Note 6 — FAIR VALUE DISCLOSURES

Assets and liabilities subject to fair value measurement are categorized into one of three different levels depending on the observability of the inputs employed in the measurement, as follows:


•	Level 1 – observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.


•	Level 2 – inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.


•	Level 3 – unobservable inputs reflecting our own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

Non-recurring Fair Value Measurements

The majority of our non-financial assets, which include inventories, property and equipment, goodwill and other intangible assets, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur such that a non-financial asset is required to be evaluated for impairment and deemed to be impaired, the impaired non-financial asset is recorded as its fair value.

See Note 2 for details on the fair values related to the Eastern Airways acquisition.

The following table summarizes the assets as of March 31, 2014, which are valued at fair value on a non-recurring basis (in thousands):



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2014		Total Loss for Fiscal Year 2014
Inventories	$	—	$	50,505	$	—	$	50,505	$	(12,669	)
Assets held for sale	—		16,050		—		16,050		(6,814		)
Total assets	$	—	$	66,555	$	—	$	66,555	$	(19,483	)

The following table summarizes the assets as of March 31, 2013, which are valued at fair value on a non-recurring basis (in thousands):



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2013		Total Gain (Loss) for Fiscal Year 2013
Aircraft and equipment	$	—	$	14,385	$	—	$	14,385	$	8,722
Assets held for sale	—		1,600		—		1,600		(4,362		)
Total assets	$	—	$	15,985	$	—	$	15,985	$	4,360

The fair value of inventories using Level 2 inputs is determined by evaluating the current economic conditions for sale and disposal of spare parts, which includes estimates as to the recoverability of the carrying value of the parts based on historical experience with sales and disposal of similar spare parts, the expected timeframe of sales or disposals, the location of the spare parts to be sold and the condition of the spare parts to be sold or otherwise disposed of. See Note 1 for further discussion of the impairment of inventories. The $6.8 million loss on assets held for sale for fiscal year 2014 related to 11 aircraft and the $4.4 million loss on assets held for sale for fiscal year 2013 related to 10 aircraft.

The $8.7 million gain in aircraft and equipment for fiscal year 2013 related to four large AS332L aircraft reclassified from held for sale to aircraft and equipment where we reversed previously recorded impairment charges. The fair value of these aircraft using Level 2 inputs is determined through evaluation of expected sales proceeds for aircraft. This analysis includes estimates based on historical experience with sales, recent transactions involving similar assets, quoted market prices for similar assets and condition and location of aircraft to be sold or otherwise disposed of.

Recurring Fair Value Measurements

The following table summarizes the financial instruments we had as of March 31, 2014, which are valued at fair value on a recurring basis (in thousands):



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2014		Balance Sheet Classification
Rabbi Trust investments	$	6,599	$	—	$	—	$	—	Other assets
Total assets	$	6,599	$	—	$	—	$	—
Contingent consideration ⁽¹⁾	$	—	$	—	$	31,322	$	31,322	Other liabilities and deferred credits
Total liabilities	$	—	$	—	$	31,322	$	31,322

_____________


⁽¹⁾	Relates to our investment in Cougar (see Note 3).

The following table summarizes the financial instruments we had as of March 31, 2013, which are valued at fair value on a recurring basis (in thousands):



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2013		Balance Sheet Classification
Rabbi Trust investments	$	4,837	$	—	$	—	$	4,837	Other assets
Total assets	$	4,837	$	—	$	—	$	4,837
Contingent consideration ⁽¹⁾	$	—	$	—	$	35,625	$	35,625	Other liabilities and deferred credits
Total liabilities	$	—	$	—	$	35,625	$	35,625

_____________


⁽¹⁾	Relates to an investment in Cougar (see Note 3).

The rabbi trust investments consist of cash and mutual funds whose fair value is based on quoted prices in active markets for identical assets, and are designated as Level 1 within the valuation hierarchy. The rabbi trust holds investments related to our non-qualified deferred compensation plan for our senior executives as discussed in Note 10.

The following table provides a rollforward of the contingent consideration liability Level 3 fair value measurements during fiscal year 2014 (in thousands):



	Significant Unobservable Inputs (Level 3)
Contingent consideration:
Balance as of March 31, 2013	$	35,625
Change in fair value of contingent consideration	1,697
Payment of Cougar first year earn-out	(6,000		)
Balance as of March 31, 2014	$	31,322

We assess the estimated fair value of the contractual obligation to pay the contingent consideration on a quarterly basis and any changes in estimated fair value are recorded as accretion expense included in depreciation and amortization on our consolidated statements of income. Fluctuations in the fair value of contingent consideration are impacted by two unobservable inputs, management's estimate of the probability of Cougar achieving certain agreed performance targets and the estimated discount rate. As of March 31, 2014 and 2013, the discount rate approximated 4% for the contingent consideration related to Cougar.

The fair value of our financial instruments has been estimated in accordance with the accounting standard regarding fair value. The fair value of our fixed rate long-term debt is estimated based on quoted market prices. The carrying and fair value of our long-term debt, including the current portion, are as follows (in thousands):



	March 31,
	2014				2013
	Carrying Value		Fair Value		Carrying Value		Fair Value
6 ¼% Senior Notes	$	450,000	$	477,000	$	450,000	$	484,875
Term Loan	226,604		226,604		230,625		230,625
3% Convertible Senior Notes	109,904		142,382		106,196		131,819
Revolving Credit Facility	24,000		24,000		—		—
Eastern Airways debt	29,911		29,911		—		—
Other debt	883		883		448		448
	$	841,302	$	900,780	$	787,269	$	847,767

Other

The fair values of our cash and cash equivalents, accounts receivable and accounts payable approximate their carrying value due to the short-term nature of these items.