Fair Value Of Financial Instruments

6 Months Ended

Jul. 16, 2011

Fair Value Of Financial Instruments

Fair Value Of Financial Instruments

6. 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 distributors' territories by independent distributors. These notes receivable are recorded in the consolidated balance sheet at carrying value which represents the closest approximation of fair value. In accordance with GAAP, 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 distributor notes is the prevailing market rate at which similar loans would be made to distributors with similar credit ratings and for the same maturities. However, the company finances approximately 2,775 independent distributors all with varied financial histories and credit risks. Considering the diversity of credit risks among the independent distributors, the company has no method to accurately determine a market interest rate to apply to the notes. A portion of the territories are generally financed over ten years bearing an interest rate of 12% and the distributor notes are collateralized by the independent distributors' territories. A portion of the notes are financed bearing an interest rate of the Treasury or LIBOR yield plus a spread. The fair value of the company's long-term debt at July 16, 2011 approximates the carrying value. For fair value disclosures information about our derivative assets and liabilities see Note 7, Derivative Financial Instruments.

Interest income for the distributor notes receivable was as follows (amounts in thousands):

	Interest Income
For the twelve weeks ended July 16, 2011	$	2,968
For the twelve weeks ended July 17, 2010	$	2,940
For the twenty-eight weeks ended July 16, 2011	$	6,879
For the twenty-eight weeks ended July 17, 2010	$	6,855

At July 16, 2011 and January 1, 2011, respectively, the carrying value of the distributor notes was as follows (amounts in thousands):

	July 16, 2011		January 1, 2011
Distributor notes receivable	$	114,865	$	105,396
Current portion of distributor notes receivable recorded in accounts and notes receivable, net		14,302		12,536
Long-term portion of distributor notes receivable	$	100,563	$	92,860

At July 16, 2011 and January 1, 2011, the company has evaluated the collectability of the distributor notes and determined that a reserve is not necessary. Payments on these distributor notes are collected by the company weekly in the distributor settlement process.