Fair Value Measures

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 supported by little or no market activity and are significant to the fair value of the assets or liabilities.

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

Cash and cash equivalents, accounts receivable, and accounts payable: 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 estimates, 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 of the Company’s debt is sensitive to changes in the general level of U.S. interest rates. The Company maintains all of its debt as fixed rate in nature to mitigate the impact of fluctuations in interest rates. Under its current policies, the Company does not use interest rate derivative instruments to manage its exposure to interest rate changes. A one percent (1%) adverse move (i.e. decrease) in interest rates would adversely affect the net fair value of the Company’s debt by $144,000 at June 3, 2017. The fair value and carrying value of the Company’s long-term debt were as follows (in thousands):

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	June 3, 2017				May 28, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
5.40 – 6.40% Notes payable	$	9,250	$	9,295	$	25,570	$	25,824
Long-term leases	1,689		1,520		—		—
	$	10,939	$	10,815	$	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 our financial assets and liabilities that are required to be measured at fair value on a recurring basis as of June 3, 2017 and May 28, 2016 (in thousands):

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	June 3, 2017
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Balance
Assets
US government and agency obligations	$	—	$	20,216	$	—	$	20,216
Municipal bonds	—		36,873		—		36,873
Corporate bonds	—		75,790		—		75,790
Asset backed securities	—		5,583		—		5,583
Mutual funds	2,459		—		—		2,459
Total assets measured at fair value	$	2,459	$	138,462	$	—	$	140,921



	May 28, 2016
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs		Total
	(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

Our 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, asset-backed securities, foreign government obligations, and corporate bonds with maturities of three months or longer when purchased. We classified 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.

The Company applies fair value accounting guidance to measure non-financial assets and liabilities associated with business acquisitions. These assets and liabilities are measured at fair value for the initial purchase price allocation and are subject to recurring revaluations. The fair value of non-financial assets acquired is determined internally. Our internal valuation methodology for non-financial assets takes into account the remaining estimated life of the assets acquired and what management believes is the market value for those assets.