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Fair Value and Equity Investments | 9 Months Ended
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Sep. 30, 2021
Fair Value and Equity Investments [Abstract] |
Fair Value and Equity Investments |
7. | Fair Value and Equity Investments
Fair Value The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximates fair values due to the short-term nature of these instruments. The carrying value of debt approximates fair value due to the variable 30-day interest rate. Fair value estimates are made at a specific point in time, based on relevant market information. The FASB Codification defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. On a quarterly basis, the Company measures at fair value certain financial assets, including cash equivalents. Accounting standards specify a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair-value hierarchy:
| ◾ | Level 1 – quoted prices in active markets for identical assets or liabilities;
| ◾ | Level 2 – inputs, other than the quoted prices in active markets, that are observable either directly or indirectly;
| ◾ | Level 3 – unobservable inputs based on the Company’s own assumptions.
Accounting standards permit companies, at their option, to measure certain financial instruments and other eligible items at fair value. The Company has elected not to apply the fair value option to existing eligible items beyond what is required by US GAAP. The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (U.S. dollars in thousands):
|  | Fair Value at September 30, 2021 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Financial assets (liabilities): |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents and current investments |  | $ | 74,360 |  |  | $ | — |  |  | $ | — |  |  | $ | 74,360 |
Derivative financial instruments asset |  |  | — |  |  |  | 4,395 |  |  |  | — |  |  |  | 4,395 |
Life insurance contracts |  |  | — |  |  |  | — |  |  |  | 48,625 |  |  |  | 48,625 |
Derivative financial instruments liability |  |  | — |  |  |  | (112 | ) |  |  | — |  |  |  | (112 | )
Contingent consideration |  |  | — |  |  |  | — |  |  |  | (12,132 | ) |  |  | (12,132 | )
Total |  | $ | 74,360 |  |  | $ | 4,283 |  |  | $ | 36,493 |  |  | $ | 115,136 |
|  | Fair Value at December 31, 2020 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Financial assets (liabilities): |  |  |  |  |  |  |  |  |  |  |  |
Cash equivalents and current investments |  | $ | 56,628 |  |  | $ | — |  |  | $ | — |  |  | $ | 56,628 |
Derivative financial instruments asset |  |  | — |  |  |  | 1,145 |  |  |  | — |  |  |  | 1,145 |
Life insurance contracts |  |  | — |  |  |  | — |  |  |  | 45,453 |  |  |  | 45,453 |
Derivative financial instruments liability |  |  | — |  |  |  | (105 | ) |  |  | — |  |  |  | (105 | )
Contingent consideration |  |  | — |  |  |  | — |  |  |  | (3,125 | ) |  |  | (3,125 | )
Total |  | $ | 56,628 |  |  | $ | 1,040 |  |  | $ | 42,328 |  |  | $ | 99,996 |
The following table provides a summary of changes in fair value of the Company’s Level 3 life insurance contracts (U.S. dollars in thousands):
Beginning balance at January 1, 2021 |  | $ | 45,453 |
Actual return on plan assets |  |  | 3,172 |
Purchase and issuances |  |  | 7,016 |
Sales and settlements |  |  | (7,016 | )
Transfers into Level 3 |  |  | — |
Ending balance at September 30, 2021 |  | $ | 48,625 |
Life insurance contracts: ASC 820 preserves practicability exceptions to fair value measurements provided by other applicable provisions of U.S. GAAP. The guidance in ASC 715-30-35-60 allows a reporting entity, as a practical expedient, to use cash surrender value or conversion value as an expedient for fair value when it is present. Accordingly, the Company determines the fair value of its life insurance contracts as the cash-surrender value of life insurance policies held in its Rabbi Trust. The following table provides a summary of changes in fair value of the Company’s Level 3 contingent consideration (U.S. dollars in thousands):
Beginning balance at January 1, 2021 |  | $ | (3,125 | )
Additions from acquisitions |  |  | (8,702 | )
Changes in fair value of contingent consideration |  |  | (305 | )
Ending balance at September 30, 2021 |  | $ | (12,132 | )
Contingent consideration: Contingent consideration represents the obligations incurred in connection with acquisitions. The estimate of fair value of the contingent consideration obligations requires subjective assumptions to be made regarding the future business results, discount rates, discount periods and probabilities assigned to various potential business result scenarios and was determined using probability assessments with respect to the likelihood of reaching various targets or of achieving certain milestones. The fair value measurement is based on significant inputs unobservable in the market and thus represents a level 3 measurement. Changes in current expectations of progress could change the probability of achieving the targets within the measurement periods and result in an increase or decrease in the fair value of the contingent consideration obligation. Equity Investments The Company maintains equity investments in companies which are accounted for under the measurement alternative described in ASC 321-10-35-2 for equity securities that lack readily determinable fair values. The carrying amount of equity securities held by the Company without readily determinable fair values was $28.1 million as of September 30, 2021 and $5.0 million as of December 31, 2021. During the three months ended September 30, 2021, the Company made an additional investment of $5.0 million. During the three months and nine months ended September 30, 2021 the Company recognized $18.1 million upward fair value adjustments, based on the valuation of additional equity issued by the investee which was deemed to be an observable transaction of a similar investment under ASC 321. The gain was recorded within Other income (expense), net on the Consolidated Statement of Comprehensive Operations. The upward fair value adjustment represents a nonrecurriing fair value measurement based on observable price changes and is classified as a level 2 fair value measurement.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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