XML 31 R17.htm IDEA: XBRL DOCUMENT v3.20.4
FAIR VALUE OF FINANCIAL INVESTMENTS
 12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE OF FINANCIAL INVESTMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS
Preferred Stock of ACProducts Holding, Inc. In conjunction with our divestiture of Cabinetry, we received preferred stock of ACProducts Holding, Inc., the holding company of the buyer, with a liquidation preference of $150 million. The preferred stock has a coupon of 8 percent until the first anniversary of issuance, 9 percent after the first anniversary and until the second anniversary of issuance, and 10 percent after the second anniversary of issuance and until the seventh anniversary of issuance. After which, the rate will increase by 50 basis points up to a maximum of 15 percent for each annual period occurring during and after the seventh anniversary until all shares have been redeemed in full.
We do not have the ability to exercise significant influence, and the fair value of the preferred stock is not readily available. We elected to measure this investment at cost (less impairment, if any) adjusted for observable price changes in orderly transactions for the identical or similar investments of the same issuer for subsequent measurements of fair value. As the preferred stock was received in conjunction with the sale of Cabinetry, we determined the cost to be the fair value of the preferred stock at the time of sale.
The fair value of the preferred stock was measured on a non-recurring basis, and estimated using discounted cash flow and option pricing models (Level 3 inputs). The significant unobservable inputs used to value the preferred stock included: time to exit (deemed maturity) since the preferred stock is not mandatorily redeemable, discount rate used to determine the present value of expected cash flows, which included the spread on company specific debt and the risk-free rate of return, the liquidation preference and the coupon rate. On the date of acquisition, the fair value of this investment was determined to be $136 million and was included in other assets in our consolidated balance sheet.
Dividends earned on this investment are included within other income (expense), net in our consolidated statement of operations with a corresponding increase to our basis in the investment. We had dividend income of $10 million for the year ended December 31, 2020. As such, the preferred stock was reported at the carrying value of $146 million in other assets in our consolidated balance sheet at December 31, 2020.
Kraus Acquisition Contingent Consideration. As described in Note B, we may be obligated to pay up to an additional $50 million for the Kraus acquisition. The fair value of the liability was estimated to be $8 million as of December 31, 2020, the acquisition date, using probability weighted discounted cash flows and a discount rate that reflects the uncertainty surrounding the expected outcomes, which we believe is appropriate and representative of a market participant assumption. This amount was included within the purchase consideration and will be remeasured at fair value as of each reporting date until the obligation is settled. The measurement of the liability for contingent consideration is based on significant inputs that are not observable in the market, and is therefore classified as Level 3 inputs. Examples of utilized unobservable inputs are estimated future revenues and earnings of the acquired business and an applicable discount rate. The estimate of the liability may fluctuate if there are changes in the forecast of the acquired business' future revenues and earnings, as a result of actual levels achieved or in the discount rate used to determine the present value of contingent future cash flows. Any subsequent remeasurement of the estimate will be recorded in other, net within other income (expense), net in the consolidated statement of operations.
Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues, which are Level 1 inputs. The aggregate estimated market value of our short-term and long-term debt at December 31, 2020 was approximately $3.3 billion, compared with the aggregate carrying value of $2.8 billion. The aggregate estimated market value of our short-term and long-term debt at December 31, 2019 was approximately $3.0 billion, compared with the aggregate carrying value of $2.8 billion.