Fair Value Measurements

9 Months Ended

Sep. 30, 2018

Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the fair value of the Company’s financial instrument liability/(asset) that are measured at fair value on a recurring basis as of September 30, 2018:



(in thousands)	Level 1		Level 2		Level 3		Total
Tax amortization benefit contingency⁽¹⁾	$	—	$	—	$	46,276	$	46,276
Contingent consideration⁽²⁾	—		—		1,215		1,215
Stock appreciation rights⁽⁴⁾	—		—		108		108
Phantom shares⁽⁵⁾	—		—		323		323
Total	$	—	$	—	$	47,922	$	47,922

The following table presents the fair value of the Company’s financial instruments that are measured at fair value on a recurring basis as of December 31, 2017:



(in thousands)	Level 1		Level 2		Level 3		Total
Tax amortization benefit contingency⁽¹⁾	$	—	$	—	$	43,382	$	43,382
Contingent consideration⁽²⁾	—		—		691		691
Interest rate swap ⁽³⁾	—		456		—		456
Stock appreciation rights⁽⁴⁾	—		—		268		268
Phantom shares⁽⁵⁾	—		—		186		186
Total	$	—	$	456	$	44,527	$	44,983

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(1)

The fair value of the tax amortization benefit contingency is measured using an income approach based on the Company’s best estimate of the undiscounted cash payments to be made, with the current portion tax effected at 35.3% and the non-current portion tax effected at 21.5% due to the TCJA enacted in the U.S and discounted to present value utilizing an appropriate market discount rate. Per the TRA Amendment, payments due to Dow under the Tax Receivable Agreement were reduced from 85% to 50% of the applicable tax savings realized by the Company. The valuation technique used did not change during the nine months ended September 30, 2018.


(2)	The fair value of the contingent consideration related to the Tecnidex acquisition.


(3)	The interest rate swap relates to an interest rate derivative that is measured at fair value using observable market inputs such as interest rates, our own credit risks as well as an evaluation of the counterparts' credit risks. The swap was settled during the three months ended September 30, 2018 for $4.0 million.


(4)	The fair value of the stock appreciation rights was measured using a Black Scholes pricing model during the nine months ended September 30, 2018. The valuation technique used did not change during the nine months ended September 30, 2018.


(5)	The fair value of phantom shares is based on the fair value of the Company's common stock. The valuation technique used did not change during the nine months ended September 30, 2018.

There were no transfers between Level 1 and Level 2 and no transfers out of Level 3 of the fair value hierarchy during the nine months ended September 30, 2018.

At September 30, 2018, the Company evaluated the amount recorded under the Term Loan and determined that the fair value was approximately $410.7 million. The carrying amounts of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value.

Changes in Financial Instruments Measured at Level 3 Fair Value on a Recurring Basis

The following table presents the changes during the period presented in our Level 3 financial instrument liability/(asset) that are measured at fair value on a recurring basis.



(in thousands)	Tax amortization benefit contingency		Contingent consideration related to acquisition		Interest rate swap			Stock appreciation rights			Phantom shares		Total
Balance, December 31, 2017	$	43,382	$	691	$	456		$	268		$	186	$	44,983
Accretion	2,894		—		—			—			—		2,894
Tecnidex acquisition	—		524		—			—			—		524
Interest rate contract	—				(456		)	—			—		(456		)
Stock compensation expense	—		—		—			(160		)	137		(23		)
Balance, September 30, 2018	$	46,276	$	1,215	$	—		$	108		$	323	$	47,922

- 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.

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