FAIR VALUE MEASUREMENTS
ASC 820 provides a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. ASC 820 defines fair value 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. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs.
Based upon observability of the inputs used in valuation techniques, the Company’s assets and liabilities are classified as follows:
•Level 1—Quoted market prices in active markets for identical assets or liabilities.
•Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted market prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
•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 internally developed models and methodologies utilizing significant unobservable inputs.
Forward currency swap contracts—See Note 12, Derivative Instruments, for a description of these contracts. The Company’s valuation methodology for forward currency swap contracts is based upon third-party institution data.
The Company’s fair value hierarchy for those assets (liabilities) measured at fair value on a recurring basis at December 31, 2025 and 2024, is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2
Forward Currency
Swaps/Contracts | | Level 3
Contingent consideration liability | | Total |
| December 31, 2025 | $ | — | | | $ | (775) | | | $ | — | | | $ | (775) | |
| December 31, 2024 | $ | — | | | $ | (5,513) | | | $ | — | | | $ | (5,513) | |
There were no transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.