Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.10.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements

12. Fair Value Measurements

The Company applies the provisions of FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC 820, for its financial and non-financial assets and liabilities. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 inputs are unobservable inputs for the asset or liability.

The Company measures certain assets and liabilities at fair value as discussed throughout the notes to its condensed consolidated financial statements. Foreign exchange currency contracts are valued using standard calculations and models primarily based on inputs such as observable forward rates, spot rates and foreign currency exchange rates at the reporting period ended date. The Company’s derivative assets and liabilities are measured at fair value and consisted of Level 2 inputs and their amounts are shown below at their gross values as of September 30, 2018 and December 31, 2017:

 

 

 

Balance Sheet Location

 

Significant Other Observable Inputs (Level 2) Fair Value as of September 30,

2018

 

 

Significant Other Observable Inputs (Level 2) Fair Value as of December 31,

2017

 

 

 

 

 

(in millions)

 

ASSETS:

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging

    instruments:

 

 

 

 

 

 

 

 

 

 

Foreign exchange currency contracts relating

    to inventory and intercompany

    management fee hedges

 

Prepaid expenses and other current assets

 

$

0.7

 

 

$

2.9

 

Derivatives not designated as hedging

    instruments:

 

 

 

 

 

 

 

 

 

 

Foreign exchange currency contracts

 

Prepaid expenses and other current assets

 

 

0.9

 

 

 

2.9

 

 

 

 

 

$

1.6

 

 

$

5.8

 

LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Derivatives designated as hedging

    instruments:

 

 

 

 

 

 

 

 

 

 

Foreign exchange currency contracts relating

    to inventory and intercompany

    management fee hedges

 

Other current liabilities

 

$

2.0

 

 

$

4.0

 

Derivatives not designated as hedging

    instruments:

 

 

 

 

 

 

 

 

 

 

Foreign exchange currency contracts

 

Other current liabilities

 

 

1.9

 

 

 

2.6

 

 

 

 

 

$

3.9

 

 

$

6.6

 

 

The Company’s CVR liability is measured at fair value and consisted of Level 3 inputs. See Note 10, Shareholders’ Deficit, for a further description of the CVR liability. The following is a reconciliation of the CVR liability reported in Other non-current liabilities within the Company’s condensed consolidated balance sheet as of September 30, 2018:

 

 

 

Contingent Value Right

 

 

 

(in millions)

 

Fair value as of December 31, 2017

 

$

6.9

 

Net unrealized loss(1)

 

 

11.4

 

Fair value as of September 30, 2018

 

$

18.3

 

 

(1)

Unrealized gains and losses related to the revaluation of the CVR are recorded in Other expense, net within the Company’s condensed consolidated statements of income.

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised of money market funds and foreign and domestic bank accounts. These cash and cash equivalents are valued based on Level 1 inputs which consist of quoted prices in active markets. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents.

The Company’s deferred compensation plan assets consist of Company owned life insurance policies. As these policies are recorded at their cash surrender value, they are not required to be included in the fair value table above. See Note 6, Employee Compensation Plans, to the Consolidated Financial Statements included in the 2017 10-K for a further description of the Company’s deferred compensation plan assets.

The following tables summarize the offsetting of the fair values of the Company’s derivative assets and derivative liabilities for presentation in the Company’s condensed consolidated balance sheets as of September 30, 2018 and December 31, 2017:

 

 

 

Offsetting of Derivative Assets

 

 

 

Gross Amounts of Recognized Assets

 

 

Gross Amounts Offset in the Balance Sheet

 

 

Net Amounts of Assets Presented in the

Balance Sheet

 

 

 

(in millions)

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange currency contracts

 

$

1.6

 

 

$

(1.6

)

 

$

 

Total

 

$

1.6

 

 

$

(1.6

)

 

$

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange currency contracts

 

$

5.8

 

 

$

(4.3

)

 

$

1.5

 

Total

 

$

5.8

 

 

$

(4.3

)

 

$

1.5

 

 

 

 

Offsetting of Derivative Liabilities

 

 

 

Gross Amounts of Recognized Liabilities

 

 

Gross Amounts Offset in the Balance Sheet

 

 

Net Amounts of Liabilities Presented in the

Balance Sheet

 

 

 

(in millions)

 

September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange currency contracts

 

$

3.9

 

 

$

(1.6

)

 

$

2.3

 

Total

 

$

3.9

 

 

$

(1.6

)

 

$

2.3

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange currency contracts

 

$

6.6

 

 

$

(4.3

)

 

$

2.3

 

Total

 

$

6.6

 

 

$

(4.3

)

 

$

2.3

 

 

The Company offsets all of its derivative assets and derivative liabilities in its condensed consolidated balance sheet to the extent it maintains master netting arrangements with related financial institutions. As of September 30, 2018 and December 31, 2017, all of the Company’s derivatives were subject to master netting arrangements and no collateralization was required for the Company’s derivative assets and derivative liabilities.