Fair Value Measurements

ASC Topic 820 “Fair Value Measurements and Disclosures” establishes the standards for reporting financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value on a recurring basis (at least annually). Under these standards, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e. the "exit price") in an orderly transaction between market participants at the measurement date.

ASC Topic 820-10-35-37 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the valuation techniques that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is separated into three levels based on the reliability of inputs as follows:

Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly, involving some degree of judgment.

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

The availability of observable inputs can vary and is affected by a wide variety of factors, including the type of asset/liability, whether the asset/liability is established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, assumptions are required to reflect those that market participants would use in pricing the asset or liability at the measurement date.

The Company primarily uses readily observable market data in conjunction with internally developed discounted cash flow valuation models when valuing its derivative portfolio and, consequently, the fair value of the Company’s derivatives is based on Level 2 inputs. The carrying amount of the Company's annuity contract acquired in connection with the acquisition of Magnetek is recorded at net asset value of the contract and, consequently, its fair value is based on Level 2 inputs and is included in other assets on the Company's consolidated balance sheet. The Company uses quoted prices in an inactive market when valuing its term loan and, consequently, the fair value is based on Level 2 inputs. The carrying value of the Company’s senior debt approximates fair value based on current market interest rates for debt instruments of similar credit standing and, consequently, its fair value is based on Level 2 inputs.

The following table provides information regarding financial assets and liabilities measured or disclosed at fair value on a recurring basis:



				Fair value measurements at reporting date using
				Quoted prices in active markets for identical assets		Significant other observable inputs			Significant unobservable inputs
Description	At March 31, 2017			(Level 1)		(Level 2)			(Level 3)
Assets/(Liabilities) Measured at fair value:
Marketable securities	$	7,686		$	7,686	$	—		$	—
Annuity contract	2,898					2,898
Derivative assets (liabilities):
Foreign exchange contracts	18			—		18			—
Interest rate swap liability	(1,808		)	—		(1,808		)	—
Interest rate swap asset	1,394			—		1,394			—
Cross currency swap liability	(7,580		)	—		(7,580		)	—
Cross currency swap asset	3,237			—		3,237			—

Disclosed at fair value:
Term loan	$	(436,555	)	$	—	$	(436,555	)	$	—
Senior debt	(3,159		)	—		(3,159		)	—



				Fair value measurements at reporting date using
				Quoted prices in active markets for identical assets		Significant other observable inputs			Significant unobservable inputs
Description	At March 31, 2016			(Level 1)		(Level 2)			(Level 3)
Assets/(Liabilities) Measured at fair value:
Marketable securities	$	18,186		$	18,186	$	—		$	—
Annuity contract	3,267					3,267
Derivative liabilities:
Foreign exchange contracts	(131		)	—		(131		)	—
Interest rate swap	(2,211		)			(2,211		)

Disclosed at fair value:
Term loan and revolving credit facility	$	(266,235	)	$	—	$	(266,235	)	$	—
Senior debt	(1,590		)	—		(1,590		)	—

The Company did not have any non-financial assets and liabilities that are recognized at fair value on a recurring basis.

At March 31, 2017, the term loan, revolving credit facility, and senior debt have been recorded at carrying value which approximates fair value.

Interest and dividend income on marketable securities are recorded in investment (income) loss. Changes in the fair value of derivatives are recorded in foreign currency exchange (gain) loss or other comprehensive income (loss), to the extent that the derivative qualifies as a hedge under the provisions of ASC Topic 815. Interest and dividend income on marketable securities are measured based upon amounts earned on their respective declaration dates.

Assets and liabilities that were measured on a non-recurring basis during fiscal 2017 and 2016 include assets and liabilities acquired in connection with the acquisition of STAHL, Ergomatic, and Magnetek described in Note 3. The estimated fair values allocated to the assets acquired and liabilities assumed relied upon fair value measurements based primarily on Level 3 inputs. The valuation techniques used to allocate fair values to working capital items; property, plant, and equipment; and identifiable intangible assets included the cost approach, market approach, and other income approaches. For identifiable intangible assets these techniques included the excess earnings approach, cost approach, relief from royalty approach, and other income approaches. The valuation techniques relied on a number of inputs which included the cost and condition of property, plant, and equipment and forecasted net sales and income.

For Ergomatic, the most significant valuation inputs included an engineering cost per hour of $40.86 for engineered drawings. For STAHL significant valuation inputs included an attrition rate of 10.0% for customer relationships, an estimated useful life of 15 years and royalty rate of 2.0% for developed technology, a royalty rate of 1.0% for trademark and trade names, and a weighted average cost of capital of 10.5%.

For Magnetek, significant valuation inputs included an attrition rate of 5.0% for customer relationships, an engineering cost per hour of $70.00, and obsolescence factors ranging from 0% to 80% for engineered drawings, a royalty rate of 2.5% for trademark and trade names, royalty rates ranging from 3.5% to 5.0% for patented technology, and a weighted average cost of capital of 11.6%.

Additional assets and liabilities that were measured on a non-recurring basis during fiscal 2017 and 2016 include the net assets of the Company’s Rest of Products and Duff-Norton reporting units. These measurements have been used to test goodwill for impairment on an annual basis under the provisions of ASC Topic 350-20-35-1 “Intangibles, Goodwill and Other – Goodwill Subsequent Measurement.”

During fiscal 2017, Step 1 of the goodwill impairment test consisted of determining a fair value of the Company’s Rest of Products and Duff-Norton reporting units. The fair value for the Company’s Rest of Products and Duff-Norton reporting units cannot be determined using readily available quoted Level 1 inputs or Level 2 inputs that are observable in active markets. Therefore, the Company used a blended discounted cash flow and market-based valuation model to estimate the fair value of its Rest of Products and Duff-Norton reporting units, using Level 3 inputs. To estimate the fair value of the Rest of Products and Duff-Norton reporting units, the Company used significant estimates and judgmental factors. The key estimates and factors used in the discounted cash flow valuation include revenue growth rates and profit margins based on internal forecasts, terminal value, and the weighted-average cost of capital used to discount future cash flows.

For Rest of Products the compound annual growth rate for revenue during the first five years of the projections was approximately 3.2%. The terminal value was calculated assuming a projected growth rate of 3.0% after five years. The estimated weighted-average cost of capital for the reporting unit was determined to be 10.0% based upon an analysis of similar companies and their debt to equity mix, their related volatility and the size of their market capitalization.

For the Duff-Norton reporting unit the compound annual growth rate for revenue during the first five years of the projections was approximately 3.9%. The terminal value was calculated assuming a projected growth rate of 3.5% after five years. The estimated weighted-average cost of capital for the reporting units was determined to be 10.2% based upon an analysis of similar companies and their debt to equity mix, their related volatility, and the size of their market capitalization.

The Company also measured indefinite-lived intangible assets from the Magnetek, STB, and Unified Industries acquisitions on a non-recurring basis. The fair value measurements were calculated using discounted cash flow analyses which rely upon unobservable inputs classified as Level 3 inputs. In performing these analyses, royalty rates of 2.5%, 0.3%, and 1.3% were used for the indefinitely-lived intangible assets of Magnetek, STB, and Unified Industries, respectively. A discount rate of 11.4% was used for each analysis.

After performing the valuation above, the Company determined that the indefinite-lived STB intangible trademark asset was fully impaired. The impairment was due to lower cash flows and royalty rates than at the time of the acquisition. The total impairment loss of $1,125,000 has been recorded within intangible asset impairment on the Company's statement of operations.

During fiscal 2016, Step 1 of the goodwill impairment test consisted of determining a fair value of the Company’s Rest of Products and Duff-Norton reporting units. The fair value for the Company’s Rest of Products and Duff-Norton reporting units cannot be determined using readily available quoted Level 1 inputs or Level 2 inputs that are observable in active markets. Therefore, the Company used a blended discounted cash flow and market-based valuation model to estimate the fair value of its Rest of Products and Duff-Norton reporting units, using Level 3 inputs. To estimate the fair value of the Rest of Products and Duff-Norton reporting units, the Company used significant estimates and judgmental factors. The key estimates and factors used in the discounted cash flow valuation include revenue growth rates and profit margins based on internal forecasts, terminal value, and the weighted-average cost of capital used to discount future cash flows.

For Rest of Products the compound annual growth rate for revenue during the first five years of the projections was approximately 4.6%. The terminal value was calculated assuming a projected growth rate of 3.0% after five years. The estimated weighted-average cost of capital for the reporting unit was determined to be 9.9% based upon an analysis of similar companies and their debt to equity mix, their related volatility and the size of their market capitalization.

For the Duff-Norton reporting unit the compound annual growth rate for revenue during the first five years of the projections was approximately 4.0%. The terminal value was calculated assuming a projected growth rate of 3.0% after five years. The estimated weighted-average cost of capital for the reporting units was determined to be 10.0% based upon an analysis of similar companies and their debt to equity mix, their related volatility, and the size of their market capitalization.

See Note 8 for additional discussion on the Company's goodwill impairment assessment and the conclusions reached.