Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurement

v3.20.2
Fair Value Measurement
 9 Months Ended
Sep. 30, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurement FAIR VALUE MEASUREMENT
The Company recognizes certain financial assets and liabilities at fair value on a recurring basis (at least annually). Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Three levels of inputs that may be used to measure fair value are as follows:
Level 1: Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2: Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
The following table presents the input level used to determine the fair values of the Company’s financial instruments measured at fair value on a recurring basis:
Fair Value as of
Level September 30, 2020 December 31, 2019
Assets:
Interest rate swap instruments 2 $ —  $ 15 
Commodity swap instruments 2 —  198 
Total assets $ —  $ 213 
Liabilities:
Interest rate swap instruments 2 $ 11,128  $ 6,236 
Commodity swap instruments 2 44  — 
Make-whole provisions 2 1,352  918 
Contingent consideration 3 678  678 
Total liabilities $ 13,202  $ 7,832 
The fair value of the Company’s interest rate swaps was determined using cash flow analysis on the expected cash flow of the contract in combination with observable market-based inputs, including interest rate curves and implied volatility. As part of this valuation, the Company considered the credit ratings of the counterparties to the interest rate swaps to determine if a credit risk adjustment was required.
The fair value of the Company’s commodity swaps was determined using a cash flow analysis on the expected cash flow of the contract in combination with observable forward price inputs obtained from a third-party pricing source. As part of this valuation, the Company considered the credit ratings of the counterparties to the commodity swaps to determine if a credit risk adjustment was required.
The fair value of the Company’s make-whole provisions was determined by either comparing it against the rates of similar debt instruments under similar terms without a make-whole provision obtained from various highly rated third-party pricing sources or evaluating the present value of the prepayment fee.
The fair value of the Company’s contingent consideration liabilities were determined by evaluating the acquired asset’s future financial forecasts and evaluating which, if any, of the cumulative revenue targets, financial metrics and/or milestones are likely to be met. The Company has classified contingent consideration related to certain acquisitions within level 3 of the fair value hierarchy because the fair value is derived using significant unobservable inputs, which include discount rates and probability-weighted cash flows. The Company determined the fair value of its contingent consideration obligations based on a probability-weighted income approach derived from financial performance estimates and probability assessments of the attainment of certain
targets. The Company establishes discount rates to be utilized in its valuation models based on the cost to borrow that would be required by a market participant for similar instruments.
The key assumptions as of September 30, 2020 related to the contingent consideration from the acquisition of certain assets of Chelsea Group Limited, used in the model include a discount rate of 18% for purposes of discounting the low and base case scenarios associated with achievement of the financial based earn-out. The probabilities assigned to these scenarios were 50% for both the low and base case scenarios. An increase or decrease in the probability of achievement of any scenario could result in a significant increase or decrease to the estimated fair value of the contingent consideration liability.
The following table sets forth a summary of changes in fair value of contingent liability classified as level 3 for the nine months ended September 30, 2020 and September 30, 2019:
Nine Months Ended September 30, 2020 Nine Months Ended September 30, 2019
Contingent consideration liability balance at December 31, 2019 and 2018
 $ 678  $ 600 
Changes in the fair value of contingent consideration obligation —  50 
Contingent consideration liability balance at September 30, 2020 and 2019
 $ 678  $ 650 
The fair value of financial instruments is determined by reference to observable market data and other valuation techniques, as appropriate. The only category of financial instruments where the difference between fair value and recorded book value is notable is long-term debt. At September 30, 2020 and December 31, 2019 the fair value of the Company’s long-term debt was estimated using discounted cash flows analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements which are considered to be level 2 inputs. There have been no transfers in or out of level 2 or level 3 financial instruments for the nine months ended September 30, 2020 and the year ended December 31, 2019.
Based on the analysis performed, the fair value and the carrying value of the Company’s long-term debt, excluding financing leases, are as follows:
As of September 30, 2020 As of December 31, 2019
Fair Value Carrying Value Fair Value Carrying Value
Long-term debt (Level 2) $ 318,816  $ 313,550  $ 309,377  $ 307,508 
The Company is also required periodically to measure certain other assets at fair value on a nonrecurring basis, including long-lived assets, goodwill and other intangible assets. There were no assets recorded at fair value on a non-recurring basis at September 30, 2020 or December 31, 2019.