Fair Value of Financial Instruments |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | Fair Value of Financial Instruments For assets and liabilities measured at fair value on a recurring and nonrecurring basis, a three-level hierarchy of measurements based upon observable and unobservable inputs is used to arrive at fair value. Observable inputs are developed based on market data obtained from independent sources, while unobservable inputs reflect the Company’s assumptions about valuation based on the best information available in the circumstances. Depending on the inputs, the Company classifies each fair-value measurement as follows:
Financial Instruments Measured at Carrying Value Current Assets Cash and cash equivalents are measured at carrying value, which approximates fair value because of the short-term maturities of these instruments. Debt The Company measures its Wells Fargo revolving credit facility, term loans and the Unsecured Senior Notes at original carrying value adjusted for unpaid waiver fees agreed to be added to principal, including accrued interest, net of unamortized deferred financing costs and fees. The fair value of the revolving credit facility approximates carrying value, as it consists of short-term variable rate loans. The Unsecured Senior Notes were issued on April 29, 2015, and their fair value as of December 31, 2015 approximated their carrying value. The fair-value measurement of these financial liabilities subsequent to December 31, 2015 was defined as Level 3 in the three-level valuation hierarchy, as the inputs to their valuation are not all market observable.
Other Financial Assets and Liabilities In addition to the methods and assumptions used for the financial instruments discussed above, Accounts receivable, net, Income tax receivables and Accounts payable are measured at carrying value, which approximates fair value because of the short-term maturities of these instruments. Financial Instruments Measured at Fair Value The Company's warrants and the contingent consideration liabilities were measured at fair value based on unobservable inputs and were, thus, considered Level 3 financial instruments in the three-level valuation hierarchy. As of December 31, 2015, the Base and Additional Earn-outs were finalized. The Base and Additional Earn-outs were paid in cash during 2016, as discussed below in Contingent Consideration section.
Warrants The following table summarizes changes in the estimated fair value of the Company’s warrant liability:
Weichai Warrant Liability The Company estimated the fair value of the Weichai Warrant financial instrument using a publicly traded stock pricing approach with a Black-Scholes option pricing model and a Monte Carlo simulation. Given the unobservable nature of the inputs to the pricing models, the Weichai Warrant was classified as a Level 3 instrument. The inputs of the Black-Scholes option pricing model were as follows:
The estimated price volatility represents the upper end of the range of implied volatility of publicly traded call options of benchmark companies. Private Placement Warrant Liability As of December 31, 2015 and 2014, the Company estimated the fair value of its Private Placement Warrant liability using the Black-Scholes option pricing model. Given the unobservable nature of the inputs to the pricing model, the Private Placement Warrants were classified as Level 3 instruments. The inputs of the Black-Scholes option pricing model were as follows:
* Represents the upper end of the range of implied volatility of publicly traded call options of benchmark companies. Contingent Consideration The following table summarizes the change in the estimated fair value of the Company’s contingent consideration, primarily for Powertrain in 2016 and 2015 and for 3PI in 2014.
The Company's original liability for Powertrain's contingent consideration for the Base and Additional Earn-outs associated with the May 2015 acquisition was measured at fair value based on unobservable inputs and it was, therefore, considered a Level 3 financial instrument. The Base and Additional Earn-outs were initially determined using a Monte Carlo simulation model. The Base Earn-out was to be paid upon the achievement of predetermined levels of net sales for 2015, and the Additional Earn-out was defined as the greater of a 5.0% per annum return on the Base Earn-out or the increase in the Company's VWAP Common Stock price, as defined in the APA, from the acquisition date of May 1, 2015 through January 1, 2016. The Powertrain Base and Additional Earn-outs were adjusted to estimated fair value at the end of each quarter in 2015. At December 31, 2015, however, the end of the measurement period, all of the inputs needed to compute the Powertrain Base and Additional Earn-outs were known and determined to be $8.2 million. The Company recognized additional “Contingent consideration” expense in its 2015 Consolidated Statement of Operations for Powertrain as indicated in the table above. This adjustment was due to changes in the original estimated fair value of the Powertrain Base and Additional Earn-outs during 2015. See Note 5. Acquisitions for additional information related to the Powertrain and 3PI acquisitions and information related to other insignificant contingent consideration liabilities noted in the above table. |