FAIR VALUE MEASUREMENTS

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

The following describes the valuation methodologies used for financial assets and liabilities measured at fair value on a recurring basis, as well as the general classification within the valuation hierarchy.

Derivatives

Derivatives consist of currency, interest rate and commodity derivative instruments. Currency forward contracts are valued using observable forward rates in commonly quoted intervals for the full term of the contracts. Interest rate swap agreements are valued based on the present value of the estimated future net cash flows using implied rates in the applicable yield curve as of the valuation date. Commodity contracts are measured using observable commodity exchange prices in active markets.

These derivative instruments are classified within Level 2 of the valuation hierarchy and are included within other assets and other liabilities in the Company’s Condensed Consolidated Balance Sheets, except for derivative instruments expected to be settled within the next 12 months, which are included within prepaid and other current assets and other current liabilities.

Cash Equivalents

Cash equivalents consist of highly liquid financial instruments with original maturities of three months or less. The carrying value of these cash equivalents approximates fair value due to their short-term maturities.

Other

Other consists of investment securities in non-qualified retirement plan assets and the Company’s option to increase its economic interest in Bonnie Plants, Inc. (the “Bonnie Option”). Investment securities in non-qualified retirement plan assets are valued using observable market prices in active markets and are classified within Level 1 of the valuation hierarchy. The fair value of the Bonnie Option is determined using a simulation approach, whereby the total value of the loan receivable and optional exchange for additional equity was estimated considering a distribution of possible future cash flows discounted to present value using an appropriate discount rate, and is classified in Level 3 of the fair value hierarchy.

Long-Term Debt

In connection with the acquisition of a controlling interest in Gavita during fiscal 2016, the Company recorded a loan to the noncontrolling ownership group of Gavita. On October 2, 2017, the Company’s Hawthorne segment acquired the remaining 25% noncontrolling interest in Gavita, which included extinguishment of the loan to the noncontrolling ownership group of Gavita with a fair value and carrying value of $55.6 million. The fair value of the loan was $37.2 million and $55.6 million at April 1, 2017 and September 30, 2017, respectively. The estimate required subjective assumptions to be made, including those related to future business results and discount rates. The fair value measurement was based on significant inputs unobservable in the market and thus represented a Level 3 measurement.

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis at March 31, 2018:



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)		Total
	(In millions)
Assets
Cash equivalents	$	0.9	$	—		$	—	$	0.9
Derivatives
Interest rate swap agreements	—		3.4			—		3.4
Currency forward contracts	—		0.3			—		0.3
Commodity hedging instruments	—		1.1			—		1.1
Other	18.0		—			11.8		29.8
Total	$	18.9	$	4.8		$	11.8	$	35.5
Liabilities
Derivatives
Currency forward contracts	$	—	$	(1.0	)	$	—	$	(1.0	)
Commodity hedging instruments	—		(0.5		)	—		(0.5		)
Total	$	—	$	(1.5	)	$	—	$	(1.5	)

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis at April 1, 2017:



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)			Total
	(In millions)
Assets
Cash equivalents	$	17.7	$	—		$	—		$	17.7
Derivatives
Interest rate swap agreements	—		1.5			—			1.5
Currency forward contracts	—		0.5			—			0.5
Other	14.5		—			10.9			25.4
Total	$	32.2	$	2.0		$	10.9		$	45.1
Liabilities
Derivatives
Interest rate swap agreements	$	—	$	(2.6	)	$	—		$	(2.6	)
Currency forward contracts	—		(4.0		)	—			(4.0		)
Commodity hedging instruments	—		(0.3		)	—			(0.3		)
Long-term debt	—		—			(37.2		)	(37.2		)
Total	$	—	$	(6.9	)	$	(37.2	)	$	(44.1	)

The following table presents the Company’s financial assets and liabilities measured at fair value on a recurring basis at September 30, 2017:



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)			Total
	(In millions)
Assets
Cash equivalents	$	26.2	$	—		$	—		$	26.2
Derivatives
Interest rate swap agreements	—		1.3			—			1.3
Currency forward contracts	—		2.0			—			2.0
Commodity hedging instruments	—		3.8			—			3.8
Other	15.7		—			11.8			27.5
Total	$	41.9	$	7.1		$	11.8		$	60.8
Liabilities
Derivatives
Interest rate swap agreements	$	—	$	(1.2	)	$	—		$	(1.2	)
Currency forward contracts	—		(0.2		)	—			(0.2		)
Long-term debt	—		—			(55.6		)	(55.6		)
Total	$	—	$	(1.4	)	$	(55.6	)	$	(57.0	)