XML 82 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value of Financial Instruments
 12 Months Ended
Jun. 30, 2012
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments
Fair Value of Financial Instruments
Accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Under this guidance, the Company is required to classify certain assets and liabilities based on the fair value hierarchy, which groups fair value-measured assets and liabilities based upon the following levels of inputs:
•
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;
•
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 assets and liabilities maintained by the Company that are required to be measured at fair value on a recurring basis include the Company's various debt instruments, deferred compensation plan investments, outstanding foreign exchange forward contracts and contingent consideration owed to the previous owners of CDC. The carrying value of debt listed in Note 6 is considered to approximate fair value, as the Company's debt instruments are indexed to LIBOR or the prime rate using the market approach (Level 2 criteria). The following table summarizes the valuation of the Company's remaining assets and liabilities measured at fair value on a recurring basis as of June 30, 2012:
 
Total
 
Quoted
prices  in
active
markets
(Level  1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Deferred compensation plan investments, current and non-current portion
$
11,635

 
$
11,635

 
$
—

 
$
—

Forward foreign currency exchange contracts
21

 
—

 
21

 
—

Total assets at fair value
$
11,656

 
$
11,635

 
$
21

 
$
—

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plan investments, current and non-current portion
$
11,635

 
$
11,635

 
$
—

 
$
—

Forward foreign currency exchange contracts
110

 
—

 
110

 
$
—

Liability for contingent consideration, current and non-current
16,653

 
—

 
—

 
16,653

Total liabilities at fair value
$
28,398

 
$
11,635

 
$
110

 
$
16,653


The following table presents assets and liabilities measured at fair value on a recurring basis as of June 30, 2011:
 
Total
 
Quoted
prices  in
active
markets
(Level  1)
 
Significant
other
observable
inputs
(Level 2)
 
Significant
unobservable
inputs
(Level 3)
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Deferred compensation plan investments, current and non-current portion
$
12,926

 
$
12,926

 
$
—

 
$
—

Forward foreign currency exchange contracts
165

 
—

 
165

 
—

Total assets at fair value
$
13,091

 
$
12,926

 
$
165

 
$
—

Liabilities:
 
 
 
 
 
 
 
Deferred compensation plan investments, current and non-current portion
$
12,926

 
$
12,926

 
$
—

 
$
—

Forward foreign currency exchange contracts
236

 
—

 
236

 
—

Interest rate swap
215

 
—

 
215

 
—

Liability for contingent consideration, current and non-current
23,794

 
—

 
—

 
23,794

Total liabilities at fair value
$
37,171

 
$
12,926

 
$
451

 
$
23,794


The investments in the deferred compensation plan are held in a rabbi trust and include mutual funds and cash equivalents for payment of non-qualified benefits for certain retired, terminated or active employees. These investments are recorded to prepaid and other assets (current) or other assets (non-current) depending on their corresponding, anticipated distributions to recipients, which are reported in accrued expenses and other liabilities (current) or other long-term liabilities (non-current), respectively.
Foreign currency forward contracts are measured using the market approach on a recurring basis considering foreign currency spot rates and forward rates quoted by banks or foreign currency dealers (Level 2). See Note 7, “Derivatives and Hedging Activities.” Foreign currency contracts are classified in the consolidated balance sheet in prepaid expenses and other assets or accrued expenses and other liabilities, depending on the respective contracts' favorable or unfavorable positions.
The Company recorded a contingent consideration liability at the acquisition date of CDC representing the amounts payable to former CDC shareholders, as outlined under the terms of the Share Purchase and Sale Agreement, based upon the achievement of projected earnings, net of specific pro forma adjustments. The current and non-current portions of this obligation are reported separately on the condensed consolidated balance sheet. The fair value of contingent consideration (Level 3) is determined using a discounted cash flow model. Subsequent changes in the fair value of the contingent consideration liability are recorded to the change in fair value of contingent consideration line item in the consolidated income statement. Fluctuations due to foreign currency translation are captured in other comprehensive income through the changes in foreign currency translation adjustments line item as seen in Note 14, "Accumulated Other Comprehensive Income."
The table below provides a summary of the changes in fair value of the Company’s only financial asset or liability, the contingent consideration for the CDC earnout that is measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended June 30, 2012 and 2011:
 
Contingent
Consideration for
the Year Ended 
June 30, 2012
Contingent
Consideration for
the Year Ended 
June 30, 2011
 
(in thousands)
Fair value at beginning of period
$
23,794

$
—

Issuance of contingent consideration
—

23,952

Payments
(2,000
)
—

Change in fair value
120

(128
)
Fluctuation due to foreign currency exchange
(5,261
)
(30
)
Fair value at end of period
$
16,653

$
23,794


The fair value of the liability for the contingent consideration recognized at June 30, 2012 was $16.7 million, of which $5.0 million is classified as current. As of June 30, 2011, the fair value of the contingent consideration was $23.8 million, of which $2.4 million was classified as current. The fair values of amounts owed are recorded in “current portion of contingent consideration” and “long-term portion of contingent consideration” in the Company's consolidated balance sheet. The U.S. dollar amounts of actual disbursements made in conjunction with future earnout payments are subject to change as the liability is denominated in Brazilian reais and subject to foreign exchange fluctuation risk. Also, in accordance with ASC 805, the Company will revalue the contingent consideration liability at each reporting date through the last payment, with changes in the fair value of the contingent consideration reflected in the “change in fair value of contingent consideration” line item on the Company's consolidated income statement that is included in the calculation of operating income. The fair value of the contingent consideration liability associated with future earnout payments is based on several factors, including:
•
estimated future results, net of pro forma adjustments set forth in the Share Purchase and Sale Agreement;
•
the probability of achieving these results; and
•
a discount rate reflective of the Company's creditworthiness and market risk premium associated with the Brazilian market.
A change in any of these unobservable inputs can significantly change the fair value of the contingent consideration. The change in fair value of the contingent consideration recognized in the consolidated income statement contributed a loss of $0.1 million for the year ended June 30, 2012. Generally, the change in fair value of the contingent consideration will generate a loss as the earnout period lapses. In the current fiscal year, the loss was partially offset by a change in the estimated future results from a weaker Brazilian economic outlook from the time of acquisition. In addition, volatility in the foreign exchange between the Brazilian real and the U.S. dollar has driven significant changes in the translation of the real-denominated liability. Although there is no contractual limit, total future undiscounted contingent consideration payments are estimated to be $24.0 million, based on the Company's best estimate as the earnout is based on a multiple of adjusted earnings.