21. Fair Value Measurements and Financial Instruments

The Company utilizes fair value measurement guidance prescribed by accounting standards to value its financial instruments. The guidance specifies a three-level hierarchy that is used when measuring and disclosing fair value. The fair value hierarchy gives the highest priority to quoted prices available in active markets (i.e. observable inputs) and the lowest priority to data lacking transparency (i.e. unobservable inputs). An instrument’s categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. The following is a description of the three hierarchy levels.

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.

Level 2: Inputs to the valuation methodology include quoted market prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value adjustment.

The fair value of cash and cash equivalents, restricted cash and investments, and restricted cash with respect to bonds, trade receivables, accounts payable and other current liabilities approximated their carrying values as of December 31, 2021 and 2020 primarily due to the short-term maturity of these instruments. Based on market trades of the Senior Notes close to December 31, 2021 (Level 1 fair value measurement), the fair value of the Senior Notes was estimated at approximately $436 million compared to a gross carrying value of $450 million at December 31, 2021. The fair value of the other long-term debt approximated their carrying values as of December 31, 2021 and 2020 due to the frequency with which interest rates are reset based on changes in prevailing interest rates.

The Bonds (Series C) were presented in the consolidated balance sheets at amortized cost. The fair value of the Bonds (Series C) was $80.6 million as of December 31, 2020. The fair value measurements were classified as Level 1.

The Contingent Consideration from the Empire Acquisition (as defined in Note 4) is measured at fair value at the end of each reporting period and amounted to $6.2 million and $7.4 million as of December 31, 2021 and 2020, respectively. The fair value methodology for the Contingent Consideration liability is categorized as Level 3 because inputs to the valuation methodology are unobservable and significant to the fair value adjustment. Approximately $1.7 million and $0 million, respectively, of income was recorded as a component of other expenses, net in the consolidated statements of operations and approximately $0.5 million and $0.2 million, respectively, was recorded as a component of interest and other financing expenses in the consolidated statements of operations for the change in the fair value of the Contingent Consideration for the years ended December 31, 2021 and 2020.

The Public Warrants (as defined in Note 11) are measured at fair value at the end of each reporting period and amounted to $23.6 million and $18.1 million as of December 31, 2021 and 2020, respectively. The fair value methodology for the Public Warrants is categorized as Level 1. Approximately $5.5 million was recorded as a component of interest and other financial expenses in the consolidated statement of operations for the change in the fair value of the Public Warrants for the year ended December 31, 2021. Approximately $0.3 million was recorded as a component of interest and other financial income in the consolidated statement of operations for the change in the fair value of the Public Warrants for the year ended December 31, 2020.

The Private Warrants (as defined in Note 11) are measured at fair value at the end of each reporting period and amounted to $7.2 million and $6.7 million as of December 31, 2021 and 2020, respectively. The fair value methodology for the Private Warrants is categorized as Level 2 because certain inputs to the valuation methodology are unobservable and significant to the fair value adjustment. The Private Warrants have been recorded at fair value based on a Black-Scholes option pricing model with the following material assumptions based on observable and unobservable inputs:

Approximately $0.6 million was recorded as a component of interest and other financial expenses in the consolidated statement of operations for the change in the fair value of the Private Warrants for the year ended December 31, 2021. Approximately $0.2 million was recorded as a component of interest and other financial income in the consolidated statement of operations for the change in the fair value of the Private Warrants for the year ended December 31, 2020.

The Deferred Shares (as defined in Note 11) are measured at fair value at the end of each reporting period and amounted to $1.6 million as of December 31, 2021 and 2020. The fair value methodology for the Deferred Shares categorized as Level 3 because inputs to the valuation methodology are unobservable and significant to the fair value adjustment. The Deferred Shares have been recorded at fair value based on a Monte Carlo pricing model with the following material assumptions based on observable and unobservable inputs:

Approximately $0.1 million was recorded as a component of interest and other financial income in the consolidated statements of operations for the change in the fair value of the Deferred Shares for each of the years ended December 31, 2021 and 2020.

The Ares Put Option (as defined in Note 11) is measured at fair value at the end of each reporting period and amounted to $8.9 million and $9.8 million as of December 31, 2021 and 2020, respectively. The fair value methodology for the Ares Put Option is categorized as Level 3 because inputs to the valuation methodology are unobservable and significant to the fair value adjustment. The Ares Put Option has been recorded at its fair value based on a Monte Carlo pricing model with the following material assumptions based on observable and unobservable inputs: