Fair Value Measurement

12 Months Ended

Dec. 31, 2013

The accounting guidance under Accounting Standards Codification “Fair Value Measurements and Disclosures” (“ASC 820-10”) requires the Company to make disclosures about the fair value of certain of its assets and liabilities. ASC 820-10 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820-10 utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. A brief description of those three levels is as follows:


•	Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly.


•	Level 3: Significant unobservable inputs.

The Company’s financial assets and liabilities, subject to fair value measurements, as of December 31, 2013 and 2012 are as follows:

Note F – Fair Value Measurement (continued)



				December 31, 2013
				Fair Value Measurements Using Fair Value Hierarchy
	Fair value			Level 1		Level 2			Level 3
Assets:
Cash equivalents	$	102,247		$	102,247	$	—		$	—
Current marketable securities – available for sale (a)	20,591			20,591		—			—
Forward contracts	(460		)	—		(460		)	—
Note receivable – related party	3,581			—		—			3,581
Note receivable – Seller of SM Canada	3,171			—		—			3,171
Long-term marketable securities – available for sale (b)	91,267			91,267		—			—
Total assets	$	220,397		$	214,105	$	(460	)	$	6,752
Liabilities:
Contingent consideration	$	34,795		—		—			$	34,795
Total liabilities	$	34,795		$	—	$	—		$	34,795
(a) Current marketable securities includes unrealized gains of $59.
(b) Long-term marketable securities includes unrealized gains of $1,387 and unrealized losses of $4,530.



			December 31, 2012
			Fair Value Measurements Using Fair Value Hierarchy
	Fair value		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	27,219	$	27,219	$	—	$	—
Current marketable securities – available for sale (a)	16,285		16,285		—		—
Forward contracts	161		—		161		—
Note receivable – related party	3,581		—		—		3,581
Note receivable – SM Canada	3,085		—		—		3,085
Long-term marketable securities – available for sale (b)	81,202		81,202		—		—
Total assets	$	131,533	$	124,706	$	161	$	6,666
Liabilities:
Contingent consideration	$	41,960	—		—		$	41,960
Total liabilities	$	41,960	$	—	$	—	$	41,960
(a) Current marketable securities includes unrealized gains of $91 and unrealized losses of $241.
(b) Long-term marketable securities includes unrealized gains of $3,076 and unrealized losses of $325.

Forward contracts are entered into to manage the risk associated with the volatility of future cash flows denominated in Mexican pesos. Fair value of these instruments are based on observable market transactions of spot and forward rates.

For the note receivable due from related party (see Note E) and due from the sellers of SM Canada (see Note B), the carrying value was determined to be the fair value, based upon their actual interest rates, which approximate current market interest rates.

The Company has recorded a liability for potential contingent consideration in connection with the February 21, 2012 acquisition of SM Canada (see Note B). Pursuant to the terms of an earn-out agreement between the Company and the seller of SM Canada,

Note F – Fair Value Measurement (continued)

earn-out payments will be due annually to the seller of SM Canada based on the financial performance of SM Canada for each of the 12-month periods ending on March 31, 2013 through 2017, inclusive. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of SM Canada during the earn-out period. The earn-out payment of $4,529 for the period ended March 31, 2013 was paid in the fourth quarter of this year.

The Company has recorded a liability for potential contingent consideration in connection with the May 25, 2011 acquisition of Cejon (see Note B). Pursuant to the terms of an earn-out agreement between the Company and the sellers of Cejon, earn-out payments will be made annually to the sellers of Cejon, based on the financial performance of Cejon for each of the twelve-month periods ending on June 30, 2012 through 2016, inclusive. The fair value of the contingent payments was estimated using the present value of management’s projections of the financial results of Cejon during the earn-out period. The earn-out payment of $5,139 for the period ended June 30, 2013 was paid in the third quarter of this year.

The Company has recorded a liability for contingent consideration as a result of the February 10, 2010 acquisition of Big Buddha, Inc. The final contingent consideration was paid during the third quarter of 2013 in the amount of $1,813 based on the financial performance of Big Buddha for the 12-month period ended March 31, 2013.

Accounting guidance permits entities to choose to measure financial instruments and certain other items at fair value that are not currently required to be measured at fair value. The accounting guidance also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that chose different measurement attributes for similar assets and liabilities. The Company has elected not to measure any eligible items at fair value.

The carrying value of certain financial instruments such as accounts receivable, due from factor and accounts payable approximates their fair values due to the short-term nature of their underlying terms. The fair values of investment in marketable securities available for sale are determined by reference to market data and other valuation techniques, as appropriate. Fair value of the notes receivable held by the Company approximates their carrying value based upon their imputed or actual interest rate, which approximates applicable current market interest rates.

- 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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