Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v2.4.0.8
Fair Value Measurements
6 Months Ended
Jun. 29, 2013
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.

We measure our financial assets and liabilities at fair value on a recurring basis using the following valuation techniques:

(a) Market Approach – uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

(b) Income Approach – uses valuation techniques to convert future estimated cash flows to a single present amount based on current market expectations about those future amounts, using present value techniques.

 

Financial Assets Valued on a Recurring Basis

As of June 29, 2013 and December 29, 2012, 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 cash and cash equivalents and investments. The following table represents our fair value hierarchy and the valuation techniques used for financial assets measured at fair value on a recurring basis:

 

                                     
    As of June 29, 2013
    Total     Level 1     Level 2     Level 3     Valuation
Techniques

Assets:

                                   

Cash and cash equivalents (1)

  $ 851     $ 851     $ —       $ —       (a)

Investments – mutual funds (2)

    118       118       —         —       (a)
   

 

 

   

 

 

   

 

 

   

 

 

     
    $ 969     $ 969     $ —       $ —        
   

 

 

   

 

 

   

 

 

   

 

 

     
   
    As of December 29, 2012
    Total     Level 1     Level 2     Level 3     Valuation
Techniques

Assets:

                                   

Cash and cash equivalents (1)

  $ 1,030     $ 1,030     $ —       $ —       (a)

Investments – mutual funds (2)

    110       110       —         —       (a)
   

 

 

   

 

 

   

 

 

   

 

 

     
    $ 1,140     $ 1,140     $ —       $ —        
   

 

 

   

 

 

   

 

 

   

 

 

     

 

(1) 

Cash equivalents consist primarily of money market funds and short-term investments 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) 

Investments consist of mutual funds, classified as short-term 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.

During the twenty-six weeks ended June 29, 2013 and June 30, 2012, there were no transfers into or out of Level 1 and Level 2 assets.

Non-Financial Assets Valued on a Non-Recurring Basis

The Company’s long-lived assets, including intangible assets subject to amortization, 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.

During the second quarter of 2013, the Company identified adverse events related to the Company’s overall financial performance, including the continued downward trend in the Company’s revenues and gross margin, and a sustained decline in the Company’s share price, that would more likely than not reduce the fair value of the Company’s long-lived assets below its carrying amount. The Company performed its impairment testing of long-lived assets, including intangible assets subject to amortization, in accordance with ASC 360 Property, Plant and Equipment.

The Company measures its non-financial assets at fair value on a non-recurring basis considering the following valuation techniques based on the Company’s evaluation of the circumstances:

(a) Market Approach – provides an estimation of fair value based on market prices in actual transactions and on asking prices for assets. Considerations such as time and condition of sale and terms of agreements are analyzed for comparable assets and are adjusted to arrive at an estimation of the fair value.

(b) Income Approach – uses valuation techniques to convert future estimated cash flows to a single present amount based on current market expectations about those future amounts, using present value techniques.

(c) Cost Approach – uses the concept of replacement cost as an indicator of fair value. The premise of the costs approach is that, if it were possible to replace the asset, a market participant would pay no more for an asset than the amount for which the asset could be replaced.

 

The following table represents the fair value measurements for assets measured on a non-recurring basis as of the Company’s impairment testing date, June 29, 2013 (in thousands):

 

                         
    Fair
Value
    Impairment
Charge
    Valuation
Techniques
  Fair Value
Hierarchy

Assets:

                       

Internally developed software

    5,975       4,832     (b)   Level 3
           

 

 

         

Property and equipment

            4,832          
           

 

 

         

Product design intellectual property

    1,037       838     (b)   Level 3

Domain name

    515       348     (b)   Level 3

Trade names—WAG

    217       59     (b)   Level 3
           

 

 

         

Intangible assets

            1,245          
           

 

 

         

Total impairment loss

          $ 6,077          
           

 

 

         

For the period ended June 29, 2013, total impairment loss was $6,077. The Company recorded impairment losses on property and equipment and intangible assets of $4,832 and $1,245, respectively. The fair value measurements are categorized as Level 3 of the fair value hierarchy, as the Company developed its own assumptions and analysis to determine if such assets were impaired. Refer to “Note 1 – Summary of Significant Accounting Policies and Nature of Operations,Note 4 – Property and Equipment, Net” and “Note 5 –Intangible Assets” for additional details.