Note 19: Fair Value Measurements

Accounting standards require that we put financial assets and liabilities into one of three categories based on the inputs we use to value them:

Level 1 — Financial assets and liabilities the values of which are based on unadjusted quoted market prices for identical assets and liabilities in an active market that we have the ability to access.

Level 2 — Financial assets and liabilities the values of which are based on quoted prices in markets that are not active or on model inputs that are observable for substantially the full term of the asset or liability.

Level 3 — Financial assets and liabilities the values of which are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

Accounting standards require that in making fair value measurements, we use observable market data when available. When inputs used to measure fair value fall within different levels of the hierarchy, we categorize the fair value measurement as being in the lowest level that is significant to the measurement. We recognize transfers between levels of the fair value hierarchy at the end of the reporting period in which they occur.

In addition to assets and liabilities that we record at fair value on a recurring basis, we are required to record assets and liabilities at fair value on a non-recurring basis. We measure non-financial assets such as trade names, goodwill, and other long-lived assets at fair value when there is an indicator of impairment, and we record them at fair value only when we recognize an impairment loss.

The following table presents the fair value hierarchy for those assets we measured at fair value on a recurring basis at April 28, 2018, and April 29, 2017:

Fiscal 2018

	Fair Value Measurements
(Amounts in thousands)	Level 1 (a)		Level 2 (a)		Level 3(b)
Assets
Available-for-sale investments	$	1,141	$	37,079	$	—
Trading securities	—		94		—
Held-to-maturity investments	3,340		—		—
Cost basis investment	—		—		10,954

Total assets	$	4,481	$	37,173	$	10,954


Liabilities
Contingent consideration liability	$	—	$	—	$	344

(a)

There were no transfers between Level 1 and Level 2 during fiscal 2018.

(b)

There were no transfers into or out of Level 3 during fiscal 2018.

Fiscal 2017

	Fair Value Measurements
(Amounts in thousands)	Level 1 (c)		Level 2 (c)		Level 3(d)
Assets
Available-for-sale investments	$	1,217	$	36,638	$	1,400
Trading securities	—		6		—
Held-to-maturity investments	1,866		—		—
Cost basis investment	—		—		5,500

Total assets	$	3,083	$	36,644	$	6,900


Liabilities
Contingent consideration liability	$	—	$	—	$	1,248

(c)There were no transfers between Level 1 and Level 2 during fiscal 2017.

(d)There were no transfers into or out of Level 3 during fiscal 2017.

At April 28, 2018, and April 29, 2017, we held available-for-sale marketable securities intended to enhance returns on our cash and to fund future obligations of our non-qualified defined benefit retirement plan, as well as trading securities to fund future obligations of our executive deferred compensation plan and our performance compensation retirement plan. We also held other fixed income and cost basis investments.

The fair value measurements for our Level 1 and Level 2 securities are based on quoted prices in active markets, as well as through broker quotes and independent valuation providers, multiplied by the number of shares owned exclusive of any transaction costs. At April 28, 2018, our Level 3 investments included preferred shares of two privately-held companies, and a warrant to purchase common shares of one of these privately-held companies. We initially valued our Level 3 investments at their cost basis as of the date of purchase, because the cost basis was the best estimate of their fair value on the date of acquisition. During fiscal 2017, we recorded a $0.7 million unrealized gain in other comprehensive income related to a change in the fair value of the available-for-sale convertible debt security, using the present value of probability-weighted future cash flows to measure the security’s fair value. The quantitative unobservable inputs used when measuring the available-for-sale convertible debt security to fair value were a discount rate of 30%, along with an assumed conversion price per share provided by a third-party valuation firm and management’s assessment of the likelihood of different scenarios occurring, including the debt security maturing in the normal course or converting to preferred shares. During fiscal 2018, the available-for-sale convertible debt security converted to $3.0 million of cost-basis preferred shares of a privately-held company, and we recorded a gain of $2.2 million in other income (expense), net in our consolidated statement of income related to the conversion. We also invested another $2.5 million in the same privately-held company during fiscal 2018. The new cost basis of the preferred shares acquired in this transaction is $5.5 million. We calculated the gain we recorded upon conversion of the available-for-sale convertible debt security into preferred shares of a privately-held company by using the fair value of the preferred shares realized upon conversion, less the original cost basis of the available-for-sale convertible debt security. The fair value of the preferred shares was based on a pre-money valuation of the privately-held company, as calculated by a third party as of the conversion date. Our Level 3 liability is a contingent consideration liability, and we estimate the fair value of this liability based on the present value of the probability-weighted future cash flows, which are unobservable inputs that are not supported by market activity. During fiscal 2018, we reversed a portion of the contingent consideration liability, and recorded the benefit as a component of selling, general, and administrative expense in our consolidated statement of income, because we determined it was not probable that a portion of the contingent consideration would be earned.

The following table is a reconciliation of our Level 3 assets and liabilities recorded at fair value using significant unobservable inputs:

(Amounts in thousands)	Level 3
Assets
Balance at April 29, 2017	$	6,900
Purchases	2,500
Realized gain	2,204
Unrealized gain reclassified to net income	(650		)

Balance at April 28, 2018	$	10,954


Liabilities
Balance at April 29, 2017	$	1,248
Fair value adjustment	(963		)
Translation adjustment	59

Balance at April 28, 2018	$	344

Our asset leveling presented above does not include certain available-for-sale investments that are measured at fair value using net asset value per share under the practical expedient methodology. These investments are still included in the total fair value column of the table in our investment footnote (see Note 7). The fair value of the investments measured using net asset value at April 28, 2018, and April 29, 2017, was $6.7 million and $7.1 million, respectively.