FAIR VALUE

6 Months Ended

Jun. 30, 2014

NOTE 9. FAIR VALUE

The table below presents information about items which are carried at fair value on a recurring basis at June 30, 2014 and December 31, 2013:

		Fair Value Measurement as of June 30, 2014
	Description	Balance		Level 1		Level 2		Level 3
Assets:
	Derivatives ^(a)	$	18.5	$	-	$	18.5	$	-
	Fixed maturity and open ended mutual funds ^(b)		44.6		44.6		-		-
	Total	$	63.1	$	44.6	$	18.5	$	-

Liabilities:
	Derivatives ^(a)	$	0.7	$	-	$	0.7	$	-
	Contingent consideration arising from acquisitions ^(c)		17.2		-		-		17.2
	Total	$	17.9	$	-	$	0.7	$	17.2

		Fair Value Measurement as of December 31, 2013
	Description	Balance		Level 1		Level 2		Level 3
Assets:
	Derivatives ^(a)	$	20.5	$	-	$	20.5	$	-
	Total	$	20.5	$	-	$	20.5	$	-
Liabilities:
	Derivatives ^(a)	$	1.7	$	-	$	1.7	$	-
	Contingent consideration arising from acquisitions ^(c)		17.5		-		-		17.5
	Total	$	19.2	$	-	$	1.7	$	17.5


^(a)Represents interest rate swaps and FX forwards on certain assets and liabilities as well as on certain non-U.S. dollar net investments in certain foreign subsidiaries as more fully described in Note 6 to the financial statements.

^(b)Represents investments in fixed maturity mutual funds and open ended mutual funds. These investments were acquired pursuant to the ICRA step-acquisition, more fully discussed in Note 7 to the financial statements. The remaining contractual maturities for the fixed maturity instruments range from one month to 11 months.

^(c)Represents contingent consideration liabilities pursuant to the agreements for certain MA acquisitions.

The following table summarizes the changes in the fair value of the Company’s Level 3 liabilities:

	Contingent Consideration
	Six Months Ended
	June 30,
	2014		2013
Balance as of January 1	$	17.5	$	9.0
Contingent consideration payments		-		(2.5)
Total losses (gains) (realized and unrealized):
Included in earnings		(0.2)		4.1
Foreign currency translation adjustments		(0.1)		(0.1)
Balance as of June 30	$	17.2	$	10.5

The gains and losses included in earnings in the table above are recorded within SG&A expenses in the Company’s consolidated statements of operations. The gains in the six months ended June 30, 2014 relate to contingent consideration obligations outstanding at June 30, 2014.

Of the $17.2 million of contingent consideration obligations as of June 30, 2014, $14.9 million is classified in accounts payable and accrued liabilities and $2.3 million is classified in other liabilities within the Company’s consolidated balance sheet.

The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts, fixed maturity plans and contingent consideration obligations:

Derivatives:

In determining the fair value of the derivative contracts, the Company utilizes industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using spot rates, forward points, currency volatilities, interest rates as well as the risk of non-performance of the Company and the counterparties with whom it has derivative contracts. The Company established strict counterparty credit guidelines and only enters into transactions with financial institutions that adhere to these guidelines. Accordingly, the risk of counterparty default is deemed to be minimal.

Fixed maturity and open ended mutual funds:

The fixed maturity mutual funds and open ended mutual funds primarily represent exchange traded funds in India which were acquired as part of the ICRA step-acquisition and are classified as securities available-for-sale. Accordingly, any unrealized gains and losses in future quarters will be recognized through other comprehensive income until the instruments mature. The cost basis of these investments is $42.3 million at June 30, 2014.

Contingent consideration:

At June 30, 2014, the Company has contingent consideration obligations related to the acquisitions of CSI, Copal and Amba which are carried at estimated fair value, and are based on certain financial and non-financial metrics set forth in the acquisition agreements. These obligations are measured using Level 3 inputs as defined in the ASC. The Company recorded the obligations for these contingent consideration arrangements on the date of each respective acquisition based on management’s best estimates of the achievement of the metrics and the value of the obligations are adjusted quarterly.

The contingent consideration obligation for CSI is based on the achievement of a certain contractual milestone by January 2016. The Company utilizes a discounted cash flow methodology to value this obligation. The future expected cash flow for this obligation is discounted using an interest rate available to borrowers with similar credit risk profiles to that of the Company. The most significant unobservable input involved in the measurement of this obligation is the probability that the milestone will be reached by January 2016. At June 30, 2014, the Company expects that this milestone will be reached by the aforementioned date.

There are several contingent consideration obligations relating to the acquisition of Copal. A portion of the contingent cash payments are based on revenue and EBITDA growth for certain of the Copal entities. This growth is calculated by comparing revenue and EBITDA in the year immediately prior to the exercise of the put/call option to acquire the remaining 33% ownership interest of Copal Partners Limited which the Company does not currently own, to revenue and EBITDA in Copal’s fiscal year ended March 31, 2011. There are no limitations set forth in the acquisition agreement relating to the amount payable under this contingent consideration arrangement. Payments under this arrangement, if any, would be made upon the exercise of the aforementioned put/call option, which expires in November 2017. The Company utilizes discounted cash flow methodologies to value these obligations. The expected future cash flows for these obligations are discounted using a risk-free interest rate plus a credit spread based on the option adjusted spread of the Company’s publicly traded debt as of the valuation date plus sovereign and size risk premiums. The most significant unobservable input involved in the measurement of these obligations is the projected future financial results of the applicable Copal entities. These remaining obligations will be settled upon the exercise of the call/put option. Other contingent cash payments were based on the achievement of revenue targets for Copal’s fiscal year ended March 31, 2012 and 2013, with certain limits on the amount of revenue that can be applied to the calculation of these contingent payments. Each of these contingent payments had a maximum payout of $2.5 million and have been settled as of December 31, 2013.

For the contingent consideration obligations relating to the acquisition of Amba, the payment is based on the acquired entity achieving a revenue target for its fiscal year ended March 31, 2014. The Company has utilized a discounted cash flow methodology to value this obligation. At March 31, 2014, Amba has met this revenue target and a $4.3 million contingent consideration payment will be made in 2014.

A significant increase or decrease in any of the aforementioned significant unobservable inputs related to the fair value measurement of the Company’s contingent consideration obligations would result in a significantly higher or lower reported fair value for these obligations.

- 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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