XML 32 R20.htm IDEA: XBRL DOCUMENT

Financial Instruments and Fair Value Measurements

9 Months Ended

Oct. 02, 2020

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). For the Company, these financial assets and liabilities include its derivative instruments and contingent consideration. The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.

The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency exchange rates, and uses derivatives to manage these exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. All derivatives are recorded at fair value on the balance sheet.

The following tables provide information regarding assets and liabilities recorded at fair value on a recurring basis (in thousands):


	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
October 2, 2020

Assets: Foreign currency contracts	$	98	$	—	$	98	$	—
Liabilities: Foreign currency contracts	836		—		836		—
Liabilities: Interest rate swaps	8,038		—		8,038		—
Liabilities: Contingent consideration	5,401		—		—		5,401


December 31, 2019
Assets: Foreign currency contracts	$	710	$	—	$	710	$	—
Liabilities: Interest rate swaps	3,068		—		3,068		—
Liabilities: Contingent consideration	4,200		—		—		4,200

Interest Rate Swaps

The Company periodically enters into interest rate swap agreements in order to reduce the cash flow risk caused by interest rate changes on its outstanding floating rate borrowings. Under these swap agreements, the Company pays a fixed rate of interest and receives a floating rate equal to one-month LIBOR. The variable rate received from the swap agreements and the variable rate paid on the outstanding debt will have the same rate of interest, excluding the credit spread, and will reset and pay interest on the same date. The Company has designated these swap agreements as cash flow hedges based on concluding the hedged forecasted transaction is probable of occurring within the period the cash flow hedge is anticipated to affect earnings.

Information regarding the Company’s outstanding interest rate swaps designated as cash flow hedges as of October 2, 2020 is as follows (dollars in thousands):


Notional Amount		Start Date	End Date	Pay Fixed Rate		Receive Current Floating Rate		Fair Value		Balance Sheet Location



$	200,000	Jun 2020	Jun 2023	2.1785	%	0.1448	%	$	(8,038)	Other long-term liabilities

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

Information regarding the Company’s outstanding interest rate swaps designated as cash flow hedges as of December 31, 2019 is as follows (dollars in thousands):


Notional Amount		Start Date	End Date	Pay Fixed Rate		Receive Current Floating Rate		Fair Value		Balance Sheet Location
$	200,000	Jun 2017	Jun 2020	1.1325	%	1.7920	%	$	543	Accrued expenses and other current liabilities
65,000		Jul 2019	Jul 2020	1.8900		1.7920		(72)		Accrued expenses and other current liabilities
400,000		Apr 2019	Apr 2020	2.4150		1.7101		(730)		Accrued expenses and other current liabilities
200,000		Jun 2020	Jun 2023	2.1785		(a)		(2,809)		Other long-term liabilities

__________

(a) The interest rate swap did not take effect until June 2020.

Foreign Currency Contracts

The Company periodically enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate fluctuations in its international operations. The Company has designated these foreign currency forward contracts as cash flow hedges. Information regarding outstanding foreign currency forward contracts designated as cash flow hedges as of October 2, 2020 is as follows (dollars in thousands):


Notional Amount		Start Date	End Date	$/Foreign Currency		Fair Value		Balance Sheet Location


$	7,666	Jul 2020	Dec 2020	0.0491	MXN Peso	$	(519)	Accrued expenses and other current liabilities
2,290		Mar 2020	Dec 2020	0.0241	UYU Peso	(52)		Prepaid expenses and other current assets
18,514		Nov 2020	Sep 2021	1.1944	Euro	(274)		Accrued expenses and other current liabilities
10,224		Jan 2021	Sep 2021	0.0454	MXN Peso	(109)		Accrued expenses and other current liabilities
2,343		Nov 2020	Nov 2020	1.1717	Euro	2		Accrued expenses and other current liabilities
2,656		Jan 2021	Mar 2021	0.0443	MXN Peso	64		Accrued expenses and other current liabilities
3,252		Jan 2021	Aug 2021	0.0232	UYU Peso	150		Prepaid expenses and other current assets

Information regarding outstanding foreign currency contracts designated as cash flow hedges as of December 31, 2019 is as follows (dollars in thousands):

Notional Amount

Start
Date

End
Date

$/Foreign Currency

Fair Value

Balance Sheet Location

11,166

Jan 2020

Jun 2020

0.0490

MXN Peso

710

Prepaid expenses and other current assets

Contingent Consideration

The Company estimated the original fair value of the contingent consideration liabilities for the InoMec and USB acquisitions using a Monte Carlo simulation in order to forecast the value of the potential future payment. In periods subsequent to the initial measurement, contingent consideration liabilities are remeasured to fair value each reporting period until the contingent consideration is settled using various assumptions including estimated revenues (based on internal operational budgets and long-range strategic plans), discount rates, revenue volatility and projected payment dates. The assumptions used in the determination of fair value of contingent consideration liabilities are not observable in the market, thus representing a Level 3 measurement within the fair value hierarchy. The current portion of contingent consideration liabilities is included in Accrued expenses and other current liabilities and the non-current portion is included in Other long-term liabilities in the Condensed Consolidated Balance Sheets. Adjustments to the fair value of contingent consideration liabilities are included in Other operating expenses in the Company’s Condensed Consolidated Statements of Operations.

For the February 19, 2020 InoMec acquisition, additional purchase price payments ranging from zero to $3.5 million are contingent upon the achievement of certain revenue targets through February 29, 2024. At the date of acquisition, the Company estimated the original fair value of the contingent consideration to be $1.7 million. At October 2, 2020, the estimated fair value of the contingent consideration associated with the InoMec acquisition was $1.7 million.

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

For the October 7, 2019 USB acquisition, additional purchase price payments ranging from zero to $5.5 million are contingent upon the achievement of certain revenue targets through December 31, 2023. At the date of acquisition, the Company estimated the original fair value of the contingent consideration to be $4.2 million. During the nine months ended October 2, 2020, the Company recognized a gain from the fair value adjustment of contingent consideration of $0.5 million. The fair value adjustment for the nine months ended October 2, 2020 was due to a change in the timing of the projected future revenues, rise in the estimated revenue volatility, and increase in the discount rate used to calculate the present value of the contingent consideration liability. At October 2, 2020, the estimated fair value of the contingent consideration associated with the USB acquisition was $3.7 million.

During the first quarter of 2020, the Company acquired a set of similar identifiable intangible assets relating to a license to use technology within its Non-Medical segment. At the date of acquisition, the Company estimated the original fair value of the contingent consideration to be $1.0 million. The Company paid made milestone payments of $0.5 million during the second and third quarters of 2020 to settle this contingent consideration arrangement.

The following table presents the changes in the estimated fair values of the Company’s liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for the nine months ended October 2, 2020 (in thousands):


December 31, 2019	$	4,200
Contingent consideration liabilities recorded for acquisitions	2,700
Fair value adjustment included in Other operating expenses	(500)
Settlements	(1,000)
Foreign currency translation	1
October 2, 2020	$	5,401

As of October 2, 2020, the estimated fair value of the contingent consideration was $5.4 million, of which $1.2 million is included as current contingent consideration and $4.2 million is included in non-current contingent consideration in the Condensed Consolidated Balance Sheets.

Derivative Instruments with Hedge Accounting Designation

The following tables present the effect of cash flow hedge derivative instruments on other comprehensive income (loss) (“OCI”),

AOCI and the Company’s Condensed Consolidated Statement of Operations for the three and nine months ended October 2, 2020 and September 27, 2019 (in thousands):


	Three Months Ended
	October 2, 2020				September 27, 2019
	Total		Amount of Gain (Loss) on Cash Flow Hedge Activity		Total		Amount of Gain (Loss) on Cash Flow Hedge Activity
Sales	$	235,942	$	590	$	303,587	$	(500)
Cost of sales	178,009		(651)		210,201		309
Operating expenses	18,175		(23)		46,905		—
Interest expense	9,368		(1,066)		12,337		444



	Nine Months Ended
	October 2, 2020				September 27, 2019
	Total		Amount of Gain (Loss) on Cash Flow Hedge Activity		Total		Amount of Gain (Loss) on Cash Flow Hedge Activity
Sales	$	804,483	$	549	$	932,457	$	(1,294)
Cost of sales	591,985		(1,059)		653,477		1,137
Operating expenses	119,479		(57)		143,993		—
Interest expense	29,002		(2,431)		39,779		1,847

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)


	Unrealized Gain (Loss) Recognized in OCI				Realized Gain (Loss) Reclassified from AOCI
	Three months ended,				Location in Statement of Operations	Three months ended,
	October 2, 2020		September 27, 2019			October 2, 2020		September 27, 2019
Interest rate swap	$	(11)	$	(991)	Interest expense	$	(1,066)	$	444
Foreign exchange forwards	68		(400)		Sales	590		(500)
Foreign exchange forwards	451		(68)		Cost of sales	(651)		309
Foreign exchange forwards	57		—		Operating expenses	(23)		—









	Nine Months Ended				Location in Statement of Operations	Nine Months Ended
	October 2, 2020		September 27, 2019			October 2, 2020		September 27, 2019
Interest rate swaps	$	(7,401)	$	(6,590)	Interest expense	$	(2,431)	$	1,847
Foreign exchange contracts	277		(1,099)		Sales	549		(1,294)
Foreign exchange contracts	(2,277)		1,661		Cost of sales	(1,059)		1,137
Foreign exchange forwards	(15)		—		Operating expenses	(57)		—

The Company expects to reclassify net losses totaling $4.3 million related to its cash flow hedges from AOCI into earnings during the next twelve months.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Fair value standards also apply to certain assets and liabilities that are measured at fair value on a nonrecurring basis. The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short-term nature of these items.

Borrowings under the Company’s Revolving Credit Facility, TLA Facility and TLB Facility accrue interest at a floating rate tied to a standard short-term borrowing index, selected at the Company’s option, plus an applicable margin. The carrying amount of this floating rate debt approximates fair value based upon the respective interest rates adjusting with market rate adjustments.

Equity Investments

The Company holds long-term, strategic investments in companies to promote business and strategic objectives. These investments are included in Other Long-Term Assets on the Condensed Consolidated Balance Sheets. Non-marketable equity securities are equity securities without readily determinable fair value. The Company has elected the practicability exception to use an alternative approach that measures the securities at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. If an impairment is recognized on the Company’s non-marketable equity securities during the period, these assets are classified as Level 3 within the fair value hierarchy based on the nature of the fair value inputs.

Equity investments comprise the following (in thousands):


	October 2, 2020		December 31, 2019
Equity method investment	$	19,718	$	16,167
Non-marketable equity securities	6,092		6,092
Total equity investments	$	25,810	$	22,259

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

The components of (Gain) Loss on Equity Investments, Net for each period were as follows (in thousands):


	Three Months Ended				Nine Months Ended
	October 2, 2020		September 27, 2019		October 2, 2020		September 27, 2019
Equity method investment income	$	(2,234)	$	(986)	$	(3,954)	$	(909)
Impairment charges	—		—		—		1,575

Total (gain) loss on equity investments, net	$	(2,234)	$	(986)	$	(3,954)	$	666

The Company’s equity method investment is in a Chinese venture capital fund focused on investing in life sciences companies. As of October 2, 2020, the Company owned 6.6% of this fund.

- 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.

+ References + Details