Fair Value Measurements

6 Months Ended

Jun. 30, 2022

Note 9—Fair Value Measurements

The Company’s current assets and current liabilities are financial instruments and most of these items (other than marketable securities, inventories and the short-term portion of deferred compensation funding) are recorded at cost in the Consolidated Balance Sheets. The estimated fair value of these financial instruments approximates their carrying value due to their short-term nature. The carrying value of the Company’s line of credit represents the outstanding amount of the borrowings, which approximates fair value. The Company’s financial assets that are measured at fair value on a recurring basis are its marketable securities and deferred compensation funding. The recorded values of all of the financial instruments approximate their current fair values because of their nature, stated interest rates and respective maturity dates or durations.

The Company’s marketable securities are held by the Company’s captive insurance company to satisfy capital requirements of the state regulator related to captive insurance companies. Such securities primarily consist of tax-exempt municipal bonds, which are classified as available-for-sale and are reported at fair value. Unrealized gains and losses associated with these investments are included “Unrealized loss on available-for-sale marketable securities, net of taxes” within the Consolidated Statements of Comprehensive Income. The fair value of these marketable securities is classified within Level 2 of the fair value hierarchy, as these securities are measured using quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable. Such valuations are determined by a third-party pricing service. For the three and six months ended June 30, 2022, the Company recorded unrealized losses, net of taxes of $1.9 million and $7.2 million on marketable securities, respectively. For the three and six months ended June 30, 2021, the Company recorded unrealized gains, net of taxes of $0.7 million and unrealized losses, net of taxes of $0.6 million on marketable securities, respectively.

As part of the Company’s completed acquisition of a manufacturer of prepackaged meals in 2021, the Company used an analysis of the discounted weighted-average cost of capital attributable to the acquired company’s revenue (an income approach) to value the contingent consideration liability. The inputs utilized in estimating the fair value of the contingent consideration have been classified as Level 3 in the fair value hierarchy levels and are subject to risk and uncertainty in accordance with FASB Accounting Standards Codification subtopic ASC 820 Fair Value Measurement (“ASC 820”). The discounted weighted-average cost of capital attributable to the acquired company’s revenue analysis is dependent on several subjective factors including future earnings, volatility and the discount rate. If assumptions vary from what was expected, the fair value of the contingent consideration liability may materially change. As of June 30, 2022 and December 31, 2021, the fair value of the contingent consideration liability was $2.9 million and $4.8 million, respectively, and were presented in “Other long-term liabilities” on the Company’s Consolidated Balance Sheets. For the three and six months ended June 30, 2022, the Company recorded gains of $0.2 million and $1.9 million, respectively, from the fair value adjustment in the Consolidated Statements of Comprehensive Income. No such gain or loss was recorded during the three and six months ended June 30, 2021.

For the three months ended June 30, 2022 and 2021, the Company received total proceeds, less the amount of interest received, of $8.0 million and $7.0 million, respectively, from sales of available-for-sale municipal bonds. For the three months ended June 30, 2022 and 2021, these sales resulted in realized losses of less than $0.1 million and realized gains of $0.3 million, respectively. For the six months ended June 30, 2022 and 2021, the Company received total proceeds, less the amount of interest received, of $9.5 million and $12.0 million, respectively, from sales of available-for-sale municipal bonds. For the six months ended June 30, 2022 and 2021, these sales resulted in realized losses of less than $0.1 million and realized gains of $0.2 million, respectively, which were recorded in “Other income – Investment and other income, net” in the Consolidated Statements of Comprehensive Income. The basis for the sale of these securities was the specific identification of each bond sold during the period.

The investments under the funded deferred compensation plan are classified as trading securities and unrealized gains or losses are recorded in “Selling, general and administrative expense” in the Consolidated Statements of Comprehensive Income. The fair value of these investments are determined based on quoted market prices (Level 1). For the three months ended June 30, 2022 and 2021, the Company recognized unrealized losses of $6.5 million and unrealized gains of $2.9 million, respectively, related to equity securities still held at the respective reporting dates. For the six months ended June 30, 2022 and 2021, the Company recognized unrealized losses of $10.6 million and unrealized gains of $4.1 million, respectively, related to equity securities still held at the respective reporting dates.

The following tables provide fair value measurement information for the Company’s marketable securities and deferred compensation fund investments as of June 30, 2022 and December 31, 2021:


	As of June 30, 2022
					Fair Value Measurement Using:
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale	$	97,488	$	97,488	$	—	$	97,488	$	—
Deferred compensation fund
Money Market1	$	2,088	$	2,088	$	—	$	2,088	$	—
Balanced and Lifestyle	10,484		10,484		10,484		—		—
Large Cap Growth	12,860		12,860		12,860		—		—
Small Cap Growth	3,890		3,890		3,890		—		—
Fixed Income	3,777		3,777		3,777		—		—
International	1,335		1,335		1,335		—		—
Mid Cap Growth	2,581		2,581		2,581		—		—
Deferred compensation fund2	$	37,014	$	37,014	$	34,926	$	2,088	$	—


	As of December 31, 2021
					Fair Value Measurement Using:
	Carrying Amount		Total Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Financial Assets:
Marketable securities
Municipal bonds — available-for-sale	$	114,396	$	114,396	$	—	$	114,396	$	—
Deferred compensation fund
Money Market1	$	2,882	$	2,882	$	—	$	2,882	$	—
Balanced and Lifestyle	12,578		12,578		12,578		—		—
Large Cap Growth	20,358		20,358		20,358		—		—
Small Cap Growth	6,561		6,561		6,561		—		—
Fixed Income	4,826		4,826		4,826		—		—
International	2,299		2,299		2,299		—
Mid Cap Growth	4,179		4,179		4,179		—		—
Deferred compensation fund2	$	53,683	$	53,683	$	50,801	$	2,882	$	—

1.The fair value of the money market fund is based on the net asset value (“NAV”) of the shares held by the plan at the end of the period. The money market fund includes short-term United States dollar denominated money market instruments and the NAV is determined by the custodian of the fund. The money market fund can be redeemed at its NAV at the measurement date as there are no significant restrictions on the ability to sell this investment.

2.As of June 30, 2022 and December 31, 2021, $4.7 million and $7.0 million of short-term deferred compensation funding is included in “Prepaid expenses and other assets” on the Company's Consolidated Balance Sheets, respectively. Such amounts of short-term deferred compensation funding represent investments expected to be liquidated and paid to former employees within 12 months of employment termination.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Credit Impairment Losses1
	(in thousands)
June 30, 2022
Type of security:
Municipal bonds — available-for-sale	$	101,556	$	258	$	(4,326)	$	97,488	$	—
Total debt securities	$	101,556	$	258	$	(4,326)	$	97,488	$	—

December 31, 2021
Type of security:
Municipal bonds — available-for-sale	$	109,331	$	5,219	$	(154)	$	114,396	$	—
Total debt securities	$	109,331	$	5,219	$	(154)	$	114,396	$	—

1.The Company performs a quarterly credit impairment loss assessment quarterly on an individual security basis. As of June 30, 2022 and December 31, 2021, no allowance for credit loss impairment has been recognized as the issuers of these securities have not established a cause for default and various rating agencies have reaffirmed each security's investment grade status. The fair value of these securities have fluctuated since the purchase date as market interest rates fluctuate. The Company does not intend to sell these securities and it is more likely than not that the Company will not be required to sell before the recovery of the securities' amortized cost basis.

The following table summarizes the contractual maturities of debt securities held at June 30, 2022 and December 31, 2021, which are classified as “Marketable securities, at fair value” in the Consolidated Balance Sheets:


	Municipal Bonds — Available-for-Sale
Contractual maturity:	June 30, 2022		December 31, 2021
	(in thousands)
Maturing in one year or less	$	2,962	$	5,606
Maturing in second year through fifth year	28,699		23,054
Maturing in sixth year through tenth year	37,768		52,180
Maturing after ten years	28,059		33,556
Total debt securities	$	97,488	$	114,396