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Note 13 - Fair Value Measurements
9 Months Ended
Sep. 30, 2021
Notes to Financial Statements  
Fair Value Disclosures [Text Block]

13. Fair Value Measurements

 

The fair value accounting guidance requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

 

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

Level 1 assets being measured at fair value on a recurring basis as of September 30, 2021 included our short-term investment and short-duration bond mutual fund accounts.

 

We had no Level 2 assets being measured at fair value on a recurring basis as of September 30, 2021. 

 

As discussed in Note 4, several of our acquisition-related assets and liabilities have been measured using Level 3 techniques. During 2020 we recorded a contingent liability associated with our acquisition of the Artegraft biologic graft business. The agreement requires us to make potential additional payments to Artegraft of up to $17.5 million depending on the achievement of certain unit sales milestones during the first three calendar years following the acquisition. We recorded this liability at a fair value of $0.4 million to reflect management’s estimate of the likelihood of achieving these targets at the time of the Closing, as well as the time value of money until payment. This amount will be remeasured each quarter during the earn-out period, with any adjustments recorded in income from operations.

 

During 2019, we recorded contingent liabilities associated with our acquisition of the Admedus biologic patch business. The agreement includes the potential for us to pay up to $7.8 million of additional consideration beyond payments made to date, with $0.3 million contingent upon the delivery of audited financial statement of the acquired business to us; $2.0 million contingent on LeMaitre’s success in obtaining CE marks under MDR regulations on the acquired products, $0.5 million contingent upon Admedus’ success in extending the shelf life of the acquired products as specified in the agreement, and another $5.0 million contingent on the achievement of specified levels of revenues in the first 12 and 24 months following the acquisition date. This additional contingent consideration was initially valued in total at $2.3 million and is being re-measured each reporting period until the payment requirement ends, with any adjustments reported in income from operations. The contingent payment related to the delivery of audited financial statements of the business was paid in November 2019 upon satisfaction of the deliverable. The contingent payments related to Admedus’ extending the shelf life of the acquired products and achieving the revenue targets during the first 12 and 24 month periods following the acquisition were not met, and the portion of the liabilities related to these items was adjusted through income from operations. The agreement was amended in August 2021 such that the contingent payment of $2.0 million potentially due upon LeMaitre Vascular’s success in obtaining CE marks under MDR regulations on the acquired products may be reduced for certain costs incurred by LeMaitre in achieving the CE marks. During the quarter ended September 30, 2021 we recorded a reduction to the liability of $0.5 million, with the offset recorded in income from operations, to reflect our estimate of costs to be deducted from the contingent payment in connection with this amendment.

 

The following table provides a rollforward of the fair value of these liabilities, as determined by Level 3 unobservable inputs, including management’s forecast of future revenues and/or unit sales for the acquired businesses, and management’s estimates of the likelihood of obtaining CE marks on the acquired CardioCel and VascuCel products and costs to be incurred by us that would reduce the associated liability.

 

  

Nine months ended September 30,

 
  

2021

  

2020

 
  

(in thousands)

 

Beginning balance

 $2,240  $1,765 

Additions

  -   406 

Payments

  -   - 

Change in fair value included in earnings

  (508)  39 
         

Ending balance

 $1,732  $2,210