Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Measurements

Fair Value Measurements

(6)Fair Value Measurements

Except as noted otherwise, the fair values of the Company’s cash and cash equivalents, trade accounts receivable, prepaid expenses, other current assets, trade accounts payable, accrued expenses, and income 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, except as noted otherwise, if recalculated based on current interest rates, would not significantly differ from the recorded amounts. The fair value of the contingent consideration and the derivatives are measured and recorded at fair value on a recurring basis. 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 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 fourth quarter. No such contribution has been approved as of March 31, 2012. All amounts deferred are presented in long-term liabilities in the condensed consolidated balance sheets. 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 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 March 31,			Fair Value Measurement Using
	2012			Level 1			Level 2			Level 3
(Liabilities) assets at fair value
Nonqualified deferred compensation	$	(3,450	)	$	(3,450	)	$	—		$	—
Designated derivatives	$	159		$	—		$	159		$	—
Designated derivatives	$	(1,056	)	$	—		$	(1,056	)	$	—
Contingent consideration for acquistion of business	$	(62,794	)	$	—		$	—		$	(62,794	)

	Fair Value at December 31,			Fair Value Measurement Using
	2011			Level 1			Level 2			Level 3
(Liabilities) assets at fair value
Nonqualified deferred compensation	$	(1,991	)	$	(1,991	)	$	—		$	—
Designated derivatives	$	1,117		$	—		$	1,117		$	—
Designated derivatives	$	(87	)	$	—		$	(87	)	$	—
Contingent consideration for acquisition of business	$	(91,600	)	$	—		$	—		$	(91,600	)

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.  It is based on the Sanuk brand estimated future gross profits, using a probability weighted average sales forecast to determine a best estimate of gross profits.  The estimated sales forecasts include a compound annual growth rate of 17.0% through 2015.  The gross profit forecasts range from approximately $51,000 to $68,000, which are then used to apply the contingent consideration percentages in accordance with the agreement (see note 10).  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 financial results.  Refer to note 10 for further information on the contingent consideration arrangement.  The following table presents a reconciliation of the Level 3 measurement:

Balance, December 31, 2011	$	91,600
Payments	(30,000		)
Change in fair value	1,194
Balance, March 31, 2012	$	62,794