(4)

Goodwill

Goodwill represents the excess of purchase price over fair value of net assets acquired. Under ASC 350, goodwill is not amortized but evaluated for impairment annually or whenever events or changes in circumstances indicate that the value may not be recoverable. The Company performs its annual impairment testing as of the end of each fiscal year. The Company has one reporting unit for goodwill impairment testing purposes. As described in Note 2 to the Notes to Consolidated Financial Statements, in the fourth quarter of fiscal 2017 the Company early-adopted ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which requires recognition of goodwill impairment in the amount of the excess of a reporting unit’s carrying value over its fair value, not to exceed the total goodwill balance of the reporting unit.

The Company performed a quarterly qualitative assessment of factors related to goodwill impairment testing, which included consideration of general economic conditions, industry and market conditions such as general product demand, weather-related impacts and increasing labor costs in Company-specific markets, overall financial performance, financial projections and changes in share price and market capitalization. Based on these evaluations at the end of each of the first three quarters of fiscal 2017, given the information available at the time of those assessments, the Company determined that there were no events or circumstances that indicated any impairment of goodwill. During the fourth quarter of fiscal 2017, the Company experienced a significant decline in fourth quarter revenues due to unseasonably dry and warm weather conditions in most of our major markets that had a significant negative effect on sales of cold-weather and snow-related products, which resulted in a decrease in market capitalization and financial projections. Based upon this fourth quarter evaluation, the Company determined that the carrying value of its reporting unit more likely than not exceeded its estimated fair value. As a result, the Company performed a quantitative assessment of goodwill impairment testing, and estimated the fair value of its reporting unit using both a market and income approach.

Using the market approach, the Company estimated the fair value of its reporting unit based upon an evaluation of control premiums of publicly-traded companies in similar lines of business, on the assumption that an acquiring entity would generally pay more for equity securities that give it a controlling interest than an investor would pay for an amount of equity securities representing less than a controlling interest.

Using the income approach, the Company employed a discounted cash flow model, which required the estimation of cash flows and an appropriate discount rate. The Company projected cash flows expected to be generated by the reporting unit inclusive of an estimated terminal value and reflective of the conditions considered in the qualitative assessment discussed above. The cash flows contemplated projections of revenue growth, operating expenses including depreciation, capital expenditures and income taxes, which are considered Level 3 fair value measurements. The discount rate assumption contemplated a weighted-average cost of capital based on both market-observable and Company-specific factors. The discount rate was risk-adjusted to include any premiums related to equity price volatility, size, and projected capital structure of publicly-traded companies in similar lines of business. The Company believes these assumptions to be representative of assumptions that a market participant would use in valuing a reporting unit, but recognizes that these assumptions are inherently uncertain.

After performing its annual impairment test as of December 31, 2017, the Company determined that the carrying value of its reporting unit exceeded its estimated fair value using the market and income approaches, as described above, by an amount that indicated a full impairment of the carrying value of goodwill. Consequently, the Company recorded a non-cash goodwill impairment charge of $4.4 million in selling and administrative expense in the accompanying consolidated statement of operations in the fourth quarter of fiscal 2017. The Company did not record goodwill impairment in fiscal 2016 or 2015.