Fair Value Measurement of Assets and Liabilities

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurement of Assets and Liabilities

9.  Fair Value Measurement of Assets and Liabilities

The following assets and liabilities are recorded at fair value on a recurring basis (in millions):

	As of September 30, 2017
			Fair Value Measurements at Reporting Date Using:
Description	Recorded Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives, current and long-term
Foreign currency forward contracts	$	3.9	$	-	$	3.9	$	-
Interest rate swaps		3.8		-		3.8		-
Total Assets	$	7.7	$	-	$	7.7	$	-
Liabilities
Derivatives, current and long-term
Foreign currency forward contracts	$	39.5	$	-	$	39.5	$	-
Contingent payments related to acquisitions		44.0		-		-		44.0
Total Liabilities	$	83.5	$	-	$	39.5	$	44.0

	As of December 31, 2016
			Fair Value Measurements at Reporting Date Using:
Description	Recorded Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Derivatives, current and long-term
Foreign currency forward contracts	$	65.3	$	-	$	65.3	$	-
Interest rate swaps		4.0		-		4.0		-
Total Assets	$	69.3	$	-	$	69.3	$	-
Liabilities
Derivatives, current and long-term
Foreign currency forward contracts	$	0.3	$	-	$	0.3	$	-
Contingent payments related to acquisitions		62.8		-		-		62.8
Total Liabilities	$	63.1	$	-	$	0.3	$	62.8

We value our foreign currency forward contracts and foreign currency options using a market approach based on foreign currency exchange rates obtained from active markets, and we perform ongoing assessments of counterparty credit risk.  

We value our interest rate swaps using a market approach based on publicly available market yield curves and the terms of our swaps, and we perform ongoing assessments of counterparty credit risk.

Contingent payments related to acquisitions consist of commercial milestone, cost savings and sales-based payments, and are valued using discounted cash flow techniques.  The fair value of commercial milestone payments reflects management’s expectations of probability of payment, and increases as the probability of payment increases or expectation of timing of payments is accelerated.  The fair value of cost savings and sales-based payments is based upon probability-weighted future cost savings and revenue estimates, and increases as cost savings and revenue estimates increase, probability weighting of higher cost savings and revenue scenarios increase or expectation of timing of payment is accelerated.  In the three and nine month periods ended September 30, 2017, we recognized $1.7 million of loss and $1.5 million of income, respectively, related to contingent payments due to changes in estimates.  In the nine month period ended September 30, 2017, we also paid $13.7 million in contingent payments and made a fair value adjustment of $3.6 million to the preliminary estimate of contingent consideration that reduced the contingent payment liability.

In the third quarter of 2017, we performed a goodwill impairment test on our Office Based Technologies reporting unit due to continued revenue declines.  As a result, we recognized a $32.7 million impairment charge.  The $32.7 million impairment represented the entire goodwill balance of the reporting unit and therefore no goodwill remains.  This reporting unit was acquired as part of the Biomet merger in 2015 and therefore its assets and liabilities were recognized at their estimated fair values at the merger date.  Since the merger date valuation, operating performance has been lower than expected due to integration issues, management turnover and poor execution of its operating plans.

We estimated the fair value of the Office Based Technologies reporting unit using a market approach.  GAAP defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.”  We used market indicators based upon the reporting unit’s operating performance to estimate what price would be paid for the assets in an orderly transaction.  

We have six other reporting units with goodwill assigned to them.  We did not perform goodwill impairment tests on our other reporting units as there were no indicators that their goodwill may be impaired.