Fair Value Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

ASC 820, “Fair Value Measurements and Disclosures,” establishes a framework for measuring fair value and establishes the following three-tier fair value hierarchy:

• Level 1. Observable inputs such as quoted prices for identical assets or liabilities in active markets;

• Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

• Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

There were no transfers between Level 1, Level 2 and Level 3 valuations during the three and nine months ended September 30, 2013 or 2012.

Financial Instruments

Our financial instruments include Cash and cash equivalents, Trade receivables, Notes and other receivables, Warehouse receivables, Accounts payable, Short-term borrowings, Warehouse facility, Credit facility, Long-term senior notes and foreign currency exchange contracts. The estimated fair value of Cash and cash equivalents, Trade receivables, Notes and other receivables, Warehouse receivables, Accounts payable, and the Warehouse facility approximates their carrying amounts due to the short maturity of these instruments. The estimated fair value of our Credit facility and Short-term borrowings approximates their carrying value due to their variable interest rate terms.

We estimate that the fair value of our Long-term senior notes was $268.0 million and $280.5 million at September 30, 2013 and December 31, 2012, respectively, using dealer quotes that are Level 2 inputs in the fair value hierarchy. Their actual carrying value was $275.0 million at September 30, 2013 and December 31, 2012.

We carry Warehouse receivables at the lower of cost or fair value based on the commitment price, in accordance with ASC Topic 948, Financial Services-Mortgage Banking. The fair values of our Warehouse receivables are based on the committed purchase price. At September 30, 2013, all of the Warehouse receivables were under commitment to be purchased by Freddie Mac and are presented at cost. When applicable we determine the fair value of Warehouse receivables based on readily observable Level 2 inputs.

Recurring Fair Value Measurements

The following table categorizes by level in the fair value hierarchy our assets and liabilities that are measured at fair value on a recurring basis at September 30, 2013 and December 31, 2012 ($ in thousands):

		September 30, 2013			December 31, 2012
		Level 2		Level 3	Level 2		Level 3
Assets
	Foreign currency forward contracts receivable	$	15,538	—	$	4,351	—
	Deferred compensation plan assets	76,464		—	60,523		—
	Investments in real estate ventures accounted for at fair value	—		75,096	—		63,579
Total assets at fair value		$	92,002	75,096	$	64,874	63,579
Liabilities
	Foreign currency forward contracts payable	$	8,319	—	$	10,074	—
	Deferred compensation plan liabilities	74,833		—	62,095		—
Total liabilities at fair value		$	83,152	—	$	72,169	—

We regularly use foreign currency forward contracts to manage our currency exchange rate risk related to intercompany lending and cash management practices. We determined the fair value of these contracts based on current market rates. The inputs for these valuations are Level 2 inputs in the fair value hierarchy. At September 30, 2013, these forward exchange contracts had a gross notional value of $1.84 billion ($798.6 million on a net basis) and were recorded on our consolidated balance sheet as a current asset of $15.5 million and a current liability of $8.3 million. At December 31, 2012, these forward exchange contracts had a gross notional value of $1.95 billion ($886.6 million on a net basis) and were recorded on our consolidated balance sheet as a current asset of $4.4 million and a current liability of $10.1 million.

The revaluations of our foreign currency forward contracts resulted in a net gain of $7.2 million and a net loss of $0.4 million for the three months ended September 30, 2013 and 2012, respectively. Gains and losses from the revaluation of these contracts are recognized as a component of Operating, administrative and other expense and are offset by the gains and losses recognized on the revaluation of intercompany loans and other foreign currency balances such that the net impact to earnings is not significant.

The asset and liability positions recorded for our foreign currency forward contracts are based on the net payable or net receivable position with the financial institutions from which we purchase these contracts. The $15.5 million asset at September 30, 2013 was comprised of gross contracts with receivable positions of $15.7 million and payable positions of $0.2 million. The $8.3 million liability position at September 30, 2013 was comprised of gross contracts with receivable positions of $1.3 million and payable positions of $9.6 million.

We maintain a deferred compensation plan for certain of our U.S. employees that allows them to defer portions of their compensation. We invest directly in insurance contracts which yield returns to fund these deferred compensation obligations. We recognize an asset for the amount that could be realized under these insurance contracts at the balance sheet date, and the deferred compensation obligation is adjusted to reflect the changes in the fair value of the amount owed to the employees. The inputs for this valuation are Level 2 inputs in the fair value hierarchy. This plan is recorded on our consolidated balance sheet at September 30, 2013, as Other long-term assets of $76.5 million, long-term Deferred compensation liabilities of $74.8 million, and as a reduction of equity, Shares held in trust, of $8.1 million. This plan is recorded on our consolidated balance sheet at December 31, 2012 as Other long-term assets of $60.5 million, long-term Deferred compensation liabilities of $62.1 million, and as a reduction of equity, Shares held in trust, of $7.6 million.

Starting in 2011, we have elected the fair value option for certain direct investments in real estate ventures. We had $75.1 million and $63.6 million at September 30, 2013 and December 31, 2012, respectively, of direct investments in real estate ventures that were accounted for under the fair value method. For these fair value investments in real estate ventures we increase or decrease our investment each reporting period by the change in the fair value of these investments. These fair value adjustments are reflected as gains or losses in our consolidated statements of comprehensive income (loss) within Equity earnings from real estate ventures. We determine the fair value of these investments based on discounted cash flow models that use Level 3 assumptions that reflect our outlook for the commercial real estate market relative to these real estate assets. See Note 6, Investments in Real Estate Ventures.

Non-Recurring Fair Value Measurements

We review our investments in real estate ventures accounted for under the equity method on a quarterly basis for indications of whether we may not be able to recover the carrying value of the real estate assets underlying our investments in real estate ventures and whether our investment in these co-investments is other than temporarily impaired. When the carrying amount of the real estate asset is in excess of the future undiscounted cash flows, we use a discounted cash flow approach to determine the fair value of the asset in computing the amount of the impairment. Our determination of fair value is based on a discounted cash flow approach using primarily Level 3 inputs. See Note 6, Investments in Real Estate Ventures.