Fair Value Measurements

3 Months Ended

Jun. 30, 2015

The fair values of the Company’s cash and cash equivalents, trade accounts receivable, prepaid expenses, income taxes receivable, other current assets, short-term borrowings, trade accounts payable, accrued payroll, other accrued expenses, income taxes payable and value added taxes 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 carrying values. The fair value of the contingent consideration related to acquisitions and of the Company’s derivatives is measured and recorded at fair value on a recurring basis. Changes in the fair value of contingent consideration 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 (SG&A) expenses. 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. The value of the deferred compensation is recognized based on the fair value of the participants’ accounts. The Company has established a rabbi trust for the purpose of supporting the benefits payable under this program. The assets of the trust are reported in other assets on the Company’s condensed consolidated balance sheets. Deferred compensation of $839 and $540 is included in other accrued expenses and $6,187 and $5,041 is included in other long-term liabilities in the condensed consolidated balance sheets at June 30, 2015 and March 31, 2015, respectively.

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

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

•Level 2: Observable inputs other than quoted prices in active markets for identical assets and liabilities.


•	Level 3: Unobservable inputs in which little or no market activity exists, therefore requiring the reporting entity to develop its own assumptions.

The following table summarizes the financial assets and liabilities that are measured on a recurring basis at fair value:



	Fair value at June 30,			Fair Value Measurement Using
	2015			Level 1			Level 2			Level 3
Assets (liabilities) at fair value
Nonqualified deferred compensation asset	$	7,026		$	7,026		$	—		$	—
Nonqualified deferred compensation liability	$	(7,026	)	$	(7,026	)	$	—		$	—
Designated derivatives assets	$	120		$	—		$	120		$	—
Designated derivatives liability	$	(2,909	)	$	—		$	(2,909	)	$	—
Contingent consideration for acquisition of business	$	(24,800	)	$	—		$	—		$	(24,800	)



	Fair value at March 31,			Fair Value Measurement Using
	2015			Level 1			Level 2			Level 3
Assets (liabilities) at fair value
Nonqualified deferred compensation asset	$	5,581		$	5,581		$	—		$	—
Nonqualified deferred compensation liability	$	(5,581	)	$	(5,581	)	$	—		$	—
Designated derivatives liability	$	(487	)	$	—		$	(487	)	$	—
Contingent consideration for acquisition of business	$	(26,000	)	$	—		$	—		$	(26,000	)

The Level 2 inputs consist of forward spot rates at the end of the reporting period (see Note 8).

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's 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 13.7% for the remainder of calendar year 2015. The gross profit forecast for calendar year 2015 is approximately $60,000, which is then used to apply the contingent consideration percentage in accordance with the applicable agreement (see Note 6). The total estimated contingent consideration is then discounted to the present value with a discount rate of 7.0%. As of June 30, 2015, the Company had total contingent consideration for the acquisition of the Sanuk brand of approximately $23,300 included in other accrued expenses in the condensed consolidated balance sheets. 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, 2015 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, of which approximately $500 has been paid. The Company estimates future net sales using a probability weighted average sales forecast to determine a best estimate. Estimated future contingent consideration payments of approximately $1,500 are included in other accrued expenses in the condensed consolidated balance sheet as of June 30, 2015. The Company’s use of different estimates and assumptions is not expected to have a material impact on the value of the contingent consideration.

Refer to Note 6 for further information on the contingent consideration arrangements.

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



Balance at March 31, 2015	$	26,000
Change in fair value	(1,200		)
Balance at June 30, 2015	$	24,800

- 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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