Quarterly report pursuant to Section 13 or 15(d)

Fair Value

v3.8.0.1
Fair Value
9 Months Ended
Sep. 30, 2017
Fair Value  
Fair Value

 

 

3.Fair Value

 

Fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor.  Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data).

 

The following table presents financial assets and liabilities measured at fair value on a recurring basis and discloses the fair value of long-term debt:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value at

 

Fair Value at

 

 

September 30,

 

December 31,

 

 

2017

 

2016

Assets:

 

 

 

 

 

 

Other long-term assets (a)

  

$

4,634

  

$

3,458

 

 

 

 

 

 

 

Total Assets

 

$

4,634

 

$

3,458

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Interest rate swaps (b)

 

$

2,781

 

$

1,985

Long term debt (c)

 

 

312,297

 

 

315,940

Earnout - Henderson (d)

 

 

553

 

 

636

Earnout - Dejana (e)

 

 

3,700

 

 

10,373

Total Liabilities

 

$

319,331

 

$

328,934

 

 

 


(a)  Included in other assets is the cash surrender value of insurance policies on various individuals that are associated with the Company. The carrying amount of these insurance policies approximates their fair value and is considered Level 2 inputs.  

 

(b) Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g. interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. Thus, inputs used to determine fair value of the interest rate swap are Level 2 inputs.  Interest rate swaps of $608 and $2,173 at September 30, 2017 are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectivelyInterest rate swaps of $335 and $1,650 at December 31, 2016 are included in Accrued expenses and other current liabilities and Other long-term liabilities, respectively.

 

(c)  The fair value of the Company’s long-term debt, including current maturities, is estimated using discounted cash flows based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements, which is a Level 2 input for all periods presented. Meanwhile, long-term debt is recorded at carrying amount, net of discount and deferred debt issuance costs, as disclosed on the face of the balance sheet.

 

 

(d) Included in Accrued expenses and other current liabilities and Other long term liabilities in the amounts of $111 and $442, respectively, at September 30, 2017 is the fair value of an obligation for a portion of the potential earnout acquired in conjunction with the acquisition of Henderson Enterprise Group, Inc. (“Henderson”).   Included in Accrued expenses and other current liabilities and Other long term liabilities in the amounts of $235 and $442, respectively, at September 30, 2016 is the fair value of an obligation for a portion of the potential earnout acquired in conjunction with the acquisition of Henderson. Fair value is based upon Level 3 discounted cash flow analysis using key inputs of forecasted future sales as well as a growth rate reduced by the market required rate of return. See reconciliation of liability included below: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

2017

 

2017

 

2016

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

  

$

580

 

$

636

 

$

705

 

$

761

Additions

 

 

 

 

 

 

 

 

Adjustments to fair value

 

 

 

 

 

 

 

 

Payment to former owners

 

 

(27)

 

 

(83)

 

 

(28)

 

 

(84)

Ending balance

 

$

553

 

$

553

 

$

677

 

$

677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(e) Included in Other long term liabilities in the amount of $3,700 at September 30, 2017 is the fair value of an obligation for a portion of the potential earnout incurred in conjunction with the acquisition of Dejana. Included in Accrued expenses and other current liabilities and Other long term liabilities in the amounts of $5,314 and $4,886, respectively, at September 30, 2016 is the fair value of an obligation for a portion of the potential earnout incurred in conjunction with the acquisition of Dejana.  Fair value is based upon Level 3 inputs of a real options approach where gross sales were simulated in a risk-neutral framework using Geometric Brownian Motion, a well-accepted model of stock price behavior that is used in option pricing models such as the Black-Scholes option pricing model, using key inputs of forecasted future sales and financial performance as well as a risk adjusted expected growth rate adjusted appropriately based on its correlation with the market.  See reconciliation of liability included below: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

2017

 

2017

 

2016

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

  

$

4,886

 

$

10,373

 

$

 

$

 

Additions

 

 

 

 

 

 

10,200

 

 

10,200

 

Adjustments to fair value

 

 

(1,186)

 

 

(1,186)

 

 

 

 

 

Payment to former owners

 

 

 

 

(5,487)

 

 

 

 

 

Ending balance

 

$

3,700

 

$

3,700

 

$

10,200

 

$

10,200