Fair Value Measurements

6 Months Ended

Jul. 01, 2011

Fair Value Measurements

Fair Value Measurements

NOTE 9. FAIR VALUE MEASUREMENTS

The guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures about assets and liabilities measured at fair value. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market, and the instruments' complexity.

Assets and liabilities, recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets, are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by the guidance on fair value measurements are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows:

Level I – Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level II – Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level III – Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.

	Fair Values as of July 1, 2011
(Dollars in thousands)	Level I		Level II		Level III		Total
Assets
Money market funds(1)	$	76,484	$	0	$	0	$	76,484
Deferred compensation plan assets (2)		10,634		0		0		10,634
Derivative assets (3)		0		6,177		0		6,177
Total	$	87,118	$	6,177	$	0	$	93,295
Liabilities
Deferred compensation plan liabilities (2)	$	10,724	$	0	$	0	$	10,724
Derivative liabilities (3)		0		226		0		226
Contingent consideration liabilities (4)		0		0		7,439		7,439
Total	$	10,724	$	226	$	7,439	$	18,389

(1) These investments are highly liquid investments such as money market funds. The fair values are determined using observable quoted prices in active markets. Money market funds are included in Cash and cash equivalents on the Company's Condensed Consolidated Balance Sheets.

(2) The Company maintains a self-directed, non-qualified deferred compensation plan for certain executives and other highly compensated employees. As of July 1, 2011 the plan assets and liabilities are invested in actively traded mutual funds and individual stocks valued using observable quoted prices in active markets. Deferred compensation plan assets and liabilities are included in Other non-current assets and Other non-current liabilities on the Company's Condensed Consolidated Balance Sheets.

(3) Derivative assets and liabilities included in Level II represent forward currency exchange contracts. The Company enters into these contracts to minimize the short-term impact of foreign currency fluctuations on certain trade and inter-company receivables and payables. During the second quarter of fiscal 2011 the Company entered into a forward currency exchange contract in anticipation of the foreign currency that was needed to pay for a business combination expected to close during the third quarter of fiscal 2011. A gain of $5.6 million on foreign exchange associated with this forward currency exchange contract was recognized and included in Foreign currency transaction gain (loss), net on the Company's Condensed Consolidated Statement of Income. The derivatives are not designated as hedging instruments. The fair values are determined using inputs based on observable quoted prices. Derivative assets and liabilities are included in Other current assets and Other current liabilities, respectively, on the Company's Condensed Consolidated Balance Sheets.

(4) The Company has seven contingent consideration arrangements that require it to pay the former owners of certain companies it acquired during fiscal 2009 through fiscal 2011. The undiscounted maximum payment under all seven arrangements is $15.1 million, based on future revenues or gross margins over a 3 year period. The Company estimated the fair value of these liabilities using the expected cash flow approach with inputs being probability-weighted revenue or gross margin projections, as the case may be, and discount rates ranging from 0.10% to 3.50%. Of the total contingent consideration liability, $4.8 million and $2.6 million was included in Other current liabilities and Other non-current liabilities, respectively, on the Company's Condensed Consolidated Balance Sheets.

The table below sets forth a summary of changes in the fair value of the Level III contingent consideration liabilities for the six month ended July 1, 2011.

As of	Level III liabilities July 1, 2011
(Dollars in thousands)
Balance as of December 31, 2010	$	3,719
Acquisitions		2,344
Contingent consideration fair value changes included in earnings		1,065
Losses recognized in other comprehensive income		311
Balance as of July 1, 2011	$	7,439

The losses included in earnings represent the changes in fair value of the contingent consideration arrangements which are recognized in Other expense, net in the Condensed Consolidated Statements of Income. The losses recognized in other comprehensive income are a result of foreign currency translation adjustments.

Additional Fair Value Information

The following table provides additional fair value information relating to the Company's financial instruments outstanding:

	Carrying Amount		Fair Value		Carrying Amount		Fair Value
As of	July 1, 2011				December 31, 2010
(Dollars in thousands)
Assets:
Cash and cash equivalents	$	249,811	$	249,811	$	220,788	$	220,788
Forward foreign currency exchange contracts		6,177		6,177		407		407
Liabilities:
Credit facility	$	125,000	$	115,345	$	151,000	$	148,367
Forward foreign currency exchange contracts		226		226		140		140
Promissory note and other		2,256		2,255		2,153		2,133

The fair value of the bank borrowings and promissory notes has been calculated using an estimate of the interest rate the Company would have had to pay on the issuance of notes with a similar maturity and discounting the cash flows at that rate. The fair values do not give an indication of the amount that Trimble would currently have to pay to extinguish any of this debt.