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Financial Instruments and Contingent Consideration

3 Months Ended

Mar. 31, 2023

Financial Instruments and Contingent Consideration

NOTE 15. FINANCIAL INSTRUMENTS AND CONTINGENT CONSIDERATION

We do not hold or issue financial instruments for trading purposes. The estimated fair values of our financial instruments and contingent consideration are as follows:


	March 31, 2023						December 31, 2022
	Carrying amount			Estimated fair value			Carrying amount			Estimated fair value
Assets (liabilities), net:
Total long-term debt, including current portion	$	(666.2	)	$	(645.5	)	$	(651.1	)	$	(645.3	)
Interest rate swap contracts		8.4			8.4			11.4			11.4
Acquisition-related contingent consideration		-			-			(15.2	)		(15.2	)

The carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value because of the short-term maturity of these instruments. The fair value estimates of long-term debt are based on quotes from a major financial institution of recently observed trading levels of our Term Loan A debt. The fair value estimates for interest rate swap contracts are estimated by obtaining quotes from major financial institutions with verification by internal valuation models. We engaged an independent, third-party valuation specialist to determine the fair value estimate for acquisition-related contingent consideration payable based on performance, which was measured using a Monte Carlo simulation. As of December 31, 2022, $15.2 million of the carrying amount of contingent consideration liabilities payable, related to final achievement of certain financial and performance milestones through December 31, 2022 for the acquisition of TURF Design, Inc (“Turf”), was equal to fair value as milestone achievements were known.

Fair value is defined as the exchange price that would be received for 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 at the measurement date. Three levels of inputs may be used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets or liabilities;

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; or

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The fair value measurement of assets and liabilities measured at fair value on a recurring basis and reported on the Condensed Consolidated Balance Sheets is summarized below:


	March 31, 2023		December 31, 2022
	Fair value based on other observable inputs		Fair value based on other observable inputs
	Level 2		Level 2
Assets, net:
Interest rate swap contracts	$	8.4	$	11.4

The changes in fair value of the acquisition-related contingent consideration liability for the three months ended March 31, 2023 and 2022 were as follows:


	Three Months Ended
	March 31,
	2023			2022
Fair value of contingent consideration as of beginning of period	$	15.2		$	12.8
Cash consideration paid		(15.2	)		(8.6	)
Loss related to change in fair value of contingent consideration		-			0.1
Fair value of contingent consideration as of end of period	$	-		$	4.3

During the three months ended March 31, 2023, we paid $15.2 million of additional cash consideration, which represented the final achievement of certain financial and performance milestones through December 31, 2022 for the acquisition of Turf. During the three months ended March 31, 2022, we paid $8.6 million of additional cash consideration, which represented the final achievement of certain financial and performance milestones through December 31, 2021 for the acquisitions of Moz Designs, Inc. and Turf. The additional cash consideration paid was classified as cash flows from financing activities in our Condensed Consolidated Statements of Cash Flows, up to the acquisition date fair value. The portions of additional cash consideration paid in excess of the acquisition date fair value were classified as cash flows from operating activities in our Condensed Consolidated Statements of Cash Flows.

- 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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