XML 23 R13.htm IDEA: XBRL DOCUMENT

FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2023

NOTE 7. FAIR VALUE MEASUREMENTS

Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

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

•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•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.

Financial Instruments

The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, acquisition-related contingent consideration and debt obligations. Included in cash and cash equivalents and restricted cash and cash equivalents are money market funds representing a type of mutual fund required by law to invest in low-risk securities (for example, U.S. government bonds, U.S. Treasury Bills and commercial paper). Money market funds pay dividends that generally reflect short-term interest rates. Due to their initial maturities, the carrying amounts of non-restricted and restricted cash and cash equivalents (including money market funds), accounts receivable, accounts payable and accrued expenses approximate their fair values.

Restricted Cash and Cash Equivalents

The following table presents current and noncurrent restricted cash and cash equivalent balances at June 30, 2023 and December 31, 2022 (in thousands):


	Balance Sheet Line Items	June 30, 2023		December 31, 2022
Restricted cash and cash equivalents—current (1)	Restricted cash and cash equivalents	$	159,707	$	145,358
Restricted cash and cash equivalents—noncurrent (2)	Other assets	85,000		85,000
Total restricted cash and cash equivalents		$	244,707	$	230,358

__________

(1)Amounts at June 30, 2023 and December 31, 2022 include: (i) restricted cash and cash equivalents associated with litigation-related matters, including $51.2 million and $50.7 million, respectively, held in Qualified Settlement Funds (QSFs) for mesh- and/or opioid-related matters, and (ii) approximately $86.0 million of restricted cash and cash equivalents at both June 30, 2023 and December 31, 2022 related to certain insurance-related matters. See Note 15. Commitments and Contingencies for further information about litigation-related matters.

(2)The amounts at June 30, 2023 and December 31, 2022 relate to the TLC Agreement. See Note 11. License, Collaboration and Asset Acquisition Agreements for further information.

Acquisition-Related Contingent Consideration

The fair value of contingent consideration liabilities is determined using unobservable inputs; hence, these instruments represent Level 3 measurements within the above-defined fair value hierarchy. These inputs include the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event) and the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is remeasured at current fair value with changes recorded in earnings. The estimates of fair value are uncertain and changes in any of the estimated inputs used as of the date of this report could have resulted in significant adjustments to fair value. See the “Recurring Fair Value Measurements” section below for additional information on acquisition-related contingent consideration.

Recurring Fair Value Measurements

The Company’s financial assets and liabilities measured at fair value on a recurring basis at June 30, 2023 and December 31, 2022 were as follows (in thousands):


	Fair Value Measurements at June 30, 2023 using:
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Assets:
Money market funds (1)	$	7,108	$	—	$	—	$	7,108
Liabilities:



Acquisition-related contingent consideration (2)	$	—	$	—	$	14,653	$	14,653


	Fair Value Measurements at December 31, 2022 using:
	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total
Assets:
Money market funds (1)	$	12,226	$	—	$	—	$	12,226
Liabilities:



Acquisition-related contingent consideration (2)	$	—	$	—	$	16,571	$	16,571

__________

(1)At June 30, 2023 and December 31, 2022, money market funds include $7.1 million and $12.2 million, respectively, in QSFs. Amounts in QSFs are considered restricted cash equivalents. See Note 15. Commitments and Contingencies for further discussion of our litigation. At June 30, 2023 and December 31, 2022, the differences between the amortized cost and the fair value of our money market funds were not material, individually or in the aggregate.

(2)At June 30, 2023 and December 31, 2022, the balance of the Company’s liability for acquisition-related contingent consideration, which is governed by executory contracts and recorded at the expected amount of the total allowed claim, is classified within Liabilities subject to compromise in the Condensed Consolidated Balance Sheets.

Fair Value Measurements Using Significant Unobservable Inputs

The following table presents changes to the Company’s liability for acquisition-related contingent consideration, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3), for the three and six months ended June 30, 2023 and 2022 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Beginning of period	$	15,697	$	17,976	$	16,571	$	20,076
Amounts settled	(1,890)		(1,357)		(2,769)		(2,159)
Changes in fair value recorded in earnings	365		1,825		762		448
Effect of currency translation	481		(202)		89		(123)
End of period	$	14,653	$	18,242	$	14,653	$	18,242

At June 30, 2023, the fair value measurements of the contingent consideration obligations were determined using risk-adjusted discount rates ranging from 10.0% to 15.0% (weighted average rate of approximately 10.5%, weighted based on relative fair value). Changes in fair value recorded in earnings related to acquisition-related contingent consideration are included in our Condensed Consolidated Statements of Operations as Acquisition-related and integration items, net.

The following table presents changes to the Company’s liability for acquisition-related contingent consideration during the six months ended June 30, 2023 by acquisition (in thousands):


	Balance as of December 31, 2022		Changes in Fair Value Recorded in Earnings		Amounts Settled and Other		Balance as of June 30, 2023
Auxilium acquisition	$	10,618	$	389	$	(812)	$	10,195
Lehigh Valley Technologies, Inc. acquisitions	2,300		(14)		(686)		1,600

Other	3,653		387		(1,182)		2,858
Total	$	16,571	$	762	$	(2,680)	$	14,653

Nonrecurring Fair Value Measurements

Long-lived assets, goodwill and other intangible assets may be subject to nonrecurring fair value measurement for the evaluation of potential impairment. During the six months ended June 30, 2023, nonrecurring fair value measurements, which related primarily to certain property, plant and equipment, were not material.

- 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