Fair Value of Financial Instruments |
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Fair Value of Financial Instruments |
9. Fair
Value of Financial Instruments
ASC
Topic 820 establishes a fair value hierarchy that distinguishes
between assumptions based on market data (observable inputs) and
the company’s assumptions (unobservable inputs). Determining
where an asset or liability falls within that hierarchy depends on
the lowest level input that is significant to the fair value
measurement as a whole. An adjustment to the pricing method used
within either level 1 or level 2 inputs could generate a fair value
measurement that effectively falls in a lower level in the
hierarchy. The hierarchy consists of three broad levels as
follows:
Level
1 – Quoted market prices in active markets for identical
assets or liabilities;
Level
2 – Inputs other than level 1 inputs that are either directly
or indirectly observable, and
Level
3 – Unobservable inputs developed using the company’s
estimates and assumptions, which reflect those that market
participants would use.
Recurring Basis
The
following table presents information about assets and liabilities
measured at fair value on a recurring basis:
The
determination of where an asset or liability falls in the hierarchy
requires significant judgment. We evaluate our hierarchy
disclosures each quarter based on various factors and it is
possible that an asset or liability may be classified differently
from quarter to quarter. However, we expect that changes in
classifications between different levels will be rare.
Our
short-term investments include short-term bond funds and deposit
accounts that have a maturity of more than three months, are
classified as available-for-sale, and their unrealized gains or
losses are included in other comprehensive income (loss). Our
short-term bond funds were recorded at their fair value of $6.3
million, $6.3 million and $10.0 million at November 1, 2015,
November 2, 2014, and May 3, 2015, respectively. Our short-term
bond funds had an accumulated unrealized loss totaling
$171,000, $88,000,
and $95,000 at November 1, 2015, November 2, 2014, and May 3, 2015,
respectively. At November
1, 2015, November 2, 2014, and May 3, 2015, the fair value of our
short-term bond funds approximated its cost basis.
Effective,
January 1, 2014, we established a Rabbi Trust to set aside funds
for participants of our deferred compensation plan (the
“Plan”) and enable the participants to credit their
contributions to various investment options of the Plan. The
investments associated with the Rabbi Trust consist of a money
market fund and various mutual funds that are classified as
available for sale. Our long-term investments are recorded at its
fair value of $3.3 million, $1.9 million, and $2.4 million at
November 1, 2015, November 2, 2014, and May 3, 2015, respectively.
Our long-term investments had an accumulated unrealized gain of
$14,000 at November 1, 2015. At November 2, 2014 and May 3, 2015,
our accumulated gains or losses regarding our long-term investments
were immaterial. The fair value of our long-term investments
approximates its cost basis.
The
carrying amount of cash and cash equivalents, accounts receivable,
other current assets, accounts payable, and accrued expenses
approximates fair value because of the short maturity of these
financial instruments.
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