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Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

17.

Fair Value of Financial Instruments

The authoritative guidance on fair value measurement defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an “exit price”). At December 31, 2018 and September 30, 2019, the Company’s financial instruments include cash, cash equivalents, accounts receivable, accounts payable, and other liabilities. The fair values of these financial instruments approximate their carrying values due to their short-term maturities.

Investments measured at fair value are based on one or more of the following three valuation techniques:

 

•

Market approach—Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;

 

•

Cost approach—Amount that would be required to replace the service capacity of an asset (i.e., replacement cost); and

 

•

Income approach—Techniques to convert future amounts to a single present amount based on market expectations (including present value techniques, option-pricing models and lattice models).

In addition, the guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:

 

Level 1

Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets and liabilities;

 

Level 2

Pricing inputs that include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument; and

 

Level 3

Prices or valuations that require inputs that are both significant to the fair value measurements and unobservable.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following table sets forth assets associated with the pension plan in “Note 14 – Retirement and Other Benefit Plans” that are accounted for at fair value by Level within the fair value hierarchy.

Fair value as of December 31, 2018 (in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Mutual funds

 

$

2,539

 

 

$

-

 

 

$

-

 

 

$

2,539

 

Fixed income

 

 

-

 

 

 

10,168

 

 

 

-

 

 

 

10,168

 

Cash and cash equivalents

 

 

361

 

 

 

-

 

 

 

-

 

 

 

361

 

 

 

$

2,900

 

 

$

10,168

 

 

$

-

 

 

$

13,068

 

 

Fair value as of September 30, 2019 (in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Mutual funds

 

$

2,888

 

 

$

-

 

 

$

-

 

 

$

2,888

 

Fixed income

 

 

-

 

 

 

10,579

 

 

 

-

 

 

 

10,579

 

Cash and cash equivalents

 

 

294

 

 

 

-

 

 

 

-

 

 

 

294

 

 

 

$

3,182

 

 

$

10,579

 

 

$

-

 

 

$

13,761

 

 

As described in “Note 14 – Retirement and Other Benefit Plans,” the Company acquired a defined contribution pension plan, a defined benefit pension plan, and supplemental retirement plans. At December 31, 2018 and September 30, 2019, the Company measured the mutual funds held within the defined benefit pension plan at fair value using unadjusted quoted prices in active markets that are accessible for identical assets. The Company measured the fixed income securities using market bid and ask prices. The inputs that are significant to valuation of fixed income securities are generally observable and therefore have been classified as Level 2.

The following table sets forth redeemable common stock associated with the ESOP in as described in “Note 14 – Retirement and Other Benefit Plans” that is accounted for at fair value by Level within the fair value hierarchy.

Fair value as of December 31, 2018 (in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Redeemable common stock

 

$

-

 

 

$

-

 

 

$

1,876,309

 

 

$

1,876,309

 

 

Fair value as of September 30, 2019 (in thousands):

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Redeemable common stock

 

$

2,577,011

 

 

$

-

 

 

$

-

 

 

$

2,577,011

 

 

As described in “Note 14 – Retirement and Other Benefit Plans,” the Company is obligated to redeem eligible participants’ interests in their ESOP accounts for cash upon an employee’s election. All shares held by the ESOP are eventually redeemable in the future for cash at the option of the holder once vesting and eligibility requirements have been met. The Company presents all shares held by the ESOP as temporary equity on the consolidated balance sheets at their redemption value. At December 31, 2018 and September 30, 2019, 78,172,809 shares and 78,138,602 shares, respectively, of the Company’s stock were held by the ESOP which the Company recorded at their aggregate redemption values of $1.9 billion and $2.6 billion, respectively. The December 31, 2018 redemption values is based on a share price established by the ESOP trustee, taking into account, among other things, the advice of a third-party valuation consultant for the ESOP trustee as well as the ESOP trustee’s knowledge of the Company. The share price valuation was determined using a combination of income and market-based methods that utilized unobservable Level 3 inputs, including significant assumptions such as forecasted revenue and operating margins, working capital requirements, and weighted average cost of capital. The September 30, 2019 redemption value is based on the Company’s closing share price in an active market and therefore has been classified as Level 1.

The following tables present a reconciliation of the beginning and ending balances of the fair value measurements using significant unobservable inputs (Level 3) (in thousands):

 

Balance at December 31, 2018

 

$

1,876,309

 

Transfer to Level 1

 

 

(1,876,309

)

Balance at September 30, 2019

 

$

-