Fair Value Measurement of Assets and Liabilities

3 Months Ended

Mar. 31, 2023

Fair Value Measurement of Assets and Liabilities

11. Fair Value Measurement of Assets and Liabilities

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


	As of March 31, 2023
			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 designated as hedges, current and long-term
Foreign currency forward contracts	$	59.9	$	-	$	59.9	$	-
Total Assets	$	59.9	$	-	$	59.9	$	-

Liabilities
Derivatives designated as hedges, current and long-term
Foreign currency forward contracts	$	3.1	$	-	$	3.1	$	-
Cross-currency interest rate swaps		50.3		-		50.3		-
Interest rate swaps		140.3		-		140.3		-
Contingent payments related to acquisitions		99.0		-		-		99.0
Total Liabilities	$	292.7	$	-	$	193.7	$	99.0


	As of December 31, 2022
			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 designated as hedges, current and long-term
Foreign currency forward contracts	$	72.8	$	-	$	72.8	$	-
Cross-currency interest rate swaps		6.8		-		6.8		-
Derivatives not designated as hedges, current and long-term
Foreign currency forward contracts		1.8		-		1.8		-
Forward Exchange Agreement		1.1		-		1.1		-
Investment in ZimVie		45.5		45.5		-		-
Total Assets	$	128.0	$	45.5	$	82.5	$	-

Liabilities
Derivatives designated as hedges, current and long-term
Foreign currency forward contracts	$	5.5	$	-	$	5.5	$	-
Cross-currency interest rate swaps		49.6		-		49.6		-
Interest rate swaps		172.0		-		172.0		-
Derivatives not designated as hedges, current and long-term
Foreign currency forward contracts		3.3		-		3.3		-
Contingent payments related to acquisitions		17.4		-		-		17.4
Total Liabilities	$	247.8	$	-	$	230.4	$	17.4

We value our foreign currency forward contracts 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. The valuation of our cross-currency interest rate swaps also includes consideration of foreign currency exchange rates.

In connection with the spinoff, we retained approximately 5.1 million unregistered common shares of ZimVie, representing 19.7 percent of ZimVie's common stock on the separation date. At December 31, 2022, we valued these shares based upon the market share price of ZimVie less a discount to reflect that the shares were not registered. We disposed of these shares in February 2023.

The value of the Forward Exchange Agreement as of December 31, 2022, was based upon the historical volume-weighted average price of ZimVie stock since the inception of the agreement with simulations of how the ZimVie stock might perform until the scheduled settlement date.

Contingent payments related to acquisitions consist of sales-based payments and a regulatory milestone, and are valued using discounted cash flow techniques. The fair value of sales-based payments is based upon probability-weighted future revenue estimates, and increases as revenue estimates increase. The fair value of the regulatory milestone is based on the probability of success in obtaining the specified regulatory approval.

The following table provides a reconciliation of the beginning and ending balances of items measured at fair value on a recurring basis in the tables above that used significant unobservable inputs (Level 3) (in millions):


	Level 3 - Liabilities
Contingent payments related to acquisitions
Beginning balance December 31, 2022	$	17.4
New contingent payments related to the Embody acquisition		94.0
Change in estimates		0.2
Settlements		(12.6	)
Ending balance March 31, 2023	$	99.0

Changes in estimates for contingent payments related to acquisitions included in continuing operations are recognized in the Acquisition, integration, divestiture and related line item on our condensed consolidated statements of earnings.

- 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.

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