Company: OFIX
Filing Date: 2025-02-25
Form Type: 10-K
Source: 0000950170-25-026066
Chunk: 183

Company: Orthofix Medical Inc.
Filing Date: 2025-02-25
Form: 10-K
Item: Item 1B
Chunk 183
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 (iii) the remeasurement of right-of-use assets and assumed lease liabilities. The determination of the acquisition date fair value of the assets acquired and liabilities assumed requires management's judgment and involves the use of significant estimates and assumptions, especially with respect to future expected cash flows, useful lives, and discount rates. 

As part of the Merger, we acquired SeaSpine's inventory, including raw materials, work-in-process ("WIP"), and finished goods. Raw materials had not been subjected to any manufacturing processes that would add additional value, therefore we determined book value is representative of fair value. We assessed the fair value of the WIP and finished goods inventory using the comparative sales method. The estimated step-up in fair value on acquired inventory recognized in connection with the Merger was $48.2 million. As of December 31, 2024, the step-up in fair value on acquired inventory was fully amortized. 

We estimated the fair value of the various classes of property, plant, and equipment acquired using the income approach, sales comparison approach, and the cost approach. The estimated fair value of property, plant, and equipment acquired in connection with the Merger was $68.9 million.

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Intangible assets primarily included customer relationships, developed technology, and in-process research and development. Determining the fair value of intangible assets acquired as part of purchase accounting requires us to make significant estimates. These estimates include the amount and timing of projected future cash flows, royalty savings, and the discount rate used to discount those cash flows to present value.

We estimated the fair value of acquired right-of-use assets and assumed lease liabilities acquired in connection with the Merger using the yield capitalization method of the income approach. Acquired right-of-use assets and assumed lease liabilities are measured based on the remaining lease payments over the remaining portion of the lease term. As our leases do not provide an implicit rate, our incremental borrowing rate is used as a discount rate, based on the information available as of the acquisition date, in determining the present value of lease payments.

These fair value measurements are a "critical accounting estimate" because changes in the assumptions used to develop the estimate could materially affect key financial measures, including operating income and net income.

Litigation and Contingent Liabilities

From time to time, we are parties to or targets of lawsuits, investigations, and proceedings, including product liability, personal injury, patent and intellectual property, health and safety, employment, and healthcare regulatory matters, which are handled and defended in the ordinary course