FAIR VALUE MEASUREMENTS

The Company determines fair value measurements used in its Consolidated Financial Statements based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction related costs, as determined by either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability. Absent a principal market to measure fair value, the Company uses the most advantageous market, which is the market in which the Company would receive the highest selling price for the asset or pay the lowest price to settle the liability, after considering transaction related costs. However, when using the most advantageous market, transaction related costs are only considered to determine which market is the most advantageous and these costs are then excluded when applying a fair value measurement.

Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority, and Level 3 having the lowest.

The three levels of the fair value hierarchy are as follows:


•	Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.


•	Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in non-active markets; and model-derived valuations whose inputs are observable or whose significant valuation drivers are observable.


•	Level 3 – significant inputs to the valuation model are unobservable and/or reflect the Company’s market assumptions.

The following tables present the Company’s financial instruments, assets and liabilities that are measured at fair value on a recurring basis:



			Fair Value Measurement Using:
(amounts in millions)	December 31, 2016		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Asset Category
Cash equivalents	$	48.2	$	—	$	48.2	$	—
Available for sale equity securities	5.7		5.1		0.6		—
Derivatives	8.5		—		8.5		—
Total	$	62.4	$	5.1	$	57.3	$	—
Liability Category
Derivatives	$	20.9	$	—	$	20.9	$	—
Long-term contingent consideration	75.8		—		—		75.8
Total	$	96.7	$	—	$	20.9	$	75.8



			Fair Value Measurement Using:
(amounts in millions)	December 31, 2015		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Asset Category
Cash equivalents	$	59.4	$	2.9	$	56.5	$	—
Available for sale equity securities	6.6		5.8		0.8		—
Derivatives	2.1		—		2.1		—
Total	$	68.1	$	8.7	$	59.4	$	—
Liability Category
Derivatives	$	13.5	$	—	$	13.5	$	—
Long-term contingent consideration	70.7		—		—		70.7
Total	$	84.2	$	—	$	13.5	$	70.7

The following methods and assumptions were used to estimate the fair value of each class of the Company’s financial instruments, assets, and liabilities:

Cash equivalents - Cash equivalents primarily comprise certificates of deposit issued by financial institutions. These funds are not publicly traded, but historically have been highly liquid. These assets are readily convertible into known amounts of cash and are so near their maturities that there is little risk of change in value. The Company records certificates of deposit at amortized cost in the Consolidated Balance Sheets. Given the relatively short maturities of these instruments, the Company believes amortized cost approximates fair value. The Company classifies these instruments as Level 2.

Available for sale equity securities - Equity securities classified as available for sale are measured using quoted market prices at the reporting date multiplied by the quantity held and, accordingly, classified as Level 1 assets. Level 2 equity securities are measured using quoted prices for similar instruments in active markets. Available for sale securities are included in "Other assets" in the Consolidated Balance Sheets.

Derivatives - Derivative assets and liabilities include foreign currency, metals and interest rate derivatives. The values were determined using pricing models based upon observable market inputs such as market spot and futures prices on over-the-counter derivative instruments, market interest rates and consideration of counterparty credit risk.

Long-term contingent consideration - The long-term contingent consideration represents a potential liability of up to $100 million tied to achievement of EBITDA and common stock trading price performance metrics over a seven-year period ending December 2020 in connection with the MacDermid Acquisition. The common stock performance metric has been satisfied. The fair value of the EBITDA performance metric is derived using the income approach with unobservable inputs, based on future forecasts and present value assumptions which include a discount rate of approximately 9.5% and expected future value of payments of $60.0 million calculated using a probability weighted EBITDA assessment with higher probability associated with the Company achieving the maximum EBITDA targets. Changes in the fair value of the long-term contingent consideration are recorded in "Selling, technical, general and administrative expenses" in the Consolidated Statements of Operations. Relative to the share price metric, an increase or decrease in the discount rate of 1% changes the fair value measure of the metric by approximately $1.6 million. Relative to the EBITDA metric, an increase or a decrease in the discount rate of 1.5%, within a range of probability between 80% and 100%, changes the fair value measure of the metric by approximately $3.0 million. On December 30, 2016, the Company reached an agreement with the Retaining Holders of the long-term contingent consideration liability which amended the EBITDA performance targets to account for the relative impact of the Alent, OMG and OMG Malaysia Acquisitions, completed subsequent to the MacDermid Acquisition, on the performance targets. This amendment did not have a material impact on the fair value of the long-term contingent consideration liability.

The following table provides a reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3):



	December 31,
(amounts in millions)	2016			2015
Fair value measurements using significant unobservable inputs (Level 3)
Beginning balance	$	70.7		$	63.9
Changes in fair value	10.1			6.8
Purchases, sales and settlements	(515.0		)	—
Additions	510.0			—
Transfers into Level 3	—			—
Transfers out of Level 3	—			—
Ending balance	$	75.8		$	70.7

For the year ended December 31, 2016, the Company recorded additions of Level 3 liabilities during the third quarter of 2016 totaling $510 million associated with the Series B Convertible Preferred Stock redemption liability, which was subsequently settled on December 13, 2016. There was an increase in fair value associated with the redemption liability of $5.0 million prior to settlement that was recorded to "Other income (expense), net" in the Consolidated Statements of Operations that has been included in the above table as a change in fair value. There were no purchases, sales or settlements on a gross basis for the year ended December 31, 2015.

The Company transfers the fair value of an asset or liability between levels of the fair value hierarchy at the end of the reporting period during which a significant change in the inputs used to determine the fair value has occurred. During the years ended December 31, 2016 and 2015, there were no transfers between the fair value hierarchy levels.

The following table presents the carrying value and estimated fair value of the Company’s long-term debt and capital lease obligations that are not carried at fair value:



(amounts in millions)	December 31, 2016				December 31, 2015
	Carrying Value		Fair Value		Carrying Value		Fair Value
USD Senior Notes, due 2022	$	1,083.2	$	1,109.2	$	1,081.1	$	946.3
EUR Senior Notes, due 2023	362.4		372.1		374.0		326.7
USD Senior Notes, due 2021	489.0		555.4		487.5		500.0
First Lien Credit Facility - U.S. Dollar Term Loans, due 2020	582.5		616.8		2,631.3		2,603.6
First Lien Credit Facility - U.S. Dollar Term Loans, due 2021⁽¹⁾	1,444.2		1,493.4		—		—
First Lien Credit Facility - Euro Term Loans, due 2020	726.5		742.3		619.2		624.3
First Lien Credit Facility - Euro Term Loans, due 2021⁽¹⁾	450.7		459.2		—		—
Capital lease obligations	4.6		4.7		5.5		5.3
	$	5,143.1	$	5,353.1	$	5,198.6	$	5,006.2

⁽¹⁾ In the event the Company is able to prepay, redeem or otherwise retire and/or refinance in full its $1.10 billion, 6.50% USD Notes due 2022, as permitted under the Amended and Restated Credit Agreement, on or prior to November 2, 2021, the maturity date will be extended to June 7, 2023 from November 2, 2021.

Carrying values presented above include unamortized premiums, discounts and debt issuance costs.

The following methods and assumptions were used to estimate the fair value of the Company’s liabilities not carried at fair value:

Long-term debt and capital lease instruments - These financial instruments are measured using quoted market prices at the reporting date multiplied by the gross carrying amount of the related debt which excludes unamortized premiums, discounts and debt issuance costs. Such instruments are valued using Level 2 inputs.

Nonrecurring Fair Value Measurements

The Company performs its annual impairment test of goodwill as of October 1. As a result of the 2016 test, the Performance Solutions segment recorded an impairment charge of $46.6 million to reduce the carrying value goodwill of the Offshore Solutions reporting unit to a fair value of $276 million. This measurement is performed on a non-recurring basis using significant unobservable inputs (Level 3) as described below:

Goodwill: Offshore Solutions - Goodwill was valued using a discounted cash flow analysis, which requires assumptions about short and long-term net cash flows, growth rates, as well as discount rates. Additionally, the Company considered guideline company and guideline transaction information, where available, to aid in the valuation. Multi-year financial forecasts were developed by considering several key business drivers such as new business initiatives, client service and retention standards, market share changes, historical performance, and industry and economic trends, among other considerations. The annual long term growth rates used in 2016 for the initial 5 year period ranged from (1.2)% to 3.9%. The long-term growth rate used in 2016 in determining the terminal value was estimated at 3.0%. Discount rates were estimated based on a Weighted Average Cost of Capital, or WACC. The WACC combines the required return on equity, based on a Modified Capital Asset Pricing Model, which considers the risk-free interest rate, market risk premium, small stock risk premium and a company-specific risk premium, with the cost of debt, based on BBB-rated corporate bonds, adjusted using an income tax factor. The calculation resulted in a WACC rate of 9.0%. The estimated fair value of the reporting unit was derived from the valuation techniques described above. The estimated fair value was analyzed in relation to numerous market and historical factors, including current economic and market conditions, company-specific growth opportunities, and guideline company information.