Fair Value Measurements

3 Months Ended

Aug. 27, 2016

7. Fair Value Measurements

The Company is required to categorize both financial and nonfinancial assets and liabilities based on the following fair value hierarchy. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable, and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor.

Level 1 - Quoted prices in active markets for identical assets or liabilities

Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3 - Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities

The disclosure of fair value of certain financial assets and liabilities that are recorded at cost are as follows:

Cash and cash equivalents: The carrying amount approximates fair value due to the short maturity of these instruments.

Long-term debt: The carrying value of the Company’s long-term debt is at its stated value. We have not elected to carry our long-term debt at fair value. Fair values for debt are based on quoted market prices or published forward interest rate curves, which are level 2 inputs. Estimated fair values are management’s estimate, which is a level 3 input; however, when there is no readily available market data, the estimated fair values may not represent the amounts that could be realized in a current transaction, and the fair values could change significantly. The fair value and carrying value of the Company’s borrowings under its long-term debt were as follows (in thousands):



	August 27, 2016				May 28, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
5.4% – 6.4% Notes payable	$	24,040	$	24,192	$	25,570	$	25,824
	$	24,040	$	24,192	$	25,570	$	25,824

Assets and Liabilities Measured at Fair Value on a Recurring Basis

In accordance with the fair value hierarchy described above, the following table shows the fair value of financial assets and liabilities measured at fair value on a recurring basis as of August 27, 2016 and May 28, 2016 (in thousands):



							Total
August 27, 2016	Level 1		Level 2		Level 3		Balance
Assets
US government and agency obligations	$	-	$	18,596	$	-	$	18,596
Municipal bonds		-		68,049		-		68,049
Corporate bonds		-		168,421		-		168,421
Foreign government obligations		-		2,035		-		2,035
Asset backed securities		-		12,101		-		12,101
Mutual funds		2,011		-		-		2,011
Total assets measured at fair value	$	2,011	$	269,202	$	-	$	271,213



							Total
May 28, 2016	Level 1		Level 2		Level 3		Balance
Assets
US government and agency obligations	$	-	$	18,814	$	-	$	18,814
Municipal bonds		-		79,643		-		79,643
Corporate bonds		-		240,537		-		240,537
Foreign government obligations		-		2,046		-		2,046
Asset backed securities		-		15,893		-		15,893
Mutual funds		5,503		-		-		5,503
Total assets measured at fair value	$	5,503	$	356,933	$	-	$	362,436

Investment securities – available-for-sale, classified as level 2, consist of U.S. government and agency obligations, taxable and tax exempt municipal bonds, zero coupon municipal bonds, foreign government obligations, asset backed securities and corporate bonds with maturities of three months or longer when purchased. We classify these securities as current, because amounts invested are available for current operations. Observable inputs for these securities are yields, credit risks, default rates, and volatility.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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