Fair Value Measurements

12 Months Ended

Dec. 31, 2021

Recurring Fair Value Measurements

The following information is presented for assets and liabilities that are recorded in the consolidated balance sheets at fair value measured on a recurring basis. There were no transfers of assets and liabilities that are recorded at fair value between the three-level fair value hierarchy during the periods reported.


In millions	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total
December 31, 2021
Assets:
Deferred compensation plan investments (5)	$	0.9	$	—	$	—	$	0.9
Total assets	$	0.9	$	—	$	—	$	0.9
Liabilities:
Deferred compensation arrangement (5)	$	13.7	$	—	$	—	$	13.7
Contingent consideration (6)	—		—		0.8		0.8

Total liabilities	$	13.7	$	—	$	0.8	$	14.5


In millions	Level 1 (1)		Level 2 (2)		Level 3 (3)		Total
December 31, 2020
Assets:
Equity securities (4)	$	0.2	$	—	$	—	$	0.2
Deferred compensation plan investments (5)	1.7		—		—		1.7
Total assets	$	1.9	$	—	$	—	$	1.9
Liabilities:
Deferred compensation arrangement (5)	$	11.6	$	—	$	—	$	11.6
Contingent consideration (6)	—		—		0.8		0.8
Total liabilities	$	11.6	$	—	$	0.8	$	12.4

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(1) Quoted prices in active markets for identical assets.

(2) Quoted prices for similar assets and liabilities in active markets.

(3) Significant unobservable inputs.

(4) Included within "Prepaid and other current assets" on the consolidated balance sheet.

(5) Consists of a deferred compensation arrangement through which we hold various investment securities recognized on our balance sheets. Both the asset and liability related to investment securities are recorded at fair value, and are included within "Other assets" and "Other liabilities" on the consolidated balance sheets, respectively. In addition to the investment securities, we also had company-owned life insurance related to the deferred compensation arrangement recorded at cash surrender value in "Other assets" of $14.0 million and $10.8 million at December 31, 2021 and 2020, respectively.

(6) Included within "Other liabilities" on the consolidated balance sheet.

Nonrecurring Fair Value Measurements

There were no nonrecurring fair value measurements in the consolidated balance sheet during the year ended December 31, 2021. During the year ended December 31, 2020, we exited certain leased assets previously used in our daily operations, resulting in an impairment charge of $1.7 million to adjust their fair value on our consolidated balance sheet to zero. These leased assets have remaining lease obligations through 2023.

Strategic Investments

During the second quarter of 2021, we acquired a strategic investment in a privately-held company for $16.5 million, which is accounted for under the equity method of accounting. The carrying value of our strategic equity investment was $16.5 million at December 31, 2021. There were no adjustments to the carrying value of our strategic equity investment for impairment or observable price changes during the twelve months ended December 31, 2021.

During the fourth quarter of 2021, we acquired two strategic investments in privately-held companies, which are both accounted for under the measurement alternative method. The aggregate carrying value of these measurement alternative investments where fair value is not readily determinable totaled $18.8 million at December 31, 2021, respectively. There were no adjustments to the carrying value of the measurement alternative method investments for impairment or observable price changes for the period ended December 31, 2021.

Restricted Investment

Our restricted investment is a trust managed in order to secure repayment of the finance lease obligation, associated with Performance Materials' Wickliffe, Kentucky manufacturing site, at maturity. The trust, presented as a restricted investment on our consolidated balance sheets, purchased long-term bonds that mature in 2025 and 2026. The principal received at maturity of the bonds along with interest income that is reinvested in the trust are expected to be equal to or more than the $80.0 million finance lease obligation that is due in 2027. Because the provisions of the trust provide us the ability, and it is our intent, to hold the investments to maturity, the investments held by the trust are accounted for as held to maturity ("HTM"); therefore, they are held at their amortized cost. The investments held by the trust earn interest at the stated coupon rate of the invested bonds. Interest earned on the investments held by the trust is recognized as interest income and presented within interest income on our consolidated statement of operations.

At December 31, 2021 and 2020, the carrying value of our restricted investment, which is accounted for as HTM and therefore held at amortized costs, was $76.1 million and $73.6 million, net of an allowance for credit losses of $0.5 million and $0.9 million and included cash of $4.7 million and $2.4 million, respectively. The fair value at December 31, 2021 and 2020 was $80.0 million and $81.5 million, respectively, based on Level 1 inputs.

The following table shows the total amortized cost of our HTM debt securities by credit rating, excluding the allowance for credit losses and cash. The primary factor in our expected credit loss calculation is the composite bond rating. As the rating decreases, the risk present in holding the bond is inherently increased, leading to an increase in expected credit losses.


	HTM Debt Securities
In millions	AA+		AA	AA-	A	A-	BBB+	Total
December 31, 2021	$	13.4	—	10.6	13.3	14.1	20.5	$	71.9
December 31, 2020	$	13.5	10.6	—	24.2	13.4	10.4	$	72.1

Debt and Finance Lease Obligations

At December 31, 2021 and 2020, the carrying value of finance lease obligations was $102.4 million and $103.1 million, respectively, and the fair value was $118.6 million and $127.0 million, respectively. The fair value of our finance lease obligations is based on the period-end quoted market prices for the obligations, using Level 2 inputs. The fair value of all other finance lease obligations approximates their carrying values.

The carrying value, excluding debt issuance fees, of our variable rate debt was $328.1 million and $353.4 million as of December 31, 2021 and 2020, respectively. The carrying value is a reasonable estimate of the fair value of our outstanding debt as our outstanding debt is variable interest rate debt.

At December 31, 2021 and 2020, the carrying value of our fixed rate debt was $850.0 million and $850.0 million, respectively, and the fair value was $843.9 million and $864.1 million, respectively, based on Level 2 inputs.

Contingent Consideration

In connection with the acquisition of certain assets in 2020, we are contingently obligated to make an additional payment for such assets of up to an aggregate amount of $7.0 million. The contingent consideration is payable if certain sales volume targets are achieved prior to the expiration on December 31, 2024, therein referred to as "Revenue Earn-out."

The fair value of the five-year Revenue Earn-out consideration was $0.8 million at December 31, 2021 and 2020, respectively. Any subsequent changes in the fair value of the contingent consideration liability will be recorded in current period earnings as a selling, general, and administrative expense.

The following table summarizes the activity for financial liabilities utilizing Level 3 fair value measurements:


	Contingent Consideration
In millions	December 31, 2021		December 31, 2020
Beginning balance	$	0.8	$	—
Newly issued	—		1.1
Change in revaluation of contingent consideration included in earnings	—		(0.3)
Exercises/settlements	—		—
Ending balance (1)	$	0.8	$	0.8

______________

(1) Included within "Other liabilities" on the consolidated balance sheets.

- 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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