Fair Value Measurements

12 Months Ended

Mar. 31, 2011

Fair Value Measurements

Fair Value Measurements

NOTE 10.   FAIR VALUE MEASUREMENTS

Universal measures certain financial and nonfinancial assets and liabilities at fair value based on applicable accounting guidance.  The financial assets and liabilities measured at fair value include money market funds, trading securities associated with deferred compensation plans, interest rate swap agreements, forward foreign currency exchange contracts, and guarantees of bank loans to tobacco growers.  The application of the fair value guidance to nonfinancial assets and liabilities primarily includes assessments of goodwill and long-lived assets for potential impairment.

Under the accounting guidance, fair value is defined 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.  The framework for measuring fair value under the guidance is based on a fair value hierarchy that distinguishes between observable inputs (i.e., inputs that are based on market data obtained from independent sources) and unobservable inputs (i.e., inputs that require the Company to make its own assumptions about market participant assumptions because little or no market data exists).  There are three levels within the fair value hierarchy:

Level	Description
1	quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date;
2	quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or similar assets or liabilities, in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability; and
3	unobservable inputs for the asset or liability.

In measuring the fair value of liabilities, the Company considers the risk of non-performance in determining fair value.

At March 31, 2011, the Company had certain financial assets and financial liabilities that were required to be measured and reported at fair value on a recurring basis.  These assets and liabilities are listed in the table below and are classified based on how their values were determined under the fair value hierarchy:

	March 31, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	108,832	$	—	$	—	$	108,832
Trading securities associated with deferred compensation plans		20,899		—		—		20,899
Interest rate swaps		—		10,193		—		10,193
Forward foreign currency exchange contracts		—		3,622		—		3,622
Total assets	$	129,731	$	13,815	$	—	$	143,546
Liabilities:
Guarantees of bank loans to tobacco growers	$	—	$	—	$	20,699	$	20,699
Forward foreign currency exchange contracts		—		243		—		243
Total liabilities	$	—	$	243	$	20,699	$	20,942

Money market funds

The fair value of money market funds, which are reported in cash and cash equivalents in the consolidated balance sheets, is based on quoted market prices (Level 1).  The fair values of these investments approximate cost due to the short-term maturities and the high credit quality of the issuers of the underlying securities.

Trading securities associated with deferred compensation plans

Trading securities represent mutual fund investments that are matched to employee deferred compensation obligations.  These investments are bought and sold as employees defer compensation, receive distributions, or make changes in the funds underlying their accounts.  Quoted market prices (Level 1) are used to determine the fair values of the mutual funds.

Interest rate swaps

The fair values of interest rate swap contracts are determined based on dealer quotes using a discounted cash flow model matched to the contractual terms of each instrument.  Since inputs to the model are observable and significant judgment is not required in determining the fair values, interest rate swaps are classified within Level 2 of the fair value hierarchy.

Forward foreign currency exchange contracts

The fair values of forward foreign currency exchange contracts are also determined based on dealer quotes using a discounted cash flow model matched to the contractual terms of each instrument.  Since inputs to the model are observable and significant judgment is not required in determining the fair values, forward foreign currency exchange contracts are classified within Level 2 of the fair value hierarchy.

Guarantees of bank loans to tobacco growers

The fair values of the Company's guarantees of bank loans to tobacco growers are determined by using internally tracked historical loss data for such loans to develop an estimate of future losses under the guarantees outstanding at the measurement date.  The present value of the cash flows associated with those estimated losses is then calculated at a risk-adjusted interest rate.  This approach is sometimes referred to as the "contingent claims valuation method."  Although historical loss data is an observable input, significant judgment is required in applying this information to the portfolio of guaranteed loans outstanding at each measurement date and in selecting a risk-adjusted interest rate.  The guarantees of bank loans to tobacco growers are therefore classified within Level 3 of the fair value hierarchy.

A reconciliation of the change in the balance of the financial liability for guarantees of bank loans to tobacco growers (Level 3) for the fiscal year ended March 31, 2011, is as follows:

Balance at April 1, 2010	$	25,997
Transfer to allowance for loss on direct loans to farmers (removal of prior crop year loans from portfolio and addition of current crop year loans).		(7,165	)
Transfer of guarantees to assignee of farmer contracts (see Note 14)		(1,110	)
Change in discount rate and estimated collection period		1,389
Currency remeasurement		1,588
Balance at March 31, 2011	$	20,699

Universal has not elected to report at fair value any financial instruments or any other assets or liabilities that are not required to be reported at fair value under current accounting guidance.