level 2)			(Level 3)
Interest rate swap (1)	$	(227	)	$	—	$	(227	)	$	—
				Fair Value Measurements Using
	Total Fair			Quoted prices in		Significant other			Significant
	Value at			active markets		observable inputs			Unobservable inputs
Description	December 31, 2014			(Level 1)		(Level 2)			(Level 3)
Interest rate swap (1)	$	573		$	—	$	573		$	—

(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. The contingent consideration liability is re-measured at the estimated fair value at each reporting period with the change in fair value recognized within operating 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, 2015 and 2014, consisted of the following (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Beginning balance	$	1,842		$	2,513		$	1,886		$	2,526
Fair value adjustments recorded to income during the period	121			8			243			19
Contingent payments made	(14		)	(14		)	(180		)	(38		)
Ending balance	$	1,949		$	2,507		$	1,949		$	2,507

The recurring Level 3 measurement of our contingent consideration liability includes the following significant unobservable inputs at June 30, 2015 (amount in thousands):

Contingent consideration liability	Fair value at June 30, 2015		Valuation technique	Unobservable inputs	Range
Revenue-based payments	$	1,803	Discounted cash flow	Discount rate	1% - 14%
				Probability of milestone payment	15% - 100%
				Projected year of payments	2015-2028
Other payments	$	146	Discounted cash flow	Discount rate	5%
				Probability of milestone payment	100%
				Projected year of payments	2015-2016

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. Increases (decreases) in discount rates and the time to payment may result in lower (higher) fair value measurements. 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 operating expenses in our consolidated statements of income. As of June 30, 2015, approximately $756,000 was included in other long-term obligations and $1.2 million was included in accrued expenses in our consolidated balance sheet. As of December 31, 2014, approximately $803,000 was included in other long-term obligations and $1.1 million 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, 2015, we had losses of approximately $0 and $14,000, respectively, compared to $85,000 and $119,000 for the three and six-month periods ended June 30, 2014, 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).