Fair Value Measurements

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The Company uses a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. The three levels of inputs are classified as follows:

• Level 1 — quoted prices in active markets for identical assets or liabilities;

• Level 2 — observable inputs, other than quoted prices included in Level 1, such as quoted prices for markets that are not active, or other inputs that are observable or can be corroborated by observable market data; and

• Level 3 — unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s assets and liabilities measured at fair value and their classification in the valuation hierarchy are summarized below:

Cash Equivalents

Cash equivalents primarily consist of time-based deposits and interest-bearing instruments with maturities of three months or less. The Company classified cash equivalents as Level 1 due to the short-term nature of these instruments and measured the fair value based on quoted prices in active markets for identical assets.

Interest Rate Swaps

As described in Note 9 – Debt, the Company may, from time to time, execute interest rate swaps as a means of fixing the floating interest rate component on a portion of its floating-rate debt. The Company classifies its interest rate swaps as Level 2 due to the use of a discounted cash flow model based on the terms of the contract and the interest rate curve (Level 2 inputs) to calculate the fair value of the swaps.

Contingent Consideration

As further described in Note 2 – Acquisitions, the Company has a contingent obligation to transfer up to $15.5 million to the former owners of MRL if specified financial results are met over future reporting periods (i.e., an earn-out). In addition, during the year ended December 31, 2019, the Company paid $7.6 million to settle the contingent consideration liability due to the former owners of JJE based on the achievement of specified financial results over the three-year period following the closing of the acquisition.

Liabilities for contingent consideration are measured at fair value each reporting period, with the acquisition-date fair value included as part of the consideration transferred. Subsequent changes in fair value are included as a component of Acquisition and integration-related expenses on the Consolidated Statements of Operations.

The Company uses an income approach to value the contingent consideration obligation based on the present value of risk-adjusted future cash flows under either a scenario-based or option-pricing method, as appropriate. Due to the lack of relevant observable market data over fair value inputs, such as prospective financial information or probabilities of future events, the Company has classified the contingent consideration liability within Level 3 of the fair value hierarchy outlined in ASC 820, Fair Value Measurements.

The following tables summarize the Company’s assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2019 and 2018:

	Fair Value Measurement at December 31, 2019 Using
(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	8.6	$	—	$	—	$	8.6
Interest rate swaps	—		0.9		—		0.9
Liabilities:
Contingent consideration	—		—		4.3		4.3

	Fair Value Measurement at December 31, 2018 Using
(in millions)	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents	$	14.1	$	—	$	—	$	14.1
Interest rate swaps	—		2.0		—		2.0
Liabilities:
Contingent consideration	—		—		6.7		6.7

The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements for the years ended December 31, 2019 and 2018:

(in millions)	2019			2018
Contingent consideration liability, at January 1	$	6.7		$	6.3
Issuance of contingent consideration in connection with acquisitions	4.1			—
Settlements of contingent consideration liabilities	(7.6		)	—
Foreign currency translation	0.3			(0.5		)
Total losses included in earnings	0.8			0.9
Contingent consideration liability, at December 31	$	4.3		$	6.7