Fair value of financial instruments

Investments in Mutual Funds

We have investments in mutual funds that are carried at fair value in the financial statements. For these investments, fair value was based on quoted market prices, which we have categorized as a Level 1 valuation.

Fixed-Rate Debt

The fair value and carrying value of our fixed-rate debt are as follows:



(In millions)	March 31, 2019		December 31, 2018

Senior unsecured notes
Carrying value	$	600.0	600.0
Fair value	574.7		519.9

The fair value estimate of our senior unsecured notes was based on the present value of future cash flows, discounted at rates for similar instruments at the measurement date, which we have categorized as a Level 3 valuation.

Forward and Swap Contracts

We have outstanding foreign currency forward and swap contracts to hedge transactional risks associated with foreign currencies. At March 31, 2019, the notional value of our shorter term outstanding foreign currency forward and swap contracts was $146 million, with average maturities of approximately one month. These shorter term foreign currency forward and swap contracts primarily offset exposures in the euro and the British pound and are not designated as hedges for accounting purposes and, accordingly, changes in their fair value are recorded immediately in earnings. At March 31, 2019, the fair value of these shorter term foreign currency contracts was not significant.

In the first quarter of 2019, we entered into a longer term cross currency swap contract to hedge exposure in Brazilian real, which is designated as a cash flow hedge for accounting purposes. At March 31, 2019, the notional value of this longer term contract was $143 million with a weighted-average maturity of 2.7 years. We recognized net gains of $2.4 million on this contract, of which gains of $3.8 million were included in other operating income (expense) to offset transaction losses of $3.8 million and expenses of $1.4 million were included in interest expense in the first three months of 2019. At March 31, 2019, the fair value of the longer term cross currency swap contract was a $1.9 million net asset, of which a $6.1 million asset is included in other assets and a $4.2 million liability is included in accrued liabilities on the condensed consolidated balance sheet.

In the first quarter of 2016, we entered into two interest rate swaps that hedge cash flow risk associated with changes in variable interest rates and that are designated as cash flow hedges for accounting purposes. At March 31, 2019, the notional value of these contracts was $40 million with a remaining weighted-average maturity of 1.0 years. At March 31, 2019, the fair value of these interest rates swaps was a net asset of $0.8 million, of which $0.5 million was included in prepaid expenses and other and $0.3 million was included in other assets on the condensed consolidated balance sheet. The effect of these swaps are included in interest expense and were not significant in the first three months of 2019.

In the first quarter of 2019, we entered into ten interest rate swaps that hedge cash flow risk associated with changes in variable interest rates and that are designated as cash flow hedges for accounting purposes. At March 31, 2019, the notional value of these contracts was $400 million with a remaining weighted-average maturity of 2.5 years. At March 31, 2019, the fair value of these interest rate swaps was a net liability of $6.7 million, of which $0.5 million was included in accrued liabilities and $6.2 million was included in other liabilities on the condensed consolidated balance sheet. The effect of these swaps are included in interest expense and were not significant in the first three months of 2019.

The fair values of these forward and swap contracts are based on the present value of net future cash payments and receipts, which we have categorized as a Level 2 valuation.

Contingent Consideration

The estimated fair value of our liabilities for contingent consideration represents the fair value of the potential amounts payable for our acquisition of Maco Transportadora. The remaining contingent amount is expected to be paid in a scheduled second installment in the fourth quarter of 2019, with the final amount paid based partially on the retention of customer revenue versus a target revenue amount. The remaining contingent consideration arrangement requires us to pay potential undiscounted amounts between $0 to $15.1 million based on retaining the revenue levels of existing customers at the acquisition dates. If there is a shortfall in revenues, a multiple of 2.5 is applied to the revenue shortfall and the contingent consideration to be paid to the former owners is reduced.

We used a probability-weighted approach to estimate the fair value of these contingent consideration payments. The fair value of the contingent consideration is the full $15.1 million potentially payable as of March 31, 2019 as we believe it is unlikely that the contingent consideration payments will be reduced for a revenue shortfall.

At March 31, 2019, this $15.1 million was included in accrued liabilities on the condensed consolidated balance sheet. The fair value of this liability was estimated using a discounted cash flow technique with significant inputs that are not observable in the market and thus represents a Level 3 valuation. The significant inputs in the Level 3 valuation not supported by market activity included our probability assessments of expected future cash flows related to our acquisition of this entity during the period from acquisition to the estimated settlement date of the remaining payment.

The contingent consideration payments may differ from the amounts that are ultimately paid, with any changes in the liabilities recorded in interest and other nonoperating expense in our condensed consolidated statements of operations until the liabilities are settled.

Other Financial Instruments

Other financial instruments include cash and cash equivalents, accounts receivable, floating rate debt, accounts payable and accrued liabilities. The financial statement carrying amounts of these items approximate the fair value.

There were no transfers in or out of any of the levels of the valuation hierarchy in the first three months of 2019.