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FAIR VALUE

9 Months Ended

Sep. 30, 2023

12. FAIR VALUE

Authoritative guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

The guidance establishes a framework for measuring fair value which utilizes observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. Preference is given to observable inputs.

These two types of inputs create the following three – level fair value hierarchy:

Level 1:

Quoted prices for identical assets or liabilities in active markets.

Level 2:

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model – derived valuations whose inputs or significant value drivers are observable.

Level 3:

Significant inputs to the valuation model that are unobservable.

The Company’s financial assets and liabilities include cash and cash equivalents, accounts receivable, debt obligations, accounts payable, and accrued liabilities. The carrying amounts reported in the condensed consolidated balance sheets for these assets and liabilities approximate their fair value because of the immediate or short-term maturities of these financial instruments.

The following tables presents the Company’s financial assets that are accounted for at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, respectively, by level within the fair value hierarchy:


		September 30, 2023
		Level 1			Level 2			Level 3
Assets (liabilities)
Pension plan assets		$	5,431		$	—		$	—
Deferred compensation plan assets			3,989			—			—
Foreign currency hedge contract assets			—			25			—
Foreign currency hedge contract liabilities			—			(7)			—
Interest rate swaps, net			—			6,452			—
Contingent consideration			—			—			(5,930)


		December 31, 2022
		Level 1			Level 2			Level 3
Assets (liabilities)
Pension plan assets		$	5,324		$	—		$	—
Deferred compensation plan assets			3,870			—			—
Foreign currency hedge contracts			—			48			—
Interest rate swaps, net			—			7,236			—
Contingent consideration			—			—			(4,100)

The contingent consideration fair value measurement represents amounts in connection with the acquisitions of Sierramotion, which has a maximum amount of $2,000 and ALIO Industries (“ALIO”), which does not have a maximum amount. The measurements are based on significant inputs not observable in the market and therefore constitute Level 3 inputs within the fair value hierarchy. The Company determines the initial fair value of contingent consideration liabilities using a Monte Carlo valuation model, which involves a simulation of future earnings generated during the earn-out period using management’s best estimates, or a probability-weighted discounted cash flow analysis. The contingent consideration for the acquisition of Sierramotion consists of Company stock and, if earned, would be settled in the first half of 2024. The contingent consideration of ALIO is settled 50% in Company stock and 50% cash, the current portion of which is expected to be settled in the first half of 2024. Changes to contingent consideration since December 31, 2022 include a $1,960 increase due to current period acquisition activity and a reduction of $130 of the estimated fair value of contingent consideration during the three and nine months ended September 30, 2023 related to updated inputs to the timing of anticipated earnings of the acquired entity. Of the total contingent consideration, $4,960 is payable, if earned, within the next twelve months and is included in accrued liabilities and $970 is payable, if earned, in the first half of 2025 and included in other long-term liabilities on the condensed consolidated balance sheet as of September 30, 2023. Contingent consideration of $4,100 is included in other long-term liabilities as of December 31, 2022.

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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