XML 29 R19.htm IDEA: XBRL DOCUMENT

Financial Instruments and Fair Value Measurements

6 Months Ended

Jul. 01, 2022

FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). For the Company, these financial assets and liabilities include its derivative instruments and contingent consideration. The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.

The Company is exposed to global market risks, including the effect of changes in interest rates and foreign currency exchange rates, and uses derivatives to manage these exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading or speculative purposes. All derivatives are recorded at fair value on the Condensed Consolidated Balance Sheets.

The following tables provide information regarding assets and liabilities recorded at fair value on a recurring basis (in thousands):


	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
July 1, 2022
Assets: Interest rate swaps	$	841	$	—	$	841	$	—
Assets: Foreign currency hedging contracts	1,395		—		1,395		—
Liabilities: Foreign currency hedging contracts	1,126		—		1,126		—

Liabilities: Contingent consideration	9,072		—		—		9,072

December 31, 2021
Assets: Foreign currency hedging contracts	$	687	$	—	$	687	$	—
Liabilities: Interest rate swap	2,978		—		2,978		—
Liabilities: Contingent consideration	2,415		—		—		2,415

Derivatives Designated as Hedging Instruments

Interest Rate Swaps

The Company periodically enters into interest rate swap agreements in order to reduce the cash flow risk caused by interest rate changes on its outstanding floating rate borrowings. Under these swap agreements, the Company pays a fixed rate of interest and receives a floating rate equal to one-month LIBOR. The variable rate received from the swap agreements and the variable rate paid on the outstanding debt will have the same rate of interest, excluding the credit spread, and will reset and pay interest on the same date. The Company has designated these swap agreements as cash flow hedges based on concluding the hedged forecasted transaction is probable of occurring within the period the cash flow hedge is anticipated to affect earnings.

Information regarding the Company’s outstanding interest rate swap designated as cash flow hedges as of July 1, 2022 is as follows (dollars in thousands):


Notional Amount		Start Date	End Date	Pay Fixed Rate		Receive Current Floating Rate		Fair Value		Balance Sheet Location



$	150,000	Jun 2020	Jun 2023	2.1785	%	1.6240	%	$	841	Prepaid expenses and other current assets

Information regarding the Company’s outstanding interest rate swap designated as cash flow hedges as of December 31, 2021 is as follows (dollars in thousands):


Notional Amount		Start Date	End Date	Pay Fixed Rate		Receive Current Floating Rate		Fair Value		Balance Sheet Location
$	150,000	Jun 2020	Jun 2023	2.1785	%	0.1013	%	$	(2,978)	Other long-term liabilities

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

Foreign Currency Contracts

The Company periodically enters into foreign currency forward contracts to hedge its exposure to foreign currency exchange rate fluctuations in its international operations. The Company has designated these foreign currency forward contracts as cash flow hedges.

Information regarding outstanding foreign currency forward contracts designated as cash flow hedges as of July 1, 2022 is as follows (dollars in thousands):


Notional Amount		End Date	$/Foreign Currency		Fair Value		Balance Sheet Location
$	10,923	Dec 2022	0.0455	MXN Peso	$	728	Prepaid expenses and other current assets
6,830		Dec 2022	1.1383	Euro	(522)		Accrued expenses and other current liabilities
4,106		Dec 2022	0.0216	UYU Peso	667		Prepaid expenses and other current assets
6,760		Dec 2022	1.1266	Euro	(453)		Accrued expenses and other current liabilities
3,833		Dec 2022	1.0952	Euro	(151)		Accrued expenses and other current liabilities

Information regarding outstanding foreign currency forward contracts designated as cash flow hedges as of December 31, 2021 is as follows (dollars in thousands):


Notional Amount		End Date	$/Foreign Currency		Fair Value		Balance Sheet Location


$	22,201	Dec 2022	0.0463	MXN Peso	$	408	Prepaid expenses and other current assets
17,017		Dec 2022	1.1344	Euro	130		Prepaid expenses and other current assets
9,020		Dec 2022	0.0220	UYU Peso	149		Prepaid expenses and other current assets

The following tables present the effect of cash flow hedge derivative instruments on other comprehensive income (loss) (“OCI”), AOCI and the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended July 1, 2022 and July 2, 2021 (in thousands):


	Three Months Ended
	July 1, 2022				July 2, 2021
	Total		Amount of Gain (Loss) on Cash Flow Hedge Activity		Total		Amount of Gain (Loss) on Cash Flow Hedge Activity
Sales	$	350,081	$	(371)	$	312,023	$	29
Cost of sales	257,184		554		223,277		450
Operating expenses	60,190		112		49,396		11
Interest expense	7,773		(526)		7,532		(995)



	Six Months Ended
	July 1, 2022				July 2, 2021
	Total		Amount of Gain (Loss) on Cash Flow Hedge Activity		Total		Amount of Gain (Loss) on Cash Flow Hedge Activity
Sales	$	660,993	$	(425)	$	602,490	$	37
Cost of sales	486,621		746		429,258		1,074
Operating expenses	119,168		136		99,274		38
Interest expense	13,741		(1,293)		16,064		(2,029)

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)


	Unrealized Gain (Loss) Recognized in OCI				Realized Gain (Loss) Reclassified from AOCI
	Three Months Ended				Location in Statements of Operations and Comprehensive Income (Loss)	Three Months Ended
	July 1, 2022		July 2, 2021			July 1, 2022		July 2, 2021
Interest rate swap	$	702	$	(375)	Interest expense	$	(526)	$	(995)
Foreign exchange contracts	(1,167)		148		Sales	(371)		29
Foreign exchange contracts	96		725		Cost of sales	554		450
Foreign exchange contracts	78		67		Operating expenses	112		11

	Six Months Ended				Location in Statements of Operations and Comprehensive Income (Loss)	Six Months Ended
	July 1, 2022		July 2, 2021			July 1, 2022		July 2, 2021
Interest rate swaps	$	2,526	$	(109)	Interest expense	$	(1,293)	$	(2,029)
Foreign exchange contracts	(1,681)		(738)		Sales	(425)		37
Foreign exchange contracts	1,365		166		Cost of sales	746		1,074
Foreign exchange contracts	355		(23)		Operating expenses	136		38

The Company expects to reclassify net losses totaling $1.1 million related to its cash flow hedges from AOCI into earnings during the next twelve months.

Derivatives Not Designated as Hedging Instruments

The Company also has foreign currency exposure on balances, primarily intercompany, that are denominated in a foreign currency and are adjusted to current values using period-end exchange rates. To minimize foreign currency exposure, the Company enters into foreign currency contracts with a one month maturity. At July 1, 2022, the Company had two contracts outstanding, with a total notional amount of $13.9 million and a fair value of approximately $0.1 million. At December 31, 2021, the Company had one contract outstanding, with a notional amount of $15.0 million and a fair value of $(0.1) million. The Company recorded a net gain on foreign currency contracts not designated as hedging instruments of $0.4 million and $0.7 million, respectively, for the three and six months ended July 1, 2022, which is included in Other loss, net in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) and generally offset the gains or losses from the foreign currency adjustments on the intercompany balances that are also included in Other loss, net. The Company did not have foreign currency contracts not designated as hedging instruments outstanding during the six months ended July 2, 2021.

Contingent Consideration

The following table presents the changes in the estimated fair values of the Company’s liabilities for contingent consideration measured using significant unobservable inputs (Level 3) for the three and six months ended July 1, 2022 and July 2, 2021 (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Fair value measurement at beginning of period	$	1,976	$	2,281	$	2,415	$	3,900
Amount recorded for current year acquisitions	7,375		—		7,375		—
Fair value measurement adjustment	—		—		54		—
Payments	—		—		(493)		(1,621)
Foreign currency translation	(279)		—		(279)		2
Fair value measurement at end of period	$	9,072	$	2,281	$	9,072	$	2,281

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

On April 6, 2022, the Company acquired Aran. See Note 2 “Business Acquisitions” for additional information about the Aran acquisition and related contingent consideration. On February 19, 2020, the Company acquired certain assets and liabilities of InoMec Ltd. (“InoMec”), a privately-held company based in Israel that specializes in the research, development and manufacturing of medical devices, including minimally invasive tools, delivery systems, tubing and catheters, surgery tools, drug-device combination, laser combined devices, and tooling and production. On October 7, 2019, the Company acquired certain assets and liabilities of US BioDesign, LLC (“USB”), a privately-held developer and manufacturer of complex braided biomedical structures for disposable and implantable medical devices. The contingent consideration at July 1, 2022 is the estimated fair value of the Company’s obligations, under the asset purchase agreements for Aran, InoMec and USB, to make additional payments if certain revenue goals are met.

During 2022, the Company made payments associated with the USB acquisition, resulting from achievement of revenue-based goals for the period from January 1, 2021 to December 31, 2021. During 2021, the Company made payments associated with the InoMec and USB acquisitions, resulting from achievement of revenue-based goals for the period from March 1, 2020 to February 28, 2021 for InoMec and January 1, 2020 to December 31, 2020 for USB.

As of July 1, 2022 and December 31, 2021, the current portion of contingent consideration liabilities included in Accrued expenses and other current liabilities was $8.4 million and $0.9 million, respectively, and the non-current portion included in Other long-term liabilities on the Condensed Consolidated Balance Sheets was $0.7 million and $1.5 million, respectively.

The following table provides quantitative information associated with the fair value measurement of the Company’s liabilities for contingent consideration:


	July 1, 2022
Contingency Type	Maximum Payout (undiscounted)		Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average or Range
Revenue-based payments:
InoMec and USB	$	5,375	$	1,976	Monte Carlo	Revenue volatility	26.7	%
						Discount rate	1.8	%
						Projected year(s) of payment	2022-2024
Aran	$	10,484	$	7,096	Probability-weighted expected returns method	Probability of occurrence	0% - 50%
						Discount rate	9.7	%
						Projected year(s) of payment	2023


	December 31, 2021
Contingency Type	Maximum Payout (undiscounted)		Fair Value		Valuation Technique	Unobservable Inputs	Weighted Average or Range
Revenue-based payments:
InoMec and USB	$	6,750	$	2,415	Monte Carlo	Revenue volatility	29.0	%
						Discount rate	1.8	%
						Projected year(s) of payment	2022-2024

(13.) FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS (Continued)

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Fair value standards also apply to certain assets and liabilities that are measured at fair value on a nonrecurring basis. The carrying amounts of cash, accounts receivable, accounts payable, and accrued expenses approximate fair value because of the short-term nature of these items.

Borrowings under the Company’s Revolving Credit Facility, TLA Facility and TLB Facility accrue interest at a floating rate tied to a standard short-term borrowing index, selected at the Company’s option, plus an applicable margin. The carrying amount of this floating rate debt approximates fair value based upon the respective interest rates adjusting with market rate adjustments.

Equity Investments

The Company holds long-term, strategic investments in companies to promote business and strategic objectives. These investments are included in Other long-term assets on the Condensed Consolidated Balance Sheets.

Equity investments comprise the following (in thousands):


	July 1, 2022		December 31, 2021
Equity method investment	$	13,468	$	16,192
Non-marketable equity securities	5,637		5,637
Total equity investments	$	19,105	$	21,829

The components of Loss on equity investments for each period were as follows (in thousands):


	Three Months Ended				Six Months Ended
	July 1, 2022		July 2, 2021		July 1, 2022		July 2, 2021
Equity method investment loss	$	320	$	684	$	2,724	$	2,019

The Company’s equity method investment is in a venture capital fund focused on investing in life sciences companies. As of July 1, 2022, the Company owned 6.8% of this fund.

- 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