FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2018

The Company’s fair value measurements are based upon a three-level valuation hierarchy. These valuation techniques are based upon the transparency of inputs (observable and unobservable) to the valuation of an asset or liability as of the measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

Level 1 — Valuation is based on quoted prices for identical assets or liabilities in active markets;

Level 2 — Valuation is based on quoted prices for similar assets or liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for the full term of the financial instrument; and

Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

Recurring Fair Value Measurements

The Company maintains a non-qualified deferred compensation plan which is offered to senior management and other key employees. The amount owed to participants is an unfunded and unsecured general obligation of the Company. Participants are offered various investment options with which to invest the amount owed to them, and the plan administrator maintains a record of the liability owed to participants by investment. To minimize the impact of the change in market value of this liability, the Company has elected to purchase a separate portfolio of investments through the plan administrator similar to those chosen by the participant.

The investments purchased by the Company include mutual funds, $0.9 million of which are classified as Level 1, and life-insurance contracts valued based on the performance of underlying mutual funds, $16.3 million of which are classified as Level 2.

Additionally, upon the Company’s acquisition of Supreme, the Company acquired a pool of investments made by a wholly owned captive insurance subsidiary. These investments are comprised of mutual funds, $4.9 million of which are classified as Level 1.

Estimated Fair Value of Debt

The estimated fair value of debt at September 30, 2018 consists primarily of the Senior Notes due 2025 and borrowings under the Term Loan Credit Agreement (see Note 6 Debt). The fair value of the Senior Notes due 2025, Term Loan Credit Agreement and the Revolving Credit Facility are based upon third party pricing sources, which generally do not represent daily market activity or represent data obtained from an exchange, and are classified as Level 2. The interest rates on the Company’s borrowings under the Revolving Credit Facility are adjusted regularly to reflect current market rates and thus carrying value approximates fair value for these borrowings. All other debt and capital lease obligations approximate their fair value as determined by discounted cash flows and are classified as Level 3.

The Company’s carrying and estimated fair value of debt at September 30, 2018 and December 31, 2017 were as follows (in thousands):

	September 30, 2018								December 31, 2017
	Carrying		Fair Value						Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Value		Level 1		Level 2		Level 3
Instrument
Convertible senior notes due 2018	$	-	$	-	$	-	$	-	$	44,046	$	-	$	83,605	$	-
Senior notes due 2025		319,818		-		310,375		-		319,377		-		328,250		-
Term loan credit agreement		185,371		-		186,169		-		186,620		-		188,048		-
Other debt		-		-		-		-		67		-		-		67
Capital lease obligations		1,086		-		-		1,086		1,302		-		-		1,302
	$	506,275	$	-	$	496,544	$	1,086	$	551,412	$	-	$	599,903	$	1,369

The fair value of debt is based on current public market prices for disclosure purposes only. Unrealized gains or losses are not recognized in the financial statements as long-term debt is presented at the carrying value, net of unamortized premium or discount and unamortized deferred financing costs in the financial statements.

Impairment of Goodwill and Long-lived Assets

The company recorded an impairment of goodwill for a reporting unit within the Diversified Products reportable segment in the third quarter of 2018 for $4.9 million, based on indicative market value of the reporting unit. Changes in the goodwill balance for the nine months ended September 30, 2018 and 2017 are as follows (in thousands):

	2018			2017

Balance as of January 1	$	317,464		$	148,367

Acquisition of Supreme		(1,520	)		165,400
Effects of foreign currency		44			(141	)
Impairment of goodwill		(4,944	)		-

Balance as of September 30	$	311,044		$	313,626

The Company also recorded an impairment of all long-lived assets for the same reporting unit within the Diversified Products reportable segment in the third quarter of 2018 of $7.0 million. The aggregate goodwill and long-lived asset impairment charges, which are based on Level 3 fair value measurements, are included in

Impairment

expense in the Condensed Consolidated Statements of Operations.

Financial Derivatives

As of September 30, 2018, the Company was party to forward contracts to hedge changes with specific commodities for a notional amounts of approximately $25.1 million. The Company uses financial derivatives to mitigate the risks associated with fluctuations in commodity prices impacting its cash flows related to inventory purchases from suppliers. We currently do not hedge all commodity price risk. At inception, the Company designated the forward contracts as cash flow hedges. The forward contracts mature at specified monthly settlement dates through October, 2019. The effective portion of the hedging transaction is recognized in Accumulated Other Comprehensive Income and transferred to earnings using specific identification when the forecasted hedged transaction takes place or when the forecasted hedged transaction is probable of not occurring. As of September 30, 2018 the fair value of the forward contracts, which are based on current market prices and are classified as Level 2 on the fair value hierarchy, approximate their notional amount.

- 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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