Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Measurements

Fair Value Measurements

(5) Fair Value Measurements

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 expenses, and income taxes receivable and 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 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 fourth quarter.  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 March 31,			Fair Value Measurement Using
	2013			Level 1			Level 2		Level 3
Assets (liabilities) at fair value
Nonqualified deferred compensation asset	$	3,819		$	3,819		$	—	$	—
Nonqualified deferred compensation liability	$	(3,819	)	$	(3,819	)	$	—	$	—
Designated derivatives assets	$	2,458		$	—		$	2,458	$	—
Contingent consideration for acquisition of business	$	(47,060	)	$	—		$	—	$	(47,060	)

	Fair Value at December 31,			Fair Value Measurement Using
	2012			Level 1			Level 2			Level 3
Assets (liabilities) at fair value
Nonqualified deferred compensation asset	$	3,653		$	3,653		$	—		$	—
Nonqualified deferred compensation liability	$	(3,653	)	$	(3,653	)	$	—		$	—
Non-designated derivatives assets	$	839		$	—		$	839		$	—
Non-designated derivatives liabilities	$	(336	)	$	—		$	(336	)	$	—
Contingent consideration for acquisition of business	$	(71,460	)	$	—		$	—		$	(71,460	)

The Level 2 inputs consist of forward spot rates at the end of the reporting period (see note 6).

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 brand acquisition 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 forecast includes a compound annual growth rate (CAGR) of 18.3% from fiscal year 2012 through fiscal year 2015.  The gross profit forecasts for fiscal years 2013 through 2015 range from approximately $55,000 to $82,000, which are then used to apply the contingent consideration percentages in accordance with the applicable agreement (see note 9).  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 March 31, 2013 by approximately $4,000.

Hoka

In connection with the Company’s acquisition of the Hoka brand, the purchase price includes contingent consideration which is based on the Hoka brand’s estimated future net sales, using a probability weighted average sales forecast to determine a best estimate.  Estimated contingent consideration payments of $1,500 are included within other accrued expenses and long-term liabilities in the condensed consolidated balance sheet as of March 31, 2013.  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 9 for further information on the contingent consideration arrangements.

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

Balance, December 31, 2012	$	71,460
Payments	(25,400		)
Change in fair value	1,000
Balance, March 31, 2013	$	47,060