3.  FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company applies fair value accounting guidelines for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Under these guidelines, fair value is defined as the price that would be received for the sale of an asset or paid to transfer a liability (i.e. an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value 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 or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3 - Unobservable inputs that are supported by little, infrequent, or no market activity and reflect the Company’s own assumptions about inputs used in pricing the asset or liability.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The fair value of the Company’s cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses and other liabilities approximate their carrying value, due to their short-term nature.  Contingent consideration and newly acquired intangible assets are measured at fair value using level 3 inputs. Forward foreign exchange contracts are measured at fair value based on quoted foreign exchange forward rates at the reporting date.  

The following tables provide information regarding the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2018 and December 30, 2017.

During the quarter ended March 31, 2018, the Company entered into a forward foreign exchange currency contract, for the purchase of 370 million euros, to economically hedge transactional exposure associated with the acquisition of Faster, S.p.A., which was denominated in euros. The contract was not designated as a hedging instrument for accounting purposes. The Company recognized a loss during the quarter ended March 31, 2018, of $505, which was reported in foreign currency loss (gain), net for the period.  The fair value of the derivative instrument is included in the accrued expenses and other liabilities line item in the consolidated balance sheet.

A summary of the changes in the estimated fair value of contingent consideration at March 31, 2018 is as follows:

The fair value of the contingent consideration arrangement was estimated using a risk-adjusted probability analysis. During the three months ended March 31, 2018, adjustments to the fair value of contingent consideration were recorded based on Enovation Controls’ results of operations during the period and management’s revision of revenue and EBITDA forecasts.