Medline Inc.MDLN
Medline Inc. Fair Value Disclosure
FAIR VALUE MEASUREMENTS
The following descriptions of the valuation methods and assumptions used by the Company to estimate the fair values of investments apply to all investments held directly by the Company:
Interest Rate Contracts
The Company uses interest rate swaps and interest rate caps to manage its interest rate risk. The valuation of these instruments is determined by using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatility.
The Company incorporates credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in certain fair value measurements. Although the Company has determined that the majority of the inputs used to value the derivatives utilize Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to the derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the derivatives held as of December 31, 2025 and 2024 were classified as Level 2 of the fair value hierarchy.
See Note 15—Derivatives and Hedging Activities Risk Management for additional information regarding interest rate contracts.
Acquisition-Related Contingent Consideration
The Company recorded payments related to acquisition-related contingent consideration that required fair value measurement every reporting period. The fair value of the contingent payments was determined using a Monte Carlo simulation model. The significant assumptions used in the Monte Carlo simulation include risk-free rate (4.62%), revenue forecast, revenue discount rate (9.5%), revenue volatility (13%), estimated operational leverage and the Company’s credit spread (3%), most of which are unobservable inputs. These significant unobservable inputs used in the determination of the fair value of the contingent payments classified as Level 3 have an inherent measurement of uncertainty that if changed, could result in higher or lower fair value measurements as of the reporting date. See Note 2—Acquisitions for additional information regarding the acquisition.
Assets and liabilities measured at fair value on a recurring basis are summarized below:
| December 31, 2025 | |||||||||||||||||||||||
| Basis of fair value measurement | |||||||||||||||||||||||
(in millions) | Quoted prices in active markets for identical assets (Level 1) | Other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Carrying value | |||||||||||||||||||
| Financial assets | |||||||||||||||||||||||
| Derivative Assets | |||||||||||||||||||||||
| Interest rate contracts (hedge) | $ | — | $ | 36 | $ | — | $ | 36 | |||||||||||||||
| Total assets at fair value | $ | — | $ | 36 | $ | — | $ | 36 | |||||||||||||||
| Financial liabilities | |||||||||||||||||||||||
| Contingent consideration liability | $ | — | $ | — | $ | (29) | $ | (29) | |||||||||||||||
| Total liabilities at fair value | $ | — | $ | — | $ | (29) | $ | (29) | |||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Basis of fair value measurement | |||||||||||||||||||||||
(in millions) | Quoted prices in active markets for identical assets (Level 1) | Other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Carrying value | |||||||||||||||||||
| Financial assets | |||||||||||||||||||||||
| Derivative Assets | |||||||||||||||||||||||
| Interest rate contracts (hedge) | $ | — | $ | 127 | $ | — | $ | 127 | |||||||||||||||
| Total assets at fair value | $ | — | $ | 127 | $ | — | $ | 127 | |||||||||||||||
| Financial liabilities | |||||||||||||||||||||||
| Contingent consideration liability | $ | — | $ | — | $ | (27) | $ | (27) | |||||||||||||||
| Total liabilities at fair value | $ | — | $ | — | $ | (27) | $ | (27) | |||||||||||||||
Equity investments without readily determinable fair values, unless measured using the equity method of accounting, are measured at cost, less impairments. When applicable, the Company also adjusts the carrying values of such equity investments for observable prices in orderly transactions for an identical or similar investment of the same issuer. These investments are included in Other long-term assets in the Consolidated Balance Sheets and are immaterial.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.