Tech Data 2013 Annual Report Download - page 78

Table of Contents
The following table summarizes the valuation of the Company's assets and liabilities that are measured at fair value on a recurring basis:
The Company’
s foreign currency forward contracts are measured on a recurring basis based on foreign currency spot rates and forward rates quoted
by banks or foreign currency dealers (Level 2 criteria) and are marked-to-market each period with gains and losses on these contracts recorded in
the Company’s Consolidated Statement of Income on a basis consistent with the classification of the change in the fair value of the underlying
transactions giving rise to these foreign currency exchange gains and losses in the period in which their value changes, with the offsetting amount
for unsettled positions being included in either other current assets or other current liabilities in the Consolidated Balance Sheet. See further
discussion below in Note 13 – Derivative Instruments.
The acquisition-related contingent consideration represents the future earnout payments related to the Company's acquisitions. The Company
estimates the fair value of this Level 3 contingent consideration liability at each reporting date using a discounted cash flow analysis, which requires
the evaluation of significant unobservable inputs that include projected revenues, expenses and cash flows, and assumed discount rates. During
fiscal 2013, adjustments to the fair value of acquisition-related contingent consideration of $2.6 million were recorded as a component of "selling,
general and administrative expenses" and $0.8 million was recorded to "other expense (income)" in the Company's Consolidated Statement of
Income. Approximately $8.7 million of the acquisition-related contingent consideration was paid during the first quarter of fiscal 2014 and the
remaining balance is expected to be paid by the first quarter of fiscal 2016.
The Company utilizes life insurance policies to fund the Company’s nonqualified deferred compensation plan. The life insurance asset recorded by
the Company is the amount that would be realized upon the assumed surrender of the policy. This amount is based on the underlying fair value of
the invested assets contained within the life insurance policies. The gains and losses are recorded in the Company’s Consolidated Statement of
Income within "other expense (income), net." The related deferred compensation liability is also marked-to-market each period based upon the
various investment return alternatives selected by the plan participants and the gains and losses are recorded in the Company’s Consolidated
Statement of Income within "selling, general and administrative expenses." The net realizable value of the Company's life insurance investments
and related deferred compensation liability at January 31, 2013 is $35.3 million and $31.2 million , respectively.
The $350 million of Senior Notes discussed in Note 8 - Debt, are carried at cost, less unamortized debt discount. The estimated fair value of the
Senior Notes was approximately $363.9 million at January 31, 2013, based upon quoted market information (level 1 criteria).
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of
the short maturity of these items. The carrying amount of debt outstanding pursuant to revolving credit facilities and loans payable approximates
fair value as the majority of these instruments have variable interest rates which approximate current market rates (Level 2 criteria).
NOTE 13 — DERIVATIVE INSTRUMENTS
In the ordinary course of business, the Company is exposed to movements in foreign currency exchange rates. The Company’
s foreign currency risk
management objective is to protect earnings and cash flows from the impact of exchange rate changes primarily through the use of foreign currency
forward contracts to hedge both intercompany and third party loans, accounts receivable and accounts payable. These derivatives are not designated
as hedging instruments.
The Company employs established policies and procedures to manage the exposure to fluctuations in the value of foreign currencies. It is the
Company’
s policy to utilize financial instruments to reduce risks where internal netting cannot be effectively employed. Additionally, the Company
does not enter into derivative instruments for speculative or trading purposes.
The Company’s foreign currency exposure relates primarily to international transactions in Europe, Canada and Latin America, where the currency
collected from customers can be different from the currency used to purchase the product. The Company’s transactions in its foreign operations are
denominated primarily in the following currencies: U.S. dollar, British pound, Canadian dollar, Chilean peso,
72
January 31, 2013 January 31, 2012
Fair value measurement category Fair value measurement category
Level 1 Level 2 Level 3 Level 1 Level 2 Level 3
(in thousands)
Assets
Foreign currency forward contracts
$
19,835
$
6,243
Liabilities
Foreign currency forward contracts
$
19,628
$
11,226
Acquisition-related contingent consideration
$
18,147
$
15,506