Fair Value Measurements

12 Months Ended

Dec. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value, sets out a framework for measuring fair value, and requires certain disclosures about fair value measurements. A fair value measurement assumes that the transaction to sell an asset or transfer a liability occurs in the principal market for the asset or liability. Fair value is defined based upon an exit price model. ASC 820 establishes a valuation hierarchy for disclosure of the inputs used to measure fair value into three broad levels. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement as follows:

• Level 1 - Unadjusted quoted prices in active markets that are accessible to the reporting entity at the measurement date for identical assets and liabilities.

• Level 2 - Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

• Level 3 - Unobservable inputs for the assets or liability supported by little or no market activity. Level 3 inputs are based on the Company’s assumptions used to measure assets and liabilities at fair value.

The following table sets forth by level, within the fair value hierarchy, our assets (liabilities) carried at fair value as of December 31, 2015 and 2014 (in thousands):

		December 31, 2015
	Classification	Level 1			Level 2			Level 3			Total
Carried at fair value
Contingent consideration liability	Accrued expenses	$	—		$	—		$	(61	)	$	(61	)
Foreign currency exchange options	Other current assets	—			1,792			—			1,792
Foreign currency exchange forward	Accrued expenses	—			(14		)	—			(14		)
Disclosed at fair value
Total long-term debt	Long-term debt	$	(214,007	)	$	—		$	—		$	(214,007	)

		December 31, 2014
	Classification	Level 1			Level 2		Level 3			Total
Carried at fair value
Contingent consideration liability	Accrued expenses	$	—		$	—	$	(328	)	$	(328	)
Foreign currency exchange options	Other current assets	—			1,851		—			1,851
Foreign currency exchange options	Other assets	—			445		—			445
Commodity instruments	Other current assets	—			591		—			591
Commodity instruments	Other assets	—			162		—			162
Disclosed at fair value
Total long-term debt	Long-term debt	$	(215,831	)	$	—	$	—		$	(215,831	)

Contingent consideration liability

As described in Note 5 of the consolidated financial statements, the Company acquired the assets of a business in 2013 for which a portion of the purchase consideration is based on an earn-out provision. This liability resulting from this earn-out provision is based on the acquired business’s future EBITDA through 2015. A discounted cash flow analysis, incorporating a Monte Carlo simulation, was used to determine the fair value of a contingent consideration liability. The simulation used a triangular distribution of 500,000 trails and was performed incorporating assumptions such as projected future incomes, upside potentials, low-end expectations, expected synergies to calculate the EBITDA. The calculated EBITDA was subsequently discounted at the pretax cost of debt to determine the fair value. The liability is revalued at each year end for actual EBITDA incurred during the earn-out period to determine the updated fair value.

Derivative instruments and hedging activities

As described in Note 13 of the consolidated financial statements, the Company holds derivative foreign currency exchange options and forwards, as well as, commodity options. The fair values of foreign currency exchange contracts are determined through the use of cash flow models that utilize observable market data inputs to estimate fair value. These observable market data inputs include foreign exchange rate and credit spread curves. In addition, the Company received fair value estimates from the foreign currency contract counterparties to verify the reasonableness of the Company’s estimates.

The fair value of commodity options is determined through the use of cash flow models that utilize observable market data inputs to estimate fair value. These observable market data inputs include forward rates and implied volatility. In addition, the Company received fair value estimates from the commodity contract counterparty to verify the reasonableness of the Company’s estimates.

Debt

At December 31, 2015 and 2014, the carrying value of outstanding long-term debt net of unamortized debt issuance costs was $209,282,000 and $209,911,000, respectively.  The fair value of the Company’s Senior Subordinated 6.25% Notes in the table above was estimated based on quoted market prices.

The Company’s other financial instruments primarily consist of cash and cash equivalents, accounts receivable, notes receivable, and accounts payable.  The carrying values for our financial instruments approximate fair value. The Company did not have any other material assets or liabilities carried at fair value and measured on a recurring basis as of December 31, 2015 and 2014.

Other non-recurring fair value measurements

Long-lived assets

The Company also recognized the impairment of certain property, plant, and equipment during the years ended December 31, 2015, 2014 and 2013. The impairment charges were calculated by determining the fair value of the property, plant, and equipment using unobservable inputs which primarily include replacement cost less depreciation or market data for transactions involving similar assets. These inputs are classified as Level 3 inputs. See Note 16 of the consolidated financial statements for more disclosure regarding the impairment of certain property, plant, and equipment.

During 2015, 2014, and 2013, the Company also recognized impairments to intangible assets. The impairment charges were calculated by determining the fair value of these assets. The fair value measurements were calculated using discounted cash flow analyses which rely upon unobservable inputs classified as Level 3 inputs. See Note 6 of the consolidated financial statements for more disclosure regarding the impairment of intangible assets.

The Company also applied fair value principles during the goodwill impairment tests performed during 2015, 2014, and 2013. Step one of the goodwill impairment test consisted of determining a fair value for each of the Company’s reporting units. The fair value for the Company’s reporting units cannot be determined using readily available quoted Level 1 or Level 2 inputs that are observable or available from active markets. Therefore, the Company used two valuation models to estimate the fair values of its reporting units, both of which use Level 3 inputs. To estimate the fair values of reporting units, the Company uses significant estimates and judgmental factors. The key estimates and factors used in the valuation models include revenue growth rates and profit margins based on internal forecasts, terminal value, WACC, and earnings multiples. As a result of the goodwill impairment test performed during 2014 and 2013, the Company recognized goodwill impairment charges. See Note 6 of the consolidated financial statements for the results of the Company’s goodwill impairment tests.