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Fair Value of Financial Instruments | 12 Months Ended
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Dec. 31, 2020
Fair Value Disclosures [Abstract] |
Fair Value of Financial Instruments | Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. To measure fair value, we use a three-tier valuation hierarchy based upon observable and non-observable inputs: Level 1 - Unadjusted quoted prices that are available in active markets for identical assets or liabilities at the measurement date. Level 2 - Significant other observable inputs available at the measurement date, other than quoted prices included in Level 1, either directly or indirectly, including: •Quoted prices for similar assets or liabilities in active markets; •Quoted prices for identical or similar assets or liabilities in non-active markets; •Inputs other than quoted prices that are observable for the asset or liability; and •Inputs that are derived principally from or corroborated by other observable market data. Level 3 - Significant unobservable inputs that cannot be corroborated by observable market data and reflect the use of significant management judgment. These values are generally determined using model-based techniques, including option pricing models, discounted cash flow models, probability weighted models, and Monte Carlo simulations. The Company's financial instruments include cash and cash equivalents, accounts receivable, derivative instruments, accounts payable, earn-out liabilities, revolving line of credit and equity investments. Assets and Liabilities Measured at Fair Value on a Recurring Basis The fair value hierarchy requires the use of observable market data when available. In instances where the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability. Level 1: Equity securities During 2020, the Company sold 1.2 million shares of equity securities for a realized loss of $37,954. During 2019, the Company sold 0.5 million shares of equity securities for a realized gain of $0.3 million. The Company held no equity securities as of December 31, 2020. The fair value of equity securities held by the Company as of December 31, 2019 was $4.3 million and is included in "Prepaid expenses and other current assets" on the accompanying consolidated balance sheets. Level 2: Derivative instruments The Company had one interest rate swap contract, which is classified as a Level 2 financial instrument as it is not actively traded and is valued using pricing models that use observable inputs. The fair value of the interest swap contract entered into on August 21, 2012 was a liability of $45,041 and an asset of $6,088 as of December 31, 2020 and 2019, respectively. The interest rate swap was priced using discounted cash flow techniques. Changes in its fair value are recorded to other income (expense) with corresponding offsetting entries to current assets or liabilities, as appropriate. Significant inputs to the discounted cash flow model include projected future cash flows based on projected one-month LIBOR and the average margin for companies with similar credit ratings and similar maturities. Level 3: Contingent consideration (earn-out) liabilities The fair value of contingent consideration liabilities ("earn-out") resulting from the 2019 American Stainless acquisition, 2018 MUSA-Galvanized acquisition and 2017 MUSA-Stainless acquisition are classified as Level 3. The fair value as of December 31, 2020 of the MUSA-Stainless earn-out, the MUSA-Galvanized earn-out and the American Stainless earn-out was estimated by applying the probability-weighted expected return method using management's estimates of pounds to be shipped and future price per unit. Each quarter-end, the Company re-evaluates its assumptions for all earn-out liabilities and adjusts to reflect the updated fair values. Changes in the estimated fair value of the earn-out liabilities are reflected in the results of operations in the periods in which they are identified. Changes in the fair value of the earn-out liabilities may materially impact and cause volatility in the Company's operating results. The following table presents a summary of changes in fair value of the Company's Level 3 earn-out liabilities measured on a recurring basis for 2020 and 2019:
(in thousands) | MUSA-Stainless |  | MUSA-Galvanized |  | American Stainless |  | Total
Balance December 31, 2018 | $ | 4,252 |  |  | $ | 3,358 |  |  | $ | — |  |  | $ | 7,610 |
Fair value of the earn-out liability associated with the American Stainless (ASTI) acquisition | — |  |  | — |  |  | 6,366 |  |  | $ | 6,366 |
Earn-out payments during period | (1,634) |  |  | (712) |  |  | (1,729) |  |  | $ | (4,075) |
Changes in fair value during the period | (215) |  |  | (864) |  |  | 332 |  |  | $ | (747) |
Balance December 31, 2019 | $ | 2,403 |  |  | $ | 1,782 |  |  | $ | 4,969 |  |  | $ | 9,154 |
Earn-out payments during period | (1,625) |  |  | (611) |  |  | (2,002) |  |  | $ | (4,238) |
Changes in fair value during the period | (403) |  |  | (230) |  |  | (562) |  |  | $ | (1,195) |
Balance December 31, 2020 | $ | 375 |  |  | $ | 941 |  |  | $ | 2,405 |  |  | $ | 3,721 |
For the year ended December 31, 2020, the Company had no unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value instruments. Quantitative Information about Significant Unobservable Inputs Used in Level 3 Fair Value Measurements The following table summarizes the significant unobservable inputs in the fair value measurement of our contingent consideration (earn-out) liabilities as of December 31, 2020:
Instrument | Fair Value December 31, 2020 | Principal Valuation Technique | Significant Unobservable Inputs | Range | Weighted Average
Contingent consideration (earn-out) liabilities | $3,721 | Probability Weighted Expected Return | Discount rate | - | 5%
Timing of estimated payouts | 2021 - 2022 | -
Future revenue projections | $4.7M - 12.7M | $9.7M
The weighted average discount rate was calculated by applying an equal weighting to each contingent consideration's (earn-out liabilities) discount rate. The weighted average future revenue projection was calculated by applying an equal weighting of probabilities to each forecasted scenario within the valuation models to determine the probability weighted sales applicable to the contingent consideration (earn-out liabilities). Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis The Company's significant assets or liabilities measured at fair value on a non-recurring basis subsequent to their initial recognition were certain long-lived assets and goodwill for the year ended December 31, 2020. The Company reviews the carrying amounts of long-lived assets whenever certain events or changes in circumstances indicate that the carrying amounts may not be recoverable. With input from executive management, the Company's accounting and finance personnel that organizationally report to the chief financial officer, assess performance quarterly against historical patterns, projections of future profitability, and whether it is more likely than not that the assets will be disposed of significantly prior to the end of their estimated useful life for evidence of possible impairment. An impairment loss is recognized when the carrying amount of the asset (disposal) group is not recoverable and exceeds fair value. The Company estimates the fair values of assets subject to long-lived asset impairment based on the Company's own judgments about the assumptions market participants would use in pricing the assets and observable market data, when available. The Company classifies these fair value measurements as Level 3. During 2020, due to the continued curtailment of operations related to the COVID-19 pandemic, inventory of Palmer was written down to its net realizable value of $2.1 million and certain long-lived assets of Palmer, including tangible and intangible assets, were written down to their estimated fair value of $1.4 million, resulting in asset impairment charges of $6.2 million. The Company evaluates goodwill for impairment annually and earlier if an event or other circumstances indicates that we may not recover the carrying value of the asset. During 2020, the Company determined potential indicators of impairment within the Welded Pipe & Tube reporting unit included in the Metals Segment existed and, as a result of the Company's goodwill impairment evaluations, it was concluded that the estimated fair value of the Welded Pipe and Tube reporting unit was below its carrying value resulting in a full impairment charge of $16.2 million. See Note 5 - Goodwill for additional details. The Company classifies these fair value measurements as Level 3. The Company's significant measurements of assets and liabilities at fair value on a non-recurring basis subsequent to their initial recognition were certain acquisition related assets and liabilities for the year ended December 31, 2019. Customer List Intangible Asset During the second quarter of 2019, management revised the initial estimate of the fair value of the customer list intangible asset acquired during the American Stainless acquisition, resulting in a decrease to the customer list intangible asset of $0.5 million (see Note 15 to the consolidated financial statements for additional information regarding this fair value measurement). Contingent consideration (earn-out) liabilities During the second quarter of 2019, management revised the initial estimate of the fair value of the contingent consideration (earn-out) liability from the American Stainless acquisition, resulting in an increase to the earn-out liability of $0.2 million (see Note 15 to the consolidated financial statements for additional information regarding this fair value measurement). Fair Value of Financial Instruments For short-term instruments, other than those required to be reported at fair value on a recurring and non-recurring basis and for which disclosures are included above, management concluded the historical carrying value is a reasonable estimate of the fair value because of the short period of time between origination of such instruments and their expected realization. Therefore, as of December 31, 2020 and 2019, the carrying amount for cash and cash equivalents, accounts receivable, accounts payable, and the Company's revolving line of credit, which is based on a variable rate, approximates fair value. There were no transfers of assets or liabilities between Level 1, Level 2 and Level 3 or changes in the fair value methodologies used by the Company in the years ended December 31, 2020 or 2019, respectively.

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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=117815213&loc=d3e19207-110258 + Details
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