| FAIR VALUE MEASUREMENTS |
NOTE 8. FAIR VALUE
MEASUREMENTS
The guidance on fair value
measurements and disclosures defines fair value, establishes a
framework for measuring fair value, and requires disclosures about
assets and liabilities measured at fair value. Fair value is
defined as the price at which an asset could be exchanged in a
current transaction between knowledgeable, willing parties. A
liability’s fair value is defined as the amount that would be
paid to transfer the liability to a new obligor, not the amount
that would be paid to settle the liability with the creditor. Where
available, fair value is based on observable market prices or
parameters or derived from such prices or parameters. Where
observable prices or inputs are not available, valuation models are
applied. These valuation techniques involve some level of
management estimation and judgment, the degree of which is
dependent on the price transparency for the instruments or market,
and the instruments’ complexity.
Assets and liabilities,
recorded at fair value on a recurring basis in the Condensed
Consolidated Balance Sheets, are categorized based upon the level
of judgment associated with the inputs used to measure their fair
value. Hierarchical levels, defined by the guidance on fair value
measurements are directly related to the amount of subjectivity
associated with the inputs to fair valuation of these assets and
liabilities, and are as follows:
Level I – Observable
inputs such as unadjusted, quoted prices in active markets for
identical assets or liabilities at the measurement date.
Level II – Inputs
(other than quoted prices included in Level I) are either directly
or indirectly observable for the asset or liability. These include
quoted prices for similar assets or liabilities in active markets
and quoted prices for identical or similar assets or liabilities in
markets that are not active.
Level III –
Unobservable inputs that reflect management’s best estimate
of what market participants would use in pricing the asset or
liability at the measurement date. Consideration is given to the
risk inherent in the valuation technique and the risk inherent in
the inputs to the model.
Fair Value on a
Recurring Basis
Assets and liabilities
measured at fair value on a recurring basis are categorized in the
tables below based upon the lowest level of significant input to
the valuations.
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Fair Values as of the Second Quarter of Fiscal
2012 |
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Fair Values as of Fiscal
Year End 2011 |
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Level I |
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Level II |
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Level III |
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Total |
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Level I |
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Level II |
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Level III |
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T otal |
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Assets
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Money market
funds(1)
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$ |
3 |
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$ |
— |
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$ |
— |
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$ |
3 |
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$ |
3 |
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$ |
— |
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$ |
— |
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$ |
3 |
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Deferred compensation plan
assets (2)
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11,568 |
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— |
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— |
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11,568 |
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10,534 |
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— |
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— |
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10,534 |
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Derivative assets
(3)
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— |
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375 |
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— |
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375 |
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— |
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351 |
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— |
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351 |
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Total
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$ |
11,571 |
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$ |
375 |
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$ |
— |
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$ |
11,946 |
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$ |
10,537 |
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$ |
351 |
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$ |
— |
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$ |
10,888 |
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Liabilities
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Deferred compensation plan
liabilities (2)
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$ |
11,568 |
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$ |
— |
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$ |
— |
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$ |
11,568 |
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$ |
10,534 |
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$ |
— |
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$ |
— |
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$ |
10,534 |
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Derivative liabilities
(3)
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— |
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227 |
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— |
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227 |
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— |
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1,968 |
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— |
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1,968 |
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Contingent consideration
liabilities (4)
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— |
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— |
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4,839 |
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4,839 |
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— |
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— |
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4,967 |
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4,967 |
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Total
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$ |
11,568 |
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$ |
227 |
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$ |
4,839 |
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$ |
16,634 |
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$ |
10,534 |
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$ |
1,968 |
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$ |
4,967 |
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$ |
17,469 |
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| (1) |
These investments are
highly liquid investments in money market funds. The fair values
are determined using observable quoted prices in active markets.
Money market funds are included in Cash and cash equivalents on the
Company’s Condensed Consolidated Balance Sheets. |
| (2) |
The Company maintains a
self-directed, non-qualified deferred compensation plan for certain
executives and other highly compensated employees. The plan assets
and liabilities are invested in actively traded mutual funds and
individual stocks valued using observable quoted prices in active
markets. Deferred compensation plan assets and liabilities are
included in Other non-current assets and Other non-current
liabilities on the Company’s Condensed Consolidated Balance
Sheets. |
| (3) |
Derivative assets and
liabilities included in Level II primarily represent forward
currency exchange contracts. The Company typically enters into
these contracts to minimize the short-term impact of foreign
currency exchange rate fluctuations on certain trade and
inter-company receivables and payables. The derivatives are not
designated as hedging instruments. The fair values are determined
using inputs based on observable quoted prices. Derivative assets
and liabilities are included in Other current assets and Other
current liabilities, respectively, on the Company’s Condensed
Consolidated Balance Sheets. |
| (4) |
The Company has nine
contingent consideration arrangements that require it to pay the
former owners of certain companies it acquired. The undiscounted
maximum payment under all nine arrangements is $13.6 million based
on future revenues, gross margins or operating income over a 3 year
period. The Company estimated the fair value of these liabilities
using the expected cash flow approach with inputs being
probability-weighted revenue, gross margin or operating income
projections, as the case may be, and discount rates ranging from
0.00% to 3.5% for the first two quarters of fiscal 2012 and 0.06%
to 3.5% for fiscal year end 2011. As of the second quarter of
fiscal 2012 and fiscal year end 2011, of the total contingent
consideration liability, $4.5 million was included in Other current
liabilities for both periods, and $0.3 million and $0.5 million was
included in Other non-current liabilities, respectively, on the
Company’s Condensed Consolidated Balance Sheets. |
Additional Fair Value
Information
The following table
provides additional fair value information relating to the
Company’s financial instruments outstanding:
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Carrying |
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Fair |
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Carrying |
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Fair |
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Amount |
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Value |
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Amount |
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Value |
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As
of
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Second Quarter of Fiscal 2012 |
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Fiscal Year End of
2011 |
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| (Dollars in thousands) |
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Assets:
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Cash and cash
equivalents
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$ |
121,937 |
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$ |
121,937 |
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$ |
154,621 |
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$ |
154,621 |
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Forward foreign currency
exchange contracts
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375 |
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375 |
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351 |
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351 |
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Liabilities:
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Credit facility
|
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$ |
695,000 |
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$ |
695,000 |
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$ |
562,300 |
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$ |
562,300 |
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Forward foreign currency
exchange contracts
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227 |
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227 |
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1,968 |
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1,968 |
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Promissory note and
other
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2,357 |
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2,357 |
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2,136 |
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2,136 |
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The fair value of the bank
borrowings and promissory notes has been calculated using an
estimate of the interest rate the Company would have had to pay on
the issuance of notes with a similar maturity and discounting the
cash flows at that rate. The fair values do not give an indication
of the amount that the Company would currently have to pay to
extinguish any of this debt.
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