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Notes to Consolidated Financial Statements

Note 19: FAIR VALUE MEASUREMENT

Effective December 1, 2007, the Company adopted SFAS No. 157, which provides a framework for measuring fair value under GAAP. As defined in SFAS No. 157, fair value is 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 (exit price). The Company utilizes market data or assumptions that the Company believes market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable.

The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs.

SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy defined by SFAS No. 157 are as follows:

Level 1 Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, listed equities and U.S. government treasury securities.
Level 2 Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives such as over-the-counter forwards, options and repurchase agreements.
Level 3 Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in Management’s best estimate of fair value from the perspective of a market participant. Level 3 instruments include those that may be more structured or otherwise tailored to customers’ needs. At each balance sheet date, the Company performs an analysis of all instruments subject to SFAS No. 157 and includes in Level 3 all of those whose fair value is based on significant unobservable inputs.

 

Fair Value Measurements Using
Liabilities
At Fair Value
(In thousands)  
Level 1
Level 2
Level 3
Liabilities        
  Derivative liabilities $ — $ 63 $ — $ 63
Total Liabilities $ — $ 63 $ — $ 63
   

 

Derivative
 The Company and its subsidiaries complete transactions in currencies other than their functional currencies. The Company’s primary objective with respect to currency risk is to reduce net income volatility that would otherwise occur due to exchange-rate fluctuations. In order to minimize the risk of gain or loss due to exchange rates, the Company uses foreign currency derivatives. As of November 30, 2008, the Company held one foreign currency forward contract aggregating $500,000,hedging U.S.dollars to Singapore dollars, and two contracts aggregating $769,000,hedging U.S. dollars to Euros. As of November 30, 2008, such instruments had a combined fair value loss of $63,000 based on quotations from financial institutions.

SUPPLEMENTAL DATA - QUARTERLY FINANCIAL DATA (UNAUDITED)

   Summarized quarterly financial data for the years ended November 30, 2007 and 2006, follow:

(In thousands, except per share data)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2008
Sales 149,769 159,793 170,107 187,874
  Gross profit 33,452 39,746 37,455 42,968
    Income from continuing operations, net of taxes 9,737 16,333 14,998 17,524
    Income from discontinued operations, net of taxes        
Net income 9,737 16,333 14,998 17,524
Diluted net income per share:  
   Income from continuing operations, net of taxes 1.07 1.78 1.63 1.91
   Income from discontinued operations, net of taxes        
   Net income 1.07 1.78 1.63 1.91
Stock price per share-high 110.84 122.79 130.51 117.38
Stock price per share-low 79.06 88.52 109.50 33.30
Dividends per share .25 .30 .30 .30
2007
Sales $120,355 $156,756
 $165,048 $188,851
  Gross profit 25,320 40,762 37,001
 42,946
    Income from continuing operations 8,312 14,813 20,659 17,356
    Income from discontinued operations, net of taxes 156 990 463 4,490
Net income 8,468 15,803 21,122 21,846
  Diluted net income/(loss) per share:
    Income from continuing operations .92. 1.63 2.27 1.90
    Income from discontinued operations, net of taxes .02 .11 .05 .49
Net income .94 1.74 2.32 2.39
  Stock price per share-high 84.25 81.28 109.60 109.16
  Stock price per share-low 71.57 64.35 76.02 85.10
  Dividends per share 20 .20 .25 .25
 The Company traditionally experiences lower sales during the first fiscal quarter because of seasonal patterns associated with weather and contractor schedules.

 

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