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Fair Value Measurements

9 Months Ended

Aug. 31, 2019

NOTE 8—FAIR VALUE MEASUREMENTS:

The Company’s fair value measurements are classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table summarizes the valuation of the Company’s investments and financial instruments that are measured at fair value on a recurring basis:

	As of August 31, 2019								As of November 30, 2018
			Fair value measurement category								Fair value measurement category
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	48,482	$	48,482	$	—	$	—	$	108,785	$	108,785	$	—	$	—
Marketable equity securities		2,465		2,465		—		—		5,492		5,492		—		—
Foreign government bond		1,123		1,123		—		—		1,104		1,104		—		—
Forward foreign currency exchange contracts		17,289		—		17,289		—		16,485		—		16,485		—
Interest rate swaps		535		—		535		—		9,388		—		9,388		—
Liabilities:
Contingent consideration payable	$	—	$	—	$	—	$	—	$	33,098	$	—	$	—	$	33,098
Forward foreign currency exchange contracts		12,908		—		12,908		—		14,162		—		14,162		—
Interest rate swaps		103,032		—		103,032		—		9,004		—		9,004		—
Convertible debentures conversion option		32		—		—		32		77,238		—		—		77,238

The Company’s cash equivalents consist primarily of highly liquid investments in money market funds and term deposits with maturity periods of three months or less. The carrying values of cash equivalents approximate fair value since they are near their maturity. Investments in marketable equity securities, primarily comprising investments in other companies’ equity securities as per local customary business practice, are recorded at fair value based on quoted market prices. The fair values of forward exchange contracts are measured based on the foreign currency spot and forward rates quoted by the banks or foreign currency dealers. Fair values of long-term foreign currency exchange contracts are measured using valuations based upon quoted prices for similar assets and liabilities in active markets and are valued by reference to similar financial instruments, adjusted for terms specific to the contracts. Fair values of interest rate swaps are measured using standard valuation models using inputs that are readily available in public markets, or can be derived from observable market transactions, including London Interbank Offered Rate (“LIBOR”) spot and forward rates. The effect of nonperformance risk on the fair value of derivative instruments was not material as of August 31, 2019 and November 30, 2018.

Contingent consideration payable represents future potential earn-out payments related to the Westcon-Comstor Americas acquisition in fiscal year 2017. The fair value of the contingent consideration liability was based on a probabilistic analysis using an option pricing model as implemented via a Monte Carlo simulation. During the nine months ended August 31, 2019, the fair value of the contingent consideration liability was remeasured and the resulting decrease of $19,034 recorded as a benefit to "other income (expense), net" in the Consolidated Statements of Operations. The change in the fair value was due to final settlement of the gross profit related to the achievement of the established earn-out target with the sellers. The settled amount was paid during the three months ended August 31, 2019.

The fair value of the Convertible Debentures conversion option was based on a probabilistic analysis using the Monte Carlo simulation approach. The model considered simulated movements in the Company's stock price until the conversion date using estimated stock volatility of 35%, a risk free rate of 2.7%, discount and dividend yields of 4.6% and $0.35 per share each quarter, respectively, over the estimated period until September 2019, when the Company would become entitled to redeem the debentures. During the nine months ended August 31, 2019,

the Company settled substantially all the outstanding convertible debentures and recorded a loss of $1,559 upon settlement in other income (expense), net. The remaining convertible debentures were redeemed subsequent to August 31, 2019.

The carrying values of term deposits with maturities less than one year, accounts receivable, accounts payable and short-term debt approximate fair value due to their short maturities and interest rates which are variable in nature. Long-term non-marketable equity securities consist primarily of investments in equity securities of private entities. The fair value of non-marketable equity investments is based on an internal valuation of the investees based on the best available information at the measurement date. The carrying value of the Company’s term loans approximate their fair value since they bear interest rates that are similar to existing market rates.

During the nine months ended August 31, 2019, there were no transfers between the fair value measurement category levels.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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