StandardAero, Inc. Fair Value Disclosure
NOTE 20: FAIR VALUE MEASUREMENTS
Fair value is 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. The inputs used to measure fair value into the following hierarchy are determined as follows:
Level 1 - |
Unadjusted quoted prices in active markets for identical assets or liabilities. |
Level 2 - |
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. |
Level 3 - |
Unobservable inputs for the asset or liability. |
For cash and cash equivalents, accounts receivable, income taxes receivable and accounts payable, the fair value approximates the carrying value due to the short maturity periods of these financial instruments. For long-term borrowings, the fair value is measured using Level 2 market values.
The interest rate swaps, interest rate caps and foreign exchange contracts are carried at fair value in the Consolidated Balance Sheets. The fair value measurement is classified within Level 2 of the fair value hierarchy, as the inputs to the derivative pricing model are generally observable and do not contain a high level of subjectivity. The fair value of the interest rate agreements is estimated using industry standard valuation models using market-based observable inputs.
The Company’s term loan borrowing, which is SOFR-based, approximates fair value at December 31, 2025. The inputs used to measure the fair value of the Company’s debt instrument are classified as Level 2 within the fair value hierarchy.
Valuation of Contingent Consideration Liability
The fair value of earnout consideration was estimated based on applying a Monte Carlo simulation method to forecast achievement of the gross profit targets. This method involves many possible value outcomes which are evaluated to establish an estimated value. Key inputs in the valuation include volatility and discount rates. Due to the significant unobservable inputs used in the valuations, these liabilities are categorized within Level 3 of the fair value hierarchy.
The Company determined the initial value for the contingent consideration liability of $15.2 million at December 31, 2024, using the Level 3 inputs below as of the issuance date on August 23, 2024. There were no changes in the estimated fair value of the contingent consideration as of December 31, 2025.
The following table represents the significant inputs used in calculating the fair value of the contingent consideration liability on the issuance date:
Longest midpoint term |
|
|
1.86 |
|
Gross profit discount rate |
|
|
10.7 |
% |
Risk-free rate |
|
|
3.9 |
% |
Gross profit volatility |
|
|
23.3 |
% |
Payment discount rate |
|
|
13.2 |
% |
The contingent consideration measured at fair value using unobservable inputs decreased from the initial measurement of $15.2 million as of December 31, 2024 to $8.2 million as of December 31, 2025. The Company paid $7.0 million of contingent consideration during the year ended December 31, 2025. The current portion of the $8.2 million contingent consideration liability is recorded in Accrued and other current liabilities and the non-current portion is recorded in Other non-current liabilities.
The following table summarizes the carrying amounts and fair values of financial instruments:
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|
As of December 31, 2025 |
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|
As of December 31, 2024 |
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Balance Sheet Classification |
|
Level |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
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||||
|
|
|
|
|
(in thousands) |
|
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Assets: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swaps |
Prepaid expenses and other current assets |
|
2 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,539 |
|
|
$ |
1,539 |
|
Foreign exchange contracts |
Prepaid expenses and other current assets |
|
2 |
|
|
1,757 |
|
|
|
1,757 |
|
|
|
— |
|
|
|
— |
|
Total assets |
|
|
|
|
$ |
1,757 |
|
|
$ |
1,757 |
|
|
$ |
1,539 |
|
|
$ |
1,539 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate caps |
Accrued expenses and other current liabilities |
|
2 |
|
|
6,808 |
|
|
|
6,808 |
|
|
|
8,967 |
|
|
|
8,967 |
|
Interest rate caps |
Other non-current liabilities |
|
2 |
|
|
— |
|
|
|
— |
|
|
|
3,709 |
|
|
|
3,709 |
|
Contingent consideration - current |
Accrued expenses and other current liabilities |
|
3 |
|
|
7,000 |
|
|
|
7,000 |
|
|
|
7,000 |
|
|
|
7,000 |
|
Contingent consideration - non-current |
Other non-current liabilities |
|
3 |
|
|
1,150 |
|
|
|
1,150 |
|
|
|
8,150 |
|
|
|
8,150 |
|
Total liabilities |
|
|
|
|
$ |
14,958 |
|
|
$ |
14,958 |
|
|
$ |
27,826 |
|
|
$ |
27,826 |
|
The gains (losses) on the Company’s derivative instruments were as follows:
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|
Year Ended December 31, |
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|
Statement of Operations Classification |
|
2025 |
|
|
2024 |
|
|
2023 |
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|
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|
(in thousands) |
|
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Amount of (loss) gain recognized in net income: |
|
|
|
|
|
|
|
|
|
|
|
|||
Interest rate swaps |
|
|
$ |
2,183 |
|
|
$ |
9,458 |
|
|
$ |
18,956 |
|
|
Interest rate caps |
|
|
|
(9,844 |
) |
|
|
(293 |
) |
|
|
(625 |
) |
|
Foreign exchange contracts |
|
|
|
2,141 |
|
|
|
818 |
|
|
|
265 |
|
|
Total (loss) gain in net income |
|
|
|
$ |
(5,520 |
) |
|
$ |
9,983 |
|
|
$ |
18,596 |
|
|
|
|
|
|
|
|
|
|
|
|
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|||
|
|
Statement of Comprehensive Income Classification |
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Amount of (loss) gain recognized in other comprehensive income (loss): |
|
|
|
|
|
|
|
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|
|
|
|||
Interest rate swaps |
|
Cash flow hedge gain |
|
$ |
644 |
|
|
$ |
4,876 |
|
|
$ |
7,851 |
|
Interest rate caps |
|
Cash flow hedge loss |
|
|
(4,218 |
) |
|
|
(519 |
) |
|
|
(7,686 |
) |
Foreign exchange contracts |
|
Cash flow hedge gain (loss) |
|
|
3,899 |
|
|
|
(103 |
) |
|
|
1,677 |
|
Total gain recognized in other comprehensive income |
|
|
|
$ |
325 |
|
|
$ |
4,254 |
|
|
$ |
1,842 |
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
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.