XML 246 R21.htm IDEA: XBRL DOCUMENT

Financial Instruments − Fair Value and Concentrations of Credit Risk

6 Months Ended

Jun. 30, 2023

Financial Instruments − Fair Value and Concentrations of Credit Risk


13.			Financial Instruments − Fair Value and Concentrations of Credit Risk

Financial Instruments Measured at Fair Value on a Recurring Basis

The following table presents the Company’s financial instruments that are measured at fair value on a recurring basis, as classified within the three-level fair value hierarchy:


(In millions)	Fair Value Hierarchy	June 30, 2023		December 31, 2022
Assets:
Money market mutual funds1	1	$	43.6	$	35.1


Investment securities, current:
Debt securities:
U.S. treasury notes	2	$	365.7	$	364.1
Corporate debt securities	2	876.9		497.8
Municipal bonds	2	63.7		45.0
Asset-backed securities	2	505.6		190.7
Mortgage-backed securities	2	829.2		297.7
Total		$	2,641.1	$	1,395.3

Investment securities, non-current:
Debt securities	2	$	14.2	$	14.5


Mutual fund	1	24.8		24.5
Pooled investment fund measured at NAV2		9.0		9.0
Total		$	48.0	$	48.0

Executive deferred compensation plan trust3	1	$	13.0	$	11.1
Interest rate swaps4	2	$	68.9	$	81.4

Liabilities

Contingent consideration5	3	$	180.7	$	206.4

1 The fair value is recorded in cash and cash equivalents.

2 The fair value of this security is measured at NAV as a practical expedient and has not been classified within the fair value hierarchy. The amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated balance sheets.

3 The fair value is recorded as current or long-term based on the timing of the Company’s executive deferred compensation plan payment obligations. At June 30, 2023, $1.6 million and $11.4 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively. At December 31, 2022, $1.9 million and $9.2 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively.

4 The fair value is recorded as current or long-term depending on the timing of expected discounted cash flows. At June 30, 2023, $43.5 million and $25.4 million in fair value is recorded in prepaid expenses and other current assets and other assets, respectively. At December 31, 2022, $45.3 million and $36.1 million in fair value is recorded within prepaid expenses and other current assets and other assets, respectively.

5 The fair value is recorded as current or long-term based on the timing of expected payments. At June 30, 2023, $58.3 million and $122.4 million in fair value is recorded within accrued expenses and other current liabilities and other liabilities, respectively. At December 31, 2022, $28.7 million and $177.7 million in fair value is recorded within accrued expenses and other current liabilities and other liabilities, respectively.

Money Market Mutual Funds

A portion of the Company’s cash and cash equivalents are invested in money market mutual funds that primarily consist of short-term government securities, which are classified as Level 1 in the fair value hierarchy because they are valued using quoted market prices for identical instruments in an active market.

Debt Securities

The Company determines the fair value of U.S. treasury notes using quoted market prices for similar or identical instruments in a market that is not active. For corporate debt securities, municipal bonds, and asset-backed and mortgage-backed securities, the Company generally uses quoted prices for recent trading activity of assets with similar characteristics to the debt security or bond being valued. The securities and bonds priced using such methods are generally valued using Level 2 inputs to the fair value hierarchy.

Pooled Investment Fund

(In millions)

Fair Value

Unfunded Commitments

Redemption Frequency

Redemption Notice Period

Pooled investment fund, as of June 30, 2023

9.0

—

Monthly

30 days

The pooled investment fund maintains individual capital accounts for each investor, which reflect each individual investor’s share of the NAV of the fund.

Mutual Fund

The Company determines the fair value of its mutual fund using quoted market prices for identical instruments in an active market; such inputs are classified as Level 1 of the fair value hierarchy.

Executive Deferred Compensation Plan Trust

The investments held in the executive deferred compensation plan trust, which consist primarily of mutual funds, are classified as Level 1 in the fair value hierarchy because the fair value is determined using quoted market prices for identical instruments in active markets.

Interest Rate Swaps

The Company determines the fair value of its interest rate swaps based on the discounted cash flows of the difference between the projected fixed payments on the swaps and the implied floating payments using the current SOFR curve, which are Level 2 inputs of the fair value hierarchy.

Contingent Consideration

As part of the asset acquisition from Bell Bank during 2021, the Company is obligated to pay additional consideration to Bell Bank contingent upon increases in the Federal Funds rate. The Company determined the fair value of this contingent consideration derivative liability based on discounted cash flows using the difference between the baseline Federal Funds rate in the purchase agreement with Bell Bank and future forecasted Federal Funds rates over the agreement term. The forecasted Federal Funds rates represent a Level 3 input within the fair value hierarchy. The resulting probability-weighted contingent consideration amounts were discounted using a discount rate, which was 3.77 percent as of June 30, 2023 and 3.52 percent as of December 31, 2022. Significant increases or decreases in the Federal Funds rates could result in material increases or decreases, respectively, to the fair value of the Company’s contingent consideration derivative liability.

The Company records changes in the estimated fair value of the contingent consideration in the condensed consolidated statements of operations. Changes in the contingent consideration derivative liability are measured at fair value on a recurring basis using unobservable inputs (Level 3 in the fair value hierarchy) and are as follows for the periods indicated:


	Three Months Ended				Six Months Ended
(In millions)	June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022
Contingent consideration - beginning of period	$	179.5	$	83.9	$	206.4	$	67.3

Payments of contingent consideration (1)	—		—		(28.7)		—
Change in fair value of contingent consideration	1.2		88.2		3.0		104.8
Contingent consideration - end of period	$	180.7	$	172.1	$	180.7	$	172.1

(1) The Company has presented $27.2 million of this payment, which represents the fair value of the contingent consideration at acquisition date, within net cash provided by financing activities in the condensed consolidated statement of cash flows. The remainder has been included in net cash provided by (used for) operating activities (specifically within changes in accrued expenses and other current and long-term liabilities).

Financial Instruments Measured at Carrying Value, for which Fair Value is Disclosed

The fair value of the Company’s financial instruments, which are measured and reported at carrying value, is as follows for the periods indicated:


(In millions)	June 30, 2023			December 31, 2022
	Carrying value		Fair value	Carrying value		Fair value

Tranche A Term Loans1	$	868.4	**	$	892.8	**
Tranche B Term Loans1	1,409.6		**	1,416.8		**
Outstanding borrowings on Revolving Credit Facility1	4.0		**	—		—
Convertible Notes2	310.0		352.9	310.0		330.0
Contractual deposits with maturities in excess of one year3	167.7		156.4	334.2		308.1

** Fair value approximates carrying value.

1 The Company determines the fair value of borrowings on the Revolving Credit Facility and Tranche A Term Loans and Tranche B Term Loans based on market rates for the issuance of the Company’s debt, which are Level 2 inputs in the fair value hierarchy.

2 The Company determines the fair value of the Convertible Notes outstanding using our stock price and volatility, the conversion premium on the Convertible Notes and effective interest rates for similarly-rated credit issuances, all of which are Level 2 inputs in the fair value hierarchy.

3 The Company determines the fair value of its contractual deposits with maturities in excess of one year using current market interest rates for deposits of similar remaining maturities, which are Level 2 inputs in the fair value hierarchy.

Other Assets and Liabilities

The carrying value of certain of the Company’s financial instruments, other than those presented above, including cash, cash equivalents, restricted cash and restricted cash payable, short-term contractual deposits and HSA deposits, accounts receivable and securitized accounts receivable, accounts payable, accrued expenses and other current liabilities and other liabilities, approximate their respective fair values due to their short-term nature or maturities. The carrying value of certain other financial instruments, including interest-bearing money market deposits, securitized debt, participation debt, borrowed federal funds and deferred consideration associated with our acquisitions approximate their respective fair values due to stated interest rates being consistent with current market interest rates.

Concentrations of Credit Risk

The Company’s financial instruments that are exposed to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, investment securities, trade receivables and interest rate swap contracts.

The Company’s cash and cash equivalents, restricted cash and interest rate swap contracts are transacted and maintained with financial institutions with high credit standing. Cash balances at many of these institutions regularly exceed FDIC insured limits; however, management regularly monitors the financial institutions and the composition of the Company’s accounts. We have not experienced any losses in such accounts and management believes that the financial institutions at which the Company’s cash is held are stable. We attempt to limit our exposure to credit risk with our investment securities by establishing strict investment policies as to minimum investment ratings, diversification of our portfolio and setting risk tolerance levels.

Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically and industry diverse customers make up our customer base. See Note 5, Accounts Receivable, Net, for further information.

- 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 + Details