Fair Value of Financial Instruments

9 Months Ended

Oct. 01, 2016

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company applies fair value accounting guidelines for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Under these guidelines, fair value is defined as the price that would be received for the sale of an asset or paid to transfer a liability (i.e. an exit price) in an orderly transaction between market participants at the measurement date. The guidance establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3 - Unobservable inputs that are supported by little, infrequent, or no market activity and reflect the Company’s own assumptions about inputs used in pricing the asset or liability.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company’s valuation techniques used to measure the fair value of marketable equity securities and mutual funds were derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair value of all other financial instruments were valued based on quoted market prices or model driven valuations using significant inputs derived from or corroborated by observable market data.

The Company’s short-term investments have been classified and accounted for as available-for-sale. Management determines the appropriate classification of its investments at the time of purchase and reevaluates the designation at each balance sheet date. The Company may or may not hold securities with stated maturities greater than 12 months until maturity. As management views these securities as available to support current operations, the Company classifies securities with maturities beyond 12 months as current assets under the caption short-term investments in the accompanying Consolidated Balance Sheets. These investments are carried at fair value, with the unrealized gains and losses reported as a component of shareholder’s equity. Realized gains and losses on sales of investments are generally determined using the specific identification method, and are included in miscellaneous (income) expense in the Consolidated Statements of Operations.

The following tables provide information regarding the Company’s assets and liabilities measured at fair value on a recurring basis at October 1, 2016 and January 2, 2016.

	October 1, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Assets
Level 1:
Equity securities		-		-		-			-
Mutual funds		1,483		-		(185	)		1,298
Subtotal		1,483		-		(185	)		1,298
Level 2:
Corporate fixed income		26,613		75		(478	)		26,210
Municipal bonds		6,412		-		(62	)		6,350
Certificates of deposit and time deposits		-		-		-			-
Asset backed securities		-		-		-			-
Subtotal		33,025		75		(540	)		32,560
Total		34,508		75		(725	)		33,858
Liabilities
Level 2:
Phantom stock units	$	26		-		-			26
Total	$	26		-		-			26

	January 2, 2016
	Adjusted Cost		Unrealized Gains		Unrealized Losses			Fair Value
Assets
Level 1:
Equity securities		1,318		28		(36	)		1,310
Mutual funds		2,611		1		(238	)		2,374
Subtotal		3,929		29		(274	)		3,684
Level 2:
Corporate fixed income		35,936		8		(1,682	)		34,262
Municipal bonds		2,897		-		(94	)		2,803
Certificates of deposit and time deposits		2,947		-		-			2,947
Asset backed securities		498		-		(20	)		478
Subtotal		42,278		8		(1,796	)		40,490
Total		46,207		37		(2,070	)		44,174
Liabilities
Level 2:
Phantom stock units		17		-		-			17
Total		17		-		-			17

The Company recognized a net realized loss on investments during the nine months ended October 1, 2016 of $296 and a net realized loss of $241 during the nine months ended September 26, 2015. As of October 1, 2016, gross unrealized losses related to individual securities that had been in a continuous loss position for 12 months or longer were not significant. The Company considers these unrealized losses in market value of its investments to be temporary in nature. When evaluating an investment for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below its cost basis, the financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before recovery of the investment’s cost basis. During the nine months ended October 1, 2016, the Company recognized an impairment charge of $276, which is included in the net realized loss for the period. There were no other-than-temporary impairments during the nine month periods ended September 26, 2015.

Maturities of investments at October 1, 2016 are as follows:

	Adjusted Cost		Fair Value
Due in less than one year	$	18,199	$	18,122
Due after one year but within five years		11,691		11,410
Due after five years but within ten years		1,801		1,758
Due after ten years		1,334		1,270
Total	$	33,025	$	32,560

The Company reports phantom stock units as a liability. The Company recognized expense relating to this liability of $9 and $10, for the nine month periods ended October 1, 2016 and September 26, 2015, respectively. Phantom stock units vest over a period of three years.

The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a nonrecurring basis during the period ended October 1, 2016.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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