Fair Value Measurements
|9 Months Ended|
Sep. 30, 2021
|Fair Value Disclosures [Abstract]|
|Fair Value Measurements||Fair Value Measurements
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 and the level they fall within the fair value hierarchy (in thousands):
Non-Company Owned Life Insurance ("COLI") assets held in our deferred supplemental compensation plan consist of equity funds with fair value based on observable inputs such as quoted prices for identical assets in active markets and changes in fair value are recorded as selling, general and administrative expenses.
We account for our interest rate swap agreements under the provisions of ASC 815, Derivatives and Hedging, and have determined that our swap agreements qualify as highly effective cash flow hedges. We evaluate our hedges to determine their effectiveness and as of September 30, 2021 and December 31, 2020, the swaps were determined to be fully effective. Accordingly, the fair value of the swap agreements, which is a liability recorded in accrued expenses and other current liabilities
in our consolidated balance sheets, was $490 thousand and $1.6 million at September 30, 2021 and December 31, 2020, respectively. The offset, net of an income tax effect of $122 thousand and $400 thousand, was included in accumulated other comprehensive income in the accompanying balance sheets as of September 30, 2021 and December 31, 2020, respectively. The amounts paid and received on the swap agreements are recorded in interest expense in the period during which the related floating-rate interest is incurred. We expect the hedges to remain fully effective during the remaining terms of the swap agreements. We determine the fair value of the swap agreements based on a valuation model using primarily observable market data inputs.
In connection with the acquisition of Global Parts, we may be required to pay earn-out obligation payments of up to $2.0 million should Global Parts meet certain financial targets during the twelve months following the acquisition and meet a certain milestone event on or before March 2023. The preliminary fair value of the earn-out obligation was determined using a probability-based scenario analysis approach. Any change in the fair value of contingent consideration from events after the acquisition date will be recognized in earnings of the period when the event occurs. The probability-based approach used to fair value earn-out obligation is based on significant inputs not observed in the market and thus represents a Level 3 measurement. The significant unobservable inputs include projected revenues and percentage probability of occurrence. Changes in the revenue assumptions could result in a material change to the amount of the fair value measurement.
Under the agreement, we were required to make an advanced payment of the earn-out obligation. The payment was made in August 2021.
Changes in the earn-out obligation measured at fair value on a recurring basis using unobservable inputs (Level 3) for the nine months ended September 30, 2021 are as follows (in thousands):
The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef