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Financial Instruments and Fair Value Measurements

12 Months Ended

Dec. 29, 2023

Financial Instruments and Fair Value Measurements


19.			Financial Instruments and Fair Value Measurements

Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market participants would use in pricing an asset or liability. The fair value guidance establishes a three-level fair value hierarchy, which maximizes the use of observable inputs and minimizes the use of unobservable inputs used in measuring fair value. The levels within the hierarchy are as follows:

Level 1— observable inputs such as quoted prices in active markets for identical assets or liabilities;

Level 2— significant other observable inputs that are observable either directly or indirectly; and

Level 3— significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.

The following tables provide a summary of the significant assets and liabilities that are measured at fair value on a recurring basis at the end of each period:


	December 29, 2023 (Successor)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Debt and equity securities held in rabbi trusts	$	43.3	$	29.1	$	14.2	$	—
Equity securities	28.9		28.9		—		—
Interest rate cap	12.9		—		—		12.9
	$	85.1	$	58.0	$	14.2	$	12.9
Liabilities:
Debt derivative liabilities	$	15.1	$	—	$	—	$	15.1
Deferred compensation liabilities	21.0		—		21.0		—
Contingent consideration liabilities	14.7		—		—		14.7

	$	50.8	$	—	$	21.0	$	29.8


	December 30, 2022 (Predecessor)		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Debt and equity securities held in rabbi trusts	$	36.6	$	24.8	$	11.8	$	—
Equity securities	25.5		25.5		—		—
	$	62.1	$	50.3	$	11.8	$	—
Liabilities:
Deferred compensation liabilities	$	26.0	$	—	$	26.0	$	—
Contingent consideration liabilities	7.3		—		—		7.3

	$	33.3	$	—	$	26.0	$	7.3

Debt and equity securities held in rabbi trusts. Debt securities held in rabbi trusts primarily consist of U.S. government and agency securities and corporate bonds. When quoted prices are available in an active market, the investments are classified as level 1. When quoted market prices for a security are not available in an active market, they are classified as level 2. Equity securities held in rabbi trusts primarily consist of U.S. common stocks, which are valued using quoted market prices reported on nationally recognized securities exchanges.

Equity securities. Equity securities consist of shares in Silence Therapeutics plc and Panbela Therapeutics, Inc. for which quoted prices are available in an active market; therefore, these investments are classified as level 1 and are valued based on quoted market prices reported on internationally recognized securities exchanges.

During the period November 15, 2023 through December 29, 2023 (Successor), the period June 17, 2022 through December 30, 2022 (Predecessor), and fiscal 2021 (Predecessor), the Company recognized an unrealized gain of $13.5 million, $9.2 million, and $4.7 million, respectively and during the period December 31, 2022 through November 14, 2023 (Predecessor) and the period January 1, 2022 through June 16, 2022 (Predecessor), the Company recognized an unrealized loss of $10.1 million and $22.2 million, respectively, related to our investments within other income (expense), net in the consolidated statements of operations.

Interest rate cap. The Company is exposed to interest rate risk on its variable-rate debt. During the three months ended March 31, 2023 (Predecessor), the Company entered into an interest rate cap agreement, which serves to reduce the volatility on future interest expense cash outflows. The interest rate cap agreement has a total notional value of $860.0 million with an upfront premium of $20.0 million and provides the Company with interest rate protection (i) for the period March 16, 2023 through July 19, 2023 to the extent that the one-month LIBOR exceeds 4.65%, and (ii) for the period July 20, 2023 through March 26, 2026 to the extent that the one-month SOFR exceeds 3.84%.

During the period from March 16, 2023 to November 14, 2023 (Predecessor), the interest rate cap agreement qualified as a cash flow hedge. The premium paid was recognized in income on a rational basis, and changes in the fair value of the interest rate cap were recorded within accumulated other comprehensive income ("AOCI") and were subsequently reclassed into interest expense in the period when the hedged interest affects earnings. Upon adoption of fresh-start accounting, the Company reassessed the interest rate cap and elected to not apply hedge accounting. As such, during the Successor period, the interest rate cap agreement was not accounted for as a cash flow hedge and the changes in fair value of the interest rate cap were recorded within other income (expense) in the consolidated statement of operations. The fair value of the interest rate cap is included in other assets on the Company’s consolidated balance sheet as of December 29, 2023 (Successor).

The Company elected to use the income approach to value the interest rate cap derivative using observable Level 2 market expectations at the measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) reflecting current market expectations about those future amounts. Level 2 inputs for derivative valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically futures contracts) and inputs other than quoted prices that are observable such as LIBOR or SOFR rate curves, futures and volatilities. Mid-market pricing is used as a practical expedient in the fair value measurements. During the period from December 31, 2022 through November 14, 2023 (Predecessor), the Company recognized an unrealized gain of $5.7 million within AOCI with a gain of $0.7 million being reclassified into earnings as a component of interest expense, net. During the period from November 15, 2023 to December 29, 2023 (Successor), the Company recognized an $8.4 million unrealized loss in other income (expense) related to the changes in fair value of the interest rate cap. The cash payment of the $20.0 million premium and other corresponding activity related to the interest rate cap were reflected as cash flows from operating activities in the consolidated statement of cash flows for the period December 31, 2022 to November 14, 2023 (Predecessor).

Debt derivative liabilities. The debt derivative liabilities related to the Company's First and Second-Out Takeback Term Loans and Takeback Notes are measured using a 'with and without' valuation model to compare the fair values of each debt instrument including the identified embedded derivative feature. The "with" value corresponds to the fair value of each instrument assuming mandatory prepayment upon an asset sale. The "without" value corresponds to the fair value of each instrument assuming no mandatory prepayment upon an asset sale These derivative liabilities are classified as level 3 and the fair value of the debt instruments including the embedded derivative features were determined using the Black-Derman-Toy model based on three potential scenarios included in the tables below which includes significant unobservable inputs. The estimated settlement value of each scenario, which would include any required applicable premium (see Note 13), is then discounted to present value using a discount rate that is a 3.08% and 4.58% credit spread for the First and Second-Out Takeback Term Loans, respectively, plus the U.S. treasury yield commensurate with the cash flow payment date. The applicable premium estimates were calculated at each mandatory prepayment event date in accordance with the contractual definition and were based, in part, on subjective assumptions. These subjective assumptions relate to scenario-related proceeds from an asset sale, inclusive of estimated transaction fees and related taxes. The debt derivative liability is recorded at fair value, with the changes in fair value reported within earnings. The debt derivative liability was $15.1 million as of November 14, 2023 (Predecessor) and December 29, 2023 (Successor) and was recorded within accrued and other current liabilities within the consolidated balance sheet as of December 29, 2023 (Successor). Significant assumptions utilized in the determination of the fair value are as follows:

First and Second-Out Takeback Term Loans:

Input

Scenario 1

Scenario 2

Scenario 3

Remaining term (years)

Maturity Date

November 14, 2028

Coupon Rate

7.50% - 9.50% + SOFR

Probability of mandatory prepayment event before November 2025 (1)

25.00%

6.25%

Estimated timing of mandatory prepayment event before November 2025(1)

August 2024

December 2024

August and December 2024

(1) Represents a significant unobservable input

Takeback Notes:

Input

Scenario 1

Scenario 2

Scenario 3

Remaining term (years)

Maturity Date

November 14, 2028

Coupon Rate

14.75%

Probability of mandatory prepayment event before November 2025 (1)

25.00%

6.25%

Estimated timing of mandatory prepayment event before November 2025 (1)

August 2024

December 2024

August and December 2024

(1) Represents a significant unobservable input

Deferred compensation liabilities. The Company maintains a non-qualified deferred compensation plan in the U.S., which permits eligible employees of the Company to defer a portion of their compensation. A recordkeeping account is set up for each participant and the participant chooses from a variety of funds for the deemed investment of their accounts. The recordkeeping accounts generally correspond to the funds offered in the Company's U.S. tax-qualified defined contribution retirement plan and the account balance fluctuates with the investment returns on those funds.

Contingent consideration liabilities. In accordance with the 2020 Plan and the 2020 Scheme of Arrangement, the Company will provide consideration for the Terlivaz CVR primarily in the form of the achievement of a cumulative net sales milestone. The Company assesses the likelihood and timing of making such payments at each balance sheet date. The fair value of the contingent payment was measured based on the net present value of a probability-weighted assessment. The Company determined the fair value of the Terlivaz CVR as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor) to be $14.7 million and $7.3 million, respectively.

All contingent consideration liabilities were classified within other liabilities in the consolidated balance sheets as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), respectively. The following table summarizes activity for contingent consideration:



















Balance as of December 30, 2022 (Predecessor)	$	7.3
Fair value adjustments	(7.2)
Fresh-start adjustment	14.9
Balance as of November 14, 2023 (Predecessor)	$	15.0


Balance as of November 15, 2023 (Successor)	$	15.0
Fair value adjustments	(0.3)
Balance as of December 29, 2023 (Successor)	$	14.7

Financial Instruments Not Measured at Fair Value

The following methods and assumptions were used by the Company in estimating fair values for financial instruments not measured at fair value as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor):

•The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and the majority of other current assets and liabilities approximate fair value because of their short-term nature. The Company classifies cash on hand and deposits in banks, including commercial paper, money market accounts and other investments it may hold from time to time, with an original maturity of three months or less, as cash and cash equivalents (level 1). The fair value of restricted cash was equivalent to its carrying value of $80.7 million and $57.2 million as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), (level 1), respectively. Included within the balance as of the 2023 Effective Date was $24.0 million related to the funding of a professional fee escrow account upon emergence from the 2023 Bankruptcy Proceedings. Refer to Note 3 for further information. As of December 29, 2023 (Successor), the professional fee escrow balance was $17.6 million.

•The Company's life insurance contracts are carried at cash surrender value, which is based on the present value of future cash flows under the terms of the contracts (level 3). Significant assumptions used in determining the cash surrender value include the amount and timing of future cash flows, interest rates and mortality charges. The fair value of these contracts approximates the carrying value of $45.3 million and $46.7 million as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), respectively. These contracts are included in other assets on the consolidated balance sheets.

•Successor debt. The Company's Takeback Notes and receivables securitization facility are classified as level 1, as quoted prices are available in an active market for these notes. Since quoted market prices for the Company's Takeback Term Loans are not available in an active market, they are classified as level 2 for purposes of developing an estimate of fair value.

Predecessor debt. The Company's First Lien Notes and receivables financing facility are classified as level 1, as quoted prices are available in an active market for these notes. Since quoted market prices for the Company's term loans are not available in an active market, they are classified as level 2 for purposes of developing an estimate of fair value.


	Successor				Predecessor
	December 29, 2023				December 30, 2022
	Carrying Value		Fair Value		Carrying Value		Fair Value
Level 1:
14.75% Second-Out Takeback Notes due November 2028	$	836.4	$	844.4	$	—	$	—
10.00% first lien senior secured notes due April 2025	—		—		475.9		425.9
10.00% second lien senior secured notes due April 2025	—		—		242.2		216.8
11.50% first lien senior secured notes due December 2028	—		—		650.0		552.6
10.00% second lien senior secured notes due June 2029	—		—		175.5		176.7

Level 2:
First-Out Takeback Term Loan Due November 2028	243.4		232.8		—		—
Second-Out Takeback Term Loan Due November 2028	685.5		654.0		—		—
2017 Replacement Term loan due September 2027	—		—		1,222.1		1,037.8
2018 Replacement Term loan due September 2027	—		—		326.9		274.8
Total Debt	$	1,765.3	$	1,731.2	$	3,092.6	$	2,684.6

Concentration of Credit and Other Risks

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of accounts receivable. The Company generally does not require collateral from customers. A portion of the Company's accounts receivable outside the U.S. includes sales to government-owned or supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries' national economies.

The following table shows net sales attributable to distributors that accounted for 10.0% or more of the Company's total segment net sales:

Successor

Predecessor

Period from
November 15, 2023
through December 29, 2023

Period from
December 31, 2022
through
November 14, 2023

Period from
June 17, 2022
through
December 30, 2022

Period from
January 1, 2022
through
June 16, 2022

Year Ended December 31, 2021

FFF Enterprises, Inc.

23.1

22.3

26.1

11.8

McKesson Corporation

10.8

AmerisourceBergen Corporation

10.0

CuraScript, Inc.

15.6

26.1

* Net sales to this distributor were less than 10.0% of total net sales during the respective periods presented above.

The following table shows accounts receivable attributable to distributors that accounted for 10.0% or more of the Company's gross accounts receivable at the end of each period:

Successor

Predecessor

December 29,
2023

December 30,
2022

AmerisourceBergen Corporation

24.2%

23.3%

McKesson Corporation

20.0

17.3

FFF Enterprises, Inc.

16.2

* Accounts receivable attributable to this distributor was less than 10.0% of total gross accounts receivable at the end of the respective period presented above.

The following table shows net sales attributable to products that accounted for 10.0% or more of the Company's total segment net sales:


	Successor		Predecessor
	Period from November 15, 2023 through December 29, 2023		Period from December 31, 2022 through November 14, 2023		Period from June 17, 2022 through December 30, 2022		Period from January 1, 2022 through June 16, 2022		Year Ended December 31, 2021
Acthar Gel	23.5	%	22.7	%	28.3	%	25.4	%	26.9	%
INOmax	14.5		16.5		16.7		19.0		20.3
Therakos	16.1		13.6		12.5		12.5		12.1
APAP	13.4		11.4		10.7		11.0		*

- 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