4. FAIR VALUE MEASUREMENTS
The Company’s interest rate swap agreements, Tax Receivable Agreement (“TRA”) and noncontrolling interests subject to put provisions are accounted for at fair value on a recurring basis and are classified and disclosed in one of the following three categories:
Level 1: Financial instruments with unadjusted, quoted prices listed on active market exchanges.
Level 2: Financial instruments determined using prices for recently traded financial instruments with similar underlying terms, as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3: Financial instruments not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques.
The asset or liability fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. There were no changes in the methodologies used at June 30, 2016.
Noncontrolling interests subject to put provisions—See Note 7 for a discussion of the Company’s methodology for estimating fair value of noncontrolling interest subject to put provisions.
Interest rate swap agreements—See Note 8 for a discussion of the Company’s methodology for estimating fair value of interest rate swaps agreements.
Tax Receivable Agreement—The fair value of the TRA relied upon both Level 2 data and Level 3 data. The liability is remeasured at fair value each reporting period with the change in fair value recognized as Income tax receivable agreement expense in the Company’s Consolidated Statements of Operations. The fair value is calculated using a Monte Carlo simulation-based approach that relies on significant assumptions about our stock price, stock volatility and risk-free rate as well as the timing and amounts of options exercised. Changes in assumptions based on future events, including the price of our common stock, will impact the fair value for the TRA. See Note 12 – Related Party Transactions for further discussion of the Tax Receivable Agreement.
Transfers among levels are calculated on values as of the transfer date. There were no transfers between Levels 1, 2 and 3 during the six months ended June 30, 2016 and the year ended December 31, 2015.
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June 30, 2016
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Total
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Level 1
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Level 2
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Level 3
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Assets
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Interest rate swap agreements (included in Other long-term assets)
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$
|
117
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|
$
|
—
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|
$
|
117
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|
$
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—
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Liabilities
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|
|
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|
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|
|
|
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Tax Receivable Agreement Liability (included in Accrued expenses and other current liabilities and Income tax receivable agreement payable)
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|
$
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30,800
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|
$
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—
|
|
$
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—
|
|
$
|
30,800
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|
|
Interest rate swap agreements (included in Accrued expenses and other current liabilities)
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|
|
820
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|
|
—
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|
|
820
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|
|
—
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Total Liabilities
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|
$
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31,620
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|
$
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—
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|
$
|
820
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|
$
|
30,800
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|
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Temporary Equity
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|
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|
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Noncontrolling interests subject to put provisions
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|
$
|
134,762
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$
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—
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|
$
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—
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|
$
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134,762
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|
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December 31, 2015
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|
|
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Total
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Level 1
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Level 2
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Level 3
|
|
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Assets
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest rate swap agreements (included in Other long-term assets)
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|
$
|
238
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|
$
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—
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|
$
|
238
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|
$
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—
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|
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Liabilities
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|
|
|
|
|
|
|
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|
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Interest rate swap agreements (included in Accrued expenses and other current liabilities
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|
$
|
426
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$
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—
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|
$
|
426
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|
$
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—
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|
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Temporary Equity
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|
|
|
|
|
|
|
|
|
|
|
|
|
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Noncontrolling interests subject to put provisions
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$
|
108,211
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|
$
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—
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|
$
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—
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|
$
|
108,211
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The following table provides the fair value rollforward for the six months ended June 30, 2016 for the Tax receivable agreement liability, which is classified as a Level 3 financial instrument.
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Balance at December 31, 2015
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$
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-
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Initial fair value as of April 20, 2016
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23,400
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Total realized/unrealized gains:
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Included in earnings and reported as Income tax receivable agreement expense
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7,400
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Balance at June 30, 2016
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$
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30,800
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The carrying amounts reported in the accompanying consolidated balance sheets for cash, accounts receivable, accounts payable and accrued liabilities approximate fair value because of their short-term nature. The fair value of the Company’s debt is estimated using Level 2 inputs based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The Company estimates the fair value of the first lien term loans at $425,174 as of June 30, 2016 as compared to the carrying amount of $436,076. The Company estimates the fair value of the first lien term loans at $374,453 and second lien term loans at $237,963 as of December 31, 2015 compared to the carrying amounts of $378,235 and $238,559. See Note 8 –Long-Term Debt for a discussion of the Company’s repayment of the second lien term loans.
