Fair Value Measurements

12 Months Ended

Dec. 31, 2023

Fair Value Measurement and Measurement Inputs, Recurring and Nonrecurring [Text Block]

FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability is as follows:

•Level 1: Observable inputs such as quoted prices in active markets;

•Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.

Observable market data is required to be used in making fair value measurements when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2023:


In millions	Fair Value		Fair value measurements
			Level 1		Level 2		Level 3

Assets:
Derivative instruments	$	4.1	$	—	$	4.1	$	—

Liabilities:
Derivative instruments	4.8		—		4.8		—
Contingent consideration	90.3		—		—		90.3

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2022:


In Millions	Fair Value		Fair value measurements
			Level 1		Level 2		Level 3

Assets:
Derivative instruments	$	5.1	$	—	$	5.1	$	—

Liabilities:
Derivative instruments	11.9		—		11.9		—
Contingent consideration	49.3		—		—		49.3

Derivative instruments include forward foreign currency contracts and instruments related to non-functional currency balance sheet exposures and commodity swaps. The fair value of the foreign exchange derivatives are determined based on a pricing model that uses spot rates and forward prices from actively quoted currency markets that are readily accessible and observable.

The fair value of the commodity derivatives is valued under a market approach using published prices, where applicable, or dealer quotes.

On November 2, 2023, the Company acquired 100% of Nuvolo Technologies Corporation (Nuvolo). In connection with the acquisition, the Company agreed to two contingent consideration arrangements. The first contingent consideration arrangement, payable of up to $90.0 million in cash, is based on the attainment of key revenue targets from November 2, 2023 through April 2025. If the first contingent consideration targets are met, a second contingent consideration arrangement with no maximum earnout is available to the sellers based on revenues in excess of the initial targets attained from a specified customer contract through April 2025.

On October 15, 2021, the Company acquired 100% of Farrar Scientific Corporation's (Farrar Scientific) assets. In connection with the acquisition, the Company agreed to contingent consideration of up to $115.0 million to be paid in 2025, tied to the attainment of key financial targets during the period January 1, 2022 through December 31, 2024. This additional payment, to the extent earned, will be payable in cash.

Each quarter, the Company is required to remeasure the fair value of the liability as assumptions change and such non-cash adjustments are recorded in Selling and administrative expenses in the Consolidated Statements of Earnings. Contingent consideration related to acquisitions are measured at fair value each reporting period using Level 3 unobservable inputs. The fair value of the contingent consideration is determined using the Monte Carlo simulation model based on revenue projections during the earnout period, implied revenue volatility and a risk adjusted discount rate.

The changes in the fair value of the Company's Level 3 liabilities during the years ended December 31, 2023 and 2022 are as follows:


In millions	2023		2022
Balance at beginning of period	$	49.3	$	96.2
Fair value of contingent consideration recorded in connection with acquisitions	90.3		—
Change in fair value of contingent consideration	(49.3)		(46.9)
Balance at end of period	$	90.3	$	49.3

The following inputs and assumptions were used in the Monte Carlo simulation model of Nuvolo to estimate the fair value of the contingent consideration at December 31, 2023:


	2023
Discount rate (risk adjusted)	8.14% - 8.48%
Volatility	16.20	%

The following inputs and assumptions were used in the Monte Carlo simulation model of Farrar to estimate the fair value of the contingent consideration at December 31, 2023 and 2022:


	2023		2022
Discount rate	13.00	%	12.00	%
Volatility	20.00	%	20.00	%

Refer to Note 17, "Acquisitions and Divestitures" for more information regarding the contingent consideration.

The carrying values of cash and cash equivalents, accounts receivable and accounts payable are a reasonable estimate of their fair value due to the short-term nature of these instruments. There have been no transfers between levels of the fair value hierarchy.

Certain assets are measured at fair value on a non-recurring basis. The Company's equity investments without a readily available fair value are accounted for using the measurement alternative and are measured at fair value when observable transactions of identical or similar securities occurs, or due to an impairment. When indicators of impairment exist or observable price changes of qualified transactions occur, the respective equity investment would be classified within Level 3 of the fair value hierarchy due to the absence of quoted market prices, the inherent lack of liquidity and unobservable inputs used to measure fair value that require management’s judgment. During the year ended December 31, 2023, the Company recorded an impairment of an equity investment of $52.2 million within Other income/(expense), net.