AutoZone 2013 Annual Report Download - page 117

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Financial Assets & Liabilities Measured at Fair Value on a Recurring Basis
The Company’s assets and liabilities measured at fair value on a recurring basis were as follows:
August 31, 2013
(in thousands) Level 1 Level 2 Level 3 Fair Value
Other current assets ..................................... $ 16,386 $ 24 $ – $ 16,410
Other long-term assets ................................ 49,011 16,740 – 65,751
$ 65,397 $ 16,764 $ – $ 82,161
Contingent consideration ............................ $ – $ – $ (242) $ (242)
August 25, 2012
(in thousands) Level 1 Level 2 Level 3 Fair Value
Other current assets ...................................... $ 22,515 $ – $ – $ 22,515
Other long-term assets ................................. 40,424 13,275 – 53,699
$ 62,939 $ 13,275 $ – $ 76,214
Accrued expenses and other ......................... $ – $ (4,915) $ – $ (4,915)
At August 31, 2013, the fair value measurement amounts for assets and liabilities recorded in the accompanying
Consolidated Balance Sheet consisted of short-term marketable securities of $16.4 million, which are included
within Other current assets and long-term marketable securities of $65.8 million, which are included in Other
long-term assets. The Company’s marketable securities are typically valued at the closing price in the principal
active market as of the last business day of the quarter or through the use of other market inputs relating to the
securities, including benchmark yields and reported trades. A discussion on how the Company’s cash flow hedges
are valued is included in “Note H – Derivative Financial Instruments,” while the fair value of the Company’s
pension plan assets are disclosed in “Note L – Pension and Savings Plans.”
Effective December 19, 2012, the Company acquired certain assets and liabilities of AutoAnything, an online
retailer of specialized automotive products for up to $150 million, including an initial cash payment of $115
million, a $5 million holdback payment for working capital true-ups, and contingent payments totaling up to $30
million. The contingent consideration is based on the performance of AutoAnything, and is not subject to
continued employment by the selling stockholders. Based on specific operating income targets for each year, the
sellers can receive up to $10 million in the first year, and up to $30 million in the second year, with contingent
consideration not exceeding $30 million in the aggregate. The estimated fair value of the performance-based
contingent consideration of $22.7 million was included as part of the purchase price allocation at the time of
acquisition. The Company determined the fair value of the contingent consideration based on a probability-
weighted discounted cash flow analysis. The fair value remeasurement is based on significant inputs not
observable in the market and thus represents a Level 3 measurement as defined in the fair value hierarchy. In each
period, the Company reassesses its current estimates of performance relative to the stated targets and adjusts the
liability to fair value.
During the fourth quarter of fiscal 2013, the Company determined AutoAnything is not likely to achieve the
operating income targets necessary to earn the contingent consideration. Therefore, the contingent consideration
was adjusted to reflect the fair value at August 31, 2013 of $0.2 million, resulting in a decrease to the contingent
consideration liability of $23.3 million during the fourth quarter of fiscal 2013. As of August 31, 2013, the
contingent liability is reflected as a current liability of $0.1 million in Accrued expenses and other and a non-
current liability of $0.1 million in Other long-term liabilities in the accompanying Consolidated Balance Sheet. A
discussion of the acquisition is included in “Note M – Acquisition.”
10-K