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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2019
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair value is an exit price representing the expected amount that an entity would receive to sell an asset or pay to transfer a liability in an orderly transaction with market participants at the measurement date. We followed consistent methods and assumptions to estimate fair values as more fully described in Note 1. Fair value principles prioritize valuation inputs across three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the assumptions used to measure assets and liabilities at fair value. An asset or liability’s classification within the various levels is determined based on the lowest level input that is significant to the fair value measurement. Our financial instruments that are subject to fair value disclosure consist of cash and cash equivalents, accounts receivable, accounts payable, derivatives, and long-term debt. As of December 31, 2019, the carrying values of these financial instruments approximated fair value. The fair value of floating-rate debt approximates the carrying amount because the interest rates paid are based on short-term maturities. Derivative Financial Instruments As described in Note 17, in connection with the issuance of Preferred Stock in December 2019 and in accordance with ASC 815-15, certain features of the Preferred Stock were bifurcated and accounted for separate from the Preferred Stock. The following features are recorded on a combined basis as a single derivative.
• | Leverage ratio put feature. The Preferred Stock includes a redemption option based on a leverage ratio threshold that provides the preferred holder the option to convert the Preferred Stock to a variable number of shares of common stock at a discount to the then fair value of our common stock. The conversion feature is considered a redemption right at a premium which is not clearly and closely related to the debt host.
• | Contingent dividends. The feature that allows for the dividend rate to increase to 11.625% in 2020 is not considered clearly and closely related to the debt host.
• | Dividends withholding. The Preferred Stock bears a feature that could require us to make an effective distribution to purchasers which is indexed to the tax rate of the purchasers. This distribution would be partially offset by an adjustment to the redemption price and/or conversion rate. The dividends withholding feature is not clearly and closely related to the debt host.
The following table shows the liabilities measured at fair value for the Preferred Stock derivative above as of December 31, 2019.
|  | Fair Value Measurements as of December 31, 2019
Description |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Derivative liability - other current liabilities |  | $ | — |  |  | $ | — |  |  | $ | 60 |
Derivative liability - other non-current liabilities |  | — |  |  | — |  |  | 2,235 |
Description |  | $ | — |  |  | $ | — |  |  | $ | 2,295 |
The inputs for determining fair value of the Preferred Stock derivative are classified as Level 3 inputs. Level 3 fair value is based on unobservable inputs based on the best information available. These inputs include probability assessments of how long the Preferred Stock will remain outstanding, whether the leverage ratio threshold will be exceeded, and whether approval is obtained from common stockholders for issuance of common stock upon exercise of the Warrants and conversion or redemption of the Preferred Stock. Inputs also include the percentage of Preferred Stock held by non-U.S. resident holders and the applicable tax withholding rates for those holders. The following table presents the change in the Preferred Stock derivative during the year ended December 31, 2019.
|  | Year Ended December 31, 2019
Beginning balance |  | $ | — |
Issuances |  | 2,295 |
Ending balance |  | $ | 2,295 |
Changes in the fair value of the Preferred Stock derivative will be recognized in earnings. There was no change in the fair value from the date of issuance through December 31, 2019. Cash Flow Hedge We manage our exposure to fluctuations in interest rates using a mix of fixed and variable rate debt. On February 8, 2019, we entered into a $700.0 million fixed-rate interest rate swap agreement that changed the LIBOR-based portion of the interest rate on a portion of our variable rate debt to a fixed rate of 2.4575% (the “interest rate swap”). The term of the interest rate swap is from the effective date of February 12, 2019, through the termination date of October 19, 2022 (the “interest rate swap term”). The interest rate swap effectively mitigates our exposures to the risks and variability of changes in LIBOR. The notional amount of the interest rate swap will decrease over the interest rate swap term as follows:
|  | Notional Amount
February 12, 2019 - December 30, 2020 |  | $ | 700,000 |
December 31, 2020 - December 30, 2021 |  | 466,667 |
December 31, 2021 - October 19, 2022 |  | 233,333 |
The objective of the interest rate swap is to eliminate the variability of cash flows in interest payments on the first $700.0 million of variable rate debt attributable to changes in benchmark one-month LIBOR interest rates. The hedged risk is the interest rate risk exposure to changes in interest payments, attributable to changes in benchmark one-month LIBOR interest rates over the interest rate swap term. If one-month LIBOR is greater than the minimum percentage under the Senior Secured Term Loan, the changes in cash flows of the interest rate swap are expected to exactly offset changes in cash flows of the variable rate debt. The interest rate swap is designated as a cash flow hedge. As of December 31, 2019, we reported a $9.4 million loss, net of tax, in accumulated other comprehensive income related to the interest rate swap. The following table shows the liabilities measured at fair value on a recurring basis for the interest rate swap as of December 31, 2019.
|  | Fair Value Measurements as of December 31, 2019
Description |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
Derivative liability - other current liabilities |  | $ | — |  |  | $ | 5,943 |  |  | $ | — |
Derivative liability - other non-current liabilities |  | — |  |  | 6,290 |  |  | — |
Total |  | $ | — |  |  | $ | 12,233 |  |  | $ | — |
The inputs for determining fair value of the interest rate swap are classified as Level 2 inputs. Level 2 fair value is based on estimates using standard pricing models. These standard pricing models use inputs which are derived from or corroborated by observable market data such as interest rate yield curves, index forward curves, discount curves, and volatility surfaces. Counterparty to this derivative contract is a highly rated financial institution which we believe carries only a minimal risk of nonperformance. As of December 31, 2018, we had no interest rate swap agreements or other derivative financial instruments outstanding. Fixed Rate Debt The fair value of our outstanding fixed-rate debt included in the “International lines of credit and other loans” line item within Note 13 to these Notes to Consolidated Financial Statements was $9.8 million as of December 31, 2019. This fair value represents Level 2 under the three-tier hierarchy described above. The carrying value of this fixed-rate debt was $9.8 million as of December 31, 2019. We had no significant fixed-rate debt outstanding as of December 31, 2018.

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- Definition The 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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