Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v2.4.0.6
Fair Value Measurements
 12 Months Ended
Aug. 31, 2012
Fair Value Measurements

Note 9.    Fair Value Measurements

The Company assesses the inputs used to measure the fair value of financial assets and liabilities using a three-tier hierarchy. Level 1 inputs include quoted prices for identical instruments and are the most observable. Level 2 inputs include quoted prices for similar assets and observable inputs such as interest rates, foreign currency exchange rates, commodity rates and yield curves. Level 3 inputs are not observable in the market and include management’s own judgments about the assumptions market participants would use in pricing the asset or liability. The following financial assets and liabilities, measured at fair value, are included in the consolidated balance sheet (in thousands):

 

     August 31,  
     2012      2011  

Level 1 Valuation:

      

Cash equivalents

    $ 5,154       $ 1,958   

Investments

      1,602         1,464   

Level 2 Valuation:

      

Foreign currency forward contracts

    $ 945       $ (81 ) 

Interest rate swap contracts

      —           (4,552 ) 

As discussed in Note 6, “Impairment Charges” at August 31, 2012, the Mastervolt goodwill ($40.0 million) and tradename ($13.6 million) were written down to estimated fair value, resulting in a non-cash impairment charge of $62.5 million. In order to arrive at the implied fair value of goodwill, the Company assigned the fair value to all of the assets and liabilities of the reporting unit as if the reporting unit had been acquired in a business combination. The tradename was valued using the relief of royalty income approach. These represent Level 3 assets measured at fair value on a nonrecurring basis.

The fair value of the Company’s cash, accounts receivable, accounts payable, short-term borrowings and its variable rate long-term debt approximated book value at August 31, 2012 and 2011 due to their short-term nature and the fact that the interest rates approximated year-end market rates. The fair value of the Company’s outstanding $300.0 million of 5.625% Senior Notes was $309.8 million at August 31, 2012. At August 31, 2011, the fair value of the outstanding $250.0 million of 6.875% Senior Notes was $252.5 million while the fair value of the $117.8 million 2% Convertible Notes was $127.9 million. The fair values of the Senior Notes and 2% Convertible Notes were based on quoted market prices and are therefore classified as Level 2 within the valuation hierarchy.