Financial Instruments and Fair Value Measurements

9 Months Ended

Sep. 27, 2024

Fair Value Disclosures [Abstract]

Financial Instruments and Fair Value Measurements

14. 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 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:

			Fair Value Measurement Using Fair Value Hierarchy:
	September 27, 2024 (Successor)		Level 1		Level 2		Level 3
Assets:
Debt and equity securities held in rabbi trusts	$	24.9	$	16.5	$	8.4	$	—
Equity securities	30.8		30.8		—		—
Interest rate cap	4.3		—		4.3		—
	$	60.0	$	47.3	$	12.7	$	—
Liabilities:
Debt derivative liability	$	12.4	$	—	$	—	$	12.4
Deferred compensation liabilities	21.4		—		21.4		—
Contingent consideration liabilities	17.9		—		—		17.9
	$	51.7	$	—	$	21.4	$	30.3

			Fair Value Measurement Using Fair Value Hierarchy:
	December 29, 2023 (Successor)		Level 1		Level 2		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	$	27.1	$	—
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

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. During the nine months ended September 27, 2024 (Successor), proceeds from debt and equity securities held in rabbi trusts were $22.6 million.

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. The three and nine months ended September 27, 2024 (Successor) included $1.3 million unrealized losses and $1.4 million of unrealized gains, respectively, on equity securities related to our investments in Silence Therapeutics plc and Panbela Therapeutics, Inc, while the three and nine months ended September 29, 2023 (Predecessor) included $7.2 million of unrealized gain and $9.1 million of unrealized loss, respectively. These amounts were recorded within other (expense) income, net in the unaudited condensed 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, 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, through March 26, 2026, to the extent that the one-month secured overnight funding rate (“SOFR”) exceeds 3.84%. For purposes of the interest rate cap, SOFR is measured on a predetermined business day of every month, which may not coincide with either the Company’s fiscal period end or the date that SOFR is determined for purposes of the First and Second-Out Takeback Term Loans. The impact of the interest rate cap on the Company’s applicable interest rates as disclosed in Note 11 reflects the SOFR rate in effect on September 27, 2024 (Successor).

The interest rate cap agreement is not accounted for as a cash flow hedge and the changes in fair value of the interest rate cap were recorded within other expense, net in the unaudited condensed consolidated statements of operations. The fair value of the interest rate cap is included in other assets on the Company’s unaudited condensed consolidated balance sheet as of September 27, 2024 (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 SOFR rate curves, futures and volatilities. Mid-market pricing is used as a practical expedient in the fair value measurements. During the three and nine months ended September 27, 2024 (Successor), the Company recognized a $9.9 million and a $8.6 million unrealized loss, respectively, in other (expense) income, net, while during the three and nine months ended September 29, 2023 (Predecessor), the Company recognized a $2.7 million and a $8.8 million unrealized gain, respectively. These amounts were related to the changes in fair value of the interest rate cap.

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 the potential scenario included in the tables below, which includes significant unobservable inputs. The estimated settlement value of each scenario, which would include any required applicable premium, is then discounted to present value using a discount rate that is a 1.12% and 2.36% 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 $12.4 million and $15.1 million as of September 27, 2024 (Successor) and December 29, 2023 (Successor), respectively, and was recorded within accrued and other current liabilities within the unaudited condensed consolidated balance sheets as of September 27, 2024 (Successor) and December 29, 2023 (Successor). The $8.0 million and $2.7 million decreases in debt derivative liability during the three and nine months ended September 27, 2024 (Successor), respectively, were recognized in other (expense) income, net, within the unaudited condensed consolidated statements of operations. Significant assumptions utilized in the determination of the fair value as of September 27, 2024 (Successor) are as follows:

Debt derivatives related to first and second-out takeback term loans:

Input	Scenario
Remaining term (years)	4.1
Maturity Date	November 14, 2028
Coupon Rate	7.50% - 9.50% + SOFR
Probability of mandatory prepayment event before November 2025 (1)	95.0%
Estimated timing of mandatory prepayment event before November 2025 (1)	December 2024

(1) Represents a significant unobservable input

Debt derivatives related to takeback notes:

Input	Scenario
Remaining term (years)	4.1
Maturity Date	November 14, 2028
Coupon Rate	14.75%
Probability of mandatory prepayment event before November 2025 (1)	95.0%
Estimated timing of mandatory prepayment event before November 2025 (1)	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 liability. In accordance with the 2020 Plan and the Scheme of Arrangement related to the 2020 Irish examinership proceedings, the Company will provide consideration for the Terlivaz® contingent value right agreement (“CVR”) primarily in the form of the achievement of a cumulative net sales milestone. The determination of fair value is dependent upon a number of factors, which include projections of future net sales, a weighted average cost of capital, and certain other market place data. 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 September 27, 2024 (Successor) and December 29, 2023 (Successor) to be $17.9 million and $14.7 million, respectively. The contingent consideration liability was classified within other liabilities in the unaudited condensed consolidated balance sheets as of September 27, 2024 (Successor) and December 29, 2023 (Successor). For the three and nine months ended September 27, 2024 (Successor), the Company recorded expense of $1.1 million and $3.2 million, respectively, within SG&A. Comparatively, for the three and nine months ended September 29, 2023 (Predecessor), the Company recorded income of $0.2 million and $7.3 million, respectively, within SG&A.

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 September 27, 2024 (Successor) and December 29, 2023 (Successor):

•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 highly liquid 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 $65.5 million and $80.7 million as of September 27, 2024 (Successor) and December 29, 2023 (Successor) (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. As of September 27, 2024 (Successor), the professional fee escrow balance was zero.

•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 $44.2 million and $45.3 million as of September 27, 2024 (Successor) and December 29, 2023 (Successor), respectively. These contracts are included in other assets on the unaudited condensed consolidated balance sheets.

•The Company's Takeback Notes 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. The following table presents the carrying values and estimated fair values of the Company's debt as of the end of each period:

	Successor
	September 27, 2024				December 29, 2023
	Carrying Value		Fair Value		Carrying Value		Fair Value
Level 1:
14.75% Second-Out Takeback Notes due November 2028	$	827.6	$	853.6	$	836.4	$	844.4
Level 2:
First-Out Takeback Term Loan Due November 2028	240.0		244.8		243.4		232.8
Second-Out Takeback Term Loan Due November 2028	675.3		691.7		685.5		654.0
Total Debt	$	1,742.9	$	1,790.1	$	1,765.3	$	1,731.2

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 net sales:

	Successor		Predecessor
	Three Months Ended September 27, 2024		Three Months Ended September 29, 2023
FFF Enterprises, Inc.	23.3	%	24.0	%
Cencora, Inc. (formerly known as AmerisourceBergen Corp.)	*		13.3

	Successor		Predecessor
	Nine Months Ended September 27, 2024		Nine Months Ended September 29, 2023
FFF Enterprises, Inc.	21.7	%	22.4	%
Cencora, Inc. (formerly known as AmerisourceBergen Corp.)	13.7		*

* Net sales to this distributor were less than 10.0% of the Company's total net sales for 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
	September 27, 2024		December 29, 2023
Cencora, Inc. (formerly known as AmerisourceBergen Corp.)	36.7	%	24.2	%
McKesson Corporation	20.4		20.0

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

	Successor		Predecessor
	Three Months Ended September 27, 2024		Three Months Ended September 29, 2023
Acthar Gel	25.0	%	24.6	%
INOmax	12.7		14.7
Therakos	13.4		13.3
APAP	*		11.6

	Successor		Predecessor
	Nine Months Ended September 27, 2024		Nine Months Ended September 29, 2023
Acthar Gel	23.3	%	23.0	%
INOmax	13.5		16.6
Therakos	13.0		13.4
APAP	*		11.7

* Net sales attributable to this product were less than 10.0% of the Company's total net sales for the respective periods presented above.