Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities recorded at fair value are categorized using defined hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair value measurements, as follows:

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, restricted cash and investments, accounts payable and accrued liabilities, debt, interest rate swap agreements and contingent consideration. The estimated fair value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying value due to the short-term nature of these instruments.

In each of September 2019 and March 2021, the Company invested $7.9 million and $712,000, respectively, in the preferred stock of a privately held company. The investment does not have a readily determinable fair value therefore the investment is valued at cost, less impairment, plus or minus observable price changes of an identical or similar investment of the same issuer, if any. In March 2021, in connection with our incremental investment of $712,000, we observed that the fair value of our initial investment of $7.9 million increased by $3.5 million and, accordingly, recognized a gain on our minority interest investment of $3.5 million. The fair value of our minority interest investment is included in Other assets in the Company’s consolidated balance sheets. Changes in the fair value of our minority interest investment are included in Other income in the Company’s consolidated statements of operations. As of December 31, 2021, there have

been no identified events or changes in circumstances that would indicate the cost method investment should be impaired nor have there been any observable price changes of an identical or similar investment of the same issuer.

The Company estimates the fair value of its variable-rate debt using Level 2 inputs, such as interest rates, related terms and maturities of similar obligations. At December 31, 2021, the fair value of the Company’s variable-rate term loan was estimated to be $442.3 million, and the carrying value of the Company’s variable-rate revolving credit facility approximates fair value due to the short-term nature of the interest rates.

The Company estimates the fair value of its contingent consideration liabilities using Level 3 inputs, including both observable and unobservable inputs. As a result, unrealized gains and losses may include changes in fair value that are attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and 2020 consisted of the following:


	2021
	Quoted Prices in		Other Observable		Unobservable
	Active Markets		Inputs		Inputs
$s in thousands	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Fixed-income securities ⁽¹⁾	$	1,695	$	255	$	—	$	1,950
Money market funds ⁽²⁾		1,886		—		—		1,886
Interest rate swap agreement ⁽³⁾		—		5,022		—		5,022
Total	$	3,581	$	5,277	$	—	$	8,858


	2020
	Quoted Prices in		Other Observable		Unobservable
	Active Markets		Inputs		Inputs
$s in thousands	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Fixed-income securities ⁽¹⁾	$	2,914	$	1,427	$	—	$	4,341
Money market funds ⁽²⁾		1,319		—		—		1,319
Total	$	4,233	$	1,427	$	—	$	5,660

Liabilities:
Interest rate swap agreement ⁽³⁾	$	—	$	9,744	$	—	$	9,744
Contingent consideration ⁽⁴⁾		—		—		2,173		2,173
Total	$	—	$	9,744	$	2,173	$	11,917

(1)

We have short-term investments in fixed-income securities, including U.S. Treasury and U.S. agency securities. We measure the fair value of U.S. Treasury securities using quoted prices for identical assets in active markets. We measure the fair value of U.S. agency securities using observable market activity for similar assets. The fair value of our fixed-income securities approximates our cost basis in the investments.

(2)

We invest portions of our Cash and cash equivalents and Restricted cash and investments in money market funds. We measure the fair value of these money market fund investments using quoted prices for identical assets in active markets. The portion of Restricted cash and investments that is invested in money market funds is considered restricted cash for purposes of reconciling the beginning-of-year and end-of-year amounts presented in the Company’s consolidated statements of cash flows.

(3)

In order to manage interest rate exposure, we entered into an interest rate swap agreement in March 2020 and October 2014 that effectively converts a portion of our variable-rate debt to a fixed interest rate. In connection with our entry into the March 2020 interest rate swap, we terminated the October 2014 interest rate swap prior to its scheduled maturity date of June 2021. The March 2020 interest rate swap is designated as a highly-effective cash flow hedge,

with gains and losses deferred in other comprehensive income to be recognized as an adjustment to interest expense in the same period that the hedged interest payments affect earnings. The October 2014 interest rate swap was also designated as a highly effective cash flow hedge. The March 2020 interest rate swap has an effective date of March 31, 2020 in an initial notional amount of $500.0 million. The fair value of the interest rate swap agreement represents the difference in the present value of cash flows calculated (i) at the contracted interest rates and (ii) at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments. The fair value of the interest rate swap agreements are included in Other assets and Other long-term liabilities in the Company’s consolidated balance sheets as of December 31, 2021 and 2020, respectively.

(4)

Our contingent consideration liabilities represent the estimated fair value of potential future payments the Company may be required to remit under the terms of historical purchase agreements entered into by NRC prior to the NRC Merger. The payments are contingent on the acquired businesses’ achievement of annual earnings targets in certain years and other events considered in the purchase agreements. The fair value of our contingent consideration liabilities is calculated using either a Monte Carlo simulation or modified Black-Scholes analyses based on earnings projections for the respective earn-out periods, corresponding earnings thresholds, and approximate timing of payments as outlined in the purchase agreements. The analyses utilize the following assumptions: (i) expected term; (ii) risk-adjusted net sales or earnings; (iii) risk-free interest rate; and (iv) expected volatility of earnings. Estimated payments, as determined through the respective models, are discounted by a credit spread assumption to account for credit risk. As of December 30, 2021, we have settled all acquired contingent consideration liabilities associated with the NRC Merger. The fair value of our contingent consideration liability as of December 31, 2020 was $2.2 million and is included in Accrued liabilities in the Company’s consolidated balance sheet. We revalue our contingent consideration payments each period and any increases or decreases to fair value are included in Selling, general and administrative expenses in our consolidated statements of operations. Fair values may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs in isolation could result in a significantly different fair value measurement.

Changes in Level 3 liabilities measured at fair value for the years ended December 31, 2021 and 2020 are as follows:


$s in thousands	2021		2020
Contingent consideration, beginning of year	$	2,173	$	8,283
Change in fair value of contingent consideration		282		(3,682)
Contingent consideration paid		(2,553)		(2,517)
Foreign currency translation		98		89
Contingent consideration, end of year	$	—	$	2,173