FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2021

NOTE 5. FAIR VALUE MEASUREMENTS

The fair values of the Company’s cash and cash equivalents, classified as Level 1 within the fair value hierarchy, approximate carrying value due to their short maturities.

The fair value of the Company’s long-term debt, classified as Level 2 within the fair value hierarchy, approximates its carrying value, as it is variable rate debt and the terms are comparable to market terms as of the balance sheet dates.

Recurring Fair Value Measurements

The Company measures certain financial liabilities at fair value on a recurring basis. The following table summarizes the valuation of those liabilities as of the dates presented (in millions):


	Fair Value as of March 31, 2021								Fair Value as of December 31, 2020
Liabilities:	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Interest rate swap	$	—	$	7.6	$	—	$	7.6	$	—	$	9.0	$	—	$	9.0
Contingent consideration obligations (1)	—		—		13.4		13.4		—		—		14.5		14.5

(1) In connection with the Company’s acquisition of FHI LLC (“Fully”) in August 2019, the Company is contingently liable to make additional payments in the form of consideration based upon the achievement of certain performance targets. As of March 31, 2021, the maximum remaining amount of contingent consideration that could be earned through 2023 is $13.8 million (see Notes 4 and 11 to the Company’s 2020 Annual Report on Form 10-K for additional information on the Fully acquisition, the valuation of the related contingent consideration and the accounting treatment applied to any changes thereof).

Interest Rate Swap

The fair value of the interest rate swap is based on observable prices as quoted for receiving the variable one-month LIBOR and paying fixed interest rates and therefore is classified as Level 2 within the fair value hierarchy.

Contingent Consideration Obligations

The fair value measurement of the Company’s contingent consideration obligations is based on significant, unobservable inputs for which little or no market data exists, and thus represents a Level 3 measurement. The contingent consideration obligations are revalued each reporting period, with changes in fair value recognized in the Condensed Consolidated Statements of Operations. The valuation inputs utilized to estimate the fair value of the contingent consideration obligations as of March 31, 2021, included a discount rate of 2.5%, Fully’s net sales and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the three months ended March 31, 2021, and projections related to Fully’s net sales and EBITDA for each of the calendar years 2021 through 2023.

For the three months ended March 31, 2021, the $1.1 million change in the fair value of the Company’s contingent consideration obligations was due to the cash settlement of approximately $1.2 million of those obligations and the passage of time. As of March 31, 2021, $11.1 million of the contingent consideration obligation is classified as current and is included in Other current liabilities, while the remaining $2.3 million is included in Other non-current liabilities on the condensed consolidated balance sheets.

- 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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