Fair Value

3 Months Ended

Jun. 29, 2013

Fair Value [Abstract]

Fair Value

Note 2 – Fair Value

The Company measures its cash equivalents, short-term investments and long-term investments at fair value. Fair value is defined as the price that would be received from selling an asset and paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

A three-tiered fair value hierarchy has been established as the basis for considering the above assumptions and determining the inputs used in the valuation methodologies in measuring fair values.  The three levels of inputs are defined as follows:

Level 1 – Unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2 – Observable inputs such as quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in inactive markets.

Level 3 – Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the factors that market participants would use.

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs. If a financial instrument uses an input that is significant to the fair value calculation, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation.  The Company’s financial assets and liabilities measured at fair value on a recurring basis include cash equivalents and investment securities, both short-term and long-term.

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair value due to their short maturities.

The Company’s money market investments, certificates of deposit purchased directly from the bank, and Non-Qualified Deferred Compensation Plan ("NQDCP") assets and liabilities are valued using Level 1 inputs. Fixed income available-for-sale portfolio, mainly consisting of municipal bonds, corporate bonds, commercial paper and certificates of deposits bought in the secondary market, are valued using Level 2 inputs.

The Company’s long-term investment is an auction rate security (“ARS”) which is collateralized by student loans. The credit rating of the ARS with a par value of $2,100,000 was downgraded from AAA to AAA with a negative outlook by Fitch in May 2013, however, it remains investment grade quality. Therefore, the Company has concluded that the decline of $200,000 in fair value of this ARS investment as of June 29, 2013 is temporary. The credit ratings of this ARS holding have not been downgraded subsequent to June 29, 2013.  Due to the lack of availability of observable market quotes for the Company’s investment of this ARS, the fair value was estimated based on a discounted cash flow model using Level 3 inputs. The assumptions used in the discounted cash flow model include estimates for interest rates, timing and amounts of cash flows, liquidity of the underlying security, expected holding periods, and contractual terms of the security. In light of the current market condition for ARS, the Company developed different scenarios for the significant inputs used in the discounted cash flow model, including but not limited to a liquidity discount of 125 and 150 basis points per year for the current ARS market, and the timing of recovery of the ARS market from three to five years.  The Company concluded that the fair value of its ARS, which was classified as a  level 3 asset, was $1,900,000 as of June 29, 2013 net of a temporary impairment of $200,000 to par value.

The Company also considered the quality, amount of collateral, and US government guarantee for the ARS and looked to other marketplace transactions and information received from third party brokers in order to assess whether the fair value based on the discounted cash flow model is reasonable. The valuation of the Company’s investment portfolio is subject to uncertainties that are difficult to predict. Factors that may affect the Company’s valuation include changes to credit ratings of the security as well as the underlying assets supporting that security, rates of default of the underlying assets, underlying collateral values, discount rates, counterparty risk and ongoing strength, and quality of market credit and liquidity. Significant inputs to the investment valuation are unobservable in the active markets and therefore the Company’s ARS is classified as Level 3 in the hierarchy.

The following tables summarize assets and liabilities measured at fair value on a recurring basis as of June 29, 2013 and March 30, 2013, excluding accrued interest (in thousands):

	June 29, 2013
	Fair value measurements
Assets	Level 1			Level 2		Level 3		Total
Money market funds	$	25,729	(1)	$	-	$	-	$	25,729
Municipal bonds		-			82,398		-		82,398
Corporate bonds		-			26,394		-		26,394
Certificates of deposits		5,075			1,406		-		6,481
Commercial paper		-			1,498		-		1,498
Equity mutual funds related to NQDCP		9,685			-		-		9,685
Long-term investments in ARS		-			-		1,900		1,900
Total assets at fair value	$	40,489		$	111,696	$	1,900	$	154,085
Liabilities
Obligation related to NQDCP	$	9,685		$	-	$	-	$	9,685
	March 30, 2013
	Fair value measurements
Assets	Level 1			Level 2		Level 3		Total
Money market funds	$	13,476	(1)	$	-	$	-	$	13,476
Municipal bonds		-			58,658		-		58,658
Corporate bonds		-			25,825		-		25,825
Government agency bonds		-			16,187		-		16,187
Certificate of deposits		3,459			4,300		-		7,759
Commercial Papers					5,745				5,745
Equity mutual funds related to NQDCP		9,673			-		-		9,673
Long-term investments in ARS		-			-		13,800		13,800
Total assets at fair value	$	26,608		$	110,715	$	13,800	$	151,123
Liabilities
Obligation related to NQDCP	$	9,673		$	-	$	-	$	9,673

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(1) Money market funds of $25,729,000 and $13,476,000 were classified as cash equivalents as of June 29, 2013 and March 30, 2013, respectively.

There were no significant transfers between Level 1, Level 2 and Level 3 during the three months ended June 29, 2013 or June 30, 2012. The following table includes the activity for Auction Rate Securities that are classified as Level 3 of the valuation hierarchy (in thousands):

	Three Months Ended
	June 29,		June 30,
	2013		2012
Beginning balance of ARS classified as Level 3	$	13,800	$	25,900
Redemption of investments in ARS at par		(12,950)		(12,750)
Reversals of unrealized losses due to redemptions		970		250
Change in fair value of existing ARS		80		200
Ending balance of ARS classified as Level 3	$	1,900	$	13,600

The Company transfers investments into and out of levels within the fair value hierarchy based on a change in circumstances at the end of the fiscal month.

During the three months ended June 29, 2013, the Company received $12,950,000 in proceeds for the redemptions at par value of the ARS with a carrying value at the time of $11,900,000. See Note 3 for further discussion of the Company’s ARS.