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Fair Value Measurements
 9 Months Ended
Sep. 30, 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.
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 third quarter of 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 recorded as a component of Acquisition and integration-related expenses on the Condensed Consolidated Statements of Operations.
The Company uses an income approach to value the contingent consideration obligation based on future financial performance, which is determined based on the present value of expected future cash flows. Due to the lack of relevant observable market data over fair value inputs, the Company has classified the contingent consideration liability within Level 3 of the fair value hierarchy outlined in ASC 820, Fair Value Measurements. Increases in the expected payout under a contingent consideration arrangement contribute to increases in the fair value of the related liability. Conversely, decreases in the expected payout under a contingent consideration arrangement contribute to decreases in the fair value of the related liability.
The following table summarizes the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2019:
 
Fair Value Measurement at Reporting Date Using
(in millions)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
17.6

 
$
—

 
$
—

 
$
17.6

Liabilities:
 
 
 
 
 
 
 
Contingent consideration
—

 
—

 
$
8.0

 
$
8.0


The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements in the three months ended September 30, 2019 and 2018:
(in millions)
2019
 
2018
Contingent consideration liability, at July 1
$
7.6

 
$
6.5

Issuance of contingent consideration in connection with acquisitions
7.9

 
—

Settlements of contingent consideration liabilities
(7.6
)
 
—

Foreign currency translation
—

 
0.1

Total losses included in earnings (a)
0.1

 
0.3

Contingent consideration liability, at September 30
$
8.0

 
$
6.9

(a)
Changes in the fair value of contingent consideration liabilities are included as a component of Acquisition and integration-related expenses within the Condensed Consolidated Statements of Operations.
The following table provides a roll-forward of the fair value of recurring Level 3 fair value measurements in the nine months ended September 30, 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
7.9

 
—

Settlements of contingent consideration liabilities
(7.6
)
 
—

Foreign currency translation
0.3

 
(0.1
)
Total losses included in earnings (a)
0.7

 
0.7

Contingent consideration liability, at September 30
$
8.0

 
$
6.9

(a)
Changes in the fair value of contingent consideration liabilities are included as a component of Acquisition and integration-related expenses within the Condensed Consolidated Statements of Operations.