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Fair Value of Financial Instruments
12 Months Ended
Dec. 30, 2017
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

 

 

Note 16.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents, accounts receivable, and short-term debt approximates fair value because of the short-term maturity of the instruments. Notes receivable are entered into in connection with the purchase of distribution rights by IDPs. These notes receivable are recorded in the Consolidated Balance Sheet at carrying value, which represents the closest approximation of fair value. Fair value is defined as 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. As a result, the appropriate interest rate that should be used to estimate the fair value of the distribution rights notes is the prevailing market rate at which similar loans would be made to IDPs with similar credit ratings and for the same maturities. However, the company financed approximately 4,000 and 3,600 IDPs’ distribution rights as of December 30, 2017 and December 31, 2016, respectively, all with varied financial histories and credit risks. Considering the diversity of credit risks among the IDPs, the company has no method to accurately determine a market interest rate to apply to the notes. The distribution rights are generally financed for up to ten years and the distribution rights notes are collateralized by the IDPs’ distribution rights. The company maintains a wholly-owned subsidiary to assist in financing the distribution rights purchase activities if requested by new IDPs, using the distribution rights and certain associated assets as collateral. These notes receivable earn interest at a fixed rate.

At December 30, 2017 and December 31, 2016, respectively, the carrying value of the distribution rights notes receivable was as follows (amounts in thousands):

 

 

 

December 30, 2017

 

 

December 31, 2016

 

Distribution rights notes receivable

 

$

211,702

 

 

$

175,984

 

Current portion recorded in accounts and

   notes receivable, net

 

 

23,965

 

 

 

21,060

 

Long-term portion of distribution rights

   notes receivable

 

$

187,737

 

 

$

154,924

 

 

 

At December 30, 2017 and December 31, 2016, the company has evaluated the collectability of the distribution rights notes receivable and determined that a reserve is not necessary. Payments on these notes are collected by the company weekly in conjunction with the IDP settlement process.

The fair value of the company’s variable rate debt at December 30, 2017 approximates the recorded value. The fair value of the company’s notes, as discussed in Note 14, Debt, Lease and Other Commitments, are estimated using yields obtained from independent pricing sources for similar types of borrowing arrangements and are considered a Level 2 valuation.  The fair value of the notes are presented in the table below (amounts in thousands, except level classification):

 

 

 

Carrying Value

 

 

Fair Value

 

 

Level

2026 notes

 

$

394,978

 

 

$

395,648

 

 

2

2022 notes

 

$

397,941

 

 

$

425,232

 

 

2

 

For fair value disclosure information about our derivative assets and liabilities see Note 11, Derivative Financial Instruments. For fair value disclosure information about our pension plan net assets see Note 21, Postretirement Plans.