v3.7.0.1
FAIR VALUE OF FINANCIAL INSTRUMENTS
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| Fair Value Disclosures [Abstract] |
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| FAIR VALUE OF FINANCIAL INSTRUMENTS |
FAIR VALUE OF FINANCIAL INSTRUMENTS A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy for inputs used in measuring fair value is as follows:
| | 1. | Level 1 Inputs—quoted prices in active markets for identical assets or liabilities |
| | 2. | Level 2 Inputs—observable inputs other than quoted prices in active markets for identical assets and liabilities |
| | 3. | Level 3 Inputs—unobservable inputs |
Except as disclosed below, the carrying amounts of our financial instruments approximate their fair value. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. We measure the fair value of our deferred compensation liability, which is included in other liabilities and deferred credits on the consolidated balance sheet, on a recurring basis using Level 2 inputs. We measure the fair value of this liability based on prices provided by independent market participants that are based on observable inputs using market-based valuation techniques.
The fair value of the interest rate swap agreements are based on the estimated amounts we would receive or pay to terminate the contract at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs. The effective portion of changes in the fair value of the derivatives that are designated as cash flow hedges are being recorded in accumulated other comprehensive income (loss) and will be subsequently reclassified into earnings during the period in which the hedged forecasted transaction affects earnings.
We incorporate credit valuation adjustments to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. In adjusting the fair value of our derivative contract for the effect of non-performance risk, we considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.
Although we have determined that the majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2017 we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of our derivative position and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivative. As a result, we have determined that our derivative valuation in its entirety is classified in Level 2 of the fair value hierarchy.
A summary of our financial liabilities that are measured at fair value on a recurring basis, by level within the fair value hierarchy is as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Level 1 | Level 2 | Level 3 | Total | | Level 1 | Level 2 | Level 3 | Total | Deferred compensation liability | $ | — |
| $ | 1,109 |
| $ | — |
| $ | 1,109 |
| | $ | — |
| $ | 1,006 |
| $ | — |
| $ | 1,006 |
| Interest rate swap asset | $ | — |
| $ | 3,697 |
| $ | — |
| $ | 3,697 |
| | $ | — |
| $ | 16,428 |
| $ | — |
| $ | 16,428 |
| Interest rate swap liability | $ | — |
| $ | 517 |
| $ | — |
| $ | 517 |
| | $ | — |
| $ | 1,067 |
| $ | — |
| $ | 1,067 |
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The fair value of our secured notes payable and unsecured senior guaranteed notes are sensitive to fluctuations in interest rates. Discounted cash flow analysis using observable market interest rates (Level 2) is generally used to estimate the fair value of our secured notes payable, using rates ranging from 3.8% to 4.5%. Considerable judgment is necessary to estimate the fair value of financial instruments. The estimates of fair value presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. The carrying values of our revolving line of credit and term loan set forth below are deemed to be at fair value since the outstanding debt is directly tied to monthly LIBOR contracts. A summary of the carrying amount and fair value of our secured financial instruments, all of which are based on Level 2 inputs, is as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | Secured notes payable, net | $ | 280,170 |
| | $ | 287,984 |
| | $ | 445,180 |
| | $ | 457,621 |
| Unsecured term loans, net | $ | 248,270 |
| | $ | 250,000 |
| | $ | 247,883 |
| | $ | 250,000 |
| Unsecured senior guaranteed notes, net | $ | 696,546 |
| | $ | 707,821 |
| | $ | 348,467 |
| | $ | 351,357 |
| Unsecured line of credit | $ | — |
| | $ | — |
| | $ | 20,000 |
| | $ | 20,000 |
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- DefinitionThe entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.
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