NOTE O – Fair Value

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. Fair value is an exit price concept that assumes an orderly transaction between willing market participants and is required to be based on assumptions that market participants would use in pricing an asset or a liability. Current accounting guidance establishes a three-tier fair value hierarchy as a basis for considering such assumptions and for classifying the inputs used in the valuation methodologies. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair values are as follows:


Level 1	–	Observable prices in active markets for identical assets and liabilities.

Level 2	–	Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly.

Level 3	–	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities.

Recurring Fair Value Measurements

At August 31, 2017, our assets and liabilities measured at fair value on a recurring basis were as follows:


(in thousands)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals
Assets
Derivative contracts (1)	$	-	$	9,079	$	-	$	9,079

Total assets	$	-	$	9,079	$	-	$	9,079

Liabilities
Derivative contracts (1)	$	-	$	342	$	-	$	342
Contingent consideration obligation (2)		-		-		593		593

Total liabilities	$	-	$	342	$	593	$	935

At May 31, 2017, our assets and liabilities measured at fair value on a recurring basis were as follows:


(in thousands)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Totals
Assets
Derivative contracts (1)	$	-	$	8,326	$	-	$	8,326

Total assets	$	-	$	8,326	$	-	$	8,326

Liabilities
Derivative contracts (1)	$	-	$	1,142	$	-	$	1,142
Contingent consideration obligation (2)		-		-		585		585

Total liabilities	$	-	$	1,142	$	585	$	1,727

(1)

The fair value of our derivative instruments is based on the present value of the expected future cash flows considering the risks involved, including non-performance risk, and using discount rates appropriate for the respective maturities. Market observable, Level 2 inputs are used to determine the present value of the expected future cash flows. Refer to “NOTE N – Derivative Instruments and Hedging Activities” for additional information regarding our use of derivative instruments.

(2)	The fair value of the contingent consideration obligation is determined using a probability weighted cash flow approach based on management’s projections of future cash flows of the acquired business. The fair value measurement was based on Level 3 inputs not observable in the market.

The fair value of non-derivative financial instruments included in the carrying amounts of cash and cash equivalents, receivables, notes receivable, income taxes receivable, other assets, accounts payable, short-term borrowings, accrued compensation, contributions to employee benefit plans and related taxes, other accrued items, income taxes payable and other liabilities approximate carrying value due to their short-term nature. The fair value of long-term debt, including current maturities, based upon models utilizing market observable (Level 2) inputs and credit risk, was $835,414,000 and $618,059,000 at August 31, 2017 and May 31, 2017, respectively. The carrying amount of long-term debt, including current maturities, was $780,162,000 and $578,487,000 at August 31, 2017 and May 31, 2017, respectively.