Fair Value Measurements

3 Months Ended

Jun. 30, 2014

The fair values of the Company’s cash and cash equivalents, trade accounts receivable, prepaid expenses, other current assets, short-term borrowings, trade accounts payable, accrued payroll, accrued expenses, income taxes payable and VAT payable approximate the carrying values due to the relatively short maturities of these instruments. The fair values of the Company’s long-term liabilities, other than contingent consideration, recalculated using current interest rates, would not significantly differ from the recorded amounts. The fair value of the contingent consideration related to acquisitions and of the Company's derivatives are measured and recorded at fair value on a recurring basis. Changes in fair value resulting from either accretion or changes in discount rates or in the expectations of achieving the performance targets are recorded in selling, general and administrative expenses (SG&A). The Company records the fair value of assets or liabilities associated with derivative instruments and hedging activities in other current assets or other accrued expenses, respectively, in the condensed consolidated balance sheets.

In 2010, the Company established a nonqualified deferred compensation program that permits a select group of management employees to defer earnings to a future date on a nonqualified basis. For each plan year, on behalf of the Company, the Company’s Board of Directors (the Board) may, but is not required to, contribute any amount it desires to any participant under this program. The Company’s contribution will be determined by the Board annually in the quarter ending December 31. The value of the deferred compensation is recognized based on the fair value of the participants’ accounts. The Company has established a rabbi trust as a reserve for the benefits payable under this program. The assets of the trust are reported in other assets on the Company’s condensed consolidated balance sheets. All amounts deferred are presented in long-term liabilities in the condensed consolidated balance sheets.

The inputs used in measuring fair value are prioritized into the following hierarchy:


•	Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.


•	Level 2: Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable.


•	Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

The table below summarizes the Company’s financial assets and liabilities that are measured on a recurring basis at fair value:



	Fair value at June 30,			Fair Value Measurement Using
	2014			Level 1			Level 2			Level 3
Assets (liabilities) at fair value
Nonqualified deferred compensation asset	$	5,058		$	5,058		$	—		$	—
Nonqualified deferred compensation liability	$	(5,058	)	$	(5,058	)	$	—		$	—
Designated derivatives assets	$	13		$	—		$	13		$	—
Designated derivatives liability	$	(1,703	)	$	—		$	(1,703	)	$	—
Non-designated derivatives liability	$	(81	)	$	—		$	(81	)	$	—
Contingent consideration for acquisition of business	$	(30,000	)	$	—		$	—		$	(30,000	)



	Fair value at March 31			Fair Value Measurement Using
	2014			Level 1			Level 2			Level 3
Assets (liabilities) at fair value
Nonqualified deferred compensation asset	$	4,534		$	4,534		$	—		$	—
Nonqualified deferred compensation liability	$	(4,534	)	$	(4,534	)	$	—		$	—
Designated derivatives liability	$	(832	)	$	—		$	(832	)	$	—
Contingent consideration for acquisition of business	$	(30,000	)	$	—		$	—		$	(30,000	)

The Level 2 inputs consist of forward spot rates at the end of the reporting period (see note 7).

The fair value of the contingent consideration is based on subjective assumptions. It is reasonably possible the estimated fair value of the contingent consideration could change in the near-term and the effect of the change could be material.

Sanuk®

The estimated fair value of the contingent consideration attributable to our Sanuk® (Sanuk) brand acquisition is based on the Sanuk brand estimated future gross profit in calendar year 2015, using a probability weighted average sales forecast to determine a best estimate of gross profit. The estimated sales forecast includes a compound annual growth rate (CAGR) of 20.7% from calendar year 2013 through calendar year 2015. The gross profit forecast for calendar year 2015 is approximately $78,000, which is then used to apply the contingent consideration percentage in accordance with the applicable agreement. The total estimated contingent consideration is then discounted to the present value with a discount rate of 7.0%. The Company’s use of different estimates and assumptions could produce different estimates of the value of the contingent consideration. For example, a 5.0% change in the estimated CAGR would change the total liability balance at June 30, 2014 by approximately $2,000.

Hoka One One®

In connection with the Company’s acquisition of the Hoka One One® (Hoka) brand, the purchase price includes contingent consideration with maximum payments of $2,000, which is based on the Hoka brand’s net sales for calendar years 2013 through 2017. The Company estimates future net sales using a probability weighted average sales forecast to determine a best estimate. The Company’s use of different estimates and assumptions is not expected to have a material impact to the value of the contingent consideration.

Refer to note 5 for further information on the contingent consideration arrangements.

The following table presents a reconciliation of the Level 3 measurement:



Balance at March 31, 2014	$	30,000
Payments	—
Change in fair value	—
Balance at June 30, 2014	$	30,000

- 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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