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Fair Value Measurements
9 Months Ended
Jun. 30, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
 
The accounting standard for fair value measurements establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is as follows:
 
● Level 1—Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.

● Level 2—Other inputs that are directly or indirectly observable in the marketplace.
 
● Level 3—Unobservable inputs that are supported by little or no market activity.
 
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Fair value of financial instruments
    
The carrying amount of cash and cash equivalents, accounts and notes receivable, accounts payable and short-term borrowings approximate their fair value due to the short-term maturity of those instruments.
 
The carrying values of borrowings outstanding under the New Credit Facilities approximate fair value at June 30, 2016 primarily due to their variable interest rate. The estimated fair value of these instruments is classified by the Company as a Level 3 measurement within the fair value hierarchy due to the varying interest rate parameters as outlined in the respective loan agreements. The carrying values of borrowings under the Predecessor Credit Facilities approximated fair value at September 30, 2015 primarily due to their variable interest rate.
 
The estimated fair value of the Predecessor Notes was $149.2 million at September 30, 2015, including accrued interest of $1.1 million. The estimated fair value of the Notes was classified by the Predecessor as a Level 3 measurement within the fair value hierarchy. The estimated fair value of these instruments was calculated based upon a pricing model using the estimated yield calculated from interpolated treasury and implied yields to quoted price as inputs. The Predecessor’s relative credit standing was one of the inputs to the valuation.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

In addition to the financial instruments that are recorded at fair value on a recurring basis, the Company records assets and liabilities at fair value on a non-recurring basis as required by U.S. GAAP, such as a result of impairment charges or as part of a business combination. See Note 3 for further discussion of the Business Combination. These fair value measurements were classified as Level 3 within the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The preliminary fair value of the contingent consideration related to the Deferred Cash Consideration as discussed in Note 3 was $49.6 million at the Closing Date. The fair value of the contingent consideration related to the Deferred Cash Consideration was $46.7 million as of June 30, 2016. The measurement of the contingent consideration related to the Deferred Cash Consideration is classified by the Company as a Level 3 measurement within the fair value hierarchy. In order to estimate the fair value of the Deferred Cash Consideration, the Company estimates the value of the Excess Shares using a Monte Carlo simulation model with the market price of the Company’s common stock at each valuation date being the most important input to this model. An increase in the market price of the Company’s common stock has the same directional effect on the value of the liability related to the Deferred Cash Consideration.

The preliminary fair value of the liability for the contingent consideration related to the TRA as discussed in Note 3 was $94.9 million at the Closing Date. The fair value of the liability for the contingent consideration related to the TRA was $95.5 million as of June 30, 2016. The liability for the contingent consideration related to the TRA is classified by the Company as a Level 3 measurement within the fair value hierarchy. The Company estimates the fair value of the liability for the contingent consideration related to the TRA based on a discounted cash flow model which incorporates assumptions of projected taxable income, projected income tax liabilities and an estimate of tax benefits expected to be realized as a result of the Business Combination. Key inputs to the valuation are prevailing tax rates and market interest rates impacting the discount rate. An increase in the discount rate has the opposite directional effect on the value of the liability related to the TRA. An increase in prevailing tax rates has the same directional effect on the value of the liability related to the TRA.

The fair value measurements of the contingent consideration above at the Closing Date are preliminary. Any changes within the measurement period in the estimated fair values of these liabilities may change the amount of the purchase price allocable to goodwill. Any subsequent changes in the fair value of the contingent consideration from their initial fair value recognition at the Closing Date will be recognized as a component of Operating income (loss) in the condensed consolidated statements of operations. Changes in the estimates and inputs used in determining the fair value of the contingent consideration could have a material impact on the amounts recognized as a component of Operating income (loss) in future periods.

Prior to the Business Combination, the Predecessor was a party to interest rate swap agreements of varying expiration dates through March 2017 to help manage the Predecessor’s exposure to interest rate risk related to its variable-rate Predecessor Term Loan Facility. As a result of the Business Combination, the Predecessor Term Loan Facility was extinguished, the related swap agreements were terminated and an early termination payment of $0.3 million was made and recorded in Transaction related costs in the condensed consolidated statements of operations. No new swaps have been put in place to manage interest rate exposure associated with the New Term Loan Facility. At September 30, 2015, the Predecessor recorded $0.4 million in Accrued expenses and other liabilities and $0.1 million in Other non-current liabilities in the condensed consolidated balance sheet related to these instruments.

During the three and nine months ended June 30, 2016 and 2015, the Company and the Predecessor did not have any transfers between Level 1, Level 2 or Level 3 fair value measurements.