Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.3.0.15
Fair Value Measurements
 9 Months Ended
Oct. 01, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements

Note 3—Fair Value Measurements

Fair value is defined as an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

Provisions of ASC 820 establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

Level 1—Observable inputs such as quoted prices in active markets;

Level 2—Inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3—Unobservable inputs in which little or no market data exists, therefore, requiring an entity to develop its own assumptions.

 

Financial Assets Valued on a Recurring Basis

As of October 1, 2011 and January 1, 2011, the Company held certain assets that are required to be measured at fair value on a recurring basis. These included the Company's financial instruments, including investments associated with the ARPS. The Company measures the following financial assets at fair value on a recurring basis. The fair value of these financial assets was determined using the following inputs at October 1, 2011 and January 1, 2011 (in thousands):

 

     As of October 1, 2011  
     Total      Level 1      Level 2      Level 3  

Assets:

            

Cash and cash equivalents (1)

   $ 15,151       $ 15,151       $ —         $ —     

Short-term investments (2)

     1,117         1,117         —           —     

Non-current investments available-for-sale (3)

     2,104         —           —           2,104   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 18,372       $ 16,268       $ —         $ 2,104   
  

 

 

     

 

 

     

 

 

     

 

 

  
     As of January 1, 2011  
     Total      Level 1      Level 2      Level 3  

Assets:

            

Cash and cash equivalents (1)

   $ 17,595       $ 17,595       $ —         $ —     

Short-term investments (2)

     1,062         1,062         —           —     

Non-current investments available-for-sale (3)

     4,141         —           —           4,141   
  

 

 

     

 

 

     

 

 

     

 

 

  
   $ 22,798       $ 18,657       $ —         $ 4,141   
  

 

 

     

 

 

     

 

 

     

 

 

  

(1) 

Cash and cash equivalents consists primarily of money market funds with original maturity dates of three months or less at the date of purchase, for which the Company determines fair value through quoted market prices.

(2) 

Short-term investments consist of mutual funds and money market funds. Short-term investments are classified as investments available-for-sale and recorded at fair market value, based on quoted prices of identical assets that are trading in active markets as of the end of the period for which the values are determined.

(3) 

As of October 1, 2011, the Company had invested $2.1 million in ARPS, which are classified as available-for-sale securities and reflected at $2.1 million, which includes an unrealized loss of $21,000. As of January 1, 2011, the Company had invested $4.2 million in ARPS, which were classified as available-for-sale securities and reflected at $4.1 million, which included an unrealized loss of $84,000. The Company has included its investments related to ARPS in the Level 3 category.

Before utilizing Level 3 inputs in fair value measurement, the Company considered significant Level 2 observable inputs of similar assets in active and inactive markets. The Company's broker dealer received estimated market values from an independent pricing service as of the balance sheet date and the anticipated future market for such investments. These investments consist solely of collateralized debt obligations supported by municipal and state agencies; do not include mortgage-backed securities or student loans; have redemption features that call for redemption at 100% of par value; and have a current credit rating of A or AAA. For the period between June 30, 2008 through October 1, 2011, the Company received partial redemptions at par on these investments totaling $5.6 million. The fact that there is not an active market to liquidate these investments was considered in classifying them as Level 3. Due to the uncertainty with regard to the short-term liquidity of these securities, the Company determined that it could not rely on par value to represent fair value. Therefore, the Company estimated the fair values of these securities utilizing a discounted cash flow valuation model as of October 1, 2011 and January 1, 2011. This analysis considered the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the expectation the security will have a successful auction or market liquidity. These securities were also compared, when possible, to other observable market data with similar characteristics to the securities held by the Company.

As a result of the temporary declines in fair value for the Company's ARPS, which the Company generally attributes to liquidity issues rather than credit issues, the Company recorded an unrealized loss of $21,000 and $84,000 to accumulated other comprehensive income as of October 1, 2011 and January 1, 2011, respectively. Due to the Company's belief that the market for these collateralized instruments may take in excess of twelve months to fully recover, the Company has classified these investments as noncurrent and has included them in investments on the unaudited condensed consolidated balance sheets at October 1, 2011 and January 1, 2011. As of October 1, 2011, the Company continued to earn interest on all of its ARPS instruments. Any future fluctuation in fair value related to these instruments that the Company deems to be temporary, including any recoveries of previous write-downs, would be recorded to accumulated other comprehensive income. If the Company determined that any decrease in the value of the instruments was other-than-temporary, it would record a charge to earnings as appropriate. The Company is not certain how long it may be required to hold each security. However, given the Company's current cash position, liquid cash equivalents and expected cash provided by operations, it believes it has the ability to hold, and intends to continue to hold the ARPS as long-term investments until the market for such securities stabilizes.

 

During the thirty-nine weeks ended October 1, 2011 and the fiscal year ended January 1, 2011, there were no transfers of Level 1 and Level 2 assets. The following tables present the Company's ARPS measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at October 1, 2011 and January 1, 2011 (in thousands):

 

     Long-Term
Investments		  

Balance as of July 2, 2011

    $ 3,766   

Redemption

      (1,700 ) 

Unrealized gains included in other comprehensive income

      38   
  

 

 

  

Balance as of October 1, 2011

    $ 2,104   
  

 

 

  
     Long-Term
Investments		  

Balance as of January 1, 2011

    $ 4,141   

Redemption

      (2,100 ) 

Unrealized gains included in other comprehensive income

      63   
  

 

 

  

Balance as of October 1, 2011

    $ 2,104   
  

 

 

  
     Long-Term
Investments		  

Balance as of July 3, 2010

    $ 4,165   

Redemption

      —     

Unrealized gains included in other comprehensive income

      (36 )
  

 

 

  

Balance as of October 2, 2010

    $ 4,129   
  

 

 

  
     Long-Term
Investments		  

Balance as of January 2, 2010

    $ 4,264   

Redemption

      (125 ) 

Unrealized gains included in other comprehensive income

      (10 ) 
  

 

 

  

Balance as of October 2, 2010

    $ 4,129   
  

 

 

  

Non-Financial Assets Valued on a Non-Recurring Basis

The Company's long-lived or indefinite-lived intangible assets are measured at fair value on a non-recurring basis. These assets are measured at cost but are written down to fair value, if necessary, as a result of impairment.

As of October 1, 2011 and January 1, 2011, the Company's long-lived and indefinite-lived intangible assets did not indicate a potential impairment under the provisions of ASC Topic 350, Intangibles and ASC Topic 360, Property, Plant, and Equipment and, as such, they were not measured at fair value.