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Fair Value Measurements

12 Months Ended

Dec. 31, 2021

FAIR VALUE MEASUREMENTS

On January 1, 2020, we adopted ASU 2018-13: Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("Topic 820"). The amendments in this ASU remove disclosure requirements in Topic 820 related to the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. Additionally, Topic 820 adds disclosure requirements for the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. We have amended certain of our quantitative Level 3 fair value measurement disclosures to add the range and weighted average of significant unobservable inputs used.

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable.

Level 1: Quoted prices for identical instruments in active markets.

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are not observable.

The table below summarizes the valuation of our financial instruments carried at fair value by the above pricing categories (in millions):


	Year Ended
	December 31, 2021						December 31, 2020
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
Measured at fair value on a recurring basis:
Assets:
Investment securities	$	0.4	$	—	$	—	$	2.5	$	—	$	—
Foreign currency forward contracts	—		5.7		—		—		9.8		—
Cross-currency swap	—		—		—		—		6.3		—


Foreign currency option contracts	—		5.0		—		—		—		—

Total assets	$	0.4	$	10.7	$	—	$	2.5	$	16.1	$	—

Liabilities:
Foreign currency forward contracts	$	—	$	2.4	$	—	$	—	$	7.9	$	—
Cross-currency swap	—		13.8		—		—		—		—

Total liabilities	$	—	$	16.2	$	—	$	—	$	7.9	$	—

Measured at fair value on a non-recurring basis:
Assets:
Goodwill(1)	$	—	$	—	$	71.7	$	—	$	—	$	—



Total assets	$	—	$	—	$	71.7	$	—	$	—	$	—
Liabilities
Liabilities held for sale, net(2)	$	—	$	—	$	16.8	$	—	$	—	$	—
Total liabilities	$	—	$	—	$	16.8	$	—	$	—	$	—

(1) During the year ended December 31, 2021, goodwill with a carrying value of $81.7 million was written down to a fair value of $71.7 million.

(2) We measured the net assets held for sale for impairment purposes and recorded a total impairment of $162.2 million, resulting in a net liability held for sale balance (refer to Note 9).

There were no transfers within Level 3 fair value measurements during the years ended December 31, 2021 or December 31, 2020 (refer to Note 10 for information on our investment securities and Note 11 for a discussion of derivatives).

Foreign Currency Option Contracts

We valued the foreign currency option contract derivatives using an extension of the Black-Scholes Option Pricing Model ("BSOPM") which uses the strike price and expiry as inputs obtained from the contractual agreement. Additionally, the model uses risk-free interest rates, forward currency quotes, and option volatility assumptions obtained from the observable market.

Foreign Currency Forward Contracts

We value the foreign currency forward contracts based on notional amounts, contractual rates, and observable market inputs, such as currency exchange rates and credit risk.

Cross-currency Swaps

We value the cross-currency swaps using a method which discounts the expected cash flows resulting from the derivative. We estimate the cash flows using the contractual term of the derivative, including the period to maturity and we use observable market-based inputs, including interest rate curves, and foreign exchange rate.

Royalty Pharma Contingent Milestone

no contingent milestone payments outstanding.

The table below summarizes the change in fair value of the Royalty Pharma contingent milestone (in millions):


	Year Ended
		December 31, 2020
Balance at beginning of period		$	95.3



Change in fair value		(95.3)
Balance at end of period		$	—

During the year ended December 31, 2020, Royalty Pharma payments from Biogen for Tysabri® sales, as defined in the agreement between the parties, did not exceed the 2020 global net sales threshold of $351.0 million. Therefore, we are not entitled to receive the remaining contingent milestone payment of $400.0 million and, accordingly, wrote off the entire fair value of the remaining milestone payment related to 2020 of $95.3 million in Change in financial assets on the Consolidated Statements of Operations.

During the year ended December 31, 2019, the fair value of the Royalty Pharma contingent milestone payment related to 2020 increased by $22.1 million to $95.3 million. These adjustments were driven by higher projected global net sales of Tysabri and the estimated probability of achieving the earn-out. There was no contingent milestone based on 2019 sales of Tysabri. The Royalty Pharma payments from Biogen for Tysabri were $337.5 million in 2018, which triggered the $250.0 million milestone payment received during the year ended December 31, 2019.

Non-recurring Fair Value Measurements

The non-recurring fair values represent only those assets whose carrying values were adjusted to fair value during the reporting period.

Goodwill and Intangible Assets

Latin America

During the year ended December 31, 2021, as a result of our definitive agreement to sell our Latin American businesses, we prepared a goodwill impairment test. We determined the carrying value of this business exceeded the fair value and recorded an impairment in the CSCA segment (refer to Note 4).

Oral Care Reporting Unit Goodwill

During the year ended December 31, 2021, we prepared a goodwill impairment test utilizing a combination of comparable company and discounted cash flow techniques. In our comparable company market approach, we considered observable market information (Level 2 inputs). Our cash flow projections included revenue assumptions, gross margin and operating expenses based on the reporting unit’s growth plans (Level 3 inputs). In our discounted cash flow analysis, we used a long-term growth rate of 2.0%. We used a discount rate of 9.75% in the analysis, which correlates with the required investment return and risk that we believe market participants would apply to the projected growth rate. In addition, we burdened projected free cash flows with the capital spending deemed necessary to support the cash flows and applied blended jurisdictional tax rates ranging from 16.5% to 29.1%. We weighted indications of fair value resulting from the market approach and present value techniques, considering the reasonableness of the range of measurements and the point within the range that we determined was most representative of fair market conditions (refer to N ote 4).

Licensed Pain Relief Products

During the year ended December 31, 2019, we measured the impairment of certain pain relief products that we license from a third party, a definite-lived intangible asset. We determined the asset was fully impaired because the agreement with the licensor would not be extended upon expiration (refer to Note 4).

Assets (liabilities) held for sale, net

During the year ended December 31, 2021, as a result of our definitive agreement to sell our Latin American businesses, we prepared an impairment test on the net assets held for sale related to this business. We determined the carrying value of the net assets held for sale exceed the fair value less cost to sell and recorded an impairment in the CSCA segment (refer to Note 9).

Fixed Rate Long-term Debt

Our fixed rate long-term debt consisted of the following (in millions):


	Year Ended
	December 31, 2021				December 31, 2020
	Level 1		Level 2		Level 1		Level 2
Public bonds
Carrying value (excluding discount)	$	2,760.0	$	—	$	2,760.0	$	—
Fair value	$	2,847.2	$	—	$	3,031.1	$	—

Private placement note
Carrying value (excluding premium)	$	—	$	153.5	$	—	$	164.9
Fair value	$	—	$	162.6	$	—	$	177.5

The fair values of our public bonds for all periods were based on quoted market prices. The fair values of our private placement note for all periods were based on interest rates offered for borrowings of a similar nature and remaining maturities.

The carrying amounts of our other financial instruments, consisting of cash and cash equivalents, accounts receivable, accounts payable, short-term debt, revolving credit agreements, promissory notes related to our equity method investments, and variable rate long-term debt, approximate their fair value.

- 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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