Fair Value Measurements

9 Months Ended

Sep. 30, 2022

Recurring Fair Value Measurements

The following information is presented for assets and liabilities that are recorded in the condensed consolidated balance sheets at fair value measured on a recurring basis. There were no transfers of assets and liabilities that were recorded at fair value between the three-level fair value hierarchy during the periods reported.


In millions	Level 1(1)		Level 2(2)		Level 3(3)		Total
September 30, 2022
Assets:

Deferred compensation plan investments (4)	$	0.8	$	—	$	—	$	0.8
Total assets	$	0.8	$	—	$	—	$	0.8
Liabilities:
Deferred compensation arrangement (4)	$	11.3	$	—	$	—	$	11.3

Contingent consideration (5)	—		—		0.8		0.8
Total liabilities	$	11.3	$	—	$	0.8	$	12.1
December 31, 2021
Assets:

Deferred compensation plan investments (4)	$	0.9	$	—	$	—	$	0.9
Total assets	$	0.9	$	—	$	—	$	0.9
Liabilities:
Deferred compensation arrangement (4)	$	13.7	$	—	$	—	$	13.7

Contingent consideration (5)	—		—		0.8		0.8
Total liabilities	$	13.7	$	—	$	0.8	$	14.5

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(1) Quoted prices in active markets for identical assets.

(2) Quoted prices for similar assets and liabilities in active markets.

(3) Significant unobservable inputs.

(4) Consists of a deferred compensation arrangement, through which we hold various investment securities. Both the asset and liability are recorded at fair value and are included within "Other assets" and "Other liabilities" on the condensed consolidated balance sheets, respectively. In addition to the investment securities, we also have company-owned life insurance ("COLI") related to the deferred compensation arrangement. COLI is recorded at cash surrender value and included in "Other assets" on the condensed consolidated balance sheets in the amount of $12.7 million and $14.0 million at September 30, 2022 and December 31, 2021, respectively.

(5) Included within "Other liabilities" on the condensed consolidated balance sheets.

Nonrecurring Fair Value Measurements

There were no nonrecurring fair value measurements in the condensed consolidated balance sheet during the quarters ended September 30, 2022 and December 31, 2021.

Strategic Investments

During the first and third quarters of 2022, we acquired two strategic investments in privately-held companies for $2.0 million and $60.0 million respectively, which are accounted for under the measurement alternative method. The aggregate carrying value of all measurement alternative investments where fair value is not readily determinable totaled $80.8 million and $18.8 million at September 30, 2022 and December 31, 2021, respectively. There were no adjustments to the carrying value of the measurement alternative method investments for impairment or observable price changes for the period ended September 30, 2022.

During the second quarter of 2021, we acquired a strategic investment in a privately-held company for $16.5 million, which is accounted for under the equity method of accounting. The carrying value of our strategic equity investment was $14.5 million and $16.5 million at September 30, 2022 and December 31, 2021, respectively.

During the third quarter of 2022, we entered into an investment with a venture capital fund for $0.8 million, which is accounted for under the equity method of accounting. As of September 30, 2022, we had approximately $6.8 million of unfunded commitments which we anticipate will be paid over a period of 10 years. The carrying value of our strategic equity investment was $0.8 million at September 30, 2022.

Restricted Investment

At September 30, 2022 and December 31, 2021, the carrying value of our restricted investment, which is accounted for as held-to-maturity ("HTM") and therefore recorded at amortized cost, was $77.5 million and $76.1 million, net of an allowance for credit losses of $0.6 million and $0.5 million, and included cash of $6.4 million and $4.7 million, respectively. The fair value at September 30, 2022 and December 31, 2021 was $73.5 million and $80.0 million, respectively, based on Level 1 inputs.

The following table shows the total amortized cost of our HTM debt securities by credit rating, excluding the allowance for credit losses and cash. The primary factor in our expected credit loss calculation is the composite bond rating. As the rating decreases, the risk present in holding the bond is inherently increased, leading to an increase in expected credit losses.


	HTM Debt Securities
In millions	AA+		AA	AA-	A	A-	BBB+	Total
September 30, 2022	$	13.4	—	10.5	13.3	14.1	20.4	$	71.7
December 31, 2021	$	13.4	—	10.6	13.3	14.1	20.5	$	71.9

Debt and Finance Lease Obligations

At September 30, 2022 and December 31, 2021, the carrying value of finance lease obligations was $101.8 million and $102.4 million, respectively, and the fair value was $107.1 million and $118.6 million, respectively. The fair value of our finance lease obligations is based on the period-end quoted market prices for the obligations, using Level 2 inputs. The fair value of all other finance lease obligations approximates their carrying values.

The carrying amount, excluding debt issuance fees, of our variable interest rate long-term debt was $509.0 million and $328.1 million as of September 30, 2022 and December 31, 2021, respectively. The carrying value is a reasonable estimate of the fair value of the outstanding debt based on the variable interest rate of the debt.

At September 30, 2022 and December 31, 2021, the carrying value of our fixed rate debt was $550.0 million and $850.0 million, respectively, and the fair value was $452.4 million and $843.9 million, respectively, based on Level 2 inputs.

Contingent Consideration

In connection with the acquisition of certain assets in 2020, we are contingently obligated to make an additional payment for such assets of up to an aggregate amount of $7.0 million. The contingent consideration is payable if certain sales volume targets are achieved prior to December 31, 2024, herein referred to as "Revenue Earn-out."

The fair value of the five-year Revenue Earn-out consideration was $0.8 million at September 30, 2022 and December 31, 2021, respectively. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a selling, general, and administrative expense.

The following table summarizes the activity for financial liabilities utilizing Level 3 fair value measurements:


	Contingent Consideration
In millions	September 30, 2022		December 31, 2021
Beginning balance	$	0.8	$	0.8
Newly issued	—		—
Change in revaluation of contingent consideration included in earnings	—		—
Exercises/settlements	—		—
Ending balance (1)	$	0.8	$	0.8

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(1) Included within "Other liabilities" on the condensed consolidated balance sheets.

- Definition

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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