SEC Document


NOTE D — FAIR VALUE MEASUREMENTS

Financial instruments recorded in the balance sheet include cash and cash equivalents, trade accounts receivable, marketable securities, notes and accounts payable, and debt.

An allowance for anticipated uncollectible trade receivable amounts is established using a combination of specifically identified accounts to be reserved, and a reserve covering trends in collectibility. These estimates are based on an analysis of trends in collectibility and past experience, but are primarily made up of individual account balances identified as doubtful based on specific facts and conditions. Receivable losses are charged against the allowance when we confirm uncollectibility.

All derivative instruments are recognized in our Consolidated Balance Sheets and measured at fair value. Changes in the fair values of derivative instruments that do not qualify as hedges and/or any ineffective portion of hedges are recognized as a gain or (loss) in our Consolidated Statements of Income in the current period. Changes in the fair value of derivative instruments used effectively as cash flow hedges are recognized in other comprehensive income (loss), along with the change in

the value of the hedged item. We do not hold or issue derivative instruments for speculative purposes.

The valuation techniques utilized for establishing the fair values of assets and liabilities are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect management’s market assumptions. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value, as follows:

Level 1 Inputs — Quoted prices for identical instruments in active markets.

Level 2 Inputs — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs — Instruments with primarily unobservable value drivers.

 

 

The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

 

(In thousands)    Quoted Prices
in Active Markets
for Identical
Assets (Level 1)  
   Significant
Other
Observable
Inputs (Level 2)  
  Significant
Unobservable
  Inputs (Level 3)  
   Fair Value at
  May 31, 2017  

U.S. Treasury and other government

     $ -      $ 22,119     $      $ 22,119

Corporate bonds

            797            797

Stocks - domestic

       2,467                 2,467

Mutual funds - foreign

            37,435            37,435

Mutual funds - domestic

            101,637            101,637

Contingent consideration

                            (17,979)          (17,979 )

Total

     $       2,467      $   161,988     $   (17,979)        $   146,476
(In thousands)   

Quoted Prices

in Active Markets
for Identical
Assets (Level 1)

   Significant
Other
Observable
Inputs (Level 2)
  Significant
Unobservable
Inputs (Level 3)
   Fair Value at
May 31, 2016

U.S. Treasury and other government

     $ -      $ 21,838     $      $ 21,838

Corporate bonds

            1,024            1,024

Stocks - foreign

       5,243                 5,243

Stocks - domestic

       30,637                 30,637

Mutual funds - foreign

            32,348            32,348

Mutual funds - domestic

            55,866            55,866

Foreign currency forward contract

            (159 )            (159 )

Contingent consideration

                            (11,771)          (11,771 )

Total

     $ 35,880      $ 110,917     $ (11,771)        $ 135,026

 

Our marketable securities are primarily composed of available-for-sale securities, and are valued using a market approach. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For most of our financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.

At May 31, 2016, we had a foreign currency forward contract with a fair value of approximately $0.2 million, which is classified in other accrued liabilities in our Consolidated Balance Sheets. The balance for this foreign currency forward contract was not significant at May 31, 2017. Our foreign currency forward contract, which has not been designated as a hedge,

was designed to reduce our exposure to the changes in the cash flows of intercompany foreign-currency-denominated loans related to changes in foreign currency exchange rates by fixing the functional currency cash flows. The foreign exchange rates included in the forward contract are based upon observable market data, but are not quoted market prices, and therefore, the forward currency forward contract is considered a Level 2 liability on the fair value hierarchy.

The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with recent acquisitions that is contingent upon the achievement of certain performance milestones. We estimated the fair value using expected future cash flows over the period in which the obligation is expected to be settled, and applied a discount rate that appropriately captures a market participant’s view of the risk associated with the obligation, which are considered to be Level 3 inputs. During fiscal 2017, we accrued approximately $7.4 million for additional contingent payments related to new acquisitions, which included the estimated

 

 

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