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Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Liabilities Measured at Fair Value on a Recurring Basis

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 September 30, 2019:


(in thousands)	Level 1		Level 2		Level 3		Total
Tax amortization benefit contingency⁽¹⁾	$	—	$	—	$	43,207	$	43,207
Contingent consideration⁽²⁾	—		—		451		451
Liability-classified stock compensation⁽³⁾	—		—		218		218
Interest rate swap⁽⁴⁾	$	—	$	(106)	$	—	$	(106)
Total	$	—	$	(106)	$	43,876	$	43,770

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, 2018:


(in thousands)	Level 1		Level 2		Level 3		Total
Tax amortization benefit contingency⁽¹⁾	$	—	$	—	$	40,467	$	40,467
Contingent consideration⁽²⁾	—		—		379		379
Liability-classified stock compensation⁽³⁾	—		—		550		550
Total	$	—	$	—	$	41,396	$	41,396

(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, using an estimated tax rate of 21.5% and discounted to present value utilizing an appropriate market discount rate.

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

(3) The fair value of the stock appreciation rights was measured using a Black Scholes pricing model during the nine months ended September 30, 2019. The fair value of time based phantom shares is based on the fair value of the Company's common stock. The fair value of performance based phantom shares was measured using a Monte Carlo pricing model during the nine months ended September 30, 2019. The valuation technique used did not change during the nine months ended September 30, 2019.

(4) The derivative assets and liabilities relate 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.

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, 2019.

At September 30, 2019, the Company evaluated the amount recorded under the Term Loan and determined that the fair value was approximately $376.4 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 liabilities that are measured at fair value on a recurring basis.


(in thousands)	Tax amortization benefit contingency		Contingent consideration related to acquisition		Liability-classified stock compensation		Interest rate swap		Total
Balance, December 31, 2018	$	40,467	$	379	$	550	$	—	$	41,396
Accretion	2,669		—		—		—		2,669
Tecnidex earnout activity	—		72		—		—		72
Stock compensation activity	—		—		(332)		—		(332)
Mark-to-market adjustment	71		—		—		(106)		(35)
Balance, September 30, 2019	$	43,207	$	451	$	218	$	(106)	$	43,770

- 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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