Fair Value Measurements

3 Months Ended

Jul. 27, 2013

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy contains three levels as follows:

· Level 1 — Inputs to the valuation based upon quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.

· Level 2 — Inputs to the valuation include quoted prices in either markets that are not active, or in active markets for similar assets or liabilities, inputs other than quoted prices that are observable, and inputs that are derived principally from or corroborated by observable market data.

· Level 3 — Inputs to the valuation that are unobservable inputs for the asset or liability.

The Company’s financial assets measured at fair value on a recurring basis at July 27, 2013, were as follows (in thousands):

	Fair Value Measurement Using
Description	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Auction rate securities	$	—	$	—	$	5,444	$	5,444
Convertible bonds	—		2,781		2,886		5,667
Total	$	—	$	2,781	$	8,330	$	11,111

Due to the auction failures of the Company’s auction rate securities that began in the fourth quarter of fiscal 2008, there are still no quoted prices in active markets for identical assets as of July 27, 2013.  Therefore, the Company has classified its auction rate securities as Level 3 financial assets.  The following table provides a reconciliation between the beginning and ending balances of items measured at fair value on a recurring basis in the table above that used significant unobservable inputs (Level 3) (in thousands):

	Fair ValueMeasurements UsingSignificantUnobservable Inputs(Level 3)
Description	Auction Rate Securities
Balance at April 30, 2013	$	8,585
Transfers to Level 3	—
Total gains (realized or unrealized)
Included in earnings	—
Included in other comprehensive loss	(80		)
Purchases, issuances and settlements, net	(175		)
Balance at July 27, 2013	$	8,330
The amount of total gains or (losses) for the period included in earnings (or change in net assets) attributable to the change in unrealized gains or losses relating to assets still held at July 27, 2013	$	—

The auction rate securities are valued using a discounted cash flow model.  The analysis considers, among other items, the collateralization underlying the security investments, the creditworthiness of the counterparty, the timing of expected future cash flows, and the estimated date upon which the security is expected to have a successful auction.  As of July 27, 2013, the inputs used in the Company’s discounted cash flow analysis included current coupon rates ranging from 0.1% to 0.4%, estimated redemption periods of 6 to 21 years and discount rates of 8.4% to 20.5%. The discount rates were based on market rates for municipal bond securities, as adjusted for a risk premium to reflect the lack of liquidity of these investments.

The bond components of the convertible bonds are considered level 3 assets and are valued using a discounted cash flow model. The analysis considers, among other items, the creditworthiness of the counterparty, the timing of expected future cash flows, and the maturity of the bonds. As of July 27, 2013, the inputs used in the Company’s discounted cash flow analysis included a coupon rate of 5.0%, estimated redemption period of five years and a discount rate of 6.7%.

The embedded conversion features of the convertible bonds are considered level 2 assets and are valued using a binomial option pricing model, which uses inputs such as CybAero’s stock price, conversion price, volatility and risk-free interest rate.